As filed with the Securities and Exchange Commission on August 13, 1998
Registration No. 333-
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GLIMCHER REALTY TRUST
(Exact name of registrant as specified in its declaration of trust)
Maryland 31-1390518
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
20 South Third Street
Columbus, Ohio 43215
(614) 621-9000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Herbert Glimcher
Glimcher Realty Trust
20 South Third Street
Columbus, Ohio 43215
(614) 621-9000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------
Copies to:
Alan S. Pearce, Esq.
Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
----------------
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
=============================================================================
Title of Proposed
Each Class Proposed Maximum
of Secur- Amount Maximum Aggregate Amount of
ities to be to be Offering Price Offering Registration
Registered (1) Registered Per Share (1) Price (1) Fee
- -------------- ----------- -------------- ------------ ------------
Common
Shares of
Beneficial
Interest,
$.01 par
value per
share 2,992,172 $17.84375 $53,391,569.12 $16,180
=============================================================================
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
(1) This estimate is based on the average of the high and low sales prices
on the New York Stock Exchange, Inc. of the Common Shares of Beneficial
Interest, par value $.01 per share, of Glimcher Realty Trust on August 11,
1998, pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
and is made solely for purposes of determining the registration fee.
<PAGE>
- -----------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
- -----------------------------------------------------------------------------
PROSPECTUS
- ----------
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 13, 1998
2,992,172 Shares
GLIMCHER REALTY TRUST
Common Shares of Beneficial Interest
Glimcher Realty Trust (collectively, with all entities in which it has a
direct or indirect ownership interest, the "Company") is a fully-integrated,
self-administered and self-managed real estate investment trust ("REIT"),
which owns, leases, manages and develops a portfolio of retail properties
consisting of regional and super regional malls (including, most recently,
value-oriented super regional malls) and community shopping centers
(including single tenant retail properties). The Company currently owns
interests in and operates 122 retail properties, consisting of 19 regional
malls and 103 community centers (including 17 single tenant retail
properties) (collectively, the "Properties"), located in 26 states. See "The
Company." The Company's common shares of beneficial interest, $.01 par value
per share (the "Common Shares"), are listed on the New York Stock Exchange,
Inc. ("NYSE") under the symbol "GRT."
This prospectus (the "Prospectus") relates to the possible offer and
sale from time to time of (i) up to 2,977,798 Common Shares (the "Exchanged
Shares") by certain holders thereof, if and to the extent that the Company
elects to issue such shares to certain holders (the "Unitholders") of up to
2,977,798 Units of limited partnership interest ("OP Units") in Glimcher
Properties Limited Partnership, a Delaware limited partnership (the
"Operating Partnership"), upon the redemption of OP Units and (ii) up to
14,374 restricted Common Shares (the "Restricted Shares") by certain holders
thereof (the "Restricted Shareholders" and, together with the Unitholders,
the "Selling Shareholders"). The OP Units were issued (i) in connection with
the initial public offering of the Company on January 19, 1994, (ii) in
connection with the acquisition of certain shopping centers and (iii) in
exchange for property contributed to the Operating Partnership on which it
intends to develop a shopping center. The Restricted Shares were issued in
connection with (i) the acquisition and development of a shopping center and
(ii) the employment of an executive officer of the Company.
Pursuant to the Limited Partnership Agreement, dated as of November 30,
1993, as amended, of the Operating Partnership, a Unitholder has the right to
cause the redemption of all or a portion of his OP Units. OP Units may be
redeemed (i) for cash by the Operating Partnership or (ii) by the Company, at
its option, by the issuance of an equivalent number of Common Shares. As a
result, the Company may from time to time issue up to 2,977,798 Exchanged
Shares upon the acquisition of OP Units tendered for redemption.
Accordingly, the Company is registering the Exchanged Shares for resale to
provide Unitholders with freely tradeable Common Shares upon redemption. See
"Redemption of Units."
The Company's Amended and Restated Declaration of Trust, as amended (the
"Declaration of Trust"), limits, with certain specific exceptions, the number
of shares of beneficial interest (the "Shares) that may be owned by any
single person or affiliated group to 8.0% of the lesser of the number or
value of the total outstanding Shares and restricts the transferability of
Shares if the purported transfer would prevent the Company from qualifying as
a REIT. See "Risk Factors--Potential Anti-Takeover Effect of Certain
Provisions of Maryland Law and of the Company's Declaration of Trust and
Bylaws and "Description of Common Shares--Restrictions on Transfer."
Each of the Selling Shareholders, directly or through agents or dealers,
may, from time to time, sell all or a portion of the Exchanged Shares or
Restricted Shares on terms to be determined at the time of sale. To the
extent required, the specific terms of a particular offer will be set forth
in an accompanying Prospectus Supplement. See "Plan of Distribution." Each
Selling Shareholder reserves the right to accept and, together with its
agents or dealers, to reject, in whole or in part, any proposed purchase of
Exchanged Shares or Restricted Shares.
The Company will not receive any proceeds from the sale of any Exchanged
Shares or Restricted Shares offered hereby. The Company will acquire
additional OP Units in the Operating Partnership in exchange for any
Exchanged Shares that the Company may issue to a Selling Shareholder. The
Company currently holds an approximate 88.8% interest in the Operating
Partnership.
See "Risk Factors" beginning on page 5 for certain factors relevant to
an investment in the Common Shares.
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 date of this Prospectus is _______, 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 in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). The reports,
proxy statements and other information filed by the Company with the
Commission in accordance with the Exchange Act can be inspected and copied at
the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the
Commission: Seven World Trade Center, 13th Floor, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Company's Common Shares are listed on the NYSE and
similar information concerning the Company can be inspected and copied at the
offices of The New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
The Company has filed with the Commission a registration statement (the
"Registration Statement") (of which this Prospectus is a part) under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Exchanged Shares. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or to previous filings made
by the Company with the Commission, each such statement being qualified in
all respects by such reference and the exhibits and schedules thereto. For
further information regarding the Company and the Exchanged Shares, reference
is hereby made to the Registration Statement, the previous filings made by
the Company with the Commission and the exhibits and schedules thereto, which
may be obtained from the Commission (i) at its principal office in
Washington, D.C., upon payment of the fees prescribed by the Commission or
(ii) by consulting the Commission's Web site at the address of
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and 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 1998 Proxy Statement for Annual Meeting of
Shareholders dated March 31, 1998.
3. The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998.
4. The Company's Form 8-K/A dated January 27, 1998, filed January
28, 1998.
5. The Company's Form 8-K dated and filed June 19, 1998.
6. The Company's Form 8-K dated November 14, 1997 and filed with
the Commission on November 15, 1997, including the Articles
Supplementary designating 5,520,000 shares of Series B
Cumulative Redeemable Preferred Shares of Beneficial Interest
and the Articles Supplementary designating 40,000 shares of
Series A-1 Convertible Redeemable Preferred Shares of
Beneficial Interest, each filed as an exhibit thereto.
7. The description of the Common Shares contained in the
Company's Registration Statement on Form 8-A, filed October
21, 1993, and the information thereby incorporated by
reference contained in the Company's Registration Statement on
Form S-11 (No. 33-69740), as amended by Amendments No. 1, 2,
3, 4 and 5, filed September 30, 1993, November 5, 1993,
November 22, 1993, November 30, 1993, January 10, 1994 and
January 19, 1994, respectively, under the heading "Description
of Shares of Beneficial Interest."
All reports and other documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the
date of this Prospectus and prior to the termination of the offering of the
Exchange Shares shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing such documents.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein 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,
except as so modified or superseded, to constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person to whom this Prospectus is delivered, upon
written or oral request. Requests should be directed to Glimcher Realty
Trust, Attention: Chief Financial Officer, 20 South Third Street, Columbus,
Ohio 43215 (Telephone Number: (614) 621-9000).
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus and the information incorporated by reference include
certain statements that may be deemed to be "forward-looking statements"
within the meaning of Section 27A of the Securities Act, and Section 21E of
the Exchange Act. All statements, other than statements of historical facts,
included in this Prospectus, in the Company's press releases and in oral
statements by authorized officers of the Company that address activities,
events or developments that the Company expects, believes or anticipates will
or may occur in the future, including such matters as future capital
expenditures, any distributions and any acquisitions (including the amount
and nature thereof), expansion and other development trends of the Company
and the real estate industry, business strategies, expansion and growth of
the Company's operations and other such matters are forward-looking
statements. Such statements are based on assumptions and expectations which
may not be realized and are inherently subject to risks and uncertainties,
many of which cannot be predicted with accuracy and some of which might not
even be anticipated. Prospective investors are cautioned that any such
statements are not guarantees of future performance and that actual results
or developments may differ materially from those anticipated in the
forward-looking statements. Risks and other factors that might cause
differences, some of which could be material, include, but are not limited
to: the effect of economic and market conditions; failure to consummate
financing and joint venture arrangements, including the failure of Nomura
Asset Capital Corporation, the Company's co-participant in several joint
ventures, to acquire additional convertible preferred shares or to provide
permanent financing; development risks, including lack of satisfactory
financing, construction and lease-up delays and cost overruns; the level and
volatility of interest rates; the financial stability of tenants within the
retail industry; the rate of revenue increases versus expense increases; and
the other risks set forth below.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial information appearing elsewhere in this Prospectus,
or incorporated herein by reference. Unless otherwise indicated, references
to the Company in this Prospectus shall be deemed to include Glimcher Realty
Trust, a Maryland real estate investment trust ("Glimcher Realty Trust"), and
Glimcher Properties Limited Partnership, a Delaware limited partnership (the
"Operating Partnership"), as well as all entities in which Glimcher Realty
Trust has a direct or indirect ownership interest. The term "Properties"
refers to the 122 retail properties in which the Company holds an interest as
of the date of this Prospectus, unless another date is specified, in which
case the term "Properties" shall refer to the retail properties in which the
Company holds an interest as of that date.
The Company
Glimcher Realty Trust is a fully integrated, self-administered and
self-managed Maryland real estate investment trust ("REIT"), which owns,
leases, manages and develops a portfolio of retail properties consisting of
regional and super regional malls (including, most recently, value-oriented
super regional malls) ("Mall Properties") and community shopping centers
(including single tenant retail properties) ("Community Centers"). As of
June 30, 1998, the Company owned interests in and operated 120 properties,
consisting of 17 Mall Properties and 103 Community Centers (including 17
single tenant retail properties (collectively, the "Properties") located in
25 states. As of June 30, 1998, the Properties contained an aggregate of
approximately 26.2 million square feet of gross leasable area ("GLA") and
were approximately 93% leased.
The Company is focused on achieving growth in multiple retail formats
which appeal to a wide range of consumers and to national and regional
tenants in selected markets throughout the United States. Through the
application of technology and the introduction of entertainment concepts, the
Company has developed new designs and formats for retail properties in order
to forge strong ties with a broad group of retailers and to appeal to a broad
cross section of consumers. The Company is committed to developing and
acquiring retail properties throughout the United States that individually,
or in combination with other properties owned by the Company, are capable of
becoming the dominant retail properties in their markets.
All of the Company's interests in the Properties are held by, and its
operations are conducted through the Operating Partnership, or by
partnerships, limited liability companies or other ventures in which the
Operating Partnership has a direct or indirect interest ("Subsidiary
Partnerships" and, together with the Operating Partnership, the
"Partnerships"). As of June 30, 1998, the Company owns approximately 88.8%
of the Operating Partnership's outstanding common units ("OP Units") of
partnership interest and all of the outstanding Series A-1 Preferred Units,
Series B Preferred Units and Series D Preferred Units, each as defined below,
in the Operating Partnership, and is, through its wholly owned subsidiary,
Glimcher Properties Corporation, the sole general partner of the Operating
Partnership.
The Company's executive offices are located at 20 South Third Street,
Columbus, Ohio 43215, and its telephone number is (614) 621-9000.
Risk Factors
Prospective investors should carefully consider the matters discussed
under "Risk Factors" before making an investment decision regarding the
common shares of beneficial interest, par value $.01 per share, of the
Company (the "Common Shares") offered hereby.
Tax Status of the Company
The Company has elected to be taxed as a REIT under Section 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing
with its taxable year ended December 31, 1994. As a REIT, the Company
generally will not be subject to federal income tax on net income that it
distributes to its shareholders as long as it distributes at least 95% of its
taxable income each year and complies with a number of organizational and
operational requirements. Failure to qualify as a REIT will render the
Company subject to tax (including any applicable minimum tax) on its taxable
income at regular corporate rates, and distributions to the shareholders in
any such year will not be deductible by the Company. Even if the Company
qualifies for taxation as a REIT, the Company may be subject to certain
federal, state and local taxes on its income and property. In connection
with the Company's election to be taxed as a REIT, the Company's Amended and
Restated Declaration of Trust, as amended (the "Declaration of Trust"),
imposes certain restrictions on the transfer of Common Shares. The Company
has adopted the calendar year as its taxable year.
Securities to be Offered
This Prospectus relates to the possible offer and sale from time to time
of (i) up to 2,977,798 Common Shares (the "Exchanged Shares") by certain
holders thereof if and to the extent that the Company elects to issue such
shares to certain holders (the "Unitholders") of up to 2,977,798 OP Units in
the Operating Partnership upon the redemption of OP Units and (ii) up to
14,374 restricted Common Shares (the "Restricted Shares") by certain holders
thereof (the "Restricted Shareholders," and, together with the Unitholders,
the "Selling Shareholders"). The OP Units were issued (i) in connection with
the initial public offering of the Company on January 19, 1994 (the "IPO"),
(ii) in connection with the acquisition of certain shopping centers and (iii)
in exchange for property contributed to the Operating Partnership on which it
intends to develop a shopping center. The Restricted Shares were issued in
connection with (i) the acquisition and development of a shopping center and
(ii) the employment of an executive officer of the Company.
Pursuant to the Limited Partnership Agreement, dated as of November 30,
1993, as amended (the "Partnership Agreement"), a Unitholder has the right to
cause the redemption of all or a portion of his OP Units. OP Units may be
redeemed (i) for cash by the Operating Partnership or (ii) by the Company, at
its option, by the issuance of an equivalent number of Common Shares. As a
result, the Company may from time to time issue up to 2,977,798 Exchanged
Shares upon the acquisition of OP Units tendered to the Operating Partnership
for redemption. Accordingly, the Company is registering the Exchanged Shares
for resale to provide Unitholders with freely tradeable Common Shares upon
redemption.
The Company will not receive any proceeds from the sale of any Exchanged
Shares or Restricted Shares offered hereby. The Company will acquire
additional OP Units in the Operating Partnership in exchange for any
Exchanged Shares that the Company may issue to a Selling Shareholder pursuant
to this Prospectus. As of June 30, 1998, the Company holds an approximate
88.8% interest in the Operating Partnership. With respect to certain Selling
Shareholders, the Company has agreed to bear certain expenses of registration
of the Exchanged Shares and Restricted Shares under federal and state
securities laws.
RISK FACTORS
An investment in the Common Shares offered hereby (the "Offering")
involves a high degree of risk. Prospective investors should consider
carefully the following factors, in addition to other information contained
in this Prospectus and incorporated herein by reference, in connection with
an investment in the Common Shares offered hereby.
Tax Consequences of Redemption of OP Units. In the event that the
Company exercises its right to acquire OP Units redeemed for Exchanged
Shares, the Company's acquisition of such OP Units will be treated for tax
purposes as a sale of the OP Units by the Unitholders. Such a sale will be
fully taxable to the Unitholder and the Unitholder will be treated as
realizing for tax purposes an amount equal to the value of the Exchanged
Shares received in the redemption plus the amount of any Operating
Partnership liabilities allocable to the redeemed OP Units at the time of the
redemption. It is possible that the amount of gain recognized or even the
tax liability resulting from such gain could exceed the value of other
property (i.e., Exchanged Shares) received upon such disposition. See
"Redemption of OP Units--Tax Consequences of Redemption." In addition, the
ability of the Unitholder to sell a substantial number of Exchanged Shares in
order to raise cash to pay tax liabilities associated with the redemption of
OP Units may be limited as a result of fluctuations in the market price of
the Common Shares, and the price the Unitholders receive for such shares may
not be equal to the value of their OP Units at the time of redemption.
In the event that the Company does not exercise its right to redeem OP
Units by the issuance of Exchanged Shares, and such OP Units are redeemed by
the Operating Partnership for cash, the tax consequences may differ. See
"Redemption of OP Units."
Potential Change in Investment Upon Redemption of OP Units. If a
Unitholder exercises its right to require the redemption of all or a portion
of its OP Units, the Unitholder may receive cash or, at the option of the
Company, Exchanged Shares in exchange for its OP Units. If the Unitholder
receives cash from the Operating Partnership, the Unitholder will not have
any interest in the Company or the Operating Partnership (except to the
extent that it retains OP Units) and will not benefit from any subsequent
increases in the value of Common Shares and will not receive any future
distributions from the Company or the Operating Partnership (unless the
Unitholder retains or acquires in the future additional Common Shares or OP
Units). If the Unitholder receives Common Shares, the Unitholder will become
a shareholder of the Company rather than a holder of OP Units in the
Operating Partnership. See "Redemption of OP Units--Comparison of Ownership
of OP Units and Common Shares."
Risk of Shares Available for Future Sale. The Company may issue Common
Shares in the future from time to time. No prediction can be made as to the
effect, if any, that future sales of Common Shares, or the availability of
Common Shares for future sale, will have on the market price prevailing from
time to time. Sales of substantial amounts of Common Shares, or the
perception that such sales could occur, may affect adversely prevailing
market prices of the Common Shares.
Risks Associated with the Recent Acquisition of Many of the Company's
Properties; Lack of Operating History. The Company is currently experiencing
a period of rapid growth. Thirty of the Properties were acquired in 1996,
1997 and 1998, respectively, and the Company is in various stages of
negotiations regarding the acquisition of additional properties. The Company
from time to time enters into non-binding letters of intent with respect to
certain of these properties. However, no assurance can be given that the
Company will be successful in acquiring any or all of such properties. These
recently acquired or soon to be acquired properties may have characteristics
or deficiencies unknown to the Company affecting their valuation or revenue
potential, and it is also possible that the operating performance of such
properties may decline under the Company's management. The Company's ability
to manage its growth effectively will require it to successfully integrate
its new acquisitions into its existing management structure. As the Company
acquires additional properties, the Company will be subject to risks
associated with managing new properties, including lease-up and tenant
retention. No assurances can be given that the Company will be able to
succeed with such integration or effectively manage additional properties or
that newly acquired properties will perform as expected.
Risks of Equity Real Estate Investments.
General Real Estate and Local Economic Conditions. Real property
investments are subject to varying degrees of risk. If the Company's
properties do not generate sufficient income to meet operating expenses,
including debt service, lease payments, capital expenditure requirements and
tenant improvements, the Company's ability to make distributions to its
shareholders will be adversely affected. Income from the Properties may be
adversely affected by the general economic climate, local economic
conditions, and other local conditions such as oversupply of space or a
reduction in demand for rental space and newly developed properties, the
attractiveness of the Properties to tenants, competition from other available
space, the ability of the Company to provide adequate maintenance, and
increased operating costs (including real estate taxes and insurance). Income
and real estate values may also be adversely affected by such factors as
applicable laws, including tax laws, interest rate levels and the
availability of financing. In addition, real estate investments are
relatively illiquid and, therefore, will tend to limit the ability of the
Company to vary its portfolio promptly in response to changes in economic or
other conditions. In certain areas of the country there may be an oversupply
of retail space. There can be no assurance that the Company will be able to
re-lease space as tenants move out or as to the new rents the Company may be
able to charge the new tenants at such space.
Bankruptcy and Financial Condition of Tenants; Tenant Termination
Rights. Since substantially all of the Company's income is derived from
rental payments, the Company's cash available for distribution will be
adversely affected if a significant number of the Properties' tenants were
unable to meet their obligations to the Company, or if the Company were
unable to lease on economically favorable terms vacant space in the
Properties. At any time, a tenant of the Properties may seek the protection
of the bankruptcy laws, which could result in the rejection and termination
of such tenant's lease and thereby cause a reduction in the cash available
for distribution. If the tenant affirms its lease with the Company, the
tenant must cure all defaults under the lease and provide the Company with
adequate assurance of its future performance under the lease. If the tenant
rejects the lease, the Company's claim for breach of the lease would (absent
collateral securing the claim) be treated as a general unsecured claim. The
amount of the claim would be capped at the amount owed for unpaid
pre-petition lease payments unrelated to the rejection, plus the greater of
one year's lease payments or 15% of the remaining lease payments payable
under the lease (but not to exceed the amount of three years' lease
payments). In addition, a tenant from time to time may experience a downturn
in its business which may weaken its financial condition and result in a
reduction in the percentage rent paid by such tenant or in the failure to
make rent payments when due. Furthermore, certain of the Company's tenants,
including anchor tenants, hold the right under their leases to terminate
their leases or reduce their rental rate if certain occupancy conditions are
not met, if certain anchor tenants are closed, if certain sales levels or
profit margins are not achieved or if an exclusive use provision is violated,
all of which may adversely affect the Company's cash available for
distribution.
Competition. There are numerous commercial developers, real estate
companies and major retailers that compete with the Company. In particular,
some of these entities are engaged in the development or ownership of
value-oriented retail properties that compete with the Company in seeking
tenants. This results in competition for acquisition of prime locations and
for tenants who will lease space in the value-oriented retail properties that
the Company and its competitors own or operate. The development of new super
regional outlet malls or other value-oriented retail shopping centers with
more convenient locations or better rents may attract the Company's tenants
or cause them to seek more favorable lease terms at or prior to renewal, and,
accordingly, may adversely affect the business, revenues or value of the
Company's value-oriented retail Properties. In addition, traditional
retailers may increase their competition with value-oriented retailers for
the limited pool of consumers by engaging in marketing and selling activities
similar to those of value-oriented retailers, thus blurring the distinction
between traditional retailers and value-oriented retailers. Furthermore, the
Company may face competition from alternate forms of retailing, including
home shopping networks, mail order catalogues and on-line based shopping
services which may limit the number of retail tenants that desire to seek
space in shopping center or mall properties generally, all of which may
adversely affect the Company's cash available for distribution.
Reliance on Major Tenants. At June 30, 1998, the Company's four largest
tenants were Wal-Mart, Kmart, The Limited and its consolidated entities and
Lowe's, which represented approximately 7.1%, 5.6%, 4.0% and 3.0%,
respectively, of the Company's annualized minimum rents. No other tenant
represented more than 3% of the aggregate annualized minimum rents of the
Properties as of such date. The financial position of the Company and its
ability to make distributions may be adversely affected by financial
difficulties experienced by any of such tenants, or any other major tenant of
the Company, including a bankruptcy, insolvency or general downturn in the
business of any such tenant, or in the event any such tenant does not renew
its leases as they expire.
Risks Associated with Borrowing; The Mortgage Loans and Credit Facility.
Balloon Payments. Of the approximately $576.3 million of mortgage
indebtedness of the Company outstanding as of June 30, 1998, approximately
$1.2 million is due in 1998, approximately $208.3 million is due in 1999,
approximately $131.6 million is due in 2000, approximately $64.5 million is
due in 2001, approximately $56.6 million is due in 2002 and approximately
$114.1 million is due in 2003 and thereafter. In addition, the Company's
$190 million secured credit facility (the "Credit Facility") matures on
July 31, 1999. Furthermore, the Company may finance future investments with
debt obligations that will provide for the repayment of principal in a lump
sum or "balloon" payment at maturity. The ability to repay indebtedness at
maturity or otherwise may depend on the ability of the Company either to
refinance such indebtedness or to sell properties. The Company has no
commitments with respect to refinancing any existing or future balloon
payments. There can be no assurance that such refinancing will be available
on reasonable terms and conditions, that such a sale will occur or that the
amounts received from such sale will be sufficient to make the required
balloon payments. If the Company is unable to repay any of its indebtedness
on or before the respective maturity dates thereof, the Company may have to
borrow against properties that are not encumbered or under the Credit
Facility, to the extent the Company has availability thereunder, to meet such
repayments.
No Limitation on Debt. The Company's Board of Trustees determines the
financing policies of the Company. Although the Company intends to maintain a
ratio of debt to Total Market Capitalization (as defined below) of less than
60%, the organizational documents of the Company do not contain any
limitation on the amount of indebtedness that the Company may incur or the
ratio of debt to Total Market Capitalization that the Company must maintain.
Accordingly, the Company's Board of Trustees can amend or revise the
Company's policies with respect to the amount of debt the Company will incur
at any time without a vote of the Company's shareholders. "Total Market
Capitalization" means the sum of the outstanding amount of all indebtedness,
the aggregate amount of the liquidation preference of all preferred shares of
beneficial interest (the "Preferred Shares") of the Company and the aggregate
market value of the Common Shares and OP Units (based upon the closing price
of the Common Shares on the NYSE on the date of determination) of the Company
and its consolidated entities. Although the trustees of the Company have no
present intention to change any of these policies, revisions to these
policies could result in a more highly leveraged company with an increased
risk of default on indebtedness and an increase in debt service charges. The
Company may also, without shareholder vote, continue to use leverage through
borrowing under the Credit Facility and on its unencumbered properties to
increase the number and size of its investments. Such use of leverage
presents an additional element of risk in the event that cash flow from the
Properties is insufficient to meet both debt payment obligations and the
distribution requirements of the REIT provisions of the Code. Substantially
all the Properties are pledged as security for repayment of mortgage
indebtedness (the "Mortgage Loans") or indebtedness under the Credit
Facility.
Risk of Rising Interest Rates and Variable Rate Debt. Increases in
interest rates on variable rate indebtedness would increase the Company's
interest expense, which could adversely affect the Company's cash flow and
its ability to pay distributions to shareholders. At June 30, 1998, the
Credit Facility and approximately $121.5 million of the Mortgage Loans bear
interest at variable rates.
Certain Debt Covenants. The Mortgage Loans and the Credit Facility
impose certain financial and operating restrictions on the Company and the
Properties subject to such indebtedness and also impose restrictions on
subordinated financing secured by such Properties and financings of other
assets and properties of the Company. These restrictions include restrictions
on borrowings, prepayments and distributions. Additionally, the Credit
Facility requires the Company to meet certain financial tests and some of the
Mortgage Loans provide for certain prepayment penalties, each of which could
restrict the financial flexibility of the Company. The $181.0 million
Mortgage Loan (the "IPO Loan") from Nomura Asset Capital Corporation, which
is also the Company's co-participant in several joint ventures ("Nomura"),
made in connection with the Company's IPO, among other things, permits the
removal of the Company as manager of the 56 Properties securing the IPO Loan
if (a) there is an event of default under the IPO Loan, including a breach of
the financial covenants, and the lender institutes proceedings to enforce its
rights thereunder, or (b) the sum of net operating income and interest on
certain government obligations falls below a certain level, subject to
certain circumstances, for three consecutive months.
Possible Environmental Liabilities. Under various Federal, state and
local laws, ordinances and regulations, an owner or operator of real estate
may be liable for the costs of removal or remediation of certain hazardous or
toxic substances (including asbestos-containing materials) on or in such
property. Such enactments often impose such liability without regard to
whether the owner or operator knew of or was responsible for the presence of
such hazardous or toxic substances. The cost of any required remediation and
the owner's or operator's liability therefor as to any property is generally
not limited under such enactments and could exceed the value of the property
and/or the aggregate assets of the owner or operator. The presence of such
substances, or the failure to properly remediate such substances, may
adversely affect the owner's or operator's ability to sell or rent such
property or to borrow using such property as collateral. In addition,
liability may be imposed for the release of asbestos-containing materials
into the air. The Company may be liable for costs associated with
environmental matters in connection with its ownership and operation of the
Properties.
The landsites underlying the value-oriented super regional mall
currently under development in Elizabeth, New Jersey (the "Jersey Gardens")
and the proposed value-oriented super regional mall to be built in Carson,
California (the "LA Metro Mall") contain hazardous substances as a result of
having previously been used as landfills. Consent decrees have been entered
into with respect to each site, between, among others, governmental agencies,
and with respect to the Jersey Gardens site, the former owner and the joint
venture which owns the Jersey Gardens site and in which the Company is a
participant, and with respect to the LA Metro Mall site, the current owner.
Pursuant to the consent decrees, the former owner of the Jersey Gardens site
and the current owner of the LA Metro Mall site have agreed to take necessary
action to remediate their respective sites. Although the former owner of the
Jersey Gardens site, which the Company acquired through a joint venture in
December 1997 for approximately $36.9 million, will remain responsible for
completion of the remediation thereof, such joint venture has committed, in
accordance with the consent decree, to deposit an additional $10.0 million in
escrow, $9.0 million of which will be used to reimburse the former owner of
the site for remediation costs. The remediation of the LA Metro Mall site,
which the Company intends to acquire through a joint venture for
approximately $33.3 million, will be completed by such joint venture at a
cost to it currently estimated to be approximately $32.0 million, including
operation and maintenance expenses. Upon completion of the remediation at
each site, the owning joint venture will not have any liability to third
parties or governmental agencies related to the environmental matters covered
by the consent decrees with respect to such site. No assurance can be given
as to the final aggregate cost to either joint venture of remediating either
of these sites or the time it will take to complete each remediation. Such
increases in cost or delays in remediation could adversely affect the
development of the related metro mall project.
Restrictions on and Risks of Development Activities. In addition to
completing its existing development activities at Jersey Gardens and the
Community Center located in Columbus, Ohio ( the "Polaris Towne Center"), the
Company intends to selectively pursue additional development projects,
including the development through joint ventures of the LA Metro Mall and the
super regional mall to be built in Columbus, Ohio ("The Mall at Polaris").
Such projects generally require various governmental and other approvals, the
receipt of which cannot be assured. The Company will incur certain risks in
connection with development activities. These risks include the expenditure
of funds on and devotion of management's time to projects which may not come
to fruition; the risk that construction costs of a project may exceed
original estimates, possibly making the project uneconomical; the risk that
the Company may not be able to obtain construction financing and permanent
financing and the risk that such construction financing and permanent
financing may contain terms which are not favorable to the Company; and the
risk that occupancy rates and rents at a completed project will not be
sufficient to make the project profitable. In case of an unsuccessful
development project, the Company's loss could exceed its investment in the
project.
The purchase and the commencement of development of the LA Metro Mall
and the commencement of development of The Mall at Polaris are subject to a
number of conditions, including the joint venture obtaining local bond
financing, which if not satisfied, could result in the property not being
acquired and developed by the Company. In addition, from time to time the
Company, in connection with a proposed acquisition or development, will
advance funds, which may be secured or unsecured, to the owner of the
property the Company contemplates acquiring in order to accelerate the
commencement and completion of certain renovations or improvements which the
Company believes will enhance the value of the property. At June 30, 1998,
the Company's investment in and advances with respect to the Jersey Gardens,
LA Metro Mall, The Mall at Polaris and Polaris Towne Center development
projects were approximately $118.4 million. There can be no assurance that if
such contemplated acquisitions do not occur any funds advanced will be repaid
or when such repayment will occur.
Certain Limitations on Property Sales and Conflicts of Interest. The
Operating Partnership may not enter into certain transactions, including the
sale of all or substantially all of its assets, unless the limited partners
("the "Limited Partners") holding a majority of the limited partnership
interests in the Operating Partnership (other than the Company) consent (the
"Consent") to any such transaction. This majority vote requirement
practically means that any such transaction must be approved by Herbert
Glimcher and David J. Glimcher because they own approximately 5.84% of the OP
Units (which constitutes almost a majority of the OP Units other than those
owned by the Company). This veto right may limit the ability of the Company
to enter into a liquidating transaction that may be in the shareholders'
interest.
As a result of Herbert Glimcher's and David J. Glimcher's status as
holders of both Common Shares and OP Units, they have interests that conflict
with shareholders with respect to business decisions affecting Glimcher
Realty Trust and the Operating Partnership. In particular, as holders of OP
Units, they may suffer different and/or more adverse tax consequences than
Glimcher Realty Trust upon the sale or refinancing of some of the Properties
as a result of unrealized gains attributable to certain Properties. Herbert
Glimcher and David J. Glimcher and Glimcher Realty Trust, therefore, may have
different objectives regarding the appropriate pricing and timing of any sale
or refinancing of certain of the Properties. Although Glimcher Realty Trust
(through a wholly owned subsidiary), as the sole general partner of the
Operating Partnership, has the exclusive authority as to whether and on what
terms to sell or refinance an individual Property, Herbert Glimcher and
David J. Glimcher might seek to influence Glimcher Realty Trust not to sell
or refinance certain of the Properties, even though such sale might otherwise
be financially advantageous to Glimcher Realty Trust, or may seek to
influence Glimcher Realty Trust to refinance a Property with a higher level
of debt than would be in the best interests of Glimcher Realty Trust.
Risk of Geographic Concentration. The Properties are located
principally in the midwestern and, to a lesser extent, eastern United States.
The Company's results of operations and distributions to shareholders
therefore will be subject generally to economic conditions in those regions.
Third Party Interests in Certain Properties. The Company owns partial
interests in seven Mall Properties (The Great Mall of the Great Plains, The
Mall at Johnson City, The Dayton Mall, The Colonial Park Mall, the SuperMall
of the Great Northwest, The Almeda Mall and The Northwest Mall). In addition,
the Company owns a partial interest in the real estate on which the Jersey
Gardens is, and Polaris Towne Center will be, constructed and developed,
expects to own partial interests in The Mall at Polaris and the LA Metro
Mall, and may own partial interests in additional properties in the future.
Partnership or joint venture investments may, under certain circumstances,
involve risks not otherwise present with respect to wholly owned properties,
including the possibility that the Company's partners or co-venturers might
become bankrupt, that such partners or co-venturers might at any time have
economic or other business interests or goals which are inconsistent with the
business interests or goals of the Company and that such partners or
co-venturers may be in a position to take action contrary to the Company's
instructions or requests or contrary to the Company's policies or objectives,
including the Company's policy with respect to maintaining its qualification
as a REIT. Additionally, where the Company serves as the managing member of a
property-owning entity, it may have certain fiduciary responsibilities to the
other participants in such entity. The Company will seek to maintain
sufficient influence with respect to the management of such partnerships or
joint ventures to permit the Company's business objectives to be achieved.
There is no limit under the Company's organizational documents as to the
amount of funds that may be invested in partnerships or joint ventures.
With respect to the entities that own the Jersey Gardens, The Great Mall
of the Great Plains, The Mall at Johnson City, The Dayton Mall, The Colonial
Park Mall, the SuperMall of the Great Northwest, The Almeda Mall and The
Northwest Mall, the approval or consent of certain other partners is required
for all major decisions, including one or more of the following: the sale or
refinancing of such properties, certain capital improvements and alterations,
the borrowing of funds, revisions to such properties' business plans and
budgets after they have been approved by the partners, certain modifications
to leases, the making of any distributions other than as provided in the
operating agreements and certain other changes in the operations of such
properties or entities which own such properties. To the extent such
approvals or consents are not forthcoming or are delayed, the Company may
experience difficulty in, or may be prevented from, implementing its plans
with respect to such properties or property owning entities. Furthermore, the
Company may, in certain circumstances, including the occurrence of a default
under the operating agreements of such entities or the management agreements
between such entities and the Company, be removed as the manager of a
property it manages. Additionally, the Company may be removed as the managing
member of the entity owning The Great Mall of the Great Plains upon an event
of default under the operating agreement of such entity. In the event the
Company is removed as either the manager or the managing member, the Company
would lose day to day control over the related property. Each of the
operating agreements for the entities which own The Great Mall of the Great
Plains, The Mall at Johnson City, The Dayton Mall, The Colonial Park Mall,
the SuperMall of the Great Northwest, The Almeda Mall and The Northwest Mall
also contain provisions whereby the Company may be forced to sell all of its
interest in, or buy all of its partners' interest in, such entity or
property. Such provisions may be triggered at a time when it is not
advantageous for the Company to either buy or sell its interest in such
entity or property. The agreements governing the property owning entities of
the LA Metro Mall and Polaris Towne Center, as well as agreements governing
future ventures, are expected to contain similar provisions.
Anti-Takeover Effect of Ownership Limit and Limits on Changes in Control
Resulting From a Staggered Board and the Ability of the Company to Issue
Preferred Shares. In order to maintain its qualification as a REIT for
federal income tax purposes, not more than 50% in value of the outstanding
shares of beneficial interest of the Company (the "Shares") may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code
to include certain entities) at any time during the last half of the
Company's taxable year.
The Declaration of Trust of the Company authorizes the trustees to take
such action as may be required to preserve its qualification as a REIT and to
limit any person, other than (i) Messrs. Herbert Glimcher and David J.
Glimcher, and (ii) any other Person (as defined in the Declaration of Trust)
approved by the trustees, to direct or indirect ownership of 8.0% of the
lesser of the number or value of the outstanding Shares; provided, however,
in no event may the trustees grant an exemption from the foregoing ownership
limitation to any other Person whose ownership, direct or indirect, of in
excess of 8.0% of the lesser of the number or the value of the outstanding
Shares would result in the termination of the Company's status as a REIT for
federal income tax purposes. This limitation on ownership does not apply to
the Common Shares owned, directly or indirectly, by Messrs. Herbert Glimcher
and David J. Glimcher, who, without the approval of the trustees, are limited
to an aggregate of 25% of the lesser of the number or value of the
outstanding Shares, or to Nomura, which is excepted to the extent necessary
to permit it, or its affiliates, to acquire and maintain ownership of (i) the
34,000 Series A-1 Convertible Preferred Shares, par value $.01 per share and
having an initial liquidation preference of $1,000 a share, subject to
adjustment (the "Series A-1 Preferred Shares"), (ii) the Series D Convertible
Preferred Shares, par value $.01 per share and having an initial liquidation
preference of $1,000 a share, subject to adjustment (the "Series D Preferred
Shares") and (iii) any Common Shares issuable upon conversion thereof to the
extent it does not jeopardize the Company's qualification as a REIT. In
addition to the foregoing, the Articles Supplementary relating to the
Company's 9 1/4% Series B Cumulative Redeemable Preferred Shares of
Beneficial Interest, par value $.01 per share, each share having a
liquidation preference of $25.00 per share (the "Series B Preferred Shares"),
of which 5,118,000 have been issued, authorizes the Company's Board of
Trustees to take such action as may be required to preserve its qualification
as a REIT for federal income tax purposes and to limit any person, other than
persons who may be excepted by the Board of Trustees, to direct or indirect
ownership of 9.9% of the lesser of the number or the value of the total
Series B Preferred Shares outstanding. Notwithstanding the foregoing, there
can be no assurance that there will not be five or fewer individuals who will
own more than 50% in value of the outstanding Shares, thereby causing the
Company to fail to qualify as a REIT. The ownership limits may also
discourage a change of control of the Company.
The Company's Board of Trustees is divided into three classes of
trustees. The terms of Class II, Class III and Class I trustees currently
expire in 1999, 2000 and 2001, respectively. Trustees for each class will be
chosen for a three year term upon the expiration of their current term, and
each year one class of trustees will be elected by the shareholders. The
staggered terms for trustees may delay or defer the ability of shareholders
to change control of the Company even if a change of control were in the best
interests of shareholders. See "Description of Common Shares -- Declaration
of Trust and Bylaw Provisions and Certain Provisions of Maryland Law."
The Company's Declaration of Trust authorizes the Board of Trustees to
establish one or more series of Preferred Shares and to determine, with
respect to any series of Preferred Shares, the preferences, rights and other
terms of such series. To date the Company has issued 34,000 Series A-1
Preferred Shares and 56,000 Series D Preferred Shares in connection with
transactions involving Nomura and 5,118,000 Series B Preferred Shares. It is
possible that the Board of Trustees could authorize the Company to issue
other series of Preferred Shares that could, depending on the terms of such
series, delay, defer or prevent a change in control of the Company or other
transaction that some, or a majority, of the Company's shareholders might
believe to be in their best interest or in which shareholders might receive a
premium for their shares over the then current market price of such shares.
Consequences of the Failure to Qualify as a REIT. The Company operates
in such fashion so as to enable it to qualify as a REIT under the Code. No
assurance can be given that the Company will remain so qualified.
Qualification as a REIT involves the application of highly technical and
complex Code provisions, of which there are only a limited number of judicial
or administrative interpretations, and the determination of various factual
matters and circumstances not entirely within the Company's control may
impact its ability to qualify as a REIT under the Code. In addition, no
assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to the Company's qualification as a REIT or the federal income
tax consequences of such qualification. Various bills and the President's
1999 Budget Proposal contain legislation to modify certain tax rules
concerning REITs. The Company believes that none of such modifications, if
enacted, will significantly and adversely affect the Company's ability to
operate as a REIT.
If the Company fails to qualify as a REIT under the Code, the Company
will be subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. In addition,
unless entitled to relief under certain statutory provisions, the Company
will also be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification was lost. 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 year or years involved. In addition, the Company would no
longer be required by the Code to make any distributions as a condition to
REIT qualification. To the extent that distributions to shareholders may have
been made in anticipation of the Company's qualifying as a REIT, the Company
might be required to borrow funds or to liquidate certain of its investments
to pay the applicable tax.
Tax Risks of the Company's Ownership Interests in Certain Partnerships
and Other Ventures. All of the Company's property interests and other
investments are made or held through the Operating Partnership or the
Subsidiary Partnerships. The ownership of these interests may involve special
tax risks for the Company. Such risks include possible challenge by the IRS
of allocations of income and expense items which could affect the computation
of taxable income of the Company, or a challenge to the status of the
Operating Partnership or the Subsidiary Partnerships as partnerships (as
opposed to associations taxable as corporations) for income tax purposes, as
well as the possibility of action being taken by the Company, Operating
Partnership or the Subsidiary Partnerships or the owners of the Subsidiary
Partnerships that could adversely affect the Company's qualification as a
REIT. The Company believes that the Operating Partnership and each of the
Subsidiary Partnerships will be treated for tax purposes as partnerships (and
not as associations taxable as corporations). If the Operating Partnership or
any Subsidiary Partnership were treated as an association, such entity would
be taxable as a corporation, with the consequences, among others, that if the
Company's ownership interest in any such entity exceeded 10% of such entity's
voting interests or the value of such interest exceeded 5% of the value of
the Company's assets, the Company would cease to qualify as a REIT;
distributions from any of such entities to the Company would be treated as
distributions; and the Company would not be able to deduct its share of
losses, if any, generated by such entity in computing its taxable income.
DESCRIPTION OF COMMON SHARES
The following description of the Common Shares does not purport to be
complete and is in all respects subject to and qualified in its entirety by
reference to the applicable provisions of the Declaration of Trust and the
Company's Bylaws.
General
Under its Declaration of Trust, the Company has the authority to issue
up to 100,000,000 Shares, consisting of Common Shares and such other types or
classes of Shares as the Board of Trustees may create and authorize from time
to time and designate as representing a beneficial interest in the Company.
As of June 30, 1998, there are 23,695,247 Common Shares issued and
outstanding. Under Maryland law, shareholders generally are not liable for a
corporation's debts or obligations. The Declaration of Trust also provides
that no shareholder of the Company will be personally liable for any
obligation of the Company by reason of being a shareholder, nor will any
shareholder be subject to any personal liability whatsoever, in tort,
contract or otherwise, to a person in connection with the Company, property
or affairs of the Company. The Company's Bylaws further provide that the
Company shall indemnify each shareholder against any claim or liability to
which the shareholder may become subject by reason of his being or having
been a shareholder, and that the Company shall reimburse each shareholder for
all legal and other expenses reasonably incurred by him in connection with
any such demand, claim or liability. In addition, it is the Company's policy
to include a clause in its contracts which provides that shareholders assume
no personal liability for obligations entered into on behalf of the Company.
With respect to tort claims, however, contractual claims where shareholder
liability is not so negated, claims for taxes and certain statutory and other
liabilities, a shareholder may, in some jurisdictions, other than the state
of Maryland, be personally liable to the extent that such claims are not
satisfied by the Company. Inasmuch as the Company carries public liability
insurance which it considers adequate, any risk of personal liability to
shareholders is limited to situations in which the Company's assets plus its
insurance coverage would be insufficient to satisfy the claims against the
Company and its shareholders.
Terms
All Common Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other class or
series of shares and to the provisions of the Company's Declaration of Trust
relating to Excess Shares (as defined under "Restrictions on Ownership &
Transfer" below), holders of Common Shares are entitled to receive
distributions on such shares if, as and when authorized and declared by the
Board of Trustees of the Company out of assets legally available therefor and
to share ratably in the assets of the Company legally available for
distribution to its shareholders in the event of its liquidation, dissolution
or winding up after payment of or adequate provision for all known debts and
liabilities of the Company.
Subject to the provisions of the Declaration of Trust relating to Excess
Shares, each outstanding Common Share entitles the holder to one vote on all
matters submitted to a vote of shareholders, including the election of
trustees, and, except as provided with respect to any other class or series
of Shares, the holders of such Common Shares will possess the exclusive
voting power. There is no cumulative voting in the election of trustees,
which means that the holders of a majority of the then outstanding Common
Shares can elect all of the trustees then standing for election and the
holders of the remaining Common Shares will not be able to elect any
trustees.
Holders of Common Shares will have no preference, conversion, exchange,
sinking fund redemption or appraisal rights and have no preemptive rights to
subscribe for any securities of the Company. Subject to the provisions of
the Declaration of Trust regarding the restrictions on transfer of Common
Shares, holders of Common Shares will have equal dividend, distribution,
liquidation and other rights.
The Registrar and Transfer Agent for the Company's Common Shares is The
Harris Trust and Savings Bank.
Under the Maryland REIT Law, a real estate investment trust generally
cannot amend its declaration of trust or merge unless approved by the
affirmative vote of shareholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than
a majority of all of the votes entitled to be cast on the matter) is set
forth in the real estate investment trust's declaration of trust. The
Company's Declaration of Trust provides that, with respect to (i) certain
amendments to the Declaration of Trust, (ii) the merger, consolidation or
sale of all or substantially all of the Company's assets in a transaction
pursuant to which the Company is not the surviving entity, (iii) the
reorganization of the Company and (iv) the dissolution of the Company, the
affirmative vote of shareholders holding at least two-thirds of the Shares
entitled to be cast on such matters is required.
Power to Issue Additional Shares
The Company believes that the power of the Board of Trustees to issue
additional authorized but unissued Common Shares will provide the Company
with increased flexibility in structuring possible future financings and
acquisitions and in meeting other needs which might arise. The additional
Common Shares will be available for issuance without further action by the
Company's shareholders, unless such action is required by applicable law or
the rules of any stock exchange or automated quotation system on which the
Company's securities may be listed or traded.
Restrictions on Ownership and Transfer
For the Company to continue to qualify as a REIT under the Code, (i) not
more than 50% of the value of its Shares may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year and (ii) the Shares
must be beneficially owned by 100 or more persons during at least 335 days of
a taxable year of 12 months or during a proportionate part of a shorter
taxable year and certain other requirements must be satisfied. In addition,
the Company must meet certain requirements regarding the nature of its gross
income in order to qualify as a REIT. One such requirement is that at least
75% of the Company's gross income for each calendar year must consist of
rents from real property and income from certain other real property
investments. The rents received by the Operating Partnership and the
Subsidiary Partnerships from a tenant will not qualify as rents from real
property, which could result in loss of REIT status for the Company, if the
Company owns, actually or constructively, 10% or more of the ownership
interests in such tenant, within the meaning of section 856 (d) (2) (B) of
the Code. See "Federal Income Tax Considerations--Requirements for
Qualification as a REIT--Income Tests."
The Declaration of Trust, subject to certain exceptions, provides that
no holder (other than (i) Herbert Glimcher, (ii) David J. Glimcher and
(iii) any other individual, corporation, partnership, estate, trust,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity, or any government and agency or
political subdivision thereof, approved by the Board of Trustees, at their
option and in their discretion, provided that such approval will not result
in the termination of the status of the Company as a REIT (collectively,
"Excepted Persons")) may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 8% (the "Ownership Limit") of
the lesser of the number or value (in either case as determined in good faith
by the Board of Trustees) of the total outstanding Shares. The Board of
Trustees has also deemed Nomura to be an Excepted Person to the extent
necessary to permit it, or its affiliates, to acquire and maintain ownership
of the Series A-1 Preferred Shares, the Series D Preferred Shares and any
Common Shares issuable upon conversion thereof to the extent it does not
jeopardize the Company's qualification as a REIT. The Articles Supplementary
for the Series B Preferred Shares provide, subject to certain exceptions,
that no holder (other than any Excepted Person) may own, or be deemed to own
by virtue of the attribution provisions of the attribution provisions of the
Code, more than 9.9% (the "Series B Preferred Shares Ownership Limit") of the
lesser of the number or the value (in either case as determined in good faith
by the Board of Trustees) of the total outstanding Series B Preferred Shares.
Future series of Preferred Shares may contain similar Ownership Limit
provisions (together with the Series B Preferred Shares Ownership Limit, the
"Preferred Shares Ownership Limit", and together with the Ownership Limit,
the "Ownership Limits"). The Board of Trustees may also waive the Ownership
Limits if evidence satisfactory to the Board of Trustees and the Company's
tax counsel is presented that such ownership will not then or in the future
jeopardize the Company's status as a REIT. As a condition of such waiver,
the intended transferee must give written notice to the Company of the
proposed transfer and must furnish such opinions of counsel, affidavits,
undertakings, agreements and information as may be required by the Board of
Trustees no later than the 15th day prior to any transfer which, if
consummated, would result in the intended transferee owning Shares in excess
of the Ownership Limits. The limitation on ownership of Common Shares owned,
directly or indirectly, by Messrs. Herbert Glimcher and David J. Glimcher is
an aggregate of 25% of the lesser of the number or value of the outstanding
Shares.
The foregoing restrictions on transferability and ownership will not
apply if the Board of Trustees determine that it is no longer in the best
interests of the Company to attempt to qualify, or to continue to qualify, as
a REIT. The Ownership Limits will not be automatically removed if the REIT
provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the ownership concentration limitation is
increased. The Ownership Limits may delay, defer or prevent a change of
control of the Company or other transaction that might involve a premium
price for the Shares or otherwise he in the best interest of the
shareholders. Any change in the Ownership Limits would require an amendment
to the Declaration of Trust.
Any transfer or issuance of Shares or any security convertible into
Shares that would (i) create a direct or indirect ownership of Shares in
excess of the Ownership Limits, (ii) with respect to transfers only, result
in Shares being owned by fewer than 100 persons or (iii) result in the
Company being "closely held" within the meaning of Section 856(h) of the
Code, shall be null and void, and the intended transferee will acquire no
rights to the Shares. The Declaration of Trust provides that the Company, by
notice to the holder thereof, may purchase any or all Shares (the "Excess
Shares") that are proposed to be transferred pursuant to a transfer which, if
consummated, would result in the intended transferee owning Shares in excess
of the Ownership Limit or would otherwise jeopardize the REIT status of the
Company. The Articles Supplementary for the Series B Preferred Shares
provide that the Company, by notice to the holder thereof, may purchase any
or all Series B Preferred Shares (the "Excess Series B Preferred Shares")
that are proposed to be transferred pursuant to a transfer which, if
consummated, would result in the intended transferee owning Series B
Preferred Shares in excess of the Series B Preferred Shares Ownership Limit
or would otherwise jeopardize the REIT status of the Company. Future series
of Preferred Shares may contain similar excess share provisions (such shares
together with the Series B Excess Preferred Shares, the "Excess Preferred
Shares"). The purchase price of any Excess Shares or Excess Preferred
Shares, as the case may be, shall be equal to the fair market value of such
Shares on the last trading day immediately preceding the day on which notice
of such proposed transfer is sent, as reflected in the closing sales price
for the Shares, if then listed on a national securities exchange, or such
price for the Shares on the principal exchange if then listed on more than
one national securities exchange, or, if the Shares are not then listed on a
national securities exchange, the latest bid quotation for the Shares if then
traded over-the-counter, or, if such quotation is not available, the fair
market value as determined by the Board of Trustees in good faith, on the
last trading day immediately preceding the day on which notice of such
proposed purchase is sent by the Company. From and after the date fixed for
purchase by the Board of Trustees, the holder of such Shares to be purchased
by the Company shall cease to be entitled to distributions, voting rights and
other benefits with respect to such Shares except the right to payment of the
purchase price for the Shares. Any distribution paid to a proposed
transferee on Excess Shares or Excess Preferred Shares prior to the discovery
by the Company that such Shares have been transferred in violation of the
provisions of the Declaration of Trust or Articles Supplementary shall be
repaid to the Company upon demand. If the foregoing transfer restrictions
are determined to be void or invalid by virtue of any legal decision,
statute, rule or regulation, then the intended transferee of any Excess
Shares or Excess Preferred Shares shall be deemed, at the option of the
Company, to have acted as an agent on behalf of the Company in acquiring such
Excess Shares or Excess Preferred Shares and to hold such Excess Shares or
Excess Preferred Shares on behalf of the Company.
All persons who own, directly or by virtue of the attribution provisions
of the Code, more than 5% in number or value of the outstanding Shares must
give a written notice to the Company containing the information specified in
the Declaration of Trust or Articles Supplementary, as the case may be, by
January 30 of each year. In addition, each shareholder shall upon demand be
required to disclose to the Company in writing such information with respect
to the direct, indirect and constructive ownership of Shares as the Board of
Trustees deem necessary to comply with the provisions of the Code applicable
to a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
These ownership limitations may delay, defer or prevent a change in
control of the Company or other transaction that may involve a premium for
the Shares or otherwise be in the best interest of the shareholders.
All certificates representing Common Shares and Preferred Shares will
bear a legend referring to the restrictions described above.
Declaration of Trust and Bylaw Provisions and Certain Provisions of Maryland
Law
Number of Trustees; Classification of the Board of Trustees. The
Declaration of Trust provides that the number of trustees will consist of not
less than two nor more than fifteen persons. At all times, a majority of the
trustees shall be independent trustees. There are currently nine trustees,
six of whom are independent trustees. The holders of Common Shares are
entitled to vote on the election or removal of trustees, with each share
entitled to one vote. Under the Bylaws, any vacancy will be filled, at any
regular meeting or at any special meeting called for that purpose, by a
majority of the remaining trustees. Pursuant to the Declaration of Trust,
the Board of Trustees is divided into three classes of trustees. The current
term of the second, third and first classes expires in 1999, 2000 and 2001,
respectively. As the term of each class expires, trustees in that class will
be elected by the shareholders of the Company for a term of three years and
until their successors are duly elected and qualify. Classification of the
Board of Trustees is intended to enhance the continuity and stability of the
Company's business strategies and policies as determined by the Board of
Trustees. Because holders of Common Shares will have no right to cumulative
voting in the election of trustees, at each annual meeting of shareholders,
the holders of a majority of the Common Shares will be able to elect all of
the successors of the class of trustees whose terms expire at that meeting.
The classified board provision could have the effect of making the
replacement of incumbent trustees more time consuming and difficult, which
could delay, defer or prevent an attempt by a third party to obtain control
of the Company or other transaction, even though such an attempt or other
transaction might be beneficial to the Company and its shareholders. At
least two annual meetings of shareholders, instead of one, will generally be
required to effect a change in a majority of the Board of Trustees. Thus,
the classified board provision could increase the likelihood that incumbent
trustees will retain their positions. See "Risk Factors -- Potential Anti-
Takeover Effect of Certain Provisions of Maryland Law and of the Company's
Declaration of Trust and Bylaws.
Removal; Filling Vacancies. The Bylaws provide that any vacancies will
be filled by the affirmative vote of a majority of the remaining trustees.
Any trustee so elected shall hold office for the unexpired term of the
trustee he is replacing. The Declaration of Trust provides that trustees may
be removed, with or without cause, at a meeting of shareholders called for
that purpose, only by the affirmative vote of the holders of at least two-
thirds of the votes entitled to be cast in the election of the trustees.
This provision, when coupled with the provision of the Bylaws authorizing the
Board of Trustees to fill vacant trusteeships precludes shareholders from
removing incumbent trustees, except upon a substantial affirmative vote, and
filling the vacancies created by such removal with their own nominees.
Limitation of Liability and Indemnification. Title 8 of the
Corporations and Associations Article of the Annotated Code of Maryland (the
"Maryland REIT Law") permits a Maryland real estate investment trust to
include in its declaration of trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages
except for liability resulting from (a) actual receipt of an improper benefit
or profit in money, property or services or (b) active and deliberate
dishonesty established by a final judgment as being material to the cause of
action. The Declaration of Trust of the Company contains such a provision
which eliminates such liability to the maximum extent permitted by Maryland
law.
The Declaration of Trust authorizes the Company to the maximum extent
provided by Maryland law to obligate itself to indemnify and to pay or
reimburse reasonable expenses to (a) any present or former trustee, officer
or shareholder or (b) any individual who, while a trustee or officer of the
Company and at the request of the Company, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a trustee, director, officer or partner, of such
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, who has been successful on the merits or otherwise, in the
defense of a legal or regulatory proceeding to which he was made a party by
reason of such status. The Company's Bylaws require the Company to indemnify
any current or former trustee or officer against any claim or liability to
which such person may become subject or by reason of his status, unless it is
established that (i) his act or omission was committed in bad faith or was
the result of active and deliberate dishonesty, (ii) he actually received an
improper personal benefit in money, property or services or (iii) in the case
of a criminal proceeding, he had reasonable cause to believe that his act or
omission was unlawful. In addition, the Company's Bylaws require it to pay
or reimburse, in advance of final disposition of a proceeding, reasonable
expenses incurred by a present or former trustee, officer or shareholder made
a party to a proceeding by reason of his status as such provided that, in the
case of a trustee or officer, the Company shall have received (i) a written
affirmation by the trustee or officer of his good faith belief that he has
met the standard of conduct necessary for indemnification by the Company as
authorized by the Bylaws and (ii) a written undertaking by him or on his
behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met. The
Company's Bylaws also (i) permit the Company to provide indemnification and
payment or reimbursement of expenses to a present or former trustee or
officer who served a predecessor of the Company in such capacity and to any
employee or agent of the Company or a predecessor of the Company.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and
agents to the same extent as permitted by the Maryland General Corporation
Law (the "MGCL"). The MGCL permits a Maryland trust to indemnify its
present and former trustees and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by
them in connection with any proceeding to which they may be made a party by
reason of their service in those or other capacities unless it is established
that (a) the act or omission of the trustee or officer was material to the
matter giving rise to the proceeding and (i) was committed in bad faith or
(ii) was the result of active and deliberate dishonesty, (b) the trustee or
officer actually received an improper personal benefit in money, property or
services or (c) in the case of any criminal proceeding, the trustee or
officer had reasonable cause to believe that the act or omission was
unlawful. However, a Maryland trust may not indemnify for an adverse
judgment in a suit by or in the right of the corporation or for a judgment of
liability on the basis that a personal benefit was improperly received,
unless in either case a court orders indemnification and then only for
expenses. In addition, the MGCL requires the Company, as a condition to
advancing expenses, to obtain (a) written affirmation by the trustee or
officer of a good faith belief that he has met the standard of conduct
necessary for indemnification by the Company as authorized by the Declaration
of Trust and (b) a written undertaking by him or on his behalf to repay the
amount paid or reimbursed by the Company if it shall ultimately be determined
that the standard of conduct was not met. Indemnification under the
provisions of the MGCL is not deemed exclusive of any other rights, by
indemnification or otherwise, to which an officer or trustee may be entitled
under the Company's Declaration of Trust or Bylaws, or under resolutions of
shareholders or trustees, contract or otherwise. It is the position of the
Commission that indemnification of trustees and officers for liabilities
arising under the Securities Act is against public policy and is
unenforceable pursuant to Section 14 of the Securities Act.
The Company also has purchased and maintains insurance on behalf of all
of its trustees and executive officers against liability asserted against or
incurred by them in their official capacities with the Company, whether or
not the Company is required or has the power to indemnify them against the
same liability.
Business Combinations. Under the MGCL, as applicable to real estate
investment trusts, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland real
estate investment trust and any person who beneficially owns 10.0% or more of
the voting power of such corporation's shares or an affiliate of such trust
who, at any time within the two-year period prior to the date in question,
was the beneficial owner of 10.0% or more of the voting power of the
then-outstanding voting shares of such trust (an "Interested Shareholder") or
an affiliate thereof are prohibited for five years after the most recent date
on which the Interested Shareholder became an Interested Shareholder.
Thereafter, any such business combination must be recommended by the board of
trustees of such trust and approved by the affirmative vote of at least (a)
80.0% of the votes entitled to be cast by holders of outstanding voting
shares of beneficial interest of such trust and (b) two-thirds of the votes
entitled to be cast by holders of voting shares of such trust other than the
shares held by the Interested Shareholder with whom (or with whose affiliate)
the business combination is to be affected, unless, among other conditions,
the trust's shareholders receive a minimum price (as defined in the MGCL) for
their shares and the consideration is received in cash or in the same form as
previously paid by the Interested Shareholder for its shares. These
provisions of the MGCL do not apply, however, to business combinations that
are approved or exempted by the board of trustees of the trust prior to the
time that the Interested Shareholder becomes an Interested Shareholder.
Control Share Acquisition Statute. The MGCL, as applicable to real
estate investment trusts, provides that "control shares" of a Maryland real
estate investment trust acquired in a "control share acquisition" have no
voting rights except to the extent approved by a vote of two-thirds of the
votes entitled to be cast on the matter, excluding shares owned by the
acquiror, by officers or by trustees who are employees of the trust.
"Control shares" are voting shares which, if aggregated with all other such
shares previously acquired by the acquiror, or in respect of which the
acquiror is able to exercise or direct the exercise of voting power (except
solely by virtue of a revocable proxy), would entitle the acquiror to
exercise voting power in electing trustees within one of the following ranges
of voting power: (i) one-fifth or more but less than one-third, (ii)
one-third or more but less than a majority, or (iii) a majority or more of
all voting power. Control shares do not include shares the acquiring person
is then entitled to vote as a result of having previously obtained
shareholder approval. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of trustees of the trust to call a special
meeting of shareholders to be held within 50 days of demand to consider the
voting rights of the shares. If no request for a meeting is made, the trust
may itself present the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the trust may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
the absence of voting rights for the control shares, as of the date of the
last control share acquisition by the acquiror or of any meeting of
shareholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a shareholders
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other shareholders may exercise appraisal rights. The
fair value of the shares as determined for purposes of such appraisal rights
may not be less than the highest price per share paid by the acquiror in the
control share acquisition, and certain limitations and restrictions otherwise
applicable to the exercise of dissenters' rights do not apply in the context
of a control share acquisition.
The control share acquisition statute does not apply to shares acquired
in a merger, consolidation or share exchange, if the corporation is a party
to the transaction, or to acquisitions approved or exempted by the
declaration of trust or bylaws of the trust.
The Bylaws of the Company contain a provision exempting from the control
share acquisition statute any and all acquisitions by any person of the
Company's Shares. There can be no assurance that such provision will not be
amended or eliminated at any time in the future.
Amendment to the Declaration of Trust. The Declaration of Trust of the
Company may be amended by the affirmative vote of the holders of not less
than a majority of the Shares then outstanding and entitled to vote thereon;
provided, however, (a) no term or provision of the Declaration of Trust may
be added, amended or repealed in any respect that would, in the determination
of the Board of Trustees, cause the Company not to qualify as a REIT under
the Code and (b) certain provisions of the Declaration of Trust, including
provisions relating to (i) the removal of trustees, (ii) restrictions on
transfers of Shares that would result in Excess Shares, (iii) the
organization, merger or consolidation of the Company or (iv) the sale of
Company assets, may not be amended or repealed unless, in each such case,
such action is approved by the affirmative vote of the holders of not less
than two-thirds of all the votes entitled to be cast on the matter.
Dissolution of the Company. The Declaration of Trust requires that
dissolution of the Company must be approved by the affirmative vote of the
holders of not less than two-thirds of all of the shares outstanding and
entitled to vote on the matter.
Advance Notice of Director Nominations and New Business. The Bylaws of
the Company provide that (a) with respect to an annual meeting of
shareholders, nominations of persons for election to the Board of Trustees
and the proposal of business to be considered by shareholders may be made
only (i) pursuant to the Company's notice of the meeting, (ii) by or at the
direction of the Board of Trustees or (iii) by a shareholder who is entitled
to vote at the meeting and has complied with the advance notice procedures
set forth in the Bylaws, and (b) with respect to special meetings of
shareholders, only the business specified in the Company's notice of meeting
may be brought before the meeting of shareholders and nominations of persons
for election to the Board of Trustees may be made (i) pursuant to the
Company's notice of the meeting, (ii) by or at the direction of the Board of
Trustees, or (iii) provided that the Board of Trustees has determined that
trustees shall be elected at such meeting, by a shareholder who is entitled
to vote at the meeting and has complied with the advance notice provisions
set forth in the Bylaws.
Meetings of Shareholders. The Company's Bylaws provide that annual
meetings of shareholders shall be held on a date and at a time set by the
Board of Trustees during the second calendar quarter of each year. Special
meetings of the shareholders may be called by (i) the Chairman of the Board,
(ii) the President of the Company or (iii) one-third of the Board of
Trustees. The Bylaws of the Company provide that special meetings must be
called by the Secretary of the Company upon the written request of the
holders of shares entitled to cast not less than 40% of all votes entitled to
be cast at the meeting. Unless requested by the shareholders entitled to
cast a majority of all the votes entitled to be cast at such meeting, a
special meeting need not be called to consider any matter which is
substantially the same as a matter voted on at any meeting of the
shareholders held during the preceding twelve months.
Anti-Takeover Effect of Certain Provisions of Maryland Law and of the
Declaration of Trust and Bylaws. The business combination provisions and, if
the applicable provision in the Bylaws is amended or rescinded, the control
share acquisition provisions of the MGCL, the provisions of the Declaration
of Trust on classification of the Board of Trustees and removal of trustees
and the advance notice provisions of the Bylaws could delay, defer or prevent
a transaction or a change in control of the Company that might involve a
premium price for holders of Common Shares or otherwise be in their best
interest.
Transfer Agent and Registrar. The transfer agent and registrar for the
Common Stock is The Harris Trust and Savings Bank.
DESCRIPTION OF OP UNITS
General
Substantially all of the Company's assets are held by, and all of its
operations are conducted through, the Operating Partnership. As of June 30,
1998, the Company owned approximately 88.8% of the OP Units issued by the
Operating Partnership. Glimcher Properties Corporation, a Delaware
corporation and a wholly owned subsidiary of the Company ("GPC"), is the sole
general partner of the Operating Partnership, holding 0.784% of the issued OP
Units. The remaining issued OP Units are held by other Limited Partners who
acquired their units in exchange for property or other interests.
The material terms of the OP Units, including a summary of certain
provisions of the Partnership Agreement are set forth below. The following
description of the terms and provisions of the OP Units and certain other
matters does not purport to complete and is subject to and qualified in its
entirety by reference to applicable provisions of Delaware law and the
Partnership Agreement.
Management
The Operating Partnership is organized as a Delaware limited partnership
with GPC as general partner ("the "General Partner"), and certain other
persons and entities as Limited Partners. Pursuant to the Partnership
Agreement, the General Partner has full, exclusive and complete
responsibility and discretion in the management and control of the Operating
Partnership, and the Limited Partners in their capacity as such have no
authority to transact business for, or participate in the management
activities or decisions of, the Operating Partnership. Notwithstanding the
foregoing, the General Partner may not, without the Consent of the Limited
Partners, (i) amend, modify or terminate the Partnership Agreement, except as
otherwise provided therein; (ii) make a general assignment for the benefit of
creditors or appoint or acquiesce in the appointment of a custodian, receiver
or trustee of all or any part of the assets of the Operating Partnership;
(iii) institute any proceeding on behalf of the Operating Partnership under
Title 11 of the United States Code, as the same may be amended from time to
time; or (iv) dissolve the Partnership; provided, however, that the Consent
of the Limited Partners is not required for any of the foregoing actions if,
at the time that the General Partner desires to take such action, the Limited
Partners (other than the Company) own, in the aggregate, less than ten
percent (10%) of the partnership interests. In addition to the foregoing,
the Consent of the Limited Partners is required for the General Partner to
take the action specified in clause (iv) above. The Limited Partners have
the right, exercisable upon the delivery to the General Partner of written
notice by the Limited Partners holding a majority of the limited partnership
interests, (i) to cause the removal of the General Partner for any reason,
with or without cause, and (ii) to select a successor general partner.
Transferability of Interests
The General Partner may not withdraw from the Partnership or transfer
all or any portion of its interest in the Partnership without the Consent of
the Limited Partners, provided that the Consent of the Limited Partners is
not required if the Limited Partners (other than the Company) own, in the
aggregate, less than ten percent (10%) of the partnership interests. Upon
any transfer of the entire general partnership interest, the transferee
general partner will become a substituted General Partner, vested with the
powers and rights of the transferor General Partner, and will be liable for
all obligations and responsible for all duties of the General Partner.
Subject to limited exceptions, the General Partner may not engage in any
merger, consolidation or other combination with or into another person or any
sale of all or substantially all of its assets, or any reclassification,
recapitalization or change of outstanding Common Shares unless the General
Partner has obtained the Consent of the Limited Partners to effect such
transaction; provided that such Consent is not required if, at the time of
such transaction, the Limited Partners (other than the Company) own, in the
aggregate, less than ten percent (10%) of the partnership interests.
Each Limited Partner may transfer all or a portion of its partnership
interest to any person, whether or not in connection with the exercise of a
Limited Partner's Redemption Rights (as defined below); provided that the
transferee must assume all of the obligations of the Limited Partner under
the Partnership Agreement with respect to such transferred partnership
interest and no such transfer, with certain limited exceptions, will relieve
the transferor Limited Partner of its obligations under the Partnership
Agreement without the approval of the General Partner, in its reasonable
discretion. The General Partner may prohibit any transfer by a Limited
Partner of its OP Units if, in the opinion of legal counsel to the Operating
Partnership, such transfer would require filing of a registration statement
under the Securities Act of 1933 or would otherwise violate any federal or
state securities laws or regulations applicable to the Partnership or the OP
Unit. A Limited Partner may not transfer his OP Units if (i) in the opinion
of legal counsel for the Operating Partnership, it would result in the
Operating Partnership being treated as an association taxable as a
corporation, or (ii) such transfer is effectuated through an "established
securities market" or a "secondary market (or the substantial equivalent
thereof)" within the meaning of Section 7704 of the Code.
Capital Contribution
The Partnership Agreement provides that if, as determined by the General
Partner in its sole discretion, the Operating Partnership requires additional
funds at any time from time to time in excess of funds available to the
Operating Partnership from borrowing or capital contributions, the General
Partner may, at its option and without any obligation to do so, contribute
additional funds to the Operating Partnership as additional capital
contributions. The General Partner also has the right (but not the
obligation) to raise any additional funds required for the Operating
Partnership by causing the Operating Partnership to borrow the necessary
funds from any person, including the Company and its affiliates. Such
borrowing will be on terms and conditions which the General Partner deems
appropriate in its reasonable discretion; provided that if the Company or one
of its affiliates is the lender and obtained such funds through its own
borrowing, then the borrowing by the Operating Partnership will be on the
same terms and conditions as are applicable to the Company's borrowing of
such funds. Under the Partnership Agreement, the Company generally is
obligated to contribute the proceeds of any Share offering as additional
capital to the Operating Partnership and, in such event, the Company will
receive additional OP Units having designations, preferences and other
rights, all such that their economic interests are substantially similar to
those of the Shares offered thereby. The General Partner is authorized,
under certain circumstances, to cause the Operating Partnership to issue
additional OP Units. Upon the issuance of additional OP Units, the
percentage interests of all of the Partners will be adjusted by the General
Partner so that the percentage interest of each Partner is equal to the
quotient (expressed as a percentage) arrived at by dividing the number of OP
Units held by a Partner by the total number of OP Units then outstanding.
Notwithstanding the foregoing, additional OP Units will only be issued to the
extent that the effect of such issuance would not reduce the Company's and
the General Partner's aggregate percentage interest to less than 51%.
Redemption Rights
Subject to the terms and conditions of the "Rights of Redemption" (the
"Redemption Rights") set forth in the Partnership Agreement, each Limited
Partner, other than the Company, has the right to cause the Partnership to
redeem all or a portion of such Limited Partner's OP Units, at any time or
from time to time, by delivering an exercise notice to the General Partner,
pursuant to which the General Partner will cause the Operating Partnership to
redeem each such OP Unit for cash equal to the value of one Common Share (or,
at the Company's election, the Company may purchase each OP Unit offered for
redemption, for one Common Share). The Company may not satisfy a Limited
Partner's Redemption Right by delivery of Common Shares, if and to the extent
that such delivery of Common Shares would be prohibited under the Declaration
of Trust or otherwise jeopardize the REIT status of the Company.
Registration Rights
Pursuant to Registration Rights Agreements among the Company and certain
Limited Partners (the "Registration Rights Agreements"), such Limited
Partners have certain rights to require the registration for resale of the
Common Shares held by them or received by them upon redemption of their OP
Units. Such rights include the right to include such shares in the
registration statement of which this Prospectus is a part. The Company is
required to bear the costs of such registration, exclusive of underwriting
discounts, commissions and certain other costs attributable to, and to be
borne by, such Selling Shareholders. Pursuant to agreements between the
Company and other Selling Shareholders, such Selling Shareholders are
responsible to pay all costs of registration; provided that such Selling
Shareholders have the right to join in with any registration statement filed
by the Company and, in such case, are required to pay a pro rata share of the
total registration costs based on the ratio of the number of their Common
Shares so registered to the total number of shares being registered.
Operations
The Partnership Agreement requires that the Operating Partnership be
operated in a manner that will enable the Company to satisfy the requirements
for being classified as a REIT, to avoid any federal income or excise tax
liability imposed under the Code and to ensure that the Operating Partnership
will not be classified as a "publicly traded partnership" for purposes of
Section 7704 of the Code.
In addition to the administrative and operating costs and expenses
incurred by the Operating Partnership, the Operating Partnership pays all
administrative costs and expenses of the Company and the General Partner (the
"Company Expenses"), and the Company Expenses are treated as expenses of the
Operating Partnership. The Company Expenses generally include (i) all
expenses relating to the general administration of the Company and the
General Partner, (ii) all expenses relating to the formation of the Company,
the General Partner and the Operating Partnership and (iii) all expenses
relating to the public offering and registration of securities by the Company
and any transactions contemplated thereby.
Distributions and Allocations
The Partnership Agreement provides that the Operating Partnership will
distribute cash from operations (including net sale or refinancing proceeds,
but excluding net proceeds from the sale of the Operating Partnership's
property in connection with the liquidation of the Operating Partnership) on
a quarterly (or, at the election of the General Partner, more frequent)
basis, in amounts determined by the General Partner in its sole discretion,
to the partners in accordance with their respective percentage interests in
the Operating Partnership. Upon liquidation of the Operating Partnership,
after payment of, or adequate provision for, debts and obligations of the
Operating Partnership, including any partner loans, any remaining assets of
the Operating Partnership will be distributed to all partners with positive
capital accounts in accordance with their respective positive capital account
balances.
Profit and loss of the Operating Partnership for each fiscal year of the
Operating Partnership generally will be allocated among the partners in
accordance with their respective interests in the Operating Partnership.
Taxable income and loss will be allocated in the same manner, subject to
compliance with the provisions of Code section 704(c) and the Treasury
Regulations promulgated thereunder.
Term
The Operating Partnership will continue until December 31, 2092, or
until sooner dissolved upon (i) the withdrawal of the General Partner (unless
the remaining partners holding a majority of the partnership interests elect
to continue the business of the Operating Partnership), (ii) the election by
the General Partner to dissolve the Operating Partnership (which election
requires the Consent of the Limited Partners unless, at such time, the
Limited Partners (other than the Company) own, in the aggregate, less than
ten percent (10%) of the partnership interests), (iii) the election by the
Limited Partners, exercisable upon the consent of the Limited Partners
holding a majority of the limited partnership interests, (iv) the entry of a
decree of judicial dissolution of the Operating Partnership, (v) the sale of
all or substantially all the assets and properties of the Operating
Partnership, or (vi) the bankruptcy or insolvency of the General Partner,
unless the remaining partners holding a majority of the partnership interests
elect to continue the business of the Operating Partnership.
Tax Matters
Pursuant to the Partnership Agreement, the General Partner will be the
tax matters partner of the Operating Partnership and, as such, will have
authority to handle tax audits and to make tax elections under the Code on
behalf of the Operating Partnership.
REDEMPTION OF OP UNITS
General
Unitholders may, subject to certain limitations, require the Operating
Partnership to redeem all or a portion of their OP Units by exercising their
Redemption Rights and delivering a notice of redemption (the "Redemption
Notice") to the General Partner; provided, however, that a Unitholder may not
deliver more than three (3) Redemption Notices to the General Partner during
each calendar year. Within five (5) days after receipt of a Redemption
Notice, the General Partner must deliver a copy of such Redemption Notice to
the Company. Pursuant to its Redemption Right, a Unitholder will receive
cash in an amount equal to the Common Share Value (as defined below) of the
OP Units offered for redemption by delivery of the Redemption Notice to the
General Partner; provided, however, that the Company may, in its sole
discretion, by notice to the General Partner within ten (10) business days
after the Company's receipt of the Redemption Notice, elect to redeem any OP
Unit so presented in exchange for one Common Share (subject to certain
adjustments in the event of share distributions and stock splits). The cash
redemption price payable upon exercise of such Redemption Rights is the fair
market value of the OP Units (which will generally be the value of a similar
number of Common Shares on the NYSE) with respect to which such rights were
exercised, computed as of the date of the exercise (based upon the average
closing price of the Common Shares on the NYSE for the five consecutive
trading days ending on such date). In the event the Company elects to
provide the Operating Partnership with Common Shares to effect a redemption,
the Operating Partnership will deliver to the exercising Limited Partner one
Common Share for each OP Unit redeemed. As OP Units are redeemed, the
Company's interest in the Operating Partnership will increase by a percentage
generally equivalent to the percentage interest of the Operating Partnership
represented by the OP Units redeemed.
If the Company elects to redeem any OP Units presented to the Operating
Partnership by the issuance of the Exchanged Shares, such a redemption by the
Company will be treated as a sale of the OP Units to the Company for Federal
income tax purposes. See " -- Tax Consequences of Redemption." Upon a
redemption for cash, a Unitholder's right to receive distributions with
respect to the OP Units redeemed will cease. Upon the receipt of Exchanged
Shares, a Unitholder will have rights as a shareholder of the Company,
including the right to receive distributions from the time of its acquisition
of the Exchanged Shares.
A Unitholder is not entitled to exercise its Redemption Right if the
delivery of Exchanged Shares would be prohibited under the provisions of the
Partnership Agreement to protect the Company's qualification as a REIT.
Tax Consequences of a Redemption
The following discussion summarizes certain Federal income tax
considerations that may be relevant to a Unitholder should it exercise its
rights to redeem its OP Units.
Tax Treatment of Redemption of OP Units. If the Company elects to
purchase OP Units tendered for redemption, the Operating Partnership and the
Company shall treat the transaction between the Unitholder and the Company as
a sale of OP Units by the Unitholder at the time of such redemption. Such
sale will be fully taxable to the Unitholder and the Unitholder will be
treated as realizing for tax purposes an amount equal to the sum of the value
of the Common Shares received in the redemption plus the amount of any
Operating Partnership liabilities allocable to the redeemed OP Units at the
time of the redemption. If the Company does not elect to purchase a
Unitholder's OP Units tendered for redemption and the Operating Partnership
redeems such OP Units for cash which the Company contributes to the Operating
Partnership to effect such redemption, the redemption likely would be treated
for tax purposes as a sale of such OP Units to the Company in a fully taxable
transaction, although the matter is not free from doubt. In that event, the
Unitholder would also be treated as realizing an amount equal to the sum of
the cash received in the redemption plus the amount of any Operating
Partnership liabilities allocable to the redeemed OP Units at the time of the
redemption. The determination of the amount and character of gain or loss in
the event of such a sale is discussed more fully below. See " -- Tax
Treatment of Disposition of OP Units by a Limited Partner Generally."
If the Company does not elect to purchase OP Units tendered for
redemption and the Operating Partnership redeems a Unitholder's OP Units for
cash that is not contributed by the Company to effect the redemption, the tax
consequences would be the same as described in the previous paragraph, except
that, if the Operating Partnership redeems less than all of a Unitholder's OP
Units, the Unitholder would not be permitted to recognize any loss occurring
on the transaction and would recognize taxable gain only to the extent that
the cash, plus the amount of any Operating Partnership liabilities allocable
to the redeemed OP Units, exceeded the Unitholder's adjusted basis in all of
its OP Units immediately before the redemption.
If the Company contributes cash to the Operating Partnership to effect a
redemption, and in the unlikely event that the redemption transaction is
treated as the redemption of a Unitholder's OP Units by the Operating
Partnership rather than a sale of OP Units to the Company, the income tax
consequences to the Unitholder would be as described in the preceding
paragraph.
Tax Treatment of Disposition of OP Units by a Unitholder Generally. If
an OP Unit is disposed of in a manner that is treated as a sale of the OP
Unit, or a Unitholder otherwise disposes of an OP Unit, the determination of
gain or loss from the sale or other disposition will be based on the
difference between the amount considered realized for tax purposes and the
adjusted tax basis in such OP Unit. See " -- Basis of OP Units." Upon the
sale of an OP Unit, the "amount realized" will be measured by the sum of the
cash and fair market value of other property, (i.e., Exchanged Shares)
received plus the amount of any Operating Partnership liabilities allocable
to the OP Units sold. To the extent that the amount of cash or property
received plus the allocable share of any Operating Partnership liabilities
exceeds the Unitholder's adjusted tax basis in the OP Units disposed of, such
Unitholder will recognize gain. It is possible that the amount of gain
recognized or even the tax liability resulting from such gain could exceed
the amount of cash and/or the value of any other property (i.e., Exchanged
Shares) received upon such disposition.
Except as described below, any gain recognized upon a sale or other
disposition of OP Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount
realized upon the sale of an OP Unit attributable to a Unitholder's share of
"unrealized receivables" of the Operating Partnership (as defined in Section
751 of the Code) exceeds the basis attributed to those assets, such excess
will be treated as ordinary income. Unrealized receivables include, to the
extent not previously included in Operating Partnership income, any rights to
payment for services rendered or to be rendered as well as amounts that would
be subject to recapture as ordinary income if the Operating Partnership had
sold its assets at their fair market value at the time of the transfer of an
OP Unit.
Basis of OP Units. In general a Unitholder who acquired his OP Units by
contribution of property and/or money to the Operating Partnership had an
initial tax basis in his OP Units ("Initial Basis") equal to the sum of (i)
the amount of money contributed (or deemed contributed as described below)
and (ii) his adjusted tax basis in any other property contributed in exchange
for such OP Units, less the amount of any money distributed (or deemed
distributed, as described below) in connection with the acquisition of the OP
Units. The Initial Basis of OP Units acquired by other means would have been
determined under the general rules of the Code, including the partnership
provisions, governing the determination of tax basis. Other rules, including
the "disguised sale" rules discussed below, also may affect Initial Basis,
and Unitholders are urged to consult their own tax advisors regarding their
Initial Basis. A Unitholder's Initial Basis in his OP Unit is generally
increased by (i) such Unitholder's share of Operating Partnership taxable and
tax-exempt income and (ii) increases in such Unitholder's allocable share of
liabilities of the Operating Partnership (including any increase in his share
of liabilities occurring in connection with the acquisition of his OP Units).
Generally, such Unitholder's basis in his OP Units is decreased (but not
below zero) by (i) such Unitholder's share of Operating Partnership
distributions, (ii) decreases in such Unitholder's allocable share of
liabilities of the Operating Partnership (including any decrease in his share
of liabilities of the Operating Partnership occurring in connection with the
acquisition of this OP Units), (iii) such Unitholder's share of losses and
deductible expenses of the Operating Partnership and (iv) such Unitholder's
share of nondeductible expenditures of the Operating Partnership that are not
chargeable to his capital account.
Potential Application of the Disguised Sale Regulations to an Exchange
of OP Units. There is a risk that an exchange by the Operating Partnership
of OP Units issued in exchange for a contribution of property to the
Operating Partnership may cause the original transfer of property to the
Operating Partnership in exchange for OP Units to be treated as a "disguised
sale" of property. Section 707 of the Code and the Treasury Regulations
thereunder (the "Disguised Sale Regulations") generally, provide that, unless
one of the prescribed exceptions is applicable, a partner's contribution of
property to a partnership and a simultaneous or subsequent transfer of money
or other consideration (which may include the assumption of or taking subject
to a liability) from the partnership to the partner will be presumed to be a
sale, in whole or in part, of such property by the partner to the
partnership. Further, the Disguised Sale Regulations provide generally that,
in the absence of an applicable exception, if money or other consideration is
transferred by a partnership to a partner within two years of the partner's
contribution of property, the transactions are presumed to be a sale of the
contributed property unless the facts and circumstances clearly establish
that the transfers do not constitute a sale. The Disguised Sale Regulations
also provide that if two years have passed between the transfer of money or
other consideration and the contribution of property, the transactions will
be presumed not be a sale unless the facts and circumstances clearly
establish that the transfers constitute a sale.
Accordingly, if an OP Unit is redeemed by the Operating Partnership from
a Unitholder who holds OP Units that were issued in exchange for a
contribution of property to the Operating Partnership, the Internal Revenue
Service (the "IRS") could contend that the Disguised Sale regulations apply
because the Unitholder will thus receive cash subsequent to a previous
contribution of property to the Operating Partnership. In that event, the
IRS could contend that the contribution was taxable as a disguised sale under
the Disguised Sale Regulations. Any gain recognized thereby may be eligible
for installment reporting under Section 453 of the Code, subject to certain
limitations. In addition, in such event, the Disguised Sale Regulations
might apply to cause a portion of the proceeds received by a redeeming
Unitholder to be characterized as original issue discount on a deferred
obligation which would be taxable as interest income in accordance with the
provisions of Section 1272 of the Code. Each Unitholder is advised to
consult its own tax advisors to determine whether exchange of its OP Units
could be subject to the Disguised Sale Regulations.
Comparison of Ownership of OP Units and Common Shares
The nature of an investment in Common Shares of the Company is generally
economically equivalent to an investment in OP Units in the Operating
Partnership. There are, however, some differences between ownership of OP
Units and ownership of Common Shares, some of which may be material to
investors. The information below highlights a number of significant
differences between the Operating Partnership and the Company relating to,
among other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, investor rights
and Federal income taxation and compares certain legal rights associated with
the ownership of OP Units and Common Shares, respectively. These comparisons
are intended to assist Unitholders in understanding how their investment will
be changed if their OP Units are exchanged for Common Shares. This
discussion is summary in nature and does not constitute a complete discussion
of these matters. For additional important information about the Company,
investors should carefully review the balance of this Prospectus and the
registration statement of which this Prospectus is a part and the
organizational documents for the Operating Partnership and the Company which
have been filed as exhibits to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 and are incorporated herein by
reference.
Form of Organization and Assets Owned. The Operating Partnership is
organized as a Delaware limited partnership. A substantial amount of the
Company's operations are conducted through the Operating Partnership.
The Company was formed as a real estate investment trust under the
Maryland REIT Law in September 1993. As of June 30, 1998, the Company holds
an 88.8% limited partnership interest in the Operating Partnership. GPC is
the sole general partner of and owns a 0.784% partnership interest in the
Operating Partnership.
Length of Investment. The Operating Partnership has a stated
termination date of December 31, 2092, although it may be terminated earlier
under certain circumstances. The Company has a perpetual term and intends to
continue its operations for an indefinite time period.
Purpose and Permitted Investments. The purposes of the Operating
Partnership are to acquire, purchase, own, operate, manage, develop,
redevelop, construct, reconstruct, alter, modify, add to, subtract from,
invest in, mortgage, encumber, exchange, sell, lease and otherwise deal with
shopping centers, enclosed malls, single tenant and other primarily retail
properties and residential, office and mixed use (retail/office) properties
and industrial and warehouse properties and real estate and interests therein
of all types, including, without limitation, mortgages, deeds of trust and
similar interests and other instruments and participations therein, and
assets related to the foregoing, whether directly or indirectly, alone or in
association with others, and in general, to make any investments or
expenditures, to borrow and lend money and to take any and all actions which
are incidental or related to any of these purposes. The Partnership
Agreement requires the business of the Operating Partnership to be conducted
in such a manner that will permit the Company to be classified as a REIT for
Federal income tax purposes. The Operating Partnership may, subject to the
foregoing limitation, invest or enter into partnerships and joint ventures
created to accomplish all or any of the foregoing.
Under its Declaration of Trust, the Company has all the powers granted
to a real estate investment trust, generally, by the Maryland REIT Law.
Additional Equity. The Operating Partnership is authorized to issue OP
Units and other partnership interests to its partners or to other persons for
such consideration and on such terms and conditions as GPC, as general
partner (the "General Partner"), in its sole discretion, may deem
appropriate.
The Company's Declaration of Trust authorizes the Company to issue up to
100,000,000 Shares consisting of Common Shares and such other types or
classes of Shares as the Board of Trustees may create and authorize from time
to time and designate as representing a beneficial interest in the Company.
The Company is authorized to issue Preferred Shares in one or more series,
with such 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 the Board of Trustees of the Company
may determine by resolution. As long as the Operating Partnership is in
existence, the proceeds of all equity capital raised by the Company will be
contributed to the Operating Partnership in exchange for OP Units or other
interests in the Operating Partnership, which OP Units will have
designations, preferences and other rights, such that their economic
interests are substantially similar to those of the equity capital raised by
the Company.
Borrowing Policies. The Operating Partnership has no restriction on
borrowings, and the General Partner has full power and authority to borrow
money on behalf of the Operating Partnership.
The Company is not restricted under its Declaration of Trust or its
Bylaws from incurring borrowings.
Other Investment Restrictions. Other than restrictions precluding
investments by the Operating Partnership that would adversely affect the
qualification of the Company as a REIT, there are no restrictions upon the
Operating Partnership's authority to enter into certain transactions,
including, among others, making investments, lending Operating Partnership
funds, or reinvesting the Operating Partnership's cash flow and net sale or
refinancing proceeds.
The Company's Declaration of Trust does not impose any restrictions upon
the types of investments that may be made by the Company other than
restrictions precluding investments by the Company that would adversely
affect the qualification of the Company as a REIT. The Company's Bylaws
prohibit the Company from engaging in any transactions with any trustee,
officer or employee of the Company, or any entity in which any of such
individuals owns more than a one percent (1%) interest, or any affiliate of
any of the foregoing, unless the Company believes that entering into such a
transaction is in the best interests of the Company and unless a majority of
the disinterested trustees approve such transaction.
Management Control. All management powers over the business and affairs
of the Operating Partnership are vested in the General Partner, and no
Limited Partner of the Operating Partnership has any right to participate in
or exercise control or management power over the business and affairs of the
Operating Partnership.
The Company's business and affairs are managed under the direction of
the Board of Trustees, subject only to the restrictions in the Declaration of
Trust and the Bylaws. The Company's Board of Trustees is divided into three
classes of trustees. As the term of each class expires, trustees in that
class will be elected by the shareholders of the Company for a term of three
years. The policies adopted by the Board of Trustees may be altered or
eliminated without advice of the shareholders of the Company. Accordingly,
except for their vote in the elections of trustees, shareholders of the
Company have no control over the ordinary business policies of the Company.
Management Liability and Indemnification. The Partnership Agreement
generally provides that the General Partner will incur no liability to the
Operating Partnership or any Limited Partner for losses sustained or
liabilities incurred as a result of errors in judgment or of any act or
omission if the General Partner acted in good faith. In addition, the
General Partner will not incur any personal liability for the return of any
Limited Partner's capital. The Partnership Agreement also provides for
indemnification of the General Partner, the directors, trustees, officers and
shareholders of the Operating Partnership or the General Partner, and such
other persons (including affiliates of the General Partner or Operating
Partnership) as the General Partner may from time to time designate, against
any loss or damage, including reasonable legal fees, expenses and court
costs, that relate to the operations of the Operating Partnership in which
such person may be involved; provided that the Operating Partnership is not
required to indemnify any such entity or person for any loss or damage
incurred as a result of such entity's or person's fraud or willful misconduct
in the performance of its duties that relate to the Operating Partnership.
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its declaration of trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages
except for liability resulting from (a) actual receipt of an improper benefit
or profit in money, property or services or (b) active and deliberate
dishonest established by a final judgment as being material to the cause of
action. The Declaration of Trust of the Company contains such a provision
which eliminates such liability to the maximum extent permitted by the
Maryland REIT Law.
The Declaration of Trust of the Company authorizes it, to the maximum
extent provided in its Bylaws, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to (a) any present or former trustee or officer or (b) any individual who,
while a trustee of the Company and at the request of the Company, serves or
has served another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a trustee, director, officer or
partner, of such corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise from and against any claim or liability to
which such person may become subject or which such person may incur by reason
of his status as a present or former trustee or officer of the Company. The
Company's Bylaws obligate it, to the maximum extent permitted by Maryland
Law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (a) any current or former trustee,
officer or shareholder (including any individual who, while a trustee or
officer and at the request of the Company, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise as a trustee, director, officer or partner of such
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise) and who is made a party to the proceeding by reason of his
service in that capacity, and (b) any present or former trustee or officer
against any claim or liability to which he may become a party by reason of
his service in that capacity unless it is established that (i) his act or
omission was committed in bad faith or was the result of active and
deliberate dishonesty, (ii) he actually received an improper personal benefit
in money, property or services or (iii) in the case of a criminal proceeding,
he had reasonable cause to believe that his act or omission was unlawful. In
addition, the Company's Bylaws require it to pay or reimburse, in advance of
final disposition of a proceeding, reasonable expenses incurred by a present
or former trustee or officer made a party to a proceeding by reason of his
status as a trustee or officer provided that the Company shall have received
(i) a written affirmation by the trustee or officer of his good faith belief
that he has met the standard of conduct necessary for indemnification by the
Company as authorized by the Bylaws and (ii) a written undertaking by him or
on his behalf to repay the amount paid or reimbursed by the Company if it
shall ultimately be determined that the standard of conduct was not met. The
Company's Bylaws also (i) permit the Company to provide indemnification and
payment or reimbursement of expenses to a present or former trustee or
officer who served a predecessor of the Company in such capacity and to any
employee or agent of the Company or a predecessor of the Company, (ii)
provide that any indemnification or payment or reimbursement of the expenses
permitted by the Company's Bylaws shall be furnished in accordance with the
procedures provided for indemnification and payment or reimbursement of
expenses under Section 2-418 of the MGCL for directors of Maryland
corporations and (iii) permit the Company to provide such other and further
indemnification or payment or reimbursement of expenses as may be permitted
by Section 2-418 of the MGCL for directors of Maryland corporations.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and
agents to the same extent as permitted by the MGCL for directors and officers
of Maryland corporations. The MGCL permits a corporation to indemnify it
present and former directors and officers, among others, against judgments,
penalties, fines settlements and reasonable expenses actually incurred by
them in connection with any proceeding to which they may be made a party by
reason of their service in those or other capacities unless it is established
that (a) the act or omission of the director or officer was material to the
matter giving rise to the proceeding and (i) was committed in bad faith or
(ii) was the result of active and deliberate dishonesty, (b) the director or
officer actually received an improper personal benefit in money, property or
services or (c) in the case of any criminal proceeding, the director or
officer had reasonable cause to believe that the act or omission was
unlawful. However, under the MGCL, a Maryland corporation may not indemnify
for an adverse judgment in a suit by or in the right of the corporation or
for a judgment of liability on the basis that personal benefit was improperly
received, unless in either case a court orders indemnification and then only
for expenses. In addition, the MGCL permits a corporation to advance
reasonable expenses to a director or officer upon the corporation's receipt
of (a) a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification
by the corporation and (b) a written undertaking by him or on his behalf to
repay the amount paid or reimbursed by the corporation if it shall ultimately
be determined that the standard of conduct was not met.
The Company maintains a standard policy of officers' and trustees'
liability insurance.
Anti-takeover Provisions. Except in limited circumstances, the General
Partner has exclusive management power over the business and affairs of the
Operating Partnership. The General Partner may be removed by the Limited
Partners with or without cause, and the Limited Partners may select a
successor general partner.
The Declaration of Trust and Maryland law contain a number of provisions
that may have the effect of delaying, deferring or preventing an unsolicited
proposal for the acquisition of the Company or the removal of incumbent
management.
Voting Rights. Under the Partnership Agreement, the Limited Partners do
not have voting rights relating to the operation and management of the
Operating Partnership except in connection with matters, as described more
fully below, involving certain amendments to the Partnership Agreement.
Subject to the provisions of the Declaration of Trust regarding the
restrictions on the transfer of Shares, shareholders of the Company have the
right to vote on (i) the election or removal of trustees, (ii) amendment of
the Declaration of Trust, (iii) termination of the Company, (iv)
reorganization of the Company, merger or consolidation of the Company, or the
sale of substantially all of the assets of the Company, and (iv) such other
matters as have been submitted by the Board of Trustees to the shareholders
for approval or ratification. The affirmative vote of the holders of at
least two-thirds of the votes outstanding and entitled to vote is required
with respect to, among other things, a merger where the Company is not the
survivor, a sale of substantially all of the assets of the Company, certain
amendments to the Declaration of Trust and dissolution of the Company. The
business and affairs of the Company are managed under the direction of a
Board of Trustees, specified classes of which are elected each year to three
year terms by the shareholders of the Company. Each Common Share has one
vote.
Amendment of the Operating Partnership Agreement or the Declaration of
Trust. The Partnership Agreement may be amended if it is approved by the
General Partner and it receives the Consent of the Limited Partners, provided
that the Consent of the Limited Partners is not required if the Limited
Partners (other than Company) own, in the aggregate, less than ten percent
(10%) of the partnership interests; further provided that the General Partner
has the power, without the Consent of the Limited Partners, to amend the
Partnership Agreement to, among other things, (i) add to the obligations of
the General Partner or surrender any right or power granted to the General
Partner for the benefit of the Limited Partners, (ii) reflect the admission,
substitution, termination, or withdrawal of partners, (iii) set forth the
right, powers, duties and preferences of the holders of any additional
partnership interests and (iv) satisfy any requirements, conditions or
guidelines contained in any order, directive, opinion, ruling or regulation
of a Federal or state agency or contained in Federal or state law. Certain
amendments that would, among other things, adversely affect the rights of any
Limited Partner in profits, losses or distributions, affect the Redemption
Right in a manner adverse to the Limited Partners, convert a Limited
Partner's interest in the Operating Partnership into a general partner's
interest or modify the limited liability of a Limited Partner, require the
Consent of Limited Partners.
The Declaration of Trust may be amended by the affirmative vote of the
holders of not less than a majority of the Shares then outstanding and
entitled to vote thereon, provided, however, (i) no term or provision of the
Declaration of Trust may be added, amended or repealed in any respect that
would, in the determination of the Board of Trustees, cause the Company not
to qualify as a REIT under the Code and (ii) certain provisions of the
Declaration of Trust, including provisions relating to the removal of
trustees, restrictions on transfer of Shares that would result in Excess
Shares, the organization, merger or consolidation of the Company or the sale
of Company assets, may not be amended or repealed unless, in each such case,
such action is approved by the affirmative vote of the holders of not less
than two-thirds of all the votes entitled to be cast on the matter.
Compensation, Fees and Distributions. The General Partner does not
receive any compensation for its services to the Operating Partnership. As a
partner in the Operating Partnership, however, the General Partner has the
same right to allocations and distributions as other partners of the
Operating Partnership. In addition, the Operating Partnership will reimburse
the General Partner for all expenses incurred relating to the ownership and
operation of, or for the benefit of, the Operating Partnership.
The trustees and officers of the Company receive compensation for their
services.
Liability of Investors. Under the Operating Partnership Agreement and
applicable Delaware law, the liability of the Limited Partners for the
Operating Partnership's debts and obligations is generally limited to the
amount of their investment in the Operating Partnership.
Under the Maryland REIT Law, shareholders generally are not personally
liable for the obligations of the Company. See "Description of Common
Shares."
Nature of Investment. The OP Units constitute equity interests
entitling holders thereof to their pro rata share of cash distributions made
to the Limited Partners of the Operating Partnership. The General Partner is
entitled to receive its pro rata share of distributions made by the Operating
Partnership with respect to its interest in the Operating Partnership.
Common Shares Constitute Equity Interests in the Company. Subject to the
provisions of the Declaration of Trust regarding the restrictions on transfer
of Shares, each shareholder will be entitled to his pro rata share of any
dividends or distributions paid with respect to Common Shares. The dividends
payable to the shareholders are not fixed in amount and are paid only if,
when and as authorized and declared by the Board of Trustees. In order to
qualify as a REIT, the Company must distribute at least 95% of its taxable
income (excluding capital gains), and any taxable income (including capital
gains) not distributed will be subject to corporate income tax.
Liquidity. Subject to certain exceptions, the Unitholders may transfer
all or any portion of their OP Units with or without the consent of the
General Partner. However, the General Partner, in its sole and absolute
discretion, may or may not consent to the admission as a substituted limited
partner of any transferee of such OP Units. If the General Partner does not
consent to the admission of a transferee as a substituted limited partner,
the transferee shall be considered an assignee of an economic interest in the
Operating Partnership but will not be a holder of OP Units for any other
purpose; accordingly, the assignee will not be permitted to vote on any
affairs or issues on which a Limited Partner may vote.
The Common Shares are listed on the NYSE. The breadth and strength of
the market for Common Shares will depend upon, among other things, the number
of shares outstanding, the Company's financial results and prospects, the
general interest in the Company's real estate investments and the Company's
distribution yield compared to that of other debt and equity securities.
Federal Income Taxation. The Operating Partnership is taxed as a
partnership for federal income tax purposes. Accordingly, each Unitholder
includes on his individual income tax return as income, gain, deduction or
loss his distributive share of the Operating Partnership's items of income,
gain, deduction or loss, determined as if the Unitholder realized such items
directly from the source from which realized by the Operating Partnership or
incurred such items in the same manner incurred by the Operating Partnership.
Distributions by the Operating Partnership to a Unitholder are generally not
taxable to the Unitholder unless they exceed the Unitholder's basis in his OP
Units. Special limitations, such as the passive activity loss rules, may
limit a Unitholder's ability to use his share of the Operating Partnership's
losses and deductions to offset income from other sources. Income and gain
from the Operating Partnership, however, should be characterized as passive
activity income and may be offset by losses and deductions from other passive
activities in which a Unitholder holds an interest.
The Company is a corporation taxed as a REIT. Shareholders may not
include in their individual income tax returns any net operating losses or
capital losses of the Company. Instead, such losses would be carried over by
the Company for potential offset against its future income (subject to
certain limitations). Taxable distributions from the Company and gain from
the disposition of the Common 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 the 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.
As long as the Company qualifies as a REIT, distributions made to the
Company's 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. As
used herein, the term "U.S. shareholder" means a holder of Common Shares who
for U.S. federal income tax purposes is (i) a citizen or resident of the
United States, (ii) a corporation, partnership, or other entity created or
organized in or under the laws of the United States or of political
subdivision thereof, or (iii) an estate or trust the income of which is
subject to U.S. federal income taxation regardless of its source.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed the Company's
actual net capital gain for the taxable year) without regard to the period
for which the shareholder has held his Common 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 Common
Shares, but rather will reduce the adjusted basis of such shares. To the
extent that such distributions in excess of current and accumulated earnings
and profits exceed the adjusted basis of a shareholder's Common Shares, such
distributions will be included in income as long-term capital gain (or short-
term capital gain if the Common Shares has been held for one year or less)
assuming the Common Share is a capital asset in the hands of the shareholder.
In addition, any distribution declared by the Company 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 Company and
received by the shareholder on December 31 of such year, provided that the
distribution is actually paid by the Company during January of the following
calendar year.
The rules governing U.S. federal income taxation of tax-exempt entities,
nonresident alien individuals, foreign corporations, foreign partnerships or
other foreign entities with regard to their investments in U.S. partnerships
and in REITs are complex, and no attempt is made here to summarize such
rules. TAX-EXEMPT AND FOREIGN UNITHOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS TO DETERMINE THE EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME
TAX LAWS WITH REGARD TO AN INVESTMENT IN COMMON SHARES, INCLUDING ANY
REPORTING REQUIREMENTS.
State and Local Taxation. In general, the differences between the state
and local tax treatments of Unitholders in the Operating Partnership and
shareholders in the Company will be similar to the differences between the
federal income tax treatments of Unitholders and shareholders. Variations in
state and local tax laws, are, however, impossible to summarize here. EACH
UNITHOLDER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR REGARDING THE SPECIFIC
DIFFERENCES IN STATE AND LOCAL TAX TREATMENTS OF OP UNITHOLDERS AND
SHAREHOLDERS.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the provisions of the Code,
governing the Federal income tax treatment of a REIT and of certain Federal
tax considerations relevant to the purchase, ownership and disposition of
Exchanged Shares and is not tax advice. These provisions are highly
technical and complex, and this summary is qualified in its entirety by the
applicable Code provisions, rules and regulations promulgated thereunder, and
administrative and judicial interpretations thereof. Moreover, this summary
is directed to prospective purchasers who will hold Exchanged Shares as
capital assets and does not deal with all tax aspects that might be relevant
to a particular prospective shareholder in light of his personal
circumstances; nor does it deal with particular types of shareholders that
are subject to special treatment under the Code, such as tax-exempt
organizations, insurance companies, financial institutions, foreign taxpayers
and broker-dealers.
The information in this section is based on the Code, current, temporary
and proposed Treasury Regulations thereunder, the legislative history of the
Code, current administrative interpretations and practices of the IRS
(including its practices and policies as endorsed in private letter rulings,
which are not binding on the IRS except with respect to a taxpayer that
receives such a ruling), and court decisions, all as of the date hereof. No
assurance can be given that future legislation, Treasury Regulations,
administrative interpretations and court decisions will not significantly
change the current law or adversely affect existing interpretations of
current law. Any such change could apply retroactively to transactions
preceding the date of the change.
EACH PROSPECTIVE PURCHASER OF THE COMMON SHARES IS ADVISED TO CONSULT
HIS OWN TAX ADVISOR WITH RESPECT TO HIS SPECIFIC FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND SALE OF
COMMON SHARES, OF THE COMPANY'S ELECTION TO BE TAXED AS A REIT AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Federal Income Taxation of the Company
General
The Company elected to be taxed as a REIT under Sections 856 and 860 of
the Code, commencing with its taxable year ended December 31, 1994. In the
opinion of Robinson Silverman Pearce Aronsohn & Berman LLP, commencing with
the Company's taxable year ended December 31, 1994, the Company was organized
in conformity with the requirements for qualification as a REIT, and its
method of operation enabled it to meet the requirements for qualification and
taxation as a REIT under the Code. The Company intends to continue to
operate in a manner that will enable it to qualify for taxation as a REIT,
but no assurance can be given that it will operate in a manner so as to
qualify or remain qualified. It must be emphasized that this opinion is
based on various assumptions and is conditioned upon certain representations
made by the Company as to factual matters. In addition, this opinion is
based upon the factual representations made by the management of the Company
concerning its business and properties. Moreover, such qualification and
taxation as a REIT depends upon the Company's ability to meet, through actual
annual operating results, distribution levels, diversity of share ownership,
and the various other qualification tests imposed under the Code discussed
below, the results of which have not been and will not be reviewed by
Robinson Silverman Pearce Aronsohn & Berman LLP. Accordingly, no assurance
can be given that the actual results of the Company's operation for any one
taxable year will satisfy such requirements. See "Federal Income Tax
Considerations-Failure to Qualify as a Real Estate Investment Trust."
If the Company qualifies for tax treatment as a REIT, it will generally
not be subject to Federal corporate taxation on its net income to the extent
currently distributed to its shareholders. This substantially eliminates the
"double taxation" (at both the corporate and shareholder levels) that
typically results from the use of corporate investment vehicles.
The Company will be subject to Federal income tax, however, as follows:
First, the Company will be taxed at regular corporate rates on its
undistributed REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" to the extent that tax exceeds its regular tax.
Third, if the Company has net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or other nonqualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, any net income that the Company has from prohibited
transactions (which are, in general, certain sales or other dispositions of
property other than foreclosure property held primarily for sale to customers
in the ordinary course of business and, effective for the Company's taxable
year ending December 31, 1998, other than dispositions of property that occur
due to an involuntary conversion) will be subject to a 100% tax. Fifth, if
the Company should fail to satisfy either the 75% or 95% gross income tests
(as discussed below), and has nonetheless maintained its qualification as a
REIT because certain other requirements have been met, it will be subject to
a 100% tax on an amount equal to (a) the gross income attributable to the
greater of the amount by which the Company fails the 75% or 95% test,
multiplied by (b) a fraction intended to reflect the Company's profitability.
Sixth, if the Company fails to distribute during each year at least the sum
of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain net income for such year, and (iii) any undistributed taxable
income from preceding periods, the Company will be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed. Seventh, if the Company acquires any asset from a C corporation
(i.e., generally a corporation subject to full corporate-level tax) in
certain transactions in which the basis of the asset in the Company's hands
is determined by reference to the basis of the asset (or any other property)
in the hands of the C corporation, and the Company recognizes gain on the
disposition of such an asset during the 10-year period (the "Recognition
Period") beginning on the date on which such asset was acquired by the
Company, then, to the extent of the excess, if any, of the fair market value
over the adjusted basis of such asset as of the beginning of the Recognition
Period such gain will be subject to tax at the highest regular corporate
rate.
Requirements for Qualification
A REIT is defined in the Code as a corporation, trust or association:
(1) which is managed by one or more trustees or directors; (2) the beneficial
ownership of which is evidenced by transferable shares or by transferable
certificates of beneficial interest; (3) which would be taxable as a domestic
corporation, but for Sections 856 through 860 of the Code; (4) which is
neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100
or more persons; (6) not more than 50% in value of the outstanding stock of
which is owned during the last half of each taxable year, directly or
indirectly, by or for five or fewer individuals (as defined in the Code to
include certain entities) (the "Five or Fewer Requirement"); and (7) which
meets certain income and asset tests described below. Conditions (1) to (4),
inclusive, must be met during the entire taxable year and condition (5) must
be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. For purposes of
conditions (5) and (6), pension funds and certain other tax-exempt entities
are treated as individuals, subject to "look-through" exception in the case
of condition (6).
The Company has represented that it has satisfied the share ownership
requirements set forth in (5) and (6) above. In addition, the Company's
Declaration of Trust provides restrictions regarding the transfer of its
shares which are intended to assist the Company in continuing to satisfy the
share ownership requirements described in (5) and (6) above. Such transfer
restrictions are described in "Description of Preferred Shares-Other
Preferred Shares-Restrictions on Transfer" and "Description of Common Shares-
Restrictions on Ownership and Transfer."
For the Company's taxable years commencing on and after January 1, 1998,
if the Company complies with regulatory rules pursuant to which it is
required to send annual letters to certain of its shareholders requesting
information regarding the actual ownership of its stock, but does not know,
or exercising reasonable diligence would not have known, whether it failed to
meet the requirement that it not be closely held, the Company will be treated
as having met the requirement described in (6) above. If the Company were to
fail to comply with these regulatory rules for any year, it would be subject
to a $25,000 penalty. If the Company's failure to comply was due to
intentional disregard of the requirements, the penalty is increased to
$50,000. However, if the Company's failure to comply was due to reasonable
cause and not willful neglect, no penalty would be imposed.
Ownership of a Partnership Interest
In the case of a REIT that is a partner in a partnership, treasury
regulations promulgated under the Code ("Treasury Regulations") provide that
the REIT is deemed to own its proportionate share of the assets of the
partnership and is deemed to be entitled to the income of the partnership
attributable to such share. In addition, the character of the assets and
gross income of the partnership retain the same character in the hands of the
REIT for purposes of the REIT qualification tests, including satisfying the
gross income tests and the asset tests. Accordingly, the Company's
proportionate share of the assets, liabilities, and items of income of the
Operating Partnership will be treated as assets, liabilities, and items of
income of the Company for purposes of applying the requirements described
herein, provided that such partnership is treated as a partnership for
federal income tax purposes and is not taxable as a corporation for federal
income tax purposes.
Income Tests
Effective for the Company's taxable year beginning January 1, 1998,
there are two percentage tests relating to the sources of the Company's gross
income that the Company must satisfy annually to maintain its qualification
as a REIT. First, at least 75% of the Company's gross income (excluding
gross income from certain sales of property held primarily for sale and from
discharge of indebtedness) must be directly or indirectly derived each
taxable year from investments relating to real property or mortgages on real
property or certain temporary investments. Second, at least 95% of the
Company's gross income (excluding gross income from certain sales of property
held primarily for sale and from discharge of indebtedness) must be directly
or indirectly derived each taxable year from any of the sources qualifying
for the 75% test and from dividends, interest, and gain from the sale or
disposition of stock or securities. As discussed earlier (see "Ownership of
a Partnership Interest"), in applying these tests, if the Company invests in
a partnership, such as the Operating Partnership, the Company will be treated
as realizing its share of the income and bearing its share of the loss of the
partnership, and the character of such income or loss, as well as other
partnership items, will be determined at the partnership level.
Rents received by the Company will qualify as "rents from real property"
for purposes of satisfying the gross income tests for a REIT only if several
conditions are met. First, the amount of rent must not be based in whole or
in part on the income or profits of any person, although rents generally will
not be excluded merely because they are based on a fixed percentage of
receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" if the REIT, or an owner of 10% or more of the
REIT, also directly or constructively owns 10% or more of such tenant.
Third, if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under
the lease, then the portion of rent attributable to such personal property
will not qualify as "rents from real property." Finally, for rents to qualify
as "rents from real property," the REIT generally must not operate or manage
the property or furnish or render services to the tenants of such property,
other than through an independent contractor from whom the REIT derives no
income; provided, however, the Company may directly perform certain services
customarily furnished or rendered in connection with the rental of real
property in the geographic area in which the property is located other than
services which are considered rendered to the occupant of the property. The
Company will, in a timely manner, hire independent contractors from whom it
derives no revenue to perform such services, except that the Company will
directly perform services under certain of its leases with respect to which
it will receive an opinion of counsel or otherwise satisfy itself that its
performance of such services will not cause the rents to fail to qualify as
"rents from real property." The Company has represented that each of the
above requirements has been satisfied. In addition, for its 1998 taxable year
and thereafter, the Company is permitted to receive up to 1% of the gross
income from each property from the provision of non-customary services and
still treat all other amounts received from such property as "rents from real
property."
The term "interest" generally does not include any amount if the
determination of such amount depends in whole or in part on the income or
profits of any person, although an amount generally will not be excluded from
the term "interest" solely by reason of being based on a fixed percentage of
receipts or sales.
If the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is eligible for relief under certain provisions of the Code.
These relief provisions will be generally available if the Company's failure
to meet such tests was due to reasonable cause and not due to willful
neglect, the Company attaches a schedule of the sources of its income to its
return, and any incorrect information on the schedule was not due to fraud
with intent to evade tax. It is not now possible to determine the
circumstances under which the Company may be entitled to the benefit of these
relief provisions. If these relief provisions apply, a 100% tax is imposed
on the net income attributable to the greater of the amount by which the
Company failed the 75% test or the 95% test.
Asset Tests
At the close of each quarter of its taxable year, the Company must also
satisfy several tests relating to the nature and diversification of its
assets. First, at least 75% of the value of the Company's total assets must
be represented by real estate assets, cash, cash items (including receivables
arising in the ordinary course of the Company's operation) and government
securities. In addition, not more than 25% of the value of the Company's
total assets may be represented by securities other than those included in
the 75% asset class. Moreover, of the investments included in the 25% asset
class, the value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets. Finally, of the
investments included in the 25% asset class, the Company may not own more
than 10% of any one issuer's outstanding voting securities.
Annual Distribution Requirements
The Company, in order to avoid being taxed as a regular corporation, is
required to make distributions (other than capital gain dividends) to its
shareholders which qualify for the dividends paid deduction in an amount at
least equal to (A) the sum of (i) 95% of the Company's "REIT taxable income"
(computed without regard to the dividends paid deduction and the Company's
net capital gain) and (ii) 95% of the after tax net income, if any, from
foreclosure property, minus (B) the sum of certain items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or
in the following taxable year if declared before the Company timely files its
tax return for such year and if paid on or before the first regular
distribution payment after such declaration. To the extent that the Company
does not distribute all of its net capital gain or distributes at least 95%,
but less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax thereon at regular corporate tax rates. Finally, as discussed
above, the Company may be subject to an excise tax if it fails to meet
certain other distribution requirements. The Company intends to make timely
distributions sufficient to satisfy these annual distribution requirements.
It is possible that the Company, from time to time, may not have
sufficient cash or other liquid assets to meet the 95% distribution
requirement, or to distribute such greater amount as may be necessary to
avoid income and excise taxation, due to, among other things, (a) timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company, or (b) the
payment of severance benefits that may not be deductible to the Company. In
the event that such timing differences occur, the Company may find it
necessary to arrange for borrowings or, if possible, pay taxable share
distributions in order to meet the distribution requirement.
Under certain circumstances, in the event of a deficiency determined by
the IRS, the Company may be able to rectify a resulting failure to meet the
distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year, which may be included in the Company's
deduction for distributions paid for the earlier year. Thus, although the
Company may be able to avoid being taxed on amounts distributed as deficiency
distributions, it will be required to pay interest based upon the amount of
any deduction taken for deficiency distributions.
Failure to Qualify as a Real Estate Investment Trust
The Company's election to be treated as a REIT will be automatically
terminated if the Company fails to meet the requirements described above and
is ineligible for relief from such failure. In that event, the Company will
be subject to tax (including any applicable minimum tax) on its taxable
income at regular corporate rates, and distributions to shareholders will not
be deductible by the Company. Also, all distributions to shareholders will
be taxable as ordinary income to the extent of current and accumulated
earnings and profits allocable to such distributions and, subject to certain
limitations of the Code, will be eligible for the 70% dividends received
deduction for corporate shareholders (although special rules apply in the
case of any "extraordinary dividend" as defined in Code Section 1059). The
Company will not be eligible again to elect REIT status until the fifth
taxable year which begins after the year for which the Company's election was
terminated unless the Company did not willfully fail to file a timely return
with respect to the termination taxable year, inclusion of incorrect
information in such return was not due to fraud with intent to evade tax, and
the Company establishes that failure to meet the requirement was due to
reasonable cause and not willful neglect. Failure to qualify for even one
year could result in the Company incurring substantial indebtedness (to the
extent borrowings are feasible) or liquidating substantial investments in
order to pay the resulting taxes.
Federal Income Taxation of Shareholders
General
So long as the Company qualifies for taxation as a REIT, distributions
with respect to Common Shares, Preferred Shares or Common Shares acquired in
conversion of any convertible Preferred Shares (collectively "Shares") made
out of current or accumulated earnings and profits allocable thereto (and not
designated as capital gain dividends) will be included by the shareholders as
ordinary income for Federal income tax purposes. For this purpose, the
current and accumulated earnings and profits of the Company will be allocated
first to distributions with respect to Preferred Shares and then to
distributions with respect to Common Shares. None of these distributions
will be eligible for the dividends received deduction for corporate
shareholders. Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent they do not exceed
the Company's actual net capital gain for the taxable year) without regard to
the period for which the shareholder has held his shares. Recent legislation
has reduced the holding period for capital gains to be taxed at a maximum
rate of 20% from more than 18 months to more than 12 months. Based on this
change, it is expected that, for a U.S. shareholder who is an individual or
an estate or trust, such capital gain dividends generally will be taxable at
the 20% rate applicable to gains from the sale of capital assets held for
more than one year except to the extent the Company designates the capital
gain dividend as a 25% rate distribution based on certain IRS guidelines.
Corporate shareholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income.
Beginning with the Company's taxable year ending December 31, 1998, if
the Company elects to retain and pay income tax on any net long term capital
gain, domestic shareholders of the Company would include in their income as
long term capital gain their proportionate share of such net long term
capital gain. A domestic shareholder would also receive a refundable tax
credit for such shareholder's proportionate share of the tax paid by the
Company on such retained capital gains and an increase in its basis in the
shares of the Company in an amount equal to the shareholder's included
capital gains less its share of the tax deemed paid.
Distributions in excess of current or 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 Shares. Shareholders will be
required to reduce the tax basis of their Shares by the amount of such
distributions until such basis has been reduced to zero, after which such
distributions will be taxable as capital gain (ordinary income in the case of
a shareholder who holds his Shares as a dealer). The tax basis as so reduced
will be used in computing the capital gain or loss, if any, realized upon
sale of the Shares. Any loss upon a sale or exchange of Shares by a
shareholder who held such Shares for six months or less (after applying
certain holding period rules) will generally be treated as a long-term
capital loss to the extent such shareholder previously received capital gain
distributions with respect to such Shares.
Capital gain realized by the Company on the sale of its assets generally
will equal the difference between the sale price and the Company's tax basis
in the asset sold. This initial tax basis will be subsequently reduced by
annual depreciation deductions. Inasmuch as the initial contribution of
certain properties (the "Contributed Properties") was not fully taxable, the
Operating Partnership's initial basis in each of the Contributed Properties,
as such basis may be adjusted, is at least equal to the transferors' basis in
the Contributed Properties immediately prior to the transactions, which is a
lower basis than had such properties been purchased from the transferors
thereof in a fully taxable transaction. However, by reason of certain
partnership allocation provisions, this lower initial tax basis should not
result in a greater taxable gain to the Company than would have been the case
if the Contributed Properties had been purchased by the Company in a fully
taxable transaction. See "Tax Aspects of the Operating Partnership and the
Subsidiary Partnerships-Income Taxation of the Operating Partnership and Its
Partners-Tax Allocations with Respect to Contributed Properties" and "-Sale
of the Operating Partnership's Property." Additionally, such lower initial
tax basis may result in lower aggregate depreciation deductions over the
lives of the Properties than if the Company had purchased the Contributed
Properties in a fully taxable transaction; however, by reason of certain
partnership allocation provisions, the Company may be entitled to greater
depreciation deductions in the initial years following the formation of the
Company. Depreciation deductions reduce taxable income and thus may
effectively increase the portion of distributions which would represent a
non-taxable return of capital.
Shareholders may not include in their individual Federal income tax
returns any net operating losses or capital losses of the Company. In
addition, any distribution declared by the Company in October, November or
December of any year payable to a shareholder of record on a specified date
in any such month shall be treated as both paid by the Company and received
by the shareholder on December 31 of such year, provided that the
distribution is actually paid by the Company no later than January 31 of the
following year. The Company may be required to withhold a portion of capital
gain distributions to any shareholders who fail to certify their non-foreign
status to the Company.
The IRS has ruled that if a REIT's dividend reinvestment plan allows
shareholders of the REIT to elect to have cash distributions reinvested
automatically in shares of the REIT at a purchase price equal to at least 95%
of fair market value on the distribution date, then such cash distributions
qualify under the 95% distribution test described above at "Federal Income
Taxation of the Company-Annual Distribution Requirements." Under the terms of
the Company's Distribution Reinvestment and Share Purchase Plan (the
"Purchase Plan"), shares are generally thereunder acquired at 100% of fair
market value without a discount. Thus, distributions reinvested under the
Purchase Plan will count towards satisfying the 95% distribution test.
Shareholders should be aware that amounts of dividends reinvested pursuant to
the Purchase Plan will be taxable income to them, regardless of the fact that
such dividends have been reinvested with the Company (i.e., the tax is not
deferred until the shares received from participation in the Purchase plan
are sold or disposed of).
Other Disposition
Upon the sale or exchange of Shares to or with a person other than the
Company or a sale or exchange of Shares with the Company to the extent not
taxable as a dividend, a holder will recognize capital gain or loss equal to
the difference between the amount realized on such sale or exchange and the
holder's adjusted tax basis in such shares. Any capital gain or loss
recognized will generally be treated as capital gain or loss subject to tax
at a maximum tax rate of 20% if the holder held such Shares for more than one
year.
Backup Withholding and Information Reporting
A noncorporate holder of Shares who is not otherwise exempt from backup
withholding may be subject to backup withholding at the rate of 31% with
respect to dividends paid on, or the proceeds of a sale, exchange or
redemption of, any Shares. Generally, backup withholding applies only when
the taxpayer (i) fails to furnish or certify his correct taxpayer
identification number to the payor in the manner requested, (ii) is notified
by the IRS that he has failed to report payments of interest or dividends
properly, or (iii) under certain circumstances, fails to certify that he has
not been notified by the IRS that he is subject to backup withholding for
failure to report interest or dividend payments. Any amounts withheld under
the backup withholding rules from a payment to a holder will be allowed as a
credit against the holder's federal income tax liability or as a refund,
provided that the required information is furnished to the IRS. Holders
should consult their own tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining any
applicable exemption.
Foreign Shareholders
The rules governing United States Federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other
foreign shareholders (collectively, "Non-U.S. Shareholders") are complex and
no attempt will be made herein to provide more than a general summary of such
rules. Prospective Non-U.S. Shareholders should consult with their own tax
advisors to determine the impact of Federal, state and local income tax laws
with regard to an investment in Shares, including any reporting requirements,
as well as the tax treatment of such an investment under their home country
laws.
Distributions that are not attributable to gain from sales or exchanges
by the Company of United States real property interests and not designated by
the Company as capital gain dividends will be treated as dividends of
ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions
ordinarily will be subject to a withholding tax equal to 30% of the gross
amount of the distribution unless an applicable tax treaty reduces or
eliminates that tax. However, if income from the investment in the Shares is
treated as effectively connected with the Non-U.S. Shareholder's conduct of a
United States trade or business, the Non-U.S. Shareholder generally will be
subject to a tax at graduated rates, in the same manner as U.S. Shareholders
are taxed with respect to such dividends (and may also be subject to the 30%
branch profits tax in the case of a shareholder that is a foreign
corporation). The Company expects to withhold United States income tax at
the rate of 30% on the gross amount of any such dividends paid to a
Non-U.S. Shareholder unless (i) a lower treaty rate applies and the Non-U.S.
Shareholder files an IRS Form 1001 with the Company claiming a lower treaty
rate or (ii) the Non-U.S. Shareholder files an IRS Form 4224 with the Company
claiming that the distribution is effectively connected income.
Distributions in excess of current and accumulated earnings and profits of
the Company will not be taxable to a shareholder to the extent that they do
not exceed the adjusted basis of the shareholder's Shares, but rather will
reduce the adjusted basis of such Shares. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Shareholder's Shares,
they will give rise to tax liability if the Non-U.S. Shareholder would
otherwise be subject to tax on any gain from the sale or disposition of his
Shares in the Company, as described below. If it cannot be determined at the
time a distribution is made whether or not such distribution will be in
excess of current and accumulated earnings and profits, the distributions
will be subject to withholding at the same rate as dividends. However,
amounts thus withheld are refundable if it is subsequently determined that
such distribution was, in fact, in excess of current and accumulated earnings
and profits of the Company.
Recently adopted Treasury Regulations not yet in effect (the "Final
Regulations") would alter the foregoing rules in certain respects. In
general, the Final Regulations are effective January 1, 2000. Under the
Final Regulations, a Non-U.S. Holder seeking an exemption from withholding or
a reduced rate of withholding on account of a treaty or the effectively
connected income exemption would generally be required to provide a
beneficial owner certificate on Form W-8, which form may include, among other
things, the Non-U.S. Holder's taxpayer identification number and certain
other information and representations. The Final Regulations also provide
special rules to determine whether, for purposes of determining the
applicability of a tax treaty, distributions paid to a Non-U.S. Holder that
is an entity should be treated as paid to the entity or those holding an
interest in the entity. With respect to withholding the 30% tax on
distributions to Non-U.S. Shareholders, the Final Regulations would allow the
Company to make an election to estimate its earnings and profits and withhold
the tax only on that portion of the gross distribution that would constitute
a dividend. The Company may or may not make any such elections in the
future.
For any year in which the Company qualifies as a REIT, distributions
that are attributable to gain from sales or exchanges by the Company of
United States real property interests will be taxed to a Non-U.S. Shareholder
under the provisions of the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"). Under FIRPTA, these distributions are taxed to a
Non-U.S. Shareholder as if such gain were effectively connected with a United
States business. Non-U.S. Shareholders would thus be taxed at the normal
capital gain rates applicable to U.S. shareholders (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals). Also, distributions subject to FIRPTA may be
subject to a 30% branch profits tax in the hands of a foreign corporate
shareholder not entitled to treaty exemption. The Company is required to
withhold 35% of any distribution that could be designated by the Company as a
capital gain dividend. This amount is creditable against the
Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of Shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held
directly or indirectly by foreign persons. It is currently anticipated that
the Company will be a "domestically controlled REIT," and therefore the sale
of Shares will not be subject to taxation under FIRPTA. However, gain not
subject to FIRPTA will be taxable to a Non-U.S. Shareholder if (i) investment
in the Shares is effectively connected with the Non-U.S. Shareholder's United
States trade or business, in which case the Non-U.S. Shareholder will be
subject to the same treatment as U.S. shareholders with respect to such gain,
or (ii) the Non-U.S. Shareholder is a nonresident alien individual who was
present in the United States for 183 days or more during the taxable year and
has a "tax home" in the United States, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains.
If the gain on the sale of Shares were to be subject to taxation under
FIRPTA, the Non-U.S. Shareholder will be subject to the same treatment as
U.S. shareholders with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals) and the purchaser of the Shares would be
required to withhold and remit to the IRS 10% of the purchase price.
Tax-Exempt Shareholders
Dividends from the Company to a tax-exempt employee pension trust or
other domestic tax-exempt shareholder generally will not constitute
"unrelated business taxable income" ("UBTI") unless the shareholder has
borrowed to acquire or carry its Shares. Qualified trusts that hold more
than 10% (by value) of the shares of certain REITs, however, may be required
to treat a certain percentage of such a REIT's distributions as UBTI. This
requirement will apply only if (i) the REIT would not qualify as such for
Federal income tax purposes but for the application of a "look-through"
exception to the Five or Fewer Requirement applicable to shares held by
qualified trusts and (ii) the REIT is "predominantly held" by qualified
trusts. A REIT is predominantly held by qualified trusts if either (i) a
single qualified trust holds more than 25% by value of the interests in the
REIT or (ii) one or more qualified trusts, each owning more than 10% by value
of the interests in the REIT, hold in the aggregate more than 50% of the
interests in the REIT. The percentage of any REIT dividend treated as UBTI
is equal to the ratio of (a) the UBTI earned by the REIT (treating the REIT
as if it were a qualified trust and therefore subject to tax on UBTI) to
(b) the total gross income of the REIT. A de minimis exception applies where
the percentage is less than 5% for any year. For these purposes, a qualified
trust is any trust described in section 401(a) of the Code and exempt from
tax under section 501(a) of the Code. The provisions requiring qualified
trusts to treat a portion of REIT distributions as UBTI will not apply if the
REIT is able to satisfy the Five or Fewer Requirement without relying upon
the "look-through" exception.
Tax Risks of the Company's Ownership Interest in the Operating Partnership
All of the Company's investments are through the Operating Partnership,
which in turn will hold interests in the Subsidiary Partnerships. The
ownership of these partnership interests may involve special tax risks for
the Company. Such risks include possible challenge by the IRS of allocations
of income and expense items which could affect the computation of taxable
income of the Company, or a challenge to the status of the partnerships as
partnerships (as opposed to associations taxable as corporations) for income
tax purposes, as well as the possibility of action being taken by the
Company's partners or by the partnerships that could adversely affect the
Company's qualification as a REIT. If any of the Operating Partnership or
any other partnership (as similarly taxed entity) were treated as an
association, such partnership (or entity) would be taxable as a corporation,
with the consequences, among others, that if the Company's ownership interest
in any of such partnerships (or entities) exceeded 10% of such partnership's
(or entity's) voting interests or the value of such interest exceeded 5% of
the value of the Company's assets, the Company would cease to qualify as a
REIT; distributions from any of such partnerships (or entities) to the
Company would be treated as dividends and the Company would not be able to
deduct its share of losses, if any, generated by any of such partnerships (or
entities) in computing its taxable income. See "Federal Income Tax
Considerations."
Tax Aspects of the Operating Partnership and the Subsidiary Partnerships
The following discussion summarizes certain Federal income tax
considerations applicable solely to the Company's investment in the Operating
Partnership and the Subsidiary Partnerships and the Operating Partnership's
investment in the Subsidiary Partnerships. (The Operating Partnership and
the Subsidiary Partnerships are sometimes collectively referred to herein
individually as a "Partnership" and collectively as the "Partnerships".) The
discussion does not cover state or local tax laws or any Federal tax laws
either than income tax laws.
Classification
In general, a partner of a partnership is entitled to include in its
income its distributive share of the income and to deduct its distributive
share of the losses of the partnership only if the partnership is classified
for Federal income tax purposes as a partnership rather than as an
association taxable as a corporation.
An organization formed as a partnership will be treated as a partnership
for Federal income tax purposes rather than as a corporation if it (i) is an
association and is not described in Treasury Regulations Sections
301.7701-2(b)(1), (3), (4), (5), (6), (7) or (8), (ii) has two or more
members, and (iii) does not elect to be classified for Federal income tax
purposes as a corporation. The Company believes that each of the
Partnerships that have at least two members qualifies as a partnership (as
opposed to an association taxable as a corporation) for Federal income tax
purposes.
If any of the Operating Partnership or any other partnership (as
similarly taxed entity) were treated as an association taxable as a
corporation, such partnership (or entity) would be taxable as a corporation
with the consequences, among others, that if the Company's ownership interest
in any of such partnerships (or entities) exceeded 10% of such partnership's
(or entities) voting interests or the value of such interest exceeded 5% of
the value of the Company's assets, the Company would cease to qualify as a
REIT; distributions from any of such partnerships (or entities) to the
Company would be treated as dividends, and the Company would not be able to
deduct its share of losses, if any, generated by any of such partnerships (or
entities) in computing its taxable income. See "Federal Income Taxation of
the Company-General", and "-Income Tests" and "-Asset Tests" above for a
discussion of the effect of the Company's failure to meet such tests for a
taxable year.
Income Taxation of the Operating Partnership and Its Partners
A partnership is not a taxable entity for Federal income tax purposes.
Rather, the Company, in the case of each of the Partnerships (and the
Operating Partnership, in the case of the Subsidiary Partnerships), will be
required to take into account its allocable share of the income, gains,
losses, deductions, and credits for any taxable year of such Partnership
ending within or with the taxable year of such partner, without regard to
whether such partner has received or will receive any distribution from such
Partnership.
Partnership Allocations
Although a partnership agreement will generally determine the allocation
of income and losses among partners, such allocations will be disregarded for
tax purposes under Section 704(b) of the Code if they do not comply with the
provisions of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder.
If an allocation is not recognized for Federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partner's interest in the partnership, which will be determined by taking
into account all of the facts and circumstances relating to the economic
arrangement of the partners with respect to such item. The allocations of
taxable income and loss of each of the Partnerships generally are in
accordance with its partners' respective percentage interests and are
intended to comply with the requirements of Section 704(b) of the Code and
the Treasury Regulations promulgated thereunder.
Tax Allocations with Respect to Contributed Properties
Pursuant to Section 704(c) of the Code, items of income, gain, loss, and
deduction attributable to appreciated or depreciated property that is
contributed to a partnership in exchange for an interest in the partnership
must be allocated for Federal income tax purposes in a manner such that the
contributor is charged with, or benefits from, the unrealized gain or
unrealized loss associated with the property at the time of the contribution.
The amount of such unrealized gain or unrealized loss is generally equal to
the difference between the fair market value of contributed property at the
time of contribution and the adjusted tax basis of such property at the time
of contribution. The partnership agreement of the Operating Partnership
requires allocations of income, gain, loss, and deduction attributable to
such contributed property to be made in a manner that is consistent with
Section 704(c) of the Code using the equivalent of the "traditional method"
described in Treasury Regulations Section 1.704-3(b).
Depreciation
Section 704(c) of the Code requires that depreciation as well as gain
and loss be allocated in a manner so as to take into account the variation
between the fair market value and tax basis of the property contributed.
Accordingly, depreciation on any property contributed to the Operating
Partnership will be allocated to its partners in a manner designed to reduce
the difference between such property's fair market value and its tax basis,
using methods that are intended to be consistent with statutory intent under
Section 704(c) of the Code. On the other hand, depreciation with respect to
any property purchased by the Operating Partnership (or the Subsidiary
Partnerships) will generally be allocated among the partners in accordance
with their respective percentage interests in the Operating Partnership (or
the Subsidiary Partnerships).
As of the closing of the IPO, the Operating Partnership revalued its
assets and restated the capital account of the partners to fair market value
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(f). As a result,
depreciation as well as gain and loss will again be allocated in such manner
so as to take into account the variation between fair market value and tax
basis pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(f)(4). The
method used to allocate depreciation is intended to comply with the statutory
intent under Section 704(c) of the Code, and will be made in accordance with
a permissible method under the Treasury Regulations under Section 704(c) of
the Code.
Sale of the Operating Partnership Property
Generally, any gain realized upon a sale of the property held by any of
the Partnerships for more than one year will be long-term capital gain,
except for any portion of such gain that is treated as depreciation or cost
recovery recapture. Under Section 704(c) of the Code and the Treasury
Regulations governing the revaluation of the Operating Partnership's assets
and the restatement of its capital accounts to fair market value, any
unrealized gain attributable to appreciation in its property prior to the
closing of the Initial Offering ("Built-in-Gain") must, when recognized, be
allocated to the partner who contributed such property. Such Built-in-Gain
would generally be equal to the difference between the fair market value of
the property upon the closing of the Initial Offering and the adjusted tax
basis of the Operating Partnership in such property upon the closing of the
Initial Offering. However, the Company will not be allocated any
Built-in-Gains by the Operating Partnership. In addition, as described above
and pursuant to the Code, depreciation will be allocated to reduce the
disparity between fair market value and tax basis with respect to appreciated
property contributed to the Partnership.
The Company's share of any gain realized by any of the Partnerships on
the sale of any property held by a Partnership as inventory or other property
held primarily for sale to customers in the ordinary course of its trade or
business will, however, be treated as income from a prohibited transaction
that is subject to a 100% penalty tax. Such prohibited transaction income
will also have an adverse effect upon the Company's ability to satisfy the
income tests for REIT status. Under existing law, whether property is held
as inventory or primarily for sale to customers in the ordinary course of a
trade or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. Each of the
Partnerships intends to hold its properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing,
owning, and operating similar properties and to make such occasional sales as
are consistent with its investment objectives.
Partnership Anti-Abuse Regulations
Under the "Partnership Anti-Abuse Rules" contained in Treasury
Regulations Section 1.702-2, the IRS is authorized to recharacterize
transactions involving partnerships where the partnership has a principal
purpose of reducing federal tax liabilities in a manner inconsistent with the
intent of the partnership rules contained in the Code. In Treasury
Regulation Section 1.702-2(d), Example 4, the IRS concluded under the facts
described therein, that the use of a partnership structure by a REIT was
consistent with the intent of the partnership rules; accordingly,
recharacterization in that case was not appropriate. Thus, the Partnership
Anti-Abuse Rules should not affect the Company's ability to qualify as a
REIT.
State, Local and Foreign Taxation
The Company and its shareholders may be subject to state, local or
foreign taxation in various state, local or foreign jurisdictions, including
those in which it or they transact business or reside. Such state, local or
foreign taxation may differ from the Federal income tax treatment described
above. Consequently, prospective purchasers should consult their own tax
advisors regarding the effect of state, local and foreign tax laws on an
investment in the Company.
USE OF PROCEEDS
The Unitholders whose OP Units are redeemed for Exchanged Shares will
receive all of the proceeds from the sale of the Exchanged Shares offered
hereby and the Restricted Shareholders will receive all of the proceeds of
the Restricted Shares offered hereby. In each case, the Company will not
receive any proceeds from the sale of such Common Shares.
SELLING SHAREHOLDERS
As described elsewhere herein, the Selling Shareholders are persons who
either (i) are Unitholders who may receive Exchanged Shares upon redemption
of OP Units or (ii) have already received Restricted Shares in the Company.
The following table provides the names of and the number and percentage of
Common Shares beneficially owned by each Selling Shareholder whose shares are
being offered hereby prior to the completion of the Offering, and the number
and percentage of Common Shares to be beneficially owned by each Selling
Shareholder upon completion of the Offering, assuming all of each
Unitholder's OP Units are redeemed for Common Shares and assuming each
Selling Shareholder sells all of his or her Common Shares pursuant to this
Prospectus. Since the Selling Shareholders may sell all, or some or none of
their Common Shares, no estimate can be made of the aggregate number of
Common Shares that are to be offered hereby or that will be owned by each
such Selling Shareholder upon completion of the Offering. The "Number of
Shares" in the following table represents the number of Common Shares the
person holds (if any) plus the number of Common Shares for which OP Units
held by the person, if any, may be redeemed, and the extent to which the
person holds OP Units as opposed to Common Shares is set forth in the notes
to the following table. Except as otherwise noted below, none of the Selling
Shareholders has, within the past three years, had any position, office or
material relationship with the Company.
The Common Shares offered by this Prospectus may be offered from time to
time by the Selling Shareholders named below:
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering After the Offering
----------------- ------------------
Number of
Percentage Shares Percentage
Number of of Shares Offered Number of of Shares
Shares(1) Outstanding(2) Hereby Shares Outstanding(1)
--------- -------------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
Herbert Glimcher(3) 1,229,132 .0495 958,230 270,902 .0113
David J. Glimcher(4) 791,143 .0323 599,582 191,561 *
Michael Glimcher(5) 175,855 * 157,189 18,666 *
Diane Glimcher(6) 232,204 * 120,404 111,800 *
Ellen Glimcher(7) 51,162 * 48,162 3,000 *
Robert Glimcher(8) 268,805 .0112 261,305 7,500 *
David J.Glimcher Company(9) 5,082 * 3,582 1,500 *
Ellen Glimcher Trust(10) 105,683 * 102,683 3,000 *
Michael Glimcher Trust(11) 105,683 * 102,683 3,000 *
Fred Zantello(12) 95,406 * 95,406 0 *
A. Kirk Hinman 7,134 * 7,134 0 *
William R. Husted(13) 43,354 * 16,088 27,266 *
Douglas W. Campbell(14) 16,987 * 7,9888,999 *
John Hicks(15) 32,062 * 5,565 26,497 *
Gary B. Gitlitz(16) 2,954 * 2,954 0 *
Amy J. Michalkiewicz(17) 6,435 * 935 5,500 *
Richard Smith(18) 2,671 * 2,671 0 *
George Harmanis(19) 11,293 * 460 10,833 *
Sally Dunker 153 * 153 0 *
Douglas Leeds(20) 6,126 * 460 5,666 *
Gerald Swedlow 21,200 * 21,200 0 *
Scott Farrell 4,447 * 4,447 0 *
Walter Samuels 83,260 * 83,260 0 *
George Schmidt(21) 20,215 * 1,000 19,215 *
William Cornely(22) 11,466 * 300 11,166 *
Kathleen G. Benua 32,135 * 32,135 0 *
Thomas L. Kaplin 12,938 * 12,938 0 *
Shirley Voorhees 8,034 * 8,034 0 *
Lee H. Hess 5,759 * 5,759 0 *
Fairway Boulevard II, Ltd. 70,892 * 70,674 218 *
Wango Limited 35,349 * 35,349 0 *
WSS Limited Partnership(23) 17,617 * 17,617 0 *
Williams-Fair Investment Co.25,662 * 25,662 0 *
George W. and Linda R.
Wallingford Company, Ltd. 89,207 * 89,207 0 *
KEW Investment Company 76,582 * 76,582 0 *
Maurice Lawruk 11,904 * 11,904 0 *
Timothy Getz(24) 2,470 * 2,470 0 0
__________________
* less than 1%
/TABLE
<PAGE>
(1) Beneficial ownership as of June 30, 1998, based upon information
provided by the respective Selling Shareholders. Assumes redemption of all
OP Units for Common Shares.
(2) Assumes the redemption of only the OP Units owned by such owner into
Common Shares and the exercise of only the options for Common Shares held by
such owner and exercisable within 60 days of June 30, 1998. The total
number of Common Shares outstanding used in calculating percentages assumes
that none of the OP Units held by other Unitholders, or Series A-1 Preferred
Shares, Series B Preferred Shares or Series D Preferred Shares have been
redeemed for, or converted into, as the case may be, Common Shares, and that
none of the options held by other persons has been exercised.
(3) Herbert Glimcher is President, Chief Executive Officer and Chairman of
the Board of Trustees of the Company. Includes 958,230 Common Shares that
may be issued upon the redemption of all of Mr. Glimcher's OP Units, 174,999
Common Shares subject to options that are exercisable within 60 days of June
30, 1998, 53,553 Common Shares owned by Mr. Glimcher individually and 42,350
Common Shares owned by Mr. Glimcher and his wife, Diane Glimcher, as tenants-
in-common. Excludes 106,275 Common Shares owned by the Herbert and DeeDee
Glimcher Charitable Trust, of which Mr. Glimcher's wife is the trustee and
5,525 Common Shares owned by trusts for the benefit of Mr. Glimcher's nephews
and grandchildren, of which Mr. Glimcher's wife is trustee (See footnote 6).
(4) David J. Glimcher is a trustee of the Company, was formerly the
President and Chief Operating Officer of the Company from May 1997 to March
1998 and was formerly the President and Chief Executive Officer of the
Company from September 1993 to May 1997. Includes 599,582 Common Shares that
may be issued upon the redemption of all of Mr. Glimcher's OP Units, 175,000
Common Shares subject to options that are exercisable within 60 days of June
30, 1998, 6,907 Common Shares owned by Mr. Glimcher's wife and 9,654 Common
Shares owned by trusts, of which Mr. Glimcher's wife is trustee or co-
trustee.
(5) Michael P. Glimcher is a Senior Vice President and trustee of the
Company. Includes 157,189 Common Shares that may be issued upon the
redemption of all of Mr. Glimcher's OP Units and 18,666 Common Shares subject
to options that are exercisable within 60 days of June 30, 1998.
(6) Diane Glimcher is the wife of Herbert Glimcher, the Company's President,
Chief Executive Officer and Chairman of the Board of Trustees. Includes
120,404 Common shares that may be issued upon the redemption of all of Ms.
Glimcher's OP Units, 106,275 Common Shares owned by the Herbert and DeeDee
Glimcher Charitable Trust, of which Ms. Glimcher is the trustee and 5,525
Common Shares owned by trusts for the benefit of Ms. Glimcher's nephews and
grandchildren, of which Ms. Glimcher is the trustee. Excludes 42,350 Common
Shares owned by Ms. Glimcher and her husband, Herbert Glimcher, as tenants-
in-common (See footnote 3).
(7) Ellen Glimcher is the daughter of Herbert Glimcher, the Company's
President, Chief Executive Officer and Chairman of the Board of Trustees.
Includes 48,162 Common shares that may be issued upon the redemption of all
of Ms. Glimcher's OP Units and 3,000 Common Shares owned by Ms. Glimcher.
(8) Robert Glimcher is the son of Herbert Glimcher, the Company's President,
Chief Executive Officer and Chairman of the Board of Trustees. Includes
261,305 Common shares that may be issued upon the redemption of all of Mr.
Glimcher's OP Units and 7,500 Common Shares owned by Mr. Glimcher.
(9) David J. Glimcher Company is wholly owned by David Glimcher, a trustee
of the Company (See footnote 4). Includes 3,582 Common Shares that may be
issued upon the redemption of all OP Units held by the David J. Glimcher
Company and 1,500 Common Shares.
(10) Ellen Glimcher Trust is a trust of which Robert Glimcher and Arne
Glimcher, the brother of Herbert Glimcher, are co-trustees. Includes 102,683
Common Shares that may be issued upon the redemption of all OP Units held by
the Ellen Glimcher Trust and 3,000 Common Shares held by the trust.
(11) Michael Glimcher Trust is a trust of which Robert Glimcher and Arne
Glimcher are co-trustees (See footnote 4). Includes 102,683 Common Shares
that may be issued upon the redemption of all OP Units held by the Michael
Glimcher Trust and 3,000 Common Shares held by the trust.
(12 ) Fred Zantello was an Executive Vice President of the Company until
January, 1997. Includes 95,406 Common Shares that may be issued upon the
redemption of all of Mr. Zantello's OP Units.
(13) William R. Husted is a trustee of the Company. Includes 16,088 Common
Shares that may be issued upon the redemption of all of Mr. Husted's OP
Units, 24,166 Common Shares subject to options that are exercisable within 60
days of June 30, 1998, and 3,100 Common Shares owned by Mr. Husted.
(14) Douglas W. Campbell is the Vice President of Construction of the
Company. Includes 7,988 Common Shares that may be issued upon the redemption
of all of Mr. Campbell's OP Units and 8,999 Common Shares subject to options
that are exercisable within 60 days of June 30, 1998.
(15) John Hicks is the Vice President of Acquisitions of the Company.
Includes 5,565 Common Shares that may be issued upon the redemption of all of
Mr. Hicks' OP Units, 20,833 Common Shares subject to options that are
exercisable within 60 days of June 30, 1998 and 5,664 Common Shares owned by
Mr. Hicks.
(16) Gary B. Gitlitz was General Counsel and Secretary of the Company until
May, 1996. Includes 2,954 Common Shares that may be issued upon the
redemption of all of Mr. Gitlitz' OP Units.
(17) Amy J. Michalkiewiez is employed by the Company as a leasing
representative. Includes 935 Common Shares that may be issued upon the
redemption of all of Ms. Michalkiewiez' OP Units and 5,500 Common Shares
subject to options that are exercisable within 60 days of June 30, 1998.
(18) Richard Smith was Senior Vice President and Chief Financial Officer of
the Company until January, 1996. Includes 2,671 Common Shares that may be
issued upon the redemption of all of Mr. Smith's OP Units.
(19) George M. Harmanis is a Vice President and Controller of the Company.
Includes 460 Common Shares that may be issued upon the redemption of all of
Mr. Harmanis' OP Units and 10,833 Common Shares subject to options that are
exercisable within 60 days of June 30, 1998.
(20) Douglas Leeds was employed by the Company as a leasing manager until
May, 1998. Includes 460 Common Shares that may be issued upon the redemption
of all of Mr. Leeds' OP Units.
(21) George A. Schmidt is Senior Vice President, General Counsel and
Secretary of the Company. Includes 1,000 Common Shares that may be issued
upon the redemption of all of Mr. Schmidt's OP Units, 15,213 Common Shares
subject to options that are exercisable within 60 days of June 30, 1998 and
4,002 Common Shares owned by Mr. Schmidt.
(22) William G. Cornely is Senior Executive Vice President, Chief Operating
Officer, Chief Financial Officer and Treasurer of the Company. Includes 300
Common Shares that may be issued upon the redemption of all of Mr. Cornely's
OP Units, 6,666 Common Shares subject to options that are exercisable within
60 days of June 30, 1998 and 4,500 Common Shares, 1,000 of which are owned by
his wife.
(23) WSS Limited Partnership is a limited partnership of which Alan R.
Weiler, a trustee of the Company, is the general partner. Includes 17,617
Common Shares that may be issued upon redemption of all of the OP Units owned
by the partnership..
(24) Timothy Getz was Senior Vice President of Finance and Investments of the
Company until May, 1998. Includes 2,470 restricted Common Shares owned by
Mr. Getz.
PLAN OF DISTRIBUTION
This Prospectus relates to the offer and sale from time to time of the
Exchanged Shares or the Restricted Shares by the Selling Shareholders or by
pledgees, donees, transferees or other successors in interest thereto, who
have received or may receive Exchanged Shares or the Restricted Shares
without registration. The Selling Shareholders may sell the Exchanged Shares
and the Restricted Shares being offered hereby: (i) in ordinary brokerage
transactions and in transactions in which brokers solicit purchasers; (ii) in
privately negotiated direct sales or sales effected through agents not
involving established trading markets; or (iii) through transactions in put
or call options or other rights (whether exchange-listed or otherwise)
established after the effectiveness of the Registration Statement of which
this Prospectus is a part. The Exchanged Shares and the Restricted Shares
may be sold at prices and at terms then prevailing or at prices related to
the then current market price of the Common Shares on the NYSE or at other
negotiated prices. In addition, any of the Exchanged Shares and the
Restricted Shares that qualify for sale pursuant to Rule 144 may be sold in
transactions complying with such rule, rather than pursuant to this
Prospectus.
The Restricted Shares consist of Common Shares previously issued to the
Restricted Shareholders in private placements exempt from the registration
requirements of the Securities Act. The Exchanged Shares consist of Common
Shares to be issued, to Selling Shareholders upon redemption by the Company
of OP Units previously issued to such persons in private placements exempt
from the registration requirements of the Securities Act. If the Company
elects to acquire each OP Unit required to be redeemed for a Common Share,
then its interest in the Operating Partnership will increase.
In the case of sales of the Exchanged Shares and the Restricted Shares
effected to or through broker-dealers, such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders or the purchasers of the Exchanged Shares and the
Restricted Shares sold by or through such broker-dealers, or both. The
Company has advised the Selling Shareholders that the anti-manipulative rules
10b-6 and 10b-7 under the Exchange Act may apply to their sales in the market
and has informed them of the need for delivery of copies of this Prospectus.
The Company is not aware as of the date of this Prospectus of any agreements
between any of the Selling Shareholders and any broker-dealers with respect
to the sale of the shares offered by this Prospectus. The Selling
Shareholders and any broker-dealer or other agent executing sell orders on
behalf of the Selling Shareholders may be deemed to be "underwriters" within
the meaning of the Securities Act, in which case the commissions received by
any such broker-dealer or agent and profit on any resale of Common Shares may
be deemed to be underwriting commissions under the Securities Act. The
commission received by a broker-dealer or agent may be in excess of customary
compensation. The Company will receive no part of the proceeds from the sale
of any Exchanged Shares and Restricted Shares hereunder.
Pursuant to the terms of the Registration Rights Agreements entered into
by and among the Company and certain Selling Shareholders, such Selling
Shareholders will pay their costs and expenses of selling the Exchanged
Shares and the Restricted Shares hereunder, including commissions and
discounts of underwriters, brokers, dealers or agents, and the Company has
agreed to pay the costs and expenses incident to the registration and
qualification of the Exchanged Shares and the Restricted Shares offered
hereby, including applicable filing fees, legal and accounting fees and
expenses. In addition, the Company has agreed to indemnify such Selling
Shareholders against certain liabilities, including certain liabilities
arising under the Securities Act. Pursuant to agreements between the Company
and other Selling Shareholders, such Selling Shareholders are obligated to
pay a pro rata portion of the costs and expenses incident to the registration
and qualification of the Exchanged Shares and Restricted Shares offered
hereby.
The Selling Shareholders may elect to sell all, a portion or none of the
Exchanged Shares and the Restricted Shares offered by them hereunder.
ERISA MATTERS
The Company may be considered a "party in interest" within the meaning
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and a "disqualified person" under corresponding provisions of the Code with
respect to certain employee benefit plans. Certain transactions between an
employee benefit plan and a party in interest or disqualified person may
result in "prohibited transactions" within the meaning of ERISA and the Code,
unless such transactions are effected pursuant to an applicable exemption.
Any employee benefit plan or other entity subject to such provisions of ERISA
or the Code proposing to invest in the Exchanged Shares should consult with
its legal counsel.
LEGAL OPINIONS
Certain legal matters will be passed upon for the Company by Robinson
Silverman Pearce Aronsohn & Berman LLP, New York, New York. The legal
authorization and issuance of the Exchanged Shares, as well as certain other
legal matters concerning Maryland and Delaware law, will be passed upon for
the Company by Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland.
In addition, the description of Federal income tax consequences contained in
this Prospectus under the heading entitled "Federal Income Tax
Considerations" is based upon the opinion of Robinson Silverman Pearce
Aronsohn & Berman LLP.
EXPERTS
The audited financial statements and schedule incorporated by reference
in this Prospectus and elsewhere in this Registration Statement have been
incorporated by reference herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority
of that firm as experts in accounting and auditing.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table itemizes the expenses incurred by the Company in
connection with the offering of the Exchanged Shares being registered. All
the amounts shown are estimates except the Securities and Exchange Commission
registration fee.
Item Amount
Registration Fee -- Securities and
Exchange Commission . . . . . . . . . . $16,180
Legal Fees and Expenses . . . . . . . . . 35,000
Accounting Fees and Expenses. . . . . . . 1,500
Miscellaneous Expenses. . . . . . . . . . 1,500
======
Total. . . . . . . . . . . . . . . $54,180
Item 15. Indemnification of Trustees and Officers.
Title 8 of the Corporations and Associations Article of the Annotated
Code of Maryland (the "Maryland REIT Law") permits a Maryland real estate
investment trust to include in its declaration of trust a provision limiting
the liability of trustees and officers to the trust or to its shareholders
for money damages except for the liability of a trustee or officer resulting
from (i) active and deliberate dishonesty established by a final judgment as
being material to the cause of action or (ii) actual receipt of an improper
benefit or profit in money, property or services. The Company's Amended and
Restated Declaration of Trust, as amended (the "Declaration of Trust"),
contains such a provision which eliminates such liability to the maximum
extent permitted by the Maryland law.
The Declaration of Trust authorizes the Company to the maximum extent
provided by Maryland law to obligate itself to indemnify and to pay or
reimburse reasonable expenses to (a) any present or former trustee, officer
or shareholder or (b) any individual who, while a trustee or officer of the
Company and at the request of the Company, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a trustee, director, officer or partner, of such
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, who has been successful on the merits or otherwise, in the
defense of a legal or regulatory proceeding to which he was made a party by
reason of such status. The Company's Bylaws indemnify any current or former
trustee or officer against any claim or liability to which such person may
become subject by reason of his status, unless it is established that (i) his
act or omission was committed in bad faith or was the result of active and
deliberate dishonesty, (ii) he actually received an improper personal benefit
in money, property or services or (iii) in the case of a criminal proceeding,
he had reasonable cause to believe that his act or omission was unlawful. In
addition, the Company's Bylaws require it to pay or reimburse, in advance of
final disposition of a proceeding, reasonable expenses incurred by a present
or former trustee, officer or shareholder made a party to a proceeding by
reason of his status as such provided that, in the case of a trustee or
officer, the Company shall have received (i) a written affirmation by the
trustee or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the Company as authorized by the
Bylaws and (ii) a written undertaking by him or on his behalf to repay the
amount paid or reimbursed by the Company if it shall ultimately be determined
that the standard of conduct was not met. The Company's Bylaws also (i)
permit the Company to provide indemnification and payment or reimbursement of
expenses to a present or former trustee or officer who served a predecessor
of the Company in such capacity and to any employee or agent of the Company
or a predecessor of the Company, (ii) provide that any indemnification or
payment or reimbursement of the expenses permitted by the Company's Bylaws
shall be furnished in accordance with the procedures provided for
indemnification and payment or reimbursement of expenses under Section 2-418
of the Maryland General Corporation Law ("MGCL") for directors of Maryland
corporations and (iii) permit the Company to provide such other and further
indemnification or payment or reimbursement of expenses as may be permitted
by Section 2-418 of the MGCL for directors of Maryland corporations.
The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and
agents to the same extent as permitted by the MGCL for directors and officers
of Maryland corporations. The MGCL permits a corporation to indemnify its
present and former directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by
them in connection with any proceeding to which they may be made a party by
reason of their service in those or other capacities unless it is established
that (a) the act or omission of the director or officer was material to the
matter giving rise to the proceeding and (i) was committed in bad faith or
(ii) was the result of active and deliberate dishonesty, (b) the director or
officer actually received an improper personal benefit in money, property or
services or (c) in the case of any criminal proceeding, the director or
officer had unreasonable cause to believe that the act or omission was
unlawful. However, under the MGCL, a Maryland corporation may not indemnify
for an adverse judgment in a suit by or in the right of the corporation or
for a judgment of liability on the basis that personal benefit was improperly
received, unless in either case a court orders indemnification and then only
for expenses. In addition, the MGCL permits a corporation to advance
reasonable expenses to a director or officer upon the corporation's receipt
of (a) a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification
by the corporation and (b) a written undertaking by him or on his behalf to
repay the amount paid or reimbursed by the corporation if it shall ultimately
be determined that the standard of conduct was not met.
The Company maintains a standard policy of officers' and directors'
liability insurance.
Item 16. Exhibits
3.1 Articles Supplementary Classifying 56,000 Common Shares as Series D
Convertible Preferred Shares of Beneficial Interest.
4.1 Form of Common Share Certificate (filed as Exhibit 4.1 to the
Registrant's Registration Statement on Form S-11 (File No. 33-
69740) and incorporated by reference herein).
4.2 Form of Series D Convertible Preferred Share Certificate.
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP as to the
legality of the Shares.
8.1 Opinion of Robinson Silverman Pearce Aronsohn & Berman LLP as to
Tax Matters.
23.1 Consent of PricewaterhouseCoopers LLP.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registration pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
The undersigned Registrant hereby further undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issues.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing a Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Columbus, State of Ohio, on August
11, 1998.
GLIMCHER REALTY TRUST
By: /s/ Herbert Glimcher
---------------------------------
Herbert Glimcher
Chairman, Chief Executive Officer
and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Herbert Glimcher or William G. Cornely
true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ Herbert Glimcher Chairman, Chief Executive Officer, August 11, 1998
- ----------------------- President and Trustee (Principal
Herbert Glimcher Executive Officer)
/s/ William G. Cornely Executive Vice President, August 11, 1998
- ----------------------- Chief Operating Officer,
William G. Cornely Chief Financial Officer and
Treasurer (Principal Financial
Officer)
/s/ Michael P. Glimcher Senior Vice President of Leasing August 11, 1998
- ----------------------- and Trustee
Michael P. Glimcher
/s/ William R. Husted Senior Vice President of August 11, 1998
- ----------------------- Construction and Trustee
William R. Husted
/s/ David J. Glimcher Trustee August 11, 1998
- -----------------------
David J. Glimcher
/s/ Philip G. Barach Trustee August 11, 1998
- -----------------------
Philip G. Barach
/s/ Oliver Birckhead Trustee August 11, 1998
- -----------------------
Oliver Birckhead
/s/ E. Gordon Gee Trustee August 11, 1998
- -----------------------
E. Gordon Gee
/s/ Alan R. Weiler Trustee August 11, 1998
- -----------------------
Alan R. Weiler
/s/ Harvey Weinberg Trustee August 11, 1998
- -----------------------
Harvey Weinberg
<PAGE>
EXHIBIT INDEX
3.1 Articles Supplementary Classifying 56,000 Common Shares as Series D
Convertible Preferred Shares of Beneficial Interest.
4.1 Form of Common Share Certificate (filed as Exhibit 4.1 to the
Registrant's Registration Statement on Form S-11 (File No. 33-69740) and
incorporated by reference herein).
4.2 Form of Series D Convertible Preferred Share Certificate.
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP as to the legality of
the Shares.
8.1 Opinion of Robinson Silverman Pearce Aronsohn & Berman LLP as to Tax
Matters.
23.1 Consent of PricewaterhouseCoopers LLP.
Exhibit 3.1
EXECUTION COPY
GLIMCHER REALTY TRUST
ARTICLES SUPPLEMENTARY
CLASSIFYING AND DESIGNATING 56,000
SHARES OF BENEFICIAL INTEREST AS 56,000
SHARES OF SERIES D CONVERTIBLE PREFERRED BENEFICIAL INTEREST
Glimcher Realty Trust, a Maryland real estate investment trust (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Under a power contained in Article VI, Section 6.3 of the
Declaration of Trust, as amended, of the Corporation (the "Declaration"), the
Board of Trustees of the Corporation (the "Board of Trustees"), by resolution
duly adopted at a meeting duly called and held on March 9, 1998, classified
and designated 56,000 shares (the "Shares") of beneficial interest (as
defined in the Declaration) as shares of Series D Convertible Preferred
Beneficial Interest, with the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption set
forth on Exhibit 1 hereto, which, upon any restatement of the Declaration,
shall be deemed to be part of Article VI, Section 6.3 of the Declaration,
with any necessary or appropriate changes to the enumeration or lettering of
the subsections thereof.
SECOND: The Shares have been classified and designated by the
Board of Trustees under the authority contained in the Declaration.
THIRD: These Articles Supplementary have been approved by the
Board of Trustees in the manner and by the vote required by law.
FOURTH: The undersigned Senior Vice President of the Corporation
acknowledges these Articles Supplementary to be the act of the Corporation
and, as to all matters or facts required to be verified under oath, each of
the undersigned acknowledges that to the best of his knowledge, information
and belief, these matters and facts are true in all material respects and
that this statement is made under the penalties for perjury.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be executed under seal in its name and on its behalf by its
Senior Vice President and attested to by its Secretary on this 22nd of May,
1998.
ATTEST: GLIMCHER REALTY TRUST
/s/ George A. Schmidt By:/s/ William G. Cornely (SEAL)
- ---------------------------- ---------------------------
George A. Schmidt, Secretary William G. Cornely
Senior Vice President
<PAGE>
EXHIBIT 1
SERIES D CONVERTIBLE PREFERRED SHARES
OF BENEFICIAL INTEREST
SECTION 1. DESIGNATION, AMOUNT AND SUBORDINATION. The shares of the
series of preferred shares of beneficial interest established hereunder is
"Series D Convertible Preferred Shares" (the "Series D Preferred Shares") and
the number of shares constituting such series shall be 56,000. Each Series D
Preferred Share shall have a par value of $0.01. The date of original
issuance of any of the Series D Preferred Shares is herein called the
"Original Issuance Date". The Series D Preferred Shares rank equally as to
rights to receive distributions and amounts payable upon liquidation,
dissolution or winding up of the Corporation to the Series A-1 Convertible
Preferred Shares of Beneficial Interest of the Corporation (the "Series A-1
Preferred Shares") to the extent and in the manner set forth in the terms of
the Series A-1 Preferred Shares set forth in the Articles Supplementary
Classifying 40,000 Shares of Beneficial Interest as Series A-1 Convertible
Preferred Shares of Beneficial Interest of the Corporation (the "Series A-1
Articles Supplementary") as such Series A-1 Articles Supplementary are in
effect on the Original Issuance Date. The Series D Preferred Shares rank
junior as to rights to receive distributions and amounts payable upon
liquidation, dissolution or winding up of the Corporation to the Series B
Cumulative Redeemable Preferred Shares of Beneficial Interest of the
Corporation (the "Series B Preferred Shares") to the extent and in the manner
set forth in the terms of the Series B Preferred Shares set forth in the
Articles Supplementary Classifying 5,520,000 Shares of Beneficial Interest as
Series B Cumulative Redeemable Preferred Shares of Beneficial Interest of the
Corporation (the "Series B Articles Supplementary") as such Series B Articles
Supplementary are in effect on the Original Issuance Date.
SECTION 2. DIVIDENDS.
(a) The holders of each Series D Preferred Share shall be entitled
to receive, if, as and when authorized, out of the net profits of the
Corporation, dividends at the annual rate per share of the sum of:
(1) the Applicable Dividend Amount, plus
(2) during any Deferral Period (as defined below), including any
portion of a Deferral Period in effect prior to termination thereof,
Five Dollars ($5.00) per annum, plus
(3) for any portion of a Quarterly Dividend Payment Period during
which a Default shall exist, Forty Dollars ($40.00) per annum (the
"Default Dividend Amount").
Dividends shall be payable in quarterly installments on each April 1, July 1,
October 1 and January 1 (or if any such date is not a Business Day, on the
next succeeding Business Day, such date being herein called a "Quarterly
Payment Date"), commencing on the first such date after the Original Issuance
Date. Such dividends shall be paid before any dividends shall be set apart
for or paid upon the Common Shares or any other preferred shares ranking on
liquidation junior to the Series D Preferred Shares (the "Junior Preferred
Shares" and together with the Common Shares, the "Junior Shares") in any
year. All dividends authorized upon Series D Preferred Shares shall be
authorized pro rata per share. Dividends payable on the Series D Preferred
Shares for any period shall be computed on the basis of the actual number of
days elapsed over a year of 360 days.
The Corporation shall not be required to pay dividends during any
Deferral Period (as defined below) except that, the Default Dividend Amount,
if any, accrued during any Quarterly Dividend Payment Period shall be payable
on the related Quarterly Payment Date.
The term "Applicable Dividend Amount" means an amount equal to the
product (expressed in dollar and cents and rounded upward to the nearest
cent) of (x) the Liquidation Preference times (y) the sum of 0.0285 plus the
Applicable Spread plus LIBOR (expressed as a decimal rounded upwards to the
nearest hundred thousandth (.00000)) and shall be determined on the
applicable Dividend Determination Date for each Quarterly Dividend Payment
Period.
The term "Applicable Preferred Shares Amount" means with respect to
any period the highest aggregate liquidation preference of all Preferred
Shares of Beneficial Interest of the Corporation issued at any time under the
Securities Purchase Agreement dated as of November 26, 1996, as supplemented
(as modified, supplemented or amended from time to time, ( the "Securities
Purchase Agreement"), among Partnership Acquisition Trust II, a Delaware
business trust, Nomura Asset Capital Corporation, the Corporation, and
Glimcher Properties Limited Partnership, a Delaware limited partnership,
which were outstanding on any date during such period.
The term "Applicable Spread" with respect to a Quarterly Dividend
Payment Period shall be determined on the last day of the immediately
preceding Quarterly Dividend Payment Period or other applicable period (and
shall be applicable to every day during such Quarterly Dividend Payment
Period or other applicable period) to be the decimal determined below:
Applicable
Preferred
Shares Adjusted Equity Ratio as of the last day of the
Amount Quarterly Dividend Payment Period or other applicable period
- ---------- ------------------------------------------------------------
Greater Greater Greater
than than than
or equal or equal or equal
Greater to .4200 to .3700 to .3200
than but less but less but less Less
or equal than than than than
to .4700 .4700 .4200 .3700 .3200
---------- --------- ---------- --------- --------
Equal to
or less
than $100
million .00000 .00250 .01200 .02000 .03200
Greater than
$100 million
but less than
$200 million .00000 .00500 .01700 .02600 .03700
Greater than
or equal to
$200 million .00000 .00750 .02000 .03000 .04000
The term "Adjusted Equity Ratio" shall mean as of any date of
determination, the ratio (expressed as a decimal to the nearest hundred
thousandth (.00000)) of:
(x) the sum of (i) the aggregate liquidation preference of all
outstanding Junior Preferred Shares plus (ii) the product, expressed in
dollars, of (A) the number of outstanding Common Shares as of the
determination date (including without duplication any Common Shares which
would be issuable upon conversion of any limited partnership interests in
Glimcher Properties Limited Partnership, a Delaware limited partnership) not
owned by the Corporation times (B) the average Market Price (as defined in
Section 5(a) hereof) of the Common Shares during the Quarterly Dividend
Payment Period (or portion thereof, if applicable) prior to the determination
date, to
(y) the sum, without duplication, of (i) the amount determined in
the foregoing clause (x), plus (ii) the liquidation preference of all
Preferred Shares of Beneficial Interest of the Corporation (other than Junior
Preferred Shares), plus (iii) the total consolidated debt of the Corporation
determined in accordance with GAAP.
For purposes of computing the Applicable Dividend Rate for any
Quarterly Dividend Payment Period, the Adjusted Equity Ratio shall be the
ratio on the last day of such Quarterly Dividend Payment Period (e.g., the
ratio in effect for the entire period January 1 through March 31 shall be the
ratio computed on March 31).
The term "Business Day" shall mean any day (other than a Saturday,
Sunday or legal holiday in the State of New York) on which banks are open for
business in New York City.
The term "Common Shares" means the Common Shares of Beneficial
Interest, $.01 par value per share, of the Corporation.
The term "Debt" of any Person means indebtedness of such Person for
borrowed money outstanding (including (i) obligations under capitalized
leases, (ii) obligations for the deferred purchase price of property (other
than trade payables), (iii) liabilities evidenced by notes, bonds or similar
instruments, (iv) guarantees by such Person of any of the foregoing incurred
by any other person, and (v) any of the foregoing obligations for which such
Person is otherwise liable in any other manner such as liability resulting
from such Person being a general partner of the partnership incurring the
foregoing obligation).
The term "Default" shall mean the existence of any of the following
events:
(i) The failure of the Corporation to maintain at the end of each
fiscal quarter, commencing June 30, 1998, a ratio of Consolidated Debt
of the Corporation and its consolidated subsidiaries to Consolidated
Total Assets of the Corporation and its consolidated subsidiaries of no
more than .60 to 1.00 and such failure shall have continued for a period
of 120 consecutive days. The term "Consolidated Debt" of any Person
shall mean, as of any date of determination, without duplication, the
total consolidated Debt of such Person and its consolidated
subsidiaries, determined in accordance with generally accepted
accounting principles ("GAAP") except as otherwise provided herein. The
term "Consolidated Total Assets" of any Person shall mean, as of any
date of determination, the sum, without duplication, of (i) the cash and
cash equivalents (excluding any cash held in escrow) of the Corporation
and its consolidated subsidiaries, (ii) the cost (unrecovered cost in
the case of investments) of all Recently Developed Real Properties
included in the consolidated balance sheet of the Corporation in
accordance with GAAP, (iii) the cost (unrecovered cost in the case of
investments) of all Recently Acquired Operating Real Properties included
in the consolidated balance sheet of the Corporation in accordance with
GAAP plus (iv) the aggregate value of all real properties and
investments in unconsolidated ventures (other than Recently Developed
Real Properties and Recently Acquired Operating Real Properties) owned
by such Person and its consolidated subsidiaries, determined in
accordance with GAAP, except that the value of such real properties
shall be determined by applying a 9.50% capitalization rate to the
Adjusted Net Income of such Person and its consolidated Subsidiaries and
such Person's share of Adjusted Net Income of investments in
unconsolidated ventures. The term "Adjusted Net Income" as of the end
of any fiscal quarter of any Person shall mean the net income of such
Person and its consolidated subsidiaries for the twelve months then
ended computed in accordance with GAAP, but it shall be computed by (x)
excluding from the computation thereof all income and expense items
related to Recently Acquired Operating Real Properties and Recently
Developed Real Properties, general and administrative expenses, minority
interests, interest expenses, depreciation and amortization expenses,
income taxes and items of gain and loss resulting from sales and/or
extraordinary events and (y) including in the computation thereof an
assumed management fee equal to 4% of total revenues. The term
"Recently Acquired Operating Real Property" shall mean each operating
real property (and investments in unconsolidated ventures owning
operating real properties) acquired by the Corporation and its
consolidated subsidiaries until such property shall have been owned by
the Corporation or a consolidated subsidiary (or such unconsolidated
venture) for at least four (4) fiscal quarters, and the term "Recently
Developed Real Property" shall mean any operating real property (and
investments in unconsolidated ventures owning operating real properties)
under development by the Corporation or any of its consolidated
subsidiaries (or such unconsolidated venture) until the earliest of (i)
the date which is 12 months after the date 85% of the total gross
leaseable area of such property has been leased to tenants that are open
for business on the property and paying rent, (ii) 30 months after the
issuance of a permanent certificate of occupancy for any material
portion of such property and (iii) 48 months after the commencement of
construction in connection with the development of such property.
(ii) The failure of the Corporation to maintain at the end of each
fiscal quarter, commencing June 30, 1998, a ratio of Adjusted
Consolidated Debt to Adjusted Consolidated Total Assets of no more than
.70 to 1.00 and such failure shall have continued for a period of 120
consecutive days. For purposes of this calculation (a) the term
"Adjusted Consolidated Debt" shall mean Consolidated Debt of the
Corporation and its consolidated subsidiaries plus, with respect to any
Debt of any unconsolidated entity, the sum, without duplication, of (x)
the Corporation and its consolidated subsidiaries' pro rata share of
such unconsolidated entity's consolidated Debt which is not Debt of the
Corporation or any of its consolidated subsidiaries, (but the amount
included pursuant to this clause (x) with respect to any unconsolidated
entity shall not exceed the amount of the Corporation's and its
consolidated subsidiaries' pro rata share of the consolidated assets of
such unconsolidated entity using the method of computation set forth in
the definition of Consolidated Total Assets) plus (y) without
duplication, to the extent in excess of the amount included in the
foregoing clause (x), the aggregate amount of the Corporation's and its
consolidated subsidiaries' Debt relative to such unconsolidated entity's
Consolidated Debt; and (b) the term "Adjusted Consolidated Total Assets"
shall mean Consolidated Total Assets of the Corporation and its
consolidated subsidiaries plus, with respect to any consolidated assets
of an unconsolidated entity, the Corporation's and its consolidated
subsidiaries' pro rata share of the consolidated assets of such
unconsolidated entity using the method of computation set forth in the
definition of Consolidated Total Assets.
(iii) The indebtedness in the aggregate principal amount of
$181,000,000 incurred under the Amended and Restated Loan Agreement
dated as of March 15, 1994 among Nomura Asset Capital Corporation,
Glimcher Holdings Limited Partnership, Glimcher Centers Limited
Partnership and Grand Central Limited Partnership shall have been
refinanced in whole or in part without the prior written consent of
Nomura Asset Capital Corporation.
(iv) The Corporation shall have issued any Shares in violation of
Section 4(b) hereof.
(v) Dividends on any shares of Series D Preferred Shares shall be
in arrears for two or more Quarterly Dividend Payment Periods(except as
a result of a Deferral Period being in effect).
The term "Deferral Period" shall mean a period specified in writing
by the Corporation to the holders of the Series D Preferred Shares during
which the development project to be developed directly or indirectly from the
proceeds of the issuance of the Series D Preferred Shares is under
construction and the proviso hereto has been satisfied; provided, however,
that (i) no such period may be less than a fiscal quarter and may not extend
beyond December 31, 1999, (ii) no such period shall commence during, and any
existing period shall terminate immediately upon (but without affecting the
dividend rate in effect prior to such termination), any Default.
The term "Development LLC" shall mean Elizabeth MetroMall LLC, a
Delaware limited liability company and its successors and assigns.
The term "Dividend Determination Date" shall mean (i) with respect
to the first Quarterly Dividend Payment Period, the date which is two (2)
Business Days prior to April 1, 1998, and (ii) with respect to all other
Quarterly Dividend Payment Periods, the date which is two (2) Business Days
prior to the first day of such Quarterly Dividend Payment Period.
The term "LIBOR" shall mean, with respect to any Quarterly Dividend
Payment Period, the 3 month London Interbank Offered Rate for United States
dollar deposits as of 11:00 a.m. (London time) on the Dividend Determination
Date as quoted on Dow Jones Market page 3750 or on such replacement system as
is then customarily used to quote LIBOR. If two or more such rates appear on
Dow Jones Market page 3750 or associated pages, LIBOR in respect of such
Quarterly Dividend Payment Period shall be the arithmetic mean of such
offered rates. If two such rates do not appear on Dow Jones Market Page 3750
as of 11:00 a.m., London time, on the applicable Dividend Determination Date,
LIBOR will be the arithmetic mean of the offered rates (expressed as a
percentage per annum) for deposits in U.S. Dollars for a 3 month period that
appear on the Reuters Screen LIBO Page (as defined below) as of 11:00 a.m.,
London time, on such Dividend Determination Date, if at least two such
offered rates so appear. If fewer than two such offered rates appear on the
Reuters Screen LIBO Page as of 11:00 a.m., London time, on such Dividend
Determination Date, the Corporation will request the principal London office
of any four major reference banks in the London interbank market selected by
the Corporation in good faith to provide such bank's offered quotation
(expressed as a percentage per annum) to prime banks in the London interbank
market for deposits in U.S. Dollars for a three month period as of 11:00
a.m., London time, on such Dividend Determination Date for amounts of not
less than U.S. $1,000,000. If at least two such offered quotations are so
provided, LIBOR will be the arithmetic mean of such quotations. If fewer
than two such quotations are so provided, the Corporation will request any
three major banks in New York City selected by the Corporation in good faith
to provide such bank's rate (expressed as a percentage per annum) for loans
in U.S. Dollars to leading European banks for a three month period as of
approximately 11:00 a.m., New York City time, on the applicable Dividend
Determination Date for amounts of not less than U.S. $1,000,000. If at least
two such rates are so provided, LIBOR will be the arithmetic mean of such
rates. If fewer than two rates are so provided, then LIBOR will be LIBOR in
effect on the preceding Dividend Determination Date.
The term "Liquidation Preference" shall mean, as of any date of
determination, (x) if such date is prior to the later of the commencement of
the Conversion Period (without regard to the application of Section 5(g))and
the Conversion Termination Date (as defined in Section 5(g)), $1,000, and (y)
at all times thereafter, the quotient of $1,000 divided by the Applicable
Conversion Percentage as of the date of determination. Every change in the
Applicable Conversion Percentage on or after the later of (x) the
commencement of the Conversion Period (without regard to the application of
Section 5(g)) or (y) the Conversion Termination Date shall effect a change in
the Liquidation Preference as of the date of each such change.
The term "Net Proceeds" shall mean the cash proceeds from any
Capital Transaction (as such term is defined in the Operating Agreement)
which are available to be distributed to members pursuant to Section 8.2 of
such Operating Agreement.
The term "Operating Agreement" means the Operating Agreement of the
Development LLC, as such agreement is in effect on the Original Issuance
Date.
The term "Quarterly Dividend Payment Period" shall mean the period
beginning on and including the first day of each April, July, October and
January of each year and ending on and including the last day of the first to
occur of the next June, September, December and March, respectively, except
that the initial Quarterly Dividend Payment Period shall be the period
beginning on the Original Issuance Date and ending on and including the next
March 31, June 30, September 30 or December 31.
(b) Dividends on the Series D Preferred Shares shall be
cumulative, so that if in any fiscal year or years, dividends in whole or in
part are not paid upon the Series D Preferred Shares, unpaid dividends shall
accumulate as against the holders of the Junior Shares. Dividends on the
Series D Preferred Shares shall accrue whether or not the Corporation has
earnings, whether or not there are funds legally available for the payment of
such dividends and whether or not such dividends are authorized. Accrued but
unpaid dividends on the Series D Preferred Shares will accumulate as of the
Quarterly Payment Date on which they first become payable. Each dividend, to
the extent not paid on an applicable Quarterly Payment Date, shall accrue
(whether or not the Corporation has earnings, whether or not there are funds
legally available for the payment of such dividends and whether or not such
dividends are authorized) on a daily basis additional cumulative dividends at
the then applicable dividend rate for the Series D Preferred Shares. Any
dividend payment made on the Series D Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due which remains
payable.
(c) For so long as the Series D Preferred Shares remain
outstanding, the Corporation shall not pay any dividend upon the Junior
Shares, whether in cash or other property (other than shares of Junior
Shares), or purchase, redeem or otherwise acquire any such Junior Shares
unless, in addition to the payment of the dividend to the holders of the
Series D Preferred Shares as described above, the Corporation has redeemed
all shares of Series D Preferred Shares which it would theretofore have been
required to redeem under Section 7 hereof. Notwithstanding the provisions of
this Section 2(c), without authorizing or paying dividends on the Series D
Preferred Shares, the Corporation may, (1) subject to applicable law,
repurchase or redeem shares of Common Shares of the Corporation from current
or former officers or employees of the Corporation pursuant to the terms of
repurchase or similar agreements in effect from time to time, provided that
such agreements have been approved by the Board of Trustees of the
Corporation and the terms of such agreements provide for a repurchase or
redemption price not in excess of the price per share paid by such employee
for such share, (2) set aside, authorize or pay dividends on the Common
Shares of the Corporation to the extent required in order to maintain the
status of the Corporation as a real estate investment trust under the
provisions of Sections 856 through 858 of the Internal Revenue Code of 1986,
as amended, but only to the extent that the foregoing cannot be achieved
through the payment of dividends on the Series D Preferred Shares except
that, on only one dividend payment date with respect to the Common Shares,
the amount of such dividends payable on the Common Shares may be computed
based on the assumption that the foregoing cannot be achieved through the
payment of dividends on the Series D Preferred Shares, and (3) redeem Shares
pursuant to Section 6.6 of the Declaration.
(d) Promptly (and in any event within three Business Days) after
each Dividend Determination Date, including any date relating to a Quarterly
Dividend Payment Period during a Deferral Period, the Corporation shall
forthwith file at each office designated for the conversion of Series D
Preferred Shares, a statement, signed by the Chairman of the Board, the
President, any Vice President or Treasurer of the Corporation, setting forth
the Applicable Dividend Amount (including LIBOR and the Applicable Spread)
for the following Quarterly Dividend Payment Period. The Corporation shall
also cause a notice setting forth such information to be sent by mail, first
class, postage prepaid, to each record holder of Series D Preferred Shares at
his or its address appearing on the Preferred Shares register except that
such notice need not be sent, unless requested by a holder of Preferred
Shares, if such information has not changed from the prior Dividend
Determination Date.
(e) Notwithstanding anything in this Section 2 to the contrary, so
long as any Series B Preferred Shares shall remain outstanding, the
provisions of Section B(3) of the Series B Preferred Articles Supplementary
shall supersede this Section 2 solely to the extent inconsistent with the
provisions of this Section 2.
(f) In addition to the dividends otherwise payable to the holder
of each Series D Preferred Share pursuant to this subsection (a) of this
Section 2, on July 1, 1998, there shall be paid, with respect to each such
share, an amount equal to the amount designated as the Series C Adjustment
Amount, which amount shall be set forth in a certificate signed by the
President, Vice President or Treasurer of the Corporation and delivered to
the original purchasers of each Series D Preferred Share on the Original
Issuance Date.
SECTION 3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series
D Preferred Shares then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its Shareholders,
after and subject to the payment in full of all amounts required to be
distributed to the holders of any other Preferred Shares of the Corporation
ranking on liquidation prior and in preference to the Series D Preferred
Shares (such Preferred Shares being referred to hereinafter as "Senior
Preferred Shares") upon such liquidation, dissolution or winding up, but
before any payment shall be made to the holders of Junior Shares, an amount
equal to the Liquidation Preference per share plus any accrued dividends
thereon (whether or not there are funds legally available for the payment of
such dividends and whether or not such dividends are authorized) (subject to
adjustment in the event of any dividend, split, distribution or combination
with respect to such shares). If upon any such liquidation, dissolution or
winding up of the Corporation the remaining assets of the Corporation
available for the distribution to its Shareholders after payment in full of
amounts required to be paid or distributed to holders of Senior Preferred
Shares shall be insufficient to pay the holders of shares of Series D
Preferred Shares the full amount to which they shall be entitled, the holders
of shares of Series D Preferred Shares, and any class of Shares ranking on
liquidation on a parity with the Series D Preferred Shares, shall share
ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
payable in respect to the shares held by them upon such distribution if all
amounts payable on or with respect to said shares were paid in full.
(b) After the payment of all preferential amounts required to be
paid to the holders of Senior Preferred Shares and Series D Preferred Shares
and any other series of Preferred Shares upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Common Shares then
outstanding shall be entitled to receive the remaining assets and funds of
the Corporation available for distribution to its Shareholders.
(c) Any merger or consolidation of the Corporation into or with
another corporation, any merger or consolidation of any other corporation
into or with the Corporation, or any sale, conveyance, mortgage, pledge or
lease of all or substantially all the assets of the Corporation shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 3 unless approved pursuant to Section 4 (or approval
is not required as set forth in clause (b)(iii)(b) thereof).
(d) In determining whether a distribution (other than upon
voluntary or involuntary liquidation), by dividend, redemption or other
acquisition of shares or otherwise, is permitted under the Maryland General
Corporation Law, amounts that would be needed, if the Corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of holders of Preferred Shares whose preferential rights
upon dissolution are superior to those receiving the distribution shall not
be added to the Corporation's total liabilities.
(e) Notwithstanding anything in this Section 3 to the contrary, so
long as any Series B Preferred Shares shall remain outstanding, the
provisions of Section C of the Series B Preferred Articles Supplementary
shall supersede this Section 3.
SECTION 4. VOTING
(a) Whenever dividends on any shares of Series D Preferred Shares
shall be in arrears for two or more Quarterly Dividend Payment Periods
(except as a result of a Deferral Period being in effect) or a Default shall
have occurred and be continuing (either event being herein called a
"Preferred Default"), the number of members of the Board of Trustees of the
Corporation shall be increased by two and the holders of Series D Preferred
Shares shall have the exclusive right, voting separately as a class together
with the holders of other shares of convertible preferred shares issued from
time to time pursuant to the Securities Purchase Agreement (collectively, the
"Pari Passu Shares"), to elect two Trustees (herein referred to as the
"Series D Trustees"). All such Series D Trustees shall be elected by the
affirmative vote of the holders of record of a majority of the outstanding
Pari Passu Shares either at meetings of Shareholders at which Trustees are
elected, a special meeting of holders of Pari Passu Shares or by unanimous
written consent without a meeting in accordance with the Corporations and
Associations Article of the Annotated Code of Maryland, and at each
subsequent meeting until all dividends accumulated on such shares of Series D
Preferred Shares for the past Quarterly Dividend Payment Periods and the
dividend for the then current Quarterly Dividend Payment Period shall have
been fully paid or authorized and a sum sufficient for the payment thereof
set aside for payment and there shall not exist any Default. Each Series D
Trustee so elected shall serve for a term of one year and until his successor
is elected and qualified. Any vacancy in the position of a Series D Trustee
may be filled only by the holders of the Pari Passu Shares. Each Series D
Trustee may, during his term of office, be removed at any time, with or
without cause, by and only by the affirmative vote, at a special meeting of
holders of Pari Passu Shares called for such purpose, or the written consent,
of the holders of record of a majority of the outstanding shares of Pari
Passu Shares. Any vacancy created by such removal may also be filled at such
meeting or by such consent. If and when all accumulated dividends and the
dividend for the then current dividend period on the Series D Preferred
Shares shall have been paid in full or set aside for payment in full and
there shall exist no Default, the holders thereof shall be divested of the
foregoing voting rights (subject to revesting in the event of each and every
Preferred Default) and, if all accumulated dividends and the dividend for the
then current dividend period have been paid in full or set aside for payment
in full on all Pari Passu Shares upon which like voting rights have been
conferred and are exercisable, the term of office of each Series D Trustee
shall terminate forthwith.
(b) In addition to any other rights provided by law, so long as
any Series D Preferred Shares are outstanding, the Corporation shall not,
without first obtaining the affirmative vote or, if permitted by applicable
law, the written consent of the holders of a majority of the Series D
Preferred Shares:
(i) amend or repeal any provision of the Declaration or Bylaws
which would have a dilutive effect on the Series D Preferred Shares,
increase the number of members of the Board of Trustees of the
Corporation or otherwise materially adversely affect the economic rights
of the Series D Preferred Shares, including permitting the provisions of
Subtitle 7 of Title 3 of the Maryland General Corporation Law, similar
provisions and so-called "poison pills" to apply to any holder of the
Series D Preferred Shares as a result of owning such shares or common
shares upon conversion of any or all of such shares;
(ii) issue any Senior Preferred Shares unless all Series D
Preferred Shares are redeemed with the proceeds thereof or issue any
Preferred Shares (other than Pari Passu Shares) unless all the net
proceeds are used to redeem the Series D Preferred Shares and the Pari
Passu Shares;
authorize or effect (a) any sale, lease, transfer or other
disposition of all or substantially all the assets of the Corporation;
(b) any merger or consolidation or other reorganization of the
Corporation with or into another entity, except any such event if, after
giving effect thereto the Corporation shall be in compliance with the
ratios set forth in clauses (i) and (ii) of the definition of Default or
(c) a liquidation, winding up, dissolution or adoption of any plan for
the same; or
(iv) enter into any transaction, other than employment agreements
on a basis consistent with past practice, with any officer, director,
trustee or beneficial owner of five percent (5%) or more of the Common
Shares of the Corporation or any Affiliate of any of the foregoing
unless such transaction is on terms no less favorable to the Corporation
or such subsidiary than those that could be obtained in a comparable
arm's length transaction with a person that is not such officer,
director, trustee, owner or Affiliate.
(c) The Corporation shall not amend, alter or repeal the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms
or conditions of redemption of the Series D Preferred Shares so as to affect
adversely the Series D Preferred Shares, without the affirmative vote or, if
permitted by applicable law, the written consent, of the holders of at least
66-2/3% of the then outstanding aggregate number of shares of such adversely
affected Series D Preferred Shares, voting or consenting (as the case may be)
separately as a class.
(d) For all provisions of the Declaration requiring the approval
of the holders of shares of Series D Preferred Shares, all Preferred Shares
owned by the Corporation or any person in which the Corporation has directly
or indirectly a 10% or more equity interest shall be disregarded and shall
not be deemed to be outstanding.
SECTION 5. CONVERSION.
(a) Each share of Series D Preferred Shares may be converted at
any time during the Conversion Period (as defined below), at the option of
the holder thereof, into the number of fully-paid and nonassessable shares of
Common Shares obtained by dividing the then applicable Liquidation Preference
by the Conversion Price (as defined below) then in effect. The right of
conversion given during the Conversion Period shall not be affected by any
notice of redemption. Holders of Series D Preferred Shares at the close of
business on a record date (which shall be the Business Day next preceding the
Quarterly Payment Date) for a corresponding Quarterly Payment Date will be
entitled to receive the dividend payable on such Series D Preferred Shares on
such Quarterly Payment Date notwithstanding the conversion of Series D
Preferred Shares following such record date. Except as provided in the
immediately preceding sentence, the Corporation will make no payment or
allowance for dividends which accrued on the converted Series D Preferred
Shares since the last Quarterly Payment Date prior to conversion. Holders of
Common Shares which are issuable upon conversion prior to or on a record date
for any dividend or distribution on such shares shall be entitled to receive
the same dividend or distribution as other holders of record of Common
Shares. Each conversion will be deemed to have been effected immediately
prior to the close of business on the day on which the notice of conversion
was received by the Corporation. The "Conversion Price" per share shall be
equal to the product of (i) the average of Market Price (rounded to the
nearest $0.01) per share over the 30 trading days prior to the date of
conversion times (ii) the Applicable Conversion Percentage. As used herein,
the term "Market Price" as of any trading day, subject to adjustment pursuant
to Section 6, means (i) if the Common Shares are listed on any national
securities exchange, the last sales price of the Common Shares on such
exchange (or the quoted closing bid price if there shall have been no sales)
on such trading day, or (ii) if the Common Shares shall not be listed, the
mean between the closing bid and asked prices on such trading day for the
Common Shares on the date of conversion as reported by NASDAQ, or its
successor, and if there are not such closing bid and asked prices, on the
basis of the fair market value per share on such trading day as determined by
an appraiser mutually satisfactory to the Board of Trustees of the
Corporation and the holders of a majority of the outstanding shares of Series
D Preferred Shares who have given notice of conversion. Any change in the
Market Price due to an adjustment pursuant to Section 6 shall take effect on
the date of any Triggering Event (as defined in Section 6).
As used herein, the term "Applicable Conversion Percentage" means
(i) at all times during the occurrence and continuance of a Default, the
lesser of 0.80 and the decimal which would otherwise be in effect in clause
(ii) of this definition in the absence of a Default, and (ii) so long as a
Default has not occurred and is continuing the decimal set forth for such
period in the following table:
Period Decimal
December 4, 1997 to December 3, 2003, both included 0.90
December 4, 2003 to December 3, 2004, both included 0.85
December 4, 2004 to December 3, 2005, both included 0.80
December 4, 2005 and thereafter 0.70
As used herein, the term "Conversion Period" means the period (a)
commencing on the earliest of (i) the date of a Default (it being understood
that an event included in clause (i) or (ii) of the definition of the term
"Default" does not constitute a Default until the 120 day period referred to
therein has lapsed and such event remains) whether or not such Default is
subsequently cured, and (ii) December 4, 2002, and (b) ending on the close
of business on the Business Day next preceding the date fixed for redemption
or for the payment of any amounts distributable on liquidation to the holders
of the Series D Preferred Shares.
(c) The Corporation shall not issue fractions of shares of Common
Shares upon conversion of Series D Preferred Shares or scrip in lieu thereof.
If any fraction of a share of Common Shares would, except for the provisions
of this Section (c), be issuable upon conversion of any Series D Preferred
Shares, the Corporation shall in lieu thereof pay to the person entitled
thereto an amount in cash equal to the current value of such fraction,
calculated to the nearest one-hundredth (1/100) of a share, to be computed
(i) if the Common Shares are listed on any national securities exchange on
the basis of the last sales price of the Common Shares on such exchange (or
the quoted closing bid price if there shall have been no sales) on the date
of conversion, or (ii) if the Common Shares shall not be listed, on the basis
of the mean between the closing bid and asked prices for the Common Shares on
the date of conversion as reported by NASDAQ, or its successor, and if there
are not such closing bid and asked prices, on the basis of the fair market
value per share on the date of conversion as determined by an appraiser
mutually satisfactory to the Board of Trustees of the Corporation and the
holders of a majority of the outstanding shares of Series D Preferred Shares
who have given notice of conversion.
(d) Whenever the Conversion Price shall be adjusted as provided in
Section 6 hereof, the Corporation shall forthwith file at each office
designated for the conversion of Series D Preferred Shares, a statement,
signed by the Chairman of the Board, the President, any Vice President or the
Treasurer of the Corporation, showing in reasonable detail the facts
requiring such adjustment and the Conversion Price that will be effective
after such adjustment. The Corporation shall also cause a notice setting
forth any such adjustments to be sent by mail, first class, postage prepaid,
to each record holder of Series D Preferred Shares at his or its address
appearing on the Shares register. If such notice relates to an adjustment
resulting from an event referred to in Section 6(h), such notice shall be
included as part of the notice required to be mailed and published under the
provisions of Section 6(h) hereof.
(e) In order to exercise the conversion privilege, the holder of
any Series D Preferred Shares to be converted shall surrender his or its
certificate or certificates therefor to the transfer agent for the Series D
Preferred Shares at the principal office of the transfer agent (or if no
transfer agent be at the time appointed, to the Corporation at its principal
office), and shall give written or facsimile notice (which may be given on
the date of conversion) to the transfer agent, if any, and to the Corporation
at such office that the holder elects to convert the Series D Preferred
Shares evidenced by such certificates, or any number thereof. Such notice
shall also state the name or names (with address) in which the certificate or
certificates for shares of Common Shares which shall be issuable on such
conversion shall be issued, subject to any restrictions on transfer relating
to shares of the Series D Preferred Shares or shares of Common Shares upon
conversion thereof. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the
Corporation, duly authorized in writing. The date of receipt by the transfer
agent (or by the Corporation if the Corporation serves as its own transfer
agent) of the certificates and notice shall be the conversion date. As soon
as practicable after receipt of such notice and the surrender of the
certificate or certificates for Series D Preferred Shares as aforesaid, the
Corporation shall cause to be issued and delivered at such office to such
holder, or on his or its written order, a certificate or certificates for the
number of full shares of Common Shares issuable on such conversion in
accordance with the provisions hereof and cash as provided in Section 5(b) in
respect of any fraction of a share of Common Shares otherwise issuable upon
such conversion.
(f) The Corporation shall at all times when the Series D Preferred
Shares shall be outstanding reserve and keep available out of its authorized
but unissued Common Shares, for the purposes of effecting the conversion of
the Series D Preferred Shares, such number of its duly authorized shares of
Common Shares as shall from time to time be sufficient to effect the
conversion of all outstanding Series D Preferred Shares. Before taking any
action which would cause an adjustment reducing the Conversion Price below
the then par value of the shares of Common Shares issuable upon conversion of
the Series D Preferred Shares, the Corporation will take any corporate action
which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully-paid and nonassessable shares
of such Common Shares at such adjusted conversion price.
(g) All shares of Series D Preferred Shares which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights,
if any, to receive notices and to vote, shall forthwith cease and terminate
except only the right of the holder thereof to receive shares of Common
Shares in exchange therefor and payment of any accrued and unpaid dividends
thereon. Any shares of Series D Preferred Shares so converted shall be
retired and cancelled and shall not be reissued, and the Corporation may from
time to time take such appropriate action as may be necessary to reduce the
number of authorized Series D Preferred Shares accordingly, including the
filing of articles supplementary.
(h) Notwithstanding anything to the contrary herein contained,
unless and until approval ("Shareholder Approval") of the holders of the
Common Shares shall have been obtained in compliance with the rules and
policies of the New York Stock Exchange, no holder of Series D Preferred
Shares shall have the right to convert such Series D Preferred Shares into
Common Shares if, as a result of such conversion and all prior or concurrent
conversions of Pari Passu Shares, (1) all Common Shares issued as a result of
such conversions would have voting power equal to or in excess of 20 percent
of the voting power of the Common Shares outstanding (excluding treasury
shares, shares held by a subsidiary and shares reserved for issuance upon
conversion or exercise of options or warrants) on November 27, 1996, or (2)
the number of Common Shares issued as a result of such conversions would be
equal to or in excess of 20 percent of the number of Common Shares
outstanding on November 27, 1996. The date on and after which conversion
shall no longer be permitted as a result of the operation of this Section
5(g) is herein called the "Conversion Termination Date", it being understood
that if Shareholder Approval is obtained or if any Pari Passu Shares which
are convertible without Shareholder Approval have not been converted, no
Conversion Termination Date shall occur. Promptly, and in any event within
three (3) Business Days, after the Conversion Termination Date, the
Corporation shall forthwith file, at each office designated for the
conversion of Series D Preferred Shares, a statement, signed by the Chairman
of the Board, the President, any Vice President or Treasurer of the
Corporation, stating that the Conversion Termination Date has occurred and
setting forth the reason therefor. The Corporation shall also cause a notice
setting forth such information to be sent by mail, first class, postage
prepaid, to each record holder of Series D Preferred Shares at his or its
address appearing on the Preferred Shares register.
SECTION 6. ANTI-DILUTION PROVISIONS.
(a) The provisions of this Section 6 shall not be applicable
except in connection with a conversion pursuant to Section 5. In order to
prevent dilution of the right granted hereunder, the Market Price on any date
shall be subject to adjustment from time to time in accordance with this
Section 6(a). For purposes of this Section 6, the term "Number of Common
Shares Deemed Outstanding" at any given time shall mean the sum of (x) the
number of shares of the Corporation's Common Shares outstanding at such time,
(y) the number of shares of the Corporation's Common Shares issuable assuming
conversion at such time of the Corporation's Series D Preferred Shares and
the Pari Passu Shares and (z) the number of shares of the Corporation's
Common Shares deemed to be outstanding under Sections 6(b)(1) to (9),
inclusive, at such time.
Except as provided in Section 6(c) or 6(f) below, if and whenever
on or after December 4, 1997, the Corporation shall issue or sell, or shall
in accordance with Sections 6(b)(1) to (9), inclusive, be deemed to have
issued or sold, any shares of its Common Shares for a consideration per share
less than the Market Price in effect immediately prior to the time of such
issue or sale, then forthwith upon such issue or sale (the "Triggering
Transaction"), the Market Price for all trading days prior to such Triggering
Transaction shall, subject to Sections 6(b)(1) to 6(b)(9), be reduced to the
Market Price (calculated to the nearest tenth of a cent) determined by
dividing (x) an amount equal to the sum of (1) the product derived by
multiplying the Number of Common Shares Deemed Outstanding immediately prior
to such Triggering Transaction by the Market Price then in effect, plus (2)
the consideration, if any, received by the Company upon consummation of such
Triggering Transaction, by (y) an amount equal to the sum of (1) the Number
of Common Shares Deemed Outstanding immediately prior to such Triggering
Transaction plus (2) the number of shares of Common Shares issued (or deemed
to be issued in accordance with Sections 6(b)(1) to 6(b)(9)) in connection
with the Triggering Transaction.
(b) This Section 6(b) shall apply only in connection with events
referred to in Sections 6(b)(1) through 6(b)(9) which occur within the 30
days immediately preceding a notice of conversion and only with respect to
the specific shares of Series D Preferred Shares which are the subject of the
notice of conversion and are in fact converted. For purposes of determining
the adjusted Conversion Price under this Section 6(b), the following Sections
6(b)(1) to 6(b)(9), inclusive, shall be applicable:
(1) In case the Corporation at any time shall in any manner
grant (whether directly or by assumption in a merger or otherwise)
any rights to subscribe for or to purchase, or any options for the
purchase of, Common Shares or any Preferred Shares (other than the
Series D Shares and the Pari Passu Shares) or other securities
convertible into or exchangeable for Common Shares (such rights or
options being herein called "Options" and such convertible or
exchangeable Shares or securities being herein called "Convertible
Securities"), whether or not such Options or the right to convert
or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which the Common Shares is
issuable upon exercise, conversion or exchange (determined by
dividing (x) the total amount, if any, received or receivable by
the Corporation as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of all such Options,
plus, in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof,
by (y) the total maximum number of shares of Common Shares issuable
upon the exercise of such Options or the conversion or exchange of
such Convertible Securities) shall be less than the Market Price in
effect immediately prior to the time of the granting of such
Option, then the total maximum amount of Common Shares issuable
upon the exercise of such Options or, in the case of Options for
Convertible Securities, upon the conversion or exchange of such
Convertible Securities shall (as of the date of granting of such
Options) be deemed to be outstanding and to have been issued and
sold by the Corporation for such price per share. No adjustment of
the Market Price shall be made upon the actual issue of such shares
of Common Shares or such Convertible Securities upon the exercise
of such Options, except as otherwise provided in Section 6(b)(3)
below.
(2) In case the Corporation at any time shall in any manner
issue (whether directly or by assumption in a merger or otherwise)
or sell any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Shares are issuable upon such
conversion or exchange (determined by dividing (x) the total amount
received or receivable by the Corporation as consideration for the
issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to
the Corporation upon the conversion or exchange thereof, by (y) the
total maximum number of shares of Common Shares issuable upon the
conversion or exchange of all such Convertible Securities) shall be
less than the Market Price in effect immediately prior to the time
of such issue or sale, then the total maximum number of shares of
Common Shares issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or sale
of such Convertible Securities) be deemed to be outstanding and to
have been issued and sold by the Corporation for such price per
share. No adjustment of the Market Price shall be made upon the
actual issue of such Common Shares upon exercise of the rights to
exchange or convert under such Convertible Securities, except as
otherwise provided in Section 6(b)(3) below.
(3) If the purchase price provided for in any Options
referred to in Section 6(b)(1), the additional consideration, if
any, payable upon the conversion or exchange of any Convertible
Securities referred to in Sections 6(b)(1) or 6(b)(2), or the rate
at which any Convertible Securities referred to in Section 6(b)(1)
or 6(b)(2) are convertible into or exchangeable for Common Shares
shall change at any time (other than under or by reason of
provisions designed to protect against dilution of the type set
forth in Sections 6(b) or 6(d)), the Market Price in effect at the
time of such change shall forthwith be readjusted to the Market
Price which would have been in effect at such time had such Options
or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or
sold. If the purchase price provided for in any Option referred to
in Section 6(b)(1) or the rate at which any Convertible Securities
referred to in Sections 6(b)(1) or 6(b)(2) are convertible into or
exchangeable for Common Shares shall be reduced at any time under
or by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of Common Shares
upon the exercise of any such Option or upon conversion or exchange
of any such Convertible Security, the Market Price then in effect
hereunder shall forthwith be adjusted to such respective amount as
would have been obtained had such Option or Convertible Security
never been issued as to such Common Shares and had adjustments been
made upon the issuance of the shares of Common Shares delivered as
aforesaid, but only if as a result of such adjustment the Market
Price then in effect hereunder is hereby reduced.
(4) On the expiration of any Option or the termination of any
right to convert or exchange any Convertible Securities, the
Conversion Price then in effect hereunder shall forthwith be
increased to the Conversion Price which would have been in effect
at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior
to such expiration or termination, never been issued.
(5) In case any Options shall be issued in connection with
the issue or sale of other securities of the Corporation, together
comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties thereto,
such Options shall be deemed to have been issued for an amount
equal to the fair market value thereof, determined by allocating to
the other securities the market price thereof.
(6) In case any shares of Common Shares, Options or
Convertible Securities shall be issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Corporation
therefor. In case any shares of Common Shares, Options or
Convertible Securities shall be issued or sold for a consideration
other than cash, the amount of the consideration other than cash
received by the Corporation shall be the fair value of such
consideration as determined in good faith by the Board of Trustees
of the Corporation, whose determination shall be conclusive. In
case any shares of Common Shares, Options or Convertible Securities
shall be issued in connection with any merger in which the
Corporation is the surviving Corporation, the amount of
consideration therefor shall be deemed to be the fair value of such
portion of the net assets and business of the non-surviving
Corporation as shall be attributable to such Common Shares, Options
or Convertible Securities, as the case may be, as determined in
good faith by the Board of Trustees, whose determination shall be
conclusive.
(7) The number of shares of Common Shares outstanding at any
given time shall not include shares owned or held by or for the
account of the Corporation, and the disposition (but not redemption
or retirement) of any shares so owned or held shall be considered
an issue or sale of Common Shares for the purpose of this Section
6(b).
(8) In case the Corporation shall declare a dividend or make
any other distribution upon the Shares of the Corporation payable
in Options or Convertible Securities, then in such case any Options
or Convertible Securities, as the case may be, issuable in payment
of such dividend or distribution shall be deemed to have been
issued or sold without consideration.
(9) For purposes of this Section 6(b), in case the
Corporation shall take a record of the holders of its Common Shares
for the purpose of entitling them (x) to receive a dividend or
other distribution payable in Common Shares, Options or in
Convertible Securities, or (y) to subscribe for or purchase Common
Shares, Options or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the shares
of Common Shares deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right or
subscription or purchase, as the case may be.
(c) In the event that within the thirty days immediately prior to
the date of conversion of Series D Preferred Shares the Board of Trustees
shall authorize a dividend upon the Common Shares (other than a dividend
payable in Common Shares) payable otherwise than out of earnings or earned
surplus, determined in accordance with generally accepted accounting
principles, including the making of appropriate deductions for minority
interests, if any, in subsidiaries (herein referred to as "Liquidating
Dividends"), then, as soon as possible after the conversion of any Series D
Preferred Shares, the Corporation shall pay to the person converting such
Series D Preferred Shares an amount equal to the Pro Rata Share of the
aggregate value at the time of such exercise of all Liquidating Dividends
(including but not limited to the Common Shares which would have been issued
at the time of such earlier exercise and all other securities which would
have been issued with respect to such Common Shares by reason of share
splits, share dividends, mergers or reorganizations, or for any other
reason). The Pro Rata Share shall be a fraction, the numerator of which is
the number of days within such thirty day period that are before the record
date and the denominator of which is thirty. For the purposes of this
Section 6(c), a dividend other than in cash shall be considered payable out
of earnings or earned surplus only to the extent that such earnings or earned
surplus are charged an amount equal to the fair value of such dividend as
determined in good faith by the Board of Trustees of the Corporation.
(d) In case the Corporation shall at any time (i) subdivide the
outstanding Common Shares or (ii) pay a dividend on its outstanding Common
Shares in shares of beneficial interests of the Corporation, the number of
shares of Common Shares issuable upon conversion of the Series D Preferred
Shares shall be proportionately increased by the same ratio as the
subdivision or dividend (with appropriate adjustments to the Conversion Price
in effect immediately prior to such subdivision or dividend). In case the
Corporation shall at any time combine its outstanding Common Shares, the
number of shares issuable upon conversion of the Series D Preferred Shares
immediately prior to such combination shall be proportionately decreased by
the same ratio as the combination (with appropriate adjustments to the
Conversion Price in effect immediately prior to such combination).
(e) If any capital reorganization or reclassification of the
shares of beneficial interest of the Corporation, or consolidation or merger
of the Corporation with another entity, or the sale of all or substantially
all of its assets to another entity shall be effected in such a way that
holders of Common Shares shall be entitled to receive stock, securities, cash
or other property with respect to or in exchange for Common Shares, then, as
a condition of such reorganization, reclassification, consolidation, merger
or sale, lawful and adequate provision shall be made whereby the holders of
the Series D Preferred Shares shall have the right to acquire and receive
upon conversion of the Series D Preferred Shares, which right shall be prior
to the rights of the holders of Junior Shares (but after and subject to the
rights of holders of Senior Preferred Shares, if any), such shares of stock,
securities, cash or other property issuable or payable (as part of the
reorganization, reclassification, consolidation, merger or sale) with respect
to or in exchange for such number of outstanding shares of the Corporation's
Common Shares as would have been received upon conversion of the Series D
Preferred Shares at the Conversion Price then in effect. The Corporation
will not effect any such consolidation, merger or sale, unless prior to the
consummation thereof the successor entity (if other than the Corporation)
resulting from such consolidation or merger or the entity purchasing such
assets shall assume by written instrument mailed or delivered to the holders
of the Series D Preferred Shares at the last address of each such holder
appearing on the books of the Corporation, the obligation to deliver to each
such holder such shares of Shares, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to purchase. If a
purchase, tender or exchange offer is made to and accepted by the holders of
more than 50% of the outstanding Common Shares of the Corporation, the
Corporation shall not effect any consolidation, merger or sale with the
person having made such offer or with any Affiliate of such person, unless
prior to the consummation of such consolidation, merger or sale the holders
of the Series D Preferred Shares shall have been given a reasonable
opportunity to then elect to receive upon the conversion of the Series D
Preferred Shares either the stock, securities or assets then issuable with
respect to the Common Shares of the Corporation or the stock, securities or
assets, or the equivalent, issued to previous holders of the Common Shares in
accordance with such offer. For purposes hereof, the term "Affiliate" with
respect to any given person shall mean any person controlling, controlled by
or under common control with the given person.
(f) The provisions of this Section 6 shall not apply to any Common
Shares issued, issuable or deemed outstanding under Sections 6(b)(1) to (9)
inclusive: (i) to any person pursuant to any stock option, stock purchase or
similar plan or arrangement for the benefit of employees or Trustees of the
Corporation or its subsidiaries in effect on December 4, 1997, or thereafter
adopted by the Board of Trustees of the Corporation and a majority of the
Series D Trustees, if any, (ii) pursuant to options, warrants and conversion
rights in existence on December 4, 1997, or (iii) on the conversion of the
Series D Preferred Shares or the sale or conversion of the Pari Passu Shares.
(g) In the event that during any time when the Series D Preferred
Shares are subject to conversion rights:
(1) the Corporation shall authorize any extraordinary cash
dividend upon its Common Shares, or
(2) the Corporation shall authorize any dividend upon its
Common Shares payable in Shares or make any special dividend or
other distribution to the holders of its Common Shares, or
(3) the Corporation shall offer for subscription pro rata to
the holders of its Common Shares any additional shares of any class
or other rights, or
(4) there shall be any capital reorganization or
reclassification of the shares of beneficial interest of the
Corporation, including any subdivision or combination of its
outstanding shares of Common Shares, or consolidation or merger of
the Corporation with, or sale of all or substantially all of its
assets to, another entity, or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in connection with such event, the Corporation shall give to the
holders of the Series D Preferred Shares:
(i) at least five (5) days prior written notice of the date on
which the books of the Corporation shall close or a record shall be
taken for such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation
or winding up; and
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at
least twenty (20) days prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause
(i) shall also specify, in the case of any such dividend, distribution
or subscription rights, the date on which the holders of Common Shares
shall be entitled thereto, and such notice in accordance with the
foregoing clause (i) shall also specify the date on which the holders of
Common Shares shall be entitled to exchange their Common Shares for
securities or other property deliverable upon such reorganization,
reclassification consolidation, merger, sale, dissolution, liquidation
or winding up, as the case may be. Each such written notice shall be
given by first class mail, postage prepaid, addressed to the holders of
the Series D Preferred Shares at the address of each such holder as
shown on the books of the Corporation.
(h) If at any time or from time to time on or after December 4,
1997, the Corporation shall grant, issue or sell any Options, Convertible
Securities or rights to purchase property (the "Purchase Rights") pro rata to
the record holders of Common Shares of the Corporation and such grants,
issuances or sales do not result in an adjustment of the Conversion Price
under Section 6(b) hereof, then each holder of Series D Preferred Shares
shall be entitled to acquire (within thirty (30) days after the later to
occur of the initial exercise date of such Purchase Rights or receipt by such
holder of the notice concerning Purchase Rights to which such holder shall be
entitled under Section 6(g)) upon the terms applicable to such Purchase
Rights either:
(i) the aggregate Purchase Rights which such holder could have
acquired if it had held the number of shares of Common Shares acquirable
upon conversion of the Series D Preferred Shares immediately before the
grant, issuance or sale of such Purchase Rights; provided that if any
Purchase Rights were distributed to holders of Common Shares without the
payment of additional consideration by such holders, corresponding
Purchase Rights shall be distributed to the exercising holders of the
Series D Preferred Shares as soon as possible after such exercise and it
shall not be necessary for the exercising holder of the Series D
Preferred Shares specifically to request delivery of such rights; or
(ii) in the event that any such Purchase Rights shall have expired
or shall expire prior to the end of said thirty (30) day period, the
number of shares of Common Shares or the amount of property which such
holder could have acquired upon such exercise at the time or times at
which the Corporation granted, issued or sold such expired Purchase
Rights.
SECTION 7. REDEMPTION.
(a) The Corporation (i) shall on each date (a "Mandatory
Redemption Date") on which Net Proceeds (as defined in Section 2 above) are
received by the Development LLC (as defined in Section 2 above), whether or
not such Net Proceeds are made available to the Corporation and (ii) may on
any date (an "Optional Redemption Date" and each Mandatory Redemption Date
and Optional Redemption Date are herein called a "Redemption Date") (unless
notice of conversion shall have been previously given) redeem (to the extent
that such redemption shall not violate any applicable provisions of the laws
of the State of Maryland or result in a failure of the Corporation to qualify
as a real estate investment trust under the provisions of Sections 856
through 858 of the Internal Revenue Code of 1986, as amended (after taking
into account the ability of the Corporation to borrow funds or raise capital
to effect the redemption)), at a price equal to the Liquidation Preference
per share (subject to adjustment in the event of any share dividend, share
split, share distribution or combination with respect to such shares), plus
an amount equal to any dividends accrued but unpaid thereon (such amount is
hereinafter referred to as the "Redemption Price"), (x) in the case of clause
(i) above, such maximum number of whole shares of Series D Preferred Shares
as may be redeemed at the Redemption Price with the Net Proceeds and (y) in
the case of clause (ii) above, such number of whole shares of Series D
Preferred Shares as determined by the Board of Trustees. If the Corporation
is unable at any Redemption Date to redeem any shares of the Series D
Preferred Shares then required to be redeemed because such redemption would
violate the applicable laws of the State of Maryland or result in such
failure to qualify as a real estate investment trust as aforesaid, then the
Corporation shall redeem such shares as soon thereafter as redemption would
not violate such laws.
In the event of any redemption of only a part of the then
outstanding Series D Preferred Shares, the Corporation shall effect such
redemption pro rata among the holders thereof (based on the number of shares
of Series D Preferred Shares held on the date of notice of redemption).
(c) At least thirty (30) days prior to each Optional Redemption
Date, written notice shall be mailed, postage prepaid, to each holder of
record of Series D Preferred Shares to be redeemed, at his or its post office
address last shown on the records of the Corporation, notifying such holder
of the number of shares so to be redeemed, specifying the Redemption Date and
the date on which such holder's conversion rights (pursuant to Section 5
hereof) as to such shares terminate and calling upon such holder to surrender
to the Corporation, in the manner and at the place designated, his or its
certificate or certificates representing the shares to be redeemed (such
notice is hereinafter referred to as a "Redemption Notice"). On or prior to
each Redemption Date, each holder of Series D Preferred Shares to be redeemed
shall surrender his or its certificate or certificates evidencing such shares
to the Corporation, in the manner and at the place designated in the
Redemption Notice, and thereupon the Redemption Price of such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled. In the event less than all the shares evidenced by any such
certificate are redeemed, a new certificate shall be issued evidencing the
unredeemed shares. From and after the Redemption Date, unless there shall
have been a default in payment of the Redemption Price, all rights of the
holders of the Series D Preferred Shares designated for redemption in the
Redemption Notice as holders of Series D Preferred Shares of the Corporation
(except the right to receive the Redemption Price without interest upon
surrender of their certificate or certificates) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the books
of the Corporation or be deemed to be outstanding for any purpose whatsoever.
(d) Except as provided in Section (a) above, the Corporation shall
have no right to redeem the shares of Series D Preferred Shares. Any shares
of Series D Preferred Shares so redeemed shall be permanently retired, shall
no longer be deemed outstanding and shall not under any circumstances be
reissued, and the Corporation may from time to time take such appropriate
trust action as may be necessary to reduce the authorized Series D Preferred
Shares accordingly, including the filing of articles supplementary. Nothing
herein contained shall prevent or restrict the purchase by the Corporation,
from time to time either at public or private sale, of the whole or any part
of the Series D Preferred Shares at such price or prices as the Corporation
may determine, subject to the provisions of applicable law.
SECTION 8. NO RECOURSE TO SHAREHOLDERS, TRUSTEES, OFFICERS OR AGENTS.
It is a condition of the Preferred Shares that any obligations of
the Corporation hereunder shall bind only the Corporation as provided in
Section 8.1 of the Declaration and no shareholder, trustee, officer or agent
of the Corporation shall be bound or held to any personal liability in
connection herewith.
SECTION 9. NO PREEMPTIVE OR APPRAISAL RIGHTS.
The Preferred Shares shall not be entitled to any preemptive rights
or, except as specifically required by applicable statute, appraisal rights.
Exhibit 4.2
Series D Preferred Number 1 Shares 56,000
GLIMCHER REALTY TRUST
a Real Estate Investment Trust
Formed Under the Laws of the State of Maryland
THIS CERTIFIES THAT Partnership Acquisition Trust II, a Delaware business
trust
is the owner of Fifty-Six Thousand (56,000) fully paid and nonassessable
Series D Convertible Preferred Shares of Beneficial Interest of
GLIMCHER REALTY TRUST
(the "Trust") transferable on the books of the Trust by the holder hereof in
person or by its duly authorized attorney, upon surrender of this Certificate
properly endorsed. This Certificate and the Shares represented hereby are
issued and shall have the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends and other distributions,
qualifications and terms and conditions of redemption set forth in Exhibit 1
of the Articles Supplementary Classifying and Designating 56,000 Shares of
Beneficial Interest as 56,000 Shares of Series D Convertible Preferred
Beneficial Interest.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed
by its duly authorized officers and its seal to be hereunder affixed this
____ day of ________, 1998.
________________________________ ______________________________ (SEAL)
George A. Schmidt, Secretary Herbert Glimcher, President
The securities evidenced hereby have not been registered under the Securities
Act of 1933, as amended (the "Act"), and may not be transferred except
pursuant to an effective registration under the Act or in a transaction
which, in the opinion of counsel (who may be inside counsel of the holder of
these securities) reasonably satisfactory to GRT, qualifies as an exempt
transaction under the Act and the rules and regulations promulgated
thereunder.
The Trust will furnish to any stockholder, upon request and without charge, a
full statement regarding: (i) the designations and any preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption of the
stock of each class which the Trust is authorized to issue; (ii) the
differences in the relative rights and preferences between the shares of each
series to the extent they have been set; (iii) the authority of the Board of
Trustees to set the relative rights and preferences of subsequent series; and
(iv) restrictions on transferability.
Exhibit 5.1
Ballard Spahr Andrews & Ingersoll, LLP
Suite 1900
300 East Lombard Street
Baltimore, Maryland 21202-3268
(410) 528-5600
Fax (410) 528-5650/5651
August 11, 1998
Glimcher Realty Trust
20 South Third Street
Columbus, Ohio 43215
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have served as Maryland counsel to Glimcher Realty Trust, a
Maryland real estate investment trust (the "Company"), in connection with
certain matters of Maryland law arising out of the possible offer and sale
from time to time of (i) up to 2,977,798 common shares (the "Exchange
Shares") of beneficial interest, par value $.01 per share, of the Company
("Common Shares"), by certain holders thereof, if and to the extent that the
Company elects to issue such shares to certain holders (the "Unitholders") of
up to 2,977,798 Units of limited partnership interest ("OP Units") of
Glimcher Properties Limited Partnership, a Delaware limited partnership (the
"Operating Partnership"), upon the redemption of OP Units and (ii) up to
14,374 restricted Common Shares (the "Restricted Shares" and, together with
the Exchange Shares, the "Shares") by certain holders thereof (the
"Restricted Shareholders" and, together with the Unitholders, the "Selling
Shareholders") issued in connection with (a) the acquisition and development
of a shopping center and (b) the employment of an executive officer of the
Company. The OP Units were issued (i) in connection with the initial public
offering of the Company on January 19, 1994, (ii) in connection with the
acquisition of certain shopping centers and (iii) in exchange for property
contributed to the Operating Partnership on which it intends to develop a
shopping center. The Shares are covered by the above-referenced Registration
Statement, and all amendments thereto (the "Registration Statement"), under
the Securities Act of 1933, as amended (the "1933 Act"). Unless otherwise
defined herein, capitalized terms used herein shall have the meanings
assigned to them in the Registration Statement.
In connection with our representation of the Company, and as a
basis for the opinion hereinafter set forth, we have examined originals, or
copies certified or otherwise identified to our satisfaction, of the
following documents (collectively, the "Documents"):
1. The Registration Statement and the related form of prospectus
included therein in the form in which it was transmitted to the Securities
and Exchange Commission (the "Commission") under the 1933 Act;
2. The Declaration of Trust of the Company (the "Declaration"),
certified as of a recent date by the State Department of Assessments and
Taxation of Maryland (the "SDAT");
3. The Bylaws of the Company (the "Bylaws"), certified as of the
date hereof by an officer of the Company;
4. The Agreement of Limited Partnership of the Operating
Partnership (the "Partnership Agreement"), certified as of the date hereof by
an officer of the Company;
5. The form of certificate evidencing a Common Share, certified
as of the date hereof by an officer of the Company;
6. A certificate of the SDAT as to the good standing of the
Company, dated as of a recent date;
7. A certificate executed by George A. Schmidt, the Senior Vice
President, Secretary, and General Counsel of the Company, dated as of the
date hereof; and
8. Such other documents and matters as we have deemed necessary
or appropriate to express the opinion set forth in this letter, subject to
the assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed, and so
far as is known to us there are no facts inconsistent with, the following:
1. Each individual executing any of the Documents, whether on
behalf of such individual or any other person, is legally competent to do so.
2. Each individual executing any of the Documents on behalf of a
party (other than the Company) is duly authorized to do so.
3. Each of the parties (other than the Company) executing any of
the Documents has duly and validly executed and delivered each of the
Documents to which such party is a signatory, and such party's obligations
set forth therein are legal, valid and binding.
4. Any Documents submitted to us as originals are authentic. The
form and content of the Documents submitted to us as unexecuted drafts do not
differ in any respect relevant to this opinion from such Documents as
executed and delivered. Any Documents submitted to us as certified or
photostatic copies conform to the original documents. All signatures on all
such Documents are genuine. All public records reviewed or relied upon by us
or on our behalf are true and complete. All statements and information
contained in the Documents are true and complete. There has been no oral or
written modification of or amendment to any of the Documents, and there has
been no waiver of any provision of the Documents, by action or omission of
the parties or otherwise.
5. The Shares will not be issued or transferred in violation of
any restriction or limitation contained in the Declaration.
6. The issuance and certain terms of the Shares to be issued by
the Company from time to time will be authorized and approved by the Board of
Trustees of the Company, or a duly authorized committee thereof, in
accordance with the Maryland General Corporation Law, the Declaration and the
Bylaws (with such approval referred to herein as the "Trust Proceedings").
The phrase "known to us" is limited to the actual knowledge,
without independent inquiry, of the lawyers at our firm who have performed
legal services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions,
limitations and qualifications stated herein, it is our opinion that:
1. The Company is a real estate investment trust duly formed and
existing under and by virtue of the laws of the State of Maryland and is in
good standing with the SDAT.
2. Upon completion of the Trust Proceedings and upon the due
execution, countersignature and delivery of certificates evidencing the
Shares, the Shares will be (assuming that, upon issuance, the total number of
Common Shares issued and outstanding will not exceed the total number of
Common Shares that the Company is then authorized to issue) duly authorized
and, when and if delivered in accordance with the Resolutions and the
Partnership Agreement, validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the substantive laws of the
State of Maryland and we do not express any opinion herein concerning any
other law. We express no opinion as to compliance with the securities (or
"blue sky") laws or the real estate syndication laws of the State of
Maryland.
We assume no obligation to supplement this opinion if any
applicable law changes after the date hereof or if we become aware of any
fact that might change the opinion expressed herein after the date hereof.
This opinion is being furnished to you solely for submission to the
Commission as an exhibit to the Registration Statement and, accordingly, may
not be relied upon by, quoted in any manner to, or delivered to any other
person or entity (other than Robinson Silverman Pearce Aronsohn & Berman LLP,
counsel to the Company) without, in each instance, our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the use of the name of our firm therein.
In giving this consent, we do not admit that we are within the category of
persons whose consent is required by Section 7 of the 1933 Act.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll, LLP
Exhibit 8.1
Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
(212) 541-2000
Facsimile: (212) 541-4630
August 10, 1998
Glimcher Realty Trust
20 South Third Street
Columbus, Ohio 43215
Ladies and Gentlemen:
You have requested our opinion concerning the qualification and
taxation of Glimcher Realty Trust (the "Company"), a Maryland real estate
investment trust, as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended (the "Code") for the taxable years
ended December 31, 1994 through December 31, 1997. We have examined such
documents as we have deemed necessary, including the Company's Form S-3
Registration Statement under the Securities Act of 1933, to be filed with the
Securities and Exchange Commission on or about the date hereof (the
"Registration Statement"). In our review, we have assumed, with your
consent, that all of the representations and statements set forth in the
documents we reviewed are true and correct, and all of the obligations
imposed by any such documents on the parties thereto have been and will be
performed or satisfied in accordance with their terms. We have also assumed
the genuineness of all signatures, the proper execution of all documents, the
authenticity of all documents submitted to us as originals, the conformity to
originals of documents submitted to us as copies, and the authenticity of the
originals from which any copies were made. Our understanding of the facts is
based on the information set forth in such documents and various assumptions
and factual representations made by the Company, including the representation
letter dated August 5, 1998.
For the purposes of our opinion, we have not made an independent
investigation of the facts set forth in the documents we reviewed. We
consequently have assumed that the information presented in such documents or
otherwise furnished to us accurately and completely describes all material
facts relevant to our opinion. We have also assumed that (i) during the
relevant periods, all persons who were required under the Securities and
Exchange Act of 1934 to file or amend Schedules 13D and 13G with respect to
the Company's outstanding shares appropriately made such filings and that the
Company was duly apprised of all such filings, and (ii) the information
concerning the Company and its affiliates set forth in the Company's Federal
income tax returns is true and correct. Moreover, the qualification and
taxation of the Company as a REIT depends upon its ability to meet, through
actual annual operating results, distribution levels and diversity of share
ownership and the various income and asset tests imposed under the Code, the
results of which will not be reviewed by the undersigned. Accordingly, no
assurance can be given that the actual results of the operations of the
Company for any one taxable year will satisfy such requirements.
Based upon and subject to the foregoing, we are of the opinion that
the Company was organized and has operated in conformity with the
requirements for qualification as REIT under the Code for the taxable years
ended December 31, 1994 through December 31, 1997.
Our opinion is based upon our examination and review of the
documents noted above, the facts, circumstances and assumptions referred to
above and existing law as contained in the Code, applicable Treasury
Regulations promulgated thereunder, administrative rulings of the Internal
Revenue Service, and judicial decisions as of the date hereof, all of which
are subject to change either prospectively or retroactively. Any change in
applicable law or any of the facts and circumstances upon which we have
relied may affect the continuing validity of the opinion set forth herein.
We express no opinion concerning any tax consequences other than as expressly
set forth herein.
We assume no obligation to supplement this opinion if any
applicable law changes after the date hereof or if we become aware of any
fact after the date hereof that might change the opinion expressed herein.
This opinion is being furnished to you solely for submission as an exhibit to
the Registration Statement and, accordingly, may not be relied upon by,
quoted in any manner to, or delivered to any other person or entity without,
in each instance, our prior written consent.
We consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein. In
giving this consent, we do not admit that we are within the category of
persons whose consent is required by Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Robinson Silverman Pearce
Aronsohn & Berman LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Glimcher Realty Trust of Form S-3 of our report dated February 20, 1998 on
our audits of the consolidated financial statements and financial statement
schedule of Glimcher Realty Trust as of December 31, 1997 and 1996, and for
the years ended December 31, 1997, 1996 and 1995, which report is included in
the 1997 Annual Report on Form 10-K and of our reports on acquired properties
for the year ended December 31, 1997 as discussed below:
Form Date of Form Date Filed Date of Report Property Name
- ---- ------------ ---------- -------------- -------------
Form 8-K/A January 27, 1998 January 28, 1998 January 16, 1998 University Mall
Form 8-K June 19, 1998 June 19, 1998 May 27, 1998 Northtown Mall
Form 8-K June 19, 1998 June 19, 1998 May 27, 1998 Lloyd Center
Mall
We also consent to the reference to our firm under the caption "Experts".
PRICEWATERHOUSECOOPERS LLP
Columbus, Ohio
August 13, 1998
