<PAGE> 1
Filed pursuant to Rule 424(b)(2)
Registration No. 333-14329
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 7, 1996)
4,000,000 SHARES [GABLES LOGO]
GABLES RESIDENTIAL TRUST
8.30% SERIES A CUMULATIVE REDEEMABLE PREFERRED SHARES
(LIQUIDATION PREFERENCE $25.00 PER SHARE)
------------------------
Dividends on the 8.30% Series A Cumulative Redeemable Preferred Shares, par
value $.01 per share (the "Series A Preferred Shares"), of Gables Residential
Trust (the "Company") are cumulative from the date of original issuance and are
payable quarterly, commencing September 15, 1997, at the rate of 8.30% per annum
of the $25.00 liquidation preference (equivalent to a fixed annual rate of
$2.075 per share). See "Description of Preferred Shares--Series A Preferred
Shares--Dividends."
Except in certain circumstances relating to the Company's qualification as
a real estate investment trust (a "REIT"), the Series A Preferred Shares are not
redeemable prior to July 24, 2002. On and after July 24, 2002, the Series A
Preferred Shares may be redeemed for cash at the option of the Company, in whole
or in part, at a redemption price of $25.00 per share, plus accrued and unpaid
dividends, if any, thereon to the redemption date. The redemption price (other
than the portion thereof consisting of accrued and unpaid dividends) shall be
payable solely out of the sale proceeds of other capital stock of the Company,
which may include other series of the Company's preferred shares of beneficial
interest, par value $.01 per share ("Preferred Shares"), and from no other
source. The Series A Preferred Shares have no stated maturity and will not be
subject to any sinking fund or mandatory redemption and will not be convertible
into any other securities of the Company. See "Description of Preferred
Shares--Series A Preferred Shares--Redemption." In an effort to ensure that the
Company remains a qualified REIT for federal income tax purposes, the Series A
Preferred Shares may be exchanged for Excess Shares (as defined in the
accompanying Prospectus) if a holder of Series A Preferred Shares owns more than
9.8% of the outstanding Series A Preferred Shares, and the Company will have the
right to purchase such Excess Shares from the holder. See "Description of
Preferred Shares -- Series A Preferred Shares -- Restrictions on Ownership" in
this Prospectus Supplement and "Restrictions on Transfers of Shares of
Beneficial Interest" in the accompanying Prospectus.
Application has been made to list the Series A Preferred Shares on the New
York Stock Exchange (the "NYSE"). If approved, trading of the Series A Preferred
Shares on the NYSE is expected to commence within a 30-day period after the
initial delivery of the Series A Preferred Shares. See "Underwriting."
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE S-5 FOR A DISCUSSION OF CERTAIN RISK
FACTORS RELEVANT TO AN INVESTMENT IN THE SERIES A PREFERRED 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 SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
<TABLE>
<CAPTION>
Underwriting
Price to Discounts Proceeds to
Public(1) and Commissions(2) Company(3)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................................... $25.00 $.7875 $24.2125
- ---------------------------------------------------------------------------------------------------------
Total........................................... $100,000,000 $3,150,000 $96,850,000
- ---------------------------------------------------------------------------------------------------------
Total Assuming Full Exercise of Over-Allotment
Option(4)..................................... $115,000,000 $3,622,500 $111,377,500
</TABLE>
================================================================================
(1) Plus accrued dividends, if any, from the date of original issuance.
(2) The Company has agreed to indemnify the underwriters (the "Underwriters")
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $150,000.
(4) Assuming exercise in full of the 30-day option granted by the Company to the
Underwriters to purchase up to 600,000 additional Series A Preferred Shares,
on the same terms, solely to cover over-allotments. See "Underwriting."
------------------------
The Series A Preferred Shares are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the Series A Preferred Shares will be made in New York, New York on
or about July 24, 1997.
------------------------
PAINEWEBBER INCORPORATED SMITH BARNEY INC.
------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JULY 21, 1997.
<PAGE> 2
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus Supplement and the
accompanying Prospectus or incorporated herein and therein by reference. Unless
the context otherwise requires, all references in this Prospectus Supplement to
the "Company" refer to Gables Residential Trust and its subsidiaries on a
consolidated basis (including Gables Realty Limited Partnership and its
subsidiaries) or, where the context so requires, Gables Residential Trust only,
and, as the context may require, their predecessors. This Prospectus Supplement
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. The Company's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference are discussed in the section entitled "Risk
Factors" starting on page S-5 of this Prospectus Supplement. The Company
cautions the reader, however, that the factors discussed in that section may not
be exhaustive.
THE COMPANY
Gables Residential Trust is one of the largest owners, operators and
developers of multifamily apartment communities in the Southeastern and
Southwestern United States. The Company owns 49 multifamily apartment
communities and has an indirect 25% interest in two multifamily apartment
communities (collectively, the "Current Communities") located in the following
major cities in Georgia, Texas and Tennessee: Atlanta, Austin, Dallas, Houston,
San Antonio, Memphis and Nashville. The Current Communities total 15,918
apartment homes and had a physical occupancy rate of approximately 96% as of
June 30, 1997. The Company also owns seven multifamily apartment communities
that are under construction and that are expected to comprise 2,025 apartment
homes (collectively, the "Development Communities" and, with the Current
Communities, the "Communities"). Two of the Development Communities are in
Orlando, Florida.
The Company also owns five sites (the "Undeveloped Sites") on which it
intends to develop multifamily apartment communities that are expected to
comprise 1,604 apartment homes and has rights (the "Development Rights") to
acquire eight additional sites that, if acquired and developed, would be
expected to comprise 2,371 apartment homes. Although there is no assurance that
the Company will develop multifamily apartment communities at any of the
Undeveloped Sites or pursuant to any of the Development Rights, the Company
expects that 3,975 apartment homes would be added to the Company's portfolio
from the successful development of all such locations. The Company also has
contracts to acquire five existing multifamily apartment communities comprising
1,034 apartment homes. The acquisition of these communities is subject to the
completion of due diligence as well as ongoing business review by the Company.
No assurance can be made that the Company will acquire the properties subject to
these contracts.
The Company operates as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended. Substantially all of the Company's
business is conducted through, and all of the Company's interests in property
are held by or through, Gables Realty Limited Partnership (the "Operating
Partnership"), of which the Company is currently an 84.6% economic owner and
which the Company controls through a wholly-owned subsidiary that is the sole
general partner of the Operating Partnership.
The Company's executive offices are located at 2859 Paces Ferry Road, in
Atlanta, Georgia 30339 and its telephone number is (770) 436-4600.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES A PREFERRED
SHARES. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF THE SERIES A PREFERRED
SHARES TO STABILIZE ITS MARKET PRICE AND THE PURCHASE OF THE SERIES A PREFERRED
SHARES TO COVER SHORT POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
S-2
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THE OFFERING
SECURITIES OFFERED......... 4,000,000 shares of 8.30% Series A Cumulative
Redeemable Preferred Shares (the "Series A Preferred
Shares").
RANKING.................... With respect to the payment of dividends and amounts
upon liquidation, the Series A Preferred Shares will
rank senior to the Company's common shares of
beneficial interest, par value $.01 per share
("Common Shares"), which represent the only capital
stock of the Company currently outstanding.
USE OF PROCEEDS............ The net proceeds from the sale of the Series A
Preferred Shares will be used to reduce borrowings
under the Company's Unsecured Credit Facilities (as
herein defined). See "Use of Proceeds."
DIVIDENDS.................. Dividends on the Series A Preferred Shares are
cumulative from the date of original issuance and
are payable quarterly on or about the 15th day of
each March, June, September and December, commencing
on September 15, 1997, at the rate of 8.30% per
annum of the $25.00 liquidation preference
(equivalent to a fixed annual rate of $2.075 per
share). The first dividend will be for less than a
full quarter. Dividends on the Series A Preferred
Shares will accrue whether or not the Company's
credit facilities at any time prohibit the current
payment of dividends, whether or not the Company has
earnings, whether or not there are funds legally
available for the payment of such dividends and
whether or not such dividends are declared. See
"Description of Preferred Shares -- Series A
Preferred Shares -- Dividends."
LIQUIDATION PREFERENCE..... The liquidation preference for each Series A
Preferred Share is $25.00, plus an amount equal to
all accrued and unpaid dividends. See "Description
of Preferred Shares -- Series A Preferred Shares --
Liquidation Preference."
REDEMPTION................. Except in certain circumstances relating to the
preservation of the Company's status as a REIT (see
"Restrictions on Transfers of Shares of Beneficial
Interest" in the accompanying Prospectus), Series A
Preferred Shares are not redeemable prior to July
24, 2002. On and after July 24, 2002, Series A
Preferred Shares may be redeemed for cash at the
option of the Company, in whole or in part, at
$25.00 per share, plus all accrued and unpaid
dividends thereon to the date fixed for redemption.
The redemption price (other than the portion thereof
consisting of accrued and unpaid dividends) shall be
payable solely out of the sale proceeds of other
capital stock of the Company, which may include
other series of Preferred Shares, and from no other
source. See "Description of Preferred Shares --
Series A Preferred Shares -- Redemption."
VOTING RIGHTS.............. Holders of Series A Preferred Shares will generally
have no voting rights except as required by law.
However, whenever dividends on any Series A
Preferred Shares shall be in arrears for six or more
quarterly periods, the holders of Series A Preferred
Shares (voting separately as a class with all other
series of Preferred Shares upon which like voting
rights have been conferred and are exercisable) will
be entitled to vote for the election of a total of
two trustees of the Company until all dividends
accumulated on such Series A Preferred Shares have
been
S-3
<PAGE> 4
fully paid or declared and a sum sufficient for the
payment thereof set aside for payment. See
"Description of Preferred Shares -- Series A
Preferred Shares -- Voting Rights."
CONVERSION................. Series A Preferred Shares are not convertible into
or exchangeable for any other property or securities
of the Company, except that Series A Preferred
Shares may be exchanged automatically into Excess
Shares in order to ensure that the Company remains a
qualified REIT for federal income tax purposes. See
"Restrictions on Transfers of Shares of Beneficial
Interest" in the accompanying Prospectus.
RESTRICTIONS ON
OWNERSHIP.................. Ownership by a single holder of more than 9.8% of
the Series A Preferred Shares is restricted in an
effort to ensure that the Company remains a
qualified REIT for federal income tax purposes. See
"Description of Preferred Shares -- Series A
Preferred Shares -- Restrictions on Ownership" in
this Prospectus Supplement. In addition, the
Company's Declaration of Trust limits ownership by a
single holder to 9.8% of the aggregate value of all
shares of beneficial interest of any class or series
(including the Series A Preferred Shares). See
"Restrictions on Transfers of Shares of Beneficial
Interest" in the accompanying Prospectus.
TRADING.................... Application has been made to list the Series A
Preferred Shares on the NYSE. If approved, trading
of Series A Preferred Shares on the NYSE is expected
to commence within a 30-day period after the initial
delivery of the Series A Preferred Shares.
RISK FACTORS
An investment in Series A Preferred Shares involves various risks, and
prospective investors should carefully consider the matters discussed under
"Risk Factors" commencing on page S-5 of this Prospectus Supplement before
making any investment in the Company.
S-4
<PAGE> 5
RISK FACTORS
An investment in the Company involves various risks. Prospective investors
should carefully consider the following information in conjunction with the
other information contained or incorporated by reference in this Prospectus
Supplement and the attached Prospectus before making a decision to purchase
Series A Preferred Shares.
RISKS OF DEVELOPMENT, CONSTRUCTION AND ACQUISITION ACTIVITIES
The Company intends to actively continue development and construction of
multifamily communities. There can be no assurance that the Company will
undertake to develop any particular site or that it will be able to complete
such development if it is undertaken. Risks associated with the Company's
development and construction activities include: development opportunities may
be abandoned; construction costs of a community may exceed original estimates,
possibly making the community uneconomical; occupancy rates and rents at a newly
completed community may not be sufficient to make the community profitable;
financing may not be available on favorable terms for development of a
community; and construction and lease-up may not be completed on schedule,
resulting in increased debt service and construction costs. Development
activities are also subject to risks relating to the inability to obtain, or
delays in obtaining, all necessary zoning, land-use, building, occupancy, and
other required governmental permits and authorizations.
The Company intends to continue to acquire multifamily apartment
communities on a select basis. Acquisitions of multifamily communities entail
risks that investments will fail to perform in accordance with expectations.
Estimates of the costs of improvements to bring an acquired property up to
standards established for the market position intended for that property may
prove inaccurate.
The Company anticipates that future developments and acquisitions will be
financed, in whole or in part, under existing credit facilities or loan
commitments or other lines of credit or other forms of secured or unsecured
financing or through the issuance of additional equity by the Company. If new
developments are financed under existing lines of credit, there is a risk that,
unless substitute financing is obtained, further availability under the lines of
credit for new development may not be available or may be available only on
disadvantageous terms. In addition there is a risk that upon the maturity of
such existing lines of credit, the lines of credit will not be able to be
refinanced or that the terms of such refinancing will not be as favorable as the
terms of the existing indebtedness.
REAL ESTATE INVESTMENT RISKS
General Risks. Real property investments are subject to varying degrees of
risk. If the Company's communities do not generate revenues sufficient to meet
operating expenses, including debt service and capital expenditures, the
Company's cash flow and ability to make distributions to its shareholders will
be adversely affected. A multifamily community's revenues and value may be
adversely affected by the general economic climate; the local economic climate
(including the fiscal condition of the relevant governmental bodies); local real
estate conditions (such as oversupply of or reduced demand for apartment homes);
the perceptions by prospective residents of the safety, convenience and
attractiveness of the communities or neighborhoods in which they are located and
the quality of local schools and other amenities; the ability of the owner to
provide adequate management, maintenance and insurance; and increased operating
cost (including real estate taxes and utilities). Certain significant
expenditures associated with each equity investment (such as mortgage payments,
if any, real estate taxes, insurance and maintenance costs) are generally not
reduced when circumstances cause a reduction in income from the investment.
Dependence on Primary Markets. The Company's multifamily apartment
communities are located in various metropolitan areas in the Southeastern and
Southwestern United States, particularly Atlanta, Houston and Dallas, and the
Company's performance and its ability to make distributions to shareholders
could be adversely affected by economic and social conditions in these
geographic areas.
S-5
<PAGE> 6
Market Illiquidity. Equity real estate investments are relatively
illiquid. Such illiquidity will tend to limit the ability of the Company to vary
its portfolio promptly in response to changes in economic or other conditions.
In addition, the Internal Revenue Code (the "Code") limits the Company's ability
to sell properties held for fewer than four years.
Operating Risks. The Company's multifamily apartment communities are
subject to all operating risks common to multifamily apartment communities in
general, any and all of which might adversely affect apartment occupancy or
rental rates. Increases in unemployment in the areas in which the communities
owned or managed by the Company are located might adversely affect multifamily
occupancy or rental rates. Increases in operating costs due to inflation and
other factors may not necessarily be offset by increased rents. Residents may be
unable or unwilling to pay rent increases. Future enactment of rent control or
rent stabilization laws or other laws regulating multifamily housing may reduce
rental revenue or increase operating costs. If operating expenses increase, the
local rental market may limit the extent to which rents may be increased to meet
increased expenses without decreasing occupancy rates.
Competition. There are numerous housing alternatives that compete with the
Company's multifamily apartment communities in attracting residents. The
Company's multifamily apartment communities compete directly with other
multifamily rental apartments and single family homes that are available for
rent or purchase in the markets in which the Company's multifamily apartment
communities are located. In addition, other competitors for development and
acquisitions of properties, including other REITs, may have greater resources
than the Company. Increased supply of apartment homes in the Company's principal
markets over the past few years and the next few years may adversely affect the
current favorable demand environment for apartment homes, including occupancy
and rental rates.
Affordable Housing Laws. Certain of the Company's multifamily apartment
communities are, and will be in the future, subject to federal, state and local
statutes or other restrictions requiring that a percentage of apartments be made
available to low and middle income households. These laws and obligations, as
well as any changes thereto making it more difficult to meet such requirements,
or a reduction in or elimination of certain financing advantages available to
those persons satisfying such requirements, could adversely affect the Company's
profitability and its ability to develop certain communities in the future.
REAL ESTATE FINANCING RISKS
No Limitation on Debt. The Company currently has a policy of incurring
debt only if upon such incurrence the ratio of debt to total market
capitalization (i.e., the total consolidated debt of the Company as a percentage
of the market value of issued and outstanding equity securities plus total
consolidated debt) would be 60% or less, but the organizational documents of the
Company do not contain any limitation on the amount of indebtedness the Company
may incur. Accordingly, the Company's Board of Trustees could alter or eliminate
this policy.
Existing Debt Maturities, Balloon Payments and Refinancing Risks. The
Company is subject to the risks normally associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest. Because the Company anticipates
that only a small portion of the principal of the Company's mortgage
indebtedness will be repaid prior to maturity, it will be necessary for the
Company to refinance debt. Accordingly, there is a risk that existing
indebtedness on the Company's multifamily apartment communities will not be able
to be refinanced or that the terms of such refinancing will not be as favorable
as the terms of the existing indebtedness.
Risk of Rising Interest Rates. The Company incurred and expects in the
future to incur floating rate indebtedness in connection with the construction
of multifamily apartment communities, as well as for other purposes. In
addition, additional indebtedness that the Company incurs under the Company's
unsecured revolving credit facility also bears interest at a floating rate.
Accordingly, increases in interest
S-6
<PAGE> 7
rates would increase the Company's interest costs (to the extent that the
related indebtedness was not protected by the Company's interest rate protection
arrangements).
Bond Compliance Requirements. Certain of the Company's multifamily
apartment communities are or may be financed with obligations issued by various
local government agencies or instrumentalities, the interest on which is exempt
from federal income taxation. These obligations are commonly referred to as
"tax-exempt bonds." Under the terms of such bonds, the Company must comply with
various restrictions on the use of the Company's multifamily apartment
communities including the restriction that a percentage of apartments be made
available to low and middle income households. The bond compliance requirements
in effect, and the requirements of any future tax-exempt bond financing utilized
by the Company, may have the effect of limiting the Company's income from the
Company's multifamily apartment communities subject to the financing. In
addition, certain of the tax-exempt bond financing documents require that a
financial institution (the "credit enhancer") guarantee payment of principal of,
and interest on, the bonds, which may take the form of a letter of credit,
surety bond, guarantee agreement or other additional collateral. If the credit
enhancer defaults in its credit enhancement obligations, or the Company is
unable to renew the applicable credit enhancement or otherwise post satisfactory
collateral, a default will occur under the applicable tax-exempt bonds and the
property could be foreclosed upon.
RISK OF FEE MANAGEMENT BUSINESS
The Company manages properties owned by third parties for a fee. Risks
associated with the management of properties owned by third parties include the
risk that the management contracts will be terminated and/or that the rental
revenues upon which management fees are based will decline, resulting in
decreased management fee income.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES OF BENEFICIAL
INTEREST
In order to maintain its qualification as a REIT, not more than 50% in
value of the outstanding shares of beneficial interest of any class or series of
the Company may be owned, directly or indirectly, by five or fewer persons. In
an effort to protect the Company against the risk of losing its status as a REIT
due to a concentration of ownership among its shareholders, the Company has
limited ownership of shares of beneficial interest by any single shareholder to
9.8% of the aggregate value of all outstanding shares of beneficial interest and
the Company has also limited ownership by any single holder of Series A
Preferred Shares to 9.8% of all outstanding Series A Preferred Shares. Although
the Board of
Trustees presently has no intention of doing so, the Board of Trustees could
waive either of these restrictions if it were satisfied, based upon the advice
of tax counsel, that ownership in excess of these limits would not jeopardize
the Company's status as a REIT and the Board of Trustees otherwise decided such
action would be in the best interest of the Company. These restrictions also do
not apply with respect to an offeror in the event of an all-cash tender offer by
it which has been accepted by shareholders representing at least two-thirds of
the Company's outstanding shares. Shares acquired or transferred in breach of
the limitation will be automatically exchanged for shares not entitled to vote
or to participate in dividends or other distributions. In addition, shares
acquired or transferred in breach of these limitations may be purchased by the
Company for the lesser of the price paid and the market price (as determined in
the manner set forth in the Declaration of Trust).
COST OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT AND SIMILAR LAWS
Under the Americans with Disabilities Act of 1990 (the "ADA"), all places
of public accommodation are required to meet certain federal requirements
related to access and use by disabled persons. Although management of the
Company believes that the Company's communities are substantially in compliance
with the present requirements of the ADA, the Company may incur additional costs
of complying with the ADA. A number of additional federal, state and local laws
exist which also may require modifications to the Company's communities, or
restrict certain further renovations thereof, with respect to access thereto by
disabled persons. For example, the Fair Housing Act of 1988 (the
S-7
<PAGE> 8
"FHAA") requires apartment communities first occupied after March 31, 1990 to be
accessible to the handicapped. Noncompliance with the FHAA could result in the
imposition of fines or an award of damages to private litigants. Additional
legislation may impose further burdens or restrictions on owners with respect to
access by disabled persons. The ultimate amount of the cost of compliance with
the ADA or such legislation is not currently ascertainable, and, while such
costs are not expected to have a material effect on the Company, such costs
could be substantial.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT; OTHER TAX LIABILITIES
The Company intends at all times to operate so as to qualify as a REIT
under the Code. Although management of the Company believes that the Company is
organized and operates in such a manner, no assurance can be given that the
Company qualifies or will remain qualified as a REIT. Qualification as a REIT
involves the application of highly technical and complex Code provisions for
which there are only limited judicial and administrative interpretations. The
determination of various factual matters and circumstances not entirely within
the Company's control may affect the Company's ability to qualify as a REIT. If
the Company fails to qualify as a REIT, it 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 be disqualified from treatment as a REIT
for the four taxable years following the year during which qualification is
lost. The additional tax would significantly reduce the cash flow available for
distribution to shareholders.
POSSIBLE ADVERSE IMPACT OF MARKET AND OTHER CONDITIONS ON MARKET PRICE
The market value of the Series A Preferred Shares could be substantially
affected by general market conditions, including changes in interest rates,
government regulatory action and changes in tax laws. An increase in market
interest rates may lead purchasers of the Series A Preferred Shares to demand a
higher annual yield, which could adversely affect the market price of the Series
A Preferred Shares. In addition, the rating that has or may be assigned to the
Series A Preferred Shares by one or more nationally recognized rating agencies,
or any change in any of such assigned ratings, may also affect the annual yield
required of purchasers of Series A Preferred Shares. There can be no assurance
that any nationally recognized rating agency will assign, maintain or refrain
from downgrading a particular rating or any rating at all on the Series A
Preferred Shares.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local environmental laws, a current or
previous owner or operator of real estate may be required (typically regardless
of knowledge or responsibility) to investigate and clean up hazardous or toxic
substances or petroleum product releases at such property and may be held liable
to a governmental entity or to third parties for property damage and for
investigation and clean-up costs incurred by such parties in connection with the
contamination, which may be substantial. The presence of such substances (or the
failure to properly remediate the contamination) may adversely affect the
owner's ability to borrow against, sell or rent such property.
S-8
<PAGE> 9
THE COMPANY
GENERAL
Gables Residential Trust is one of the largest owners, operators and
developers of multifamily apartment communities in the Southeastern and
Southwestern United States. The Company owns 49 multifamily apartment
communities and has an indirect 25% interest in two multifamily apartment
communities(collectively, the "Current Communities") located in the following
major cities in Georgia, Texas and Tennessee: Atlanta, Austin, Dallas, Houston,
San Antonio, Memphis and Nashville. The Current Communities total 15,918
apartment homes and had a physical occupancy rate of approximately 96% as of
June 30, 1997. One of the Current Communities, consisting of 438 apartment homes
and located in Atlanta, Georgia, was acquired by the Company in May 1997. The
Company also owns seven multifamily apartment communities that are under
construction and that are expected to comprise 2,025 apartment homes
(collectively, the "Development Communities" and, with the Current Communities,
the "Communities"). Two of the Development Communities are located in Orlando,
Florida.
The Company also owns five sites (the "Undeveloped Sites") on which it
intends to develop multifamily apartment communities that are expected to
comprise 1,604 apartment homes and has rights (the "Development Rights") to
acquire eight additional sites that, if acquired and developed, would be
expected to comprise 2,371 apartment homes. Although there is no assurance that
the Company will develop multifamily apartment communities at any of the
Undeveloped Sites or pursuant to any of the Development Rights, the Company
expects that 3,975 apartment homes would be added to the Company's portfolio
from the successful development of all such locations. Development of the
Development Rights and the Undeveloped Sites are subject to permits and other
governmental approvals, as well as ongoing business review by the Company. There
can be no assurance that the Company will decide or be able to complete
development of all or any of the communities subject to the Development Rights,
to develop the Undeveloped Sites, or to complete the number of apartment homes
cited above.
The Company also has contracts to acquire five existing multifamily
apartment communities, comprising 1,034 apartment homes. The acquisition of
these communities is subject to the completion of due diligence as well as
ongoing business review by the Company. No assurance can be made that the
Company will acquire the properties subject to these pending contracts, but if
acquired the acquisitions would be expected to close in the third and fourth
quarters of 1997.
The Company's senior management team consists of individuals who have been
responsible for the development or acquisition of approximately 40,000 apartment
homes since 1982 and who have, on average, approximately fifteen years
experience in the multifamily industry. The Company provides a full range of
integrated real estate management, construction and acquisition services through
a staff of approximately 900 employees who have experience in property
operations, development, acquisition and construction. The Company maintains
offices in Atlanta, Houston and Dallas, each with its own fully integrated real
estate staff. The finance, accounting and administrative functions for the
Company are controlled by a central staff located in Atlanta.
The Company operates as a REIT under the Internal Revenue Code of 1986, as
amended. Substantially all of the Company's business is conducted through, and
all of the Company's interests in property are held by or through, Gables Realty
Limited Partnership (the "Operating Partnership"), of which the Company is
currently an 84.6% economic owner and which the Company controls through a
wholly-owned subsidiary that is the sole general partner of the Operating
Partnership.
THE COMMUNITIES
The Current Communities typically are two and three story garden
apartments, townhomes and higher-density apartments. Thirty-six of the Current
Communities have more than 250 apartment homes, with the largest having 776
apartment homes. As of June 30, 1997, the Current Communities had an average
monthly rental rate per apartment home of approximately $784 and had a physical
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<PAGE> 10
occupancy rate of approximately 96%. Most of the Company's Communities offer
many attractive features designed to enhance their market appeal, such as
vaulted ceilings, fireplaces, dishwashers, disposals, washer/dryer connections,
ice-makers, patios and decks. Recreational facilities include swimming pools,
fitness facilities, playgrounds, picnic areas and tennis and racquetball courts.
In many Communities, the Company makes amenities and services available to
residents, such as aerobic classes, resident social events, dry cleaning pick-up
and delivery, and the use of fax, computer and copy equipment. In-depth market
research, including periodic focus groups with residents, is used to refine and
enhance management services and community design. The Development Communities
and the recently completed Current Communities reflect the Company's continuing
research of consumer preferences for upscale multifamily rental housing and
incorporate and emphasize garage parking, high
levels of privacy, higher quality interiors and private telephone and television
systems. The average age of the Current Communities is approximately seven
years.
The following table shows the locations of the Communities and the number
of apartment homes in each metropolitan area:
<TABLE>
<CAPTION>
NUMBER OF COMMUNITIES NUMBER OF APARTMENT HOMES PERCENT OF
--------------------------------- ---------------------------------- TOTAL APT.
LOCATION CURRENT DEVELOPMENT TOTAL CURRENT DEVELOPMENT TOTAL HOMES
- ---------------- ------- ----------- ----- ------- ----------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Atlanta, GA 15 3 18 4,555 985 5,540 30.9%
Houston, TX(1) 15 -- 15 5,363 -- 5,363 29.9
Dallas, TX 8 -- 8 1,959 -- 1,959 10.9
Memphis, TN(2) 5 -- 5 1,799 -- 1,799 10.0
Nashville, TN 4 -- 4 1,166 -- 1,166 6.5
Austin, TX 2 2 4 532 529 1,061 5.9
San Antonio, TX 2 -- 2 544 -- 544 3.0
Orlando, FL -- 2 2 -- 511 511 2.9
-- -- --
------ ----- ------ -----
51 7 58 15,918 2,025 17,943 100.0%
== == == ====== ===== ====== =====
</TABLE>
(1) Includes a Current Community comprising 318 apartment homes in which the
Company has a 25% general partner interest.
(2) Includes a Current Community comprising 345 apartment homes in which the
Company has a 25% general partner interest.
USE OF PROCEEDS
The net proceeds to the Company from this offering, after all anticipated
issuance costs, are estimated to be approximately $96.7 million (approximately
$111.2 million if the Underwriters' over-allotment option is exercised in full).
The Company will use the net proceeds from this offering to reduce borrowings
under its $175 million unsecured credit facility and its $20 million unsecured
credit facility (collectively, the "Unsecured Credit Facilities"), which
borrowings were used primarily to fund the acquisition and development of
additional apartment communities. Indebtedness under the $175 million Unsecured
Credit Facility currently bears interest at the 30-day London Interbank Offered
Rate plus 1.10% per annum (6.79% per annum as of July 14, 1997) and matures in
March, 2000. Indebtedness under the $20 million Unsecured Credit Facility
currently bears interest at the one-week London Interbank Offered Rate plus
1.10% per annum (6.76% per annum as of July 14, 1997) and matures in October,
1997.
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<PAGE> 11
CAPITALIZATION
The following table sets forth the historical capitalization for the
Company as of March 31, 1997 and as adjusted to give effect to this offering,
including the use of the net proceeds derived therefrom as described in "Use of
Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------
HISTORICAL AS ADJUSTED(1)
----------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Notes payable................................................... $ 356,946 $ 356,946
Unsecured Credit Facilities(2).................................. 45,667 0
Minority interest of unitholders in Operating Partnership....... 53,169 52,661
Shareholders' equity:
Preferred shares at $25.00 liquidation preference, $0.01 par
value, 10,000,000 shares authorized, shares issued and
outstanding: -- at March 31, 1997 and 4,000,000 as
adjusted................................................... -- 100,000
Common shares, $0.01 par value, 100,000,000 shares authorized,
shares issued and outstanding: 19,399,147 at March 31, 1997
and as adjusted(3)......................................... 194 194
Additional paid-in capital.................................... 308,207 304,907
Deferred long-term compensation............................... (1,040) (1,040)
Accumulated earnings (deficit)................................ (24,526) (24,018)
--------- ---------
Total shareholders' equity................................. 282,835 380,043
--------- ---------
Total capitalization............................................ $ 738,617 $ 789,650
========= =========
</TABLE>
- ---------------
(1) Assumes that the over-allotment option granted to the Underwriters to
acquire an additional 600,000 Series A Preferred Shares is not exercised.
(2) As of July 14, 1997 there was $112.6 million outstanding under the Unsecured
Credit Facilities.
(3) Does not include Common Shares reserved for issuance upon (i) possible
acquisition of 3,528,232 outstanding limited partnership units of the
Operating Partnership, representing the aggregate minority interest in the
Operating Partnership, and (ii) exercise of approximately 1,090,000
outstanding options granted pursuant to the Company's Second Amended and
Restated 1994 Share Option and Incentive Plan, as amended (the "Plan"). The
total number of Common Shares which are reserved for issuance under the Plan
is equal to 8% of the total number of Common Shares and Operating
Partnership units (other than units held by the Company or its
subsidiaries).
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to fixed
charges of the Company and the predecessor to the Company for the periods shown:
<TABLE>
<CAPTION>
THREE MONTHS YEARS ENDED YEARS ENDED
ENDED DECEMBER 31, JANUARY 26 - JANUARY 1 - DECEMBER 31,
MARCH 31, --------------- DECEMBER 31, JANUARY 25, ---------------
1997 1996 1995 1994 1994(1)(2) 1993(1) 1992(1)
------------ ----- ----- ------------ ----------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratios.................... 1.81x 1.83x 1.40x 1.83x .89x 1.22x 1.17x
</TABLE>
- ---------------
(1) Ratios for the period January 1 - January 25, 1994 and the years ended
December 31, 1993 and 1992 reflect periods prior to the recapitalization and
initial public offering of the Company on January 26, 1994.
(2) The earnings for this period were inadequate to cover fixed charges by
$146,000.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of net income (loss) before
minority interest, gain on sale of real estate assets and extraordinary items,
plus fixed charges. Fixed charges consist of interest expense, capitalized
interest, credit enhancement fees and loan cost amortization. Prior to this
offering, the Company has not issued any Preferred Shares; therefore, the ratios
of earnings to combined fixed charges and Preferred Share dividend requirements
are the same as the ratios of earnings to fixed charges presented above.
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<PAGE> 12
DESCRIPTION OF PREFERRED SHARES
This description of the particular terms of the Series A Preferred Shares
supplements and, to the extent inconsistent therewith, replaces the description
of the general terms and provisions of Preferred Shares set forth in the
accompanying Prospectus, to which description reference is hereby made.
GENERAL
The Company is authorized to issue up to 10,000,000 Preferred Shares in one
or more series, with such terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption, in each case, if any, as
are permitted by Maryland law and as the Board of Trustees of the Company may
determine by adoption of an amendment to the Company's Amended and Restated
Declaration of Trust (the "Declaration of Trust"), without any further vote or
action by the Company's shareholders. See "Description of Preferred Shares" in
the accompanying Prospectus. The Series A Preferred Shares are a series of the
Company's Preferred Shares. Except for the Series A Preferred Shares which are
offered hereby, there are no other Preferred Shares of the Company outstanding.
Prior to the completion of the offering, the Board of Trustees of the
Company or an authorized committee thereof will adopt Articles Supplementary
(the "Designating Amendment") to the Declaration of Trust determining the terms
of a series of Preferred Shares consisting of up to 4,600,000 shares, designated
8.30% Series A Cumulative Redeemable Preferred Shares. The following summary of
the terms and provisions of the Series A Preferred Shares does not purport to be
complete and is qualified in its entirety by reference to the pertinent sections
of the Declaration of Trust and the Designating Amendment, which are available
from the Company.
The transfer agent, registrar and dividend disbursing agent for the Series
A Preferred Shares will be BankBoston, N.A.
In a similar manner to all other sales of the Company's shares of
beneficial interest, the Company will contribute the net proceeds from this
offering of Series A Preferred Shares to the Operating Partnership in exchange
for a like number of Operating Partnership units of limited partnership
("Units"), and the Operating Partnership will use such contributed net proceeds
in the manner described under "Use of Proceeds." As a result of an amendment to
the First Amended and Restated Agreement of Limited Partnership of the Operating
Partnership, the Units received by the Company in connection with this offering
(the "Preferred Units") will, in general, have, with respect to other Operating
Partnership Units, rights and preferences (including preferential rights to
distributions) that are analogous to the rights and preferences that the Series
A Preferred Shares have with respect to Common Shares. Accordingly, the holders
of Series A Preferred Shares will, in essence, receive as preferred dividends on
such shares the preferred amounts received by the Company from the Operating
Partnership in respect of the Preferred Units owned by the Company.
SERIES A PREFERRED SHARES
DIVIDENDS
Holders of Series A Preferred Shares shall be entitled to receive, when and
as declared by the Board of Trustees, out of funds legally available for the
payment of dividends, cumulative preferential cash dividends at the rate of
8.30% per annum of the $25.00 liquidation preference (equivalent to a fixed
annual rate of $2.075 per share). Such dividends shall be cumulative from the
date of original issue and shall be payable quarterly in arrears on or before
the 15th day of each March, June, September and December or, if such day is not
a business day, the next succeeding business day (each, a "Dividend Payment
Date"). The first dividend, which will be paid on September 15, 1997, will be
for less than a full quarter. Such dividend and any dividend payable on the
Series A Preferred Shares for any partial dividend period will be computed on
the basis of a 360-day year consisting of twelve 30-day months. Dividends will
be payable to holders of record as they appear in the stock records of the
Company at the close of business on the applicable record date, which shall be
the first day of the calendar month in
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<PAGE> 13
which the applicable Dividend Payment Date falls or on such other date
designated by the Board of Trustees of the Company for the payment of dividends
that is not more than 30 nor less than 10 days prior to such Dividend Payment
Date (each, a "Dividend Record Date"). The Series A Preferred Shares will rank
senior to Common Shares with respect to the payment of dividends.
No dividends on Series A Preferred Shares shall be declared by the Board of
Trustees of the Company or paid or set apart for payment by the Company at such
time as the terms and provisions of any agreement of the Company, including any
agreement relating to its indebtedness, prohibits such declaration, payment or
setting apart for payment or provides that such declaration, payment or setting
apart for payment would constitute a breach thereof or a default thereunder, or
if such declaration or payment shall be restricted or prohibited by law.
Notwithstanding the foregoing, dividends on the Series A Preferred Shares
will accrue whether or not the Company has earnings, whether or not there are
funds legally available for the payment of such dividends and whether or not
such dividends are declared. Accrued but unpaid dividends on the Series A
Preferred Shares will accumulate as of the Dividend Payment Date on which they
first become payable. Except as set forth in the next sentence, no dividends
will be declared or paid or set apart for payment on any capital stock of the
Company or any other series of Preferred Shares ranking, as to dividends, on a
parity with or junior to the Series A Preferred Shares (other than a dividend in
the Company's Common Shares or in any other class of capital stock ranking
junior to the Series A Preferred Shares as to dividends and upon liquidation)
for any period unless full cumulative dividends have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for such payment on the Series A Preferred Shares for all past
dividend periods and the then current dividend period. When dividends are not
paid in full (and a sum sufficient for such full payment is not so set apart)
upon the Series A Preferred Shares and any other series of Preferred Shares
ranking on a parity as to dividends with the Series A Preferred Shares, all
dividends declared upon the Series A Preferred Shares and any other series of
Preferred Shares ranking on a parity as to dividends with the Series A Preferred
Shares shall be declared pro rata so that the amount of dividends declared per
share of Series A Preferred Shares and such other series of Preferred Shares
shall in all cases bear to each other the same ratio that accrued dividends per
share on the Series A Preferred Shares and such other series of Preferred Shares
(which shall not include any accrual in respect of unpaid dividends for prior
dividend periods if such Preferred Shares do not have a cumulative dividend)
bear to each other. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series A Preferred
Shares which may be in arrears.
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Series A Preferred Shares have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for payment for all past dividend periods and the
then current dividend period, no dividends (other than in Common Shares or other
shares of capital stock ranking junior to the Series A Preferred Shares as to
dividends and upon liquidation) shall be declared or paid or set aside for
payment nor shall any other distribution be declared or made upon the Common
Shares, or any other capital stock of the Company ranking junior to or on a
parity with the Series A Preferred Shares as to dividends or upon liquidation,
nor shall any Common Shares, or any other shares of capital stock of the Company
ranking junior to or on a parity with the Series A Preferred Shares as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any such shares) by the Company (except by conversion into
or exchange for other capital stock of the Company ranking junior to the Series
A Preferred Shares as to dividends and upon liquidation). Holders of the Series
A Preferred Shares shall not be entitled to any dividend, whether payable in
cash, property or stock, in excess of full cumulative dividends on Series A
Preferred Shares as provided above. Any dividend payment made on Series A
Preferred Shares shall first be credited against the earliest accrued but unpaid
dividend due with respect to such shares which remains payable. See "Description
of Preferred Shares -- Dividends" in the accompanying Prospectus.
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<PAGE> 14
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, the holders of Series A Preferred Shares are
entitled to be paid out of the assets of the Company legally available for
distribution to its shareholders a liquidation preference of $25.00 per share,
plus an amount equal to any accrued and unpaid dividends to the date of payment,
before any distribution of assets is made to holders of Common Shares or any
other class or series of capital stock of the Company that ranks junior to the
Series A Preferred Shares as to liquidation rights. After payment of the full
amount of the liquidating distributions to which they are entitled, the holders
of Series A Preferred Shares will have no right or claim to any of the remaining
assets of the Company. The consolidation or merger of the Company with or into
any other corporation, trust or entity or of any other corporation with or into
the Company, or the sale, lease or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company. For further information
regarding the rights of the holders of Series A Preferred Shares upon the
liquidation, dissolution or winding up of the Company, see "Description of
Preferred Shares -- Liquidation Preference" in the accompanying Prospectus.
REDEMPTION
Series A Preferred Shares are not redeemable prior to July 24, 2002.
However, in order to ensure that the Company remains a qualified REIT for
federal income tax purposes, Series A Preferred Shares owned by a shareholder in
excess of the Ownership Limit (as defined in the accompanying Prospectus) may
automatically be exchanged for Excess Shares, and the Company will have the
right to purchase Excess Shares from the holder. See "Restrictions on Transfers
of Shares of Beneficial Interest" in the accompanying Prospectus. On and after
July 24, 2002, the Company, at its option upon not less than 30 nor more than 60
days' written notice, may redeem Series A Preferred Shares, in whole or in part,
at any time or from time to time, for cash at a redemption price of $25.00 per
share, plus all accrued and unpaid dividends thereon to the date fixed for
redemption (except as provided below), without interest. The redemption price of
Series A Preferred Shares (other than the portion thereof consisting of accrued
and unpaid dividends) is payable solely out of the sale proceeds of other
capital stock of the Company, which may include other series of Preferred
Shares, and from no other source. For purposes of the preceding sentence,
"capital stock" means any equity securities (including Common Shares and
Preferred Shares), shares, interest, participation or other ownership interests
(however designated) and any rights (other than debt securities convertible into
or exchangeable for equity securities) or options to purchase any of the
foregoing. Holders of Series A Preferred Shares to be redeemed shall surrender
such Series A Preferred Shares at the place designated in such notice and shall
be entitled to the redemption price and any accrued and unpaid dividends payable
upon such redemption following such surrender. If notice of redemption of any
Series A Preferred Shares has been given and if the funds necessary for such
redemption have been set aside by the Company in trust for the benefit of the
holders of any Series A Preferred Shares so called for redemption, then from and
after the redemption date dividends will cease to accrue on such Series A
Preferred Shares, such Series A Preferred Shares shall no longer be deemed
outstanding and all rights of the holders of such shares will terminate, except
the right to receive the redemption price. If less than all of the outstanding
Series A Preferred Shares are to be redeemed, the Series A Preferred Shares to
be redeemed shall be selected pro rata (as nearly as may be practicable without
creating fractional shares) or by any other equitable method determined by the
Company.
Unless full cumulative dividends on all Series A Preferred Shares shall
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period, no Series A Preferred Shares shall
be redeemed unless all outstanding Series A Preferred Shares are simultaneously
redeemed and the Company shall not purchase or otherwise acquire directly or
indirectly any Series A Preferred Shares (except by exchange for capital stock
of the Company ranking junior to the Series A Preferred Shares as to dividends
and upon liquidation); provided, however, that the foregoing shall not prevent
the automatic exchange of Series A Preferred Shares into Excess Shares or the
purchase by the Company of Excess Shares in order to ensure that the Company
remains qualified as a REIT for federal income tax
S-14
<PAGE> 15
purposes, as described under "Restrictions on Transfers of Shares of Beneficial
Interest" in the accompanying Prospectus, or the purchase or acquisition of
Series A Preferred Shares pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding Series A Preferred Shares.
Notice of redemption will be given by publication in a newspaper of general
circulation in the City of New York, such publication to be made once a week for
two successive weeks commencing not less than 30 nor more than 60 days prior to
the redemption date. A similar notice will be mailed by the Company, postage
prepaid, not less than 30 nor more than 60 days prior to the redemption date,
addressed to the respective holders of record of the Series A Preferred Shares
to be redeemed at their respective addresses as they appear on the stock
transfer records of the Company. No failure to give such notice or any defect
thereto or in the mailing thereof shall affect the validity of the proceedings
for the redemption of any Series A Preferred Shares except as to the holder to
whom notice was defective or not given. Each notice shall state: (i) the
redemption date; (ii) the redemption price; (iii) the number of Series A
Preferred Shares to be redeemed; (iv) the place or places where Series A
Preferred Shares are to be surrendered for payment of the redemption price; and
(v) that dividends on the shares to be redeemed will cease to accrue on such
redemption date. If less than all of the Series A Preferred Shares held by any
holder is to be redeemed, the notice mailed to such holder shall also specify
the number of Series A Preferred Shares held by such holder to be redeemed.
The holders of Series A Preferred Shares at the close of business on a
Dividend Record Date will be entitled to receive the dividend payable with
respect to such Series A Preferred Shares on the corresponding Dividend Payment
Date notwithstanding the redemption thereof between such Dividend Record Date
and the corresponding Dividend Payment Date or the Company's default in the
payment of the dividend due. Except as provided above, the Company will make no
payment or allowance for unpaid dividends, whether or not in arrears, on called
Series A Preferred Shares.
The Series A Preferred Shares have no stated maturity and will not be
subject to any sinking fund or mandatory redemption. However, in order to ensure
that the Company remains a qualified REIT for federal income tax purposes,
Series A Preferred Shares owned by a shareholder in excess of the Ownership
Limit may automatically be exchanged for Excess Shares, and the Company will
have the right to purchase Excess Shares from the holder.
VOTING RIGHTS
Holders of the Series A Preferred Shares will not have any voting rights,
except as set forth below or as otherwise from time to time required by law.
Whenever dividends on any Series A Preferred Shares shall be in arrears for
six or more quarterly periods (a "Preferred Dividend Default"), the holders of
Series A Preferred Shares (voting separately as a class with all other series of
Preferred Shares ranking on a parity with the Series A Preferred Shares as to
dividends or upon liquidation ("Parity Preferred") upon which like voting rights
have been conferred and are exercisable) will be entitled to vote for the
election of a total of two trustees of the Company (the "Preferred Share
Trustees") at a special meeting called by the holders of record of at least 20%
of the Series A Preferred Shares or the holders of any other series of Parity
Preferred so in arrears (unless such request is received less than 90 days
before the date fixed for the next annual or special meeting of the
shareholders) or at the next annual meeting of shareholders, and at each
subsequent annual meeting until all dividends accrued on Series A Preferred
Shares for the past dividend periods and the then current dividend period shall
have been fully paid or declared and a sum sufficient for the payment thereof
set aside for payment. If and when all accumulated dividends and the dividend
for the then current dividend period on Series A Preferred Shares shall have
been paid in full or set aside for payment in full, the holders thereof shall be
divested of the foregoing voting rights (subject to revesting in the event of
each and every Preferred Dividend 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 series of Parity Preferred upon which like
voting rights have been conferred and are exercisable, the term
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<PAGE> 16
of office of each Preferred Share Trustee so elected shall terminate. Any
Preferred Share Trustee may be removed at any time with or without cause by, and
shall not be removed otherwise than by the vote of, the holders of record of a
majority of the outstanding Series A Preferred Shares when they have the voting
rights described above (voting separately as a class with all other series of
Parity Preferred upon which like voting rights have been conferred and are
exercisable). So long as a Preferred Dividend Default shall continue, any
vacancy in the office of a Preferred Share Trustee may be filled by written
consent of the Preferred Share Trustee remaining in office, or if none remains
in office, by a vote of the holders of record of a majority of the outstanding
Series A Preferred Shares when they have the voting rights described above
(voting separately as a class with all other series of Parity Preferred upon
which like voting rights have been conferred and are exercisable). The Preferred
Share Trustees shall each be entitled to one vote per trustee on any matter.
So long as any Series A Preferred Shares remain outstanding, the Company
will not, without the affirmative vote or consent of the holders of at least
two-thirds of the Series A Preferred Shares outstanding at the time, given in
person or by proxy, either in writing or at a meeting (voting separately as a
class), (a) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking senior to Series A Preferred Shares
with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up or reclassify any authorized capital
stock of the Company into such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such shares; or (b) amend, alter or repeal the provisions of the Declaration of
Trust or the Designating Amendment, whether by merger, consolidation or
otherwise (an "Event"), so as to materially and adversely affect any right,
preference, privilege or voting power of Series A Preferred Shares or the
holders thereof; provided, however, with respect to the occurrence of any Event
set forth in (b) above, so long as Series A Preferred Shares remain outstanding
with the terms thereof materially unchanged, taking into account that upon the
occurrence of an Event the Company may not be the surviving entity, the
occurrence of any such Event shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting power of holders of Series
A Preferred Shares and provided further that (i) any increase in the amount of
the authorized Preferred Shares or the creation or issuance of any other series
of Preferred Shares, or (ii) any increase in the amount of authorized shares of
such series, in each case ranking on a parity with or junior to Series A
Preferred Shares with respect to payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding Series A Preferred Shares shall have been redeemed
or called for redemption upon proper notice and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION
Series A Preferred Shares are not convertible into or exchangeable for any
other property or securities of the Company, except that Series A Preferred
Shares may be exchanged for Excess Shares in order to ensure that the Company
remains qualified as a REIT for federal income tax purposes. See "Restrictions
on Transfers of Shares of Beneficial Interest" in the accompanying Prospectus.
RESTRICTIONS ON OWNERSHIP
In an effort to ensure that the Company remains a qualified REIT for
federal income tax purposes, the Designating Amendment restricts ownership by a
single holder of Series A Preferred Shares to 9.8% of all outstanding Series A
Preferred Shares. In addition, the Company's Declaration of Trust limits
ownership by a single holder to 9.8% of the aggregate value of all shares of
beneficial interest of any class or series (including the Series A Preferred
Shares). See "Restrictions on Transfers of Shares of Beneficial Interest" in the
accompanying Prospectus.
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<PAGE> 17
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain federal income tax considerations is based
on current law, is for general information only, and is not tax advice. This
discussion does not purport to address all aspects of taxation that may be
relevant to particular shareholders in light of their personal investment or tax
circumstances, or to certain types of shareholders (including insurance
companies, tax exempt organizations, financial institutions or broker dealers,
foreign corporations and persons who are not citizens or residents of the United
States) subject to special treatment under the federal income tax laws.
The Company intends to operate in a manner that will enable it to qualify
as a REIT under the Code. Although management of the Company believes that the
Company is organized and operates in such a manner, no assurance can be given
that the Company qualifies or will remain qualified as a REIT. Qualification as
a REIT involves the application of highly technical and complex Code provisions
for which there are only limited judicial and administrative interpretations.
The determination of various factual matters and circumstances not entirely
within the Company's control may affect the Company's ability to qualify as a
REIT. If the Company fails to qualify as a REIT, it 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 be disqualified from treatment as
a REIT for the four taxable years following the year during which qualification
is lost. The additional tax would significantly reduce the cash flow available
for distribution to shareholders. This Prospectus Supplement does not address
the taxation of the Company or the impact on the Company of its election to be
taxed as a REIT. The discussion set forth below assumes that the Company
qualifies as a REIT under the Code.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
Dividends and Other Distributions. As long as the Company qualifies as a
REIT, distributions made to the Company's taxable domestic shareholders
(including holders of Series A Preferred Shares) out of current or accumulated
earnings and profits (and not designated as capital gain dividends) will be
taken into account by them as ordinary income and will not be eligible for the
dividends received deduction for corporations. For purposes of determining
whether distributions on the Series A Preferred Shares are out of current or
accumulated earnings and profits, the earnings and profits of the Company will
be allocated first to the Company's outstanding Series A Preferred Shares, and
then allocated to the Company's Common Shares. 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 holder has held its Series A
Preferred Shares. However, corporate holders 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 holder to
the extent that they do not exceed the adjusted tax basis of the holder's
shares, but rather will reduce the adjusted basis of such shares. To the extent
that such distributions exceed the adjusted basis of a holder's shares they will
be included in income as long-term capital gain (or short-term capital gain if
the shares have been held for one year or less) assuming the shares are a
capital asset in the hands of the holder. In addition, any dividend 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 dividend is actually paid by the Company during January
of the following calendar year. Shareholders may not include in their individual
income tax returns any net operating losses or capital losses of the Company.
Sale or Redemption of Series A Preferred Shares. On the sale of shares of
Series A Preferred Shares, gain or loss will be recognized by the holder in an
amount equal to the difference between (i) the amount of cash and fair market
value of any property received on such sale, and (ii) the holder's adjusted
basis in the Series A Preferred Shares. Such gain or loss will be capital gain
or loss if the Series A Preferred Shares are held as capital assets, and will be
long-term gain or loss if such shares are held for more than one year. In
general, any loss upon a sale or exchange of shares by a holder who has held
S-17
<PAGE> 18
such shares for six months or less (after applying certain holding period
rules), will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such holder as
long-term capital gain.
A redemption of Series A Preferred Shares will be treated under Section 302
of the Code as a distribution that is taxable at ordinary income tax rates as a
dividend (to the extent of the Company's current or accumulated earnings and
profits), unless the redemption satisfies certain tests set forth in Section
302(b) of the Code enabling the redemption to be treated as a sale of the Series
A Preferred Shares. The redemption will satisfy such tests if it (i) is
"substantially disproportionate" with respect to the holder (which will not be
the case if only Series A Preferred Shares are redeemed, since they generally do
not have voting rights), (ii) results in a "complete termination" of the
holder's stock interest in the Company, or (iii) is "not essentially equivalent
to a dividend" with respect to the holder, all within the meaning of Section
302(b) of the Code. In determining whether any of these tests have been met,
shares considered to be owned by the holder by reason of certain constructive
ownership rules set forth in the Code, as well as shares actually owned, must
generally be taken into account. Because the determination as to whether any of
the alternative tests of Section 302(b) of the Code will be satisfied with
respect to any particular holder of Series A Preferred Shares depends upon the
facts and circumstances at the time that the determination must be made,
prospective investors are advised to consult their own tax advisors to determine
such tax treatment.
If a redemption of the Series A Preferred Shares is treated as a
distribution that is taxable as a dividend, the amount of the distribution will
be measured by the amount of cash and the fair market value of any property
received by the shareholders. The shareholder's adjusted tax basis in such
redeemed Series A Preferred Shares will be transferred to the holder's remaining
stockholdings in the Company. If, however, the shareholder has no remaining
stockholdings in the Company, such basis could be transferred to a related
person or it may be lost.
BACKUP WITHHOLDING
The Company will report to its domestic shareholders and the Internal
Revenue Service (the "IRS") the amount of dividends paid during each calendar
year, and the amount of tax withheld, if any. Under the backup withholding
rules, a shareholder may be subject to backup withholding at the rate of 31%
with respect to dividends paid and redemptions unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number,
certifies that the holder is not subject to backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
shareholder that does not provide the Company with his correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the shareholder's
income tax liability.
TAXATION OF CERTAIN TAX-EXEMPT SHAREHOLDERS
Generally, a tax-exempt investor that is exempt from tax on its investment
income, such as an individual retirement account ("IRA") or a Section 401(k)
plan, that holds the Series A Preferred Shares as an investment will not be
subject to tax on dividends paid by the Company. However, if such tax-exempt
investor is treated as having purchased its Series A Preferred Shares with
borrowed funds, some or all of its dividends from the Series A Preferred Shares
will be subject to tax. In addition, under some circumstances certain pension
plans (including Section 401(k) plans but not, for example, IRA's) that own more
than 10% (by value) of the Company's outstanding capital stock, including Common
Shares, could be subject to tax on a portion of their Series A Preferred Share
dividends even if their Series A Preferred Shares are held for investment and
are not treated as acquired with borrowed funds.
OTHER TAX CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they own
property, transact business or reside. The state and local tax treatment of the
Company and its shareholders may not conform to the federal income tax
consequences discussed above. Consequently, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in the Company.
S-18
<PAGE> 19
UNDERWRITING
Subject to the terms and conditions in an underwriting agreement between
the Company and the Underwriters (the "Underwriting Agreement"), the Company has
agreed to sell to each of the Underwriters named below, and each of such
Underwriters has severally agreed to purchase from the Company, the respective
number of Series A Preferred Shares set forth opposite its name. Pursuant to the
terms of the Underwriting Agreement, the Underwriters are obligated to purchase
all of such Series A Preferred Shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO BE
UNDERWRITERS PURCHASED
-------------------------------------------------------- -------------
<S> <C>
PaineWebber Incorporated................................ 1,500,000
Smith Barney Inc........................................ 1,500,000
Donaldson, Lufkin & Jenrette Securities Corporation..... 100,000
A.G. Edwards & Sons, Inc................................ 100,000
Goldman, Sachs & Co..................................... 100,000
Lehman Brothers Inc..................................... 100,000
Oppenheimer & Co., Inc.................................. 100,000
Prudential Securities Incorporated...................... 100,000
The Robinson-Humphrey Company, Inc...................... 100,000
Cowen & Company......................................... 50,000
First Albany Corporation................................ 50,000
Legg Mason Wood Walker, Incorporated.................... 50,000
McGinn, Smith & Co., Inc................................ 50,000
US Clearing Corp........................................ 50,000
Wheat, First Securities, Inc............................ 50,000
---------
Total 4,000,000
=========
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Series A Preferred Shares directly to the public at the public
offering price set forth on the cover page of this Prospectus Supplement, and to
certain dealers at such price less a concession not in excess of $.50 per share.
The Underwriters may allow, and such dealers may reallow, a discount not in
excess of $.40 per share on sales to certain other dealers after the public
offering of the Series A Preferred Shares.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus Supplement, to purchase up
to 600,000 additional Series A Preferred Shares to cover over-allotments, if
any, at the public offering price, less the underwriting discounts and
commissions set forth on the cover page of this Prospectus Supplement.
Pursuant to the Underwriting Agreement, the Company has agreed to indemnify
the Underwriters against certain civil liabilities, including liabilities under
the Securities Act of 1933, as amended, or to contribute to payments the
Underwriters may be required to make in respect thereof.
Application has been made to list the Series A Preferred Shares on the
NYSE. If approved, trading of the Series A Preferred Shares on the NYSE is
expected to commence within the 30-day period after initial delivery of the
Series A Preferred Shares. The Underwriters have advised the Company that they
intend to make a market in the Series A Preferred Shares prior to the
commencement of trading on the NYSE. The Underwriters will have no obligation to
make a market in the Series A Preferred Shares, however, and may cease
market-making activities, if commenced, at any time.
Until the distribution of the Series A Preferred Shares is completed, rules
of the Securities and Exchange Commission may limit the ability of the
Underwriters to bid for and purchase the Series A Preferred Shares. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Series A Preferred Shares. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Series A Preferred Shares.
S-19
<PAGE> 20
If the Underwriters create a short position in the Series A Preferred
Shares in connection with this offering, i.e., if they sell more Series A
Preferred Shares than are set forth on the cover page of this Prospectus
Supplement, the Underwriters may reduce that short position by purchasing Series
A Preferred Shares in the open market. The Underwriters may also elect to reduce
any short position by exercising all or part of the over-allotment option
described above.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above might have on the price of the Series A Preferred Shares. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Goodwin,
Procter & Hoar LLP, Boston, Massachusetts, as securities and tax counsel to the
Company and for the Underwriters by O'Melveny & Myers LLP, San Francisco,
California.
S-20
<PAGE> 21
PROSPECTUS
$300,000,000
GABLES RESIDENTIAL TRUST
DEBT SECURITIES
PREFERRED SHARES
COMMON SHARES
WARRANTS
------------------------
Gables Residential Trust ("Gables" or the "Company") may offer from time to
time in one or more series (i) its unsecured debt securities ("Debt
Securities"), (ii) preferred shares of beneficial interest, $.01 par value per
share ("Preferred Shares"), (iii) common shares of beneficial interest, $.01 par
value per share ("Common Shares"), and (iv) warrants or other rights to purchase
Preferred Shares or Common Shares ("Warrants"), with an aggregate public
offering price of up to $300,000,000 (or its equivalent based on the exchange
rate at the time of sale) in amounts, at prices and on terms to be determined at
the time of offering. The Debt Securities, Preferred Shares, Common Shares and
Warrants (collectively, the "Securities") may be offered separately or together,
in separate series, in amounts, at prices and on terms to be set forth in one or
more supplements to this Prospectus (each a "Prospectus Supplement").
The specific terms of the Securities for which this Prospectus is being
delivered will be set forth in the applicable Prospectus Supplement and will
include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, ranking, currency, form (which may be
registered or bearer, or certificated or global), authorized denominations,
maturity, rate (or manner of calculation thereof) and time of payment of
interest, terms for redemption at the option of the Company or repayment at the
option of the holder, terms for sinking fund payments, terms for conversion into
Common Shares or Preferred Shares, covenants and any initial public offering
price; (ii) in the case of Preferred Shares, the specific designation and stated
value per share, any dividend, liquidation, redemption, conversion, voting and
other rights, and any initial public offering price; (iii) in the case of Common
Shares, any initial public offering price; and (iv) in the case of Warrants, the
duration, offering price, exercise price and detachability. In addition, such
specific terms may include limitations on direct or beneficial ownership and
restrictions on transfer of the Securities, in each case as may be consistent
with the Company's Amended and Restated Declaration of Trust as then in effect,
or otherwise appropriate to preserve the status of the Company as a real estate
investment trust ("REIT") for federal income tax purposes. See "Restrictions on
Transfers of Shares of Beneficial Interest."
The applicable Prospectus Supplement will also contain information, where
appropriate, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Securities may be offered by the Company directly to one or more
purchasers, through agents designated from time to time by the Company or to or
through underwriters or dealers. If any agents or underwriters are involved in
the sale of any of the Securities, their names, and any applicable purchase
price, fee, commission or discount arrangement between or among them, will be
set forth, or will be calculable from the information set forth, in an
accompanying Prospectus Supplement. See "Plan of Distribution." No Securities
may be sold without delivery of a Prospectus Supplement describing the method
and terms of the offering of such Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
------------------
The date of this Prospectus is November 7, 1996.
<PAGE> 22
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC" or "Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Securities. This Prospectus, which constitutes part of the
Registration Statement, omits certain of the information contained in the
Registration Statement and the exhibits thereto on file with the Commission
pursuant to the Securities Act and the rules and regulations of the Commission
thereunder. The Registration Statement, including exhibits thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York,
New York 10048, and Northwestern Atrium Center, 500 W. Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and copies may be obtained at the prescribed
rates from the Public Reference Section of the Commission at its principal
office in Washington, D.C. Statements contained in this Prospectus as to the
contents of any contract or other document referred to 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, each such
statement being qualified in all respects by such reference.
The Company files information electronically with the Commission, and the
Commission maintains a Web Site that contains reports, proxy and information
statements and other information regarding registrants (including the Company)
that file electronically with the Commission. The address of the Commission's
Web Site is (http://www.sec.gov).
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 and proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the locations described above. Copies of such materials
can be obtained by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates.
In addition, the Common Shares are listed on the New York Stock Exchange (the
"NYSE"), and such materials can be inspected and copied at the NYSE, 20 Broad
Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference: (i) the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, as
amended by Form 10-K/A filed with the Commission on April 26, 1996, and the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996
and June 30, 1996, filed with the Commission pursuant to the Exchange Act; (ii)
the description of the Company's Common Shares contained in its Registration
Statement on Form 8-A filed with the Commission pursuant to the Exchange Act,
including all amendments and reports updating such description; (iii) the Proxy
Statement prepared by the Company in connection with its 1996 Annual Meeting of
Shareholders; and (iv) the Company's Current Report on Form 8-K dated March 25,
1996, filed with the Commission on April 1, 1996; the Company's Current Report
on Form 8-K dated April 23, 1996, as amended by Form 8-K/A filed with the
Commission on July 2, 1996; the Company's Current Report on Form 8-K dated July
26, 1996, filed with the Commission on August 16, 1996; and the Company's
Current Report on Form 8-K dated September 11, 1996, filed with the Commission
on September 26, 1996.
All other documents filed with the Commission by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering of the Securities
are to be incorporated herein by reference and such documents shall be deemed to
be a part hereof from the date of filing of such documents. Any statement
contained in this Prospectus 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 that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
2
<PAGE> 23
ANY PERSON RECEIVING A COPY OF THIS PROSPECTUS MAY OBTAIN, WITHOUT CHARGE,
UPON WRITTEN OR ORAL REQUEST, A COPY OF ANY OF THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, EXCEPT FOR THE EXHIBITS TO SUCH DOCUMENTS. WRITTEN REQUESTS
SHOULD BE MAILED TO GABLES RESIDENTIAL TRUST, 2859 PACES FERRY ROAD, OVERLOOK
III, SUITE 1450, ATLANTA, GEORGIA, ATTENTION: DIRECTOR OF INVESTOR RELATIONS.
TELEPHONE REQUESTS MAY BE DIRECTED TO (770) 436-4600.
THE COMPANY
GENERAL
Gables is one of the largest managers, developers and owners of multifamily
apartment communities in the Southeastern and Southwestern United States. The
Company is a self-administered and self-managed real estate investment trust (a
"REIT") and has elected to be treated as a REIT under the Internal Revenue Code
of 1986, as amended, beginning with its taxable year ending December 31, 1994.
The Company's Common Shares are listed on the New York Stock Exchange under the
symbol "GBP".
The Company currently engages in the multifamily apartment community
management, development, construction and acquisition businesses, including the
provision of related brokerage and corporate rental housing services.
Substantially all of the Company's business is conducted through, and all of the
Company's interests in its properties are held by or through, Gables Realty
Limited Partnership, a Delaware limited partnership (the "Operating
Partnership"). Through its ownership of Gables GP, Inc. ("GGPI"), a Texas
corporation and wholly-owned subsidiary of the Company that is the sole general
partner of the Operating Partnership, and its ownership of a direct limited
partnership interest in the Operating Partnership, the Company is currently an
84.5% economic owner of the Operating Partnership (this structure is commonly
referred to as an umbrella partnership REIT or "UPREIT").
As of September 30, 1996, the Company owned 46 stabilized multifamily
communities comprising 14,681 apartment homes, of which 30 were developed and 16
were acquired by the Company, including an indirect 25.0% general partner
interest in two multifamily communities. Additionally, as of such date, the
Company owned seven multifamily communities under development or in the lease-up
phase expected to comprise 1,925 apartment homes. The Company also owned as of
such date parcels of land for the future development of four multifamily
communities expected to comprise 978 apartment homes.
The Company was organized as a real estate investment trust under the laws
of the State of Maryland in 1993 to continue and expand the operations of its
privately owned predecessor organization. The Company's Common Shares have been
traded on the New York Stock Exchange since the completion of the Company's
initial public offering on January 26, 1994 (the "Initial Offering"). The
Company's executive offices are located at 2859 Paces Ferry Road, Atlanta,
Georgia 30339 and its telephone number is (770) 436-4600.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of Securities for general
corporate purposes, including repayment of indebtedness, acquisition of or
investment in new properties and developments and maintenance of currently owned
properties.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Debt Securities will be direct unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Securities") or subordinated Debt
Securities ("Subordinated Securities"). The Debt Securities will be issued under
one or more indentures, each dated as of a date prior to the issuance of the
Debt Securities to which it relates. Senior Securities and Subordinated
Securities may be issued pursuant to
3
<PAGE> 24
separate indentures (respectively, a "Senior Indenture" and a "Subordinated
Indenture"), in each case between the Company and a trustee (a "Trustee"), which
may be the same Trustee, and in the form that has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part, subject to such
amendments or supplements as may be adopted from time to time. The Senior
Indenture and the Subordinated Indenture, as amended or supplemented from time
to time, are sometimes hereinafter referred to collectively as the "Indentures."
The Indentures will be subject to and governed by the Trust Indenture Act of
1939, as amended (the "TIA"). The statements made under this heading relating to
the Debt Securities and the Indentures are summaries of the anticipated
provisions thereof, do not purport to be complete and are qualified in their
entirety by reference to the Indentures and such Debt Securities.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the applicable Indenture.
TERMS
The indebtedness represented by the Senior Securities will rank equally
with all other unsecured and unsubordinated indebtedness of the Company. The
indebtedness represented by Subordinated Securities will be subordinated in
right of payment to the prior payment in full of the Senior Debt of the Company
as described under "-- Subordination." The particular terms of the Debt
Securities offered by a Prospectus Supplement will be described in the
applicable Prospectus Supplement, along with any applicable modifications of or
additions to the general terms of the Debt Securities as described herein and in
the applicable Indenture and any applicable federal income tax considerations.
Accordingly, for a description of the terms of any series of Debt Securities,
reference must be made to both the Prospectus Supplement relating thereto and
the description of the Debt Securities set forth in this Prospectus.
Except as set forth in any Prospectus Supplement, the Debt Securities may
be issued without limit as to aggregate principal amount, in one or more series,
in each case as established from time to time by the Company or as set forth in
the applicable Indenture or in one or more indentures supplemental to such
Indenture. All Debt Securities of one series need not be issued at the same time
and, unless otherwise provided, a series may be reopened, without the consent of
the holders of the Debt Securities of such series, for issuance of additional
Debt Securities of such series.
Each Indenture will provide that the Company may, but need not, designate
more than one Trustee thereunder, each with respect to one or more series of
Debt Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities and a successor Trustee may be
appointed to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a Trustee of a trust under the applicable
Indenture separate and apart from the trust administered by any other Trustee,
and, except as otherwise indicated herein, any action described herein to be
taken by each Trustee may be taken by each such Trustee with respect to, and
only with respect to, the one or more series of Debt Securities for which it is
Trustee under the applicable Indenture.
The following summaries set forth certain general terms and provisions of
the Indentures and the Debt Securities. The Prospectus Supplement relating to
the series of Debt Securities being offered will contain further terms of such
Debt Securities, including the following specific terms:
(1) The title of such Debt Securities and whether such Debt Securities
are Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) The price (expressed as a percentage of the principal amount
thereof) at which such Debt Securities will be issued and, if other than
the principal amount thereof, the portion of the principal amount thereof
payable upon declaration of acceleration of the maturity thereof, or (if
applicable) the portion of the principal amount of such Debt Securities
that is convertible into Common Shares or Preferred Shares, or the method
by which any such portion shall be determined;
4
<PAGE> 25
(4) If convertible, the terms on which such Debt Securities are
convertible, including the initial conversion price or rate and the
conversion period and any applicable limitations on the ownership or
transferability of the Common Shares or Preferred Shares receivable on
conversion;
(5) The date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(7) The date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the dates on which any
such interest will be payable, the record dates for such interest payment
dates, or the method by which such dates shall be determined, the persons
to whom such interest shall be payable, and the basis upon which interest
shall be calculated if other than that of a 360-day year of twelve 30-day
months;
(8) The place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable, where such
Debt Securities may be surrendered for conversion or registration of
transfer or exchange and where notices or demands to or upon the Company in
respect of such Debt Securities and the applicable Indenture may be served;
(9) The period or periods, if any, within which, the price or prices
at which and the other terms and conditions upon which such Debt Securities
may, pursuant to any optional or mandatory redemption provisions, be
redeemed, as a whole or in part, at the option of the Company;
(10) The obligation, if any, of the Company to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof, and the period or periods
within which, the price or prices at which and the other terms and
conditions upon which such Debt Securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
(11) If other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units, or composite currency or currencies) and the manner in which such
amounts shall be determined;
(13) Whether such Debt Securities will be issued in certificated or
book-entry form and, if in book entry form, the identity of the depository
for such Debt Securities;
(14) Whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(15) The applicability, if any, of the defeasance and covenant
defeasance provisions described herein or set forth in the applicable
Indenture, or any modification thereof;
(16) Whether and under what circumstances the Company will pay any
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will have
the option to redeem such Debt Securities in lieu of making such payment;
(17) Any deletions from, modifications of or additions to the events
of default or covenants of the Company, to the extent different from those
described herein or set forth in the applicable Indenture with respect to
such Debt Securities, and any change in the right of any Trustee or any of
the holders to declare the principal amount of any of such Debt Securities
due and payable; and
(18) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture.
5
<PAGE> 26
If so provided in the applicable Prospectus Supplement, the Debt Securities
may be issued at a discount below their principal amount and provide for less
than the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof ("Original Issue Discount Securities"). In
such cases, all material U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable Prospectus Supplement.
Except as may be set forth in any Prospectus Supplement, the Debt
Securities will not contain any provisions that would limit the ability of the
Company to incur indebtedness or that would afford holders of Debt Securities
protection in the event of a highly leveraged or similar transaction involving
the Company or in the event of a change of control. Restrictions on ownership
and transfers of the Common Shares and Preferred Shares are designed to preserve
its status as a REIT and, therefore, may act to prevent or hinder a change of
control. See "Restrictions on Transfers of Shares of Beneficial Interest."
Reference is made to the applicable Prospectus Supplement for information with
respect to any deletions from, modifications of, or additions to, the events of
default or covenants of the Company that are described below, including any
addition of a covenant or other provision providing event risk or similar
protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for any
authorized denomination of other Debt Securities of the same series and of a
like aggregate principal amount and tenor upon surrender of such Debt Securities
at the corporate trust office of the applicable Trustee or at the office of any
transfer agent designated by the Company for such purpose. In addition, subject
to certain limitations imposed upon Debt Securities issued in book-entry form,
the Debt Securities of any series may be surrendered for conversion or
registration of transfer or exchange thereof at the corporate trust office of
the applicable Trustee or at the office of any transfer agent designated by the
Company for such purpose. Every Debt Security surrendered for conversion,
registration of transfer or exchange must be duly endorsed or accompanied by a
written instrument of transfer, and the person requesting such action must
provide evidence of title and identity satisfactory to the applicable Trustee or
transfer agent. No service charge will be made for any registration of transfer
or exchange of any Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. If the applicable Prospectus Supplement refers to any transfer agent
(in addition to the applicable Trustee) initially designated by the Company with
respect to any series of Debt Securities, the Company may at any time rescind
the designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Company will be
required to maintain a transfer agent in each place of payment for such series.
The Company may at any time designate additional transfer agents with respect to
any series of Debt Securities.
Neither the Company nor any Trustee shall be required (i) to issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before the day of mailing of
a notice of redemption of any Debt Securities that may be selected for
redemption and ending at the close of business on the day of such mailing; (ii)
to register the transfer of or exchange any Debt Security, or portion thereof,
so selected for redemption, in whole or in part, except the unredeemed portion
of any Debt Security being redeemed in part; or (iii) to issue, register the
transfer of or exchange any Debt Security that has been surrendered for
repayment at the option of the holder, except the portion, if any, of such Debt
Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indentures will provide that the Company may, without the consent of
the holders of any outstanding Debt Securities, consolidate with, or sell, lease
or convey all or substantially all of its assets to, or merge with or into, any
other entity provided that (i) either the Company shall be the continuing
entity, or the successor entity (if other than the Company) formed by or
resulting from any such consolidation or merger or which
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shall have received the transfer of such assets, and which is organized under
the laws of any domestic jurisdiction and assumes (A) the Company's obligations
to pay principal of (and premium, if any) and interest on all of the Debt
Securities and (B) the due and punctual performance and observance of all of the
covenants and conditions contained in each Indenture; (ii) immediately after
giving effect to such transaction and treating any indebtedness that becomes an
obligation of the Company or any subsidiary as a result thereof as having been
incurred by the Company or such subsidiary at the time of such transaction, no
event of default under the Indentures, and no event which, after notice or the
lapse of time, or both, would become such an event of default, shall have
occurred and be continuing; and (iii) an officers' certificate and legal opinion
covering such conditions shall be delivered to each Trustee.
CERTAIN COVENANTS
Existence. Except as permitted under "-- Merger, Consolidation or Sale of
Assets," the Indentures will require the Company to do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (by declaration of trust, bylaws and statute) and franchises;
provided, however, that the Company shall not be required to preserve any right
or franchise if its Board of Trustees determines that the preservation thereof
is no longer desirable in the conduct of its business.
Maintenance of Properties. The Indentures will require the Company to
cause all of its material properties used or useful in the conduct of its
business or the business of any subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that the
Company and its subsidiaries shall not be prevented from selling or otherwise
disposing of their properties for value in the ordinary course of business.
Insurance. The Indentures will require the Company to cause each of its
and its subsidiaries' insurable properties to be insured against loss or damage
at least equal to their then full insurable value with insurers of recognized
responsibility and, if described in the applicable Prospectus Supplement, having
a specified rating from a recognized insurance rating service.
Payment of Taxes and Other Claims. The Indentures will require the Company
to pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any subsidiary or upon the income, profits or property of the
Company or any subsidiary and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith.
Additional Covenants. Any additional covenants of the Company with respect
to any series of Debt Securities will be set forth in the Prospectus Supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that the following events are "Events of Default" with
respect to any series of Debt Securities issued thereunder: (i) default for 30
days in the payment of any installment of interest on any Debt Security of such
series; (ii) default in the payment of principal of (or premium, if any, on) any
Debt Security of such series at its maturity; (iii) default in making any
sinking fund payment as required for any Debt Security of such series; (iv)
default in the performance or breach of any other covenant or warranty of the
Company contained in the Indenture (other than a covenant added to the Indenture
solely for the benefit of a series of Debt Securities issued thereunder other
than such series), continued for 60 days after written notice as provided in the
applicable Indenture; (v) a default under any bond, debenture, note or other
evidence of indebtedness for money borrowed by the Company or any of its
subsidiaries (including obligations under leases required to be capitalized on
the balance sheet of the lessee under generally accepted accounting principles
but not including
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any indebtedness or obligations for which recourse is limited to property
purchased) in an aggregate principal amount in excess of $10,000,000 or under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any indebtedness for money borrowed by
the Company or any of its subsidiaries (including such leases, but not including
such indebtedness or obligations for which recourse is limited to property
purchased) in an aggregate principal amount in excess of $10,000,000, whether
such indebtedness exists on the date of such Indenture or shall thereafter be
created, which default shall have resulted in such indebtedness becoming or
being declared due and payable prior to the date on which it would otherwise
have become due and payable or such obligations being accelerated, without such
acceleration having been rescinded or annulled; (vi) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Company or any Significant Subsidiary of the
Company; and (vii) any other event of default provided with respect to a
particular series of Debt Securities. The term "Significant Subsidiary" has the
meaning ascribed to such term in Regulation S-X promulgated under the Securities
Act.
If an event of default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the holders of not less than 25% in
principal amount of the Debt Securities of that series will have the right to
declare the principal amount (or, if the Debt Securities of that series are
Original Issue Discount Securities or indexed securities, such portion of the
principal amount as may be specified in the terms thereof) of all the Debt
Securities of that series to be due and payable immediately by written notice
thereof to the Company (and to the applicable Trustee if given by the holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then outstanding under
any Indenture, as the case may be) has been made, but before a judgment or
decree for payment of the money due has been obtained by the applicable Trustee,
the holders of not less than a majority in principal amount of outstanding Debt
Securities of such series (or of all Debt Securities then outstanding under the
applicable Indenture, as the case may be) may rescind and annul such declaration
and its consequences if (i) the Company shall have deposited with the applicable
Trustee all required payments of the principal of (and premium, if any) and
interest on the Debt Securities of such series (or of all Debt Securities then
outstanding under the applicable Indenture, as the case may be), plus certain
fees, expenses, disbursements and advances of the applicable Trustee; and (ii)
all events of default, other than the non-payment of accelerated principal (or
specified portion thereof), with respect to Debt Securities of such series (or
of all Debt Securities then outstanding under the applicable Indenture, as the
case may be) have been cured or waived as provided in such Indenture. The
Indentures will also provide that the holders of not less than a majority in
principal amount of the outstanding Debt Securities of any series (or of all
Debt Securities then outstanding under the applicable Indenture, as the case may
be) may waive any past default with respect to such series and its consequences,
except a default (i) in the payment of the principal of (or premium, if any) or
interest on any Debt Security of such series; or (ii) in respect of a covenant
or provision contained in the applicable Indenture that cannot be modified or
amended without the consent of the holder of each outstanding Debt Security
affected thereby.
The Indentures will require each Trustee to give notice to the holders of
Debt Securities within 90 days of a default under the applicable Indenture
unless such default shall have been cured or waived; provided, however, that
such Trustee may withhold notice to the holders of any series of Debt Securities
of any default with respect to such series (except a default in the payment of
the principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if specified responsible officers of such Trustee
consider such withholding to be in the interest of such holders.
The Indentures will provide that no holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to
such Indenture or for any remedy thereunder, except in the case of failure of
the applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an event of default from the
holders of not less than 25% in principal amount of the outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it. This provision will not prevent, however, any holder of Debt
Securities from instituting suit for the enforcement of
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payment of the principal of (and premium, if any) and interest on such Debt
Securities at the respective due dates thereof.
The Indentures will provide that, subject to provisions in each Indenture
relating to its duties in case of default, a Trustee will be under no obligation
to exercise any of its rights or powers under an Indenture at the request or
direction of any holders of any series of Debt Securities then outstanding under
such Indenture, unless such holders shall have offered to the Trustee thereunder
reasonable security or indemnity. The holders of not less than a majority in
principal amount of the outstanding Debt Securities of any series (or of all
Debt Securities then outstanding under an Indenture, as the case may be) shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the applicable Trustee, or of exercising any trust
or power conferred upon such Trustee. However, a Trustee may refuse to follow
any direction which is in conflict with any law or the applicable Indenture,
which may involve such Trustee in personal liability or which may be unduly
prejudicial to the holders of Debt Securities of such series not joining
therein.
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers of the Company, stating whether or not such officer has
knowledge of any default under the applicable Indenture and, if so, specifying
each such default and the nature and status thereof.
MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the holders of not less than a majority in principal
amount of all outstanding Debt Securities issued under such Indenture affected
by such modification or amendment; provided, however, that no such modification
or amendment may, without the consent of the holder of each such Debt Security
affected thereby, (i) change the stated maturity of the principal of, or any
installment of interest (or premium, if any) on, any such Debt Security; (ii)
reduce the principal amount of, or the rate or amount of interest on, or any
premium payable on redemption of, any such Debt Security, or reduce the amount
of principal of an Original Issue Discount Security that would be due and
payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the holder
of any such Debt Security; (iii) change the place of payment, or the coin or
currency, for payment of principal of, premium, if any, or interest on any such
Debt Security; (iv) impair the right to institute suit for the enforcement of
any payment on or with respect to any such Debt Security; (v) reduce the
above-stated percentage of any outstanding Debt Securities necessary to modify
or amend the applicable Indenture with respect to such Debt Securities, to waive
compliance with certain provisions thereof or certain defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in the
applicable Indenture; or (vi) modify any of the foregoing provisions or any of
the provisions relating to the waiver of certain past defaults or certain
covenants, except to increase the required percentage to effect such action or
to provide that certain other provisions may not be modified or waived without
the consent of the holder of such Debt Security.
The holders of a majority in aggregate principal amount of the outstanding
Debt Securities of each series may, on behalf of all holders of Debt Securities
of that series, waive, insofar as that series is concerned, compliance by the
Company with certain restrictive covenants of the applicable Indenture.
Modifications and amendments of an Indenture will be permitted to be made
by the Company and the respective Trustee thereunder without the consent of any
holder of Debt Securities for any of the following purposes: (i) to evidence the
succession of another person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Company in such Indenture; (iii) to add events of default for
the benefit of the holders of all or any series of Debt Securities; (iv) to add
or change any provisions of an Indenture to facilitate the issuance of, or to
liberalize certain terms of, Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form, provided that
such action shall not adversely affect the interests of the holders of the Debt
Securities of any series in any material respect; (v) to change or eliminate any
provisions of an Indenture, provided that any such change or
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elimination shall become effective only when there are no Debt Securities
outstanding of any series created prior thereto which are entitled to the
benefit of such provision; (vi) to secure the Debt Securities; (vii) to
establish the form or terms of Debt Securities of any series, including the
provisions and procedures, if applicable, for the conversion of such Debt
Securities into Common Shares or Preferred Shares; (viii) to provide for the
acceptance of appointment by a successor Trustee or facilitate the
administration of the trusts under an Indenture by more than one Trustee; (ix)
to cure any ambiguity, defect or inconsistency in an Indenture, provided that
such action shall not adversely affect the interests of holders of Debt
Securities of any series issued under such Indenture; or (x) to supplement any
of the provisions of an Indenture to the extent necessary to permit or
facilitate defeasance and discharge of any series of such Debt Securities,
provided that such action shall not adversely affect the interests of the
holders of the outstanding Debt Securities of any series.
The Indentures will provide that in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof; (ii) the principal amount
of any Debt Security denominated in a foreign currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above); (iii) the
principal amount of an indexed security that shall be deemed outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security pursuant to such
Indenture; and (iv) Debt Securities owned by the Company or any other obligor
upon the Debt Securities or any affiliate of the Company or of such other
obligor shall be disregarded.
The Indentures will contain provisions for convening meetings of the
holders of Debt Securities of a series. A meeting will be permitted to be called
at any time by the applicable Trustee, and also, upon request, by the Company or
the holders of at least 10% in principal amount of the outstanding Debt
Securities of such series, in any such case upon notice given as provided in
such Indenture. Except for any consent that must be given by the holder of each
Debt Security affected by certain modifications and amendments of an Indenture,
any resolution presented at a meeting or adjourned meeting duly reconvened at
which a quorum is present may be adopted by the affirmative vote of the holders
of a majority in principal amount of the outstanding Debt Securities of that
series; provided, however, that, except as referred to above, any resolution
with respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the holders of a
specified percentage, which is less than a majority, in principal amount of the
outstanding Debt Securities of a series may be adopted at a meeting or adjourned
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the holders of such specified percentage in principal amount
of the outstanding Debt Securities of that series. Any resolution passed or
decision taken at any meeting of holders of Debt Securities of any series duly
held in accordance with an Indenture will be binding on all holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the holders of
not less than a specified percentage in principal amount of the outstanding Debt
Securities of a series, the persons holding or representing such specified
percentage in principal amount of the outstanding Debt Securities of such series
will constitute a quorum.
Notwithstanding the foregoing provisions, the Indentures will provide that
if any action is to be taken at a meeting of holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding Debt Securities affected thereby, or of the holders of
such series and one or more additional series: (i) there shall be no
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minimum quorum requirement for such meeting; and (ii) the principal amount of
the outstanding Debt Securities of such series that vote in favor of such
request, demand, authorization, direction, notice, consent, waiver or other
action shall be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture.
SUBORDINATION
Unless otherwise provided in the applicable Prospectus Supplement,
Subordinated Securities will be subject to the following subordination
provisions.
Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
any Subordinated Securities will be subordinated to the extent provided in the
applicable Indenture in right of payment to the prior payment in full of all
Senior Debt (as defined below), but the obligation of the Company to make
payments of the principal of and interest on such Subordinated Securities will
not otherwise be affected. No payment of principal or interest will be permitted
to be made on Subordinated Securities at any time if a default on Senior Debt
exists that permits the holders of such Senior Debt to accelerate its maturity
and the default is the subject of judicial proceedings or the Company receives
notice of the default. After all Senior Debt is paid in full and until the
Subordinated Securities are paid in full, holders will be subrogated to the
rights of holders of Senior Debt to the extent that distributions otherwise
payable to holders have been applied to the payment of Senior Debt. The
Subordinated Indenture will not restrict the amount of Senior Debt or other
indebtedness of the Company and its subsidiaries. As a result of these
subordination provisions, in the event of a distribution of assets upon
insolvency, holders of Subordinated Securities may recover less, ratably, than
general creditors of the Company.
Senior Debt will be defined in the applicable Indenture as the principal of
and interest on, or substantially similar payments to be made by the Company in
respect of, the following, whether outstanding at the date of execution of the
applicable Indenture or thereafter incurred, created or assumed: (i)
indebtedness of the Company for money borrowed or represented by purchase-money
obligations; (ii) indebtedness of the Company evidenced by notes, debentures,
bonds, or other securities issued under the provisions of an indenture, fiscal
agency agreement or other agreement; (iii) obligations of the Company as lessee
under leases of property either made as part of any sale and leaseback
transaction to which the Company is a party or otherwise; (iv) indebtedness,
obligations and liabilities of others in respect of which the Company is liable
contingently or otherwise to pay or advance money or property or as guarantor,
endorser or otherwise or which the Company has agreed to purchase or otherwise
acquire; and (v) any binding commitment of the Company to fund any real estate
investment or to fund any investment in any entity making such real estate
investment, in each case other than (A) any such indebtedness, obligation or
liability referred to in clauses (i) through (iv) above as to which, in the
instrument creating or evidencing the same pursuant to which the same is
outstanding, it is provided that such indebtedness, obligation or liability is
not superior in right of payment to the Subordinated Securities or ranks pari
passu with the Subordinated Securities; (B) any such indebtedness, obligation or
liability which is subordinated to indebtedness of the Company to substantially
the same extent as or to a greater extent than the Subordinated Securities are
subordinated; and (C) the Subordinated Securities. There will not be any
restrictions in any Indenture relating to Subordinated Securities upon the
creation of additional Senior Debt.
If this Prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will set forth the approximate
amount of Senior Debt outstanding as of the end of the Company's most recent
fiscal quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company will be permitted, at its option, to discharge certain obligations to
holders of any series of Debt Securities issued under any Indenture that have
not already been delivered to the applicable Trustee for cancellation and that
either have
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become due and payable or will become due and payable within one year (or
scheduled for redemption within one year) by irrevocably depositing with the
applicable Trustee, in trust, funds in such currency or currencies, currency
unit or units or composite currency or currencies in which such Debt Securities
are payable in an amount sufficient to pay the entire indebtedness on such Debt
Securities in respect of principal (and premium, if any) and interest to the
date of such deposit (if such Debt Securities have become due and payable) or to
the stated maturity or redemption date, as the case may be.
The Indentures will provide that, unless otherwise indicated in the
applicable Prospectus Supplement, the Company may elect either (i) to defease
and be discharged from any and all obligations with respect to such Debt
Securities (except for the obligation to pay additional amounts, if any, upon
the occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities, to hold moneys for payment in trust and, with
respect to Debt Securities which are convertible or exchangeable, the right to
convert or exchange) ("defeasance"); or (ii) to be released from its obligations
with respect to such Debt Securities under the applicable Indenture (being the
restrictions described under "-- Certain Covenants") or, if provided in the
applicable Prospectus Supplement, its obligations with respect to any other
covenant, and any omission to comply with such obligations shall not constitute
an event of default with respect to such Debt Securities ("covenant
defeasance"), in either case upon the irrevocable deposit by the Company with
the applicable Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at stated maturity, or Government Obligations (as defined
below), or both, applicable to such Debt Securities, which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient to pay the principal of (and premium, if any) and
interest on such Debt Securities, and any mandatory sinking fund or analogous
payments thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Trustee an opinion of
counsel (as specified in the applicable Indenture) to the effect that the
holders of such Debt Securities will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such opinion of counsel,
in the case of defeasance, will be required to refer to and be based upon a
ruling received from or published by the Internal Revenue Service (the "IRS") or
a change in applicable United States federal income tax law occurring after the
date of the Indenture. In the event of such defeasance, the holders of such Debt
Securities would thereafter be able to look only to such trust fund for payment
of principal (and premium, if any) and interest.
"Government Obligations" means securities that are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged; or (ii) obligations
of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which issued
the foreign currency in which the Debt Securities of such series are payable,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government, which, in
either case, are not callable or redeemable at the option of the issuer thereof,
and shall also include a depository receipt issued by a bank or trust company as
custodian with respect to any such Government Obligation or a specific payment
of interest on or principal of any such Government Obligation held by such
custodian for the account of the holder of a depository receipt, provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the Government Obligation or
the specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(i) the holder of a Debt Security of such series is entitled to, and does, elect
pursuant
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to the applicable Indenture or the terms of such Debt Security to receive
payment in a currency, currency unit or composite currency other than that in
which such deposit has been made in respect of such Debt Security; or (ii) a
Conversion Event (as defined below) occurs in respect of the currency, currency
unit or composite currency in which such deposit has been made, the indebtedness
represented by such Debt Security will be deemed to have been, and will be,
fully discharged and satisfied through the payment of the principal of (and
premium, if any) and interest on such Debt Security as they become due out of
the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate. "Conversion
Event" means the cessation of use of (i) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community; (ii) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Communities; or (iii) any currency
unit or composite currency other than the ECU for the purposes for which it was
established. Unless otherwise provided in the applicable Prospectus Supplement,
all payments of principal of (and premium, if any) and interest on any Debt
Security that is payable in a foreign currency that ceases to be used by its
government of issuance shall be made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any event of default other than the event of default described
in clause (iv) under "-- Events of Default, Notice and Waiver" with respect to
specified sections of an Indenture (which sections would no longer be applicable
to such Debt Securities) or described in clause (vii) under "-- Events of
Default, Notice and Waiver" with respect to any other covenant as to which there
has been covenant defeasance, the amount in such currency, currency unit or
composite currency in which such Debt Securities are payable, and Government
Obligations on deposit with the applicable Trustee, will be sufficient to pay
amounts due on such Debt Securities at the time of their stated maturity but may
not be sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such event of default. However, the Company would
remain liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Shares or Preferred Shares will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Shares or Preferred
Shares, the conversion price or rate (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders or the Company, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of such
Debt Securities and any restrictions on conversion, including restrictions
directed at maintaining the Company's REIT status.
PAYMENT
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of Debt
Securities will be payable at the corporate trust office of the Trustee, the
address of which will be stated in the applicable Prospectus Supplement;
provided that, at the option of the Company, payment of interest may be made by
check mailed to the address of the person entitled thereto as it appears in the
applicable register for such Debt Securities or by wire transfer of funds to
such person at an account maintained within the United States.
All moneys paid by the Company to a paying agent or a Trustee for the
payment of the principal of or any premium or interest on any Debt Security
which remain unclaimed at the end of two years after such
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principal, premium or interest has become due and payable will be repaid to the
Company, and the holder of such Debt Security thereafter may look only to the
Company for payment thereof.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series.
DESCRIPTION OF PREFERRED SHARES
The description of the Company's Preferred Shares set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Amended and Restated Declaration of Trust (the "Declaration of Trust")
and Amended and Restated Bylaws (the "Bylaws"), as in effect.
GENERAL
Under the Declaration of Trust, the Company has authority to issue up to
161,000,000 shares of beneficial interest, consisting of 100,000,000 Common
Shares, par value $.01 per share, 51,000,000 excess shares of beneficial
interest, par value $.01 per share ("Excess Shares"), and 10,000,000 Preferred
Shares, par value $.01 per share. No Preferred Shares were outstanding as of the
date of this Prospectus. Preferred Shares may be issued from time to time, in
one or more series, as authorized by the Board of Trustees of the Company. Prior
to issuance of shares of each series, the Board of Trustees is required by the
Maryland General Corporation Law ("MGCL") and the Company's Declaration of Trust
to fix for each series, subject to the provisions of the Company's Declaration
of Trust regarding Excess Shares, the terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption, as are
permitted by Maryland law. The Preferred Shares will, when issued, be fully paid
and nonassessable and will have no preemptive rights. The Board of Trustees
could authorize the issuance of Preferred Shares with terms and conditions that
could have the effect of discouraging a takeover or other transaction that
holders of Common Shares might believe to be in their best interests or in which
holders of some, or a majority, of the Common Shares might receive a premium for
their shares over the then market price of such Common Shares.
TERMS
The following description of the Preferred Shares sets forth certain
general terms and provisions of the Preferred Shares to which any Prospectus
Supplement may relate. The statements below describing the Preferred Shares are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Declaration of Trust and Bylaws and any
applicable amendment to the Declaration of Trust designating terms of a series
of Preferred Shares (a "Designating Amendment").
Reference is made to the Prospectus Supplement relating to the Preferred
Shares offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Shares;
(2) The number of Preferred Shares offered, the liquidation
preference per share and the offering price of such Preferred Shares;
(3) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Shares;
(4) The date from which dividends on such Preferred Shares shall
accumulate, if applicable;
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(5) The procedures for any auction and remarketing, if any, for such
Preferred Shares;
(6) The provision for a sinking fund, if any, for such Preferred
Shares;
(7) The provision for redemption, if applicable, of such Preferred
Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
(9) The terms and conditions, if applicable, upon which such
Preferred Shares will be convertible into Common Shares, including the
conversion price or rate (or manner of calculation thereof);
(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares;
(11) A discussion of federal income tax considerations applicable to
such Preferred Shares;
(12) The relative ranking and preference of such Preferred Shares as
to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(13) Any limitations on issuance of any series of Preferred Shares
ranking senior to or on a parity with such series of Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(14) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Shares of the Company, and to all equity securities ranking
junior to such Preferred Shares with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company; (ii) on a parity with all
equity securities issued by the Company, the terms of which specifically provide
that such equity securities rank on a parity with the Preferred Shares with
respect to dividend rights or rights upon liquidation, dissolution or winding up
of the Company; and (iii) junior to all equity securities issued by the Company,
the terms of which specifically provide that such equity securities rank senior
to the Preferred Shares with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company. The term "equity
securities" does not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Shares of each series will be entitled to receive,
when, as and if declared by the Board of Trustees of the Company, out of assets
of the Company legally available for payment, cash dividends at such rates and
on such dates as will be set forth in the applicable Prospectus Supplement. Each
such dividend shall be payable to holders of record as they appear on the share
transfer books of the Company on such record dates as shall be fixed by the
Board of Trustees of the Company.
Dividends on any series of the Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Trustees of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Shares for which dividends are non-cumulative, then the holders of
such series of the Preferred Shares will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Shares of any series are outstanding, no dividends will be
declared or paid or set apart for payment on any shares of beneficial interest
of the Company of any other series ranking, as to dividends, on a parity with or
junior to the Preferred Shares of such series for any period unless (i) if such
series of Preferred
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Shares has a cumulative dividend, full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for such payment on the Preferred Shares of such
series for all past dividend periods and the then current dividend period; or
(ii) if such series of Preferred Shares does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for such payment on the Preferred Shares of such
series. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon Preferred Shares of any series and the shares
of any other series of Preferred Shares ranking on a parity as to dividends with
the Preferred Shares of such series, all dividends declared upon Preferred
Shares of such series and any other series of Preferred Shares ranking on a
parity as to dividends with such Preferred Shares shall be declared pro rata so
that the amount of dividends declared per share of Preferred Shares of such
series and such other series of Preferred Shares shall in all cases bear to each
other the same ratio that accrued dividends per share on the Preferred Shares of
such series (which shall not include any accumulation in respect of unpaid
dividends for prior dividend periods if such Preferred Shares does not have a
cumulative dividend) and such other series of Preferred Shares bear to each
other. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on Preferred Shares of such series
which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for payment for all past dividend periods and the then current
dividend period; and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred Shares of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for payment for the then current dividend
period, no dividends (other than in Common Shares or other shares of beneficial
interest ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation) shall be declared or paid or set aside for payment nor
shall any other distribution be declared or made upon the Common Shares, or any
other shares of beneficial interest of the Company ranking junior to or on a
parity with the Preferred Shares of such series as to dividends or upon
liquidation, nor shall any Common Shares, or any other shares of beneficial
interest of the Company ranking junior to or on a parity with the Preferred
Shares of such series as to dividends or upon liquidation be redeemed, purchased
or otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Company (except by conversion into or exchange for other shares of beneficial
interest of the Company ranking junior to the Preferred Shares of such series as
to dividends and upon liquidation).
Any dividend payment made on a series of Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series which remain payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred
Shares will be subject to mandatory redemption or redemption at the option of
the Company, as a whole or in part, in each case upon the terms, at the times
and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of such Preferred Shares
that shall be redeemed by the Company in each year commencing after a date to be
specified, at a redemption price per share to be specified, together with an
amount equal to all accrued and unpaid dividends thereon (which shall not, if
such Preferred Shares do not have a cumulative dividend, include any
accumulation in respect of unpaid dividends for prior dividend periods) to the
date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Shares of any series is payable only from the net
proceeds of the issuance of shares of beneficial interest of the Company, the
terms of such Preferred Shares may provide that, if no such shares of beneficial
interest shall have been issued or to the extent the net proceeds from any
issuance are insufficient to pay in full the aggregate redemption price then
due, such Preferred Shares shall automatically and mandatorily be converted into
the applicable shares of
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beneficial interest of the Company pursuant to conversion provisions specified
in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if a series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all Preferred Shares of
such series shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period; and (ii) if a
series of Preferred Shares does not have a cumulative dividend, full dividends
on all of the Preferred Shares of such series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, no Preferred Shares of
such series shall be redeemed unless all outstanding Preferred Shares of such
series are simultaneously redeemed; provided, however, that the foregoing shall
not prevent the purchase or acquisition of Preferred Shares of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Shares of
such series. In addition, unless (i) if such series of Preferred Shares has a
cumulative dividend, full cumulative dividends on all outstanding shares of such
series of Preferred Shares have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period; and (ii) if
such series of Preferred Shares does not have a cumulative dividend, full
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, the Company shall
not purchase or otherwise acquire directly or indirectly any Preferred Shares of
such series (except by conversion into or exchange for shares of beneficial
interest of the Company ranking junior to the Preferred Shares of such series as
to dividends and upon liquidation); provided, however, that the foregoing shall
not prevent the purchase or acquisition of Preferred Shares of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Shares of
such series.
If fewer than all of the outstanding Preferred Shares of any series are to
be redeemed, the number of shares to be redeemed will be determined by the
Company and such shares may be redeemed pro rata from the holders of record of
such shares in proportion to the number of such shares held or for which
redemption is requested by such holder (with adjustments to avoid redemption of
fractional shares) or by any other equitable manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Shares to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such Preferred
Shares are to be surrendered for payment of the redemption price; (v) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date; and (vi) the date upon which the holder's conversion rights, if any, as to
such shares shall terminate. If fewer than all the Preferred Shares of any
series are to be redeemed, the notice mailed to each such holder thereof shall
also specify the number of Preferred Shares to be redeemed from each such
holder. If notice of redemption of any Preferred Shares has been given and if
the funds necessary for such redemption have been set aside by the Company in
trust for the benefit of the holders of any Preferred Shares so called for
redemption, then from and after the redemption date dividends will cease to
accrue on such Preferred Shares, and all rights of the holders of such shares
will terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Shares or any other class or series of shares
of beneficial interest of the Company ranking junior to the Preferred Shares in
the distribution of assets upon any liquidation, dissolution or winding up of
the Company, the holders of each series of Preferred Shares shall be entitled to
receive out of assets of the Company legally available for distribution to
shareholders liquidating distributions in the amount of the liquidation
preference per share, if
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any, set forth in the applicable Prospectus Supplement, plus an amount equal to
all dividends accrued and unpaid thereon (which shall not include any
accumulation in respect of unpaid noncumulative dividends for prior dividend
periods). After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Preferred Shares will have no right or
claim to any of the remaining assets of the Company. In the event that, upon any
such voluntary or involuntary liquidation, dissolution or winding up, the
available assets of the Company are insufficient to pay the amount of the
liquidating distributions on all outstanding Preferred Shares and the
corresponding amounts payable on all other classes or series of shares of
beneficial interest of the Company ranking on a parity with the Preferred Shares
in the distribution of assets, then the holders of the Preferred Shares and all
other such classes or series of shares of beneficial interest shall share
ratably in any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of shares of beneficial interest
ranking junior to the Preferred Shares upon liquidation, dissolution or winding
up, according to their respective rights and preferences and in each case
according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation, trust
or entity, or the sale, lease or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Shares will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Shares, so long as
any Preferred Shares of a series remain outstanding, the Company will not,
without the affirmative vote or consent of the holders of at least two-thirds of
the Preferred Shares of such series outstanding at the time, given in person or
by proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of shares of beneficial interest ranking prior to such
series of Preferred Shares with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify
any authorized shares of beneficial interest of the Company into such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii) amend, alter or repeal
the provisions of the Company's Declaration of Trust or the Designating
Amendment for such series of Preferred Shares, whether by merger, consolidation
or otherwise (an "Event"), so as to materially and adversely affect any right,
preference, privilege or voting power of such series of Preferred Shares or the
holders thereof; provided, however, with respect to the occurrence of any of the
Events set forth in (ii) above, so long as the Preferred Shares remain
outstanding with the terms thereof materially unchanged, taking into account
that upon the occurrence of an Event the Company may not be the surviving
entity, the occurrence of any such Event shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting power of holders
of Preferred Shares, and provided further that (A) any increase in the amount of
the authorized Preferred Shares or the creation or issuance of any other series
of Preferred Shares, or (B) any increase in the amount of authorized shares of
such series or any other series of Preferred Shares, in each case ranking on a
parity with or junior to the Preferred Shares of such series with respect to
payment of dividends or the distribution of assets upon liquidation, dissolution
or winding up, shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Shares shall
have been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
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CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Shares
is convertible into Common Shares will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of Common Shares
into which the Preferred Shares are convertible, the conversion price or rate
(or manner of calculation thereof), the conversion period, provisions as to
whether conversion will be at the option of the holders of the Preferred Shares
or the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such series of
Preferred Shares.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
shares of beneficial interest may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year. To assist the Company in meeting this
requirement, the Company may take certain actions to limit the beneficial
ownership, directly or indirectly, by a single person of the Company's
outstanding equity securities, including any Preferred Shares of the Company.
Therefore, the Designating Amendment for each series of Preferred Shares may
contain provisions restricting the ownership and transfer of the Preferred
Shares. The applicable Prospectus Supplement will specify any additional
ownership limitation relating to a series of Preferred Shares. See "Restrictions
on Transfers of Shares of Beneficial Interest."
TRANSFER AGENT
The transfer agent and registrar for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF COMMON SHARES
The description of the Company's Common Shares set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Declaration of Trust and Bylaws, as in effect.
GENERAL
Under the Declaration of Trust, the Company has authority to issue
100,000,000 Common Shares, par value $.01 per share. At September 30, 1996, the
Company had outstanding 19,286,429 Common Shares. In addition, on such date
3,528,232 Units of Limited Partnership of the Operating Partnership (the
"Units") were outstanding (other than those held directly or indirectly by the
Company) and may be exchanged for Common Shares on a one-for-one basis. All
Common Shares offered hereby will, when issued, be duly authorized, fully paid
and nonassessable.
TERMS
Subject to the preferential rights of any other shares or series of shares
of beneficial interest and to the provisions of the Company's Declaration of
Trust regarding Excess Shares, holders of Common Shares will be entitled to
receive distributions on Common 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 Company's Declaration of Trust regarding
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 otherwise required by law or except as provided with
respect to any other class or series of shares of beneficial interest, the
holders of Common Shares will possess exclusive voting power. There is no
cumulative voting in the election of trustees, which means that the holders of a
majority of the 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 trustee.
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Holders of Common Shares have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of the Company.
Subject to the provisions of the Company's Declaration of Trust regarding
Excess Shares, all Common Shares will have equal dividend, distribution,
liquidation and other rights, and will have no preference, appraisal or exchange
rights.
The Company's Declaration of Trust provides that the Company cannot merge
with or sell all or substantially all of the assets of the Company, except
pursuant to a resolution approved by shareholders holding a majority of the
shares entitled to vote on the resolution. In addition, the partnership
agreement of the Operating Partnership requires that any merger or sale of all
or substantially all of the assets of the Operating Partnership be approved by
partners holding 75% of the Units.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding shares of beneficial interest may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year. To assist the Company
in meeting this requirement, the Company may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of the
Company's outstanding equity securities. See "Restrictions on Transfers of
Shares of Beneficial Interest."
TRANSFER AGENT
The transfer agent and registrar for the Common Shares is The First
National Bank of Boston, Boston, Massachusetts.
DESCRIPTION OF WARRANTS
The Company has no Warrants or other share purchase rights outstanding
(other than options issued under the Company's Second Amended and Restated 1994
Share Option and Incentive Plan). The Company may issue Warrants for the
purchase of Preferred Shares or Common Shares. Warrants may be issued
independently, together with any other Securities offered by any Prospectus
Supplement or through a dividend or other distribution to the Company's
shareholders and may be attached to or separate from such Securities. Warrants
may be issued under a warrant agreement (each, a "Warrant Agreement") to be
entered into between the Company and a warrant agent specified in the applicable
Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will act solely
as an agent of the Company in connection with the Warrants of a particular
series and will not assume any obligation or relationship of agency or trust for
or with any holders or beneficial owners of Warrants. The following sets forth
certain general terms and provisions of the Warrants offered hereby. Further
terms of the Warrants and the applicable Warrant Agreement will be set forth in
the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered, including,
where applicable, the following: (1) the title of such Warrants; (2) the
aggregate number of such Warrants; (3) the price or prices at which such
Warrants will be issued; (4) the designation, number and terms of the Preferred
Shares or Common Shares purchasable upon exercise of such Warrants; (5) the
designation and terms of the other Securities, if any, with which such Warrants
are issued and the number of such Warrants issued with each such Security: (6)
the date, if any, on and after which such Warrants and the related Preferred
Shares or Common Shares, if any, will be separately transferable; (7) the price
at which each Preferred Share or Common Share purchasable upon exercise of such
Warrants may be purchased; (8) the date on which the right to exercise such
Warrants shall commence and the date on which such right shall expire; (9) the
minimum or maximum amount of such Warrants which may be exercised at any one
time; (10) information with respect to book-entry procedures, if any; (11) a
discussion of certain federal income tax considerations; and (12) any other
terms of such Warrants, including terms, procedures and limitations relating to
the transferability, exchange and exercise of such Warrants.
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RESTRICTIONS ON TRANSFERS OF SHARES OF BENEFICIAL INTEREST
For the Company to qualify as a REIT under the Code, among other things,
not more than 50% in value of its outstanding shares of beneficial interest may
be owned, directly or indirectly, by five or fewer individuals (defined in the
Code to include certain entities) during the last half of a taxable year (other
than the first year), and such shares of beneficial interest must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months (other than the first year) or during a proportionate part of
a shorter taxable year. In order to protect the Company against the risk of
losing its status as a REIT due to a concentration of ownership among its
shareholders, the Declaration of Trust provides that no holder (other than
persons approved by the trustees at their option and in their discretion) may
own, or be deemed to own by virtue of the attribution provisions of the Code,
more than 9.8% (the "Ownership Limit") of the Company's shares of beneficial
interest. The Board of Trustees does not expect that it would waive the
Ownership Limit in the absence of the ruling from the IRS or an opinion of
counsel satisfactory to it that the changes in ownership will not then or in the
future jeopardize the Company's status as a REIT. Any transfer of shares of
beneficial interest (including warrants) or any security convertible into shares
of beneficial interest that would create a direct or indirect ownership of
shares of beneficial interest in excess of the Ownership Limit or that would
result in the disqualification of the Company as a REIT, including any transfer
that results in the shares of beneficial interest being owned by fewer than 100
persons or that results 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 of beneficial interest. The
foregoing restrictions on transferability and ownership will not apply if the
Board of Trustees determines that it is no longer in the best interests of the
Company to attempt to qualify, or to continue to qualify, as a REIT. In
addition, the foregoing restrictions do not apply with respect to an offeror in
the event of an all cash tender offer by it which has been accepted by at least
two-thirds of the Company's outstanding shares.
Shares of beneficial interest owned, or deemed to be owned, or transferred
to a shareholder in excess of the Ownership Limit will automatically be
exchanged for Excess Shares that will be transferred, by operation of law, to
the Company as trustee of a trust for the exclusive benefit of the transferees
to whom such shares of beneficial interest may be ultimately transferred without
violating the Ownership Limit. While the Excess Shares are held in trust, they
will not be entitled to vote, they will not be considered for purposes of any
shareholder vote or the determination of a quorum for such vote, and, except
upon liquidation, they will not be entitled to participate in dividends or other
distributions. Any dividend or distribution paid to a proposed transferee of
Excess Shares prior to the discovery by the Company that shares of beneficial
interest have been transferred in violation of the provisions of the Company's
Declaration of Trust shall be repaid to the Company upon demand. The Excess
Shares are not treasury shares, but rather constitute a separate class of issued
and outstanding shares of beneficial interest of the Company. The original
transferee-shareholder may, at any time the Excess Shares are held by the
Company in trust, transfer the interest in the trust representing the Excess
Shares to any individual whose ownership of the shares of beneficial interest
exchanged into such Excess Shares would be permitted under the Ownership Limit,
at a price not in excess of the price paid by the original
transferee-shareholder for the shares of beneficial interest that were exchanged
for Excess Shares. Immediately upon the transfer to the permitted transferee,
the Excess Shares will automatically be exchanged for shares of beneficial
interest of the class from which they were converted. 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 may be deemed, at the option of the Company, to have acted as an
agent on behalf of the Company in acquiring the Excess Shares and to hold the
Excess Shares on behalf of the Company.
In addition to the foregoing transfer restrictions, the Company will have
the right, for a period of 90 days during the time any Excess Shares are held by
the Company in trust, to purchase all or any portion of the Excess Shares from
the original transferee-shareholder for the lesser of the price paid for the
shares of beneficial interest by the original transferee-shareholder or the
market price (as determined in the manner set forth in the Declaration of Trust)
of the shares of beneficial interest on the date the Company exercises its
option to purchase. The 90-day period begins on the date of the violative
transfer if the original transferee-
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<PAGE> 42
shareholder gives notice to the Company of the transfer or, if no such notice is
given, the date the Board of Trustees determines that a violative transfer has
been made.
Every owner of more than 5% (or such lower percentage as required by the
Code or regulations thereunder) of the issued and outstanding Common Shares must
file a written notice with the Company containing the information specified in
the Declaration of Trust no later than January 30 of each year. Each shareholder
shall upon demand be required to disclose to the Company in writing any
information with respect to the direct, indirect and constructive ownership of
beneficial interests as the Board of Trustees deems necessary to comply with the
provisions of the Code applicable to REITs, to comply with the requirements of
any taxing authority or governmental agency or to determine any such compliance.
This ownership limitation may have the effect of precluding acquisition of
control of the Company unless the Board of Trustees determines that maintenance
of REIT status is no longer in the best interests of the Company.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S DECLARATION OF TRUST AND BYLAWS
The following summary of certain provisions of Maryland law and the
Company's Declaration of Trust and Bylaws does not purport to be complete and is
qualified by reference to Maryland law and the Company's Declaration of Trust
and Bylaws.
MARYLAND BUSINESS COMBINATION STATUTE
The MGCL establishes special requirements with respect to "business
combinations" between Maryland corporations and "interested shareholders" unless
exemptions are applicable. Among other things, the law prohibits for a period of
five years a merger and other specified or similar transactions between a
company and an interested shareholder and requires a supermajority vote for such
transactions after the end of the five-year period.
"Interested shareholders" are all persons owning beneficially, directly or
indirectly, more than 10% of the outstanding voting stock of the Maryland
corporation. "Business combinations" include any merger or similar transaction
subject to a statutory vote and additional transactions involving transfers of
assets or securities in specified amounts to interested shareholders or their
affiliates. Unless an exemption is available, transactions of these types may
not be consummated between a Maryland corporation and an interested shareholder
or its affiliates for a period of five years after the date on which the
shareholder first became an interested shareholder. Thereafter, the transaction
may not be consummated unless recommended by the Board of Trustees and approved
by the affirmative vote of at least 80% of the votes entitled to be cast by all
holders of outstanding voting shares and 66 2/3% of the votes entitled to be
cast by all holders of outstanding voting shares other than the interested
shareholder. A business combination with an interested shareholder that is
approved by the Board of Trustees of a Maryland corporation at any time before
an interested shareholder first becomes an interested shareholder is not subject
to the special voting requirements. An amendment to a Maryland corporation's
charter electing not to be subject to the foregoing requirements must be
approved by the affirmative vote of at least 80% of the votes entitled to be
cast by all holders of outstanding voting shares and 66 2/3% of the votes
entitled to be cast by holders of outstanding voting shares who are not
interested shareholders. Any such amendment is not effective until 18 months
after the vote of shareholders and does not apply to any business combination of
a corporation with a shareholder who was an interested shareholder on the date
of the shareholder vote.
MARYLAND CONTROL SHARE ACQUISITION STATUTE
The MGCL 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 of beneficial interest owned by the
acquiror or by officers of trustees who are employees of the trust. "Control
shares" are voting shares of beneficial interest
22
<PAGE> 43
which, if aggregated with all other such shares of beneficial interest
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 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 of all voting power. Control shares do not include shares of beneficial
interest 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 to call a special meeting of shareholders to be
held within 50 days of demand to consider voting rights for 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 of beneficial interest
entitled to vote, all other shareholders may exercise appraisal rights. The fair
value of the shares of beneficial interest 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.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the trust is a party to the
transaction, or to acquisitions approved or exempted by the declaration of trust
or bylaws of the trust.
The business combination statute and the control share acquisition statute
could have the effect of discouraging offers to acquire the Company and of
increasing the difficulty of consummating any such offer.
LIMITATION OF SHAREHOLDER'S LIABILITY
Under Maryland law, shareholders generally are not responsible for the
corporation's debts or obligations, and the Company's Declaration of Trust
specifically provides that no shareholder of the Company will be personally
liable for any obligations 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 or her being or
having been a shareholder, and that the Company shall reimburse each shareholder
for all legal and other expenses reasonably incurred by him or her in connection
with any such claim or liability. However, with respect to tort claims,
contractual claims where shareholder liability is not so negated, claims for
taxes and certain statutory liability, the shareholder may, in some
jurisdictions, including Texas, be personally liable to the extent that such
claims are not satisfied by the Company. Inasmuch as the Company will carry
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.
LIMITATION OF TRUSTEES' AND OFFICERS' LIABILITY
Under Maryland law a real estate investment trust formed in Maryland is
permitted to limit, by provision in its declaration of trust, the liability of
trustees and officers so that no trustee or officer of the Company shall be
liable to the Company or to any shareholder for money damages except to the
extent that (i) the trustee or officer actually received an improper benefit in
money, property, or services, for the amount of the benefit or profit in money,
property, or services actually received, or (ii) a judgment or other final
adjudication adverse to the trustee or officer is entered in a proceeding based
on a finding in a proceeding that the trustee's or officer's action was the
result of active and deliberate dishonesty and was material to the cause of
action
23
<PAGE> 44
adjudicated in the proceeding. The Company's Declaration of Trust has
incorporated the provisions of such law limiting the liability of trustees and
officers.
The Company's Bylaws require it to indemnify, to the full extent of
Maryland law, any present or former trustee or officer (and such person's spouse
and children) (an "Indemnitee") who is or was a party or threatened to be made a
party to any proceeding by reason of his or her service in that capacity,
against all expenses, judgments, fines and amounts paid in settlement actually
and reasonably incurred by him or her in connection with the proceeding,
provided that the Company shall have received a written affirmation by the
Indemnitee that he or she has met the standard of conduct necessary for
indemnification by the Company as authorized by the Bylaws. The Company shall
not be required to indemnify an Indemnitee if (a) it is established that (i) the
Indemnitee's act or omission was committed in bad faith or was the result of
active or deliberate dishonesty, (ii) the Indemnitee actually received an
improper personal benefit in money, property or services or (iii) in the case of
a criminal proceeding, the Indemnitee had reasonable cause to believe that the
Indemnitee's act or omission was unlawful, (b) the proceeding was initiated by
the Indemnitee, (c) the Indemnitee received payment for such expenses pursuant
to insurance or otherwise or (d) the proceeding arises under Section 16 of the
Securities Exchange Act of 1934, as amended. Pursuant to the Bylaws, the
Indemnitee is required 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 permit the Company to provide such other and further
indemnification or payment or reimbursement of expenses as may be permitted by
the MGCL or to which the Indemnitee may be entitled. GGPI's bylaws contain
similar provisions that are consistent with Texas law.
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with each of the
Company's officers and trustees. The indemnification agreements require, among
other things, that the Company indemnify its officers and trustees to the
fullest extent permitted by law and advance to the officers and trustees all
related expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. Under these agreements, the Company also must
indemnify and advance all expenses incurred by officers and trustees seeking to
enforce their rights under the indemnification agreements, and cover officers
and trustees under the Company's trustees' and officers' liability insurance.
Although the form of indemnification agreement offers substantially the same
scope of coverage afforded by provisions in the Declaration of Trust and the
Bylaws, it provides greater assurance to trustees and officers that
indemnification will be available because, as a contract, it cannot be modified
unilaterally in the future by the Board of Trustees or by the Company's
shareholders to eliminate the rights it provides.
FEDERAL INCOME TAX CONSIDERATIONS
The Company believes it has operated, and the Company intends to continue
to operate, in such a manner as to qualify as a REIT under the Code, but no
assurance can be given that it will at all times so qualify.
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and general summary of certain provisions that
currently govern the federal income tax treatment of the Company and its
shareholders. For the particular provisions that govern the federal income tax
treatment of the Company and its shareholders, reference is made to Sections 856
through 860 of the Code and the regulations thereunder. The following summary is
qualified in its entirety by such reference.
Under the Code, if certain requirements are met in a taxable year, a REIT
generally will not be subject to federal income tax with respect to income that
it distributes to its shareholders. If the Company fails to qualify during any
taxable year as a REIT, unless certain relief provisions are available, it will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates, which could have a material adverse
effect upon its shareholders.
24
<PAGE> 45
In any year in which the Company qualifies to be taxed as a REIT,
distributions made to its shareholders out of current or accumulated earnings
and profits will be taxed to shareholders as ordinary income except that
distributions of net capital gains designated by the Company as capital gain
dividends will be taxed as long-term capital gain income to the shareholders. To
the extent that distributions to shareholders exceed current or accumulated
earnings and profits, they will constitute a return of capital, rather than
dividend or capital gain income, and will reduce the basis for the shareholder's
shares of beneficial interest with respect to which the distribution is paid or,
to the extent that they exceed such basis, will be taxed in the same manner as
gain from the sale of those shares of beneficial interest.
Investors are urged to consult their own tax advisors with respect to the
appropriateness of an investment in the Securities offered hereby and with
respect to the tax consequences arising under federal law and the laws of any
state, municipality or other taxing jurisdiction, including tax consequences
resulting from such investor's own tax characteristics. Foreign investors also
should consult their own tax advisors concerning the tax consequences of an
investment in the Company, including the possibility of United States income tax
withholding on Company distributions.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to fixed
charges of the Company and its predecessor for the periods shown:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JANUARY 26 - JANUARY 1 - YEAR ENDED DECEMBER 31,
JUNE 30, DECEMBER 31, DECEMBER 31, JANUARY 25, ------------------------------
1996 1995 1994 1994(1)(2) 1993(1) 1992(1) 1991(1)(2)
---------------- ------------ ------------ ----------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio...... 1.81x 1.40x 1.83x .89x 1.22x 1.17x .70x
</TABLE>
- ---------------
(1) Ratios for the period January 1 - January 25, 1994 and the years ended
December 31, 1993, 1992, and 1991 reflect periods prior to the
recapitalization and initial public offering of the Company on January 26,
1994.
(2) The earnings for these periods were inadequate to cover fixed charges as
follows:
<TABLE>
<S> <C>
Period January 1 - January 25, 1994...................... $ 146,000
Year ended December 31, 1991............................. $ 5,014,000
</TABLE>
The ratios of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, earnings consist of net income (loss) before
minority interest and extraordinary items plus fixed charges. Fixed charges
consist of interest expense, capitalized interest, credit enhancement fees and
loan cost amortization. To date, the Company has not issued any Preferred
Shares; therefore, the ratios of earnings to combined fixed charges and
Preferred Shares dividend requirements are the same as the ratios of earnings to
fixed charges presented above.
PLAN OF DISTRIBUTION
The Company may sell Securities to or through one or more underwriters or
dealers for public offering and sale by or through them, directly to one or more
individual, institutional or other purchasers, through agents or through a
combination of any such methods of sale. Direct sales to investors may also be
accomplished through subscription rights distributed to the Company's
shareholders on a pro rata basis, which may or may not be transferrable. In
connection with any distribution of subscription rights to shareholders, if all
of the underlying Securities are not subscribed for, the Company may sell the
unsubscribed Securities directly to third parties or may engage the services of
one or more underwriters, dealers or agents, including standby underwriters, to
sell the unsubscribed Securities to third parties.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, or at negotiated prices (any of which may represent a discount
from the prevailing market prices).
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<PAGE> 46
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company or from purchasers of Securities, for whom
they may act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers, and agents that participate in the distribution
of Securities may be deemed to be underwriters under the Securities Act, and any
discounts or commissions they receive from the Company and any profit on the
resale of Securities they realize may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriter or agent will be
identified, and any such compensation received from the Company will be
described, in the applicable Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Common Shares which are listed on the NYSE. Any Common Shares
sold pursuant to a Prospectus Supplement will be listed on the NYSE, subject to
official notice of issuance. The Company may elect to list any series of Debt
Securities or Preferred Shares on an exchange, but is not obligated to do so. It
is possible that one or more underwriters may make a market in a series of
Securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of, or the trading market for, the Securities.
Under agreements into which the Company may enter, underwriters, dealers
and agents who participate in the distribution of Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be tenants of, the Company in the ordinary course of
business.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers or other persons acting as the Company's agents to solicit
offers by certain institutions to purchase Securities from the Company at the
public offering price set forth in such Prospectus Supplement pursuant to
delayed delivery contracts ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount no less than, and the aggregate principal amounts of Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and other institutions, but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Securities covered by its
Contracts shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and (ii)
if Securities are being sold to underwriters, the Company shall have sold to
such underwriters the total principal amount of the Securities less the
principal amount thereof covered by the Contracts. If in conjunction with the
sale of Securities to institutions under Contracts, Securities are also being
sold to the public, the consummation of the sale under the Contracts shall occur
simultaneously with the consummation of the sale to the public. The underwriters
and such other agents will not have any responsibility in respect of the
validity or performance of such contracts.
In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states Securities may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Securities offered hereby may not
simultaneously engage in market making activities with respect to the Securities
for a period of two business days prior to the commencement of such
distribution.
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<PAGE> 47
LEGAL MATTERS
Certain legal matters, including the legality of the Securities, will be
passed upon for the Company by Goodwin, Procter & Hoar LLP, Boston,
Massachusetts.
EXPERTS
The financial statements and schedules referred to and incorporated by
reference in this Prospectus or elsewhere in the Registration Statement of which
this Prospectus is a part have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
incorporated herein in reliance upon the authority of said firm as experts in
giving said report.
27
<PAGE> 48
============================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH THEY RELATE. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary.............. S-2
Risk Factors............................... S-5
The Company................................ S-9
Use of Proceeds............................ S-10
Capitalization............................. S-11
Ratios of Earnings to Fixed Charges........ S-11
Description of Preferred Shares............ S-12
Certain Federal Income Tax
Considerations........................... S-17
Underwriting............................... S-19
Legal Matters.............................. S-20
PROSPECTUS
Available Information...................... 2
Incorporation of Certain Documents by
Reference................................ 2
The Company................................ 3
Use of Proceeds............................ 3
Description of Debt Securities............. 3
Description of Preferred Shares............ 14
Description of Common Shares............... 19
Description of Warrants.................... 20
Restrictions on Transfers of Shares of
Beneficial Interests..................... 21
Certain Provisions of Maryland Law and of
the Company's Declaration of Trust and
Bylaws................................... 22
Federal Income Tax Considerations.......... 24
Ratios of Earnings to Fixed Charges........ 25
Plan of Distribution....................... 25
Legal Matters.............................. 27
Experts.................................... 27
</TABLE>
============================================================
============================================================
4,000,000 SHARES
[GABLES LOGO]
8.30% SERIES A CUMULATIVE REDEEMABLE
PREFERRED SHARES
---------------------------------
PROSPECTUS SUPPLEMENT
---------------------------------
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
------------------------
JULY 21, 1997
============================================================
