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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 4, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
(Exact name of registrant as specified in its governing instrument)
<TABLE>
<S> <C>
MARYLAND 54-1681655
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
</TABLE>
2345 CRYSTAL DRIVE
CRYSTAL CITY, ARLINGTON, VIRGINIA 22202
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------
ERNEST A. GERARDI, JR.
PRESIDENT
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
2345 CRYSTAL DRIVE
CRYSTAL CITY, ARLINGTON, VIRGINIA 22202
(703) 920-8500
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
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COPIES TO:
J. WARREN GORRELL, JR., ESQ.
BRUCE W. GILCHRIST, ESQ.
HOGAN & HARTSON L.L.P.
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004-1109
(202) 637-5600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
possible after the effective date of this Registration Statement and from time
to time thereafter as determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, please check the following box. /x/
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1)(2)(3) SECURITY PRICE (2)(4) REGISTRATION FEE(5)
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<S> <C> <C> <C> <C>
Debt Securities.........................
Preferred Stock (6).....................
Common Stock (7)........................ $250,000,000 (9) $250,000,000 $75,758
Common Stock Warrants...................
Depositary Shares, representing
Preferred Stock (8).....................
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(Footnotes on the following page)
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE
PROSPECTUS WHICH CONSTITUTES PART OF THIS REGISTRATION STATEMENT ALSO RELATES
TO AND INCLUDES AN AGGREGATE PRINCIPAL AMOUNT OF $111,895,625 OF SECURITIES
REGISTERED ON FORM S-3, REGISTRATION NO. 333-340.
<PAGE>
(Footnotes continued from previous page)
(1) This Registration Statement also covers delayed delivery contracts which
may be issued by the Registrant under which the counterparty may be
required to purchase Debt Securities, Preferred Stock, Common Stock,
Common Stock Warrants or Depositary Shares. Such contracts may be issued
together with the specific Securities to which they relate. In addition,
Securities registered hereunder may be sold separately, together or as
units with other Securities registered hereunder.
(2) In U.S. Dollars or the equivalent thereof denominated in one or more
foreign currencies or units of two or more foreign currencies or
composite currencies (such as European Currency Units).
(3) Pursuant to Rule 429 under the Securities Act of 1933, as amended, the
Prospectus included in this Registration Statement relates also to
$111,895,625 of Securities registered on Form S-3 Registration No.
333-340 and unissued as of the date hereof.
(4) Estimated solely for purposes of calculating the registration fee. No
separate consideration will be received for shares of Common Stock or
Preferred Stock that are issued upon conversion of Debt Securities,
Preferred Stock or Depositary Shares, or upon exercise of Common Stock
Warrants registered hereunder, as the case may be. The aggregate maximum
offering price of all Securities issued pursuant to this Registration
Statement will not exceed $250,000,000 (does not include $111,895,625
registered on Form S-3, Registration No. 333-340).
(5) The registration fee has been calculated in accordance with Rule 457(o)
under the Securities Act of 1933, as amended.
(6) Such indeterminate number of shares of Preferred Stock as may from time
to time be issued at indeterminate prices or issuable upon conversion of
Debt Securities.
(7) Such indeterminate number of shares of Common Stock as may from time to
time be issued at indeterminate prices or issuable upon conversion of
Debt Securities, Preferred Stock or Depositary Shares registered
hereunder or upon exercise of Common Stock Warrants registered hereunder,
as the case may be.
(8) To be represented by Depositary Receipts representing an interest in all
or a specified portion of a share of Preferred Stock.
(9) Omitted pursuant to General Instruction II.D of Form S-3 under the
Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
PROSPECTUS
Subject to Completion
Preliminary Prospectus dated November 4, 1997
$361,895,625
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
Debt Securities, Preferred Stock, Depositary Shares, Common Stock and Common
Stock Warrants
_________________
Charles E. Smith Residential Realty, Inc. (the "Company") may from time to
time offer in one or more series (i) unsecured debt securities ("Debt
Securities"), (ii) shares of preferred stock ("Preferred Stock"), (iii) shares
of Preferred Stock represented by depositary shares ("Depositary Shares"), (iv)
shares of common stock, $.01 par value per share ("Common Stock"), and (v)
warrants exercisable for Common Stock ("Common Stock Warrants"), with an
aggregate public offering price of up to $361,895,625 (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 Stock,
Depositary Shares, Common Stock and Common Stock Warrants (collectively, the
"Securities") may be offered, separately or together, in separate series in
amounts, at prices and on terms to be described in one or more supplements to
this Prospectus (a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, currency, form (which may be registered or
bearer, or certificated or global), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, any terms for
redemption at the option of the Company or repayment at the option of the
holder, any terms for any sinking fund payments, any terms for conversion into
Preferred Stock or Common Stock of the Company, covenants and any initial public
offering price; (ii) in the case of Preferred Stock, the specific title and
stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and any initial public offering price; (iii) in the case of
Depositary Shares, the fractional share of Preferred Stock represented by each
such Depositary Share, (iv) in the case of Common Stock, any initial public
offering price; and (v) in the case of Common Stock Warrants, the specific title
and aggregate number, and the issue price and the exercise price. In addition,
such specific terms may include limitations on direct or beneficial ownership
and restrictions on transfer of the Securities, in each case as may be
appropriate to preserve the status of the Company as a real estate investment
trust for federal income tax purposes.
The applicable Prospectus Supplement also will contain information, where
applicable, about certain U.S. federal income tax considerations relating to,
and any listing on a securities exchange of, the Securities covered by such
Prospectus Supplement.
The Securities may be offered directly, 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 with,
between or among them, will be set forth, or will be calculable from the
information set forth, in an accompanying Prospectus Supplement. See "Plan of
Distribution." No Securities may be sold without delivery of a Prospectus
Supplement describing the method and terms of the offering of such Securities.
See "Risk Factors" beginning on page 2 for a discussion of certain factors
relating to an investment in the Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
The date of this Prospectus is ________, 1997
<PAGE>
THE COMPANY
GENERAL
The Company is a self-administered and self-managed equity real estate
investment trust ("REIT") that is engaged primarily in the acquisition,
development, management and operation of multifamily properties in the
Washington, D.C. metropolitan area. The Company, together with its subsidiaries,
is a fully integrated real estate company with in-house acquisition,
development, financing, marketing and property management and leasing expertise.
The Company's primary strategy for growth is to acquire, develop, own and manage
high quality multifamily properties for long-term income generation and value
appreciation.
The Company is the sole general partner and owned approximately 50% of the
units of limited partnership interest ("Units") in Charles E. Smith Residential
Realty L.P. (the "Operating Partnership") as of September 30, 1997. The other
limited partners of the Operating Partnership are the former limited and general
partners of partnerships that owned the properties, and the former owners of
certain property service businesses, acquired by the Operating Partnership at
the time of its formation in June 1994 or thereafter. All of the Company's
properties, property interests, and business assets are owned by, and its
operations conducted through, the Operating Partnership and its subsidiaries. In
addition, the Operating Partnership owns 100% of the nonvoting common stock,
which represents 99% of the total economic interest, of three operating
companies (collectively, the "Property Service Businesses") which provide
management and leasing services, engineering and technical services and interior
construction and renovation services to the properties owned by the Operating
Partnership and to other multifamily, retail, and office properties. As of
October 10, 1997, the Company, through the Operating Partnership, owned 47
multifamily apartment communities containing a total of 18,236 units (the
"Multifamily Properties"), two retail centers containing approximately 436,000
square feet of retail space (the "Retail Properties", and together with the
Multifamily Properties, the "Properties"), a substantial majority of which
are located in the Washington, D.C. metropolitan area. The Company also
manages over 4,000 additional apartment units for other owners.
The Company's executive offices are located at 2345 Crystal Drive, Crystal
City, Arlington, Virginia 22202, and its telephone number is (703) 920-8500. The
Company is a Maryland corporation formed in 1993, and completed its initial
public offering on June 30, 1994. The Operating Partnership is a Delaware
limited partnership formed in 1993; it commenced business operations on June 30,
1994.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below.
REAL ESTATE INVESTMENT RISKS
GENERAL. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate and the
Company's ability to service debt will depend in large part on the amount of
income generated, expenses incurred and capital expenditures required. The
Company's income from multifamily or retail properties may be adversely
affected by a number of factors, including the general economic climate and
local real estate conditions, such as an oversupply of, or a reduction in
demand, for apartment or retail space in the area and the attractiveness of
the properties to residents and shoppers. In addition, income from properties
and real estate values also are affected by such factors as the cost of
compliance with government regulation, including zoning and tax laws, the
potential for liability under applicable laws, interest rate levels and the
availability of financing. Certain significant expenditures associated with
each equity investment by the Company in a property (such as mortgage
payments, if any, real estate taxes and maintenance costs) also are generally
not reduced when circumstances cause a reduction in income from the property.
DEBT FINANCING. The Company is subject to the risks associated with debt
financing, including the risk that the Company's cash provided by operating
activities will be insufficient to meet required payments of principal and
interest, the risks of rising interest rates on the Company's floating rate
debt, the risk that the Company will not be
2
<PAGE>
able to prepay or refinance existing indebtedness on the Properties (which
generally will not have been fully amortized at maturity) or that the terms
of such refinancing will not be as favorable as the terms of existing
indebtedness. In the event the Company is unable to secure refinancing of
such indebtedness on acceptable terms, the Company might be forced to dispose
of properties upon disadvantageous terms, which might result in losses to the
Company and might adversely affect the cash flow available for distribution
to equity holders or debt service. In addition, if a property or properties
are mortgaged to secure payment of indebtedness and the Company is unable to
meet mortgage payments, the mortgage securing the property could be
foreclosed upon by, or the property could be otherwise transferred to, the
mortgagee with a consequent loss of income and asset value to the Company.
RENEWAL OF LEASES AND RELETTING OF SPACE AT RETAIL PROPERTIES. The Company
is subject to the risks that upon expiration of leases for space located at
Retail Properties, the leases may not be renewed, the space may not be relet or
the terms of the renewal or reletting (including the cost of required
renovations or concessions to tenants) may be less favorable than current lease
terms. Although the Company has established an annual budget for renovation and
reletting expenses that it believes are reasonable in light of each Retail
Property's situation, no assurance can be given that this budget will be
sufficient to cover these expenses. If the Company is unable to promptly relet
or renew leases for all or substantially all of the space at its Retail
Properties, if the rental rates upon such renewal or reletting are significantly
lower than expected, or if the Company's reserves for these purposes prove
inadequate, then the Company's cash provided by operating activities and ability
to make expected distributions to shareholders or debt service payments could be
adversely affected.
DEPENDENCE ON THE WASHINGTON, D.C. METROPOLITAN AREA MARKET. A
substantial majority of the Properties are located in the Washington, D.C.
metropolitan area market. While the Company may pursue acquisitions and
development in other markets, a decline in the economy or rental activities
in this market may adversely affect the ability of the Company to make
distributions to its shareholders.
POSSIBLE ENVIRONMENTAL LIABILITIES. Under various Federal, state and
local laws, ordinances and regulations, a current or previous owner or
operator of real estate may be required to investigate and clean up certain
hazardous substances released at the property, and may be held liable to a
governmental entity or to third parties for property damage and for
investigation and cleanup costs incurred by such parties in connection with
the contamination. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs it incurs
in connection with the contamination. The presence of contamination or the
failure to remediate contamination may adversely affect the owner's ability
to sell or lease real estate or to borrow using the real estate as
collateral. The owner or operator of a site may be liable under common law to
third parties for damages and injuries resulting from environmental
contamination emanating from the site. The Company has not been notified by
any governmental authority of any material non-compliance, liability or other
claim in connection with any of the Properties and the Company is not aware
of any other material environmental condition with respect to any of the
Properties. No assurance, however, can be given that no prior owner created
any material environmental condition not known to the Company, that no
material environmental condition with respect to any Property has occurred
during the Company's ownership thereof, or that future uses or conditions
(including, without limitation, changes in applicable environmental laws and
regulations) will not result in imposition of environmental liability.
RENT CONTROL LAWS. As of October 27, 1997, eleven of the Properties,
representing 3,712 units or 20.4% of the total apartment units owned by the
Company, which were built prior to 1976 and are located in the District of
Columbia, were subject to the District's rent control laws that potentially
restrict a property owner's ability to increase rents and to recover increases
in operating expenses and the costs of capital improvements. Although these rent
control provisions currently allow the maximum rent "ceiling" to be increased
annually in response to several factors, recent legislative changes have limited
the Company's ability to take full advantage of the available "ceilings" in any
one year. Thus, no assurance can be given that the Company will be able to raise
rents under the new legislation to levels that reflect future market rates.
DISTRICT OF COLUMBIA TENANTS' RIGHTS. Under the District of Columbia Rental
Housing Conversion and Sale Act of 1980 (the "Conversion Act"), in the event of
a "sale" of a residential property in the District of Columbia, the tenants have
a right of first refusal to purchase the property as well as a right to match
offers made on the property
3
<PAGE>
by prospective purchasers. A transfer of all of the partnership interests of
a partnership that owns such property, or a transfer of all of the stock of a
corporation that owns such property, is considered to be a "sale" within the
meaning of the Conversion Act. Consequently, essentially all future
acquisitions and sales by the Company of residential properties located in
the District of Columbia will be subject to the rights of the tenants of such
properties to purchase the properties at the offered price. Such tenants'
rights may make it difficult for the Company to purchase or sell residential
properties located in the District of Columbia even if a purchase or sale
were in the interests of the Company's shareholders.
CONFLICTS OF INTEREST
Certain members of the Company's Board of Directors and officers
(including Robert H. Smith and Robert P. Kogod) own Units in the Operating
Partnership and, thus, may have interests that conflict with shareholders
with respect to business decisions affecting the Company and the Operating
Partnership. In particular, a holder of Units may suffer different and/or
more adverse tax consequences than the Company upon the sale or refinancing
of some of the Properties as a result of unrealized gain attributable to
certain Properties. These Unit holders and the Company, therefore, may have
different objectives regarding the appropriate pricing and timing of any sale
or refinancing of Properties. Although the Company, as the sole general
partner of the Partnership, has the exclusive authority as to whether and on
what terms to sell or refinance an individual Property, these Unit holders
might seek to influence the Company not to sell or refinance the Properties,
even though such sale might otherwise be financially advantageous to the
Company, or may seek to influence the Company to refinance a Property with a
higher level of debt than would be in the best interests of the Company.
Messrs. Smith and Kogod hold interests in certain companies that in the
past have performed property management, leasing, construction management,
insurance brokerage and other services with respect to the Properties. These
companies may perform similar services for the Company in the future. As a
result of their financial interest in these companies, Messrs. Smith and
Kogod may realize benefits from transactions between such companies and the
Company that are not realized by other shareholders of the Company. In
addition, Messrs. Smith and Kogod, as directors of the Company, may be in a
position to influence the Company to do business with companies in which they
have a financial interest. Also, Messrs. Smith and Kogod continue to hold
general and limited partnership interests in certain limited partnerships
that own multifamily and commercial properties that were not acquired by the
Company at the time the Company was formed and acquired its assets, which may
give rise to conflicts of interest concerning the fulfillment of their
responsibilities as officers and directors of the Company. Although the
Company has adopted certain policies designed to eliminate or minimize
potential conflicts of interest, including a policy which requires that
transactions in which a director or officer of the Company has a conflict of
interest be approved by a majority of the disinterested directors, there can
be no assurance that these policies will be successful in eliminating the
influence of such conflicts, or that such transactions, if any, will be on
terms as favorable to the Company as could be obtained in an arms-length
transaction with a third party.
DEVELOPMENT AND ACQUISITION RISKS
The Company intends to continue development of new multifamily and retail
properties (including expansions of existing Properties on the land adjacent to
those Properties) and to consider acquisitions of multifamily and retail
properties where it believes that such development or acquisition is consistent
with the business strategies of the Company. New project development is subject
to a number of risks, including construction delays or cost overruns that may
increase project costs, financing risks as described above, the failure to meet
anticipated occupancy or rent levels as and when expected, failure to receive
required zoning, occupancy and other governmental permits and authorizations and
changes in applicable zoning and land use laws, which may result in the
incurrence of development costs in connection with projects that are not pursued
to completion. In addition, because the Company must distribute 95% of its
taxable income (excluding any net capital gain) in order to maintain its
qualification as a REIT, the Company anticipates that new developments and
acquisitions will be financed primarily through lines of credit or other
forms of secured or unsecured construction financing. If permanent debt or
equity financing is not available on acceptable terms to refinance such new
developments or acquisitions are undertaken without permanent financing,
further development activities or acquisitions may be curtailed or cash
available for distribution to shareholders or to meet
4
<PAGE>
debt service obligations may be adversely affected. Acquisitions entail risks
that investments will fail to perform in accordance with expectations and
that judgments with respect to the costs of improvements to bring an acquired
property up to standards established for the market position intended for
that property will prove inaccurate, as well as general investment risks
associated with any new real estate investment. See "Real Estate Investment
Risks" above.
RISKS ASSOCIATED WITH LEVERAGE
The Company intends to fund acquisitions and development of properties
primarily through short-term borrowings, and also out of undistributed cash
flow from operating activities. The Company expects to finance or refinance
such properties on a longer term basis when market conditions are appropriate
either with long-term indebtedness or equity financing, depending upon the
economic conditions at the time of refinancing. The Company's debt-to-total
market capitalization ratio (i.e., the ratio of total indebtedness to the
market value of issued and outstanding Common Stock, shares of Preferred
Stock ("Preferred Stock") and Units plus total indebtedness) (the
"Debt-to-Total Market Capitalization Ratio") as of September 30, 1997 was
37.2%. The Company has adopted a policy of incurring debt (including debt
incurred under its line of credit) only if upon such incurrence the Company's
Debt-to-Total Market Capitalization Ratio would be 60% or less. The Company's
Articles of Incorporation, as amended (the "Charter"), however, do not
contain any limitation on the amount or percentage of indebtedness that the
Company may incur in the future. Accordingly, the Company could modify the
current policy at any time. If this policy were changed, the Company could
become more highly leveraged, resulting in an increase in debt service that,
in turn, could increase the Company's risk of default on its obligations and
adversely affect the Company's funds from operations and ability to make
expected distributions to its shareholders.
PROPERTY SERVICES RISKS; LACK OF VOTING CONTROL OVER PROPERTY SERVICE
BUSINESSES
The Company's Property Service Businesses will continue to be subject to
the risks associated with providing services to affiliated and unaffiliated
multifamily, retail and office properties. These risks include the risk that
management, leasing and other service contracts with property owners will be
lost to competitors; that such contracts will not be renewed upon expiration
or will not be renewed on terms consistent with current terms; that the
rental revenues upon which management fees are based will decline as a result
of general real estate market conditions or specific market factors affecting
properties managed by the Property Service Businesses, resulting in decreased
management fee income; that leasing and other service activity generally may
decline; and that the Property Service Businesses may not be retained to
provide certain property services that property owners are not obligated to
retain the Company to provide under existing contractual arrangements. Each
of these developments could adversely affect the ability of the Property
Service Businesses to make expected distributions to shareholders. In
addition, the restrictions applicable to REITs under the Code may limit the
Company's ability to expand its Property Service Businesses, and net income
from such businesses will be subject to corporate income tax.
The Company owns 100% of the nonvoting common stock, which represents 99% of
the equity, of each of the Property Service Businesses, which conduct the
Company's property services business for properties not owned by the Company.
The members of the boards of directors of the Property Service Businesses are
Messrs. Smith, Kogod and Ernest A. Gerardi, Jr., the Company's Chief Operating
Officer. Separate partnerships consisting of certain executives active in the
management of the Company and the Property Service Businesses and adult children
of Messrs. Smith and Kogod own 100% of the voting common stock, representing 1%
of the equity, of each Property Service Business. Therefore, such holders of the
voting stock have the ability to elect and remove all members of the boards of
directors of the Property Service Businesses. Although the Company's right to
receive distributions with respect to its nonvoting common stock cannot be
changed by the holders of the voting common stock, the Company is not able to
elect directors of the Property Service Businesses, and, therefore, it does not
have the right to control the day-to-day decisions of the Property Service
Businesses. As a result, decisions relating to the day-to-day operations of the
Property Service Businesses may not always reflect the interests of the Company
and all of its shareholders.
5
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CHANGES IN POLICIES
The major policies of the Company, including its policies with respect to
development, acquisitions, financing, growth, operations, debt capitalization
and distributions, are determined by its board of directors. Although it has
no present intention to do so, the board may amend or revise these and other
policies from time to time without a vote of the shareholders of the Company.
A change in these policies could adversely affect the Company's financial
condition, results of operations, funds available for distributions to
shareholders or debt service or the market price of the Securities. The
Company cannot change its policy of seeking to maintain its qualification as
a REIT without the approval of the holders of a majority of the Common Shares.
CERTAIN TAX RISKS
TAX LIABILITIES AS A CONSEQUENCE OF THE FAILURE TO QUALIFY AS A REIT. The
Company believes that it has operated so as to qualify as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"), commencing with its
taxable year ended December 31, 1994, and intends to continue to so operate.
No assurance, however, can be given that the Company has so qualified or will
be able to remain so qualified. Qualification as a REIT involves the
application of highly technical and complex Code provisions as to which there
are only limited judicial and administrative interpretations. Certain facts
and circumstances that may be wholly beyond the Company's control may affect
its ability to qualify or to continue to qualify as a REIT. In addition, no
assurance can be given that new legislation, Treasury Regulations,
administrative interpretations or court decisions will not significantly
change the tax laws with respect to the qualification as a REIT or the
Federal income consequences of such qualification to the Company. 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 would be disqualified from treatment as a
REIT for the four taxable years following the year during which qualification
is lost. The additional tax incurred in such event would significantly reduce
the cash flow available for distribution to shareholders and to meet debt
service obligations. See "Federal Income Tax Considerations--Taxation of the
Company."
REIT DISTRIBUTION REQUIREMENTS AND POTENTIAL IMPACT OF BORROWINGS. To
obtain the favorable tax treatment associated with qualifying as a REIT under
the Code, the Company generally is required each year to distribute to its
shareholders at least 95% of its net taxable income (excluding net capital
gains). See "Federal Income Tax Considerations--Requirements for
Qualification--Annual Distribution Requirements." The Company could be required
to borrow funds on a short-term basis to meet the distribution requirements that
are necessary to achieve the tax benefits associated with qualifying as a REIT,
even if management believed that then prevailing market conditions were not
generally favorable for such borrowings.
OTHER TAX LIABILITIES. Even if the Company qualifies as a REIT, the Company
- --through the Operating Partnership and the Property Services Businesses--will
be subject to certain Federal, state and local taxes on its income and property.
See "Federal Income Tax Considerations--Taxation of the Company and--Other Tax
Considerations."
PRICE FLUCTUATIONS OF THE COMMON SHARES AND TRADING VOLUME; SHARES AVAILABLE
FOR FUTURE SALE
A number of factors may adversely influence the price of the Company's
Common Stock in the public markets, many of which are beyond the control of the
Company. These factors include possible increases in market interest rates,
which may lead purchasers of Common Stock to demand a higher annual yield from
distributions by the Company in relation to the price paid for Common Stock, the
relatively low daily trading volume of REITs in general, including the Common
Stock and any inability of the Company to invest the proceeds of a future
offering of Securities in a manner that will increase earnings per share. Sales
of a substantial number of shares of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for shares.
As of October 7, 1997, the Company had outstanding 14,895,693 shares of Common
Stock, all of which are tradable without restriction under the Securities Act
(unless such shares are held by affiliates of the Company). As of October 7,
1997, the Company had outstanding 1,955,219 shares of preferred stock
("Preferred Shares"), 1,216,666 of which will become convertible (subject to the
satisfaction of other conditions) into Common Stock on January 1,
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1998. As of September 30, 1997, the Company had reserved for possible
issuance upon redemption of Units approximately 18.7 million additional
shares of Common Stock. 13,609,928 shares issuable upon any future redemption
of Units, or issuable under employee benefit plans (the "Plans"), will be
tradable without restriction under the Securities Act pursuant to the
Registration Statements on Form S-8 filed by the Company in August, 1994, on
Form S-3 filed by the Company in June 1995 and July 1996, respectively or the
Registration Statement of which this Prospectus is a part. As of October 7,
1997, an additional 14,895,693 Units were eligible to be redeemed for cash
or, at the Company's election, shares of Common Stock (such shares will be
restricted from sale in the public market unless registered under the
Securities Act). In addition, 1,000,000 shares have been reserved for
issuance under the Company's Dividend and Distribution Investment and Share
Purchase Plan, which plan was registered with the Commission on December 22,
1995. No prediction can be made about the effect that future sales of Common
Stock will have on the market prices of shares.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES
In order to maintain its qualification as a REIT, not more than 50% in
number or value of the outstanding capital stock of the Company may be owned,
directly or constructively under the applicable attribution rules of the
Code, by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year. In order to protect the
Company from the risk of losing its REIT status due to a concentration of
ownership among its shareholders, the Company has limited ownership of the
issued and outstanding shares of capital stock by any single shareholder to
9.8% of either (i) the outstanding Common Stock or (ii) the outstanding
capital stock of the Company (determined in each case taking into account
certain ownership attribution rules). The Board of Directors may waive the
percentage ownership limit for certain entities (but not individuals) if it
is satisfied 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 is in the best interests of the Company. The Board of Directors has
waived the percentage ownership in the case of a particular investment
adviser that holds approximately 13.148% of the Common Stock as the record
owner on behalf of other beneficial owners and in two instances of the
purchase by an accredited investor and the private placement of Preferred
and/or Common Stock. A transfer of shares of capital stock to a person who,
as a result of the transfer, violates the ownership limit will be void.
Shares of Common Stock acquired in breach of the limitation will be
automatically exchanged for shares of a separate class of stock not entitled
to vote or to participate in distributions ("Excess Stock"). In addition,
ownership, either directly or indirectly under the applicable attribution
rules of the Code, of stock in excess of the ownership limit generally will
result in the conversion of those shares into Excess Stock. The Company will
direct a holder of Excess Stock to sell such stock to the Company for the
lesser of the price paid or the average closing price for the five trading
days preceding the sale or to sell such stock to a person whose ownership of
the stock does not violate the ownership limit. See "Description of Common
Stock--Restrictions on Transfer; Excess Stock" for additional information
regarding the ownership limits.
RESTRICTIONS ON ACQUISITION AND CHANGE IN CONTROL
Various provisions of the Company's Charter restrict the possibility for
acquisition or change in control of the Company, even if such acquisition or
change in control were in the shareholders' interest, including the limit on the
percentage of shares of Common Stock that may be owned by any person, the
staggered terms of the Company's Directors and the ability of the board to issue
preferred stock.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the
Company intends to invest, contribute or otherwise transfer the net proceeds
of any sale of Securities to the Operating Partnership, the economic terms of
which will be substantially identical to the terms of the Securities sold.
The Operating Partnership would use such net proceeds for general business
purposes, including the development and acquisition of additional properties
and
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other acquisition transactions, the payment of certain outstanding debt and
improvements to certain properties in the Company's portfolio.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the nine months ended
September 30, 1997, and for the years ended December 31, 1996 and 1995 were
2.14, 1.91 and 1.97, respectively.
The ratios of earnings to fixed charges were computed by dividing
earnings by fixed charges. For this purpose, earnings consist of income
(loss) before gains from sales of property and extraordinary items plus fixed
charges. Fixed charges consist of interest expense, excluding amortization of
debt issuance costs. The ratios of earnings to combined fixed charges and
preferred stock dividends are unchanged from the ratios presented in this
section.
The Company completed its IPO in June 1994. Prior to such time, certain
of the predecessor entities operated in a highly leveraged manner. As a
result, although the Properties have historically generated positive net cash
flow, the combined financial statements of the predecessor entities show a
net loss for the six months ended June 30, 1994. Consequently, the
computation of the ratio of earnings to fixed charges for such period
indicates that earnings were insufficient to cover fixed charges by
approximately $10.7 million. For the fiscal years ended December 31, 1994 and
1993, the ratio of earnings to fixed charges of the Company's predecessor
entities, on a pro-forma basis, was 1.93 and 1.89, respectively.
The reorganization and recapitalization of the Company effected in
connection with the IPO permitted the Operating Partnership to deleverage the
Properties significantly, resulting in an improved ratio of earnings to fixed
charges for periods subsequent to the IPO.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the Debt Securities to which this Prospectus and any applicable Prospectus
Supplement may relate. The particular terms of the Debt Securities being offered
and the extent to which such general provisions may apply will be set forth in
the applicable Indenture or in one or more indentures supplemental thereto and
described in a Prospectus Supplement relating to such Debt Securities. The Forms
of the Senior Indenture (as defined herein) and the Subordinated Indenture (as
defined herein) have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.
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 (the "Indentures"). Senior Securities and Subordinated
Securities will be issued pursuant to separate indentures (respectively, a
"Senior Indenture" and a "Subordinated Indenture"), in each case between the
Company and a trustee (a "Trustee"). 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. All section references appearing herein are
to sections of each Indenture unless otherwise indicated and capitalized terms
used but not defined below shall have the respective meanings set forth in each
Indenture.
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."
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Except as set forth in the applicable Indenture or in one or more
indentures supplemental thereto and described in a Prospectus Supplement
relating thereto, the Debt Securities may be issued without limit as to
aggregate principal amount, in one or more series, in each case as
established from time to time in or pursuant to authority granted by a
resolution of the Board of Trustees of the Company or as established in the
applicable Indenture or 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 issuances
of additional Debt Securities of such series.
It is anticipated that each Indenture will provide that there may be more
than one Trustee thereunder, each with respect to one or more series of Debt
Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor Trustee may
be appointed to act with respect to such series. 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 Prospectus Supplement relating to any series of Debt Securities being
offered will contain the specific terms thereof, including, without
limitation:
(1) The title of such Debt Securities 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 percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
(4) If convertible in whole or in part into Common Stock or Preferred
Stock, the terms on which such Debt Securities are convertible,
including the initial conversion price or rate (or method for
determining the same), the portion that is convertible and the
conversion period, and any applicable limitations on the ownership or
transferability of the Common Stock or Preferred Stock receivable on
conversion;
(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 regular 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;
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(9) The period or periods within which, the price or prices at which and
the other terms and conditions upon which such Debt Securities may be
redeemed, in whole or in part, at the option of the Company, if the
Company is to have such an option;
(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 or the date and dates on which, the price or
prices at which and the other terms and conditions upon which such
Debt Securities will be redeemed, repaid or purchased, in whole or in
part, pursuant to such obligation;
(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) Any additions to, modifications of or deletions from the terms of such
Debt Securities with respect to Events of Default or covenants set
forth in the applicable Indenture;
(14) Whether such Debt Securities will be issued in certificate or
book-entry form;
(15) 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;
(16) The applicability, if any, of the defeasance and covenant defeasance
provisions of Article Fourteen of the applicable Indenture;
(17) Whether and under what circumstances the Company will pay any
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company
will have the option to redeem such Debt Securities in lieu of making
such payment; and
(18) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity
thereof ("Original Issue Discount Securities"). Special federal income tax,
accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
Except as set forth in the applicable Indenture or in one or more
indentures supplemental thereto, the applicable Indenture will not contain
any provisions that would limit the ability of the Company to incur
indebtedness or that would afford Holders of Debt Securities protection in
the event of a highly leveraged or similar transaction involving the Company
or in the event of a change of control. Restrictions on ownership and
transfers of the Company's Common Stock and Preferred Stock are designed to
preserve its status as a REIT and, therefore, may act to prevent or hinder a
change of control. See "Description of Preferred Stock--Restrictions on
Ownership" and "Description of Common Stock--Restrictions on Transfer."
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.
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"Significant Subsidiary" means any Subsidiary that is a "significant
subsidiary" (within the meaning of Regulation S-X promulgated under the
Securities Act) of the Company.
"Subsidiary" means a corporation or a partnership a majority of the
outstanding voting stock or partnership interests, as the case may be, of
which is owned or controlled, directly or indirectly, by the Company or by
one or more other Subsidiaries of the Company. For the purposes of this
definition, "voting stock" means stock having voting power for the election
of directors, or trustees, as the case may be, whether at all times or only
so long as no senior class of stock has such voting power by reason of any
contingency.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, 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
(Sections 301, 305, 306, 307 and 1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable regular record
date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security
not less than ten days prior to such Special Record Date, or may be paid at
any time in any other lawful manner, all as more completely described in the
Indenture (Section 307).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the applicable Trustee
referred to above. In addition, subject to certain limitations imposed upon
Debt Securities issued in book-entry form, the Debt Securities of any series
may be surrendered for conversion or registration of transfer or exchange
thereof at the corporate trust office of the applicable Trustee. Every Debt
Security surrendered for conversion, registration of transfer or exchange
must be duly endorsed or accompanied by a written instrument of transfer. No
service charge will be made for any registration of transfer or exchange of
any Debt Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection
therewith. If the applicable Prospectus Supplement refers to any transfer
agent (in addition to the applicable Trustee) initially designated by the
Company with respect to any series of Debt Securities, the Company may at any
time rescind the designation of any such transfer agent or approve a change
in the location through which any such transfer agent acts, except that the
Company will be required to maintain a transfer agent in each place of
payment for such series. The Company may at any time designate additional
transfer agents with respect to any series of Debt Securities (Section 1002).
Neither the Company nor any Trustee shall be required to (i) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) 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 (Section 305).
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MERGER, CONSOLIDATION OR SALE
The Company will be permitted to consolidate with, or sell, lease or
convey all or substantially all of its assets to, or merge with or into, any
other entity provided that (a) either the Company 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 shall have received
the transfer of such assets shall expressly assume payment of the principal
of (and premium, if any) and interest on all of the Debt Securities and the
due and punctual performance and observance of all of the covenants and
conditions contained in each Indenture; (b) immediately after giving effect
to such transaction and treating any indebtedness that becomes an obligation
of the Company or any Subsidiary as a result thereof as having been incurred
by the Company or 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 (c) an officer's certificate and legal opinion
covering such conditions shall be delivered to each Trustee (Sections 801 and
803).
CERTAIN COVENANTS
EXISTENCE. Except as described above under "Merger, Consolidation or
Sale", the Company will be required to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
(by declaration of trust, by-laws and statute) and franchises; provided,
however, that the Company shall not be required to preserve any right or
franchise if it determines that the preservation thereof is no longer
desirable in the conduct of its business and that the loss thereof is not
disadvantageous in any material respect to the Holders of the Debt Securities.
MAINTENANCE OF PROPERTIES. The Company will be required to cause all of
its material properties used or useful in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments
and improvements thereof, all as in the judgment of the Company may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times (Section 1007).
INSURANCE. The Company will be required to, and will be required to
cause each of its Subsidiaries to, keep all of its insurable properties
insured against loss or damage at least equal to their then full insurable
value with insurers of recognized responsibility and, if described in the
applicable Prospectus Supplement, having a specified rating from a recognized
insurance rating service (Section 1008).
PAYMENT OF TAXES AND OTHER CLAIMS. The Company will be required to pay or
discharge or cause to be paid or discharged, before the same 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 by appropriate proceedings (Section 1009).
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is
subject to Section 13 or 15(d) of the Exchange Act, the Company will be
required, to the extent permitted under the Exchange Act, to file with the
Commission the annual reports, quarterly reports and other documents which
the Company would have been required to file with the Commission pursuant to
such Sections 13 or 15(d) if the Company were so subject (the "Financial
Information"), such documents to be filed with the Commission on or prior to
the respective dates (the "Required Filing Dates") by which the Company would
have been required so to file such documents if the Company were so subject.
The Company also will in any event (x) within 15 days of each Required Filing
Date (i) to transmit by mail to all Holders of Debt Securities, as their
names and addresses appear in the Security Register, without cost to such
Holders, copies of the Financial Information and (ii) to file with the
Trustee copies of the Financial Information, and (y) if filing such documents
by the Company with the Commission is not permitted
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under the Exchange Act, promptly upon written request and payment of the
reasonable cost of duplication and delivery, to supply copies of such
documents to any prospective Holder (Section 1010).
ADDITIONAL COVENANTS AND/OR MODIFICATIONS TO THE COVENANTS DESCRIBED ABOVE
Any additional covenants of the Company and/or modifications to the
covenants described above with respect to any Debt Securities or series
thereof, including any covenants relating to limitations on incurrence of
indebtedness or other financial covenants, will be set forth in the
applicable Indenture or an indenture supplemental thereto and described in
the Prospectus Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture will provide that the following events are "Events of
Default" with respect to any series of Debt Securities issued thereunder: (i)
default for 30 days in the payment of any installment of interest on any Debt
Security of such series; (ii) default in the payment of principal of (or
premium, if any, on) any Debt Security of such series at its maturity; (iii)
default in making any sinking fund payment as required for any Debt Security
of such series; (iv) default in the performance or breach of any other
covenant or warranty of the Company contained in the applicable Indenture
(other than a covenant added to the Indenture solely for the benefit of a
series of Debt Securities issued thereunder other than such series),
continued for 60 days after written notice as provided in the applicable
Indenture; (v) default in the payment of an aggregate principal amount
exceeding $10,000,000 of any indebtedness of the Company or any mortgage,
indenture or other instrument under which such indebtedness is issued or by
which such indebtedness is secured, such default having occurred after the
expiration of any applicable grace period and having resulted in the
acceleration of the maturity of such indebtedness, but only if such
indebtedness is not discharged or such acceleration is not rescinded or
annulled; (vi) certain events of bankruptcy, insolvency or reorganization, or
court appointment of a receiver, liquidator or trustee of the Company or any
Significant Subsidiary or either of its property; and (vii) any other Event
of Default provided with respect to a particular series of Debt Securities
(Section 501).
If an Event of Default under any Indenture with respect to Debt
Securities of any series at the time outstanding occurs and is continuing,
then in every such case the applicable Trustee or the Holders of not less
than 25% of the principal amount of the Outstanding Debt Securities of that
series will have the right to declare the principal amount (or, if the Debt
Securities of that series are Original Issue Discount Securities or indexed
securities, such portion of the principal amount as may be specified in the
terms thereof) of all the Debt Securities of that series to be due and
payable immediately by written notice thereof to the Company (and to the
applicable Trustee if given by the Holders). However, at any time after such
a declaration of acceleration with respect to Debt Securities of such series
(or of all Debt Securities then Outstanding under any Indenture, as the case
may be) has been made, but before a judgment or decree for payment of the
money due has been obtained by the applicable Trustee, the Holders of not
less than a majority in principal amount of Outstanding Debt Securities of
such series (or of all Debt Securities then Outstanding under the applicable
Indenture, as the case may be) may rescind and annul such declaration and its
consequences if (a) the Company 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 (b) all events of default, other than the non-payment of accelerated
principal (or specified portion thereof), with respect to Debt Securities of
such series (or of all Debt Securities then Outstanding under the applicable
Indenture, as the case may be) have been cured or waived as provided in such
Indenture (Section 502). Each Indenture also will provide that the Holders of
not less than a majority in principal amount of the Outstanding Debt
Securities of any series (or of all Debt Securities then Outstanding under
the applicable Indenture, as the case may be) may waive any past default with
respect to such series and its consequences, except a default (x) in the
payment of the principal of (or premium, if any) or interest on any Debt
Security of such series or (y) in respect of a covenant or provision
contained in the applicable Indenture that cannot be modified or amended
without the consent of the Holder of each Outstanding Debt Security affected
thereby (Section 513).
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Each Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default 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
(Section 601).
Each Indenture will provide that no Holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to
such Indenture or for any remedy thereunder, except in the cases of failure
of the applicable Trustee, for 60 days, to act after it has received a
written request to institute proceedings in respect of an Event of Default
from the Holders of not less than 25% in principal amount of the Outstanding
Debt Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it (Section 507). This provision will not prevent, however,
any Holder of Debt Securities from instituting suit for the enforcement of
payment of the principal of (and premium, if any) and interest on such Debt
Securities at the respective due dates thereof (Section 508).
Subject to provisions in each Indenture relating to its duties in case of
default, no Trustee will be under any obligation to exercise any of its
rights or powers under an Indenture at the request or direction of any
Holders of any series of Debt Securities then Outstanding under such
Indenture, unless such Holders shall have offered to the Trustee thereunder
reasonable security or indemnity (Section 602). The Holders of not less than
a majority in principal amount of the Outstanding Debt Securities of any
series (or of all Debt Securities then Outstanding under an Indenture, as the
case may be) 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 (Section 512).
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the applicable Indenture and, if so, specifying each such
default and the nature and status thereof (Section 1011).
MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities issued under such Indenture which
are affected by such modification or amendment; provided, however, that no
such modification or amendment may, without the consent of the Holder of each
such Debt Security affected thereby, (a) change the stated maturity of the
principal of, or any installment of interest (or premium, if any) on, any
such Debt Security; (b) 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; (c) change
the place of payment, or the coin or currency, for payment of principal or
premium, if any, or interest on any such Debt Security; (d) impair the right
to institute suit for the enforcement of any payment on or with respect to
any such Debt Security; (e) reduce the above-stated percentage of Outstanding
Debt Securities of any series necessary to modify or amend the applicable
Indenture, to waive compliance with certain provisions thereof or certain
defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the applicable Indenture; or (f) modify any of the
foregoing provisions or any of the provisions relating to the waiver of
certain past defaults or certain covenants, except to increase the required
percentage to effect such action or to provide that certain other provisions
may not be modified or waived without the consent of the Holder of such Debt
Security (Section 902).
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The Holders of not less than a majority in principal amount of
Outstanding Debt Securities of each series affected thereby will have the
right to waive compliance by the Company with certain covenants in such
Indenture (Section 1013).
Modifications and amendments of 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 the 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 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 Stock or
Preferred Stock of the Company; (viii) to provide for the acceptance of
appointment by a successor Trustee or facilitate the administration of the
trusts under an Indenture by more than one Trustee; (ix) to cure any
ambiguity, defect or inconsistency in an Indenture, provided that such action
shall not adversely affect the interests of Holders of Debt Securities of any
series issued under such Indenture in any material respect; 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 Debt Securities of any series in any material
respect (Section 901).
Each Indenture will provide that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
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 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 the
applicable Indenture, and (iv) Debt Securities owned by the Company or any other
obligor upon the Debt Securities or any affiliate of the Company or of such
other obligor shall be disregarded.
Each Indenture will contain provisions for convening meetings of the Holders
of Debt Securities of a series (Section 501). 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 the 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,
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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, each Indenture will provide
that if any action is to be taken at a meeting of Holders of Debt Securities
of any series with respect to any request, demand, authorization, direction,
notice, consent, waiver and other action that such Indenture expressly
provides may be made, given or taken by the Holders of a specified percentage
in principal amount of all Outstanding Debt Securities affected thereby, or
the Holders of such series and one or more additional series: (i) there shall
be no minimum quorum requirement for such meeting, and (ii) the principal
amount of the Outstanding Debt Securities of such series that vote in favor
of such request, demand, authorization, direction, notice, consent, waiver or
other action 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.
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SUBORDINATION
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 (Sections 1601 and 1602 of the Subordinated Indenture), but
the obligation of the Company to make payment of the principal and interest
on such Subordinated Securities will not otherwise be affected (Section 1608
of the Subordinated Indenture). 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 (Section 1603 of the Subordinated
Indenture). After all Senior Debt is paid in full and until the Subordinated
Securities are paid in full, Holders will be subrogated to the right of
Holders of Senior Debt to the extent that distributions otherwise payable to
Holders have been applied to the payment of Senior Debt (Section 1607 of the
Subordinated Indenture). By reason of such subordination, in the event of a
distribution of assets upon insolvency, certain general creditors of the
Company may recover more, ratably, than Holders of Subordinated Securities.
Senior Debt will be defined in the Subordinated 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, or 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 of partnerships and joint ventures which is
included in the consolidated financial statements of the Company, (v)
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 (vi) 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 (1)
any such indebtedness, obligation or liability referred to in clauses (i)
through (vi) 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, (2) 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 (3) the Subordinated Securities. As used in the preceding sentence, the
term "purchase money obligations" shall mean indebtedness or obligations
evidenced by a note, debenture, bond or other instrument (whether or not
secured by any lien or other security interest but excluding indebtedness or
obligations for which recourse is limited to the property purchased) issued
or assumed as all or a part of the consideration for the acquisition of
property, whether by purchase, merger, consolidation or otherwise, but shall
not include any trade accounts payable. There will not be any restrictions in
an 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 contain the approximate
amount of Senior Debt outstanding as of the end of the Company's most recent
fiscal quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Company may be permitted under the applicable Indenture to discharge
certain obligations to Holders of any series of Debt Securities issued
thereunder that have not already been delivered to the applicable Trustee for
cancellation and that either have become due and payable or will become due
and payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the applicable Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient
to pay the entire indebtedness on such Debt Securities in respect of
principal (and premium, if any) and interest 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.
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Each Indenture will provide that, if the provisions of Article Fourteen are
made applicable to the Debt Securities of or within any series pursuant to
Section 301 of such Indenture, the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay additional amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities, and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 1402) or (b) to be released from its obligations with
respect to such Debt Securities under certain specified sections of Article Ten
of such Indenture as specified in the applicable Prospectus Supplement and any
omission to comply with such obligations shall not constitute an Event of
Default with respect to such Debt Securities ("covenant defeasance") (Section
1403), in either case upon the irrevocable deposit by the Company with the
applicable Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at stated maturity, or Government Obligations (as defined
below), or both, applicable to such Debt Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient without reinvestment to pay the principal of (and
premium, if any) and interest on such Debt Securities, and any mandatory sinking
fund or analogous payments thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Trustee an opinion of
counsel (as specified in the applicable Indenture) to the effect that the
Holders of such Debt Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
or covenant defeasance had not occurred, and such opinion of counsel, in the
case of defeasance, will be required to refer to and be based upon a ruling of
the Internal Revenue Service or a change in applicable U.S. federal income tax
law occurring after the date of the Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct
obligations of the United States of America or the government which issued
the foreign currency in which the Debt Securities of a particular series are
payable, for the payment of which its full faith and credit is pledged or
(ii) obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States of America or such government
which issued the foreign currency in which the Debt Securities of such series
are payable, the timely payment of which is unconditionally guaranteed as a
full faith and credit obligation of the United States of America or such
government, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and 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 (Section 101 of each Indenture).
Unless otherwise provided in the applicable Prospectus Supplement, if
after the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any
series, (a) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the applicable Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite
currency other than that in which such deposit has been made in respect of
such Debt Security, or (b) a Conversion Event (as defined below) occurs in
respect of the currency, currency unit or composite currency in which such
deposit has been made, the indebtedness represented by such Debt Security
will be deemed to have been, and will be, fully discharged and satisfied
through the payment of the principal of (and premium, if any) and interest on
such Debt Security as they become due out of the proceeds yielded by
converting the amount so deposited in respect of such Debt Security into the
currency, currency unit or composite currency in which such Debt Security
becomes payable as a result of such election or such cessation of usage based
on the applicable market exchange rate. "Conversion Event" means the
cessation of use of (i) a currency, currency unit or composite currency both
by the government of
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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
certain specified sections of Article Ten of each Indenture (which sections
would no longer be applicable to such Debt Securities as a result of such
covenant defeasance) or described in clause (vii) under "Events of Default,
Notice and Waiver" with respect to any other covenant as to which there has been
covenant defeasance, the amount in such currency, currency unit or composite
currency in which such Debt Securities are payable, and Government Obligations
on deposit with the applicable Trustee, will be sufficient to pay amounts due on
such Debt Securities at the time of their stated maturity but may not be
sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Default. However, the Company would remain
liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Stock or Preferred
Stock, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the Holders
or the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities and any restrictions on conversion, including restrictions directed
at maintaining the Company's REIT status.
REDEMPTION OF SECURITIES
The Indenture provides that the Debt Securities may be redeemed at any time
at the option of the Company, in whole or in part, at the Redemption Price,
except as may otherwise be provided in connection with any Debt Securities or
series thereof.
From and after notice has been given as provided in the Indenture, if funds
for the redemption of any Debt Securities called for redemption shall have been
made available on such redemption date, such Debt Securities will cease to bear
interest on the date fixed for such redemption specified in such notice, and the
only right of the Holders of the Debt Securities will be to receive payment of
the Redemption Price.
Notice of any optional redemption of any Debt Securities will be given to
Holders at their addresses, as shown in the Security Register, not more than
60 nor less than 30 days prior to the date fixed for redemption. The notice
of redemption will specify, among other items, the Redemption Price and the
principal amount of the Debt Securities held by such Holder to be redeemed.
If the Company elects to redeem Debt Securities, it will notify the Trustee
at least 45 days prior to the redemption date (or such shorter period as
satisfactory to the Trustee) of the aggregate principal amount of Debt
Securities to be redeemed and the redemption date. If less than all the Debt
Securities are to be redeemed, the
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Trustee shall select the Debt Securities to be redeemed pro rata, by lot or
in such manner as it shall deem fair and appropriate.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depository identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depository arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series.
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 145,000,000 shares of capital stock, $.01
par value, of which 95,000,000 shares are classified as Common Stock, 45,000,000
shares are classified as Excess Stock, 3,860,067 are classified as Preferred
Stock and 1,139,933 shares are not classified. The 1,139,933 shares that are not
classified as part of an existing class of stock could be classified by the
Board of Directors into one or more series of Preferred Stock. As of October 4,
1997, 3,860,067 shares of Preferred Stock were outstanding.
Under the Company's Charter, the Board of Directors may from time to time
establish and issue one or more series of Preferred Stock. The Directors may
classify or reclassify any unissued Preferred Stock by setting or changing the
number, designation, preference, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption of such series.
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 Charter and the Company's amended and
restated bylaws (the "Bylaws").
GENERAL
The Board of Directors is empowered by the Company's Charter to designate
and issue from time to time one or more series of Preferred Stock without
shareholder approval. The Board of Directors may determine the relative rights,
preferences and privileges of each series of Preferred Stock so issued. Because
the Board of Directors has the power to establish the preferences and rights of
each series of Preferred Stock, it may afford the holders of any series of
Preferred Stock preferences, powers and rights, voting or otherwise, senior to
the rights of holders of Common Stock. The Preferred Stock will, when issued, be
fully paid and nonassessable.
The Prospectus Supplement relating to any Preferred Stock offered thereby
will contain the specific terms thereof, including, without limitation:
(l) 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;
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(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 shares of Common Stock of the Company,
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 preferences 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; (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; 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. 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 Trustees of the Company, out of assets
of the Company legally available for payment, cash dividends (or dividends in
kind or in other property if expressly permitted and described in the applicable
Prospectus Supplement) 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 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 Trustees 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.
Unless otherwise specified in the Prospectus Supplement, if any shares of
Preferred Stock of any series are outstanding, no full dividends shall be
declared or paid or set apart for payment on any capital shares 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
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been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the
Preferred Stock of such series for all past dividend periods and the then
current dividend period or (ii) if such series of Preferred Stock does not
have a cumulative dividend, full dividends for the then current dividend
period have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for such payment on the
Preferred Stock of such series. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon 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
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in shares of Common Stock or other capital
shares 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 or other
distribution upon the Common Stock, or any other capital shares 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 Common Stock, or any other capital
shares of the Company ranking junior to or on a parity with the Preferred Stock
of such series as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Company (except by conversion into or exchange for other capital shares of the
Company ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation).
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of the
Company, in whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of 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 capital shares of the
Company, the terms of such Preferred Stock may provide that, if no such
capital shares 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 capital shares of the Company pursuant to
conversion provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all outstanding shares
of any series of Preferred Stock have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past
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dividends 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 any series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, the Company shall
not (a) redeem any shares of Preferred Stock of any series unless all
outstanding shares of Preferred Stock of such series are simultaneously
redeemed or (b) 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 lot in a manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
and series of shares of Preferred Stock to be redeemed; (iii) the redemption to
be surrendered for payment of the redemption price; (iv) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (v) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all of the shares of Preferred Stock of any series are
to be redeemed, the notice mailed to each such holder thereof shall also specify
the number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any shares of Preferred Stock has been given and if the
funds necessary for such redemption have been set aside by the Company in trust
for the benefit of the holders of any shares of Preferred Stock so called for
redemption, then from and after the redemption date dividends will cease to
accrue on such 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 shares 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
shareholders liquidating distributions in the amount of the liquidation
preference per share (set forth in the applicable Prospectus Supplement),
plus an amount equal to all dividends accrued and unpaid thereon (which shall
not include any accumulation in respect of unpaid dividends for prior
dividend periods if such Preferred Stock does not have a cumulative
dividend). After payment of the full amount 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 shares 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 shares 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 shares 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
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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 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.
Whenever dividends on any Preferred Stock shall be in arrears for six or
more consecutive quarterly periods, the holders of such Preferred Stock (voting
separately as a class with all other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of two additional Directors of the Company at a special meeting
called by the holders of record of at least ten percent (10%) of any series of
Preferred Stock 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 (i) if such series of Preferred Stock has a
cumulative dividend, all dividends accumulated on such shares of Preferred Stock
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 or (ii) if such series of Preferred Stock does not have a
cumulative dividend, four consecutive quarterly dividends shall have been fully
paid or declared and a sum sufficient for the payment thereof set aside for
payment. In such case, the entire Board of Directors of the Company will be
increased by two Directors.
Unless provided otherwise for any series of Preferred Stock, so long as
any shares of Preferred Stock remain outstanding, the Company will not,
without the affirmative vote or consent of the holders of at least two-thirds
of each series of Preferred Stock outstanding at the time, given in person or
by proxy, either in writing or at a meeting (such series voting separately as
a class), (i) authorize or create, or increase the authorized or issued
amount of, any class or series of capital shares ranking prior to such series
of Preferred Stock with respect to the payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized capital shares 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 Charter or the Designating 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 shares of Preferred
Stock 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 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 Preferred Stock of such series 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 Preferred Stock is convertible, the conversion price
(or manner of calculation thereof), the conversion period, provisions as to
whether conversion will be at the option of the holders
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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.
SHAREHOLDER LIABILITY
As discussed below under "Description of Common Stock," applicable Maryland
law provides that no shareholder, including holders of shares of Preferred
Stock, shall be personally liable for the acts and obligations of the Company
and that the funds and property of the Company shall be the only recourse for
such acts or obligations.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Stock--Ownership Limits,"
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
shares may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) during the last half of a
taxable year. In addition to the ownership limitations described under
"Description of Common Stock--Restrictions on Transfer; Excess Stock--Ownership
Limits" (which limits may impact on the acquisition, holding and/or disposition
of Preferred Stock), the Designating Amendment for each series of Preferred
Stock may contain specific provisions restricting the ownership and transfer of
shares of Preferred Stock.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by Depositary
Shares will be deposited under a separate deposit agreement (each, a "Deposit
Agreement") among the Company, the depositary named therein (a "Preferred Stock
Depositary") and the holders from time to time of the Depositary Receipt will be
entitled, in proportion to the fractional interest of a share of a particular
series of Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipt, to all the rights and preferences of the Preferred Stock
represented by such Depositary Shares (including dividend, voting, conversion,
redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to a Preferred Stock
Depositary, the Company will cause such Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to Deposit Agreements and
the Depositary Receipts to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable Deposit Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
A Preferred Stock Depositary will be required to distribute all cash
dividends or other cash distributions received in respect of the applicable
Preferred Stock to the record holders of Depositary Receipts evidencing the
related Depositary Shares in proportion to the number of such Depositary
Receipts owned by such holders, subject
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to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to such Preferred Stock
Depositary.
In the event of a distribution other than in cash, a Preferred Stock
Depositary will be required to distribute property received by it to the record
holders of Depositary Receipts entitled thereto, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to such Preferred Stock Depositary, unless such Preferred
Stock Depositary determines that it is not feasible to make such distribution,
in which case such Preferred Stock Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock which has been converted or
exchanged.
WITHDRAWAL
Upon surrender of the Depositary Receipts at the corporate trust office of
the applicable Preferred Stock Depositary (unless the related Depositary Shares
have previously been called for redemption or converted), the holders thereof
will be entitled to delivery at such office, to or upon each such holder's
order, of the number of whole or fractional shares of the applicable Preferred
Stock and any money or other property represented by the Depositary Shares
evidenced by such Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related Preferred Stock on
the basis of the proportion of Preferred Stock represented by each Depositary
Share as specified in the applicable Prospectus Supplement, but holders of such
shares of Preferred Stock will not thereafter be entitled to receive Depositary
Shares therefor. If the Depositary Receipts delivered by the holder evidence a
number of Depositary Shares in excess of the number of Depositary Shares
representing the number of shares of Preferred Stock to be withdrawn, the
applicable Preferred Stock Depositary will be required to deliver to such holder
at the same time a new Depositary Receipt evidencing such excess number of
Depositary Shares.
REDEMPTION
Whenever the Company redeems shares of Preferred Stock held by a
Preferred Stock Depositary, such Preferred Stock Depositary will be required
to redeem as of the same redemption date the number of Depositary Shares
representing shares of the Preferred Stock so redeemed, provided the Company
shall have paid in full to such Preferred Stock Depositary the redemption
price of the Preferred Stock to be redeemed plus an amount equal to any
accrued and unpaid dividends thereon to the date fixed for redemption. The
redemption price per Depositary Shares will be equal to the redemption price
and any other amounts per share payable with respect to the Preferred Stock.
If fewer than all the Depositary Shares are to be redeemed, the Depositary
Shares to be redeemed will be selected pro rata (as nearly as may be
practicable without creating fractional Depositary Shares) or by any other
equitable method determined by the Company that preserves the REIT status of
the Company. See "Description of Preferred Stock-Redemption."
VOTING
Upon receipt of notice of any meeting at which the holders of the applicable
Preferred Stock are entitled to vote, a Preferred Stock Depositary will be
required to mail the information contained in such notice of meeting to the
record holders of the Depositary Receipts evidencing the Depositary Shares which
represent such Preferred Stock. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Stock) will be entitled to instruct such
Preferred Stock Depositary as to the exercise of the voting rights pertaining to
the amount of Preferred Stock represented by such holder's Depositary Shares.
Such Preferred Stock Depositary will be required to vote the amount of Preferred
Stock represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action which may
be deemed necessary by such Preferred Stock Depositary in order to enable such
Preferred Stock Depositary to do so. Such Preferred Stock Depositary will be
required to abstain from voting the amount of Preferred Stock represented by
such Depositary Shares to the extent it does not receive specific
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instructions from the holders of Depositary Receipts evidencing such
Depositary Shares. A Preferred Stock Depositary will not be responsible for
any failure to carry out any instruction to vote, or for the manner or effect
of any such vote made, as long as any such action or non-action is in good
faith and does not result from negligence or willful misconduct of such
Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Share evidenced by such Depositary
Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION
The Depositary Shares, as such, will not be convertible into shares of
Common Stock or any other securities or property of the Company, except in
connection with certain conversions in connection with the preservation of the
Company's status as a REIT. See "Description of Preferred Stock-Restrictions on
Ownership." Nevertheless, if so specified in the applicable Prospectus
Supplement relating to an offering of Depositary Shares, the Depositary Receipts
may be surrendered by holders thereof to the applicable Preferred Stock
Depositary with written instructions to such Preferred Stock Depositary to
instruct the Company to cause conversion of the Preferred Stock represented by
the Depositary Shares evidenced by such Depositary Receipts into whole shares of
Common Stock, other shares of Preferred Stock of the Company or other shares of
stock, and the Company will agree that upon receipt of such instructions and any
amounts payable in respect thereof, it will cause the conversion thereof
utilizing the same procedures as those provided for delivery of Preferred Stock
to effect such conversion. If the Depositary Shares evidenced by a Depositary
Receipt are to be converted in part only, a new Depositary Receipt or Receipts
will be issued for any Depositary Shares not to be converted. No fractional
shares of Common Stock will be issued upon conversion, and if such conversion
will result in a fractional share being issued, an amount will be paid in cash
by the Company equal to the value of the fractional interest based upon the
closing price of the Common Stock on the last business day prior to the
conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
Any form of Depositary Receipt evidencing Depositary Shares which will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between the Company and the
applicable Preferred Stock Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts or that
would be materially and adversely inconsistent with the rights granted to the
holders of the related Preferred Stock will not be effective unless such
amendment has been approved by the existing holders of at least two-thirds of
the applicable Depositary Shares evidenced by the applicable Depositary Receipts
then outstanding. No amendment shall impair the right, subject to certain
anticipated exceptions in the Deposit Agreements, of any holder of Depositary
Receipts to surrender any Depositary Receipt with instructions to deliver to the
holder the related Preferred Stock and all money and other property, if any,
represented thereby, except in order to comply with law. Every holder of an
outstanding Depositary Receipt at the time any such amendment becomes effective
shall be deemed, by continuing to hold such Depositary Receipt, to consent and
agree to such amendment and to be bound by the applicable Deposit Agreement as
amended thereby.
A Deposit Agreement will be permitted to be terminated by the Company upon
not less than 30 days' prior written notice to the applicable Preferred Stock
Depositary if (i) such termination is necessary to preserve the Company's status
as a REIT or (ii) a majority of each series of Preferred Stock affected by such
termination consents to such termination, whereupon such Preferred Stock
Depositary will be required to deliver or make available to each holder of
Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional shares of Preferred Stock as are
represented by the Depositary Shares evidenced by such Depositary Receipts
together with any other property held by such Preferred Stock Depositary with
respect to such Depositary Receipts. The Company will agree that if a Deposit
Agreement is terminated to preserve the Company's status as a REIT, then the
Company will use its best efforts to list the Preferred Stock issued upon
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surrender of the related Depositary Shares on a national securities exchange. In
addition, a Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares thereunder shall have been redeemed, (ii) there
shall have been a final distribution in respect of the related Preferred Stock
in connection with any liquidation, dissolution or winding up of the Company and
such distribution shall have been distributed to the holders of Depositary
Receipts evidencing the Depositary Shares representing such Preferred Stock or
(iii) each share of the related Preferred Stock shall have been converted into
stock of the Company not so represented by Depositary Shares.
CHARGES OF PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of a Deposit Agreement. In addition, the
Company will pay the fees and expenses of a Preferred Stock Depositary in
connection with the performance of its duties under a Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of a
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the applicable
Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
A Preferred Stock Depositary will be permitted to resign at any time by
delivering to the Company notice of its election to do so, and the Company will
be permitted at any time to remove a Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
A Preferred Stock Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from the Company which are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.
Neither a Preferred Stock Depositary nor the Company will be liable if it is
prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under a Deposit Agreement. The obligations of the
Company and a Preferred Stock Depositary under a Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Stock represented by the applicable Depositary Shares), gross negligence or
willful misconduct, and neither the Company nor any applicable Preferred Stock
Depositary will be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of Preferred
Stock represented thereby unless satisfactory indemnity is furnished. The
Company and any Preferred Stock Depositary will be permitted to rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of Preferred Stock represented thereby for deposit, holders of Depositary
Receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
In the event a Preferred Stock Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and the Company, on the other hand, such Preferred Stock Depositary shall
be entitled to act on such claims, requests or instructions received from the
Company.
DESCRIPTION OF COMMON STOCK
GENERAL
The authorized capital stock of the Company consists of 145,000,000
shares of capital stock, $.01 par value, of which 95,000,000 shares are
classified as Common Stock, 45,000,000 shares are classified as Excess Stock,
3,860,067 are classifed as Preferred Stock, and 1,139,933 shares are not
classified. At October 7, 1997, there
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were 14,895,693 shares of Common Stock outstanding. Under the Company's
Charter, the Board of Directors may issue, without any further action by the
shareholders, shares of capital stock in one or more series having such
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption as the Board of Directors may determine and as may be evidenced by
articles supplementary to the Charter adopted by the Board of Directors. The
following description of the terms and provisions of the shares of capital
stock of the Company and certain other matters does not purport to be
complete and is subject to and qualified in its entirety by reference to the
applicable provisions of Maryland law and the Company's Charter.
Subject to such preferential rights as may be granted by the Board of
Directors in connection with the future issuance of Preferred Stock, holders of
Common Stock are entitled to one vote per share on all matters to be voted on by
shareholders and are entitled to receive ratably such dividends as may be
declared on the Common Stock by the Board of Directors in its discretion from
funds legally available therefor. Neither the Charter nor the Bylaws provide for
cumulative voting for the election of directors. The Company depends upon
distributions from the Operating Partnership to fund its dividends to
shareholders. In the event of the liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of all debts and other liabilities and any liquidation
preference of the holders of Preferred Stock. Matters submitted for shareholder
approval generally require a majority vote of the shares present and voting
thereon. Holders of Common Stock do not have any preemptive rights or other
rights to subscribe for additional shares.
Common Stock currently outstanding is listed for trading on the New York
Stock Exchange (the "NYSE"). The Company will apply to the NYSE to list the
additional Common Stock to be sold pursuant to any Prospectus Supplement, and
the Company anticipates that such shares will be so listed.
Both the Maryland general corporation law and the Company's Charter provide
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 being or having been a
shareholder, and that the Company shall reimburse each shareholder for all legal
and other expenses reasonably incurred by him in connection with any such claim
or liability. In addition, it will be the Company's policy to include a clause
in its contracts which provides that shareholders assume no personal liability
for obligations entered into on behalf of the Company. 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, 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.
CLASSIFICATION AND REMOVAL OF BOARD OF DIRECTORS; OTHER PROVISIONS
The Charter of the Company provides for the Board of Directors to be divided
into three classes of directors, with each class to consist as nearly as
possible of an equal number of the directors. The term of office of one class of
directors (2 directors) will expire at the 1998 annual meeting of shareholders;
the term of office of the next class of directors (2 directors) will expire at
the 1999 annual meeting of shareholders; and the term of office of the third
class of directors (3 directors) will expire at the 2000 annual meeting of
shareholders. At each annual meeting of shareholders, the class of directors to
be elected at such meeting will be elected for a three year term, and the
directors in the other two classes will continue in office. Because holders of
Common Stock have no right to cumulative voting for the election of directors,
at each annual meeting of shareholders, the holders of a majority of the shares
of Common Stock will be able to elect all of the successors of the class of
directors whose term expires at that meeting.
The Charter also provides that, except for any directors who may be elected
by holders of a class or series of capital stock other than Common Stock,
directors may be removed only for cause and only by the affirmative vote of
shareholders holding at least 80% of all the votes entitled to be cast for the
election of directors. Vacancies on the Board of Directors may be filled by the
affirmative vote of the remaining directors and, in the case of a
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vacancy resulting from the removal of a director, by the shareholders by a
majority of the votes entitled to be cast for the election of directors. A
vote of shareholders holding at least 80% of all the votes entitled to be
cast thereon is required to amend, alter, change, repeal or adopt any
provisions inconsistent with the foregoing classified board and director
removal provisions. Under the Charter, the power to amend the Bylaws of the
Company is vested exclusively in the Board of Directors, and the shareholders
will not have any power to adopt, alter or repeal the Bylaws absent amendment
to the Charter. These provisions may make it more difficult and time
consuming to change majority control of the Board of Directors of the Company
and, thus, reduce the vulnerability of the Company to an unsolicited proposal
for the takeover of the Company or the removal of incumbent management.
Because the Board of Directors has the power to establish the preferences
and rights of additional series of capital stock without further shareholder
vote, the Board of Directors may afford the holders of any series of senior
capital stock preferences, powers and rights, voting or otherwise, senior to the
rights of holders of Common Stock. The issuance of any such senior capital stock
could have the effect of delaying or preventing a change in control of the
Company. The Board of Directors, however, currently does not contemplate the
issuance of any series of capital stock other than the Common Stock and Excess
Stock (see "--Restrictions on Transfer; Excess Stock" below).
The Bylaws of the Company provide that, with respect to an annual meeting of
shareholders, the proposal of business to be considered by shareholders may be
made only (i) by or at the direction of the Board of Directors or (ii) by a
shareholder who has complied with the advance notice procedures set forth in the
Bylaws. In addition, with respect to any meeting of shareholders, nominations of
persons for election to the Board of Directors may be made only (i) by or at the
direction of the Board of Directors or (ii) by any shareholder of the Company
who is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
SPECIAL STATUTORY REQUIREMENTS FOR CERTAIN TRANSACTIONS
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 directors and approved
by the affirmative vote of at least 80% of the votes entitled to be cast by all
holders of outstanding shares of voting stock and 66-2/3% of the votes entitled
to be cast by all holders of outstanding shares of voting stock other than the
Interested Shareholder. A Business Combination with an Interested Shareholder
that is approved by the board of directors 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 shares of voting stock and 66-2/3% of
the votes entitled to be cast by holders of outstanding shares of voting stock
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.
As permitted by Maryland law, the Company has exempted from the Maryland
business corporation statute any Business Combination with Messrs. Smith or
Kogod, and all persons, firms and corporations affiliated with, or acting in
concert or as a group with, either of them, as well as any Business Combination
that involves the redemption of Units for shares of Common Stock.
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CONTROL SHARE ACQUISITION STATUTE. Maryland law imposes limitations on
the voting rights in a "control share acquisition." The Maryland statute
defines a "control share acquisition" at the 20%, 33-1/3% and 50% acquisition
levels, and requires a 2/3 shareholder vote (excluding shares owned by the
acquiring person and certain members of management) to accord voting rights
to stock acquired in a control share acquisition. The statute also requires
Maryland corporations to hold a special meeting at the request of an actual
or proposed control share acquirer generally within 50 days after a request
is made with the submission of an "acquiring person statement," but only if
the acquiring person (a) posts a bond for the cost of a meeting and (b)
submits a definitive financing agreement to the extent that financing is not
provided by the acquiring person. In addition, unless the charter or by-laws
provide otherwise, the statute gives the Maryland corporation, within certain
time limitations, various redemption rights if there is a shareholder vote on
the issue and the grant of voting rights is not approved, or if an acquiring
person statement is not delivered to the target within 10 days following a
control share acquisition. Moreover, unless the charter or by-laws provide
otherwise, the statute provides that if, before a control share acquisition
occurs, voting rights are accorded to control shares that result in the
acquiring person having majority voting power, then minority shareholders
have appraisal rights. An acquisition of shares may be exempted from the
control share statute, provided that a charter or bylaw provision is adopted
for such purpose prior to the control share acquisition. Pursuant to the
foregoing, the Company's Charter provides that any acquisition of shares of
capital stock of the Company that is not prohibited by the terms of the
restrictions on transfer described below under "--Restrictions on Transfer;
Excess Stock" is exempted from the provisions of the control share
acquisition statute.
RESTRICTIONS ON TRANSFER; EXCESS STOCK
OWNERSHIP LIMITS. The Charter contains certain restrictions on the number
of shares of capital stock that individual shareholders may own. For the
Company to qualify as a REIT under the Code, no more than 50% in value of its
outstanding shares of capital stock may be owned, directly or constructively
under the applicable attribution rules of the Code, by five or fewer
individuals (as defined in the Code to include certain entities) during the
last half of a taxable year (other than the first taxable year in which the
Company qualifies as a REIT). In addition, the capital stock must be
beneficially owned by 100 or more persons during at least 335 days of a
taxable year or during a proportionate part of a shorter taxable year.
Because the Company expects to qualify as a REIT, the Charter of the Company
contains restrictions on the acquisition of capital stock, including Common
Stock.
Subject to certain exceptions specified in the Charter, no holder may own,
or be deemed to own by virtue of the attribution provisions of the Code, either
(i) more than 9.8% in number or value of the issued and outstanding shares of
Common Stock, or (ii) 9.8% in number or value of the issued and outstanding
shares of capital stock of the Company (including both Common Stock and
Preferred Stock), which even is more restrictive (the "Ownership Limit"). The
Board of Directors in its discretion may waive the Ownership Limit with respect
to a holder if such holder's ownership will not then or in the future jeopardize
the Company's status as a REIT.
Messrs. Smith and Kogod, members of their families and entities that they
control are subject to the Ownership Limit, and they also are subject to certain
additional special ownership limitations. Messrs. Smith and Kogod, members of
their families and entities that they control are prohibited from acquiring
additional shares of Common Stock (or rights to acquire shares), if, as a result
of, and giving effect to, such acquisition, any tenant would be regarded as a
Related Party Tenant for purposes of Section 856(b)(2)(B) of the Code (see
"Federal Income Tax Considerations--Requirements for Qualification-- Gross
Income Tests") and the Company would be considered to receive more than 0.5% of
its gross annual revenue from Related Party Tenants.
Notwithstanding any of the foregoing ownership limits, no holder may own or
acquire, either directly or constructively under the applicable attribution
rules of the Code, any shares of any class of the Company's stock if such
ownership or acquisition (i) would cause more than 50% in value of the Company's
outstanding stock to be owned, either directly or constructively under the
applicable attribution rules of the Code, by five or fewer individuals (as
defined in the Code to include certain tax-exempt entities, other than, in
general, qualified domestic pension funds), (ii) would result in the Company's
stock being beneficially owned by less than 100 persons (determined without
reference to any rules of attribution), or (iii) would otherwise result in the
Company failing to qualify as REIT.
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If any shareholder purports to transfer shares to a person and either the
transfer would result in the Company failing to qualify as a REIT, or such
transfer would cause the transferee to hold shares in excess of more than the
applicable Ownership Limit or Existing Holder Limit, the purported transfer
shall be null and void, and the intended transferee will acquire no rights or
economic interest in the shares, and the shareholder will be deemed to have
transferred the shares of Common Stock to the Company in exchange for shares
of Excess Stock, which will be deemed to be held by the Company as trustee of
a trust for the exclusive benefit of the person or persons to whom the shares
can be transferred without violating the ownership limit. In addition, if any
person owns, either directly or constructively under the applicable
attribution rules of the Code, shares of capital stock in excess of the
applicable Ownership Limit, such person will be deemed to have exchanged the
shares of capital stock that cause the Ownership Limit to be exceeded for an
equal number of shares of Excess Stock, which will be deemed to be held by
the Company as trustee of a trust for the exclusive benefit of the person or
persons to whom the share can be transferred without violating the Ownership
Limit.
A person who holds or transfers shares such that shares of capital stock
shall have been deemed to be exchanged for Excess Stock will not be entitled to
vote the Excess Stock and will not be entitled to receive any dividends or
distributions (any dividend or distribution paid on shares of capital stock
prior to the discovery by the Company that such shares have been exchanged for
Excess Stock shall be repaid to the Company upon demand, and any dividend or
distribution declared but unpaid shall be rescinded). Such person shall have the
right to designate a transferee of such Excess Stock so long as consideration
received for designating such transferee does not exceed a price that is equal
to the lesser of (i) in the case of a deemed exchange for Excess Stock resulting
from a transfer, the price paid for the shares in such transfer or, in the case
of a deemed exchange for Excess Stock resulting from some other event, the fair
market value, on the date of the deemed exchange, of the shares deemed
exchanged, and (ii) the fair market value of the shares for which such Excess
Stock will be deemed to be exchanged on the date of the designation of the
transferee. For these purposes, fair market value on a given date is determined
by reference to the average closing price for the five preceding days. The share
of Excess Stock so transferred will automatically be deemed to be exchanged for
shares of capital stock. Excess Stock may be purchased by the Company for the
lesser of the price paid or the average closing price for the five days
immediately preceding such purchase. The Company may elect to redeem the Excess
Stock for Units.
If the foregoing transfer restrictions are determined to be void or invalid
by virtue of any legal decisions, 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 such Excess Stock
and to hold such Excess Stock on behalf of the Company.
All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above.
Every owner (or deemed owner) of more than 5% (or such lower percentage as
required by the Code or regulations thereunder) in number or value of the issued
and outstanding shares of capital stock, including Common Stock, must file a
written notice with the Company containing the information specified in the
Charter no later than January 31 of each year. In addition, each shareholder
shall be required upon demand to disclose to the Company in writing such
information as the Company may request in order to determine the effect on the
Company's status as a REIT of such shareholder's direct, indirect and
constructive ownership of the shares.
The foregoing ownership limitations also may have the effect of preventing
or hindering any attempt to acquire control of the Company without the consent
of the Board of Directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent, Registrar and Dividend Disbursing Agent for the shares
of Common Stock is First Union National Bank of North Carolina.
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DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common
Stock. Common Stock Warrants may be issued independently or together with any
other Securities offered by any Prospectus Supplement and may be attached to or
separate from such Securities. Each series of Common Stock Warrants will be
issued under a separate warrant agreement (each, a "Warrant Agreement") to be
entered into between the Company and a warrant agent specified in the applicable
Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will act solely
as an agent of the Company in connection with the Common Stock Warrants of such
series and will not assume any obligation or relationship of agency or trust for
or with any holders or beneficial owners of Common Stock Warrants. The following
sets forth certain general terms and provisions of the Common Stock Warrants
offered hereby. Further terms of the Common Stock Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Common
Stock Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following: (1) the title of such Common Stock
Warrants; (2) the aggregate number of such Common Stock Warrants; (3) the price
or prices at which such Common Stock Warrants will be issued; (4) the
designation, number and terms of the shares of Common Stock purchasable upon
exercise of such Common Stock Warrants; (5) the designation and terms of the
other Securities offered thereby with which such Common Stock Warrants are
issued and the number of such Common Stock Warrants issued with each such
Security offered thereby; (6) the date, if any, on and after which such Common
Stock Warrants and the related shares of Common Stock will be separately
transferable; (7) the price at which each of the shares of Common Stock
purchasable upon exercise of such Common Stock Warrants may be purchased; (8)
the date on which the right to exercise such Common Stock Warrants shall
commence and the date on which such right shall expire; (9) the minimum or
maximum number of such Common Stock 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 Common Stock Warrants, including terms, procedures and limitations
relating to the exchange and exercise of such Common Stock Warrants.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes the material federal income tax
considerations to a prospective holder of Common Stock. The following
discussion, which is not exhaustive of all possible tax considerations, does not
include a detailed discussion of any state, local or foreign tax considerations.
Nor does it discuss all of the aspects of federal income taxation that may be
relevant to a prospective shareholder in light of its particular circumstances
or to certain types of shareholders (including insurance companies, tax-exempt
entities, financial institutions or broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) who are subject
to special treatment under the federal income tax laws. In addition, if the
Company offers one or more series of Debt Securities, Preferred Stock,
Depositary Shares, or Common Stock Warrants, then there may be tax consequences
for the holders of such Securities not discussed herein. For a discussion of any
such additional consequences, see the applicable Prospectus Supplement. As
discussed below, the Taxpayer Relief Act of 1997 (the "1997 Act") contains
certain changes to the REIT qualification requirements and to the taxation of
REITs that may be material to a holder of Common Stock, but which will become
effective only for the Company's taxable years commencing on or after January 1,
1998.
As used in this discussion, the term "Company" refers solely to Charles E.
Smith Residential Realty, Inc.
EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS URGED TO CONSULT WITH ITS OWN
TAX ADVISOR TO DETERMINE THE IMPACT OF SUCH PROSPECTIVE PURCHASER'S PERSONAL TAX
SITUATION ON THE ANTICIPATED TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
SALE OF COMMON STOCK IN AN ENTITY ELECTING TO BE TAXED AS A REIT, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES
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OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Code commencing with its taxable year ending December 31,
1994. The Company believes that it was organized and has operated in
conformity with the requirements for qualification and taxation as a REIT
under the Code for its taxable years ended December 31, 1994, December 31,
1995 and December 31, 1996, and the Company believes that its current
organization and method of operation should enable it to continue to meet the
requirements for qualification and taxation as a REIT. No assurances,
however, can be provided that the Company has operated in a manner so as to
qualify as a REIT or that it will continue to operate in such a manner in the
future. The Company's qualification and taxation as a REIT depend upon the
Company's ability to meet on a continuing basis (through actual annual
operating results, distribution levels and diversity of stock ownership) the
various qualification tests imposed under the Code, which are summarized
below. While the Company intends to operate so that it qualifies as a REIT,
given the highly complex nature of the rules governing REITs, the ongoing
importance of factual determinations, and the possibility of future changes
in the circumstances of the Company, no assurance can be given that the
actual results of the operations of the Company for any taxable year has
satisfied or will satisfy the requirements under the Code for qualification
and taxation as a REIT. Further, the anticipated income tax treatment
described herein may be changed, perhaps retroactively, by legislative,
administrative or judicial action at any time. See "--Failure to Qualify."
The following is a general summary of the Code provisions that govern the
federal income tax treatment of a REIT and its shareholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations, and
administrative and judicial interpretations thereof.
In any year in which the Company qualifies for taxation as a REIT, it
generally will not be subject to federal corporate income taxes on net income
that it distributes currently to shareholders. This treatment substantially
eliminates the "double taxation" (at the corporate and shareholder levels) that
generally results from investment in a corporation. However, the Company will be
subject to federal income tax on any income that it does not distribute, and in
some circumstances, on certain types of income even though that income is
distributed. In addition, the Property Services Businesses, which do not qualify
as REITs, are subject to federal corporate income tax on their net income.
REQUIREMENTS FOR QUALIFICATION.
ORGANIZATIONAL REQUIREMENTS. The Code defines a REIT as a corporation,
trust or association (1) that is managed by one or more trustees or
directors; (2) the beneficial ownership of which is evidenced by transferable
shares, or by transfer certificates of beneficial interest; (3) that would be
taxable as a domestic corporation, but for Sections 856 through 859 of the
Code; (4) that is neither a financial institution nor an insurance company
subject to certain provisions of the Code; (5) the beneficial ownership of
which is held by 100 or more persons; (6) during the last half of each
taxable year not more than 50% in value of the outstanding stock of which is
owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities); and (7) that meets certain other
tests, described below, regarding the nature of its income and assets. The
Code provides that conditions (1) through (4), inclusive, must be met during
the entire taxable year and that condition (5) must be met during at least
335 days of a taxable year of 12 months, or during a proportionate part of a
taxable year of less than 12 months. The Company believes that it currently
satisfies requirements (1) through (6). In addition, the Company's Charter
includes restrictions regarding the transfer of its shares that are intended
to assist the Company in continuing to satisfy the share ownership
requirements described in (5) and (6) above. See "Description of Common Stock
Restrictions on Transfer; Excess Stock." Moreover, pursuant to the 1997 Act,
for the Company's taxable years commencing on or after January 1, 1998, if
the Company complies with regulatory rules pursuant to which it is required
to send annual letters to holders of Common Stock requesting information
regarding the actual ownership of the Common Stock, and the Company does not
know, or exercising reasonable diligence would not
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have known, whether it failed to meet requirement (6) above, the Company will
be treated as having met the requirement.
GROSS INCOME TESTS. In order to maintain qualification as a REIT, the
Company must satisfy three gross income requirements, which are applied on an
annual basis. First, at least 75% of the Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived
directly or indirectly from investments relating to real property or mortgages
on real property (including "rents from real property" and, in certain
circumstances, interest) or from certain types of temporary investments. Second,
at least 95% of the Company's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from sources that
qualify for purposes of the 75% test, and from dividends, interest and gain from
the sale or disposition of stock or securities, or from any combination of the
foregoing. Third, for its taxable years ending on or before December 31, 1997,
the Company must derive less than 30% of the its gross income (including gross
income from prohibited transactions) from short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions and gain
on the sale or other disposition of real property held for less than four years
(apart from involuntary conversions and sales of foreclosure property). Pursuant
to the 1997 Act, the Company will not have to meet the 30% test for its taxable
years commencing on or after January 1, 1998.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions (relating to the identity of the tenant, the computation of
the rent payable, and the nature of the property leased) are met. The Company
believes that the portion, if any, of the rents that it receives that fails to
qualify as "rents from real property" has been and will continue to be
sufficiently small that the Company will satisfy the 75% and 95% gross income
tests. The Company's belief with respect to this matter, however, is based upon
the advice of counsel with respect to certain technical issues regarding the
determination of "rents from real property" that are not definitively answered
under the Code, the Treasury Regulations, and published administrative
interpretations. There can be no assurance that the Internal Revenue Service
(the "IRS") will agree with these conclusions.
In addition, for rents received to qualify as "rents from real property,"
the Company generally must not operate or manage the property or furnish or
render services to tenants, other than through an "independent contractor"
from whom the Company derives no revenue. The "independent contractor"
requirement, however, does not apply to the extent the services are "usually
or customarily rendered" in connection with the rental space for occupancy
only and are not otherwise considered "rendered to the occupant"
("Permissible Services"). The Operating Partnership itself and the Property
Service Businesses, which are not independent contractors, provide certain
services with respect to the Properties. The Company received rulings from
the IRS that the provision of certain of these services will not cause the
rents received with respect to the Properties to fail to qualify as "rents
from real property." The Company also received rulings from the IRS to the
effect that certain revenues (including rents from corporate apartments,
revenues from laundry equipment, certain parking revenues, and certain
revenues related to the provision of telephone and CATV services) will
qualify as "rents from real property." Based upon its experience in the
multifamily and retail property rental markets in which the Company's
properties are located, the Company believes that all services provided to
tenants by the Company (whether through the Operating Partnership or through
the Property Services Businesses) should be considered "usually or
customarily rendered" in connection with the rental of apartments or retail
space, as applicable, for occupancy only, although there can be no assurance
that the IRS will not contend otherwise. In this regard, if the Operating
Partnership contemplates providing services that reasonably might be expected
not to meet the "usual or customary" standard, it will arrange to have such
services provided by an independent contractor from which neither the Company
nor the Operating Partnership receives any income.
Pursuant to the 1997 Act, for the Company's taxable years commencing on or
after January 1, 1998, rents received generally will qualify as rents from real
property notwithstanding the fact that the Company provides services that are
not Permissible Services so long as the amount received for such services meets
a DE MINIMIS standard. The amount received for "impermissible services" with
respect to a property (or, if services are available only to certain tenants,
possibly with respect to such tenants) cannot exceed one percent of all amounts
received, directly or indirectly, by the REIT with respect to such property (or,
if services are available only to certain tenants, possibly with respect to such
tenants). The amount that a REIT will be deemed to have received for performing
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"impermissible services" will be the greater of the actual amount so received or
150% of the direct cost to the REIT of providing those services.
The Operating Partnership may receive fees for the performance of property
management and other services with respect to properties in which the Operating
Partnership has a partial interest. Only the portion of the management fee that
corresponds to the Operating Partnership's interest in such properties will
qualify as "rents from real property," with the balance being nonqualifying
income. The Operating Partnership also may receive certain other types of
non-qualifying income (including, for example, certain expense reimbursements,
and dividends and interest from the Property Service Businesses (which qualify
under the 95% gross income test but not under the 75% gross income test)). The
Company believes, however, that the aggregate amount of such fees and other
non-qualifying income in any taxable year will not cause the Company to exceed
the limits on non-qualifying income under the 75% and 95% gross income tests.
If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code. It
is not possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of these relief provisions. Even if these
relief provisions were to apply, a 100% tax would be imposed with respect to the
"excess net income" attributable to the failure to satisfy the 75% and 95% gross
income tests.
ASSET TESTS. At the close of each quarter of the Company's taxable year,
the Company must satisfy three tests relating to the nature of its assets.
First, at least 75% of the value of the Company's total assets must be
represented by "real estate assets," cash, cash items, and government
securities. Second, not more than 25% of the Company's total assets may be
represented by securities, other than those in the 75% asset class. Third, of
the investments included in the 25% asset class, the value of any one
issuer's securities owned by the Company may not exceed 5% of the value of
the Company's total assets, and the Company may not own more than 10% of any
one issuer's outstanding voting securities. The Operating Partnership owns
100% of the nonvoting stock of each of the Property Service Businesses. In
addition, the Operating Partnership holds notes from each of the Property
Service Businesses, and by virtue of its ownership of Units, the Company will
be considered to own its pro rata share of the assets of the Operating
Partnership, including the securities of each of the Property Service
Businesses described above. The Operating Partnership, however, does not own
more than 10% of the voting securities of any of the Property Service
Businesses. In addition, the Company believes that the Company's pro rata
share of the value of the securities of each of the Property Service
Businesses does not exceed 5% of the total value of the Company's assets.
There can be no assurance, however, that the IRS might not contend either
that the value of the securities of one or more of the Property Service
Businesses exceeds the 5% value limitation, or that all or some of the
Property Service Businesses shall be viewed as a single corporation for
purposes of the 5% value limitation and that the value of the securities of
that corporation exceeds the 5% limitation, or that the nonvoting stock of
one or more of the Property Service Businesses should be considered "voting
securities" for purposes of the 10% limitation.
The 5% value requirement must be satisfied not only on the date the Company
acquired securities of the Property Service Businesses, but also each time the
Company increases its ownership of securities of the Property Service Businesses
(including as a result of increasing its interest in the Operating Partnership
as Limited Partners exercise their rights to have Units redeemed for shares of
Common Stock or, at the option of the Company, cash). Although the Company plans
to take steps to ensure that it satisfies the 5% value test for any quarter with
respect to which retesting is to occur, there can be no assurance that such
steps always will be successful or will not require a reduction in the Operating
Partnership's overall interest in the Property Service Businesses.
ANNUAL DISTRIBUTION REQUIREMENTS. To qualify as a REIT, the Company
generally must distribute to its shareholders at least 95% of its income
(excluding any net capital gains) from each taxable year either during such
taxable year or, if certain procedures are followed, during the subsequent
taxable year. The Company will be subject to tax on amounts not distributed at
regular capital gains and ordinary income rates. With respect to income
distributed during a year subsequent to the year in which it was earned by the
Company, if the Company does not pay federal income tax with respect to such
income, the Company may be subject to a 4% excise tax on such income.
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The Company believes that it has made, and intends to continue to make,
timely distributions sufficient to satisfy the annual distribution requirements.
It is possible, however, that the Company, from time to time, may not have
sufficient cash or other liquid assets to meet the 95% distribution requirement.
In that event, the Company may cause the Operating Partnership to arrange for
short-term, or possibly long-term, borrowing to permit the payments of required
dividends.
FAILURE TO QUALIFY. If the Company fails to qualify for taxation as a REIT
in any taxable year and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Unless entitled to relief under specific
statutory provisions, the Company also will be disqualified from taxation as a
REIT for the four taxable years following the year during which qualification
was lost. It is not possible to state whether in all circumstances the Company
would be entitled to such statutory relief.
TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN THE OPERATING PARTNERSHIP AND
PROPERTY SERVICE BUSINESSES
GENERAL. All of the Company's investments are through the Operating
Partnership, and the Operating Partnership holds substantially all of the
Properties through certain subsidiary partnerships. This structure may involve
special tax considerations. These tax considerations include: (a) the
allocations of income and expense items of the Operating Partnership and such
subsidiary partnerships, which could affect the computation of taxable income of
the Company, (b) the status of the Operating Partnership and each such
subsidiary partnership as partnership (as opposed to an association taxable as a
corporation) for income tax purposes, and (c) the taking of actions by the
Operating Partnership or any of such subsidiary partnerships that could
adversely affect the Company's qualification as a REIT. The Company believes
that the Operating Partnership and each of the subsidiary partnerships will be
treated for tax purposes as a partnership (and not as an association taxable as
a corporation). If, however, the Operating Partnership or any of such subsidiary
partnerships were treated as an association taxable as a corporation, the
Company would fail to qualify as a REIT for a number of reasons.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. The Operating
Partnership was formed by way of contributions of appreciated property
(including certain of the Properties) to the Partnership at the time of its
formation, and it has acquired a number of properties by contribution since
that time. When property is contributed to a partnership in exchange for an
interest in the partnership, the partnership generally takes a carryover
basis in that property for tax purposes equal to the adjusted basis of the
contributing partner in the property, rather than a basis equal to the fair
market value of the property at the time of contribution (this difference is
referred to as a "Book-Tax Difference"). The Partnership Agreement requires
such allocations to be made in a manner consistent with Section 704(c) of the
Code and the regulations thereunder, which allocations will tend to eliminate
the Book-Tax Differences with respect to the contributed Properties over the
life of the Operating Partnership. However, because of certain technical
limitations, the special allocation rules of Section 704(c) of the Code may
not always entirely eliminate the Book-Tax Difference on an annual basis or
with respect to a specific taxable transaction such as a sale. Thus, the
carryover basis of the contributed Properties in the hands of the Operating
Partnership could cause the Company (i) to be allocated lower amounts of
depreciation and other deductions for tax purposes than would be allocated to
the Company if all Properties were to have a tax basis equal to their fair
market value at the time of the Formation Transactions or a subsequent
acquisition, and (ii) possibly to be allocated taxable gain in the event of a
sale of such contributed Properties in excess of the economic or book income
allocated to the Company as a result of such sale.
PROPERTY SERVICE BUSINESSES. A substantial portion of the amounts used by
the Operating Partnership to fund distributions to partners (which in turn are
used by the Company to fund distributions to holders of Common Stock) comes from
the Property Service Businesses, through payments on notes issued by the
Property Service Businesses and dividends on non-voting stock of the Property
Service Businesses held by the Operating Partnership. The Property Service
Businesses do not qualify as REITs and thus pay federal, state and local income
taxes on their net income at normal corporate rates. The Property Service
Businesses attempt to limit the amount of such taxes. There can be no assurance,
however, whether or the extent to which measures taken to limit taxes will be
successful. Moreover, even if those measures are successful, future increases in
the income of the Property Service Businesses inevitably will be subject to
income tax. To the extent that the Property Service Businesses are required to
pay
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federal, state and local income taxes, the cash available for distribution to
shareholders will be reduced accordingly. In addition, as described above,
the value of the securities of each of the Property Service Businesses held
by the Operating Partnership cannot exceed 5% of the value of the Operating
Partnership's assets at a time when a Limited Partner exercises his or her
redemption right (or the Company otherwise is considered to acquire
additional securities of a Property Service Business) and the Company cannot
own 10% or more of the voting securities of the Property Service Businesses.
See "Requirements for QualificationAsset Tests." These limitations may
restrict the ability of the Property Service Businesses to increase the size
of their respective businesses unless the value of the assets of the
Operating Partnership is increasing at a commensurate rate, and they prohibit
the Operating Partnership from exercising control over the Property Service
Businesses.
TAXATION OF SHAREHOLDERS
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS As long as the Company
qualifies as a REIT, distributions made to the Company's taxable domestic
shareholders 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 corporate shareholders will not be eligible for the
dividends received deduction as to such amounts.
Distributions that are designated as capital gain dividends will be taxed
as gains from the sale or exchange of a capital asset held for more than one
year (to the extent they do not exceed the Company's actual net capital gain
for the taxable year) without regard to the period for which the shareholder
has held its stock. Corporate shareholders, however, may be required to treat
up to 20% of certain capital gain dividends as ordinary income. As described
below in "Recent Legislation," the 1997 Act changed significantly the
taxation of capital gains by taxpayers who are individuals, estates, or
trust. It is not clear whether, for a taxable domestic shareholder who is an
individual or an estate or trust, amounts designated as capital gain
dividends will be taxable at the rate applicable to mid-term capital gains
(i.e., gains from the sale of capital assets held for more than one year but
not more than 18 months) or at the rate applicable to long-term capital gains
(i.e., gains from the sale of capital assets held for more than 18 months).
This uncertainty may be clarified by future legislation or regulations.
Distributions in excess of current and accumulated earnings and profits will
not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's Common Stock, but rather will reduce the
adjusted basis of such Common Stock. To the extent that such distributions
exceed the adjusted basis of a shareholder's Common Stock, they will be included
in income as capital gains, assuming the Common Stock is a capital asset in the
hands of the shareholder.
In general, a domestic shareholder will realize capital gain or loss on the
disposition of Common Stock equal to the difference between (i) the amount of
cash and the fair market value of any property received on such disposition and
(ii) the shareholder's adjusted basis of such Common Stock. With respect to
dispositions occurring after July 28, 1997, in the case of a taxable domestic
shareholder who is an individual or an estate or trust, such gain or loss will
be mid-term capital gain or loss if such shares have been held for more than one
year but not more than 18 months and long-term capital gain or loss if such
shares have been held for more than 18 months. In the case of a taxable domestic
shareholder that is a corporation, such gain or loss will be long-term capital
gain or loss if such shares have been held for more than one year. Loss upon a
sale or exchange of Common Stock by a shareholder who has held such Common Stock
for six months or less (after applying certain holding period rules) will be
treated as long-term capital loss to the extent of distribution from the Company
required to be treated by such shareholder as long-term capital gain.
Pursuant to the 1997 Act, for the Company's taxable years commencing on or
after January 1, 1998, the Company may elect to require the holders of Common
Stock to include the Company's undistributed net capital gains in their income.
If the Company makes such an election, the holders of Common Stock will (i)
include in their income as long-term capital gains their proportionate share of
such undistributed capital gains and (ii) be deemed to have paid their
proportionate share of the tax paid by the Company on such undistributed capital
gains and thereby receive a credit or refund for such amount. A holder of Common
Stock will increase the basis in its Common Stock by the difference between the
amount of capital gain included in its income and the amount of the tax it is
deemed to have paid. The earnings and profits of the Company will be adjusted
appropriately. As
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described below in "--Recent Legislation," with respect to such long-term
capital gain of a taxable domestic shareholder that is an individual or an
estate or trust, the IRS has authority to issue regulations that could apply
the special tax rate applicable to sales of depreciable real property by an
individual or an estate or trust to the portion of the long-term capital
gains of an individual or an estate or trust attributable to deductions for
depreciation taken with respect to depreciable real property.
Under certain circumstances, domestic shareholders may be subject to backup
withholding at the rate of 31% with respect to dividends paid.
TAXATION OF TAX-EXEMPT SHAREHOLDERS. The Company does not expect the
distributions by the Company to a shareholder that is a tax-exempt entity will
constitute "unrelated business taxable income" ("UBTI"), provided that the
tax-exempt entity has not financed the acquisition of its Common Stock with
"acquisition indebtedness" within the meaning of the Code, and the Common Stock
is not otherwise used in an unrelated trade or business of the tax-exempt
entity. For tax-exempt shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Code
Sections 501 (c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective shareholders should consult their own tax advisors concerning these
"set aside" and reserve requirements.
TAXATION OF NON-U.S. SHAREHOLDERS. The rules governing U.S. federal
income taxation of nonresident alien individuals, foreign corporations,
foreign partnerships and other foreign shareholders (collectively, "Non-U.S.
Shareholders") are complex, and no attempt will be made herein to provide
more than a limited summary of such rules. Prospective Non-U.S. Shareholders
should consult with their own tax advisors to determine the impact of U.S.
federal, state and local income tax laws with regard to an investment in
Common Stock, including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
the Company of U.S. real property interests and not designated by the Company as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions, ordinarily, will be subject to a withholding
tax equal to 30% of the gross amount of the distribution unless an applicable
tax treaty reduces that tax. Distributions in excess of current and accumulated
earnings and profits of the Company will not be taxable to a shareholder to the
extent that they do not exceed the adjusted basis of the shareholder's Common
Stock, but rather will reduce the adjusted basis of such Common Stock. To the
extent that such distributions exceed the adjusted basis of a Non-U.S.
Shareholder's Common Stock, they will give rise to tax liability if the Non-U.S.
Shareholder otherwise would be subject to tax on any gain from the sale or
disposition of his Common Stock as described below. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Shareholder's Common
Stock, they will give rise to gain from the sale or exchange of its Common
Stock, the tax treatment of which is described below. As a result of a
legislative change made by the Small Business Job Protection Act of 1996, it
appears that the Company will be required to withhold 10% of any distribution in
excess of the Company's current and accumulated earnings and profits.
Consequently, although the Company intends to withhold at a rate of 30% on the
entire amount of any distribution (or a lower applicable treaty rate), to the
extent that the Company does not do so, any portion of a distribution not
subject to withholding at a rate of 30% (or a lower applicable treaty rate) will
be subject to withholding at a rate of 10%. However, the Non-U.S. Shareholder
may seek a refund of such amounts from the IRS if it subsequently determined
that such distribution was, in fact, in excess of current or accumulated
earnings and profits of the Company, and the amount withheld exceeded the
Non-U.S. Shareholder's United States tax liability, if any, with respect to the
distribution.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), at the
normal capital gain rates applicable to U.S. shareholders (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals). Also, distributions subject to FIRPTA may be
subject to
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a 30% branch profits tax in the hands of a corporate Non-U.S. Shareholder not
entitled to treaty relief or exemption. The Company is required by applicable
Treasury Regulations to withhold 35% of any distribution that could be
designated by the Company as a capital gain dividend. This amount is
creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Although the law is not entirely clear on the matter, it appears that
amounts designated by the Company pursuant to the 1997 Act as undistributed
capital gains in respect of shares of Common Stock (see "Taxation of
Shareholders--Taxation of Taxable Domestic Shareholders" above) would be treated
with respect to Non-U.S. Shareholders in the manner outlined in the preceding
paragraph for actual distributions by the Company of capital gain dividends.
Under that approach, the Non-U.S. Shareholders would be able to offset as a
credit against their United States federal income tax liability resulting
therefrom their proportionate share of the tax paid by the Company on such
undistributed capital gains (and to receive from the IRS a refund to the extent
their proportionate share of such tax paid by the Company were to exceed their
actual United States federal income tax liability).
Gain recognized by a Non-U.S. Shareholder upon a sale of Common Stock
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held
directly or indirectly by foreign persons. The Company believes that it
currently is a "domestically controlled REIT," and, therefore, the sale of
Common Stock will not be subject to taxation under FIRPTA. If the gain on the
sale of Common Stock were to be subject to tax under FIRPTA, the Non-U.S.
Shareholder would be subject to the same treatment as U.S. shareholders with
respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien
individuals), and the purchaser of the Common Stock would be required to
withhold and remit to the IRS 10% of the purchase price.
RECENT LEGISLATION
As described above, 1997 Act contains certain changes to the REIT
qualification requirements and to the taxation of REITs. The 1997 Act also
contains certain changes to the taxation of capital gains of individuals, trusts
and estates.
CAPITAL GAIN RATES. Subject to certain exceptions, for individuals, trusts
and estates, the maximum rate of tax on the net capital gain from a sale or
exchange occurring after July 28, 1997 of a long-term capital asset (i.e., a
capital asset held for more than 18 months) has been reduced to from 28% to 20%.
The maximum rate has been reduced to 18% for capital assets acquired after
December 21, 2000 and held for more than five years. The maximum rate for
mid-term capital assets (i.e., capital assets held for more than one year but
not more than 18 months) remains at 28%. The maximum rate for net capital gains
attributable to the sale of depreciable real property held for more than 18
months is 25% to the extent of the prior deductions for "unrecaptured Section
1250 gain" (that is depreciation deductions not otherwise recaptured as ordinary
income under the existing depreciation recapture rules). Capital gain from the
sale of depreciable real property held for more than 18 months allocated by the
Company to a non-corporate shareholder will be subject to the 25% rate to the
extent that the capital gain on the real property sold by the Company does not
exceed prior depreciation deductions with respect to such property. The 1997 Act
provides the IRS with authority to issue regulations that could, among other
things, apply these rates on a look-through basis in the case of "pass-through"
entities such as the Company. The taxation of capital gains of corporations was
not changed by the 1997 Act.
REIT PROVISIONS. In addition to the provisions discussed above, the 1997
Act contains a number of technical provisions that either (i) reduce the risk
that the Company will inadvertently cease to qualify as a REIT, or (ii) provide
additional flexibility with which the Company can meet the REIT qualification
requirements. These provisions are effective for the Company's taxable years
commencing on or after January 1, 1998.
OTHER TAX CONSIDERATIONS
STATE AND LOCAL TAXES; DISTRICT OF COLUMBIA UNINCORPORATED BUSINESS TAX. The
Company and its shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which
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it or they 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 Common Stock.
In this regard, the District of Columbia imposes an unincorporated
business income tax, at an effective rate of 9.975% on the "District of
Columbia taxable income" of partnerships doing business in the District of
Columbia. Because certain of the Properties are located in the District of
Columbia, the subsidiary partnership owning these properties will be subject
to this tax. Thus, in effect, the Company's share of the "District of
Columbia taxable income" attributable to the Properties located in the
District of Columbia will be subject to this tax. The Operating Partnership
and such subsidiary partnership will attempt to reduce the amount of income
that is considered "District of Columbia taxable income," but it is likely
that some portion of the income attributable to the Properties located in the
District of Columbia will be subject to the District of Columbia tax. To the
extent the Operating Partnership or such subsidiary partnership is required
to pay the District of Columbia unincorporated business income tax, the cash
available for distribution to the Company and, therefore, to its shareholders
as dividends will be reduced accordingly. Moreover, a shareholder of the
Company will not receive a credit against its own state income tax liability
for its share of any District of Columbia unincorporated business income tax
paid by the Operating Partnership or such subsidiary partnership. This tax
would not apply if the Company were to own and operate its assets directly,
rather than through the Operating Partnership; however, the Company's ability
to eliminate the Operating Partnership and thus own its assets directly is
severely limited.
PLAN OF DISTRIBUTION
The Company may sell Securities in or through underwriters for public offer
and sale by them, and also may sell Securities offered hereby to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer and sell
Securities upon terms and conditions set forth in the applicable Prospectus
Supplement. In connection with the sale of the Securities, underwriters may be
deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of the Securities for whom they may act as agent. Underwriters may
sell Securities to or through dealers, and such dealers may receive compensation
in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of the Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Securities may be deemed to
be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements to be entered into with the
Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
at the public offering price set forth in such Prospectus Supplement pursuant to
delayed delivery contracts ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount not less than, and the aggregate principal amount of Securities
sold pursuant to Contracts 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
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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.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and its Subsidiaries
in the ordinary course of business.
LEGAL MATTERS
The legality of the Debt Securities, the Preferred Stock, the Depositary
Shares, the Common Stock and the Common Stock Warrants offered hereby will be
passed upon for the Company by Hogan & Hartson L.L.P., Washington, D.C.
EXPERTS
The Company's financial statements and related schedule incorporated by
reference herein and elsewhere in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected at the Public Reference Section maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and the
following regional offices of the Commission: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Company's Common Stock is listed on
the New York Stock Exchange and such reports, proxy statements and other
information concerning the Company can be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement"), of which this Prospectus is a part, under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other documents are not necessarily complete, and in each instance, reference is
made to the copy of such contract or documents filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Securities, reference is hereby made to the
Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the Exchange
Act with the Commission and are incorporated herein by reference:
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1. The Company's Annual Report on Form 10-K for the year ended December 31,
1996 (the "10-K").
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1997 and June 30, 1997.
3. The Company's Current Reports on Form 8-K dated January 31, 1997 (as
amended on Form 8-K/A) and October 3, 1997.
All documents filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to
termination of the offering of all Securities to which this Prospectus
relates shall be deemed to be incorporated by reference in this Prospectus
and shall be part hereof from the date of filing of such document.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in this
Prospectus (in the case of a statement in a previously filed document
incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of Securities
or in any other subsequently filed document that is also incorporated or deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
accompanying Prospectus Supplement. Subject to the foregoing, all information
appearing in this Prospectus and each accompanying Prospectus Supplement is
qualified in its entirety by the information appearing in the documents
incorporated by reference.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon their
written or oral request, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents). Written requests
for such copies should be addressed to M. Bruce Snyder, the Company's Vice
President-Institutional Investor Relations, at 2345 Crystal Drive, Arlington,
Virginia 22202, telephone number (703) 769-1000.
AS USED HEREIN, THE TERM "COMPANY" INCLUDES CHARLES E. SMITH RESIDENTIAL
REALTY, INC., A MARYLAND CORPORATION, AND ONE OR MORE OF ITS SUBSIDIARIES
(INCLUDING CHARLES E. SMITH RESIDENTIAL REALTY L.P., SMITH REALTY COMPANY,
CONSOLIDATED ENGINEERING SERVICES, INC. AND SMITH MANAGEMENT CONSTRUCTION, INC.)
OR, AS THE CONTEXT MAY REQUIRE, CHARLES E. SMITH RESIDENTIAL REALTY, INC. ONLY
OR CHARLES E. SMITH RESIDENTIAL REALTY L.P. (THE "OPERATING PARTNERSHIP") ONLY.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth those expenses for distribution to be
incurred in connection with the issuance and distribution of the securities
being registered.
<TABLE>
<S> <C>
Registration Fee................................................................... $ 75,758
Fees of Ratings Agencies........................................................... 75,000
Printing and Duplicating Expenses.................................................. 100,000
Legal Fees and Expenses............................................................ 100,000
Accounting Fees and Expenses....................................................... 50,000
Blue Sky Fees and Expenses......................................................... 30,000
NASD Fees.......................................................................... 20,500
Miscellaneous 1,000
---------
Total.............................................................................. $ 452,258
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS
The Company's officers and directors are and will be indemnified under
Maryland law, the Charter of the Company, and the Operating Partnership's
Partnership Agreement against certain liabilities. The Charter requires the
Company to indemnify its directors and officers to the fullest extent
permitted from time to time by the laws of Maryland. The Company's Charter
also provides that, to the fullest extent permitted under Maryland law,
directors and officers of the Company will not be liable to the Company and
its shareholders for money damages.
Section 2-418 of the Maryland General Corporation Law generally permits
indemnification of any director made a party to any proceedings by reason of
service as a director unless it is established that (i) the act or omission of
such person was material to the matter giving rise to the proceeding and was
committed in bad faith or was the result of active and deliberate dishonesty; or
(ii) such person actually received an improper personal benefit in money
property or services; or (iii) in the case of any criminal proceeding, such
person had reasonable cause to believe that the act or omission was unlawful.
The indemnity may include judgments, penalties, fines, settlements and
reasonable expenses actually incurred by the director in connection with the
proceeding; but, if the proceeding is one by or in the right of the corporation,
indemnification is not permitted with respect to any proceeding in which the
director has been adjudged to be liable to the corporation, or if the proceeding
is one charging improper personal benefit to the director, whether or not
involving action in the director's official capacity, indemnification of the
director is not permitted if the director was adjudged to be liable on the basis
that personal benefit was improperly received. The termination of any proceeding
by conviction or upon a plea of nolo contendere or its equivalent, or any entry
of an order of probation prior to judgment, creates a rebuttable presumption
that the director did not meet the requisite standard of conduct required for
permitted indemnification. The termination of any proceeding by judgment, order
or settlement, however, does not create a presumption that the director failed
to meet the requisite standard of conduct for permitted indemnification.
The Partnership Agreement also provides for indemnification of the Company,
or any director or officer of the Company,in its capacity as general partner of
the Operating Partnership, from and against all losses, claims, damages,
liabilities, joint or several, expenses (including legal fees), fines,
settlements and other amounts incurred in connection with any actions relating
to the operations of the Operating Partnership as set forth in the Partnership
Agreement.
II-1
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ITEM 16. EXHIBITS
<TABLE>
<S> <C>
*3.1 Amended and Restated Articles of Incorporation of the Company
**3.2 Amended and Restated Bylaws of the Company
***4.1 Form of Senior Indenture
***4.2 Form of Subordinated Indenture
4.3 Form of Deposit Agreement
5.1 Opinion of Hogan & Hartson L.L.P. regarding legality of the Common Stock
8.1 Opinion of Hogan & Hartson L.L.P. regarding certain tax matters
12.1 Calculation of Ratios of Earnings to Fixed Charges
23.1 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
****24.1 Power of Attorney
</TABLE>
- ---------------------
* Incorporated by reference to Exhibit 3.1 to the Company's registration
statement on Form S-11 (File No. 33-75288).
** Incorporated by reference to Exhibit 3.2 to the Company's registration
statement on Form S-3 (File No. 33-93986).
*** Incorporated by reference to the same-numbered exhibit to the Company's
registration statement on form S-3 (File No. 333-340).
**** Filed as part of the signature page of this Registration Statement.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement;
provided, however, that subparagraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in the periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in this registration statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the Securities offered herein,
and the offering of such Securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the Securities being registered which remain unsold at the termination
of the offering.
II-2
<PAGE>
The undersigned Registrant hereby further undertakes that, for the purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the Securities offered herein, and the offering of such Securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance under Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 of this
registration statement, or otherwise (other than insurance), this Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, office or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the Securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in such Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes, in connection with securities
to be offered pursuant to warrants, to supplement the prospectus, after the
expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriters is to be made on terms differing from those
set forth on the cover page of the prospectus, a post-effective amendment will
be filed to set forth the terms of such offering.
The undersigned registrant hereby undertakes to file an application for
purposes of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Arlington, Commonwealth of Virginia, on October 31,
1997.
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
By: /s/ Ernest A. Gerardi, Jr.
---------------------------------------
Name: Ernest A. Gerardi, Jr.
Title: President and Chief Operating Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ernest A. Gerardi, Jr. as true and lawful
attorney-in-fact, with full power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign any amendments to this
Registration Statement (including post-effective amendments), and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorney-in-fact may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---------------------------------------------- ---------------------------------------------- -----------------
<S> <C> <C>
/s/ Robert H. Smith
- ---------------------------------------------- Co-Chairman of the Board, Co-Chief
Robert H. Smith Executive Officer, and Director October 31, 1997
/s/ Robert P. Kogod
- ---------------------------------------------- Co-Chairman of the Board, Co-Chief
Robert P. Kogod Executive Officer, and Director October 31, 1997
/s/ Ernest A. Gerardi, Jr.
- ---------------------------------------------- President, Chief Operating Officer, and
Ernest A. Gerardi, Jr. Director October 31, 1997
/s/ Wesley Denn Minami
- ---------------------------------------------- Executive Vice President, Treasurer,
Wesley Denn Minami and Chief Financial Officer October 31, 1997
II-4
<PAGE>
/s/ Steven E. Gulley
- ---------------------------------------------- Controller October 31, 1997
Steven E. Gulley
/s/ Fred J. Brinkman
- ---------------------------------------------- Director October 31, 1997
Fred J. Brinkman
/s/ Charles B. Gill
- ---------------------------------------------- Director October 31, 1997
Charles B. Gill
/s/ Mandell J. Ourisman
- ---------------------------------------------- Director October 31, 1997
Mandell J. Ourisman
/s/ Mallory Walker
- ---------------------------------------------- Director October 31, 1997
Mallory Walker
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT Sequentially
NUMBER EXHIBIT DESCRIPTION Number Page
- --------- ------------------------------------------------------------------------- -----------
<S> <C> <C>
*3.1 Amended and Restated Articles of Incorporation of the Company............
**3.2 Amended and Restated Bylaws of the Company...............................
***4.1 Form of Senior Indenture.................................................
***4.2 Form of Subordinated Indenture...........................................
4.3 Form of Deposit Agreement................................................
5.1 Opinion of Hogan & Hartson L.L.P. regarding legality of the Common Stock.
8.1 Opinion of Hogan & Hartson L.L.P. regarding certain tax matters..........
12.1 Calculation of Ratios of Earnings to Fixed Charges.......................
23.1 Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)..............
23.2 Consent of Arthur Andersen LLP...........................................
****24.1 Power of Attorney........................................................
</TABLE>
- ---------------------
* Incorporated by reference to Exhibit 3.1 to the Company's registration
statement on Form S-11 (File No. 33-75288).
** Incorporated by reference to Exhibit 3.2 to the Company's registration
statement on Form S-3 (File No. 33-93986).
*** Incorporated by reference to the same-numbered exhibit to the Company's
registration statement on form S-3 (File No. 333-340).
**** Filed as part of the signature page of this Registration Statement.
<PAGE>
EXHIBIT 4.3
DEPOSIT AGREEMENT
between
Charles E. Smith Residential Realty, Inc.
and
[Depositary]
, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS............................................................. 1
2. FORM OF RECEIPTS, DEPOSIT OF PREFERRED SHARES, EXECUTION AND
DELIVERY, TRANSFER, SURRENDER AND REDEMPTION OF RECEIPTS............... 3
2.1. Form and Transferability of Receipts.............................. 3
2.2. Deposit of Preferred Stock; Execution and Delivery of Receipts
in Respect Thereof............................................... 4
2.3. Optional Redemption of Preferred Stock for Cash................... 5
2.4. Registration of Transfers of Receipts............................. 7
2.5. Combinations and Split-ups of Receipts............................ 7
2.6. Surrender of Receipts and Withdrawal of Preferred Stock........... 7
2.7. Limitations on Execution and Delivery, Transfer, Split-up,
Combination, Surrender and Exchange of Receipts.................. 8
2.8. Lost Receipts, etc................................................ 9
2.9. Cancellation and Destruction of Surrendered Receipts.............. 9
2.10. Conversion of Preferred Stock into Excess Preferred Stock........ 9
3. CERTAIN OBLIGATIONS OF HOLDERS OF RECEIPTS AND THE COMPANY.............. 10
3.1. Filing Proofs, Certificates and Other Information................. 10
3.2. Payment of Fees and Expenses...................................... 10
3.3. Representations and Warranties as to Preferred Stock.............. 11
3.4. Representation and Warranty as to Receipts and Depositary Shares.. 11
4. THE PREFERRED SHARES; NOTICES........................................... 11
4.1. Cash Distributions................................................ 11
4.2. Distributions Other Than Cash..................................... 12
4.3. Subscription Rights, Preferences or Privileges.................... 12
4.4. Notice of Dividends; Fixing of Record Date for Holders of
Receipts......................................................... 13
4.5. Voting Rights..................................................... 14
4.6. Changes Affecting Preferred Stock and Reclassifications,
Recapitalization, etc............................................ 14
4.7. Inspection of Reports............................................. 15
4.8. Lists of Receipt Holders.......................................... 16
4.9. Tax and Regulatory Compliance..................................... 16
4.10. Withholding...................................................... 16
5. THE DEPOSITARY AND THE COMPANY.......................................... 16
5.1. Maintenance of Offices, Agencies and Transfer Books by the
Depositary and the Registrar..................................... 16
-i-
<PAGE>
5.2. Prevention or Delay in Performance by the Depositary, the
Depositary's Agents, the Registrar or the Company................ 17
5.3. Obligations of the Depositary, the Depositary's Agents, the
Registrar and the Company........................................ 17
5.4. Resignation and Removal of the Depositary; Appointment of
Successor Depositary............................................. 19
5.5. Notices, Reports and Documents.................................... 20
5.6. Indemnification by the Company.................................... 20
5.7. Fees, Charges and Expenses........................................ 21
6. AMENDMENT AND TERMINATION............................................... 21
6.1. Amendment......................................................... 21
6.2. Termination....................................................... 22
7. MISCELLANEOUS........................................................... 22
7.1. Counterparts...................................................... 22
7.2. Exclusive Benefits of Parties..................................... 23
7.3. Invalidity of Provisions.......................................... 23
7.4. Notices........................................................... 23
7.5. Depositary's Agents............................................... 24
7.6. Holders of Receipts Are Parties................................... 24
7.7. Governing Law..................................................... 24
7.8. Inspection of Deposit Agreement and Articles Supplementary........ 24
7.9. Headings.......................................................... 25
-ii-
<PAGE>
DEPOSIT AGREEMENT
THIS DEPOSIT AGREEMENT, dated as of , 1997 among CHARLES E. SMITH
RESIDENTIAL REALTY, INC., a Maryland corporation (the "Company"), and ,
a national banking association, as Depositary, and all holders from time to
time of Receipts (as hereinafter defined) issued hereunder.
WITNESSETH:
WHEREAS, it is desired to provide, as hereinafter set forth in this
Deposit Agreement, for the deposit of shares of the Company's Preferred Stock
(as hereinafter defined) with the Depositary for the purposes set forth in
this Deposit Agreement and for the issuance hereunder of the Receipts
evidencing Depositary Shares representing a fractional interest in the shares
of Preferred Stock deposited; and
WHEREAS, the Receipts are to be substantially in the form of Exhibit A
annexed to this Deposit Agreement, with appropriate insertions, modifications
and omissions, as hereinafter provided in this Deposit Agreement;
NOW, THEREFORE, in consideration of the premises contained herein, it is
agreed by and among the parties hereto as follows:
ARTICLES
1. DEFINITIONS
The following definitions shall apply to the respective terms (in the
singular and plural forms of such terms) used in this Deposit Agreement and
the Receipts:
"Articles Supplementary" shall mean the Articles Supplementary filed with
the Maryland State Department of Assessments and Taxation establishing the
Preferred Stock as a series of Preferred Stock of the Company.
"Common Stock" shall mean the Company's common stock, $.01 par value per
share.
"Company" shall mean Charles E. Smith Residential Realty, Inc., and its
successors.
"Corporate Office" shall mean the corporate office of the Depositary at
which at any particular time its business in respect of matters governed by
this Deposit Agreement shall be administered, which at the date of this
Deposit Agreement is located at .
<PAGE>
"Deposit Agreement" shall mean this agreement, as the same may be
amended, modified or supplemented from time to time.
"Depositary" shall mean , a company having its principal office in
the United States and having a combined capital and surplus of at least
$50,000,000, and any successor as depositary hereunder.
"Depositary Share" shall mean a fractional interest of 1/10 of a share of
Preferred Stock deposited with the Depositary hereunder and the same
proportionate interest in any and all other property received by the
Depositary in respect of such share of Preferred Stock and held under this
Deposit Agreement, all as evidenced by the Receipts issued hereunder. Subject
to the terms of this Deposit Agreement, each owner of a Depositary Share is
entitled, proportionately, to all the rights, preferences and privileges of
the share of Preferred Stock represented by such Depositary Share, including
the dividend, voting, redemption, conversion and liquidation rights contained
in the Articles Supplementary.
"Depositary's Agent" shall mean an agent appointed by the Depositary as
provided, and for the purposes specified, in Section 7.5.
"Excess Preferred Stock" shall mean shares of the Company's Series A
Excess Preferred Stock to be issued pursuant to Section 2.10.
"Preferred Stock" shall mean the Company's Series A Cumulative Redeemable
Preferred Stock, $0.01 par value per share, heretofore validly issued, fully
paid and nonassessable.
"Receipt" shall mean a Depositary Receipt issued hereunder to evidence
one or more Depositary Shares, whether in definitive or temporary form,
substantially in the form set forth as Exhibit A hereto.
"Record Date" shall mean the date fixed pursuant to Section 4.4.
"Record Holder" or "Holder" as applied to a Receipt shall mean the person
in whose name a Receipt is registered on the books maintained by the
Depositary for such purpose.
"Registrar" shall mean or any bank or trust company appointed to
register ownership and transfers of Receipts, the deposited Preferred Stock
or Excess Preferred Stock, as the case may be, as herein provided.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Transfer Agent" shall mean or any bank or trust company appointed
to transfer the Receipts, the deposited Preferred Stock or Excess Preferred
Stock, as the case may be, as herein provided.
-2-
<PAGE>
2. FORM OF RECEIPTS, DEPOSIT OF PREFERRED SHARES, EXECUTION AND DELIVERY,
TRANSFER, SURRENDER AND REDEMPTION OF RECEIPTS
2.1. Form and Transferability of Receipts.
Definitive Receipts shall be engraved or printed or lithographed with
steel-engraved borders and underlying tint and shall be substantially in the
form set forth in Exhibit A annexed to this Deposit Agreement, with
appropriate insertions, modifications and omissions, as hereinafter provided.
Pending the preparation of definitive Receipts, the Depositary, upon the
written order of the Company, delivered in compliance with Section 2.2, shall
execute and deliver temporary Receipts which may be printed, lithographed,
typewritten, mimeographed or otherwise substantially of the tenor of the
definitive Receipts in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
persons executing such Receipts may determine, as evidenced by their
execution of such Receipts. If temporary Receipts are issued, the Company and
the Depositary will cause definitive Receipts to be prepared without
unreasonable delay. After the preparation of definitive Receipts, the
temporary Receipts shall be exchangeable for definitive Receipts upon
surrender of the temporary Receipts at the Corporate office or such other
offices, if any, as the Depositary may designate, without charge to the
holder. Upon surrender for cancellation of any one or more temporary
Receipts, the Depositary shall execute and deliver in exchange therefor
definitive Receipts representing the same number of Depositary Shares as
represented by the surrendered temporary Receipt or Receipts. Such exchange
shall be made at the Company's expense and without any charge therefor. Until
so exchanged, the temporary Receipts shall in all respects be entitled to the
same benefits under this Deposit Agreement, and with respect to the shares of
Preferred Stock deposited, as definitive Receipts.
Receipts shall be executed by the Depositary by the manual or facsimile
signature of a duly authorized signatory of the Depositary; provided that if
a Registrar (other than the Depositary) shall have been appointed then such
Receipts shall also be countersigned by manual signature of a duly authorized
signatory of the Registrar. No Receipt shall be entitled to any benefits
under this Deposit Agreement or be valid or obligatory for any purpose unless
it shall have been executed as provided in the preceding sentence. The
Depositary shall record on its books each Receipt executed as provided above
and delivered as hereinafter provided.
Except as the Depositary may otherwise determine, Receipts shall be in
denominations of any number of whole Depositary Shares. All Receipts shall be
dated the date of their issuance.
-3-
<PAGE>
Receipts may be endorsed with or have incorporated in the text thereof
such legends or recitals or changes not inconsistent with the provisions of
this Deposit Agreement as may be required by the Depositary or required to
comply with any applicable law or regulation or with the rules and emulations
of any securities exchange upon which the shares of Preferred Stock, the
Depositary Shares or the Receipts may be listed or to conform with any usage
with respect thereto, or to indicate any special limitations or restrictions
to which any particular Receipts are subject.
Title to any Receipt (and to the Depositary Shares evidenced by such
Receipt), that is properly endorsed or accompanied by a properly executed
instrument of transfer or endorsement shall be transferable by delivery with
the same effect as in the case of a negotiable instrument; provided, however,
that until a Receipt shall be transferred on the books of the Depositary as
provided in Section 2.4, the Depositary may, notwithstanding any notice to
the contrary, treat the record holder thereof at such time as the absolute
owner thereof for the purpose of determining the person entitled to
distribution of dividends or other distributions, the exercise of any
conversion rights or to any notice provided for in this Deposit Agreement and
for all other purposes.
2.2. Deposit of Preferred Stock; Execution and Delivery of Receipts in
Respect Thereof.
Concurrently with the execution of this Deposit Agreement, the Company is
delivering to the Depositary a certificate or certificates, registered in the
name of the Depositary and evidencing [ ] Preferred Stock,
properly endorsed or accompanied, if required by the Depositary, by a duly
executed instrument of transfer or endorsement, in form satisfactory to the
Depositary, together with (i) all such certifications as may be required by
the Depositary in accordance with the provisions of this Deposit Agreement
and (ii) a written order of the Company directing the Depositary to execute
and deliver to, or upon the written order of, the person or persons stated in
such order a Receipt or Receipts for the Depositary Shares representing such
deposited shares of Preferred Stock. The Depositary acknowledges receipt of
the deposited shares of Preferred Stock and related documentation and agrees
to hold such deposited shares of Preferred Stock in an account to be
established by the Depositary at the Corporate Office or at such other office
as the Depositary shall determine. The Company hereby appoints the Depositary
as the Registrar and Transfer Agent for Preferred Stock deposited hereunder
and any Excess Preferred Stock issued pursuant to Section 2.10 and the
Depositary hereby accepts such appointment and, as such, will reflect changes
in the number of shares (including any fractional shares) of deposited
Preferred Stock held by it by notation, book-entry or other appropriate
method.
If required by the Depositary, Preferred Stock presented for deposit by
the Company at any time, whether or not the register of shareholders of the
Company
-4-
<PAGE>
is closed, shall also be accompanied by an agreement or assignment, or other
instrument satisfactory to the Depositary, that will provide for the prompt
transfer to the Depositary or its nominee of any dividend or right to
subscribe for additional shares of Preferred Stock or to receive other
property that any person in whose name the Preferred Stock are or have been
registered may thereafter receive upon or in respect of such deposited
Preferred Stock, or in lieu thereof such agreement of indemnity or other
agreement as shall be satisfactory to the Depositary.
Upon receipt by the Depositary of a certificate or certificates for
Preferred Stock deposited hereunder, together with the other documents
specified above, and upon registering such Preferred Stock in the name of the
Depositary, the Depositary, subject to the terms and conditions of this
Deposit Agreement, shall execute and deliver to, or upon the order of, the
person or persons named in the written order delivered to the Depositary
referred to in the first paragraph of this Section 2.2, a Receipt or Receipts
for the number of whole Depositary Shares representing the shares of
Preferred Stock so deposited and registered in such name or names as may be
requested by such person or persons. The Depositary shall execute and deliver
such Receipt or Receipts at the Corporate Office, except that, at the
request, risk and expense of any person requesting such delivery, such
delivery may be made at such other place as may be designated by such person.
Other than in the case of splits, combinations or other reclassifications
affecting the Preferred Stock, or in the case of dividends or other
distributions of Preferred Stock, if any, there shall be deposited hereunder
not more than the number of shares constituting the Preferred Stock as set
forth in the Articles Supplementary, as such may be amended.
The Company shall deliver to the Depositary from time to time such
quantities of Receipts as the Depositary may request to enable the Depositary
to perform its obligations under this Deposit Agreement.
2.3. Optional Redemption of Preferred Stock for Cash.
Whenever the Company shall elect to redeem deposited Preferred Stock for
cash in accordance with the provisions of the Articles Supplementary, it
shall (unless otherwise agreed in writing with the Depositary) give the
Depositary not less than 60 days' prior written notice of the date of such
proposed redemption and of the number of such shares of Preferred Stock held
by the Depositary to be redeemed and the applicable redemption price, as set
forth in the Articles Supplementary, including the amount, if any, of accrued
and unpaid dividends to the date of such redemption. The Depositary shall
mail, first-class postage prepaid, notice of the redemption of Preferred
Stock and the proposed simultaneous redemption of the Depositary Shares
representing the Preferred Stock to be redeemed, not less than 30 and not
more than 60 days prior to the date fixed for redemption of such Preferred
Stock and Depositary Shares (the "cash redemption
-5-
<PAGE>
date"), to the holders of record on the record date fixed for such redemption
pursuant to Section 4.4 hereof of the Receipts evidencing the Depositary
Shares to be so redeemed, at the addresses of such holders as the same appear
on the records of the Depositary; but neither failure to mail any such notice
to one or more such holders nor any defect in any such notice shall affect
the sufficiency of the proceedings for redemption as to other holders. The
Company shall provide the Depositary with such notice, and each such notice
shall state: the cash redemption date; the cash redemption price; the number
of deposited shares of Preferred Stock and Depositary Shares to be redeemed;
if fewer than all the Depositary Shares held by any holder are to be
redeemed, the number of such Depositary Shares held by such holder to be so
redeemed; the place or places where Receipts evidencing Depositary Shares to
be redeemed are to be surrendered for payment of the cash redemption price;
and that from and after the cash redemption date dividends in respect of the
Preferred Stock represented by the Depositary Shares to be redeemed will
cease to accrue. If fewer than all the outstanding Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed shall be selected pro rata
(as nearly as may be practicable without creating fractional Depositary
Shares) or by any other equitable method determined by the Company that will
not result in the issuance of any Excess Preferred Stock. The Company shall
also cause notice of redemption to be published in a newspaper of general
circulation in The City of [New York]at least once a week for two successive
weeks commencing not less than 30 nor more than 60 days prior to the cash
redemption date.
In the event that notice of redemption has been made as described in the
immediately preceding paragraph and the Company shall then have paid in full
to the Depositary the cash redemption price (determined pursuant to the
Articles Supplementary) of the Preferred Stock deposited with the Depositary
to be redeemed (including any accrued and unpaid dividends to the date of
redemption), the Depositary shall redeem the number of Depositary Shares
representing such shares of Preferred Stock so called for redemption by the
Company and from and after the cash redemption date (unless the Company shall
have failed to redeem the Preferred Stock to be redeemed by it as set forth
in the Company's notice provided for in the preceding paragraph), all
dividends in respect of the Preferred Stock called for redemption shall cease
to accrue, the Depositary Shares called for redemption shall be deemed no
longer to be outstanding and all rights of the holders of Receipts evidencing
such Depositary Shares (except the right to receive the cash redemption price
and any money or other property to which holders of such Receipts were
entitled upon such redemption) shall, to the extent of such Depositary
Shares, cease and terminate. Upon surrender in accordance with said notice of
the Receipts evidencing such Depositary Shares (properly endorsed or assigned
for transfer, if the Depositary shall so require), such Depositary Shares
shall be redeemed at a cash redemption price of $25.00 per Depositary Share
plus any other money and other property payable in respect of such Preferred
Stock. The foregoing shall be further subject to the terms and conditions of
the Articles Supplementary.
-6-
<PAGE>
If fewer than all of the Depositary Shares evidenced by a Receipt are
called for redemption, the Depositary will deliver to the holder of such
Receipt upon its surrender to the Depositary, together with payment of the
cash redemption price for and all other amounts payable in respect of the
Depositary Shares called for redemption, a new Receipt evidencing the
Depositary Shares evidenced by such prior Receipt and not called for
redemption.
2.4. Registration of Transfers of Receipts.
The Company hereby appoints the Depositary as the Registrar and Transfer
Agent for the Receipts and the Depositary hereby accepts such appointment
and, as such, shall register on its books from time to time transfers of
Receipts upon, any surrender thereof by the holder in person or by a duly
authorized attorney, properly endorsed or accompanied by a properly executed
instrument of transfer or endorsement, together with evidence of the payment
of any transfer taxes as may be required by law. Upon such surrender, the
Depositary shall execute a new Receipt or Receipts and deliver the same to or
upon the order of the person entitled thereto evidencing the same aggregate
number of Depositary Shares evidenced by the Receipt or Receipts surrendered.
2.5. Combinations and Split-ups of Receipts.
Upon surrender of a Receipt or Receipts at the Corporate Office or such
other office as the Depositary may designate for the purpose of effecting a
split-up or combination of Receipts, subject to the terms and conditions of
this Deposit Agreement, the Depositary shall execute and deliver a new
Receipt or Receipts in the authorized denominations requested evidencing the
same aggregate number of Depositary Shares evidenced by the Receipt or
Receipts surrendered.
2.6. Surrender of Receipts and Withdrawal of Preferred Stock.
Any holder of a Receipt or Receipts may withdraw any or all of the
deposited Preferred Stock represented by the Depositary Shares evidenced by
such Receipt or Receipts and all money and other property, if any,
represented by such Depositary Shares by surrendering such Receipt or
Receipts at the Corporate Office or at such other office as the Depositary
may designate for such withdrawals; provided that a holder of a Receipt or
Receipts may not withdraw such Preferred Stock (or money and other property,
if any, represented thereby) which has previously been called for redemption
or which has been converted to Excess Preferred Stock in accordance with
Section 2.10. After such surrender, without unreasonable delay, the
Depositary shall deliver to such holder, or to the person or persons
designated by such holder as hereinafter provided, the number of whole or
fractional shares of such Preferred Stock and all such money and other
property, if any, represented by the Depositary Shares evidenced by the
Receipt or Receipts so surrendered for
-7-
<PAGE>
withdrawal, but holders of such whole or fractional Preferred Stock will not
thereafter be entitled to deposit such Preferred Stock hereunder or to
receive Depositary Shares therefor. If the Receipt or Receipts delivered by
the holder to the Depositary in connection with such withdrawal shall
evidence a number of Depositary Shares in excess of the number of Depositary
Shares representing the number of whole or fractional shares of deposited
Preferred Stock to be withdrawn, the Depositary shall at the same time, in
addition to such number of whole or fractional Preferred Stock and such money
and other property, if any, to be withdrawn, deliver to such holder, or
(subject to Section 2.4) upon his order, a new Receipt or Receipts evidencing
such excess number of Depositary Shares. Delivery of such Preferred Stock and
such money and other property being withdrawn may be made by the delivery of
such certificates, documents of title and other instruments as the Depositary
may deem appropriate, which, if required by the Depositary, shall be properly
endorsed or accompanied by proper instruments of transfer.
If the deposited Preferred Stock and the money and other property being
withdrawn are to be delivered to a person or persons other than the record
holder of the Receipt or Receipts being surrendered for withdrawal of
Preferred Stock, such holder shall execute and deliver to the Depositary a
written order so directing the Depositary and the Depositary may require that
the Receipt or Receipts surrendered by such holder for withdrawal of such
Preferred Stock be properly endorsed in blank or accompanied by a properly
executed instrument of transfer or endorsement in blank.
The Depositary shall deliver the deposited Preferred Stock and the money
and other property, if any, represented by the Depositary Shares evidenced by
Receipts surrendered for withdrawal at the Corporate Office, except that, at
the request, risk and expense of the holder surrendering such Receipt or
Receipts and for the account of the holder thereof, such delivery may be made
at such other place as may be designated by such holder.
2.7. Limitations on Execution and Delivery, Transfer, Split-up,
Combination, Surrender and Exchange of Receipts.
As a condition precedent to the execution and delivery, transfer,
split-up, combination, surrender or exchange of any Receipt, the Depositary,
any of the Depositary's Agents or the Company may require any or all of the
following: (i) payment to it of a sum sufficient for the payment (or, in the
event that the Depositary or the Company shall have made such payment, the
reimbursement to it) of any tax or other governmental charge with respect
thereto (including any such tax or charge with respect to the Preferred Stock
being deposited or withdrawn); (ii) the production of proof satisfactory to
it as to the identity and genuineness of any signature (or the authority of
any signature); and (iii) compliance with such regulations, if any, as the
Depositary or the Company may establish consistent with
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the provisions of this Deposit Agreement as may be required by any securities
exchange upon which the deposited Preferred Stock, the Depositary Shares or
the Receipts may be included for quotation or listed.
The deposit of Preferred Stock may be refused, the delivery of Receipts
against Preferred Stock may be suspended, the transfer of Receipts may be
refused, and the transfer, split-up, combination, surrender, exchange or
redemption of outstanding Receipts may be suspended (i) during any period
when the register of shareholders of the Company is closed or (ii) if any
such action is deemed reasonably necessary or advisable by the Depositary,
any of the Depositary's Agents or the Company at any time or from time to
time because of any requirement of law or of any government or governmental
body or commission, or under any provision of this Deposit Agreement.
2.8. Lost Receipts, etc.
In case any Receipt shall be mutilated or destroyed or lost or stolen,
the Depositary in its discretion may execute and deliver a Receipt of like
form and tenor in exchange and substitution for such mutilated Receipt or in
lieu of and in substitution for such destroyed, lost or stolen Receipt;
provided that the holder thereof provides the Depositary with (i) evidence
reasonably satisfactory to the Depositary of such destruction, loss or theft
of such Receipt, of the authenticity thereof and of his ownership thereof and
(ii) reasonable indemnification satisfactory to the Depositary and the
Company.
2.9. Cancellation and Destruction of Surrendered Receipts.
All Receipts surrendered to the Depositary or any Depositary's Agent
shall be canceled by the Depositary. Except as prohibited by applicable law
or regulation, the Depositary is authorized to destroy such Receipts so
canceled.
2.10. Conversion of Preferred Stock into Excess Preferred Stock
As provided in the Articles Supplementary, upon the happening of certain
events, Preferred Stock (in whole or fractional parts) shall be automatically
converted into Excess Preferred Stock. In the event of such a conversion, the
Receipt representing the deposited Preferred Stock so converted shall no
longer represent, to the extent of the shares so converted, such deposited
Preferred Stock. Promptly upon its knowledge of the conversion of such
deposited Preferred Stock into Excess Preferred Stock, the Company shall
notify the Depositary of such conversion, the number of deposited Preferred
Stock so converted, and the identity of the holder of the Receipt so
affected, whereupon the Depositary shall promptly notify the holder of such
Receipt of the foregoing information and the requirement for the holder to
surrender such Receipt to the Depositary for cancellation of the
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number of Depositary Shares evidenced thereby equal to the converted
deposited Preferred Stock represented thereby.
If fewer than all of the Depositary Shares evidenced by a Receipt are
required to be surrendered for cancellation, the Depositary will deliver to
the holder of such Receipt upon its surrender to the Depositary a new Receipt
evidencing the Depositary Shares evidenced by such prior Receipt and not
required to be surrendered for cancellation. Upon the conversion of the
deposited Preferred Stock and cancellation of the Depositary Shares
represented thereby, the Depositary will make appropriate adjustments in its
records (as contemplated in Section 2.2) to reflect such conversion and
cancellation (including the reduction of any fractional share of deposited
Preferred Stock and the issuance of any Excess Preferred Stock).
3. CERTAIN OBLIGATIONS OF HOLDERS OF RECEIPTS AND THE COMPANY
3.1. Filing Proofs, Certificates and Other Information.
Any person presenting Preferred Stock for deposit or any holder of a
Receipt may be required from time to time to file such proof of residence or
other information, to execute such certificates and to make such
representations and warranties as the Depositary or the Company may
reasonably deem necessary or proper. The Depositary or the Company may
withhold or delay the delivery of any Receipt, the transfer, redemption or
exchange of any Receipt, the withdrawal of the deposited Preferred Stock
represented by the Depositary Shares evidenced by any Receipt, the
distribution of any dividend or other distribution or the sale of any rights
or of the proceeds thereof, until such proof or other information is filed,
such certificates are executed or such representations and warranties are
made.
3.2. Payment of Fees and Expenses.
Holders of Receipts shall be obligated to make payments to the Depositary
of certain fees and expenses, as provided in Section 5.7, or provide evidence
reasonably satisfactory to the Depositary that such fees and expenses have
been paid. Until such payment is made, transfer of any Receipt or any
withdrawal of the Preferred Stock or money or other property, if any,
represented by the Depositary Shares evidenced by such Receipt may be
refused, any dividend or other distribution may be withheld, and any part or
all of the Preferred Stock or other property represented by the Depositary
Shares evidenced by such Receipt may be sold for the account of the holder
thereof (after attempting by reasonable means to notify such holder a
reasonable number of days prior to such sale). Any dividend or other
distribution so withheld and the proceeds of any such sale may be applied to
any payment of such fees or expenses, the holder of such Receipt remaining
liable for any deficiency.
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3.3. Representations and Warranties as to Preferred Stock.
In the case of the initial deposit of the Preferred Stock hereunder, the
Company and, in the case of subsequent deposits thereof, each person so
depositing Preferred Stock under this Deposit Agreement shall be deemed
thereby to represent and warrant that such Preferred Stock and each
certificate therefor are valid and that the person making such deposit is
duly authorized to do so. The Company hereby further represents and warrants
that such Preferred Stock, when issued, will be validly issued, fully paid
and nonassessable. Such representations and warranties shall survive the
deposit of the Preferred Stock and the issuance of Receipts.
3.4. Representation and Warranty as to Receipts and Depositary Shares.
The Company hereby represents and warrants that the Receipts, when
issued, will evidence legal and valid interests in the Depositary Shares and
each Depositary Share will represent a legal and valid 1/10 fractional
interest in a deposited share of Preferred Stock. Such representation and
warranty shall survive the deposit of the Preferred Stock and the issuance of
Receipts evidencing the Depositary Shares.
4. THE PREFERRED SHARES; NOTICES
4.1. Cash Distributions.
Whenever the Depositary shall receive any cash dividend or other cash
distribution on the deposited Preferred Stock, including any cash received
upon redemption of any Preferred Stock pursuant to Section 2.3, the
Depositary shall, subject to Section 3.2, distribute to record holders of
Receipts on the record date fixed pursuant to Section 4.4 such amounts of
such sum as are, as nearly as practicable, in proportion to the respective
numbers of Depositary Shares evidenced by the Receipts held by such holders;
provided, however, that (i) in case the Company or the Depositary shall be
required to and shall withhold from any cash dividend or other cash
distribution in respect of the Preferred Stock represented by the Receipts
held by any holder an amount on account of taxes, the amount made available
for distribution or distributed in respect of Depositary Shares represented
by such Receipts subject to such withholding shall be reduced accordingly and
(ii) no cash dividends will be paid in respect of any Depositary Share to the
extent that it represents any Preferred Stock converted into Excess Preferred
Stock. The Depositary shall distribute or make available for distribution, as
the case may be, only such amount, however, as can be distributed without
attributing to any holder of Receipts a fraction of one cent, and any balance
not so distributable shall be held by the Depositary (without liability for
interest thereon) and shall be added to and
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be treated as part of the next sum received by the Depositary for
distribution to record holders of Receipts then outstanding.
4.2. Distributions Other Than Cash.
Whenever the Depositary shall receive any distribution other than cash on
the deposited Preferred Stock, the Depositary shall, subject to Section 3.2,
distribute to record holders of Receipts on the record date fixed pursuant to
Section 4.4 such amounts of the securities or property received by it as are,
as nearly as practicable, in proportion to the respective numbers of
Depositary Shares evidenced by the Receipts held by such holders, in any
manner, that the Depositary and the Company may deem equitable and
practicable for accomplishing such distribution, except that no distribution
will be made in respect of any Depositary Share to the extent that it
represents any Preferred Stock converted into Excess Preferred Stock. If, in
the opinion of the Depositary after consultation with the Company, such
distribution cannot be made proportionately among such record holders, or if
for any other reason (including any requirement that the Company or the
Depositary withhold an amount on account of taxes), the Depositary deems,
after consultation with the Company, such distribution not to be feasible,
the Depositary may, with the approval of the Company, adopt such method as it
deems equitable and practicable for the purpose of effecting such
distribution, including the sale (at public or private sale) of the
securities or property thus received or any part thereof, at such place or
places and upon such terms as it may deem proper. The net proceeds of any
such sale shall, subject to Section 3.2, be distributed or made available for
distribution, as the case may be, by the Depositary to record holders of
Receipts as provided by Section 4.1 in the case of a distribution received in
cash. The Company shall not make any distribution of such securities or
property to the holders of Receipts unless the Company shall have provided to
the Depositary an opinion of counsel stating that such securities or property
have been registered under the Securities Act or do not need to be registered.
4.3. Subscription Rights, Preferences or Privileges.
If the Company shall at any time offer or cause to be offered to the
persons in whose names deposited Preferred Stock are registered on the books
of the Company any rights, preferences or privileges to subscribe for or to
purchase any securities or any rights, preferences or privileges of any other
nature, such rights, preferences or privileges shall in each such instance be
made available by the Depositary to the record holders of Receipts in such
manner as the Company shall instruct (including by the issue to such record
holders of warrants representing such rights, preferences or privileges);
provided, however, that (a) if at the time of issue or offer of any such
rights, preferences or privileges the Company determines upon advice of its
legal counsel that it is not lawful or feasible to make such rights,
preferences or privileges available to the holders of Receipts (by the issue
of warrants or
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otherwise) or (b) if and to the extent instructed by holders of Receipts who
do not desire to exercise such rights, preferences or privileges, the
Depositary shall then, if so instructed to the Company, and if applicable
laws or the terms of such rights, preferences or privileges so permit, sell
such rights, preferences or privileges of such holders at public or private
sale, at such place or places and upon such terms as it may deem proper. The
net proceeds of any such sale shall, subject to Section 3.1 and Section 3.2,
be distributed by the Depositary to the record holders of Receipts entitled
thereto as provided by Section 4.1 in the case of a distribution received in
cash. The Company shall not make any distribution of such rights, preferences
or privileges, unless the Company shall have provided to the Depositary an
opinion of counsel stating that such rights, preferences or privileges have
been registered under the Securities Act or do not need to be registered.
If registration under the Securities Act of the securities to which any
rights, preferences or privileges relate is required in order for holders of
Receipts to be offered or sold the securities to which such rights,
preferences or privileges relate, the Company agrees that it will promptly
file a registration statement pursuant to the Securities Act with respect to
such rights, preferences or privileges and securities and use its best
efforts and take all steps available to it to cause such registration
statement to become effective sufficiently in advance of the expiration of
such rights, preferences or privileges to enable such holders to exercise
such rights, preferences or privileges. In no event shall the Depositary make
available to the holders of Receipts any right, preference or privilege to
subscribe for or to purchase any securities unless and until such a
registration statement shall have become effective or unless the offering and
sale of such securities to such holders are exempt from registration under
the provisions of the Securities Act and the Company shall have provided to
the Depositary an opinion of counsel to such effect.
If any other action under the law of any jurisdiction or any governmental
or administrative authorization, consent or permit is required in order for
such rights, preferences or privileges to be made available to holders of
Receipts, the Company agrees to use its best efforts to take such action or
obtain such authorization, consent or permit sufficiently in advance of the
expiration of such rights, preferences or privileges to enable such holders
to exercise such rights, preferences or privileges.
4.4. Notice of Dividends; Fixing of Record Date for Holders of Receipts.
Whenever any cash dividend or other cash distribution shall become
payable, any distribution other than cash shall be made, or any rights,
preferences or privileges shall at any time be offered, with respect to the
deposited Preferred Stock, or whenever the Depositary shall receive notice of
(i) any meeting at which holders of such Preferred Stock are entitled to vote
or of which holders of such Preferred Stock are entitled to notice or (ii)
any election on the part of the Company
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to redeem any such Preferred Stock, the Depositary shall in each such
instance fix a record date (which shall be the same date as the record date
fixed by the Company with respect to the Preferred Stock) for the
determination of the holders of Receipts who shall be entitled to receive
such dividend, distribution, rights, preferences or privileges or the net
proceeds of the sale thereof, to give instructions for the exercise of voting
rights at any such meeting or to receive notice of such meeting or whose
Depositary Shares are to be so redeemed.
4.5. Voting Rights.
Upon receipt of notice of any meeting at which the holders of deposited
Preferred Stock are entitled to vote, the Depositary shall, as soon as
practicable thereafter, mail to the record holders of Receipts a notice,
which shall be provided by the Company and which shall contain (i) such
information as is contained in such notice of meeting, (ii) a statement that
the holders of Receipts at the close of business on a specified record date
fixed pursuant to Section 4.4 will be entitled, subject to any applicable
provision of law, to instruct the Depositary as to the exercise of the voting
rights pertaining to the amount of Preferred Stock represented by their
respective Depositary Shares and (iii) a brief statement as to the manner in
which such instructions may be given. Upon the written request of a holder of
a Receipt on such record date, the Depositary shall vote or cause to be voted
the amount of Preferred Stock represented by the Depositary Shares evidenced
by such Receipt in accordance with the instructions set forth in such
request. To the extent such instructions request the voting of a fractional
interest of a share of deposited Preferred Stock, the Depositary shall
aggregate such interest with all other fractional interests resulting from
requests with the same voting instructions and shall vote the number of whole
votes resulting from such aggregation in accordance with the instructions
received in such requests. Each share of Preferred Stock is entitled to 10
votes and, accordingly, each Depositary Share is entitled to one vote. The
Company hereby agrees to take all reasonable action that may be deemed
necessary by the Depositary in order to enable the Depositary to vote such
Preferred Stock or cause such Preferred Stock to be voted. In the absence of
specific instructions from the holder of a Receipt, the Depositary will
abstain from voting to the extent of the Preferred Stock represented by the
Depositary Shares evidenced by such Receipt. The Depositary shall not be
required to exercise discretion in voting any Preferred Stock represented by
the Depositary Shares evidenced by such Receipt.
4.6. Changes Affecting Preferred Stock and Reclassifications,
Recapitalization, etc.
Upon any change in par or stated value, split-up, combination or any
other reclassification of Preferred Stock, or upon any recapitalization,
reorganization, merger, amalgamation or consolidation affecting the Company
or to which it is a
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party or sale of all or substantially all of the Company's assets, the
Depositary shall, upon the instructions of the Company: (i) make such
adjustments in (a) the fraction of an interest represented by one Depositary
Share in one share of Preferred Stock and (b) the ratio of the redemption
price per Depositary Share to the redemption price of a share of Preferred
Stock, in each case as may be required by or as is consistent with the
provisions of the Articles Supplementary to fully reflect the effects of such
change in liquidation value, split-up, combination or other reclassification
of Shares, or of such recapitalization, reorganization, merger, consolidation
or sale and (ii) treat any shares or other securities or property (including
cash) that shall be received by the Depositary in exchange for or upon
conversion of or in respect of the Preferred Stock as new deposited property
under this Deposit Agreement, and Receipts then outstanding shall thenceforth
represent the proportionate interests of holders thereof in the new deposited
property so received in exchange for or upon conversion or in respect of such
Preferred Stock. In any such case the Depositary may, in its discretion, with
the approval of the Company, execute and deliver additional Receipts, or may
call for the surrender of all outstanding Receipts to be exchanged for new
Receipts specifically describing such new deposited property. Anything to the
contrary herein notwithstanding, holders of Receipts shall have the right
from and after the effective date of any such change in par or stated value,
split-up, combination or other reclassification of the Preferred Stock or any
such recapitalization, reorganization, merger, amalgamation or consolidation
or sale of substantially all the assets of the Company to surrender such
Receipts to the Depositary with instructions to convert, exchange or
surrender the Preferred Stock represented thereby only into or for, as the
case may be, the kind and amount of shares and other securities and property
and cash into which the deposited Preferred Stock evidenced by such Receipts
might have been converted or for which such Preferred Stock might have been
exchanged or surrendered immediately prior to the effective date of such
transaction. The Company shall cause effective provision to be made in the
charter of the resulting or surviving corporation (if other than the Company)
for protection of such rights as may be applicable upon exchange of the
deposited Preferred Stock for securities or property or cash of the surviving
corporation in connection with the transactions set forth above. The Company
shall cause any such surviving corporation (if other than the Company)
expressly to assume the obligations of the Company hereunder.
4.7. Inspection of Reports.
The Depositary shall make available for inspection by holders of Receipts
at the Corporate Office and at such other places as it may from time to time
deem advisable during normal business hours any reports and communications
received from the Company that are both received by the Depositary as the
holder of deposited Preferred Stock and made generally available to the
holders of the Preferred Stock. In addition, the Depositary shall transmit
certain notices and reports to the holders of Receipts as provided in Section
5.5.
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4.8. Lists of Receipt Holders.
Promptly upon request from time to time by the Company, the Depositary
shall furnish to the Company a list, as of a recent date specified by the
Company, of the names, addresses and holdings of Depositary Shares of all
persons in whose names Receipts are registered on the books of the
Depositary.
4.9. Tax and Regulatory Compliance.
The Depositary shall be responsible for (i) preparation and mailing of
form 1099s for all open and closed accounts, (ii) foreign tax withholding,
(iii) withholding 31% (or any withholding as may be required at the then
applicable rate) of dividends from eligible holders of Receipts, (iv) mailing
W-9 forms to new holders of Receipts without a certified taxpayer
identification number, (v) processing certified W-9 forms, (vi) preparation
and filing of state information returns and (vii) escheatment services.
4.10. Withholding.
Notwithstanding any other provision of this Deposit Agreement, in the
event that the Depositary determines that any distribution in property is
subject to any tax which the Depositary is obligated by law to withhold, the
Depositary may dispose of all or a portion of such property in such amounts
and in such manner as the Depositary deems necessary and practicable to pay
such taxes, by public or private sale, and the Depositary shall distribute
the net proceeds of any such sale or the balance of any such property after
deduction of such taxes to the holders of Receipts entitled thereto in
proportion to the number of Depositary Shares held by them respectively.
5. THE DEPOSITARY AND THE COMPANY
5.1. Maintenance of Offices, Agencies and Transfer Books by the Depositary
and the Registrar.
The Depositary shall maintain at the Corporate Office facilities for the
execution and delivery, transfer, surrender and exchange, split-up,
combination and redemption of Receipts and deposit and withdrawal of
Preferred Stock and at the offices of the Depositary's Agents, if any,
facilities for the delivery, transfer, surrender and exchange, split-up,
combination and redemption of Receipts and deposit and withdrawal of
Preferred Stock, all in accordance with the provisions of this Deposit
Agreement.
The Depositary shall keep books at the Corporate Office for the registration
and transfer of Receipts, which books at all reasonable times shall be open for
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inspection by the record holders of Receipts as provided by applicable law.
The Depositary may close such books, at any time or from time to time, when
deemed expedient by it in connection with the performance of its duties
hereunder.
If the Receipts or the Depositary Shares evidenced thereby or the
Preferred Stock represented by such Depositary Shares shall be listed in the
New York Stock Exchange, Inc. or any other stock exchange, the Depositary
may, with the approval of the Company, appoint a Registrar (acceptable to the
Company) for registration of such Receipts or Depositary Shares in accordance
with the requirements of such Exchange. Such Registrar (which may be the
Depositary if so permitted by the requirements of such Exchange) may be
removed and a substitute registrar appointed by the Depositary upon the
request or with the approval of the Company. If the Receipts, such Depositary
Shares or such Preferred Stock are listed on one or more other stock
exchanges, the Depositary will, at the request and expense of the Company,
arrange such facilities for the delivery, transfer, surrender, redemption and
exchange of such Receipts, such Depositary Shares or such Preferred Stock as
may be required by law or applicable stock exchange regulations.
5.2. Prevention or Delay in Performance by the Depositary, the Depositary's
Agents, the Registrar or the Company.
Neither the Depositary, any Depositary's Agent, any Registrar nor the
Company shall incur any liability to any holder of any Receipt, if by reason
of any provision of any present or future law or regulation thereunder of the
United States of America or of any other governmental authority or, in the
case of the Depositary, the Depositary's Agent or the Registrar, by reason of
any provision, present or future, of the Declaration of Trust or the Articles
Supplementary or, in the case of the Company, the Depositary, the
Depositary's Agent or the Registrar, by reason of any act of God or war or
other circumstance beyond the control of the relevant party, the Depositary,
any Depositary's Agent, the Registrar or the Company shall be prevented or
forbidden from doing or performing any act or thing that the terms of this
Deposit Agreement provide shall be done or performed; nor shall the
Depositary, any Depositary's Agent, any Registrar or the Company incur any
liability to any holder of a Receipt by reason of any nonperformance or
delay, caused as aforesaid, in the performance of any act or thing that the
terms of this Deposit Agreement provide shall or may be done or performed, or
by reason of any exercise of, or failure to exercise, any discretion provided
for in this Deposit Agreement.
5.3. Obligations of the Depositary, the Depositary's Agents, the Registrar
and the Company.
Neither the Depositary, any Depositary's Agent, any Registrar nor the
Company assumes any obligation or shall be subject to any liability under
this Deposit Agreement or any Receipt to holders of Receipts other than from
acts or omissions arising out of conduct constituting bad faith, negligence
(in the case of
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any action or inaction with respect to the voting of the deposited Preferred
Stock), gross negligence or willful misconduct in the performance of such
duties as are specifically set forth in this Deposit Agreement.
Neither the Depositary, any Depositary's Agent, any Registrar nor the
Company shall be under any obligation to appear in, prosecute or defend any
action, suit or other proceeding with respect to the deposited Preferred
Stock, Depositary Shares or Receipts that in its reasonable opinion may
involve it in expense or liability unless indemnity reasonably satisfactory
to it against all expense and liability be furnished as often as may be
required.
Neither the Depositary, any Depositary's Agent, any Registrar nor the
Company shall be liable for any action or any failure to act by it in
reliance upon the written advice of legal counsel or accountants, or
information provided by any person presenting Preferred Stock for deposit,
any holder of a Receipt or any other person believed by it in good faith to
be competent to give such information. The Depositary, any Depositary's
Agent, any Registrar and the Company may each rely and shall each be
protected in acting upon any written notice, request, direction or other
document believed by it in good faith to be genuine and to have been signed
or presented by the proper party or parties.
In the event the Depositary shall receive conflicting claims, requests or
instructions from any holders of Receipts, on the one hand, and the Company,
on the other hand, the Depositary shall be entitled to act on such claims,
requests or instructions received from the Company, and shall be entitled to
the full indemnification set forth in Section 5.6 hereof in connection with
any action so taken.
The Depositary shall not be responsible for any failure to carry out any
instruction to vote any of the deposited Preferred Stock or for the manner or
effect of any such vote made, as long as any such action or non-action is in
good faith and does not result from negligence or willful misconduct of the
Depositary. The Depositary undertakes, and any Registrar shall be required to
undertake, to perform such duties and only such duties as are specifically
set forth in this Deposit Agreement, and no implied covenants or obligations
shall be read into this Agreement against the Depositary or any Registrar.
The Depositary, its parent, affiliate, or subsidiaries, any Depositary's
Agent, and any Registrar may own, buy, sell or deal in any class of
securities of the Company and its affiliates and in Receipts or Depositary
Shares or become pecuniarily interested in any transaction in which the
Company or its affiliates may be interested or contract with or lend money to
or otherwise act as fully or as freely as if it were not the Depositary or
the Depositary's Agent hereunder. The Depositary may also act as transfer
agent or registrar of any of the securities of the
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Company and its affiliates or act in any other capacity for the Company or
its affiliates.
It is intended that neither the Depositary nor any Depositary's Agent
shall be deemed to be an "issuer" of the securities under the federal
securities laws or applicable state securities laws, it being expressly
understood and agreed that the Depositary and any Depositary's Agent are
acting only in a ministerial capacity as Depositary for the deposited
Preferred Stock; provided, however, that the Depositary agrees to comply with
all information reporting and withholding requirements applicable to it under
law or this Deposit Agreement in its capacity as Depositary.
Neither the Depositary (or its officers, directors, employees or agents)
nor any Depositary's Agent makes any representation or has any responsibility
as to the validity of the registration statement pursuant to which the
Depositary Shares are registered under the Securities Act, the deposited
Preferred Stock, the Depositary Shares, the Receipts (except its
countersignature thereon) or any instruments referred to therein or herein,
or as to the correctness of any statement made therein or herein; provided,
however, that the Depositary is responsible for its representations in this
Deposit Agreement and for the validity of any action taken or required to be
taken by the Depositary in connection with this Deposit Agreement.
The Company agrees that it will register the deposited Preferred Stock
and the Depositary Shares in accordance with the applicable securities laws.
5.4. Resignation and Removal of the Depositary; Appointment of Successor
Depositary.
The Depositary may at any time resign as Depositary hereunder by notice
of its election to do so delivered to the Company, such resignation to take
effect upon the appointment of a successor depositary and its acceptance of
such appointment as hereinafter provided.
The Depositary may at any time be removed by the Company by notice of
such removal delivered to the Depositary, such removal to take effect upon
the appointment of a successor depositary and its acceptance of such
appointment as hereinafter provided.
In case at any time the Depositary acting hereunder shall resign or be
removed, the Company shall, within 60 days after the delivery of the notice
of resignation or removal, as the case may be, appoint a successor
depositary, which shall be a bank or trust company having its principal
office in the United States of America and having a combined capital and
surplus of at least $50,000,000. If a successor depositary shall not have
been appointed in 60 days, the resigning
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<PAGE>
Depositary may petition a court of competent jurisdiction to appoint a
successor depositary. Every successor depositary shall execute and deliver to
its predecessor and to the Company an instrument in writing accepting its
appointment hereunder, and thereupon such successor depositary, without any
further act or deed, shall become fully vested with all the rights, powers,
duties and obligations of its predecessor and for all purposes shall be the
Depositary under this Deposit Agreement, and such predecessor, upon payment
of all sums due it and on the written request of the Company, shall promptly
execute and deliver an instrument transferring to such successor all rights
and powers of such predecessor hereunder, shall duly assign, transfer and
deliver all rights, title and interest in the deposited Preferred Stock and
any moneys or property held hereunder to such successor and shall deliver to
such successor a list of the record holders of all outstanding Receipts. Any
successor depositary shall promptly mail notice of its appointment to the
record holders of Receipts.
Any corporation into or with which the Depositary may be merged,
consolidated or converted shall be the successor of such Depositary without
the execution or filing of any document or any further act. Such successor
depositary may execute the Receipts either in the name of the predecessor
depositary or in the name of the successor depositary.
5.5. Notices, Reports and Documents.
The Company agrees that it will deliver to the Depositary, and the
Depositary will, promptly after receipt thereof, transmit to the record
holders of Receipts, in each case at the address recorded in the Depositary's
books, copies of all notices and reports (including financial statements)
required by law, by the rules of any national securities exchange upon which
the Preferred Stock, the Depositary Shares or the Receipts are included for
quotation or listed or by the Declaration of Trust and the Articles
Supplementary to be furnished by the Company to holders of the deposited
Preferred Stock and, if requested by the holder of any Receipt, a copy of
this Deposit Agreement, the form of Receipt, the Articles Supplementary and
the form of Preferred Stock. Such transmission will be at the Company's
expense and the Company will provide the Depositary with such number of
copies of such documents as the Depositary may reasonable request. In
addition, the Depositary will transmit to the record holders of Receipts at
the Company's expense such other documents as may be requested by the
Company.
5.6. Indemnification by the Company.
The Company agrees to indemnify the Depositary, any Depositary's Agent
and any Registrar against, and hold each of them harmless from, any
liability, costs and expenses (including reasonable attorneys' fees) that may
arise out of, or in connection with, its acting as Depositary, Depositary's
Agent or Registrar, respectively, under this Deposit Agreement and the
Receipts, except for any liability
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<PAGE>
arising out of the willful misconduct, gross negligence, negligence (in the
case of any action or inaction with respect to the voting of the deposited
Preferred Stock) or bad faith on the part of any such person or persons. The
obligations of the Company set forth in this Section 5.6 shall survive any
succession of any Depositary, Depositary's Agent of Registrar or termination
of this Deposit Agreement.
5.7. Fees, Charges and Expenses.
No charges and expenses of the Depositary or any Depositary's Agent
hereunder shall be payable by any person, except as provided in this Section
5.7. The Company shall pay all transfer and other taxes and governmental
charges arising solely from the existence of this Deposit Agreement. The
Company shall also pay all fees and expenses of the Depositary in connection
with the initial deposit of the Preferred Stock and the initial issuance of
the Depositary Shares evidenced by the Receipts, any redemption of the
Preferred Stock at the option of the Company and all withdrawals of the
Preferred Stock by holders of Depositary Shares. If a holder of Receipts
requests the Depositary to perform duties not required under this Deposit
Agreement, the Depositary shall notify the holder of the cost of the
performance of such duties prior to the performance thereof. Such holder will
be liable for the charges and expenses related to such performance. All other
fees and expenses of the Depositary and any Depositary's Agent hereunder and
of any Registrar (including, in each case, fees and expenses of counsel)
incident to the performance of their respective obligations hereunder will be
promptly paid as previously agreed between the Depositary and the Company.
The Depositary shall present its statement for fees and expenses to the
Company every month or at such other intervals as the Company and the
Depositary may agree.
6. AMENDMENT AND TERMINATION
6.1. Amendment.
The form of the Receipts and any provision of this Deposit Agreement may
at any time and from time to time be amended by agreement between the Company
and the Depositary in any respect that they may deem necessary or desirable;
provided, however, that no such amendment (other than any change in the fees
of any Depositary, Registrar or Transfer Agent) which (i) shall materially
and adversely alter the rights of the holders of Receipts or (ii) would be
materially and adversely inconsistent with the rights granted to the holders
of the Preferred Stock pursuant to the Articles Supplementary shall be
effective unless such amendment shall have been approved by the holders of at
least a majority of the Depositary Shares then outstanding. In no event shall
any amendment impair the right, subject to the provisions of Section 2.6 and
Section 2.7 and Article III, of any holder of any Depositary Shares to
surrender the Receipt evidencing such Depositary Shares with instructions to
the Depositary to deliver to the holder the deposited
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<PAGE>
Preferred Stock and all money and other property, if any, represented
thereby, except in order to comply with mandatory provisions of applicable
law. Every holder of an outstanding Receipt at the time any such amendment
becomes effective shall be deemed, by continuing to hold such Receipt, to
consent and agree to such amendment and to be bound by this Deposit Agreement
as amended thereby.
6.2. Termination.
This Deposit Agreement may be terminated by the Company upon not less
than 30 days' prior written notice to the Depositary if (i) such termination
is necessary to preserve the Company's status as a real estate investment
trust under the Internal Revenue Code of 1986, as amended (or any successor
provisions), or (ii) the holders of a majority of the Preferred Stock consent
to such termination, whereupon the Depositary shall deliver or make available
to each holder of a Receipt, upon surrender of the Receipt held by such
holder, such number of whole or fractional shares of deposited Preferred
Stock as are represented by the Depositary Shares evidenced by such Receipt,
together with any other property held by the Depositary in respect of such
Receipt. In the event that this Deposit Agreement is terminated pursuant to
clause (i) of the immediately preceding sentence, the Company hereby agrees
to use its best efforts to list the Preferred Stock issued upon surrender of
the Receipt evidencing the Depositary Shares represented thereby on a
national securities exchange. This Deposit Agreement will automatically
terminate if (i) all outstanding Depositary Shares shall have been redeemed
pursuant to Section 2.3 or (ii) there shall have been made a final
distribution in respect of the deposited Preferred Stock in connection with
any liquidation, dissolution or winding up of the Company and such
distribution shall have been distributed to the holders of Receipts entitled
thereto.
Upon the termination of this Deposit Agreement, the Company shall be
discharged from all obligations under this Deposit Agreement except for its
obligations to the Depositary, any Depositary's Agent and any Registrar under
Section 5.6 and Section 5.7.
7. MISCELLANEOUS
7.1. Counterparts.
This Deposit Agreement may be executed in any number of counterparts, and
by each of the parties hereto on separate counterparts, each of which
counterparts, when so executed and delivered, shall be deemed an original,
but all such counterparts taken together shall constitute one and the same
instrument. Delivery of an executed counterpart of a signature page to this
Deposit Agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this Deposit Agreement. Copies of this Deposit
Agreement shall be filed with the
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<PAGE>
Depositary and the Depositary's Agents and shall be open to inspection during
business hours at the Corporate Office and the respective offices of the
Depositary's Agents, if any, by any holder of a Receipt.
7.2. Exclusive Benefits of Parties.
This Deposit Agreement is for the exclusive benefit of the parties
hereto, and their respective successors hereunder, and shall not be deemed to
give any legal or equitable right, remedy or claim to any other person
whatsoever.
7.3. Invalidity of Provisions.
In case any one or more of the provisions contained in this Deposit
Agreement or in the Receipts should be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein or therein shall in no way be
affected, prejudiced or disturbed thereby.
7.4. Notices.
Any and all notices to be given to the Company hereunder or under the
Receipts shall be in writing and shall be deemed to have been duly given if
personally delivered or sent by mail, or by telegram or facsimile
transmission confirmed by letter, addressed to the Company at:
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
2345 Crystal Drive
Crystal City, Arlington, Virginia 22202
Attention: [ ]
Telephone No.: (703) 920-8500
or at any other address of which the Company shall have notified the
Depositary in writing.
Any notices to be given to the Depositary hereunder or under the Receipts
shall be in writing and shall be deemed to have been duly given if personally
delivered or sent by mail, or by telegram or telex or telecopier confirmed by
letter, addressed to the Depositary at the Corporate Office.
Any notices given to any record holder of a Receipt hereunder or under
the Receipts shall be in writing and shall be deemed to have been duly given
if personally delivered or sent by mail, or by telegram or telex or
telecopier confirmed by letter, addressed to such record holder at the
address of such record holder as it appears on the books of the Depositary
or, if such holder shall have filed with the
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<PAGE>
Depositary in a timely manner a written request that notices intended for
such holder be mailed to some other address, at the address designated in
such request.
Delivery of a notice sent by mail, or by telegram or telex or telecopier
shall be deemed to be effected at the time when a duly addressed letter
containing the same (or a confirmation thereof in the case of a telegram or
telex or telecopier message) is deposited, postage prepaid, in a post office
letter box. The Depositary or the Company may, however, act upon any telegram
or telex or telecopier message received by it from the other or from any
holder of a Receipt, notwithstanding that such telegram or telex or
telecopier message shall not subsequently be confirmed by letter as
aforesaid.
7.5. Depositary's Agents.
The Depositary may from time to time appoint Depositary's Agents to act
in any respect for the Depositary for the purposes of this Deposit Agreement
and may at any time appoint additional Depositary's Agents and vary or
terminate the appointment of such Depositary's Agents. The Depositary will
notify the Company of any such action.
7.6. Holders of Receipts Are Parties.
The holders of Receipts from time to time shall be deemed to be parties
to this Deposit Agreement and shall be bound by all of the terms and
conditions hereof and of the Receipts by acceptance of delivery thereof.
7.7. Governing Law.
This Deposit Agreement and the Receipts and all rights hereunder and
thereunder and provisions hereof and thereof shall be governed by, and
construed in accordance with, the law of the State of New York applicable to
agreements made and to be performed in said State, without giving effect to
the conflict of law provisions thereof.
7.8. Inspection of Deposit Agreement and Articles Supplementary.
Copies of this Deposit Agreement and the Articles Supplementary shall be
filed with the Depositary and the Depositary's Agents and shall be open to
inspection during business hours at the Corporate Office and the respective
offices of the Depositary's Agents, if any, by any holder of any Receipt.
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<PAGE>
7.9. Headings.
The headings of articles and sections in this Deposit Agreement and in
the form of the Receipt set forth in Exhibit A hereto have been inserted for
convenience only and are not to be regarded as a part of this Deposit
Agreement or to have any bearing upon the meaning or interpretation of any
provision contained herein or in the Receipts.
* * * * *
-25-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Deposit
Agreement as of the day and year first above set forth and all holders of
Receipts shall become parties hereto by and upon acceptance by them of
delivery of Receipts issued in accordance with the terms hereof.
CHARLES E. SMITH RESIDENTIAL
REALTY, INC.
By:
Attest: --------------------------
---------------------- Authorized Officer
[DEPOSITARY]
By:
Attest:: --------------------------
---------------------- Authorized Signatory
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<PAGE>
The Depositary Shares evidenced by this Depositary Receipt are subject to
restrictions on ownership and transfer for the purpose of the Company's
maintenance of its status as a Real Estate Investment Trust under the
Internal Revenue Code of 1986, as amended. No person may own, Beneficially
Own, or Constructively Own Depositary Shares representing Shares of Series A
Cumulative Redeemable Preferred Stock in excess of 9.8% of the outstanding
Series A Cumulative Redeemable Preferred Stock and any Series A Excess
Preferred Stock of the Company with certain further restrictions and
exceptions set forth in the Company's Articles Supplementary for the Series A
Cumulative Redeemable Preferred Stock. Any Person who attempts to own,
Beneficially Own or Constructively Own Depositary Shares representing Series
A Cumulative Redeemable Preferred Stock in excess of the above limitations
must immediately notify the Company. All capitalized terms in this legend
have the meanings defined in the Company's Articles Supplementary for the
Series A Cumulative Redeemable Preferred Stock. Transfers in violation of the
restrictions described above shall be void ab initio.
In addition, if the restrictions on ownership are violated, the shares of
Series A Cumulative Redeemable Preferred Stock represented by the Depositary
Shares evidenced by this Depositary Receipt will be automatically exchanged
for shares of Series A Excess Preferred Stock which will be held in trust by
the Company. As specified in the Articles Supplementary for the Series A
Cumulative Redeemable Preferred Stock, the Company has an option to acquire
Series A Excess Preferred Stock under certain circumstances and an obligation
to acquire Series A Excess Preferred Stock in certain other circumstances.
The Company will furnish to the holder hereof upon request and without charge
a complete written statement of the terms and conditions of the Series A
Cumulative Redeemable Preferred Stock and the Series A Excess Preferred
Stock. Requests for such statement may be directed to the Secretary of the
Company.
[FORM OF FACE OF RECEIPT]
DR-
CERTIFICATE FOR NOT MORE THAN DEPOSITARY SHARES
CUSIP -----
RECEIPT FOR DEPOSITARY SHARES,
EACH REPRESENTING 1/10 OF A SERIES A CUMULATIVE
REDEEMABLE PREFERRED SHARE OF BENEFICIAL INTEREST OF
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
(a Maryland corporation)
-----------------------, as Depositary (the "Depositary"), hereby
certificates that --------------- is the registered owner of --------------
DEPOSITARY SHARES ("Depositary Shares"), each Depositary Share representing
1/10 of one shares of Series A Cumulative Redeemable Preferred Stock of
Beneficial Interest, $0.01 par value per share (the "Shares"), of Colonial
Properties Trust, an Alabama real estate investment trust (the "Company"), on
deposit with the Depositary, subject to the terms and entitled to the
benefits of the Deposit Agreement dated as of October --, 1997 (the "Deposit
Agreement"), among the Company, the Depositary and the holders from time to
time of Receipts for Depositary Shares. By accepting this Receipt, the holder
hereof becomes a party to and agrees to be bound by all the terms and
conditions of the Deposit Agreement. This Receipt shall not be valid or
obligatory for any purpose or entitled to any benefits under the Deposit
Agreement unless it shall have been executed by the Depositary by the manual
or facsimile signature of a duly authorized officer or, if a Registrar in
respect of the Receipts (other than the Depositary) shall have been
appointed, by the manual signature of a duly authorized officer of such
Registrar.
Dated:
[Countersigned: ------------------------
By: ----------------------------] By: --------------------------
Authorized Signatory
<PAGE>
[FORM OF REVERSE RECEIPT]
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
CHARLES E. SMITH RESIDENTIAL REALTY, INC. WILL FURNISH WITHOUT CHARGE TO
EACH REGISTERED HOLDER OF RECEIPTS WHO SO REQUESTS A COPY OF THE DEPOSIT
AGREEMENT AND A COPY OF THE ARTICLES SUPPLEMENTARY WITH RESPECT TO THE SERIES
A CUMULATIVE REDEEMABLE PREFERRED STOCK OF CHARLES E. SMITH RESIDENTIAL
REALTY, INC.. ANY SUCH REQUEST SHALL BE ADDRESSED TO THE DEPOSITARY NAMED ON
THE FACE OF THIS RECEIPT.
-------------------
The following abbreviations when used in the instructions on the face of
this Receipt shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM- as tenant in common UNIF GIFT MIN ACT- Custodian
----- -----
(Cust) (Minor)
TEN ENT- as tenants by the Under Uniform Gifts to
entireties Minors Act
JT TEN- as joint tenants with
right of survivorship
and not as tenants in
common (State)
Additional abbreviations may also be used though not in the above list.
ASSIGNMENT
For value received, hereby sells(s), assigns(s) and transfer(s) unto
--------
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------------------------
--------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
Depositary Shares represented by the within Receipt, and do(es)
----------
hereby irrevocably constitute and appoint Attorney to transfer the said
--------
Depositary Shares on the books of the within named Depositary with full power of
substitution in the premises.
Dated ----------------------- ------------------------------------------
NOTICE: The signature to the assignment
must correspond with the name as
written upon the face of this
Receipt in every particular,
without alteration or enlargement
or any change whatever.
<PAGE>
[Letterhead of Hogan & Hartson L.L.P.]
Exhibit 5.1
November 4, 1997
Board of Directors
Charles E. Smith Residential Realty, Inc.
2345 Crystal Drive
Crystal City, Virginia 22202
Ladies and Gentlemen:
We are acting as counsel to Charles E. Smith Residential Realty, Inc., a
Maryland corporation (the "Company"), in connection with its registration
statement on Form S-3, as amended (the "Registration Statement"), filed with
the Securities and Exchange Commission relating to the proposed public
offering of up to $250,000,000 in aggregate amount of one or more series of
(i) unsecured debt securities (the "Debt Securities"), (ii) shares of
preferred stock (the "Preferred Stock"), (iii) shares of common stock, $.01
par value per share (the Common Stock) (iv) warrants to purchase Common Stock
(the "Common Stock Warrants") or (v) depositary shares representing
fractional interests in shares of Preferred Stock (the "Depositary Shares"
and, together with the Debt Securities, Preferred Stock, and Common Stock and
Common Stock Warrants, the "Securities"), all of which Securities may be
offered and sold by the Company from time to time as set forth in the
prospectus which forms a part of the Registration Statement (the
"Prospectus"), and as to be set forth in one or more supplements to the
Prospectus (each, a "Prospectus Supplement"). This opinion letter is
furnished to you at your request to enable you to fulfill the requirements of
Item 601(b)(5) of Regulation S-K, 17 C.F.R. Section 229.601(b)(5), in
connection with the Registration Statement.
<PAGE>
Board of Directors
Charles E. Smith Residential Realty, Inc.
November 4, 1997
Page 2
For purposes of this opinion letter, we have examined copies of the
following documents:
1. An executed copy of the Registration Statement.
2. The Articles of Incorporation of the Company, as certified by the
Maryland Department of Assessments and Taxation on October 29, 1997
and by the Secretary of the Company on the date hereof as then being
complete, accurate and in effect (the "Articles").
3. The Amended and Restated Bylaws of the Company, as certified by the
Secretary of the Company on the date hereof as then being complete,
accurate and in effect.
4. The forms of Indenture between the Company and the Trustee to be named
therein, filed as Exhibits 4.1 and 4.2, respectively, to the
Registration Statement (the "Indentures").
5. The form of Deposit Agreement between the Company and the Depositary
to be named therein included as Exhibit 4.4 to the Registration
Statement (a "Deposit Agreement").
6. Resolutions of the Board of Directors of the Company adopted by
unanimous written consent dated July 22, 1997, as certified by the
Secretary of the Company on the date hereof as then being complete,
accurate and in effect, relating to the filing of the Registration
Statement and related matters.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of all natural persons, the
accuracy and completeness of all documents submitted to us, the authenticity
of all original documents and the conformity to authentic original documents
of all documents
<PAGE>
Board of Directors
Charles E. Smith Residential Realty, Inc.
November 4, 1997
Page 3
submitted to us as copies (including telecopies). This opinion letter
is given, and all statements herein are made, in the context of the foregoing.
For purposes of this opinion letter, we have assumed that (i) the
issuance, sale, amount and terms of the Securities to be offered from time to
time will be duly authorized and established by proper action of the Board of
Directors of the Company consistent with the procedures and terms described in
the Registration Statement (each, a "Board Action") and in accordance with
the Article, and applicable Maryland law; (ii) any senior Debt Securities
will be issued pursuant to a "Senior Indenture" and any subordinated Debt
Securities will be issued pursuant to a "Subordinated Indenture," the forms
of which are incorporated by reference as Exhibits 4.1 and 4.2, respectively,
to the Registration Statement; (iii) any Common Stock Warrants will be issued
under one or more common stock warrant agreements (each, a "Warrant
Agreement"), each to be between the Company and a financial institution
identified therein as a warrant agent (each, a "Warrant Agent"); (iv) prior
to any issuance of Preferred Stock or Depositary Shares, appropriate articles
supplementary shall be filed for recordation with the Maryland State
Department of Assessments and Taxation (each "Articles Supplementary"); and
(v) any Depositary Shares will be issued by the Depositary (as defined below)
under one or more Deposit Agreements, each to be between the Company and a
financial institution identified therein as the depositary (each, a
"Depositary").
This opinion letter is based as to matters of law solely on the applicable
provisions of (i) the laws of the State of Maryland (but not including any laws,
statutes, ordinances, administrative decisions, rules or regulations of any
political subdivision of the State of Maryland) and (ii) the laws of the State
of New York relating to the creation and enforceability of contracts (but not
including any laws, statutes, ordinances, administrative decisions, rules or
regulations of any political subdivision of New York). We express no opinion
herein as to any other laws, statutes, ordinances, rules or regulations (such as
federal or state securities or "blue sky" laws).
Based upon, subject to and limited by the foregoing, we are of the opinion
that, as of the date hereof:
1. When (i) the Registration Statement has become effective under the
Securities Act of 1933, as amended (the "Act"), (ii) an applicable
<PAGE>
Board of Directors
Charles E. Smith Residential Realty, Inc.
November 4, 1997
Page 4
Indenture has been duly executed and delivered by the Company and the Trustee
named therein, (iii) by applicable Board Action, the issuance of any series
of Debt Securities has been duly authorized and the terms thereof have been
duly established in accordance with the provisions of the Indenture, and (iv)
such Debt Securities have been duly authenticated by the Trustee and duly
executed and delivered on behalf of the Company against payment therefor in
accordance with the terms of such Board Action, any applicable underwriting
agreement or purchase agreement, the applicable Indenture and any applicable
supplemental indenture, and as contemplated by the Registration Statement
and/or the applicable Prospectus Supplement, such Debt Securities will
constitute binding obligations of the Company, enforceable in accordance with
their terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally (including, without limitation, the effect of statutory and other
law regarding fraudulent conveyances, fraudulent transfers and preferential
transfers) and as may be limited by the exercise of judicial discretion and
the application of principles of equity, including, without limitation,
requirements of good faith, fair dealing, conscionability and materiality
(regardless of whether the Debt Securities are considered in a proceeding in
equity or at law).
2. When (i) the Registration Statement has become effective under the
Act, (ii) a series of the Preferred Stock has been duly authorized and
established by applicable Board Action, in accordance with the terms of the
Articles and applicable law, (iii) appropriate Articles Supplementary have
been filed, and (iv) the issuance of such Preferred Stock has been
appropriately authorized by applicable Board Action, and, upon issuance and
delivery of certificates for such series of Preferred Stock against payment
therefor in accordance with the terms of such Board Action and any applicable
underwriting or purchase agreement, and as contemplated by the Registration
Statement and/or the applicable Prospectus Supplement, such Preferred Stock
will be validly issued, fully paid and non-assessable.
3. When the Registration Statement has become effective under the Act, upon
due authorization by Board Action of an issuance of Common Stock, and upon
issuance and delivery of certificates for Common Stock against payment therefor
in accordance with the terms of such Board Action and any applicable
underwriting agreement or purchase agreement, and as
<PAGE>
Board of Directors
Charles E. Smith Residential Realty, Inc.
November 4, 1997
Page 5
contemplated by the Registration Statement and/ or the applicable Prospectus
Supplement or upon the exercise of any Common Stock Warrants in accordance
with the terms thereof, or conversion or exchange of shares of Preferred
Stock that, by their terms, are convertible into or exchangeable for shares
of Common Stock, and receipt by the Company of any additional consideration
payable upon such conversion, exchange or exercise, the Common Stock
represented by such certificates will be validly issued, fully paid and
non-assessable.
4. When (i) the Registration Statement has become effective under the Act ,
(ii) a Warrant Agreement conforming to the description thereof in the
Registration Statement and/or the applicable Prospectus Supplement has been duly
authorized by applicable Board Action and delivered by the Company and the
Warrant Agent named therein, (iii) Common Stock Warrants conforming to the
requirements of the related Warrant Agreement have been duly authenticated by
the Warrant Agent and duly executed and delivered on behalf of the Company
against payment therefor in accordance with the terms of such Board Action, any
applicable underwriting agreement or purchase agreement and the applicable
Warrant Agreement and as contemplated by the Registration Statement and/or the
applicable Prospectus Supplement, the Common Stock Warrants will constitute
binding obligations of the Company, enforceable in accordance with their terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or other laws affecting creditors' rights (including, without limitation, the
effect of statutory and other law regarding fraudulent conveyances, fraudulent
transfers and preferential transfers) and as may be limited by the exercise of
judicial discretion and the application of principles of equity, including,
without limitation, requirements of good faith, fair dealing, conscionability
and materiality (regardless of whether the Common Stock Warrants are considered
in a proceeding in equity or at law).
5. When (i) the Registration Statement has become effective under the Act,
(ii) a series of Preferred Stock underlying a series of Depositary Shares has
been duly authorized and established by applicable Board Action, in accordance
with the terms of the Declaration of Trust and applicable law, (iii) appropriate
Articles Supplementary have been filed with respect to such Preferred Stock,
(iv) an applicable Deposit Agreement relating to the Depositary Shares has been
duly executed and delivered by the Company and
<PAGE>
Board of Directors
Charles E. Smith Residential Realty, Inc.
November 4, 1997
Page 6
the Depositary named therein, (v) the terms of the Depositary Shares and
their issuance and sale have been duly established by applicable Board
Action in conformity with the Deposit Agreement so as not to violate any
applicable law or the Articles or Bylaws of the Company or result in a
default under or breach of any agreement or instrument binding upon the
Company and so as to comply with any requirement or restriction imposed by
any court or governmental body having jurisdiction over the Company, (vi)
the related shares of Preferred Stock which are represented by the
Depositary Shares have been duly authorized, validly issued and delivered,
if applicable, to the Depositary for deposit in accordance with the laws of
all applicable jurisdictions, and (vii) the depositary receipts evidencing
the Depositary Shares (the "Depositary Receipts") in the form contemplated
and authorized by a Deposit Agreement have been duly issued against deposit
of the shares of Preferred Stock in accordance with the terms of the
Deposit Agreement and any applicable underwriting or purchase agreement, as
contemplated by the Registration Statement and/or the applicable Prospectus
Supplement, such Depositary Receipts, to the extent governed by Maryland
law, will be validly issued and will entitle the holders thereof to the
rights specified therein and in the Deposit Agreement.
To the extent that the obligations of the Company under an Indenture may
be dependent upon such matters, we assume for purposes of this opinion that
the Trustee is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization; that the Trustee is duly
qualified to engage in the activities contemplated by the Indenture; that the
Indenture has been duly authorized, executed and delivered by the Trustee and
constitutes the valid and binding obligation of the Trustee enforceable
against the Trustee in accordance with its terms; that the Trustee is in
compliance, with respect to acting as a trustee under the Indenture, with all
applicable laws and regulations; and that the Trustee has the requisite
organizational and legal power and authority to perform its obligations under
the Indenture.
To the extent that the obligations of the Company under any Warrant
Agreement may be dependent upon such matters, we assume for purposes of this
opinion that the applicable Warrant Agent is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization; that
the Warrant Agent is duly qualified to engage in the activities contemplated
by the Warrant Agreement; that the Warrant Agreement has been duly
authorized, executed and
<PAGE>
Board of Directors
Charles E. Smith Residential Realty, Inc.
November 4, 1997
Page 7
delivered by the Warrant Agent and constitutes the legally valid
and binding obligation of the Warrant Agent enforceable against the Warrant
Agent in accordance with its terms; that the Warrant Agent is in compliance,
with respect to acting as a Warrant Agent under the Warrant Agreement, with all
applicable laws and regulations; and that the Warrant Agent has the requisite
organizational and legal power and authority to perform its obligations under
the Warrant Agreement.
To the extent that the obligations of the Company and the rights of any
holder of Depositary Shares under any Deposit Agreement may be dependent upon
such matters, we assume for purposes of this opinion that the applicable
Depositary is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization; that the Depositary is duly qualified
to engage in the activities contemplated by the Deposit Agreement; that the
Deposit Agreement has been duly authorized, executed and delivered by the
Depositary and constitutes a valid and binding obligation of the Depositary
enforceable against the Depositary and the Company in accordance with its terms;
that the Depositary is in compliance, with respect to acting as a Depositary
under the Deposit Agreement, with all applicable laws and regulations; and that
the Depositary has the requisite organizational and legal power and authority to
perform its obligations under the Deposit Agreement.
The opinions expressed in Paragraphs (1) and (4) above shall be understood
to mean only that if there is a default in performance of an obligation, (i) if
a failure to pay or other damage can be shown and (ii) if the defaulting party
can be brought into a court which will hear the case and apply the governing
law, then, subject to the availability of defenses and to the exceptions set
forth in Paragraphs (1) and (4), the court will provide a money damage (or
perhaps injunctive or specific performance) remedy.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. We hereby consent to the
filing of this opinion letter as Exhibit 5.1 to the Registration Statement and
to the reference to this firm under the caption "Legal Matters" in the
prospectus constituting a part of the Registration Statement. In giving this
consent, we do not thereby admit that we are an "expert" within the meaning of
the Securities Act of 1933, as amended.
Subject to the foregoing consent, this opinion letter has been prepared
solely for your use in connection with the filing of the Registration Statement
on the
<PAGE>
Board of Directors
Charles E. Smith Residential Realty, Inc.
November 4, 1997
Page 8
date of this opinion letter and should not be quoted in whole or in part
or otherwise be referred to, nor filed with or furnished to any governmental
agency or other person or entity, without the prior written consent of this
firm.
Very truly yours,
/s/HOGAN & HARTSON L.L.P.
----------------------------
HOGAN & HARTSON L.L.P.
<PAGE>
Exhibit 8.1
[Letterhead of Hogan & Hartson L.L.P.]
November 4, 1997
Charles E. Smith Residential Realty, Inc.
2345 Crystal Drive
Crystal City
Arlington, VA 22202
Ladies and Gentlemen:
We are acting as counsel to Charles E. Smith Residential Realty, Inc., a
Maryland corporation (the "Company"), in connection with its registration
statement on Form S-3, as amended (the "Registration Statement"), filed with
the Securities and Exchange Commission relating to the proposed public
offering of up to $250,000,000 in aggregate amount of one or more series of
(i) unsecured debt securities (the "Debt Securities"), (ii) shares of
preferred stock (the "Preferred Stock"), (iii) shares of common stock, $.01
par value per share (the Common Stock) (iv) warrants to purchase Common Stock
(the "Common Stock Warrants") or (v) depositary shares representing
fractional interests in shares of Preferred Stock (the "Depositary Shares"
and, together with the Debt Securities, Preferred Stock, and Common Stock and
Common Stock Warrants, the "Securities"), all of which Securities may be
offered and sold by the Company from time to time as set forth in the
prospectus which forms a part of the Registration Statement (the
"Prospectus"), and as to be set forth in one or more supplements to the
Prospectus. In connection with the Registration Statement, we have been
asked to provide you with our opinion on certain federal income tax matters.
Capitalized terms used in this letter and not otherwise defined herein have
the meaning set forth in the Registration Statement.
Bases for Opinion
The opinion set forth in this letter is based on relevant current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations thereunder (including proposed and temporary Treasury
Regulations), and interpretations of the foregoing as expressed in court
decisions, existing
<PAGE>
Charles E. Smith Residential Realty, Inc.
November 4, 1997
Page 2
administrative rulings and practices of the Internal Revenue Service
(including the private letter ruling issued by the Internal Revenue Service
(the "IRS") to the Company on June 8, 1994, as supplemented by the ruling
letter dated June 16, 1995, and the private letter ruling issued by the IRS
to the Company on August 27, 1997), and legislative history, all as of the
date hereof. These provisions and interpretations are subject to changes,
which may or may not be retroactive in effect, that might result in material
modifications of our opinion.
In rendering the following opinion, we have examined such statutes,
regulations, records, certificates and other documents as we have considered
necessary or appropriate as a basis for such opinion, including the
following: (1) the Registration Statement; (2) the First Amended and Restated
Agreement of Limited Partnership of the Operating Partnership, as amended, as
of January 31, 1995; (3) the Amended and Restated Articles of Incorporation
of the Company dated as of June 27, 1994, as certified by the Department of
Assessments and Taxation of the State of Maryland on October 29, 1997 and by
the Secretary of the Company on the date hereof as then being complete,
accurate and in effect; (4) the agreements of limited partnership of the
partnership subsidiaries of the Operating Partnership; (5) the articles of
organization and stock ownership records of the Property Service Businesses;
(6) the articles of incorporation of the wholly-owned subsidiaries of the
Company that serve as the general partners of the various subsidiary
financing partnerships (the "REIT Subs"); and (7) other necessary documents.
The opinion set forth in this letter also is premised on certain written
representations of the Company contained in a letter to us dated as of the
date hereof (the "Management Representation Letter").
We have made such factual and legal inquiries, including examination of
the documents set forth above, as we have deemed necessary or appropriate for
purposes of our opinion. For purposes of rendering our opinion, however, we
have not made an independent investigation or audit of the facts set forth in
the above referenced documents, including the Management Representation
Letter. We consequently have relied upon representations in the Management
Representation Letter that the information presented in such documents or
otherwise furnished to us accurately and completely describes all material
facts relevant to our opinion.
Moreover, we have assumed that (i) the Company, the Operating
Partnership, each of the REIT Subs, each of the partnership subsidiaries, and
each of the Property Services Businesses have been and will continue to be
operated in the manner described in the relevant partnership agreement,
articles (or certificate)
<PAGE>
Charles E. Smith Residential Realty, Inc.
November 4, 1997
Page 3
of incorporation, or other organizational documents; (ii) as represented by
the Company, there are no agreements or understandings between the Company or
the Operating Partnership, on the one hand, and the partnerships that own the
voting stock of the Property Services Businesses (the "Voting Stock
Partnerships") or their partners, on the other, that are inconsistent with
the relevant Voting Stock Partnership being considered to be both the record
and beneficial owner of more than 90% of the outstanding voting stock of the
respective Property Services Businesses; and (iii) the Company is a validly
organized and duly incorporated corporation under the laws of the State of
Maryland, each of the Property Services Businesses and each of the REIT Subs
are validly organized and duly incorporated corporations under the laws of
the State of Delaware or Virginia (as applicable), and the Operating
Partnership and each of the subsidiary partners are duly organized and
validly existing partnerships under the applicable laws of the State of
Delaware.
In our review, we have assumed that all of the representations and
statements set forth in the documents that we reviewed (including the
Management Representation Letter) are true and correct, and all of the
obligations imposed by any such documents on the parties thereto, including
obligations imposed under the Articles of Incorporation of the Company, have
been and will continue to be performed or satisfied in accordance with their
terms. We also have assumed the genuineness of all signatures, the proper
execution of all documents, the authenticity of all documents submitted to us
as originals, the conformity to originals of documents submitted to us as
copies, and the authenticity of the originals from which any copies were made.
Opinion
Based upon, subject to, and limited by the assumptions and qualifications
set forth herein, we are of the opinion as follows:
1. The Company was organized and has operated in conformity with the
requirements for qualification and taxation as a real estate investment
trust ("REIT") under the Code for its taxable years ending December 31,
1994, December 31, 1995, and December 31, 1996, and the Company's current
organization and method of operation, as described in the Management
Representation Letter, will enable it to continue to meet the requirements
for qualification and taxation as a REIT.
<PAGE>
Charles E. Smith Residential Realty, Inc.
November 4, 1997
Page 4
2. The discussion in the Prospectus under the heading "Federal Income Tax
Considerations," to the extent that it describes matter of federal income
tax law, is correct in all material respects.
We assume no obligation to advise you of any changes in our opinion
subsequent to the delivery of this opinion letter. The Company's
qualification and taxation as a REIT depend upon the Company's ability to
meet on a continuing basis, through actual annual operating and other
results, the various requirements under the Code with regard to, among other
things, the sources of its gross income, the composition of its assets, the
level of its distributions to stockholders, and the diversity of its stock
ownership. Hogan & Hartson L.L.P. has relied upon representations of the
Company with respect to these matters and will not review the Company's
compliance with these requirements on a continuing basis. Accordingly, no
assurance can be given that the actual results of the Company's operations,
the sources of its income, the nature of its assets, the level of its
distributions to stockholders and the diversity of its stock ownership for
any given taxable year will satisfy the requirements under the Code for
qualification and taxation as a REIT.
An opinion of counsel merely represents counsel's best judgment with
respect to the probable outcome on the merits and is not binding on the IRS
or the courts. There can be no assurance that positions contrary to our
opinion will not be taken by the IRS, or that a court considering the issue
would not hold contrary to such opinion.
We hereby consent to the filing of this opinion letter, which has been
prepared solely for your use in connection with the filing of the
Registration Statement on the date hereof, as an exhibit to the Registration
Statement and to the use of the name of the firm therein.
Very truly yours,
/S/ Hogan & Hartson L.L.P.
---------------------------
Hogan & Hartson L.L.P.
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
Fixed Charge Coverage Calculation
<TABLE>
<CAPTION>
12 MONTHS 12 MONTHS 12 MONTHS 12 MONTHS 9 MONTHS
ENDED ENDED ENDED ENDED ENDED
12/31/93 12/31/94 12/31/95 12/31/96 9/30/97
PRO-FORMA PRO-FORMA ACTUAL ACTUAL ACTUAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
EBITDA
Consolidated Net Income............................ $ 23,645 $ 27,401 $ 31,053 $ 34,817 $ 34,647
Less: Extraordinary Items.......................... 0 0 0 0 0
Add:Amortization of Deferred Financing Costs....... 2,331 2,438 2,719 2,583 1,754
Add: Interest Expense (excluding amortization of
deferred financing costs)......................... 29,040 31,918 34,702 41,023 31,910
Total EBITDA..................................... $ 55,016 $ 61,757 $ 68,474 $ 78,423 $ 68,311
Interest Expense (excluding amortization of deferred
financing costs)................................... $ 29,040 $ 31,918 $ 34,702 $ 41,023 $ 31,910
Fixed Charge Coverage Ratio.......................... 1.89X 1.93X 1.97X 1.91X 2.14X
</TABLE>
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accounts, we hereby consent to the incorporation by
reference in this registration statement of our report dated January 30, 1997
included in Charles E. Smith Residential Realty, Inc.'s Form 10-K for the
year ended December 31, 1996 and to all references to our Firm included in
this registration statement.
/s/ ARTHUR ANDERSEN LLP
-------------------------------
ARTHUR ANDERSEN LLP
Washington, D.C.
October 31, 1997
