Prospectus
589,133 Shares
First Industrial Realty Trust, Inc.
Common Stock
This Prospectus relates to the offer and sale from time to time of (i) up
to 534,073 shares (the "Redemption Shares") of common stock, par value $.01 per
share (the "Common Stock"), of First Industrial Realty Trust, Inc. (the
"Company") by persons who may receive such shares in exchange for units of
partnership interest ("Units") in First Industrial, L.P. (the "Operating
Partnership") which have been acquired in connection with acquisitions by the
Operating Partnership of properties, if, and to the extent that, the holders of
such Units elect to redeem the Units and the Company elects to issue Redemption
Shares in exchange therefor, (ii) 1,618 shares of Common Stock to be issued
pursuant to the Company's Deferred Income Plan (the "DIP Shares") to an
affiliate of the Company and (iii) up to 53,442 shares of Common Stock (the
"Restricted Shares" and, together with the Redemption Shares and the DIP Shares,
the "Registered Shares") by certain holders thereof. The Restricted Shares were
issued pursuant to the Company's 1997 Stock Incentive Plan. The holders of the
Registered Shares are collectively referred to herein as the "Selling
Stockholders." See "Selling Stockholders." The Company is the sole general
partner of the Operating Partnership. The registration of the Common Stock to
which this Prospectus relates does not necessarily mean that any of the
Redemption Shares will be issued by the Company or that any of the Registered
Shares will be sold by the Selling Stockholders.
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "FR." In order to maintain the Company's qualification as a
real estate investment trust ("REIT"), ownership by any person of the Company's
capital stock is limited, with certain exceptions, to an aggregate of 9.9% in
value of the outstanding capital stock of the Company.
For information concerning risk factors relevant to an investment in the
Common Stock, see "Risk Factors" on pages 1-7.
The Selling Stockholders from time to time may offer and sell Registered
Shares held by them directly or through agents or broker-dealers on terms to be
determined at the time of sale. To the extent required, the names of any agent
or broker-dealer and applicable commissions or discounts and any other required
information with respect to any particular offer will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution." Each of the
Selling Stockholders reserves the right to accept or reject, in whole or in
part, any proposed purchase of Registered Shares to be made directly or through
agents.
The Selling Stockholders and any agents or broker-dealers that participate
with the Selling Stockholders in the distribution of Registered Shares may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any commissions received by them and any
profit on the sale of Registered Shares may be deemed to be underwriting
commissions or discounts under the Securities Act.
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 COMMIS-
SION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REP-
RESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Company will not receive any proceeds from the sale of any Registered
Shares by the Selling Stockholders. The Company will bear certain expenses of
the registration of the Registered Shares under federal and state securities
laws. The Company will acquire additional Units in the Operating Partnership in
exchange for any Redemption Shares that the Company may issue to holders of
Units.
February 19, 1999
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TABLE OF CONTENTS
Page
Available Information..................................................... ii
Incorporation of Certain Documents by Reference........................... ii
Forward-Looking Information............................................... iv
The Company............................................................... 1
Risk Factors.............................................................. 1
Description of Common Stock............................................... 7
Certain Provisions of Maryland Law and the Company's
Articles of Incorporation and Bylaws................................. 9
Restrictions on Transfers of Capital Stock................................ 11
Certain Federal Income Tax Considerations................................. 12
Selling Stockholders...................................................... 14
Plan of Distribution...................................................... 16
Experts................................................................... 17
Legal Matters............................................................. 17
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No dealer, salesperson or other person has been authorized to give any
information or make any representations other than those contained in or
incorporated by reference in this Prospectus and any accompanying Prospectus
Supplement and if given or made, such other information or representations must
not be relied upon as having been authorized by the Company or by any of the
Selling Stockholders. This Prospectus and any accompanying Prospectus Supplement
do not constitute an offer to sell, or a solicitation of an offer to buy, to any
person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create an implication that the information
contained herein is correct as of any time subsequent to the date hereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be examined without
charge at, and copies obtained upon payment of prescribed fees from, the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 and are also available for inspection and copying at the regional offices
of the Commission located at 7 World Trade Center, New York, New York 10048 and
at Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511. In addition, the Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission at http://www.sec.gov.
The Common Stock is listed on the NYSE and such material can also be inspected
and copied at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act, and the rules and regulations promulgated
thereunder, with respect to the shares of Common Stock offered pursuant to this
Prospectus. This Prospectus, which is part of the Registration Statement, does
not contain all of the information set forth in, or incorporated by reference
into, the Registration Statement and the exhibits thereto. For further
information concerning the Company and the Common Stock offered hereby,
reference is made to the Registration Statement. Any statements contained herein
concerning the provisions of any document are not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company (File No. 1-13102)
with the Commission are incorporated herein by reference:
1) Annual Report on Form 10-K for year ended December 31, 1997, filed
March 24, 1998;
2) Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
filed May 15, 1998;
3) Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,
filed August 14, 1998 as amended by Form 10-Q/A filed on November 12,
1998;
4) Quarterly Report on Form 10-Q for the quarter ended September 30,
1998, filed November 13, 1998;
5) Current Report on Form 8-K, filed February 6, 1998;
6) Current Report on Form 8-K/A No. 1, filed January 22, 1998 as amended
by Current Report on Form 8-K/A No. 2, filed February 26, 1998;
7) Current Report on Form 8-K, filed March 27, 1998;
8) Current Report on Form 8-K, filed April 20, 1998;
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9) Current Report on Form 8-K, filed April 27, 1998;
10) Current Report on Form 8-K, filed May 5, 1998;
11) Current Report on Form 8-K/A No. 1, filed June 16, 1998;
12) Current Report on Form 8-K filed November 12, 1998 as amended by
Current Report on Form 8-K/A No.1 filed January 11, 1999; and
13) the description of the Common Stock included in the Company's
Registration Statement on Form 8-A dated June 23, 1994 and Form 8-A
filed September 24, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14, or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Common Stock offered hereby shall be
deemed to be incorporated by reference in this Prospectus and made a part hereof
from the date of the filing of such documents. Any statement contained herein or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein (in the case of a previously filed
document incorporated or deemed to be incorporated by reference herein) or in
any other document subsequently filed with the Commission which also is
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.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any or all of the information incorporated by
reference herein (not including the exhibits to the information that is
incorporated by reference herein, unless such exhibits are specifically
incorporated by reference into the information that is incorporated by reference
herein). Requests for such copies should be directed to: First Industrial Realty
Trust, Inc., Attention: Investor Relations, 311 S. Wacker Drive, Suite 4000,
Chicago, Illinois 60606, telephone (312) 344-4300.
Certain information, including, but not limited to, information relating
the Company's principal security holders, management, executive compensation,
certain relationships and related transactions and legal proceedings that would
be required to be disclosed in a prospectus included in a registration statement
on Form S-11 has been omitted from this Prospectus, because such information is
not materially different from the information contained in the Company's
periodic reports, proxy statements and other information filed by the Company
with the Commission.
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FORWARD-LOOKING INFORMATION
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. The Company intends such forward-looking statements to be covered by the
safe harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and is including this statement for
purposes of complying with these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe future plans,
strategies and expectations of the Company are generally identifiable by use of
the words "believe," "expect," "intend," "anticipate," "estimate," "project" or
similar expressions. The Company's ability to predict results or the actual
effect of future plans or strategies is inherently uncertain. Factors which
could have a material adverse affect on the operations and future prospects of
the Company include, but are not limited to, changes in: economic conditions
generally and the real estate market specifically, legislative/regulatory
changes (including changes to laws governing the taxation of REITs (as
hereinafter defined)), availability of capital, interest rates, competition,
supply and demand for industrial properties in the Company's current and
proposed market areas and general accounting principles, policies and guidelines
applicable to REITs. These risks and uncertainties, together with those stated
herein under the caption "Risk Factors" should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements.
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THE COMPANY
As used herein, the term "Company" refers to First Industrial Realty Trust,
Inc. and its subsidiaries, including the Operating Partnership, unless the
context otherwise requires. Unless otherwise indicated, all information
regarding properties owned by the Company (the "Properties") is as of September
30, 1998.
The Company is a REIT which owns, manages, acquires and develops bulk
warehouse and light industrial properties. Markets in which the Company
currently operates include the following metropolitan areas: Atlanta, Georgia;
Baltimore, Maryland; Chicago, Illinois; Cincinnati, Ohio; Cleveland, Ohio;
Columbus, Ohio; Dallas, Texas; Dayton, Ohio; Denver, Colorado; Des Moines, Iowa;
Detroit, Michigan; Grand Rapids, Michigan; Hartford, Connecticut; Houston,
Texas; Indianapolis, Indiana; Louisville, Kentucky; Milwaukee, Wisconsin;
Minneapolis/St. Paul, Minnesota; Nashville, Tennessee; Philadelphia,
Pennsylvania; Phoenix, Arizona; Portland, Oregon; Tampa, Florida; St. Louis,
Missouri; and Salt Lake City, Utah, as well as the regional areas of Central
Pennsylvania; Long Island, New York; Louisiana; and New Jersey. As of September
30, 1998, the Company owned 1,000 in-service Properties, containing an aggregate
of approximately 69.9 million square feet of gross leasable area ("GLA") which
was approximately 95.3% leased to over 2,900 tenants. The Company's principal
executive offices are located at 311 S. Wacker Drive, Suite 4000, Chicago,
Illinois 60606, and its telephone number is (312) 344-4300.
The Company conducts its operations primarily through the Operating
Partnership, of which the Company is the sole general partner and, as of
September 30, 1998, the Company held approximately 84.1% of the outstanding
Units.
The transfer agent and registrar for the Common Stock is First Chicago
Trust Company of New York of Chicago, Illinois.
RISK FACTORS
Prospective investors should carefully consider the following factors, in
addition to other matters set forth or incorporated in this Prospectus, prior to
making an investment decision regarding the shares of Common Stock offered
hereby.
Real Estate Investment Considerations
General
Income from real property investments, and the Company's resulting ability
to make expected distributions to stockholders, may be adversely affected by the
general economic climate, local conditions such as oversupply or a reduction in
demand in the area, the attractiveness of the properties to tenants, tenant
defaults, zoning or other regulatory restrictions, competition from other
available real estate, the ability of the Company to provide adequate
maintenance and insurance and increased operating costs (including insurance
premiums and real estate taxes). The Company's income would also be adversely
affected if tenants were unable to pay rent or the Company were unable to rent
properties on favorable terms. In addition, certain expenditures associated with
real estate investment (such as real estate taxes and maintenance costs)
generally are not reduced when circumstances cause a reduction in income from
the investment. Furthermore, real estate investments are relatively illiquid
and, therefore, will tend to limit the ability of the Company to vary its
portfolio promptly in response to changes in economic or other conditions.
Renewal of Leases and Reletting of Space
The Company will be subject to the risks that, upon expiration of leases,
the leases may not be renewed, the space subject to such leases may not be relet
or the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than expiring lease terms. If the Company
were unable promptly to renew a significant number of expiring leases or
promptly to relet the space covered by such
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leases, or if the rental rates upon such renewal or reletting were significantly
lower than the then current rates, the Company's cash funds from operations and
ability to make expected distributions to stockholders might be adversely
affected. Leases with respect to approximately 11.9 million, 11.0 million and
10.1 million square feet of GLA expire in the remainder of 1999, in 2000 and in
2001, respectively.
Potential Environmental Liability
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate may be liable for the costs of clean-up of
certain conditions relating to the presence of hazardous or toxic materials on,
in or emanating from the property, and any related damages to natural resources.
Such laws often impose liability without regard to whether the owner or operator
knew of, or was responsible for, the presence of hazardous or toxic materials.
The presence of such materials, or the failure to address such conditions
properly, may adversely affect the ability to rent or sell the property or to
borrow using the property as collateral. Persons who dispose of or arrange for
the disposal or treatment of hazardous or toxic materials may also be liable for
the costs of clean-up of such materials, or for related natural resource
damages, at or from an off-site disposal or treatment facility, whether or not
such facility is owned or operated by such persons. No assurance can be given
that existing environmental assessments with respect to any of the Company's
properties reveal all environmental liabilities, that any prior owner or
operator of any of the properties did not create any material environmental
condition not known to the Company or that a material environmental condition
does not otherwise exist as to any one or more properties.
Limited Geographic Concentration
Approximately 52.2% of the GLA of Properties owned by the Company as of
September 30,1998 are located in the midwest region of the United States. A
fundamental element of the Company's growth strategy is to acquire additional
properties in its current markets. Consequently, the Company may be dependent
upon the demand for industrial space in those markets. The Company's revenues
and the value of its properties may be affected by a number of factors in its
current markets, including the local economic climate (which may be adversely
impacted by business layoffs or downsizing, industry slowdowns, changing
demographics and other factors) and local real estate conditions (such as
oversupply of, or reduced demand for, properties). Therefore, the Company's
performance and its ability to make distributions to stockholders will likely be
dependent, to a significant extent, on the economic conditions in its current
markets.
Tax Risks
Consequences of Failure to Qualify as a REIT
The Company intends to operate so as to qualify as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"). Although the Company
believes that it is organized and will operate in a manner so as to qualify as a
REIT, qualification as a REIT involves the satisfaction of numerous requirements
(some of which must be met on a recurring basis) established under highly
technical and complex Code provisions of which there are only limited judicial
or administrative interpretations, and involves the determination of various
factual matters and circumstances not entirely within the Company's control. If
the Company were to fail to qualify as a REIT in any taxable year, the Company
would be subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at corporate rates and, unless entitled to
relief under certain statutory provisions, the Company also would be
disqualified from treatment as a REIT for the four taxable years that follow.
See "Certain Federal Income Tax Considerations."
Effect of Distribution Requirements
The Company could, in certain instances, have taxable income without
sufficient cash to enable the Company to meet the distribution requirements of
the REIT provisions of the Code. Accordingly, the Company could be required to
borrow funds or sell properties on adverse terms in order to meet such
distribution requirements. In addition, because the Company must distribute to
its stockholders at least 95% of its REIT
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taxable income each year, the Company's ability to accumulate capital may be
limited. Thus, it may be more dependent on outside sources of financing, such as
debt financing or issuances of additional capital stock, in connection with
future acquisitions. See "Federal Income Tax Considerations."
Restrictions on Transfer of Shares
As noted below under "Restrictions on Transfer of Capital Stock," in order
to maintain its qualification as a REIT under the Code, no more than 50% in
value of the outstanding capital stock of the Company 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. Accordingly, the
Company's Articles of Incorporation contain provisions restricting the ownership
and transfer of the Company's capital stock.
Risks Associated with Debt Financing and Leverage; Collateralization and
Cross-Collateralization
General
Where possible, the Company intends to continue to use leverage to increase
the rate of return on its investments and to allow the Company to make more
investments than it otherwise could. Such use of leverage presents an additional
element of risk in the event that the cash flow from the Company's properties is
insufficient to meet both debt payment obligations and the distribution
requirements of the REIT provisions of the Code. To the extent the Operating
Partnership determines to obtain additional debt financing in the future, it may
do so through mortgages on some or all of its properties. These mortgages may be
on recourse, non-recourse or cross-collateralized bases. Holders of indebtedness
which is so secured will have a claim against these properties and to the extent
indebtedness is cross-collaterized, lenders may seek to foreclose upon
properties which are not the primary collateral for their loan, which may, in
turn, result in acceleration of other indebtedness secured by properties.
Foreclosure of properties would result in a loss of income and asset value to
the Operating Partnership and the Company.
Balloon Payments
The Company is required to make lump-sum or "balloon" payments pursuant to
the terms of certain of its indebtedness, including the Operating Partnership's:
$200 million aggregate principal amount of 7.60% Notes due 2028 (the "2028
Notes"), $100 million aggregate principal amount of 7.15% Notes due 2027 (the
"2027 Notes"), $100 million aggregate principal amount of 7.50% Notes due 2017
(the "2017 Notes"), $100 million aggregate principal amount of 7 3/8% Notes due
2011 (the "Trust Notes"), $150 million aggregate principal amount of 7.60% Notes
due 2007 (the "2007 Notes"), $150 million aggregate principal amount of 7.0%
Notes due 2006 (the "2006 Notes"), $50 million aggregate principal amount of
6.90% Notes due 2005 (the "2005 Notes"), $100 million aggregate principal amount
of 6 1/2% dealer remarketable securities due April 5, 2011 (the "Drs.") and a
$300 million unsecured revolving credit facility (the "Acquisition Facility")
under which the Company, through the Operating Partnership, may borrow to
finance the acquisition of additional properties and for other corporate
purposes, including working capital. The holders of the 2027 Notes have the
right to require the Company to redeem through the Operating Partnership the
2027 Notes, in whole or in part, on May 15, 2002. The trust to which the Trust
Notes were issued must exercise its right to require the Company, through the
Operating Partnership, to redeem the Trust Notes on May 15, 2004 if the holder
of a call option with respect to the Trust Notes fails to give written notice on
or before May 1, 2004 that it intends to exercise such option. The Drs. are
subject to mandatory redemption by the Operating Partnership under certain
circumstances on April 5, 2001. The Acquisition Facility provides for the
repayment of principal in a lump-sum or "balloon" payment at maturity in 2001
(subject to successive one-year extensions at the Operating Partnership's
option, subject to certain conditions). The Company's ability to make required
payments of principal on outstanding indebtedness, whether at maturity or
otherwise, may depend on its ability either to refinance the applicable
indebtedness or to sell properties. The Company has no commitments to refinance
the 2005 Notes, the 2006 Notes, the 2007 Notes, the Trust Notes, the 2017 Notes,
the 2027 Notes, the 2028 Notes, the Drs. or the Acquisition Facility. Certain
existing debt obligations of the Company,
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through the Operating Partnership, are secured by its properties, and therefore
such obligations will permit the lender to foreclose on those properties in the
event of a default.
No Limitation on Debt in Organizational Documents
The Company currently has a policy of maintaining a ratio of debt to total
market capitalization (i.e., total consolidated debt of the Company as a
percentage of the aggregate market value of all outstanding shares of Common
Stock, assuming the exchange of all Units for Common Stock, plus the aggregate
stated value of all outstanding shares of preferred stock, plus total
consolidated debt) which generally will not exceed 50% and a coverage ratio
(computed as total revenues (excluding interest income on U.S. Government
securities which collateralized the Company's $300 million Mortgage Loan (the
"1994 Defeased Mortgage Loan"), which was defeased in April 1997 and
subsequently repaid in full in January 1998, minus property expenses and general
and administrative expenses divided by interest expense (excluding interest on
the 1994 Defeased Mortgage Loan accruing after the date of defeasance) plus
dividends on preferred stock) of at least 2.0:1. As of September 30, 1998, the
Company's ratio of debt to total market capitalization was 43.5% and for the
twelve months ended September 30, 1998 the Company's coverage ratio was 2.33.
However, the organizational documents of the Company do not contain any
limitation on the amount or percentage of indebtedness the Company may incur and
the Company's Board of Directors has the power to alter the current policy.
Accordingly, the Company could become more highly leveraged, resulting in an
increase in debt service that could adversely affect the Company's ability to
make expected distributions to stockholders and in an increased risk of default
on its obligations.
Rising Interest Rates
The Acquisition Facility bears interest at a floating rate. Increases in
the interest rate payable on balances outstanding under the Acquisition Facility
would have an adverse effect on the Company's cash available for distribution.
Limits on Changes in Control
Certain provisions of the Articles of Incorporation may have the effect of
delaying, deferring or preventing a third party from making an acquisition
proposal for the Company and thus inhibit a change in control of the Company and
limit the opportunity for stockholders to receive a premium for their Common
Stock over then-prevailing market prices. See "Certain Provisions of Maryland
Law and the Company's Articles of Incorporation and Bylaws." These provisions
include the following:
Risks Associated with Preferred Stock
Under its Articles of Incorporation, the Company has authority to issue up
to 10,000,000 shares of Preferred Stock, par value $.01 per share (of which
1,650,000 shares of the Company's Series A Preferred Stock, 40,000 shares of the
Company's Series B Preferred Stock, 20,000 shares of the Company's Series C
Preferred Stock, 50,000 shares of the Company's Series D Preferred Stock and
30,000 shares of the Company's Series E Preferred Stock were outstanding on
September 30, 1998), on such terms as may be authorized by the Board of
Directors of the Company. The Board of Directors has also reserved 1,000,000
shares of Junior Participating Preferred Stock, par value $.01 per share (the
"Junior Participating Preferred Stock"), of the Company for issuance pursuant to
a shareholder rights plan adopted by the Board of Directors. The shareholder
rights plan may discourage a third party from making an acquisition proposal and
thus inhibit a change in control of the Company.
Maryland Business Combination Law
Under the Maryland General Corporation Law, as amended ("MGCL"), certain
"business combinations" (including certain issuances of equity securities)
between a Maryland corporation, such as the Company, and any person who
beneficially owns 10% or more of the voting power of the corporation's shares
(an
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"Interested Stockholder") or, in certain circumstances, an associate or an
affiliate thereof (as defined in the MGCL) are prohibited for five years after
the most recent date on which the Interested Stockholder becomes an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors and approved by two super-majority stockholder votes
unless, among other conditions, the corporation's common stockholders receive a
minimum price (as defined in the MGCL) for their shares, in cash or in the same
form as previously paid by the Interested Stockholder for its shares. The
provisions of the MGCL do not apply to business combinations that are approved
or exempted by the Board of Directors prior to the time that the Interested
Stockholder becomes an Interested Stockholder. In addition, the Company's
Articles of Incorporation exempt from these provisions of the MGCL any business
combination in which there is no Interested Stockholder other than Jay H.
Shidler, the Chairman of the Board of Directors of the Company, or any entity
controlled by Mr. Shidler, unless Mr. Shidler is an Interested Stockholder
without taking into account Mr. Shidler's ownership of shares of Common Stock of
the Company and the right to acquire shares in an aggregate amount which does
not exceed the number of shares which Mr. Shidler owned and had the right to
acquire (including through the exchange of Units) at the time of the
consummation of the Company's initial public offering.
Maryland Control Share Acquisition Statute
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights, except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares owned by the acquiror, by officers of the corporation and by
directors who are also employees of the corporation. If voting rights with
respect to control shares have not been approved at a meeting of stockholders,
then, subject to certain conditions and limitations, the issuer may redeem any
or all of such control shares for fair value. If voting rights for control
shares are approved at a stockholders meeting and the acquiror becomes entitled
to vote a majority of the shares entitled to vote, all other stockholders may
exercise appraisal rights. The Company's Bylaws contain a provision exempting
any and all acquisitions of the Company's shares of capital stock from the
control shares provisions of the MGCL. There can be no assurance that this
provision will not be amended or eliminated in the future.
Classified Board of Directors
The Company's directors are divided into three classes by its Articles of
Incorporation, with terms expiring over a three-year period. The classified
board provision could make it more difficult and time consuming to remove the
incumbent directors, thus discouraging a third party from attempting to take
control of the Company.
Risks Associated with Dilution
To the extent the Company issues Common Stock, the ownership interest of
existing stockholders would be diluted.
Risks Associated with Possible Conflicts of Interest
Competition from Other Business Interests of Certain Officers and Directors
Entities affiliated with or controlled by certain officers and directors of
the Company hold equity interests in industrial properties not owned by the
Company. Some of these properties may compete with properties owned by the
Company. There can be no assurance that decisions by officers and directors of
the Company will fully represent the interests of stockholders of the Company
rather than such individuals and their affiliates.
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Tax Consequences to Certain Officers and Directors
Certain officers and directors of the Company own Units which may be
exchanged for shares of Common Stock. Prior to the exchange of Units for Common
Stock, officers and directors of the Company who own Units may suffer different
and more adverse tax consequences than holders of Common Stock upon the sale of
certain of the Company's properties, the refinancing of debt associated with
those properties or in connection with a proposed tender offer or merger
involving the Company and, therefore, such individuals and the Company, as
partners in the Operating Partnership, may have different objectives regarding
the appropriate terms of any such transaction.
Year 2000 Concerns
The Year 2000 compliance issue concerns the inability of computerized
information systems and non-information systems to accurately calculate, store
or use a date after 1999. This could result in computer systems failures or
miscalculations causing disruptions of operations. The Year 2000 issue affects
almost all companies and organizations.
The Company has discussed its software applications and internal
operational programs with its current information systems' vendor and, based on
such discussions, believes that such applications and programs will properly
recognize calendar dates beginning in the year 2000. The Company is discussing
with its material third-party service providers, such as its banks, payroll
processor and telecommunications provider, their Year 2000 compliance and is
assessing what effect their possible non-compliance might have on the Company.
In addition, the Company is discussing with its material vendors the possibility
of any interface difficulties and/or electrical or mechanical problems relating
to the year 2000 which may affect properties owned by the Company. The Company
has also surveyed substantially all of its tenants to determine the status of
their Year 2000 compliance and what effect their possible non-compliance might
have on the Company. The Company is currently processing the information
obtained from such tenant surveys and remains in discussions with its material
vendors and third-party service providers. Of the tenant surveys processed to
date, all have stated that they are Year 2000 compliant or will be Year 2000
compliant by the end of 1999. The Company plans to complete its assessment of
Year 2000 compliance by such parties by April 30, 1999. Until such time the
Company cannot estimate any potential adverse impact resulting from the failure
of tenants, vendors or third-party service providers to address their Year 2000
issues; however, to date, no significant Year 2000-related conditions have been
identified.
Because the Company's evaluation of its Year 2000 issues has been conducted
by its own personnel or by its vendors in connection with their servicing
operations, the Company believes that its expenditures for assessing its Year
2000 issues, though difficult to quantify, to date have not been material. In
addition, the Company is not aware of any Year 2000-related conditions that it
believes would likely require any material expenditures by the Company in the
future.
Based on its current information, the Company believes that the risk posed
by any foreseeable Year 2000-related problem with its internal systems and the
systems at its properties (including both information and non-information
systems) or with its vendors or tenants is minimal. Year 2000-related problems
with the Company's software applications and internal operational programs or
with the electrical or mechanical systems at its properties are unlikely to
cause more than minor disruptions in the Company's operations. The Company
believes that the risk posed by Year 2000-related problems at certain of its
third-party service providers, such as its banks, payroll processor and
telecommunications provider, is marginally greater. However, based on its
current information, the Company does not believe any such problems would have a
material effect on its operations. Any Year 2000-related problems at such
third-party service providers could delay the processing of financial
transactions and the Company's payroll and could disrupt the Company's internal
and external communications. At this time, the Company has not developed, and
does not anticipate developing, any contingency plans with respect to Year 2000
issues. In addition, the Company has no plans to seek independent verification
or review of its assessment of its Year 2000 issues. The Company does intend to
com-
6
<PAGE>
plete its assessment of, and to continue to monitor, its Year 2000 issues and
will develop contingency plans if, and to the extent, deemed necessary.
While the Company believes that it will be Year 2000 compliant by December
31, 1999, there can be no assurance that the Company has been or will be
successful in identifying and assessing Year 2000 issues, or that, to the extent
identified, the Company's efforts to remediate such issues will be effective
such that Year 2000 issues will not have a material adverse effect on the
Company's business, financial condition or results of operation.
DESCRIPTION OF COMMON STOCK
The description of the Company's Common Stock set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Articles of Incorporation and the Bylaws. All material terms of the Company's
Common Stock are included in this Prospectus.
General
Under the Articles of Incorporation, the Company has authority to issue 100
million shares of Common Stock, par value $.01 per share. Under Maryland law,
stockholders generally are not responsible for the corporation's debts or
obligations. At December 31, 1998 the Company had outstanding 37,932,015 shares
of Common Stock.
Terms
Subject to the preferential rights of any other shares or series of stock
(including Preferred Stock outstanding from time to time) and to the provisions
of the Articles of Incorporation regarding Excess Stock, holders of shares of
Common Stock will be entitled to receive dividends on shares of Common Stock if,
as and when authorized and declared by the Board of Directors of the Company out
of assets legally available therefor and to share ratably in the assets of the
Company legally available for distribution to its stockholders in the event of
its liquidation, dissolution or winding up after payment of, or adequate
provision for, all known debts and liabilities of the Company.
Subject to the provisions of the Articles of Incorporation regarding Excess
Stock, each outstanding share of Common Stock entitles the holder to one vote on
all matters submitted to a vote of stockholders, including the election of
Directors, and, except as otherwise required by law or except as provided with
respect to any other class or series of stock, the holders of Common Stock will
possess the exclusive voting power. There is no cumulative voting in the
election of Directors, which means that the holders of a majority of the
outstanding shares of Common Stock can elect all of the Directors then standing
for election, and the holders of the remaining shares of Common Stock will not
be able to elect any Directors.
Holders of Common Stock have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of the Company.
Subject to the provisions of the Articles of Incorporation regarding Excess
Stock, all shares of Common Stock will have equal dividend, distribution,
liquidation and other rights, and will have no preference, appraisal or exchange
rights.
Pursuant to the MGCL, a corporation generally cannot dissolve, amend its
Articles of Incorporation, merge, sell all or substantially all of its assets,
engage in a share exchange or engage in similar transactions outside the
ordinary course of business unless approved by the affirmative vote of
stockholders holding at least two-thirds of the shares entitled to vote on the
matter unless a lesser percentage (but not less than a majority of all of the
votes to be cast on the matter) is set forth in the corporation's Articles of
Incorporation. The Articles of Incorporation do not provide for a lesser
percentage in such situations.
7
<PAGE>
Restrictions on Ownership
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year. To assist the Company in meeting this
requirement, the Company may take certain actions to limit the beneficial
ownership, directly or indirectly, by individuals of the Company's outstanding
equity securities. See "Restrictions on Transfer of Capital Stock."
Transfer Agent
The transfer agent and registrar for the Common Stock is First Chicago
Trust Company of New York.
Shareholder Rights Plan
On September 4, 1997, the Board of Directors adopted a shareholder rights
plan (the "Shareholder Rights Plan"). Under such plan, one right was attached to
each outstanding share of Common Stock at the close of business on October 19,
1997, and one right will be attached to each share of Common Stock thereafter
issued. Each right entitles the holder to purchase, under certain conditions,
one one-hundredth of a share of Junior Participating Preferred Stock of the
Company for $125.00. The rights may also, under certain conditions, entitle the
holders to receive Common Stock, or common stock of an entity acquiring the
Company, or other consideration, each having a value equal to twice the exercise
price of each right ($250.00). The Company has designated 1,000,000 shares as
Junior Participating Preferred Stock and has reserved such shares for issuance
under the Shareholder Rights Plan. The rights are redeemable by the Company at a
price of $.001 per right. If not exercised or redeemed, all rights expire on
October 20, 2007. The description and terms of the rights are set forth in a
Shareholder Rights Agreement between the Company and First Chicago Trust Company
of New York.
8
<PAGE>
CERTAIN PROVISIONS OF MARYLAND LAW AND
THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
The following summary of certain provisions of Maryland law and the
Company's Articles of Incorporation and Bylaws does not purport to be complete
and is qualified by reference to Maryland law and the Company's Articles of
Incorporation and Bylaws.
Business Combinations
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and an interested stockholder or, in certain circumstances, an
associate or an affiliate thereof are prohibited for five years after the most
recent date on which the Interested Stockholder became an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of the corporation and approved by the affirmative vote
of at least (a) 80% of the votes entitled to be cast by holders of outstanding
voting shares of the corporation and (b) two-thirds of the votes entitled to be
cast by holders of outstanding shares of the corporation other than shares held
by the Interested Stockholder with whom the business combination is to be
effected, unless, among other things, the corporation's stockholders receive a
minimum price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Stockholder for its shares. These provisions of Maryland law do not apply,
however, to business combinations that are approved or exempted by the board of
directors of the corporation prior to the time that the Interested Stockholder
becomes an Interested Stockholder. The Articles of Incorporation exempt from
these provisions of the MGCL any business combination in which there is no
Interested Stockholder other than Mr. Shidler or any entity controlled by Mr.
Shidler unless Mr. Shidler is an Interested Stockholder without taking into
account his ownership of shares of the Company's Common Stock and the right to
acquire shares of the Company's Common Stock in an aggregate amount which does
not exceed the number of shares of the Company's Common Stock which he owned and
had the right to acquire (including through the exchange of Units) at the time
of the consummation of the Company's initial public offering.
Control Share Acquisitions
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror or by officers or directors who
are employees of the corporation. "Control shares" are voting shares of stock
that, if aggregated with all other shares of stock previously acquired by that
person, would entitle the acquiror to exercise voting power in electing
directors within one of the following ranges of voting power; (i) one-fifth or
more but less than one-third, (ii) one-third or more but less than a majority,
or (iii) a majority of all voting power. Control shares do not include shares
the acquiring person is then entitled to vote as a result of having previously
obtained stockholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition may
compel the board of directors, upon satisfaction of certain conditions
(including an undertaking to pay expense), to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the corporation may itself
present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by statute, then
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to voting rights, as of
the date of the last control share acquisition or of any meeting of stockholders
at which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a stockholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal rights.
9
<PAGE>
The fair value of the shares as determined for purposes of the appraisal rights
may not be less than the highest price per share paid in the control share
acquisition. Certain limitations and restrictions otherwise applicable to the
exercise of dissenters' rights do not apply in the context of a control share
acquisition.
The control share acquisition statute does not apply to (i) shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction, or (ii) acquisitions approved or exempted by the Company's
Articles of Incorporation or Bylaws.
The Company's Bylaws contain a provision exempting any and all acquisitions
of the Company's shares of capital stock from the control shares provisions of
the MGCL. There can be no assurance that this provision will not be amended or
eliminated in the future.
Amendment of Articles of Incorporation
The Company's Articles of Incorporation, including its provisions on
classification of the Board of Directors (discussed below), may be amended only
by the affirmative vote of the holders of not less than two-thirds of all of the
votes entitled to be cast on the matter.
Meetings of Stockholders
The Company's Bylaws provide for annual meetings of stockholders to be held
on the third Wednesday in April or on any other day as may be established from
time to time by the Board of Directors. Special meetings of stockholders may be
called by (i) the Company's Chairman of the Board or the Company's President,
(ii) a majority of the Board of Directors or (iii) stockholders holding at least
25% of the outstanding capital stock of the Company entitled to vote at the
meeting.
The Company's Bylaws provide that any stockholder of record wishing to
nominate a director or have a stockholder proposal considered at an annual
meeting must provide written notice and certain supporting documentation to the
Company relating to the nomination or proposal not less than 75 days nor more
than 180 days prior to the anniversary date of the prior year's annual meeting
or special meeting in lieu thereof (the "Anniversary Date"). In the event that
the annual meeting is called for a date more than seven calendar days before the
Anniversary Date, stockholders generally must provide written notice within 20
calendar days after the date on which notice of the meeting is mailed to
stockholders or the date of the meeting is publicly disclosed.
The purpose of requiring stockholders to give the Company advance notice of
nominations and other business is to afford the Board of Directors a meaningful
opportunity to consider the qualifications of the proposed nominees or the
advisability of the other proposed business and, to the extent deemed necessary
or desirable by the Board of Directors, to inform stockholders and make
recommendations about the qualifications or business, as well as to provide a
more orderly procedure for conducting meetings of stockholders. Although the
Company's Bylaws do not give the Board of Directors any power to disapprove
stockholder nominations for the election of directors or proposals for action,
they may have the effect of precluding a contest for the election of directors
or the consideration of stockholder proposals if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of the nominees or
proposal might be harmful or beneficial to the Company and its stockholders.
Classification of the Board of Directors
The Company's Bylaws provide that the number of directors of the Company
may be established by the Board of Directors but may not be fewer than the
minimum number required by Maryland law nor more than twelve. Any vacancy will
be filled, at any regular meeting or at any special meeting called for that
purpose, by a majority of the remaining directors, except that a vacancy
resulting from an increase in the number of directors will be filled by a
majority of the entire Board of Directors. Pursuant to the terms of the Articles
10
<PAGE>
of Incorporation, the directors are divided into three classes. One class holds
office for a term expiring at the annual meeting of stockholders to be held in
1999, and the other two classes hold office for terms expiring at the annual
meetings of stockholders to be held in 2000 and 2001, respectively. As the term
of each class expires, directors in that class will be elected for a term of
three years and until their successors are duly elected and qualified. The
Company believes that classification of the Board of Directors will help to
assure the continuity and stability of the Company's business strategies and
policies as determined by the Board of Directors.
The classified board provision could have the effect of making the removal
of incumbent directors more time consuming and difficult, which could discourage
a third party from making a tender offer or otherwise attempting to obtain
control of the Company, even though such an attempt might be beneficial to the
Company and its stockholders. At least two annual meetings of stockholders,
instead of one, will generally be required to effect a change in a majority of
the Board of Directors. Thus, the classified board provision could increase the
likelihood that incumbent directors will retain their positions. Holders of
shares of Common Stock will have no right to cumulative voting for the election
of directors. Consequently, at each annual meeting of stockholders, 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.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK
For the Company to qualify as a REIT under the Code, among other things,
not more than 50% in value of its outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year, and such
capital stock must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a proportionate part of a
shorter tax year. See "Certain Federal Income Tax Considerations." To ensure
that the Company remains a qualified REIT, the Company's Articles of
Incorporation, subject to certain exceptions, provide that no holder may own, or
be deemed to own by virtue of the attribution provisions of the Code, more than
an aggregate of 9.9% in value of the Company's capital stock. Any transfer of
capital stock or any security convertible into capital stock that would create a
direct or indirect ownership of capital stock in excess of the ownership limit
or that would result in the disqualification of the Company as a REIT, including
any transfer that results in the capital stock being owned by fewer than 100
persons or results in the Company being "closely held" within the meaning of
Section 856(h) of the Code, shall be null and void, and the intended transferee
will acquire no rights to the capital stock. Capital stock owned, or deemed to
be owned, or transferred to a stockholder in excess of the ownership limit will
automatically be exchanged for shares of Excess Stock (as defined in the
Company's Articles of Incorporation) that will be transferred, by operation of
law, to the Company as trustee of a trust for the exclusive benefit of the
transferees to whom such capital stock may be ultimately transferred without
violating the ownership limit. While the Excess Stock is held in trust, it will
not be entitled to vote, it will not be considered for purposes of any
stockholder vote or the determination of a quorum for such vote, and it will not
be entitled to participate in the accumulation or payment of dividends or other
distributions. A transferee of Excess Stock may, at any time such Excess Stock
is held by the Company in trust, designate as beneficiary of the transferee
stockholder's interest in the trust representing the Excess Stock any individual
whose ownership of the capital stock exchanged into such Excess Stock would be
permitted under the ownership limit, and may transfer such interest to such
beneficiary at a price not in excess of the price paid by the original
transferee-stockholder for the capital stock that was exchanged into Excess
Stock. Immediately upon the transfer to the permitted beneficiary, the Excess
Stock will automatically be exchanged for capital stock of the class from which
it was converted. In addition, the Company will have the right, for a period of
90 days during the time any Excess Stock is held by the Company in trust, and,
with respect to Excess Stock resulting from the attempted transfer of preferred
stock of the Company, at any time when any outstanding shares of preferred stock
of such series are being redeemed, to purchase all or any portion of the Excess
Stock from the original transferee-stockholder at the lesser of the price paid
for the capital stock by the original transferee-stockholder and the market
price (as determined in the manner set forth in the Articles of Incorporation)
of the capital stock on the date the Company exercises its option to purchase
or, in the case of a purchase of Excess Stock attributed to preferred stock
which has been called for redemption, at its stated value, plus all accumulated
and unpaid dividends to the date of redemption. The 90-day period begins on the
date of the violative transfer if the original transferee-stockholder gives
notice to the Company of the transfer
11
<PAGE>
or, if no such notice is given, the date the Board of Directors determines that
a violative transfer has been made.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
This section is a summary of the material federal income tax matters of
general application pertaining to REITs under the Code. The discussion is based
on current law and does not purport to deal with all aspects of federal income
taxation that may be relevant to investors subject to special treatment under
the federal income tax laws, such as tax-exempt investors, dealers in securities
or foreign persons. The provisions of the Code pertaining to REITs are highly
technical and complex and sometimes involve mixed questions of fact and law. In
addition, this section does not discuss foreign, state or local taxation. The
Company has received an opinion from Cahill Gordon & Reindel as to the
conclusions of law expressed in this summary. Prospective investors should
consult their own tax advisors regarding the federal, state, local, foreign and
other tax consequences specific to them of holding and disposing of the Common
Stock.
Taxation of the Company
In the opinion of Cahill Gordon & Reindel, commencing with its taxable year
ended December 31, 1994, the Company has been organized in conformity with the
requirements for qualification as a REIT under the Code, the Company's method of
operation has enabled it to meet the requirements for qualification as a REIT
under the Code, and, provided that the Company continues to satisfy the various
requirements applicable under the Code to REITs, as described herein, it will
continue to so qualify. Cahill Gordon & Reindel's opinion is based on various
assumptions and is conditioned upon certain representations as to factual
matters made by the Company and certain partnerships through which the Company
holds substantially all of its assets (the "Partnerships"). Moreover, such
qualification and taxation as a REIT depend upon the Company's ability to meet,
as a matter of fact, through actual annual operating results, distribution
levels, diversity of stock ownership and various other qualification tests
imposed under the Code discussed below, the results of which will not be
reviewed by Cahill Gordon & Reindel. Accordingly, no assurance can be given that
the actual results of the Company's operations for any one taxable year will
satisfy such requirements.
To qualify as a REIT under the Code for a taxable year, the Company must
meet certain organizational and operational requirements, which generally
require it to be a passive investor in real estate and to avoid excessive
concentration of ownership of its capital stock. Generally, at least 75% of the
value of the total assets of the Company at the end of each calendar quarter
must consist of real estate assets, cash or governmental securities. The Company
may not own more than 10% of the outstanding voting securities of any
corporation and the value of any one issuer's securities may not exceed 5% of
the Company's gross assets; shares of qualified REITs, qualified temporary
investments and shares of certain wholly owned subsidiary corporations are
exempt from these prohibitions. The Company holds assets through certain wholly
owned subsidiary corporations and holds Preferred Stock interests in certain
corporations; in the opinion of Cahill Gordon & Reindel, based on certain
factual representations, these holdings do not violate the prohibition on
ownership of voting securities. For each taxable year, at least 75% of a REIT's
gross income must be derived from specified real estate sources and 95% must be
derived from such real estate sources plus certain other permitted sources. Real
estate income for purposes of these requirements includes gain from the sale of
real property not held primarily for sale to customers in the ordinary course of
business, dividends on REIT shares, interest on loans secured by mortgages on
real property, certain rents from real property and certain income from
foreclosure property. For rents to qualify, they may not be based on the income
or profits of any person, except that they may be based on a percentage or
percentages of gross income or receipts. Also, subject to certain limited
exceptions, the REIT may not manage the property or furnish services to tenants
except through an independent contractor which is paid an arm's-length fee and
from which the REIT derives no income. However, a REIT may render a de minimis
amount of otherwise impermissible services to tenants, or in connection with the
management of property, and treat amounts received with respect to such property
as rents from real property. Substantially all of the Company's assets are held
through the Partnerships. In gen-
12
<PAGE>
eral, in the case of a REIT that is a partner in a partnership, applicable
regulations treat the REIT as holding directly its proportionate share of the
assets of the partnership and as being entitled to the income of the partnership
attributable to such share.
The Company must satisfy certain ownership restrictions that limit (i)
concentration of ownership of the Company's capital stock by a few individuals
and (ii) ownership by the Company of its tenants. The outstanding capital stock
of the Company must be held by at least 100 stockholders. No more than 50% in
value of the outstanding capital stock, including in some circumstances capital
stock into which outstanding securities might be converted, may be owned
actually or constructively by five or fewer individuals or certain other
entities at any time during the last half of the Company's taxable year.
Accordingly, the Company's Articles of Incorporation contain certain
restrictions regarding the transfer of Common Stock, Preferred Stock and any
other outstanding securities convertible into Common Stock when necessary to
maintain the Company's qualification as a REIT under the Code. However, because
the Code imposes broad attribution rules in determining constructive ownership,
no assurance can be given that the restrictions contained in the Company's
Articles of Incorporation will be effective in maintaining the Company's REIT
status. See "Restrictions on Transfers of Capital Stock."
So long as the Company qualifies for taxation as a REIT, distributes at
least 95% of its REIT taxable income (computed without regard to net capital
gain or the dividends paid deduction) for its taxable year to its stockholders
annually and satisfies certain other distribution requirements, the Company
itself will not be subject to federal income tax on that portion of such income
distributed to stockholders. The Company will be taxed at regular corporate
rates on all income not distributed to stockholders. The Company's policy is to
distribute at least 95% of its taxable income. The Company may elect to pass
through to its shareholders on a pro rata basis any taxes paid by the Company on
its undistributed net capital gain income for the relevant tax year. REITs also
may incur taxes for certain other activities or to the extent distributions do
not satisfy certain other requirements.
Failure of the Company to qualify during any taxable year as a REIT could,
unless certain relief provisions were available, have a material adverse effect
upon its stockholders. If disqualified for taxation as a REIT for a taxable
year, the Company also would be disqualified for taxation as a REIT for the next
four taxable years, unless the failure were considered to be due to reasonable
cause and not willful neglect. The Company would be subject to federal income
tax at corporate rates on all of its taxable income and would not be able to
deduct any dividends paid, which could result in a discontinuation of or
substantial reduction in dividends to stockholders. Dividends also would be
subject to the regular tax rules applicable to dividends received by
stockholders of corporations. Should the failure to qualify as a REIT be
determined to have occurred retroactively in an earlier tax year of the Company,
the imposition of a substantial federal income tax liability on the Company
attributable to any nonqualifying tax years may adversely affect the Company's
ability to pay dividends. In the event that the Company fails to meet certain
income tests applicable to REITs, it may, generally, nonetheless retain its
qualification as a REIT if it pays a 100% tax on the amount by which it failed
to meet the relevant income test so long as such failure was considered to be
due to reasonable cause and not willful neglect. Any such taxes would adversely
affect the Company's ability to pay dividends and distributions.
13
<PAGE>
SELLING STOCKHOLDERS
The Selling Stockholders are those persons who (i) may receive Redemption
Shares in exchange for Units, (ii) may receive shares of Common Stock pursuant
to the Company's Deferred Income Plan and/or (iii) have already received
Restricted Shares. Certain of the Selling Stockholders have received Units in
connection with the contribution of properties, or interests therein, to the
Operating Partnership; as of December 1, 1998, none of these Units has been
exchanged for Redemption Shares. The following table provides, as of December 1,
1998, unless otherwise indicated, the names of each Selling Stockholder and the
number of Registered Shares offered hereby by each Selling Stockholder. As the
Company is not obligated to issue Common Stock upon redemption of the Units and
the Selling Stockholders may sell all, some or none of the Registered Shares, no
estimate can be made of the aggregate number of Registered Shares that are to be
offered hereby, or the aggregate number of shares of Common Stock that will be
owned by each Selling Stockholder upon completion of the offering to which this
Prospectus relates. The number of shares in the column "Number of Shares Offered
Hereby" includes, as applicable, (i) the number of Restricted Shares which the
Selling Stockholder has received , (ii) the number of DIP Shares the Selling
Stockholder may receive, and (iii) the number of Redemption Shares the Selling
Stockholder may receive in exchange for Units. Amounts shown in the "Number of
Shares and Units Owned Before the Offering" represent the number of securities
shown in the column "Number of Shares Offered Hereby" plus shares of Common
Stock and Units held by the Selling Stockholders that are not covered by the
registration statement of which this prospectus forms a part.
The Registered Shares offered by this Prospectus may be offered from time
to time by the Selling Stockholders named below:
<TABLE>
<CAPTION>
Number of Shares and Units Owned Number of Shares Offered
Name Before the Offering Hereby
- ----------------------------------------------------- --------------------------------------- ---------------------------
<S> <C> <C>
D.W. Sivers Co. 118,765 118,265 (1)
Sivers Investment Partnership 283,500 283,500 (1)
Sivers Family Real Property LLC 12,062 12,062 (1)
Dennis W. Sivers 27,636 27,636 (1)
W.C. Sivers Marital Trust u/w/d
February 20, 1981 14,020 14,020 (1)
Donald C. Thompson 39,243 719 (2)
Jack Kulka 330 330 (3)
Babette Kulka 330 330 (3)
James J. Warfield 330 330 (3)
Robert Stein, Trustee u/a/d 5/21/96
f/b/o Robert Stein 63,630 6,852 (4)
S. Larry Stein 63,630 6,852 (4)
Leland A. and Margery Ann Hodges 60,000 60,000 (5)
Ester Fried (6) 3,177 3,177 (6)
Michael T. Tomasz, trustee of The Michael
T. Tomasz Trust u/a 2/5/90 549,464 31,841 (7)
Michael W. Brennan (8) 225,545 3,803 (9)
Michael J. Havala (10) 147,607 1,681 (7)
Gary Heigl (11) 104,217 840 (7)
Johannson Yap (12) 127,836 1,345 (7)
Randall L. Axelson 1,327 1,250 (7)
Michael Gantos 827 750 (7)
Eileen Millar 22,287 1,750 (7)
James D. Carpenter 24,500 1,000 (7)
A. Scott McGregor 29,500 700 (7)
Michelle Corey 300 300 (7)
Donald Stoffle 11,100 100 (7)
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<PAGE>
Number of Shares and Units Owned Number of Shares Offered
Name Before the Offering Hereby
- ----------------------------------------------------- --------------------------------------- ---------------------------
Bernie Bak 15,250 250 (7)
Todd Geller 20,100 500 (7)
Jan Burman 622,973 2,700 (7)
Duane Lund 26,651 5,200 (7)
Donald C. Petersen 4,650 650 (7)
Lisa Weinstein 700 400 (7)
</TABLE>
- --------------------
(1) Represents Redemption Shares that may be received in exchange for Units
which were issued as consideration for the contribution of certain real
estate to the Company on August 31, 1998.
(2) Represents Redemption Shares that may be received in exchange for Units
which were issued as consideration for the contribution of certain real
estate to the Company on July 16, 1998.
(3) Represents Redemption Shares that may be received in exchange for Units
which were issued as consideration for the contribution of certain real
estate to the Company on October 21, 1998.
(4) Represents Redemption Shares that may be received in exchange for Units
which were issued as consideration for the contribution of certain real
estate to the Company on October 30, 1998.
(5) Represents Redemption Shares that may be received in exchange for Units
which were issued as consideration for the contribution of certain real
estate to the Company on November 5, 1998.
(6) Represents Redemption Shares that may be received in exchange for Units
which were issued as consideration for the contribution of real estate to
the Company on January 30, 1998.
(7) Represents Restricted Shares.
(8) Mr. Brennan is President, Chief Executive Officer and a Director of the
Company..
(9) Represents 2,185 Restricted Shares and 1,618 DIP Shares.
(10) Mr. Havala is Chief Financial Officer, Treasurer and Secretary of the
Company.
(11) Mr. Heigl is Chief Operating Officer of the Company.
(12) Mr. Yap is Chief Investment Officer of the Company.
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PLAN OF DISTRIBUTION
This Prospectus relates to the offer and sale from time to time of
Registered Shares by the holders thereof. The Company is registering the
Registered Shares for sale to provide the holders thereof with freely tradable
securities, but the registration of such shares does not necessarily mean that
any of such shares will be issued by the Company or offered or sold by the
Selling Stockholders. The Company will not receive any proceeds from the
offering by the Selling Stockholders of the Registered Shares.
The Selling Stockholders may, from time to time, offer the Registered
Shares in one or more transactions (which may involve block transactions) on the
NYSE or otherwise, in secondary distributions pursuant to and in accordance with
the rules of the NYSE, in the over-the-counter market, in negotiated
transactions, through the writing of options on the Registered Shares (whether
such options are listed on an options exchange or otherwise), or a combination
of such methods of sale, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. In
addition, any Registered Shares that qualify for sale under Rule 144 under the
Securities Act may be sold under that rule rather than pursuant to this
Prospectus.
The Selling Stockholders may effect such transactions by selling Registered
Shares to or through broker-dealers or through other agents, and such
broker-dealers or agents may receive compensation in the form of commissions
from the Selling Stockholders, which will not exceed those customary in the
types of transactions involved, and/or the purchasers of Registered Shares for
whom they may act as agent. The Selling Stockholders and any dealers or agents
that participate in the distribution of Registered Shares may be deemed to be
"underwriters" within the meaning of the Securities Act and any profit on the
sale of Registered Shares by them and any commissions received by any such
dealers or agents might be deemed to be underwriting commissions under the
Securities Act.
In the event of a "distribution" of the Registered Shares, Selling
Stockholders, any selling broker-dealer or agent and any "affiliated purchasers"
may be subject to Regulation M under the Exchange Act, which would prohibit,
with certain exceptions, each such person from bidding for or purchasing any
security which is the subject of such distribution until his participation in
that distribution is completed. In addition, Regulation M under the Exchange Act
prohibits certain "stabilizing bids" or "stabilizing purchases" for the purpose
of pegging, fixing or stabilizing the price of Common Stock in connection with
this offering.
At a time a particular offer of Registered Shares is made, a Prospectus
Supplement, if required, will be distributed that will set forth the name or
names of any dealers or agents and any commissions and other terms constituting
compensation from the Selling Stockholders and any other required information.
The Registered Shares may be sold from time to time at varying prices determined
at the time of sale or at negotiated prices.
In order to comply with the securities laws of certain states, if
applicable, the Registered Shares, may be sold only through registered or
licensed brokers or dealers or, if required, an exemption from issuer-dealer
registration is perfected.
The Restricted Shares consist of Common Stock previously issued to the
Selling Stockholders in private placements exempt from the registration
requirements of the Securities Act. The Redemption Shares consist of Common
Stock which may be issued to Selling Stockholders upon redemption by the Company
of Units previously issued to such persons in private placements exempt from the
registration requirements of the Securities Act.
The Company may from time to time issue up to 534,073 Redemption Shares
upon the acquisition of the Units tendered for redemption. The Company will
acquire one Unit from a Selling Stockholder in exchange for each Redemption
Share that the Company issues in connection with these acquisitions.
Consequently, with each redemption, the Company's interest in the Operating
Partnership will increase.
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Pursuant to various registration rights agreements for the benefit of
certain Selling Stockholders, the Company has agreed to pay all expenses of
effecting the registration of the Registered Shares offered hereby (in each
case, other than underwriting discounts and commissions, fees and disbursements
of counsel, accountants or others representing the limited partner and transfer
taxes, if any) and has agreed to indemnify each holder of such Registered Shares
and its officers and directors and any person who controls any holder against
certain losses, claims, damages and expenses arising under the securities laws.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1996 and the
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997, and the
consolidated financial statement schedule as of December 31, 1997 of the
Company, and the combined historical statements of revenues and certain expenses
of the 1997 Acquisition V Properties, the 1997 Acquisition VI Properties, the
1997 Acquisition VII Properties and the 1997 Acquisition VIII Properties (as
defined in the Company's Current Report on Form 8-K/A No.1 filed January 22,
1998 and Form 8-K/A No.2 filed February 26, 1998) for the year ended December
31, 1996, the combined statement of revenues and certain expenses of the 1998
Acquisition I Properties (as defined in the Company's Current Report on Form
8-K/A No.1 filed June 16, 1998) for the year ended December 31, 1997 and the
combined historical statement of revenues and certain expenses of the 1998
Acquisition II Properties (as defined in the Company's Current Report on Form
8-K/A No.1 filed January 11, 1999) for the year ended December 31, 1997
incorporated by reference in the Registration Statement, have been incorporated
herein in reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Cahill Gordon
& Reindel (a partnership including a professional corporation), New York, New
York. Cahill Gordon & Reindel will rely as to all matters of Maryland law on the
opinion of McGuire, Woods, Battle & Boothe, L.L.P., Baltimore, Maryland.
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