<PAGE> 1
PROSPECTUS SUPPLEMENT
- ---------------------
(TO PROSPECTUS DATED MAY 6, 1996)
413,223 SHARES OF COMMON STOCK
BAY APARTMENT COMMUNITIES, INC.
----------
All of the 413,223 shares of common stock, $.01 par value per share (the
"Common Stock") of Bay Apartment Communities, Inc. ("Bay" or the "Company") are
being offered by the Company.
SEE "RISK FACTORS" BEGINNING ON PAGE S-2 FOR CERTAIN CONSIDERATIONS
RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "BYA."
----------
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. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
Price to Underwriting
Public Discounts and Proceeds to
Commissions(1) Company(2)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Per Share ............. $ 24.20 $ .25 $ 23.95
- --------------------------------------------------------------------------------
Total(2) .............. $9,999,997 $103,306 $9,896,691
- --------------------------------------------------------------------------------
<FN>
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses estimated at $25,000, which are payable by the
Company.
</TABLE>
----------
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 shares of Common Stock are offered by the Underwriter, subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to its right to reject orders in whole or in part. It is expected that
delivery of the shares will be made in New York City on or about May 9, 1996.
----------
PAINEWEBBER INCORPORATED
----------
The date of this Prospectus Supplement is May 6, 1996.
<PAGE> 2
RISK FACTORS
An investment in the Common Stock 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 Prospectus before making a decision to purchase
any Securities. This Prospectus contains or incorporates by reference
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended. Actual results may differ materially from those
projected in the forward-looking statements as a result of the risk factors set
forth below and the matters set forth in this Prospectus Supplement and in the
Prospectus generally. The Company cautions the reader, however, that this list
of factors may not be exhaustive.
RISKS OF DEVELOPMENT, CONSTRUCTION AND ACQUISITION ACTIVITIES
The Company intends to actively continue development and construction of
multifamily apartment 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 expense 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 authorization.
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 lines of credit or other forms of secured
or unsecured financing or through the issuance of additional equity by the
Company. The use of equity financing, rather than debt, for future developments
or acquisitions could have a dilutive effect on the interests of existing
stockholders of the Company. If new developments are financed through
construction loans, there is a risk that, upon completion of construction,
permanent financing for newly developed communities may not be available or may
be available only on disadvantageous terms.
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 at or below a certain percentage, 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 Directors 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 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 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 has incurred and expects in the
future to incur floating rate indebtedness under credit facilities or in
connection with the construction of multifamily apartment communities,
S-2
<PAGE> 3
as well as for other purposes. Accordingly, increases in interest rates would
increase the Company's interest costs (to the extent that the related
indebtedness was not protected by interest rate protection arrangements).
REAL ESTATE INVESTMENT RISKS
General Risks. Real property investments are subject to varying degrees of
risk. If the Company's apartment 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 stockholders will
be adversely affected. A multifamily apartment 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 costs (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 the Northern California and San Francisco Bay regions
and the Company's performance and its ability to perform its obligations with
respect to the Series B Preferred Stock or make distributions to stockholders
could be adversely affected by economic and social conditions in these
geographic areas.
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 of 1986, as amended (the "Code") limits the
Company's ability to sell properties held for fewer than four years, which may
affect the Company's ability to sell properties without adversely affecting
returns to its stockholders.
Competition. There are numerous housing alternatives that compete with the
Company's multifamily apartment communities in attracting residents. These
communities compete directly with other multifamily rental apartments and single
family homes or condominiums that are available for rent or purchase in the
markets in which the communities are located. In addition, other competitors for
development and acquisitions of properties, including other REITs, may have
greater resources than the Company.
Operating Risks. The Company's multifamily apartment communities are
subject to all operating risks common to multifamily apartment communities in
general. Increases in unemployment or in the supply of apartment homes in the
areas in which the communities are located might adversely affect 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.
CHANGES IN POLICIES WITHOUT STOCKHOLDER APPROVAL
The investment, financing and borrowing policies of the Company and its
policies with respect to all other activities, including termination of
qualification as a REIT, growth, debt, capitalization, dividends and operations,
will be determined by the Board of Directors. Although the Board of Directors
has no present intention to do so, these policies may be amended or revised at
any time and from time to time at the discretion of the Board of Directors
without a vote of the stockholders of the Company. A change in these policies
could adversely affect the Company's financial condition, results of operations
or the market price of the Common Stock.
S-3
<PAGE> 4
LIMITS ON CHANGES IN CONTROL
Certain provisions contained in the Company's Articles of Incorporation
(the "Articles of Incorporation") and the Company's Bylaws (the "Bylaws") and
under Maryland law may have the effect of discouraging a third party from making
an acquisition proposal for the Company and may thereby inhibit a change in
control of the Company. For example, such provisions may (i) deter tender offers
for the Common Stock or the Series B Preferred Stock, which offers may be
attractive to the stockholders, or (ii) deter purchases of large blocks of
Common Stock, thereby limiting the opportunity for stockholders to receive a
premium for their Common Stock over then-prevailing market prices. These
provisions include the following:
Preferred Stock. The Articles of Incorporation authorize the Board of
Directors to issue up to 25 million shares of Preferred Stock (together with the
Common Stock, the "Securities") and to establish the preferences and rights
(including the right to vote and the right to convert into Common Stock) of any
Preferred Stock issued. The Company has issued 2,308,800 shares of Series A
Preferred Stock and will issue up to 405,022 shares of Series B Preferred Stock
in the concurrent offering. There is no established trading market for the
Series A Preferred Stock or the Series B Preferred Stock.
Ownership Limit. In order for the Company to maintain its qualification as
a REIT, not more than 50% in value of its outstanding Securities may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code).
For the purpose of preserving the Company's REIT qualification, the Articles of
Incorporation, subject to certain exceptions, provide that no holder may own,
directly or indirectly, more than 9% of any class or series of the outstanding
Securities of the Company. The Board of Directors can waive this restriction
with respect to any person if it is satisfied, based upon the advice of
tax-counsel, that ownership in excess of this limit will not jeopardize the
Company's status as a REIT and the Board of Directors otherwise decides such
action will be in the best interests of the Company.
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. If the Company does not qualify as a REIT the resulting additional tax
would significantly reduce the cash flow available for distribution to
stockholders.
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 effect the
owner's ability to borrow against, sell or rent such property.
COSTS 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 the Company believes
that its communities are substantially in compliance with present requirements
of the ADA, the Company may incur additional costs of complying with the ADA. A
number of additional Federal, state
S-4
<PAGE> 5
and local laws exist that 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 Amendments Act
of 1988 (the "FHAA") requires apartment communities first occupied after March
13, 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.
The Company believes that its communities that are subject to the FHAA are in
compliance with such law. 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.
POSSIBLE ADVERSE IMPACT OF MARKET CONDITIONS ON MARKET PRICE
The market value of the Common Stock could be substantially affected by
general market conditions, including changes in interest rates. A continued
increase in market interest rates would lead purchasers of Debt Securities and
may lead purchasers of Common Stock or Preferred Stock to demand a higher annual
yield, which could adversely affect the market price of the outstanding Common
Stock and other Securities. Moreover, numerous other factors, such as government
regulatory action and changes in tax laws, could have a significant impact on
the future market price of the Common Stock or other Securities.
THE OFFERING
Securities Offered..... 413,223 shares of Common Stock
Trading................ The Common Stock has been approved for listing on the
New York Stock Exchange under the symbol "BYA."
CONCURRENT OFFERINGS OF STOCK
Concurrently with the Offering of 413,223 shares of Common Stock pursuant
to this Prospectus Supplement, the Company is offering 405,022 shares of its
Series B Preferred Stock, $.01 par value per share (the "Series B Preferred
Stock") in an underwritten offering. In addition, the Company is offering
1,248,191 shares of Common Stock in an offering directly by the Company to a
number of institutional investors. No assurances can be given that any or all of
the shares of Series B Preferred Stock or Common Stock offered in the concurrent
offerings will be sold.
The Series B Preferred Stock will pay a preferred annual dividend at an
initial annual rate equal to $1.648 per share, subject to adjustment as
necessary to ensure that at all times the dividend rate is equal to 103% of the
annual dividend rate on the Common Stock for the corresponding period. The
Series B Preferred Stock will rank on a pari passu basis with the Company's
Series A Preferred Stock and in priority to the Common Stock with respect to
dividend rights. The Series B Preferred Stock is convertible at the holder's
option into an equal number of shares of Common Stock at any time after October
2, 1998, or sooner if certain events occur, and will be subject to mandatory
conversion into Common Stock on October 2, 2005. The Series B Preferred Stock is
generally not entitled to vote on matters submitted to the stockholders for a
vote, except with respect to certain matters that adversely affect the rights
and preferences of the Series B Preferred Stock or in the event that the Company
fails to pay dividends on the Series B Preferred Stock for six fiscal quarters.
A complete description of the Series B Preferred Stock is set forth in the
Articles Supplementary (Series B Preferred Stock) to the Company's Charter, a
copy of which will be provided by the Company upon request.
S-5
<PAGE> 6
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 413,223 shares of
Common Stock pursuant to this Prospectus Supplement are estimated at
approximately $9,871,691. The Company presently intends to use the net cash
proceeds of the Offering and the net proceeds of the concurrent offerings of
1,248,191 shares of Common Stock and 405,022 shares of Series B Preferred Stock
(estimated at approximately $39,755,322) to repay outstanding indebtedness,
acquire and develop additional properties, and for general corporate purposes.
UNDERWRITING
Subject to the terms and conditions in the Stock Purchase Agreement dated
the date hereof (the "Stock Purchase Agreement"), the Company has agreed to sell
to PaineWebber Incorporated (the "Underwriter") 413,223 shares of Common Stock
and 405,022 shares of Series B Preferred Stock. Under the terms and conditions
of the Stock Purchase Agreement, the Underwriter will be obligated to purchase
all of the shares of Common Stock and Series B Preferred Stock if any are
purchased.
The Underwriter has advised the Company that it proposes initially to
offer the shares of Common Stock directly to the public at the public offering
price set forth on the cover page of this Prospectus Supplement.
In addition the Company has agreed to pay the Underwriter a finder's fee
for services in connection with the placement of the additional 1,248,191 shares
of the Company's Common Stock being offered concurrently with the Common Stock
to be sold pursuant to this Prospectus Supplement (the "Direct Placement"). The
Underwriter will be paid a fee equal to $.44 per share for each share of Common
Stock sold in connection with the Direct Placement. The Underwriter will not be
obligated to purchase any shares of Common Stock in connection with the Direct
Placement.
The Company has agreed to indemnify the Underwriter against certain civil
liabilities in connection with the Offering and the concurrent offerings,
including liabilities under the Securities Act of 1933, as amended, or to
contribute to payments the Underwriter may be required to make in respect
thereof.
LEGAL MATTERS
Certain legal matters, including the legality of the Common Stock, will be
passed upon for the Company by Goodwin, Procter & Hoar LLP, Boston,
Massachusetts, and for PaineWebber Incorporated by O'Melveny & Meyers, San
Franciso, California.
S-6
<PAGE> 7
PROSPECTUS
- ----------
$200,000,000
BAY APARTMENT COMMUNITIES, INC.
PREFERRED STOCK
COMMON STOCK
----------
Bay Apartment Communities, Inc. ("Bay" or the "Company") may offer from
time to time in one or more series (i) shares of preferred stock, $.01 par value
per share ("Preferred Stock") and (ii) shares of common stock, $.01 par value
per share ("Common Stock"), with an aggregate public offering price of up to
$200,000,000 in amounts, at prices and on terms to be determined at the time of
offering. The Preferred Stock and Common Stock (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 Preferred Stock, the specific
designation and stated value per share, any dividend, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price and
(iii) in the case of Common Stock, any initial public offering price. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Securities, in each case as may be
consistent with the Company's Articles of Incorporation 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 Capital
Stock."
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 May 6, 1996.
<PAGE> 8
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC" or "Commission") a Registration Statement on Form S-3 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 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 Stock is 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 previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus:
(i) Annual Report on Form 10-K for the fiscal year ended December 31, 1994, (ii)
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1995, (iii)
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995, (iv)
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1995,
(v) Annual Report on Form 10-K for the fiscal year ended December 31, 1995, (vi)
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996, (vii)
Current Report on Form 8-K dated September 15, 1995 and (viii) the description
of the Company's Common Stock contained in the Company's Registration Statement
on Form 8-A dated December 7, 1993.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of all Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. The Company will provide, without charge, to
each person, including any beneficial owner, to whom a copy of this Prospectus
is delivered, at the request of such person, a copy of any or all of the
documents incorporated herein by reference (other than exhibits thereto, unless
such exhibits are specifically incorporated by reference into such documents).
Written requests for such copies should be directed to Ronald Mukai, acting
Chief Financial Officer, Bay Apartment Communities, Inc., 4340 Stevens Creek
Blvd., Suite 275, San Jose, California 95129, telephone (408) 983-1500.
Any statement contained herein or in a document incorporated or deemed to
be incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in an applicable Prospectus Supplement) or in any subsequently filed
document that is incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part of this Prospectus or any Prospectus Supplement, except as so
modified or superseded.
2
<PAGE> 9
THE COMPANY
The Company has engaged in apartment community development, construction,
acquisition, refurbishing, marketing, leasing and management for over 17 years
and is one of the most experienced developers and operators of upscale apartment
communities in the San Francisco Bay area. As a self-administered and
self-managed REIT, the Company owns, or holds substantially all of the ownership
interests in, and manages 25 apartment communities (the "Communities")
containing approximately 6,450 apartment homes, in the San Francisco Bay area
and Northern California.
The Company is a fully-integrated real estate organization with in-house
development, construction, acquisition, refurbishing, financing, marketing,
leasing and management expertise. This in-house expertise has allowed the
Company to maintain its reputation for developing and constructing apartment
communities on time and on budget. With its experience and in-house
capabilities, the Company is well-positioned to continue to take advantage of
the strong demand for upscale apartment homes and the development and
acquisition opportunities presented by the current economic conditions in
Northern California. The Company has elected to qualify as a REIT for Federal
income tax purposes commencing with the year ended December 31, 1994. The
Company pays regular quarterly dividends to its shareholders
The Company was incorporated under the laws of the State of California in
1978 and reincorporated under the laws of the State of Maryland, pursuant to a
reincorporation merger, in July 1995. Its executive offices are located at 4340
Stevens Creek Boulevard, Suite 275, San Jose, California 95129, and
its telephone number is (408) 983-1500.
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, which may include the acquisition of additional properties,
the repayment of outstanding debt or the improvement of certain properties
already in the Company's portfolio.
3
<PAGE> 10
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
The following table sets forth the Company's consolidated ratios of
earnings to combined fixed charges and preferred stock dividends for the periods
shown:
<CAPTION>
Year Ended March 17- January 1- Year Ended December 31,
December 31, December 31,March 16, ------------------------------
1995 1994 1994(1) 1993(1) 1992(1) 1991(1) 1990(1)
---- ---- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio....... 1.26x 1.76x .71x .96x .71x .68x .71x
- ----------
<FN>
(1) Ratios for the period January 1 - March 16, 1994 and the years ended 1993,
1992, 1991 and 1990 reflect periods prior to the recapitalization and
initial public offering of the Company on March 17, 1994. The earnings for
these periods were inadequate to cover fixed charges as follows:
Period January 1 - March 16, 1994 $ 716,000
Year ended December 31, 1993 447,000
Year ended December 31, 1992 3,916,000
Year ended December 31, 1991 3,969,000
Year ended December 31, 1990 3,336,000
</TABLE>
The ratios of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, earnings consist of pre-tax income from
continuing operations plus fixed charges. Fixed charges consist of interest
expense, capitalized interest and the amortization of debt issuance costs. The
Company issued 2,308,800 shares of Series A Preferred Stock on October 2, 1995.
DESCRIPTION OF PREFERRED STOCK
The description of the Company's preferred stock, par value $.01 per share
("Preferred Stock"), set forth below does not purport to be complete and is
qualified in its entirety by reference to the Company's Articles of
Incorporation (the "Articles of Incorporation") and Bylaws (the "Bylaws").
GENERAL
Under the Company's Articles of Incorporation, the Company has authority
to issue twenty-five (25) million shares of Preferred Stock, of which 2,308,800
shares have been designated Series A Preferred Stock and are currently
outstanding. Shares of Preferred Stock may be issued from time to time, in one
or more series, as authorized by the Board of Directors of the Company. Prior to
issuance of shares of each series, the Board of Directors is required by the
Maryland General Corporation Law, as amended (the "MGCL"), and the Company's
Articles of Incorporation to fix for each series, subject to the provisions of
the Company's Articles of Incorporation regarding excess stock, $.01 par value
per share ("Excess Stock"), 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 Stock will, when issued, be fully paid and
nonassessable and will have no preemptive rights. The Board of Directors could
authorize the issuance of shares of Preferred Stock with terms and conditions
that could have the effect of discouraging a takeover or other transaction that
holders of Common Stock might believe to be in their best interests or in which
holders of some, or a majority, of the shares of Common Stock might receive a
premium for their shares over the then market price of such shares of Common
Stock.
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TERMS
The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation and Bylaws and
any applicable amendment to the Articles of Incorporation designating terms of a
series of Preferred Stock (a "Designating Amendment").
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such
Preferred Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) The provision for a sinking fund, if any, for such Preferred Stock;
(7) The provision for redemption, if applicable, of such Preferred
Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock, including the
conversion price (or manner of calculation thereof);
(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(11) A discussion of federal income tax considerations applicable to
such Preferred Stock;
(12) The relative ranking and preference of such Preferred Stock 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 Stock ranking
senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding
up of the affairs of the Company; 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
Stock 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 Stock of the Company, and to all equity securities ranking
junior to such Preferred Stock 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 Stock with
respect to dividend rights or rights upon
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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 Stock 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 Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of assets
of the Company legally available for payment, cash dividends at such rates 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 Directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are non-cumulative, then the holders of such
series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for such payment on the Preferred Stock of such series. When
dividends are not paid in full (or a sum sufficient for such full payment is not
so set apart) upon Preferred Stock of any series and the shares of any other
series of Preferred Stock ranking on a parity as to dividends with the Preferred
Stock of such series, all dividends declared upon Preferred Stock of such series
and any other series of Preferred Stock ranking on a parity as to dividends with
such Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Stock of such series (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend) and such
other series of Preferred Stock 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 Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for payment for the then current dividend
period, no dividends (other than in shares of Common Stock or other shares of
capital stock ranking junior to the Preferred Stock 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
Stock, or any other capital stock of the Company ranking junior to or on a
parity with the Preferred Stock of such series as to dividends or upon
liquidation, nor shall any shares of Common Stock, or any other shares of
capital stock of the Company ranking junior to or on a parity with the Preferred
Stock of such series as to dividends or upon liquidation be redeemed, purchased
or otherwise acquired for any
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consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any such shares) by the Company (except by conversion into or
exchange for other capital stock of the Company ranking junior to the Preferred
Stock of such series as to dividends and upon liquidation).
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred
Stock will be subject to mandatory redemption or redemption at the option of the
Company, 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 Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of shares of capital stock of the Company, the terms of
such Preferred Stock may provide that, if no such shares of capital stock shall
have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Stock shall automatically and mandatorily be converted into the
applicable shares of capital stock of the Company pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if a series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of such
series of Preferred Stock 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 Stock does not have a cumulative dividend, full
dividends on all shares of the Preferred Stock of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for the then current dividend period, no
shares of such series of Preferred Stock shall be redeemed unless all
outstanding shares of Preferred Stock of such series are simultaneously
redeemed; provided, however, that the foregoing shall not prevent the purchase
or acquisition of Preferred Stock of such series to preserve the REIT status of
the Company or pursuant to a purchase or exchange offer made on the same terms
to holders of all outstanding shares of Preferred Stock of such series. In
addition, unless (i) if such series of Preferred Stock has a cumulative
dividend, full cumulative dividends on all outstanding shares of such series of
Preferred Stock have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, and (ii) if such series
of Preferred Stock does not have a cumulative dividend, full dividends on the
Preferred stock of such series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, the Company shall not purchase or
otherwise acquire directly or indirectly any shares of Preferred Stock of such
series (except by conversion into or exchange for capital shares of the Company
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation); provided, however, that the foregoing shall not prevent the
purchase or acquisition of shares of Preferred Stock of such series to preserve
the REIT status of the Company or pursuant to a purchase or exchange offer made
on the same terms to holders of all outstanding shares of Preferred Stock of
such series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
or for which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares) or by any other equitable manner determined by
the Company.
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Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption 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 shares of Preferred Stock of any series are to
be redeemed, the notice mailed to each such holder thereof shall also specify
the number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any Preferred Stock 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 Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Stock, 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 Stock or any other class or series of capital
stock of the Company ranking junior to the Preferred Stock in the distribution
of assets upon any liquidation, dissolution or winding up of the Company, the
holders of each series of Preferred Stock shall be entitled to receive out of
assets of the Company legally available for distribution to stockholders
liquidating distributions in the amount of the liquidation preference per share,
if 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 Stock will have no right or
claim to any of the remaining assets of the Company. In the event that, upon any
such voluntary or involuntary liquidation, dissolution or winding up, the
available assets of the Company are insufficient to pay the amount of the
liquidating distributions on all outstanding shares of Preferred Stock and the
corresponding amounts payable on all shares of other classes or series of
capital stock of the Company ranking on a parity with the Preferred Stock in the
distribution of assets, then the holders of the Preferred Stock and all other
such classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders
of Preferred Stock, the remaining assets of the Company shall be distributed
among the holders of any other classes or series of capital stock ranking junior
to the Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Stock, so long as
any shares of Preferred Stock 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 shares of such series of Preferred Stock outstanding at the
time, given in person or by proxy, either in writing or at a meeting (such
series voting separately as a class), (i) authorize or create, or increase the
authorized or issued amount of, any class or series of capital stock ranking
prior to such series of Preferred Stock with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized capital stock of the Company into such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii) amend, alter or repeal
the provisions of the Company's Articles of Incorporation or the Designating
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Amendment for such series of Preferred Stock, 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 Stock or the
holders thereof; provided, however, with respect to the occurrence of any of the
Events set forth in (ii) above, so long as the Preferred Stock remains
outstanding with the terms thereof materially unchanged, taking into account
that upon the occurrence of an Event the Company may not be the surviving
entity, the occurrence of any such Event shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting power of holders
of Preferred Stock, and provided further that (x) any increase in the amount of
the authorized Preferred Stock or the creation or issuance of any other series
of Preferred Stock, or (y) any increase in the amount of authorized shares of
such series or any other series of Preferred Stock, in each case ranking on a
parity with or junior to the Preferred Stock of such series with respect to
payment of dividends or the distribution of assets upon liquidation, dissolution
or winding up, 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 Stock shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of shares of
Common Stock into which the shares of Preferred Stock are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such series of Preferred Stock.
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
capital stock 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 Stock of the Company. Therefore, the Designating Amendment for each
series of Preferred Stock may contain provisions restricting the ownership and
transfer of the Preferred Stock. The applicable Prospectus Supplement will
specify any additional ownership limitation relating to a series of Preferred
Stock. See "Restrictions on Transfers of Capital Stock."
TRANSFER AGENT
The transfer agent and registrar for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
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DESCRIPTION OF COMMON STOCK
The description of the Company's Common Stock set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Articles of Incorporation and Bylaws.
GENERAL
Under the Articles of Incorporation, the Company has authority to issue 40
million shares of Common Stock, par value $.01 per share. Under Maryland law,
stockholders generally are not responsible for the Company's debts or
obligations. The Company currently has outstanding 11,559,887 shares of Common
Stock. The Common Stock is listed on the New York Stock Exchange under the
symbol "BYA."
TERMS
Subject to the preferential rights of any other shares or series of stock
and to the provisions of the Company's Articles of Incorporation regarding
Excess Stock, holders of shares of Common Stock will be entitled to receive
dividends on shares of Common Stock if, as and when authorized and declared by
the Board of Directors of the Company out of assets legally available therefor
and to share ratably in the assets of the Company legally available for
distribution to its stockholders in the event of its liquidation, dissolution or
winding-up after payment of, or adequate provision for, all known debts and
liabilities of the Company.
Subject to the provisions of the Company's Articles of Incorporation
regarding Excess Stock, each outstanding share of Common Stock entitles the
holder to one vote on all matters submitted to a vote of stockholders, including
the election of Directors and, except as otherwise required by law or except as
provided with respect to any other class or series of stock, the holders of
Common Stock will possess the exclusive voting power. There is no cumulative
voting in the election of Directors, which means that the holders of a majority
of the outstanding shares of Common Stock can elect all of the Directors then
standing for election, and the holders of the remaining shares of Common Stock
will not be able to elect any Directors.
Holders of Common Stock have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of the Company.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and quarterly reports for the
first three quarters of each fiscal year containing unaudited financial
information.
Subject to the provisions of the Company's Articles of Incorporation
regarding Excess Stock, all shares of Common Stock will have equal dividend,
distribution, liquidation and other rights, and will have no preference,
appraisal or exchange rights.
Pursuant to the MGCL, a corporation generally cannot dissolve, amend its
Articles of Incorporation, merge, sell all or substantially all of its assets,
engage in a share exchange or engage in similar transactions outside the
ordinary course of business unless approved by the affirmative vote of
stockholders holding at least two-thirds of the shares entitled to vote on the
matter unless a lesser percentage is set forth in the Company's Articles of
Incorporation. The Company's Articles of Incorporation do not provide for a
lesser percentage in such situations.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding capital stock 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 Capital Stock."
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TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company of New York, New York.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK
For the Company to qualify as a REIT under the Code, among other things,
not more than 50% in value of its outstanding capital stock 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, and such
capital stock must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a proportionate part of a
shorter taxable year (in each case, other than the first such year). To ensure
that the Company remains a qualified REIT, the Articles of Incorporation,
subject to certain exceptions, provide that no holder may own, or be deemed to
own by virtue of the attribution provisions of the Code, more than nine percent
(9%) (the "Ownership Limit") of the Company's capital stock. The Board of
Directors may waive the Ownership Limit if evidence satisfactory to the Board of
Directors and the Company's tax counsel is presented that the changes in
ownership will not then or in the future jeopardize the Company's status as a
REIT. Any transfer of capital stock or any security convertible into capital
stock that would create a direct or indirect ownership of capital stock 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 capital stock
being owned by fewer than 100 persons or 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 capital stock. The
foregoing restrictions on transferability and ownership will not apply if the
Board of Directors 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.
Capital stock owned, or deemed to be owned, or transferred to a
stockholder in excess of the Ownership Limit will automatically be exchanged for
shares of Excess Stock 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 capital stock may be ultimately transferred without violating the
Ownership Limit. While the Excess Stock is held in trust, it will not be
entitled to vote, it will not be considered for purposes of any stockholder vote
or the determination of a quorum for such vote and, except upon liquidation, it
will not be entitled to participate in dividends or other distributions. Any
dividend or distribution paid to a proposed transferee of Excess Stock prior to
the discovery by the Company that capital stock has been transferred in
violation of the provisions of the Company's Articles of Incorporation shall be
repaid to the Company upon demand. The Excess Stock is not treasury stock, but
rather constitutes a separate class of issued and outstanding stock of the
Company. The original transferee-stockholder may, at any time the Excess Stock
is held by the Company in trust, transfer the interest in the trust representing
the Excess Stock to any individual whose ownership of the capital stock
exchanged into such Excess Stock would be permitted under the Ownership Limit,
at a price not in excess of the price paid by the original
transferee-stockholder for the capital stock that was exchanged in Excess Stock.
Immediately upon the transfer to the permitted transferee, the Excess Stock will
automatically be exchanged for capital stock of the class from which it was
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 Stock may be deemed, at the option of the
Company, to have acted as an agent on behalf of the Company in acquiring the
Excess Stock and to hold the Excess Stock 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 Stock is held by
the Company in trust, to purchase all or any portion of the Excess Stock from
the original transferee-stockholder for the lesser of the price paid for the
capital stock by the original transferee-stockholder or the market price (as
determined in the manner set forth in the Articles of Incorporation) of the
capital stock on the date the Company exercises its option to purchase. The
90-day period begins on the date on which the Company receives written notice of
the transfer or other event resulting in the exchange of capital stock for
Excess Stock.
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Each stockholder 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 Directors 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 Directors determines that maintenance
of REIT status is no longer in the best interests of the Company.
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
purchasers, through agents or through any combination of these methods of sale.
Direct sale to investors may be accomplished through subscription rights
distributed to the Company's stockholders on a pro-rata basis. In connection
with any distribution of subscription rights to stockholders, 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).
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 Stock which is listed on the NYSE. Any shares of Common
Stock 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 Preferred Stock 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 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.
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Each Contract will be for an amount not less than, and the aggregate principal
amount 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 the 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
Contracts. 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.
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, and for PaineWebber Incorporated by O'Melveny & Meyers, San
Francisco, California.
EXPERTS
The financial statements and schedule thereto incorporated by reference in
this Prospectus or elsewhere in the Registration Statement, to the extent and
for the periods indicated in their report have been audited by Coopers & Lybrand
L.L.P., independent accountants, and are incorporated herein in reliance upon
the authority of said firm as experts in giving said reports.
13
<PAGE> 20
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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 it relates. 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.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Risk Factors .................................................... S-2
The Offering .................................................... S-5
Concurrent Offering of Common Stock ............................. S-5
Use of Proceeds ................................................. S-6
Underwriting .................................................... S-6
Legal Matters ................................................... S-6
PROSPECTUS
Available Information ........................................... 2
Incorporation of Certain Documents by Reference ................. 2
The Company ..................................................... 3
Use of Proceeds ................................................. 3
Ratios of Earnings to Fixed Charges ............................. 4
Description of Preferred Stock .................................. 4
Description of Common Stock ..................................... 10
Restrictions on Transfers of Capital Stock ...................... 11
Plan of Distribution ............................................ 12
Legal Matters ................................................... 13
Experts ......................................................... 13
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413,223 SHARES
BAY APARTMENT
COMMUNITIES, INC.
COMMON STOCK
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PROSPECTUS SUPPLEMENT
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PAINEWEBBER INCORPORATED
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May 6, 1996
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