As filed with the Securities and Exchange Commission on
December 29, 1999
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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HOME PROPERTIES OF NEW YORK, INC.
(Exact name of registrant as specified in charter)
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Maryland 16-1455126
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
850 Clinton Square Rochester,
New York 14604
(716) 546-4900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Ann M. McCormick, Esq.
Vice President, Secretary and General Counsel
Home Properties of New York, Inc.
850 Clinton Square
Rochester, New York 14604
(716) 246-4105
Facsimile (716) 232-3147
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
-------------------
Copies to:
Deborah McLean Quinn, Esq.
Nixon Peabody LLP
1300 Clinton Square
Rochester, New York 14604
(716) 263-1307
Facsimile (716) 263-1600
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Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.
/ /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for
the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of Each Proposed Proposed
Class of Amount to Maximum Maximum
Securites to be be Offering Price Aggregate Registra-
Registered Registered Share (1) Offering Price tion Fee
- -------------- ---------- ------------- -------------- --------
<S> <C> <C> <C> <C>
Common Stock
par value $.01 1,679,543 sh. $ 26.875 $45,137,718.12 $11,916.36
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 and based upon the
prices reported on the New York Stock Exchange on December 27, 1999 of
$26.875.
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 this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
1,679,543 Shares
HOME PROPERTIES OF NEW YORK, INC.
COMMON STOCK
This Prospectus relates to the offering and sale of 1,679,543 shares
of Common Stock, par value $.01 per share, of Home Properties of New York,
Inc. by the person which holds those shares. See "Selling Shareholder."
We will not receive any proceeds of the sale of the shares offered hereby.
The Common Stock is listed on the New York Stock Exchange ("NYSE") under
the symbol "HME." The last reported sale price of the Common Stock on the
NYSE was $26.875 on December 27, 1999.
We have agreed to register the shares of Common Stock which may be
issued to the Selling Shareholder upon conversion of the 2,000,000 shares
of Series B Cumulative Convertible Preferred Stock of Home Properties held
by the Selling Shareholder and to pay the costs of the registration. See
"Plan of Distribution."
The price and the commissions (if any) paid in connection with any
sale will be on terms to be determined at the time of each sale. We will
not receive any of the proceeds of any sales of the shares offered by the
Selling Shareholder.
There is no public market for our Series A Convertible Preferred Stock
or our Series B Cumulative Convertible Preferred Stock. The preferred stock
has priority over the common stock in the payment of dividends and in the
event of liquidation, is non-voting except in limited circumstances and is
convertible into common stock. See "Description of Capital Stock."
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PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATERIAL RISKS SET
FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE
---------------------
The date of this Prospectus is December __, 1999.
<PAGE>
TABLE OF CONTENTS
Home Properties 1
Risk Factors 2
Where You Can Find More Information 8
Special Note Regarding Forward-Looking Statements 10
Selling Shareholder 10
Description of Capital Stock 10
Common Stock 11
Preferred Stock 12
Restriction on Transfer Ownership Limits 14
Ownership Reports 16
Certain Other Provisions of Maryland Law and
Charter Documents 16
Federal Income Tax Considerations 18
Taxation of Home Properties 19
Failure to Qualify 28
Taxation of Taxable U.S. Stockholders 28
Dispositions of Common Stock 30
Backup Withholding 30
Taxation of Tax-Exempt Stockholders 30
Taxation of Non-U.S. Stockholders 31
Tax Aspects of the Operating Partnership 35
Other Tax Consequences 39
Ratio of Earnings to Combined Fixed Charges and
Preferred Dividends 40
Plan of Distribution 40
Experts 41
<PAGE>
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE MORE
DETAILED INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED
HEREIN OR THEREIN BY REFERENCE. REFERENCES TO "HOME PROPERTIES," "WE" OR
"US" IN THIS PROSPECTUS MEAN, EXCEPT AS THE CONTEXT OTHERWISE REQUIRES,
HOME PROPERTIES OF NEW YORK, INC., A MARYLAND CORPORATION, HOME PROPERTIES
OF NEW YORK, L.P., A NEW YORK LIMITED PARTNERSHIP (THE "OPERATING
PARTNERSHIP"), HOME PROPERTIES TRUST, A MARYLAND TRUST (THE "TRUST"), HP
MANAGEMENT, INC., A MARYLAND CORPORATION ("HP MANAGEMENT"), CONIFER REALTY
CORPORATION, A MARYLAND CORPORATION ("CONIFER REALTY" AND, TOGETHER WITH HP
MANAGEMENT, THE "MANAGEMENT COMPANIES"), AND ALL OTHER SUBSIDIARIES OF HOME
PROPERTIES ON A CONSOLIDATED BASIS.
HOME PROPERTIES
Home Properties is a fully integrated, self-administered, and self-
managed real estate investment trust specializing in apartment communities
in select Northeast, Midwest, and Mid-Atlantic markets. We currently
operate 292 communities containing 45,475 apartment units. Of these, 33,807
units in 126 communities are wholly owned directly or indirectly by Home
Properties, 7,710 units are partially owned and managed by Home Properties
as general partner, and 3,958 units are managed for other owners. The
communities are located throughout the Northeastern quadrant of the United
States, including New York, Michigan, Pennsylvania, Maryland, New Jersey,
Virginia, Connecticut, Maine, Ohio, Illinois, Indiana, and Delaware. In
addition, Home Properties manages 1.7 million square feet of commercial
space. We refer to the owned and managed properties as the "Properties".
Home Properties has a strategy of acquiring apartment communities at
prices significantly below replacement costs and repositioning them for
long-term growth. Home Properties focuses on stable markets with limited
new construction activity, where the majority of the existing multifamily
housing stock is over 20 years old. Home Properties' communities, which
generally have brick exteriors and mature landscaping, are typically
located in established suburban neighborhoods. With a commitment to
customer service and the ability to provide quality housing at affordable
prices, Home Properties' communities appeal to a broad range of senior and
middle-income residents. Home Properties maintains 11 regional property
management offices that provide support for the on-site property management
teams.
Home Properties, which was incorporated under the laws of the State of
Maryland in November 1993, was formed to continue and expand the
multifamily apartment community investment, management acquisition and
development operations of Home Leasing Corporation. In 1996, Home
Properties combined its operations with those of Conifer Realty Inc. and
its affiliates, an owner and operator of multifamily communities with an
expertise in the area of government-assisted and affordable housing. Home
Properties and its predecessors have operated multifamily communities for
over 30 years and its 24 officers have been employed by such entities for
an average of 13 years. As of December 15, 1999, Home Properties had
approximately 1,920 employees.
RISK FACTORS
An investment in the Common Stock of Home Properties involves
various risks. In addition to general investment risks and those
factors set forth elsewhere in this Prospectus, prospective investors
should consider, among other things, the following factors:
ASSIMILATION OF A SUBSTANTIAL NUMBER OF NEW ACQUISITIONS CREATES
MANAGEMENT AND OPERATIONAL RISKS.
Since its formation, Home Properties has undertaken a strategy of
aggressive growth through acquisitions. Home Properties' ability to manage
its growth effectively requires us, among other things, to successfully
apply its experience in managing its existing portfolio to an increased
number of properties. In addition, we will be required to successfully
manage the integration of a substantial number of new personnel. There can
be no assurances that Home Properties will be able to integrate and manage
these operations effectively or maintain or improve on their historical
financial performance.
REAL ESTATE FINANCING RISKS
OUR REAL ESTATE IS MORTGAGED AND REQUIRES SUBSTANTIAL CASH FLOW
FOR DEBT SERVICE. Home Properties is subject to the customary risks
associated with debt financing including the potential inability to
refinance existing mortgage indebtedness upon maturity on favorable terms.
If a property is mortgaged to secure payment of indebtedness and we are is
unable to meet its debt service obligations, the property could be
foreclosed upon. This could adversely affect Home Properties' cash flow
and, consequently, the amount available for distributions to stockholders.
OUR DEBT IS NOT LIMITED BY OUR CHARTER AND COULD BE INCREASED WITHOUT
A VOTE OF SHAREHOLDERS. The Board of Directors has adopted a policy of
limiting Home Properties' indebtedness to approximately 50% of its total
market capitalization (i.e., the market value of issued and outstanding
shares of Common Stock and limited partnership interests in the Operating
Partnership ("Units") plus total debt), but the organizational documents
of Home Properties do not contain any limitation on the amount or
percentage of indebtedness, funded or otherwise, we may incur.
Accordingly, the Board of Directors could alter or eliminate its current
policy on borrowing. If this policy were changed, Home Properties could
become more highly leveraged, resulting in an increase in debt service that
could adversely affect our ability to make expected distributions to its
stockholders and an increased risk of default on our indebtedness. Home
Properties' debt to total market capitalization ratio fluctuates based on
the timing of acquisitions and financings. Our bank agreements and certain
agreements with holders of our preferred stock limit the amount
indebtedness Home Properties may incur.
OUR DEBT IS NOT FULLY SELF-AMORTIZING AND WILL REQUIRE REFINANCING.
Home Properties is subject to the risks normally associated with debt
financing, including the risk that our cash flow will be insufficient
to meet the required payments of principal and interest. Because much
of the financing is not fully self-amortizing, we anticipate that only
a portion of the principal of Home Properties' indebtedness will be
repaid prior to maturity. So, we will need to refinance debt.
Accordingly, there is a risk that we will not be successful in
refinancing existing indebtedness or that the terms of such refinancing
will not be as favorable as the terms of the existing indebtedness.
Home Properties aims to stagger its debt maturities with the goal of
minimizing the amount of debt which must be refinanced in any year.
REAL ESTATE INVESTMENT RISKS
CASH FLOW FROM OUR APARTMENT COMMUNITIES IS SUBJECT TO
FLUCTUATIONS BASED ON FACTORS OVER WHICH WE HAVE NO CONTROL. Real
property investments are subject to varying degrees of risk. If our
communities do not generate revenues sufficient to meet operating
expenses, including debt service and capital expenditures,
Home Properties' cash flow and ability to make distributions to its
stockholders will be adversely affected. A multifamily apartment
community's revenues and value may be adversely affected by the general
economic climates; the local economic climate; local real estate
considerations (such as over supply of or reduced demand for apartments);
the perception by prospective residents of the safety, convenience and
attractiveness of the communities or neighborhoods in which they are
located and the quality of local schools and other amenities; and
increased operating costs (including real estate taxes and utilities).
Certain significant fixed expenses are generally not reduced when
circumstances cause a reduction in income from the investment.
RENTALS AT OUR APARTMENT COMMUNITIES DEPEND ON OUR ABILITY TO
ATTRACT AND RETAIN TENANTS AND THEIR ABILITY TO PAY RENTS. Home
Properties is dependent on rental income to pay operating expenses
and to generate cash to enable Home Properties to make distributions
to its stockholders. If we are unable to attract and retain
residents or if our residents are unable, due to an adverse change
in the economic condition of the region or otherwise, to pay their rental
obligations, our ability to make expected distributions will be adversely
affected.
APARTMENT COMMUNITIES ARE RELATIVELY ILLIQUID. Real estate
investments are relatively illiquid and, therefore, Home Properties
has limited ability to vary its portfolio quickly in response to
changes in economic or other conditions. In addition, the
prohibition in the Code on REITs holding property for sale and
related regulations may affect our ability to sell properties
without adversely affecting distributions to stockholders. A significant
number of our properties were acquired using Units restrict our ability to
sell such properties in transactions which would create current taxable
income to the former owners.
COMPLIANCE WITH LAWS AND REGULATIONS CAN REQUIRE CAPITAL
EXPENDITURES IN EXCESS OF BUDGET. Many laws and governmental regulations
are applicable to the Properties and changes in these laws and
regulations, or their interpretation by agencies and the courts,
occur frequently. Under the Americans with Disabilities Act of 1990
(the "ADA"), all places of public accommodation are required to meet
certain federal requirements related to access and use by disabled
persons. These requirements became effective in 1992. Compliance
with the ADA requires removal of structural barriers to handicapped
access in certain public areas of the Properties, where such
removal is "readily achievable." The ADA does not, however, consider
residential properties, such as apartment communities, to be public
accommodations or commercial facilities, except to the extent portions of
such facilities, such as a leasing office, are open to the public. A number
of additional federal, state and local laws exist which also may require
modifications to the Properties, or restrict certain further renovations
thereof, with respect to access thereto by disabled persons. For example,
the Fair Housing Amendments Act of 1988 (the "FHAA") requires apartment
communities first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with the ADA or the FHAA could result in the
imposition of fines or an award of damages to private litigants. Although
management believes that the Properties are substantially in compliance
with present requirements, Home Properties may incur additional costs in
complying with the ADA for both existing properties and properties acquired
in the future. Home Properties believes that the Properties that are
subject to the FHAA are in compliance with such laws.
Under the federal Fair Housing Act and state fair housing laws,
discrimination on the basis of certain protected classes is prohibited.
Home Properties has a policy against any kind of discriminatory behavior
and trains its employees to avoid discrimination or the appearance of
discrimination. There is no assurance, however, that an employee will not
violate Home Properties' policy against discrimination and violate the fair
housing laws. Such a violation could subject Home Properties to legal
action and the possible awards of damages.
Under various laws, ordinances and regulations relating to the
protection of the environment, a current or previous owner or operator of
real estate may be held liable for the costs of removal or remediation of
certain hazardous or toxic substances located on, under or in the property.
These laws often impose liability without regard to whether the owner or
operator was responsible for, or even knew of, the presence of such
substances. The presence of contamination from hazardous or toxic
substances, or the failure to remediate such contaminated property
properly, may adversely affect the owner's ability to rent or sell the
property or use the property as collateral. Independent environmental
consultants conducted "Phase I" environmental audits (which involve
visual inspection but not soil or groundwater analysis) of substantially
all of the Properties owned by Home Properties prior to their acquisition
by Home Properties. The Phase I audit reports did not reveal any
significant issues of environmental concern, nor are we aware of any
environmental liability that we believes would have a material adverse
effect on Home Properties. There is no assurance that Phase I reports
would reveal all environmental liabilities or that environmental conditions
not known to us may exist now or in the future on existing properties or
those subsequently acquired which would result in liability to Home
Properties for remediation or fines, either under existing laws and
regulations or future changes to such requirements. If compliance with the
various laws and regulations, now existing or hereafter adopted, exceeds
our budgets for such items, our ability to make expected distributions
could be adversely affected.
COMPETITION FOR RESIDENTS MAY ADVERSLEY EFFECT CASH FLOW. Home
Properties plans to continue to acquire additional
multifamily residential properties in the Northeast, Midwest and Mid-
Atlantic regions of the United States. There are a number of multifamily
developers and other real estate companies that compete with Home
Properties in seeking properties for acquisition, prospective residents and
land for development. Most of our Properties are in developed areas where
there are other properties of the same type. Competition from other
properties may affect Home Properties' ability to attract and retain
residents, to increase rental rates and to minimize expenses of operation.
Virtually all of the leases for the Properties are short-term leases (i.e.,
one year or less).
UNINSURED LOSSES MAY REQUIRE UNBUDGETED EXPENSES. Certain
extraordinary losses may not be covered by Home Properties'
comprehensive liability, fire, extended and rental loss insurance.
If an uninsured loss occurred, we could lose our investment in and cash
flow from the affected Property (but would be required to repay any
indebtedness secured by that Property and related taxes and other
charges).
FEDERAL INCOME TAX RISKS.
WE BELIEVE, BUT CANNOT GUARANTEE, THAT WE QUALIFY AS A REIT.
We believe that we have been organized and have operated in
such manner so as to qualify as a REIT under the Internal Revenue Code,
commencing with our taxable year ending December 31, 1994. A REIT generally
is not taxed at the corporate level on income it currently distributes to
its shareholders as long as it distributes currently at least 95% of its
taxable income (excluding net capital gain). This requirement will be
reduced to 90% in years beginning after December 31, 2000. No assurance
can be provided, however, that we will qualify as a REIT or that new
legislation, Treasury Regulations, administrative interpretations or court
decisions will not significantly change the tax laws with respect to our
qualification as a REIT or the federal income tax consequences of such
qualification.
Required distributions and payments. In order to continue to qualify
as a REIT, we currently are required each year to distribute to our
shareholders at least 95% of our taxable income (excluding net capital
gain), and we will be required to distribute 90% of this amount for years
beginning after December 31, 2000. In addition, we will be subject to a 4%
nondeductible excise tax on the amount, if any, by which certain
distributions made by us with respect to the calendar year are less than
the sum of 85% of our ordinary income, 95% of our capital gain net income
for that year, and any undistributed taxable income from prior periods. We
intend to make distributions to our shareholders to comply with the 95%
distribution requirement and to avoid the nondeductible excise tax and will
rely for this purpose on distributions from the Operating Partnership.
However, differences in timing between taxable income and cash available
for distribution could require us to borrow funds or to issue additional
equity to enable us to meet the 95% distribution requirement (and therefore
to maintain our REIT status) and to avoid the nondeductible excise tax.
The Operating Partnership is required to pay (or reimburse us, as its
general partner, for) certain taxes and other liabilities and expenses that
we incur, including any taxes that we must pay in the event we were to fail
to qualify as a REIT. In addition, because we are unable to retain
earnings (resulting from out distribution requirements), we will generally
be required to refinance debt that matures with additional debt or equity.
There can be no assurance that any of these sources of funds, if available
at all, would be available to meet our distribution and tax obligations.
Adverse consequences of our failure to qualify as a REIT. If we fail
to qualify as a REIT, we will be subject to federal income tax (including
any applicable alternative minimum tax) on our taxable income at regular
corporate rates. In addition, unless entitled to relief under certain
statutory provisions, we will be disqualified from treatment as a REIT for
the four taxable years following the year during which REIT qualification
is lost. The additional tax burden on us would significantly reduce the
cash available for distribution by us to our shareholders. Our failure to
qualify as a REIT could reduce materially the value of our common stock and
would cause all our distributions to shareholders to be taxable as ordinary
income to the extent of our current and accumulated earnings and profits
(although, subject to certain limitations under the Internal Revenue Code,
corporate distributees may be eligible for the dividends received deduction
with respect to these distributions). See "Failure to Qualify."
The Operating Partnership's failure to qualify as a partnership. We
believe that the Operating Partnership qualifies as a partnership for
federal income tax purposes. No assurance can be provided, however, that
the IRS will not challenge its status as a partnership for federal income
tax purposes, or that a court would not sustain such a challenge. If the
IRS were to be successful in treating the Operating Partnership as an
entity that is taxable as a corporation, we would cease to qualify as a
REIT because the value our ownership interest in the Operating Partnership
would exceed 5% of our assets and because we would be considered to hold
more than 10% of the voting securities of another corporation. See
"Taxation of Home Properties - Asset Tests." Also, the imposition of a
corporate tax on the Operating Partnership would reduce significantly the
amount of cash available for distribution to its limited partners. See
"Tax Aspects of the Operating Partnership." Finally, the classification of
the Operating Partnership as a corporation would cause its limited partners
to recognize gain (upon the event that causes the Operating Partnership to
be classified as a corporation) at least equal to their "negative capital
accounts" (and possibly more, depending upon the circumstances).
WE HAVE AN OWNERSHIP LIMIT ON OUR SHARES. In order for Home
Properties to maintain its qualification as a REIT, not more than
50% in value of our outstanding stock of the may be owned, directly
or indirectly, by five or fewer individuals (as defined in the Code
to include certain entities) at any time during the last half of its
taxable year. Home Properties has limited ownership of the issued
and outstanding shares of Common Stock by any single stockholder
to 8.0% of the outstanding shares. Shares of Common Stock held by
certain entities, such as qualified pension plans, are treated as
if the beneficial owners of such entities were the holders of
the Common Stock. These restrictions can be waived by the Board of
Directors if it were satisfied, based upon the advice of tax counsel or
otherwise, that such action would be in the best interests of Home
Properties. Shares acquired or transferred in breach of the limitation may
be redeemed by Home Properties for the lesser of the price paid or the
average closing price for the ten trading days immediately preceding
redemption or may be sold at the direction of Home Properties. A transfer
of shares of Common Stock to a person who, as a result of the transfer,
violates the ownership limit will be void and the shares will automatically
be converted into shares of "Excess Stock", which is subject to a number of
limitations. See "Description of Capital Stock -- Restrictions on Transfer"
for additional information regarding the ownership limits.
OUR CHARTER AND VARIOUS AGREEMENTS MAY INHIBIT A CHANGE OF CONTROL.
The Articles of Amendment and Restatement of the Articles of
Incorporation, as amended, (the "Articles of Incorporation") authorize the
Board of Directors to issue up to a total of 80 million shares of Common
Stock and 10 million shares of preferred stock and to establish the rights
and preferences of any shares issued. No shares of preferred stock are
currently issued or outstanding. Further, under the Articles of
Incorporation, the stockholders do not have cumulative voting rights.
The percentage ownership limit, the issuance of preferred stock in the
future and the absence of cumulative voting rights could have the effect of
(i) delaying or preventing a change of control of Home Properties even if a
change in control were in stockholders' interest; (ii) deterring tender
offers for the Common Stock that may be beneficial to the stockholders; or
(iii) limiting the opportunity for stockholders to receive a premium for
their Common Stock that might otherwise exist if an investor attempted to
assemble a block of Shares in excess of the percentage ownership limit or
otherwise to effect a change of control of Home Properties.
We have various agreements which may have the effect of discouraging a
change of control of Home Properties due to the costs involved. The
Articles Supplementary to our Articles of Incorporation under which our
Series B Cumulative Convertible Preferred Stock was issued provide that
upon a change of control of Home Properties or the Operating Partnership,
under certain circumstances, the holder of such stock may require us to
redeem it. Also, to assure that our management has appropriate incentives
to focus on our business and Properties in the face of a change of control
situation, we have adopted an executive, retention plan which provides some
key employees with salary, bonus and certain benefit continuation in the
event of a change of control.
POTENTIAL CONFLICTS OF INTEREST MAY AFFECT MANAGEMENT DECISIONS.
Unlike persons acquiring Common Stock, our executive officers own most
of their interest in Home Properties through Units. As a result of their
status as holders of Units, the executive officers and other limited
partners may have interests that conflict with stockholders with respect to
business decisions affecting Home Properties and the Operating Partnership.
In particular, certain executive officers may suffer different or more
adverse tax consequence than Home Properties upon the sale or refinancing
of some of the Properties as a result of unrealized gain attributable to
certain Properties. Thus, executive officers and the stockholders may have
different objectives regarding the appropriate pricing and timing of any
sale or refinancing of Properties. In addition, executive officers of Home
Properties, as limited partners of the Operating Partnership, have the
right to approve certain fundamental transactions such as the sale of all
or substantially all of the assets of the Operating Partnership, merger or
consolidation or dissolution of the Operating Partnership and certain
amendments to the Operating Partnership Agreement.
We manage multifamily residential properties through the Operating
Partnership and commercial and development properties and certain
multifamily residential properties not owned by the Company through the
Management Companies. As a result, officers of the Company will devote a
significant portion of their business time and efforts to the management of
properties not owned by Home Properties. Some officers of Home Properties
have a significant interest in certain of the managed properties as the
only stockholders of the general partners of the partnerships that own such
managed properties and as holders of other ownership interests.
Accordingly, such officers will have conflicts of interest between their
fiduciary obligations to the partnerships that own such managed properties
and their fiduciary obligations as officers and directors of the Company,
particularly with respect to the enforcement of the management contracts
and timing of the sale of the managed properties. In order to comply
with technical requirements of the Code pertaining to the qualification of
REITs, the Operating Partnership owns all of the outstanding non-voting
common stock (990 shares) of one of the Management Companies, Home
Properties Management, Inc., and Norman and Nelson Leenhouts own all of the
outstanding voting common stock (52 shares). The Operating Partnership also
owns all of the outstanding non-voting common stock (891 shares) of the
other Management Company, Conifer Realty Corporation, and Norman and Nelson
Leenhouts and Richard Crossed own all of the outstanding voting common
stock (48 shares). As a result, although Home Properties will receive
substantially all of the economic benefits of the business carried on by
the Management Companies through the Company's right to receive dividends,
Home Properties will not be able to elect directors and officers of the
Management Companies and, therefore, the Company's ability to cause
dividends to be declared or paid or influence the day-to-day operations of
the Management Companies will be limited. Furthermore, although Home
Properties will receive a management fee for managing the managed
properties, this fee has not been negotiated at arm's length and may not
represent a fair price for the services rendered.
SHARES AVAILABLE FOR FUTURE SALE MAY AFFECT MARKET PRICES FOR OUR COMMON
STOCK.
Sales of substantial amounts of shares of Common Stock in the public
market or the perception that such sales might occur could adversely affect
the market price of the Common Stock. The Operating Partnership has issued
approximately 15,702,000 Units through December 15, 1999 to persons other
than Home Properties or the Trust which may be exchanged on a one-for-one
basis for shares of Common Stock under certain circumstances. We have
issued Class A Convertible Preferred Stock and Class B Cumulative
Convertible Preferred Stock which are convertible into approximately
3,346,000 shares of Common Stock in the aggregate. In addition, as of
December 15, 1999, Home Properties has granted options to purchase
approximately 1,290,000 shares of Common Stock to certain directors,
officers and employees of Home Properties.
All of the shares of Common Stock issuable upon the exchange of Units
or the exercise of options will be "restricted securities" within the
meaning of Rule 144 under the Securities Act and may not be transferred
unless they are registered under the Securities Act or are otherwise
transferrable under Rule 144. The Company has filed or expects to file
registration statements with respect to such shares of Common Stock,
thereby allowing shares issuable under our stock benefit plans and in
exchange for Units to be transferred or resold without restriction under
the Securities Act. This Prospectus relates to the registration of the
1,679,543 shares issuable upon conversion of the Class B Cumulative
Preferred Stock.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy reports, statements
or other information at the SEC's public reference rooms in Washington
D.C., New York, New York or Chicago, Illinois. Please call the SEC at 1-
800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at http://www.sec.gov.
You can also review copies of our SEC filings at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
We have filed with the SEC a registration statement on Form S-3 to
register the securities. This prospectus is part of that registration
statement and, as permitted by the SEC's rules, does not contain all the
information set forth in the registration statement. For further
information you may refer to the registration statement and to the exhibits
and schedules filed as part of the registration statement. You can review
and copy the registration statement and its exhibits and schedules at the
public reference facilities maintained by the SEC as described above. The
registration statement, including its exhibits and schedules, is also
available on the SEC's web site.
The SEC allows us to "incorporate by reference" the information we
file with it, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by
reference is considered to be part of this prospectus and the information
that we file with the SEC later will automatically update and supersede
this information. We incorporate by reference the documents listed below
and any future filings we make with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934:
- - Annual Report on Form 10-K for the fiscal year ended December 31,
1998;
- - Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 1999, June 30, 1999 and September 30, 1999;
- - Current Reports on Form 8-K and Form 8-K/A dated July 2, 1999,
July 29, 1999, July 30, 1999, October 5, 1999 and November 12, 1999;
and
- - The description of the common stock contained in our registration
statement on Form 8-A filed under Section 12 of the Securities
Exchange Act, including all amendments and reports filed for the
purpose of updating that description.
You may request a copy of these filings, at no cost, by writing or
telephoning us at: Home Properties of New York, Inc., Attention: Ann M.
McCormick, Secretary, 850 Clinton Square, Rochester, New York 14604;
telephone number (716) 546-4900.
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. WE HAVE NOT
AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT OR ADDITIONAL
INFORMATION. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS
OR ANY SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF THOSE DOCUMENTS.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains, or incorporates by reference, statements
that may be deemed to be "forward-looking" within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Although Home Properties believes expectations reflected
in such forward-looking statements are based on reasonable assumptions, it
can give no assurance that its expectations will be achieved. Factors that
may cause actual results to differ include general economic and local real
estate conditions, other conditions that might affect operating expenses,
and the timely completion of repositioning activities within anticipated
budgets, the actual pace of future acquisitions and developments, and
continued access to capital to fund growth. Home Properties' actual
results could differ materially from those set forth in the forward-looking
statements. Other factors that might cause such a difference are discussed
in the section entitled "Risk Factors."
SELLING SHAREHOLDER
Home Properties agreed to register the resale by GE Capital Equity
Investments, Inc., called the Selling Shareholder, of the 1,679,543 shares
of Common Stock underlying its 2,000,000 Series B Cumulative Convertible
Preferred Stock, which we refer to as the Series B Preferred Stock. The
Selling Shareholder purchased the Series B Preferred Stock on September 29,
1999 in a direct placement by Home Properties. Our registration of the
Common Stock does not necessarily mean that the Selling Shareholder will
convert its Series B Preferred Stock into 1,679,543 shares of Common Stock
(subject to certain adjustments) or that the Selling Shareholder will sell
all or any of the shares of Common Stock issuable upon such conversion. We
cannot estimate the number of shares that the Selling Shareholder will own
upon completion of the offering.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Home Properties consists of 80 million
shares of common stock, $0.01 par value, of which approximately 19.6
million shares were outstanding on December 22, 1999; 10 million shares of
preferred stock, $0.01 par value, 1,666,667 shares of which have been
designated Series A Convertible Preferred Stock, all of which were
outstanding as of December 22, 1999 and 2,000,000 shares of which have been
designated Series B Preferred Stock, all of which were outstanding on
December 22, 1999, and 10 million shares of "excess stock," $0.01 par
value, of which no shares were outstanding on such date.
For more detail about our Articles of Amendment and Restatement of
Articles of Incorporation, as amended, and the Articles Supplementary
thereto relating to the Series A Convertible Preferred Stock and the Series
B Preferred Stock (sometimes collectively referred to as our "charter") and
bylaws you should refer to the charter and bylaws, which have been filed as
exhibits either to the registration statement of which this prospectus is a
part, or to other reports incorporated by reference into this prospectus.
In addition, for a discussion of limitations on the ownership of our
capital stock, see "Risk Factors."
COMMON STOCK
All shares of Common Stock offered will be duly authorized, fully
paid, and nonassessable. Holders of the Common Stock will have no
conversion, redemption, sinking fund or preemptive rights; however, shares
of Common Stock will automatically convert into shares of Excess Stock as
described below. Under the Maryland General Corporation Law ("MGCL"),
stockholders are generally not liable for Home Properties' debts or
obligations, and the holders of shares will not be liable for further calls
or assessments by Home Properties. Subject to the provisions of Home
Properties' Articles of Incorporation regarding Excess Stock described
below, all shares of Common Stock have equal dividend, distribution,
liquidation and other rights and will have no preference or exchange
rights.
Subject to the right of any holders of Preferred Stock to receive
preferential distributions, the holders of the shares of Common Stock will
be entitled to receive distributions in the form of dividends if and when
declared by the Board of Directors of Home Properties out of funds legally
available therefor, and, upon liquidation of Home Properties, each
outstanding share of Common Stock will be entitled to participate pro rata
in the assets remaining after payment of, or adequate provision for, all
known debts and liabilities of Home Properties, including debts and
liabilities arising out of its status as general partner of the Operating
Partnership, and any liquidation preference of issued and outstanding
Preferred Stock. Home Properties intends to continue paying quarterly
distributions.
The holder of each outstanding share of Common Stock is entitled to
one vote on all matters presented to stockholders for a vote, subject to
the provisions of Home Properties' Articles of Incorporation regarding
Excess Stock described below. As described below, the Board of Directors of
Home Properties has, and may in the future, grant holders of one or more
series of Preferred Stock the right to vote with respect to certain matters
when it fixes the attributes of such series of Preferred Stock. Pursuant to
the MGCL, Home Properties cannot dissolve, amend its charter, merge another
entity, sell all or substantially all its assets, engage in a share
exchange or engage in similar transactions unless such action is approved
by stockholders holding a majority of the outstanding shares entitled to
vote on such matter. In addition, the Second Amended and Restated
Partnership Agreement of the Operating Partnership, as amended (the
"Partnership Agreement") requires that any merger or sale of all or
substantially all of the assets of Operating Partnership be approved by
partners holding a majority of the outstanding Units, excluding Operating
Partnership Units held by Home Properties or the Trust. Home Properties'
Articles of Incorporation provide that its Bylaws may be amended by its
Board of Directors.
The holder of each outstanding share of Common Stock is entitled to
one vote in the election of directors who serve for terms of one year.
Holders of the 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 entitled to vote
in the election of directors will be able to elect all of the directors,
subject to certain rights of the holders of Preferred Stock, described
below. Directors may be removed only for cause and only with the
affirmative vote of the holders of a majority of the shares entitled to
vote in the election of directors.
PREFERRED STOCK
We may issue shares of Preferred Stock from time to time, in one or
more series, as authorized by the Board of Directors of Home Properties.
The Board of Directors will fix the attributes of any Preferred Stock that
it authorizes for issuance. 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 shares
of Common Stock. The issuance of Preferred Stock could have the effect of
delaying or preventing a change in control of Home Properties.
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of Home Properties, then, before any distribution or
payment shall be made to the holders of any shares of Common Stock, any
Excess Shares or any other class or series of capital stock of Home
Properties ranking junior to any outstanding Preferred Stock in the
distribution of assets upon any liquidation, dissolution or winding up of
Home Properties, the holders of shares of each series of Preferred Stock
shall be entitled to receive out of assets of Home Properties legally
available for distribution to shareholders liquidating distributions in the
amount of the liquidation preference per share, 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 shares of Preferred Stock do not have cumulative dividend). After
payment of the full amount of the liquidating distributions to which they
are entitled, the holders of shares of Preferred Stock will have no right
or claim to any of the remaining assets of Home Properties. In the event
that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of Home Properties are insufficient to pay
the amount of the liquidating distributions on all outstanding shares of
Preferred Stock and the corresponding amounts payable on all shares of
other classes or series of capital stock of Home Properties ranking on a
parity with such shares of Preferred Stock in the distribution of assets,
then the holders of such shares of Preferred Stock and all other such
classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions
to which they would otherwise be respectively entitled.
We have filed Articles Supplementary to our charter creating a series
of preferred stock designated as "Series A Convertible Preferred Stock"
which has substantially the same rights, privileges and preferences as the
Class A limited partnership interest in the Operating Partnership formerly
held by the State of Michigan Retirement System. The State of Michigan
acquired the Class A limited partnership interest in December 1996 for
$35,000,000. At the request of Home Properties, the State of Michigan
Retirement System has exchanged its Class A Limited Partnership interest
for 1,666,667 shares of the Series A Convertible Preferred Stock as of
December 22, 1999. The rights, privileges and preferences of the Series A
Convertible Preferred Stock are set forth in the Articles Supplementary to
the charter creating that class of preferred stock. The Series A
Convertible Preferred Stock has a preference over the Series B Cumulative
Convertible Preferred Stock and the Common Stock as to dividends, which are
payable quarterly at a rate equal to the greater of 9% per year or the rate
declared and payable on comparable number of shares of Common Stock through
December 30, 2003 on a cumulative basis. The Series A Convertible
Preferred Stock also has a liquidation preference equal to $35,000,000 in
the aggregate for all outstanding shares (or $21.00 per share). Pursuant
to the terms of the agreement pursuant to which the State of Michigan
Retirement System invested, we agreed to elect a nominee of the State of
Michigan Retirement System to the Board of Directors of Home Properties and
to nominate such director for reelection annually. Under the Articles
Supplementary and the agreement pursuant to which Michigan invested, Home
Properties has agreed not take certain actions without the consent of the
State of Michigan such as creating any stock senior or on a parity with the
Series A Convertible Preferred Stock, consolidating, merging or selling all
or substantially all of its assets to another entity except under
circumstances where the rights and preferences of the Series A Convertible
Preferred Stock are protected. amending its charter or by-laws in a manner
adverse to the holders of the Series A Preferred Stock and certain other
matters described in those documents (each of which is filed as an exhibit
to one of our filings with the Securities and Exchange Commission which is
incorporated herein by reference). The Series A Convertible Preferred Stock
is convertible into Common Stock on a one-for-one basis, subject to
adjustment. Home Properties may call the Series A Preferred Stock for
redemption on or after December 30, 2006 but the holders may elect to
convert the shares into Common Stock prior to redemption.
On September 30, 1999, Home Properties issued 2,000,000 shares of its
newly authorized Series B Convertible Cumulative Preferred Stock, which we
refer to as the "Series B Preferred Stock," in a private placement to the
Selling Shareholder for $50,000,000. The Articles Supplementary to the
charter establishing the Series B Preferred Stock sets forth the rights,
privileges and preferences of that stock. The Series B Preferred Stock is
junior to the right of payment to the Series A Convertible Preferred Stock,
is entitled to a liquidation preference of $25.00 per share and dividends
equal to the greater of the dividends payable on the shares of Common Stock
into which the Series B Preferred Stock is convertible, or 8.36% of the
liquidation preference (or $2.09 per share) each year. The Series B
Preferred Stock is redeemable at the option of Home Properties after
September 29, 2004 at the liquidation preference. Upon the occurrence of
certain events, the Series B Preferred Stock may be subject to mandatory
redemption at the option of the holders and, in certain instances, at a
premium over the liquidation preference. Those events include: a change in
control of Home Properties or the Operating Partnership, a merger,
consolidation or sale of all or substantially all of the assets, incurrence
of indebtedness in excess of 70% of total market capitalization, a loss of
REIT status and other events described in the Articles Supplementary. The
holders of the Series B Preferred Stock also have the right to elect two
directors to the Board of Directors of Home Properties in the event that
the preferred dividends are in arrears for six quarters (whether
consecutive of not). The Series B Preferred Stock is convertible into
1,679,543 shares of Common Stock, subject to adjustment.
RESTRICTIONS ON TRANSFER OWNERSHIP LIMITS
Our charter contains certain restrictions on the number of shares of
capital stock that stockholders may own. For Home Properties 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 indirectly, by five or fewer
individuals (as defined in the Internal Revenue Code of 1986, as amended,
to include certain entities) during the last half of a taxable year or
during a proportionate part of a shorter taxable year. The capital stock
must also 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 Home Properties expects to continue to qualify as a REIT, its
charter contains restrictions on the ownership and transfer of shares of
its capital stock intended to ensure compliance with these requirements.
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,
more than 8.0% (the "Ownership Limit") of the value of the issued and
outstanding shares of capital stock of Home Properties. Certain entities,
such as qualified pension plans, are treated as if their beneficial owners
were the holders of the Common Stock held by such entities. Stockholders
("Existing Holders") whose holdings exceeded the Ownership Limit
immediately after Home Properties' initial public offering of its Common
Stock, assuming that all Units of the Operating Partnership are counted as
shares of Common Stock, are permitted to continue to hold the number of
shares they held on such date and may acquire additional shares of capital
stock upon (i) the exchange of Units for Shares, (ii) the exercise of stock
options or receipt of grants of shares of capital stock pursuant to a stock
benefit plan, (iii) the acquisition of shares of capital stock pursuant to
a dividend reinvestment plan, (iv) the transfer of shares of capital stock
from another Existing Holder or the estate of an Existing Holder by devise,
gift or otherwise, or (v) the foreclosure on a pledge of shares of capital
stock; provided, no such acquisition may cause any Existing Holder to own,
directly or by attribution, more than 17.5% (the "Existing Holder Limit")
of the issued and outstanding Shares, subject to certain additional
restrictions.
The Board of Directors of Home Properties may increase or decrease the
Ownership Limit and Existing Holder Limit from time to time, but may not do
so to the extent that after giving effect to such increase or decrease (i)
five beneficial owners of Shares could beneficially own in the aggregate
more than 49.5% of the aggregate value of the outstanding capital stock of
Home Properties or (ii) any beneficial owner of capital stock would violate
the Ownership Limit or Existing Holder Limit as a result of a decrease. The
Board of Directors may waive the Ownership Limit or the Existing Holder
Limit with respect to a holder if such holder provides evidence acceptable
to the Board of Directors that such holder's ownership will not jeopardize
Home Properties' status as a REIT.
Any transfer of outstanding capital stock of Home Properties
("Outstanding Stock") that would (i) cause any holder, directly or by
attribution, to own capital stock having a value in excess of the Ownership
Limit or Existing Holder Limit, (ii) result in shares of capital stock
other than Excess Stock, if any, to be owned by fewer than 100 persons,
(iii) result in Home Properties being closely held within the meaning of
section 856(h) of the Code, or (iv) otherwise prevent Home Properties from
satisfying any criteria necessary for it to qualify as a REIT, is null and
void, and the purported transferee acquires no rights to such Outstanding
Stock.
Outstanding Stock owned by or attributable to a stockholder or shares
of Outstanding Stock purportedly transferred to a stockholder which cause
such stockholder or any other stockholder to own shares of capital stock in
excess of the Ownership Limit or Existing Holder Limit will automatically
convert into shares of Excess Stock. Such Excess Stock will be transferred
by operation of law to a separate trust, with Home Properties acting as
trustee, for the exclusive benefit of the person or persons to whom such
Outstanding Stock may be ultimately transferred without violating the
Ownership Limit or Existing Holder Limit. Excess Stock is not treasury
stock, but rather constitutes a separate class of issued and outstanding
stock of Home Properties. While the Excess Stock is held in trust, it will
not be entitled to vote, will not be considered for purposes of any
stockholder vote or the determination of a quorum for such vote and will
not be entitled to participate in dividends or other distributions. Any
record owner or purported transferee of Outstanding Stock which has
converted into Excess Stock (the "Excess Holder") who receives a dividend
or distribution prior to the discovery by Home Properties that such
Outstanding Stock has been converted into Excess Stock must repay such
dividend or distribution upon demand. While Excess Stock is held in trust,
Home Properties will have the right to purchase it from the trust for the
lesser of (i) the price paid for the Outstanding Stock which converted into
Excess Stock by the Excess Holder (or the market value of the Outstanding
Stock on the date of conversion if no consideration was given for the
Outstanding Stock)or (ii) the market price of shares of capital stock
equivalent to the Outstanding Stock which converted into Excess Stock (as
determined in the manner set forth in the Articles of Incorporation) on the
date Home Properties exercises its option to purchase. Home Properties must
exercise this right within the 90-day period beginning on the date on which
it receives written notice of the transfer or other event resulting in the
conversion of Outstanding Stock into Excess Stock. Upon the liquidation of
Home Properties, distributions will be made with respect to such Excess
Stock as if it consisted of the Outstanding Stock from which it was
converted.
Any Excess Holder, with respect to each trust created upon the
conversion of Outstanding Stock into Excess Stock, may designate any
individual as a beneficiary of such trust; provided, such person would be
permitted to own the Outstanding Stock which converted into the Excess
Stock held by the trust under the Ownership Limit or Existing Holder Limit
and the consideration paid to such Excess Holder in exchange for
designating such person as the beneficiary is not in excess of the price
paid for the Outstanding Stock which converted into Excess Stock by the
Excess Holder (or the market value of the Outstanding Stock on the date of
conversion if no consideration was given for the Outstanding Stock). Home
Properties' redemption right must have expired or been waived prior to such
designation. Immediately upon the designation of a permitted beneficiary,
the Excess Stock, if any, will automatically convert into shares of the
Outstanding Stock from which it was converted and Home Properties as
trustee of the trust will transfer such shares, if any, and any proceeds
from redemption or liquidation to the beneficiary.
If the restrictions on ownership and transfer, conversion provisions
or trust arrangements in Home Properties' Articles of Incorporation are
determined to be void or invalid by virtue of any legal decision, statute,
rule or regulation, then the Excess Holder of any Outstanding Stock that
would have converted into shares of Excess Stock if the conversion
provisions of the Articles of Incorporation were enforceable and valid
shall be deemed to have acted as an agent on behalf of Home Properties in
acquiring such Outstanding Stock and to hold such Outstanding Stock on
behalf of Home Properties unless Home Properties waives its right to this
remedy.
The foregoing ownership and transfer limitations may have the effect
of precluding acquisition of control of Home Properties without the consent
of its Board of Directors. All certificates representing shares of capital
stock will bear a legend referring to the restrictions described above. The
foregoing restrictions on transferability and ownership will not apply if
the Board of Directors determines, and the stockholders concur, that it is
no longer in the best interests of Home Properties to attempt to qualify,
or to continue to qualify, as a REIT. Approval of the limited partners of
the Operating Partnership to terminate REIT status is also required.
OWNERSHIP REPORTS
Every owner of more than 5% of the issued and outstanding shares of
capital stock of Home Properties must file a written notice with Home
Properties containing the information specified in the Articles of
Incorporation no later than January 31 of each year. In addition, each
stockholder shall, upon demand, be required to disclose to Home Properties
in writing such information as Home Properties may request in order to
determine the effect of such stockholder's direct, indirect and attributed
ownership of shares of capital stock on Home Properties' status as a REIT
or to comply with any requirements of any taxing authority or other
governmental agency.
CERTAIN OTHER PROVISIONS OF MARYLAND LAW AND CHARTER DOCUMENTS
The following discussion summarizes certain provisions of MGCL and
Home Properties' Articles of Incorporation and Bylaws. This summary does
not purport to be complete and is subject to and qualified in its entirety
by reference to the Articles of Incorporation and Bylaws, copies of which
are filed as exhibits to the Registration Statement of which this
Prospectus constitutes a part. See "Additional Information. - Limitation of
Liability and Indemnification." The Articles of Incorporation and Bylaws
limit the liability of directors and officers to Home Properties and its
stockholders to the fullest extent permitted from time to time by the MGCL
and require Home Properties to indemnify its directors, officers and
certain other parties to the fullest extent permitted from time to time by
the MGCL.
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 any person who beneficially
owns 10% or more of the voting power of the outstanding voting stock of the
corporation or an affiliate or associate of the corporation who, at any
time within the two-year period immediately prior to the date in question,
was the beneficial owner, directly or indirectly, of 10% or more of the
voting power of the then-outstanding voting stock of the corporation (an
"Interested Stockholder") or an affiliate thereof, are prohibited for five
years after the most recent date on which the Interested Stockholder became
an Interested Stockholder. Thereafter, in addition to any other required
vote, any such business combination must be recommended by the board of
directors of such corporation and approved by the affirmative vote of at
least (i) 80% of the votes entitled to be cast by holders of outstanding
shares of voting stock of the corporation, voting together as a single
voting group, and (ii) two-thirds of the votes entitled to be cast by
holders of voting stock of the corporation (other than voting stock held by
the Interested Stockholder who will, or whose affiliate will, be a party to
the business combination or by an affiliate or associate of the Interested
Stockholder) voting together as a single voting group. The extraordinary
voting provisions do not apply if, among other things, the corporation's
stockholders receive a price for their shares determined in accordance with
the MGCL 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 the MGCL 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 of Home Properties contain a
provision exempting from these provisions of the MGCL any business
combination involving the Leenhoutses (or their affiliates) or any other
person acting in concert or as a group with any of the foregoing persons.
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 the affirmative vote of two-
thirds of the votes entitled to be cast on the matter other than
"interested shares" (shares of stock in respect of which any of the
following persons is entitled to exercise or direct the exercise of the
voting power of shares of stock of the corporation in the election of
directors: an "acquiring person," an officer of the corporation or an
employee of the corporation who is also a director). "Control shares" are
shares of stock which, if aggregated with all other such shares of stock
owned by the acquiring person, or in respect of which such person is
entitled to exercise or direct the exercise of voting power of shares of
stock of the corporation 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 more of
all voting power. Control shares do not include shares the acquiring person
is entitled to vote as a result of having previously obtained stockholder
approval. The control share acquisition statute does not apply to shares
acquired in a merger, consolidation or share exchange if the corporation is
a party to the transaction, or to acquisitions approved or exempted by the
charter or bylaws of the corporation. A person who has made or proposes to
make a control share acquisition, under certain conditions (including an
undertaking to pay expenses), may compel the board of directors to call a
special meeting of stockholders to be held within 50 days of demand to
consider the voting rights of the control shares upon delivery of an
acquiring person statement containing certain information required by the
MGCL, including a representation that the acquiring person has the
financial capacity to make the proposed control share acquisition, and a
written undertaking to pay the corporation's expenses of the special
meeting (other than the expenses of those opposing approval of the voting
rights). 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 the MGCL, 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 the absence of
voting rights for control shares, as of the date of the last control share
acquisition or, if a stockholder meeting is held, as of the date of the
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 before the control share acquisition
and the acquiring person becomes entitled to exercise or direct the
exercise of a majority or more of all voting power, all other stockholders
may exercise rights of objecting stockholders under Maryland law to receive
the fair value of their Shares. The fair value of the Shares for such
purposes may not be less than the highest price per share paid by the
acquiring person in the control share acquisition. Certain limitations and
restrictions otherwise applicable to the exercise of objecting
stockholders' rights do not apply in the context of a control share
acquisition. The Articles of Incorporation contain a provision exempting
from the control share acquisition statute any and all acquisitions to the
extent that such acquisitions would not violate the Ownership Limit or
Existing Owner Limit. There can be no assurance that such provision will
not be amended or eliminated at any point in the future.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax consequences
regarding Home Properties and the common stock we are registering is based
on current law, is for general information only and is not tax advice. The
information in this section is based on the Internal Revenue Code as
currently in effect, current, temporary and proposed Treasury Regulations
promulgated under the Internal Revenue Code, the legislative history of the
Internal Revenue Code, current administrative interpretations and practices
of the IRS, including its practices and policies as expressed in private
letter rulings which are not binding on the IRS except with respect to the
particular taxpayers who requested and received such rulings, and court
decisions, all as of the date of this prospectus. There is no assurance
that future legislation, Treasury Regulations, administrative
interpretations and practices or court decisions will not adversely affect
existing interpretations. Any change could apply retroactively to
transactions preceding the date of the change.
We have not requested, and do not plan to request, any rulings from
the IRS concerning our tax treatment and the statements in this prospectus
are not binding on the IRS or a court. Thus, we can provide no assurance
that these statements will not be challenged by the IRS or sustained by a
court if challenged by the IRS. The tax treatment to holders of common
stock will vary depending on a holder's particular situation and this
discussion does not purport to deal with all aspects of taxation that may
be relevant to a holder of common stock in light of his or her personal
investments or tax circumstances, or to stockholders subject to special
treatment under the federal income tax laws except to the extent discussed
under the headings "Taxation of Tax-Exempt Stockholders" and "Taxation of
Non-U.S. Stockholders." Stockholders subject to special treatment include,
without limitation, insurance companies, financial institutions or broker-
dealers, tax-exempt organizations, stockholders holding securities as part
of a conversion transaction or hedge or hedging transaction or as a
position in a straddle for tax purposes, foreign corporations and persons
who are not citizens or residents of the United States.
In addition, the summary below does not consider the effect of any
foreign, state, local or other tax laws that may be applicable to holders
of the common stock. If we meet the detailed requirements in the Internal
Revenue Code for qualification as a REIT, which are summarized below, we
will be treated as a REIT for federal income tax purposes. In this case, we
generally will not be subject to federal corporate income taxes on our net
income that is currently distributed to our stockholders. This treatment
substantially eliminates the "double taxation" that generally results from
investments in a corporation. Double taxation refers to the imposition of
corporate level tax on income earned by a corporation and taxation at the
shareholder level on funds distributed to a corporation's shareholders. If
we fail to qualify as a REIT in any taxable year, we would not be allowed a
deduction for dividends paid to our stockholders in computing taxable
income and would be subject to federal income tax at regular corporate
rates. Unless entitled to relief under specific statutory provisions, we
would be ineligible to be taxed as a REIT for the four succeeding tax
years. As a result, the funds available for distribution to our
stockholders would be reduced. Each prospective purchaser should consult
his or her own tax advisor regarding the specific tax consequences of the
purchase, ownership and sale of common stock, including the federal, state,
local, foreign and other tax consequences of such purchase, ownership and
sale and of potential changes in applicable tax laws.
TAXATION OF HOME PROPERTIES
General. We elected to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code, commencing with our taxable year ended
December 31, 1994. We believe we have been organized and have operated in a
manner which qualifies for taxation as a REIT under the Internal Revenue
Code commencing with our taxable year ended December 31, 1994. We intend to
continue to operate in this manner. However, our qualification and taxation
as a REIT depends upon our ability to meet, through actual annual operating
results, asset diversification, distribution levels and diversity of stock
ownership, the various qualification tests imposed under the Internal
Revenue Code. Accordingly, there is no assurance that we have operated or
will continue to operate in a manner so as to qualify or remain qualified
as a REIT. Further, legislative, administrative or judicial action may
change, perhaps retroactively, the anticipated income tax treatment
described in this prospectus. See "Failure to Qualify."
Home Properties was organized in conformity with the requirements for
qualification as a REIT, and its method of operation has enabled it to meet
the requirements for qualification and taxation as a REIT under the Code.
This opinion is based on certain assumptions and is conditioned upon
certain representations made by Home Properties as to certain factual
matters relating to Home Properties' organization, manner of operation,
income and assets. Nixon Peabody LLP is not aware of any facts or
circumstances that are inconsistent with these assumptions and
representations. Home Properties' qualification and taxation as a REIT will
depend upon Home Properties' satisfaction of the requirements necessary to
be classified as a REIT, discussed below, on a continuing basis. Nixon
Peabody LLP will not review compliance with these tests on a continuing
basis. Therefore, no assurance can be given that Home Properties will
satisfy such tests on a continuing basis.
The sections of the Internal Revenue Code that relate to the
qualification and operation as a REIT are highly technical and complex. The
following sets forth the material aspects of the sections of the Internal
Revenue Code that govern the federal income tax treatment of a REIT and its
stockholders. This summary is qualified in its entirety by the applicable
Internal Revenue Code provisions, relevant rules and regulations
promulgated under the Internal Revenue Code, and administrative and
judicial interpretations of the Internal Revenue Code, and these rules and
these regulations.
If we qualify for taxation as a REIT, we generally will not be subject
to federal corporate income taxes on our net income that is currently
distributed to our stockholders. This treatment substantially eliminates
the "double taxation" that generally results from investment in a
corporation. However, Home Properties will be subject to federal income tax
as follows:
First, we will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital
gains; provided, however, that properly designated undistributed capital
gains will effectively avoid taxation at the stockholder level. A REIT's
"REIT taxable income" is the otherwise taxable income of the REIT subject
to certain adjustments, including a deduction for dividends paid.
Second, we may be subject to the "alternative minimum tax" on our
items of tax preference under some circumstances.
Third, if we have (a) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in the
ordinary course of business or (b) other nonqualifying income from
foreclosure property, we will be subject to tax at the highest corporate
rate on this income. Foreclosure property is defined generally as property
we acquired through foreclosure or after a default on a loan secured by the
property or a lease of the property.
Fourth, we will be subject to a 100% tax on any net income from
prohibited transactions. Prohibited transactions generally include sales or
other dispositions of property held primarily for sale to customers in the
ordinary course of business, other than the sale or disposition of
foreclosure property.
Fifth, we will be subject to a 100% tax on an amount equal to (a) the
gross income attributable to the greater of the amount by which we fail the
75% or 95% test multiplied by (b) a fraction intended to reflect our
profitability, if we fail to satisfy the 75% gross income test or the 95%
gross income test but have maintained our qualification as a REIT because
we satisfied other requirements. The gross income tests are discussed
below.
Sixth, we would be subject to a 4% excise tax on the excess of the
required distribution over the amounts actually distributed if we fail to
distribute during each calendar year at least the sum of: 85% of our REIT
ordinary income for the year, 95% of our REIT capital gain net income for
the year, and any undistributed taxable income from prior periods.
Seventh, if we acquire any asset from a corporation which is or has
been a C corporation in a transaction in which the basis of the acquired
asset in our hands is determined by reference to the basis of the asset in
the hands of the C corporation, and we subsequently recognize gain on the
disposition of the asset during the ten-year period beginning on the date
on which we acquired the asset, then we will be subject to tax at the
highest regular corporate tax rate on this gain to the extent of the
"built-in-gain" of the asset. The built-in- gain of an asset equals the
excess of (a) the fair market value of the asset over (b) our adjusted
basis in the asset, determined as of the date we acquired the asset from
the C corporation. A C corporation is generally a corporation subject to
full corporate-level tax. The results described in this paragraph with
respect to the recognition of built-in gain assume that we will make an
election pursuant to IRS Notice 88-19.
Requirements for Qualification as a REIT. The Internal Revenue Code
defines a REIT as a corporation, trust or association that:
1. is managed by one or more trustees or directors;
2. uses transferable shares or transferable certificates to evidence
beneficial ownership;
3. would be taxable as a domestic corporation, but for Sections 856
through 860 of the Internal Revenue Code;
4. is not a financial institution referred to in Section 582(c) of the
Internal Revenue Code or an insurance company to which subchapter L of the
Internal Revenue Code applies;
5. is beneficially owned by 100 or more persons;
6. during the last half of each taxable year not more than 50% in
value of its outstanding stock is owned, actually or constructively, by
five or fewer individuals, as defined in the Internal Revenue Code to
include the entities set forth in Section 542(a)(2) of the Internal Revenue
Code; and
7. meets other tests, described below, regarding the nature of its
income and assets and the amount of its distributions.
The Internal Revenue Code provides that conditions (1) to (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 twelve months, or during
a proportionate part of a taxable year of less than twelve months.
Conditions (5) and (6) do not apply until after the first taxable year for
which an election made to be taxed as a REIT. For purposes of condition
(6), pension funds and some other tax-exempt entities are treated as
individuals, subject to a "look-through" exception in the case of pension
funds. We have satisfied condition (5) and believe that we have issued
sufficient shares to satisfy condition (6). In addition, our articles of
incorporation provides for restrictions regarding ownership and transfer of
shares. These restrictions are intended to assist us in continuing to
satisfy the share ownership requirements described in (5) and (6) above.
These ownership and transfer restrictions are described in "Description of
Capital Stock- Restrictions on Transfer." Primarily, though not
exclusively, as a result of fluctuations in value among the different
classes of our stock, these restrictions may not ensure that we will, in
all cases, be able to satisfy the share ownership requirements described
(5) and (6) above. If we fail to satisfy these share ownership
requirements, our status as a REIT will terminate. However, if we comply
with the rules contained in applicable Treasury Regulations that require us
to ascertain the actual ownership of our shares and we do not know, or
would not have known through the exercise of reasonable diligence, that we
failed to meet the requirement described in condition (6) above, we will be
treated as having met this requirement. See "Failure to Qualify."
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. We have and will continue to have a
calendar taxable year.
Ownership of Subsidiaries. Internal Revenue Code Section 856(i)
provides that a corporation which is a "qualified REIT subsidiary" shall
not be treated as a separate corporation, and all assets, liabilities, and
items of income, deduction and credit of a "qualified REIT subsidiary"
shall be treated as assets, liabilities and items of income of the REIT for
all purposes of the Internal Revenue Code, including the REIT qualification
tests. A "qualified REIT subsidiary" is defined for taxable years beginning
on or before August 5, 1997, as any corporation if 100 percent of the stock
of the corporation is held by the REIT at all times during the period the
corporation was in existence.
A "qualified REIT subsidiary" is defined for taxable years beginning
after August 5, 1997, as any corporation 100 percent of the stock of which
is owned by the REIT, without regard to prior ownership, and that is not a
taxable REIT subsidiary. Each of our subsidiaries qualifies as a "qualified
REIT subsidiary." Thus, in applying the requirements described herein, our
subsidiaries are ignored, and all of our subsidiaries, assets, liabilities
and items of income, deduction and credit are treated as our assets,
liabilities and items of income, deduction, and credit for all purposes of
the Internal Revenue Code, including the REIT qualification tests. For this
reason, references under "Federal Income Tax Consequences" to our income
and assets include the income and assets of the our subsidiaries. Because
our subsidiaries are treated as "qualified REIT subsidiaries" they will not
be subject to federal income tax.
In addition, our ownership of the voting securities of the
subsidiaries will not violate the restrictions against ownership of
securities of any one issuer which constitutes more than 10% of such
issuer's voting securities or more than 5% in value of our assets,
described below under "Asset Tests."
Ownership of a Partnership Interest. In the case of a REIT which is a
partner in a partnership, IRS regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the partnership.
Also, a partner in a partnership will be deemed to be entitled to the
income of the partnership attributable to its proportionate share. The
character of the assets and gross income of the partnership retains the
same character in the hands of Home Properties for purposes of Section 856
of the Internal Revenue Code, including satisfying the gross income tests
and the asset tests. Thus, our proportionate share of the assets,
liabilities and items of income of the Operating Partnership, including the
Operating Partnership's share of these items for any partnership or limited
liability company, are treated as our assets, liabilities and items of
income for purposes of applying the requirements described in this
prospectus.
We have included a summary of the rules governing the Federal income
taxation of partnerships and their partners below in "Tax Aspects of the
Operating Partnership." We have direct control of the Operating Partnership
and will continue to operate it consistent with the requirements for
qualification as a REIT.
Income Tests. We must satisfy two gross income requirements annually
to maintain our qualification as a REIT. First, each taxable year we must
derive directly or indirectly at least 75% of our gross income from
investments relating to real property or mortgages on real property,
including "rents from real property" and, in specific circumstances,
interest, or from particular types of temporary investments. Gross income
from prohibited transactions is excluded for purposes of determining if we
satisfy this test. Second, each taxable year we must derive at least 95% of
our gross income from these real property investments, dividends, interest
and gain from the sale or disposition of stock or securities, or from any
combination of the foregoing. Gross income from prohibited transactions is
excluded for purposes of determining if we satisfy this test.
The term "interest" generally does not include any amount received or
accrued, directly or indirectly, if the determination of the amount depends
in whole or in part on the income or profits of any person. However, an
amount received or accrued generally will not be excluded from the term
"interest" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Rents we receive will qualify as "rents
from real property" in satisfying the gross income requirements for a REIT
described above only if several conditions are met.
First, the amount of rent must not be based in whole or in part on the
income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales.
Second, the Internal Revenue Code provides that rents received from a
"related party tenant" will not qualify as "rents from real property" in
satisfying the gross income tests. A related party tenant is a tenant of
Home Properties that Home Properties, or one or more actual or constructive
owners of 10% or more of Home Properties, actually or constructively own in
the aggregate 10% or more of such tenant. As a result of the passage of
the Ticket to Work and Work Incentives Act of 1999 as enacted on December
17, 1999 (we refer to this as the "REIT Modernization Act"), for taxable
years after December 31, 2000, Home Properties will be able to lease its
properties to a taxable REIT subsidiary and the rents received from that
subsidiary will not be disqualified from being "rents from real property"
by reason of Home Properties' ownership interest in the subsidiary so long
as the property is operated on behalf of the taxable REIT subsidiary by an
"eligible independent contractor." A taxable REIT subsidiary is a
corporation other than a REIT in which a REIT directly or indirectly holds
stock and that has made a joint election with the REIT to be treated as a
taxable REIT subsidiary. A taxable REIT subsidiary will be subject to
federal income tax.
Third, if rent attributable to personal property, leased in connection
with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to personal
property will not qualify as "rents from real property." Under currently
effective law, this 15% test is based on relative adjusted tax bases. As a
result of the passage of the REIT Modernization Act, however, for taxable
years beginning after December 31, 2000, the test will be based on relative
fair market values.
Finally, for rents received to qualify as "rents from real property,"
Home Properties generally must not operate or manage the property or
furnish or render "impermissible services" to the tenants of the property,
other than through an independent contractor from whom Home Properties
derives no revenue. Home Properties may, however, directly perform services
that are "usually or customarily rendered" in connection with the rental of
space for occupancy only and are not otherwise considered "rendered to the
occupant" of the property. For Home Properties' taxable years beginning
after December 31, 2000, impermissible services can be provided to tenants
at a property by a taxable REIT subsidiary.
It is expected that Home Properties' real estate investments will
continue to give rise to income that will enable it to satisfy all of the
income tests described above. Substantially all of Home Properties' income
will be derived from its interest in the Operating Partnership, which will,
for the most part, qualify as "rents from real property" for purposes of
the 75% and the 95% gross income tests. We generally do not and do not
intend to:
charge rent for any property that is based in whole or in part on the
income or profits of any person, except by reason of being based on a
percentage of receipts or sales, as described above;
rent any property to a related party tenant (except for leases to a
taxable REIT subsidiary after December 31, 2000);
derive rental income attributable to personal property, other than
personal property leased in connection with the lease of real property, the
amount of which is less than 15% of the total rent received under the
lease; or
perform services considered to be rendered to the occupant of the
property, other than through an independent contractor from whom we derive
no revenue.
Notwithstanding the foregoing, we may have taken and may continue to take
the actions set forth above to the extent these actions will not, based on
the advice of our tax counsel, jeopardize our status as a REIT.
The Operating Partnership owns all of the non-voting common stock of
the Management Companies, corporations that are taxable as regular
corporations. The Management Companies will perform management,
development, construction and leasing services for certain properties which
the Company owns, holds general partnership interests in or manages. The
income earned by and taxed to the Management Companies would be
nonqualifying income if earned by Home Properties through the Operating
Partnership. As a result of the corporate structure, the income will be
earned by and taxed to the Management Companies and will be received by the
Operating Partnership only indirectly as dividends that qualify under the
95% test, but not the 75% gross income test. We believe that the aggregate
amount of any non-qualifying income in any taxable year has not exceeded
and will not exceed the limit on non- qualifying income under the gross
income tests.
If we fail to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for the year if
we are entitled to relief under specific provisions of the Internal Revenue
Code. Generally, we may avail ourselves of the relief provisions if:
our failure to meet these tests was due to reasonable cause and not
due to willful neglect;
we attach a schedule of the sources of our income to our federal
income tax return; and
any incorrect information on the schedule was not due to fraud with
intent to evade tax.
It is not possible, however, to state whether in all circumstances we would
be entitled to the benefit of these relief provisions. For example, if we
fail to satisfy the gross income tests because nonqualifying income that we
intentionally incur exceeds the limits on nonqualifying income, the IRS
could conclude that our failure to satisfy the tests was not due to
reasonable cause.
If these relief provisions do not apply to a particular set of
circumstances, we will not qualify as a REIT. As discussed above in
"Taxation of Home Properties -General," even if these relief provisions
apply, and we retain our status as a REIT, a tax would be imposed with
respect to our excess net income. We may not always be able to maintain
compliance with the gross income tests for REIT qualification despite our
periodic monitoring of our income.
Prohibited Transaction Income. Any gain realized by us on the sale of
any property held as inventory or other property held primarily for sale to
customers in the ordinary course of business, including our share of any
such gain realized by the Operating Partnership, will be treated as income
from a prohibited transaction that is subject to a 100% penalty tax. This
prohibited transaction income may also adversely effect our ability to
satisfy the income tests for qualification as a REIT. Under existing law,
whether property is held as inventory or primarily for sale to customers in
the ordinary course of a trade or business is a question of fact that
depends on all the facts and circumstances surrounding the particular
transaction.
The Operating Partnership intends to hold the properties for
investment with a view to long- term appreciation, to engage in the
business of acquiring, developing, owning, and operating its properties and
to make occasional sales of the properties as are consistent with the
Operating Partnership's investment objectives. However, the IRS may contend
that one or more of these sales is subject to the 100% penalty tax.
Asset Tests. At the close of each quarter of our taxable year, we also
must satisfy three tests relating to the nature and diversification of our
assets.
First, at least 75% of the value of our total assets must be
represented by real estate assets, cash, cash items and government
securities. For purposes of this test, real estate assets include stock or
debt instruments held for one year or less that are purchased with the
proceeds of a stock offering or a long-term (at least five years) debt
offering.
Second, not more than 25% of our total assets may be represented by
securities, other than those securities includable in the 75% asset test.
Third, of the investments included in the 25% asset class, the value
of any one issuer's securities may not exceed 5% of the value of our total
assets and we may not own more than 10% of any one issuer's outstanding
voting securities.
The Operating Partnership owns 100% of the nonvoting preferred stock
of the Management Companies. The Operating Partnership does not and will
not own any of the voting securities of the Management Companies. Therefore
we will not be considered to own more than 10% of the voting securities of
the Management Companies. In addition, we believe that the value of our pro
rata share of the securities of the Management Companies held by the
Operating Partnership did not exceed at any time up to and including the
date of this prospectus 5% of the total value of our assets and will not
exceed this amount in the future. No independent appraisals have been
obtained. Counsel, in rendering its opinion as to the qualification of Home
Properties as a REIT, is relying on the conclusions of management regarding
the value of such securities of the Management Companies.
As previously discussed, Home Properties is deemed to own its
proportionate share of the assets of a partnership in which it is a partner
so that the partnership interest, itself, is not a security for purposes of
this asset test. After initially meeting the asset tests at the close of
any quarter, we will not lose our status as a REIT for failure to satisfy
the asset tests at the end of a later quarter solely by reason of changes
in asset values. If we fail to satisfy the asset tests because we acquire
additional securities of the Management Companies or other securities or
other property during a quarter, including an increase in our interests in
the Operating Partnership, we can cure this failure by disposing of
sufficient nonqualifying assets within 30 days after the close of that
quarter. We have maintained and will continue to maintain adequate records
of the value of our assets to ensure compliance with the asset tests and to
take such other actions within the 30 days after the close of any quarter
as may be required to cure any noncompliance. If we fail to cure
noncompliance with the asset tests within this time period, we would cease
to qualify as a REIT.
As a result of the REIT Modernization Act, for taxable years beginning
after December 31, 2000, the 5% value test and the 10% voting security test
will be modified in two respects. First, the 10% voting security test will
be expanded so that Home Properties also will be prohibited from owning
more than 10% of the value of the outstanding securities of any one issuer.
Second, an exception to these tests will be created so that Home Properties
will be permitted to own securities of a subsidiary that exceed the 5%
value test and the new 10% vote or value test if the subsidiary elects to
be a taxable REIT subsidiary. The Operating Partnership currently owns
more than 10% of the total value of the outstanding securities of each of
the non-controlled subsidiaries. The expanded 10% vote or value test,
however, will not apply to a subsidiary unless either of the following
occurs:
the subsidiary engages in a substantial new line of business or
acquires any substantial asset after July 12, 1999; or
Home Properties has acquired, or acquires, additional securities of
the subsidiary after July 12, 1999.
At the present time, a final decision has not been made regarding
which non-controlled subsidiaries, if any, will elect to be treated as
taxable REIT subsidiaries. For taxable years beginning after December 31,
2000, not more than 20% of the value of our total assets will be permitted
to be represented by securities of taxable REIT subsidiaries.
It should be noted that the REIT Modernization Act contains two
provisions that will ensure that taxable REIT subsidiaries will be subject
to an appropriate level of federal income taxation. First, taxable REIT
subsidiaries will be limited in their ability to deduct interest payments
made to an affiliated REIT. Second, if a taxable REIT subsidiary pays an
amount to a REIT that exceeds the amount that would be paid to an unrelated
party in an arm's length transaction, the REIT generally will be subject to
an excise tax equal to 100% of such excess.
Annual Distribution Requirements. To maintain our qualification as a
REIT, we are required to distribute dividends, other than capital gain
dividends, to our stockholders in an amount at least equal to: the sum of:
95% (90% for taxable years beginning after December 31, 2000) of our
"REIT taxable income," computed without regard to the dividends paid
deduction and our net capital gain, and
95% (90% for taxable years beginning after December 31, 2000) of the
after tax net income, if any, from foreclosure property, minus:
the excess of the sum of particular items of noncash income over 5%
of "REIT taxable income" as described above.
These distributions must be paid in the taxable year to which they
relate, or in the following taxable year if they are declared before we
timely file our tax return for such year and if paid on or before the first
regular dividend payment after such declaration. These distributions are
taxable to holders of common stock and convertible preferred stock, other
than tax-exempt entities, as discussed below, in the year in which paid.
This is so even though these distributions relate to the prior year for
purposes of our 95% (90% for taxable years beginning after December 31,
2000) distribution requirement. The amount distributed must not be
preferential (e.g., every shareholder of the class of stock to which a
distribution is made must be treated the same as every other shareholder of
that class, and no class of stock may be treated otherwise than in
accordance with its dividend rights as a class).
To the extent that we do not distribute all of our net capital gain or
distribute at least 95% (90% for taxable years beginning after December 31,
2000), but less than 100%, of our "REIT taxable income," as adjusted, we
will be subject to tax thereon at regular ordinary and capital gain
corporate tax rates. We have made and intend to make timely distributions
sufficient to satisfy these annual distribution requirements. We expect
that our REIT taxable income will be less than our cash flow due to the
allowance of depreciation and other non-cash charges in computing REIT
taxable income. Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy the distribution
requirements described above. In this regard, the Partnership Agreement of
the Operating Partnership authorizes Home Properties, as general partner,
to take such steps as may be necessary to cause the Operating Partnership
to distribute to its partners an amount sufficient to permit Home
Properties to meet these distribution requirements. However, from time to
time, we may not have sufficient cash or other liquid assets to meet these
distribution requirements due to timing differences between the actual
receipt of income and actual payment of deductible expenses, and the
inclusion of income and deduction of expenses in arriving at our taxable
income. If these timing differences occur, in order to meet the
distribution requirements, we may need to arrange for short-term, or
possibly long-term, borrowings or need to pay dividends in the form of
taxable stock dividends. Under specific circumstances identified in the
Internal Revenue Code, we may be able to rectify a failure to meet the
distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being
taxed on amounts distributed as deficiency dividends. However, we will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
Furthermore, we would be subject to a 4% excise tax on the excess of
the required distribution over the amounts actually distributed if we
should fail to distribute during each calendar year, or in the case of
distributions with declaration and record dates falling in the last three
months of the calendar year, by the end of January immediately following
such year, at least the sum of:
85% of our REIT ordinary income for such year,
95% of our REIT capital gain income for the year,
and any undistributed taxable income from prior periods.
Any REIT taxable income and net capital gain on which this excise tax is
imposed for any year is treated as an amount distributed during that year
for purposes of calculating such tax.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year, and
the relief provisions do not apply, we will be subject to tax, including
any applicable alternative minimum tax, on our taxable income at regular
corporate rates. Distributions to stockholders in any year in which we fail
to qualify will not be deductible by us and we will not be required to
distribute any amounts to our stockholders. As a result, our failure to
qualify as a REIT would reduce the cash available for distribution by us
to our stockholders.
In addition, if we fail to qualify as a REIT, all distributions to
stockholders will be taxable as ordinary income to the extent of our
current and accumulated earnings and profits, and subject to limitations
identified in the Internal Revenue Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief
under specific statutory provisions, we will also be ineligible to be taxed
as a REIT for the four tax years following the year during which we lost
our qualification. It is not possible to state whether in all
circumstances we would be entitled to this statutory relief.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
As used below, the term "U.S. stockholder" means a holder of shares of
common stock who, for United States federal income tax purposes: is a
citizen or resident of the United States; is a corporation, partnership, or
other entity created or organized in or under the laws of the United States
or of any state thereof or in the District of Columbia, unless, in the case
of a partnership, Treasury Regulations provide otherwise; is an estate the
income of which is subject to United States federal income taxation
regardless of its source; or is a trust whose administration is subject to
the primary supervision of a United States court and which has one or more
United States persons who have the authority to control all substantial
decisions of the trust. Notwithstanding the preceding sentence, to the
extent provided in Treasury Regulations, some trusts in existence on August
20, 1996, and treated as United States persons prior to this date that
elect to continue to be treated as United States persons, are also
considered U.S. stockholders.
Distributions Generally. As long as we qualify as a REIT,
distributions out of our current or accumulated earnings and profits, other
than capital gain dividends discussed below, will constitute dividends
taxable to our taxable U.S. stockholders as ordinary income. These
distributions will not be eligible for the dividends-received deduction in
the case of U.S. stockholders that are corporations. To the extent that we
make distributions, other than capital gain dividends discussed below, in
excess of our current and accumulated earnings and profits, these
distributions will be treated first as a tax-free return of capital to each
U.S. stockholder. This treatment will reduce the adjusted basis which each
U.S. stockholder has in his shares of stock for tax purposes by the amount
of the distribution. This reduction will not, however, reduce a holder's
adjusted basis below zero. Distributions in excess of a U.S. stockholder's
adjusted basis in his shares will be taxable as capital gain, provided that
the shares have been held as a capital asset. In addition, these
distributions will be taxable as long-term capital gain if the shares have
been held for more than one year.
Dividends that we declare in October, November, or December of any
year and that are payable to a stockholder of record on a specified date in
any of these months shall be treated as both paid by us and received by the
stockholder on December 31 of that year, provided we actually pay the
dividend on or before January 31 of the following calendar year.
Stockholders may not include in their own income tax returns any of our net
operating losses or capital losses.
Capital Gain Distributions. Distributions that we properly designate
as capital gain dividends will be taxable to taxable U.S. stockholders as
gains, to the extent that they do not exceed our actual net capital gain
for the taxable year, from the sale or disposition of a capital asset.
Depending on the period of time we have held the assets which produced
these gains, and on designations which we may make, these gains may be
taxable to non-corporate U.S. stockholders at a 20% or 25% rate. U.S.
stockholders that are corporations may, however, be required to treat up to
20% of some capital gain dividends as ordinary income.
Passive Activity Losses and Investment Interest Limitations.
Distributions we make and gain arising from the sale or exchange by a U.S.
stockholder of our shares will not be treated as passive activity income.
As a result, U.S. stockholders generally will not be able to apply any
"passive losses" against this income or gain. Distributions we make, to the
extent they do not constitute a return of capital, generally will be
treated as investment income for purposes of computing the investment
income limitation. Gain arising from the sale or other disposition of our
shares, however, will not be treated as investment income under some
circumstances.
Retention of Net Long-Term Capital Gains. We may elect to retain,
rather than distribute as a capital gain dividend, our net long-term
capital gains. If we make this election, we would pay tax on our retained
net long-term capital gains. In addition, to the extent we designate, a
U.S. stockholder generally would: include its proportionate share of our
undistributed long-term capital gains in computing its long-term capital
gains in its return for its taxable year in which the last day of our
taxable year falls subject to limitations as to the amount that is
includable; be deemed to have paid the capital gains tax imposed on us on
the designated amounts included in the U.S. stockholder's long-term capital
gains; receive a credit or refund for the amount of tax deemed paid by it;
increase the adjusted basis of its common stock by the difference between
the amount of includable gains and the tax deemed to have been paid by it;
and in the case of a U.S. stockholder that is a corporation, appropriately
adjust its earnings and profits for the retained capital gains in
accordance with Treasury Regulations to be prescribed by the IRS.
DISPOSITIONS OF COMMON STOCK
If you are a U.S. stockholder and you sell or dispose of your shares
of common stock, you will recognize gain or loss for federal income tax
purposes in an amount equal to the difference between the amount of cash
and the fair market value of any property you receive on the sale or other
disposition and your adjusted basis in the shares for tax purposes. This
gain or loss will be capital if you have held the common stock as a capital
asset and will be long- term capital gain or loss if you have held the
common stock for more than one year. In general, if you are a U.S.
stockholder and you recognize loss upon the sale or other disposition of
common stock that you have held for six months or less, after applying
holding period rules set forth in the Internal Revenue Code, the loss you
recognize will be treated as a long-term capital loss, to the extent you
received distributions from us which were required to be treated as long-
term capital gains.
BACKUP WITHHOLDING
We report to our U.S. stockholders and the IRS the amount of dividends
paid during each calendar year, and the amount of any tax withheld. Under
the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless the
holder is a corporation or comes within other exempt categories and, when
required, demonstrates this fact, or provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding
rules. A U.S. stockholder that does not provide us with his correct
taxpayer identification number may also be subject to penalties imposed by
the IRS. Any amount paid as backup withholding will be creditable against
the stockholder's income tax liability. In addition, we may be required to
withhold a portion of capital gain distributions to any stockholders who
fail to certify their non-foreign status. See "Taxation of Non-U.S.
Stockholders."
TAXATION OF TAX-EXEMPT STOCKHOLDERS
The IRS has ruled that amounts distributed as dividends by a qualified
REIT do not constitute unrelated business taxable income when received by a
tax-exempt entity. Based on that ruling, provided that a tax-exempt
shareholder, except tax-exempt shareholders described below, has not held
its shares as "debt financed property" within the meaning of the Internal
Revenue Code and the shares are not otherwise used in a trade or business,
dividend income from us will not be unrelated business taxable income to a
tax-exempt shareholder. Similarly, income from the sale of shares will not
constitute unrelated business taxable income unless a tax-exempt
shareholder has held its shares as "debt financed property" within the
meaning of the Internal Revenue Code or has used the shares in its trade or
business.
For tax-exempt shareholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and
qualified group legal services plans exempt from federal income taxation
under Internal Revenue Code Section 501(c)(7), (c)(9), (c)(17) and (c)(20),
respectively, income from an investment in our shares will constitute
unrelated business taxable income 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 our shares. These
prospective investors should consult their own tax advisors concerning
these "set aside" and reserve requirements.
Notwithstanding the above, however, the Omnibus Budget Reconciliation
Act of 1993 provides that, effective for taxable years beginning in 1994, a
portion of the dividends paid by a "pension held REIT" shall be treated as
unrelated business taxable income as to any trust which: is described in
Section 401(a) of the Internal Revenue Code; is tax-exempt under Section
501(a) of the Internal Revenue Code; and holds more than 10%, by value, of
the interests in a REIT. Tax-exempt pension funds that are described in
Section 401(a) of the Internal Revenue Code are referred to below as
"qualified trusts." A REIT is a "pension held REIT" if: it would not have
qualified as a REIT but for the fact that Section 856(h)(3) of the Internal
Revenue Code provides that stock owned by qualified trusts shall be
treated, for purposes of the "not closely held" requirement, as owned by
the beneficiaries of the trust, rather than by the trust itself; and either
at least one such qualified trust holds more than 25%, by value, of the
interests in a REIT, or one or more such qualified trusts, each of which
owns more than 10%, by value, of the interests in a REIT, holds in the
aggregate more than 50%, by value, of the interests in the REIT.
The percentage of any REIT dividend treated as unrelated business
taxable income is equal to the ratio of: the unrelated business taxable
income earned by Home Properties, treating Home Properties as if it were a
qualified trust and therefore subject to tax on unrelated business taxable
income, to the total gross income of Home Properties. A de minimis
exception applies where the percentage is less than 5% for any year. The
provisions requiring qualified trusts to treat a portion of REIT
distributions as unrelated business taxable income will not apply if Home
Properties is able to satisfy the "not closely held" requirement without
relying upon the "look-through" exception with respect to qualified trusts.
As a result of the limitations on the transfer and ownership of stock
contained in our articles of incorporation, we are not and do not expect to
be classified as a "pension held REIT."
TAXATION OF NON-U.S. STOCKHOLDERS
When we use the term "non-U.S. stockholders," we mean holders of
shares of common stock that are nonresident alien individuals, foreign
corporations, foreign partnerships or foreign estates or trusts. The rules
governing United States federal income taxation of the ownership and
disposition of stock by persons that are non-U.S. stockholders are complex.
No attempt is made in this prospectus to provide more than a brief summary
of these rules. Accordingly, this discussion does not address all aspects
of United States federal income tax and does not address state, local or
foreign tax consequences that may be relevant to a non-U.S. stockholder in
light of its particular circumstances. In addition, this discussion is
based on current law, which is subject to change, and assumes that we
qualify for taxation as a REIT. Prospective non- U.S. stockholders should
consult with their own tax advisers to determine the impact of federal,
state, local and foreign income tax laws with regard to an investment in
stock, including any reporting requirements.
Distributions. If we make a distribution that is not attributable to
gain from the sale or exchange of United States real property interests and
is not designated as capital gains dividends, then the distribution will be
treated as dividends of ordinary income to the extent it is made out of
current or accumulated earnings and profits. These distributions ordinarily
will be subject to withholding of United States federal income tax on a
gross basis at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. However, if the dividends are treated as
effectively connected with the conduct by the non-U.S. stockholder of a
United States trade or business, or if an income tax treaty applies, as
attributable to a United States permanent establishment of the non-U.S.
stockholder, the dividends will be subject to tax on a net basis at
graduated rates, in the same manner as domestic stockholders are taxed with
respect to such dividends and are generally not subject to withholding. Any
such dividends received by a non-U.S. stockholder that is a corporation may
also be subject to an additional branch profits tax at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty. Under
current Treasury Regulations, dividends paid to an address in a country
outside the United States are generally presumed to be paid to a resident
of the country for purposes of determining the applicability of the
withholding rules discussed above and the applicability of a tax treaty
rate. Under some treaties, lower withholding rates generally applicable to
dividends do not apply to dividends from a REIT. Certification and
disclosure requirements must be satisfied to be exempt from withholding
under the effectively connected income and permanent establishment
exemptions discussed above.
Distributions we make in excess of our current or accumulated earnings
and profits will not be taxable to a non-U.S. stockholder to the extent
that they do not exceed the adjusted basis of the stockholder's stock, but
rather will reduce the adjusted basis of such stock. To the extent that
these distributions exceed the adjusted basis of a non-U.S. stockholder's
stock, they will give rise to gain from the sale or exchange of his stock.
The tax treatment of this gain is described below. If it cannot be
determined at the time a distribution is made whether or not a distribution
will be in excess of current or accumulated earnings and profits, the
distribution will generally be treated as a dividend for withholding
purposes. However, the IRS will generally refund amounts that are withheld
if it is subsequently determined that the distribution was, in fact, in
excess of our current or accumulated earnings and profits.
Distributions to a non-U.S. stockholder that we designate at the time
of distribution as capital gains dividends, other than those arising from
the disposition of a United States real property interest, generally will
not be subject to United States federal income taxation, unless: investment
in the stock is effectively connected with the non-U.S. stockholder's
United States trade or business, in which case the non-U.S. stockholder
will be subject to the same treatment as domestic stockholders with respect
to such gain, except that a stockholder that is a foreign corporation may
also be subject to the 30% branch profits tax, as discussed above; or the
non-U.S. stockholder is a nonresident alien individual who is present in
the United States for 183 days or more during the taxable year and has a
"tax home" in the United States, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains.
Distributions to a non-U.S. stockholder that are attributable to gain
from our sale or exchange of United States real property interests will
cause the non- U.S. stockholder to be treated as recognizing this gain as
income effectively connected with a United States trade or business. Non-
U.S. stockholders would thus generally be taxed at the same rates
applicable to domestic stockholders, subject to a special alternative
minimum tax in the case of nonresident alien individuals. Also, this gain
may be subject to a 30% branch profits tax in the hands of a non-U.S.
stockholder that is a corporation, as discussed above. We are required to
withhold 35% of any such distribution. That amount is creditable against
the non-U.S. stockholder's United States federal income tax liability. We
or any nominee (e.g., a broker holding shares in street name) may rely on a
certificate of non-foreign status on Form W-8 or Form W-9 to determine
whether withholding is required on gains realized from the disposition of
United States real property interests. A domestic person who holds shares
of common stock on behalf of a non-U.S. stockholder will bear the burden of
withholding, provided that we have properly designated the appropriate
portion of a distribution as a capital gain dividend.
Sale of Stock. If you are a non-U.S. stockholder and you recognize
gain upon the sale or exchange of shares of stock, the gain generally will
not be subject to United States taxation unless the stock constitutes a
"United States real property interest" within the meaning of FIRPTA. If we
are a "domestically controlled REIT," then the stock will not constitute a
"United States real property interest." A "domestically-controlled REIT" is
a REIT in which at all times during a specified testing period less than
50% in value of its stock is held directly or indirectly by non-U.S.
stockholders. Because our shares of stock are publicly traded, there is no
assurance that we are or will continue to be a "domestically-controlled
REIT." Notwithstanding the foregoing, if you are a non-U.S. stockholder and
you recognize gain upon the sale or exchange of shares of stock and the
gain is not subject to FIRPTA, the gain will be subject to United States
taxation if: your investment in the stock is effectively connected with a
United States trade or business, or, if an income treaty applies, is
attributable to a United States permanent establishment; or you are a
nonresident alien individual who is present in the United States for 183
days or more during the taxable year and you have a "tax home" in the
United States. In this case, a nonresident alien individual will be subject
to a 30% United States withholding tax on the amount of such individual's
gain.
If we are not or cease to be a "domestically-controlled REIT" whether
gain arising from the sale or exchange by a non-U.S. stockholder of shares
of stock would be subject to United States taxation under FIRPTA as a sale
of a "United States real property interest" will depend on whether the
shares are "regularly traded," as defined by applicable Treasury
Regulations, on an established securities market and on the size of the
selling non-U.S. stockholder's interest in our shares. If gain on the sale
or exchange of shares of stock were subject to taxation under FIRPTA, the
non-U.S. stockholder would be subject to regular United States income tax
on this gain in the same manner as a U.S. stockholder and the purchaser of
the stock would be required to withhold and remit to the IRS 10% of the
purchase price. In addition in this case, non- U.S. stockholder would be
subject to any applicable alternative minimum tax, nonresident alien
individuals may be subject to a special alternative minimum tax and foreign
corporations may be subject to the 30% branch profits tax.
Backup Withholding Tax and Information Reporting. Backup withholding
tax generally is a withholding tax imposed at the rate of 31% on reportable
payments, as defined in Section 3406 of the Internal Revenue Code, to
persons that fail to furnish the required information under the United
States information reporting requirements. Backup withholding tax and
information reporting will generally not apply to distributions paid to
non-U.S. stockholders outside the United States that are treated as:
dividends subject to the 30%, or lower treaty rate, withholding tax
discussed above; capital gains dividends; or distributions attributable to
gain from our sale or exchange of United States real property interests. As
a general matter, backup withholding and information reporting will not
apply to a payment of the proceeds of a sale of stock by or through a
foreign office of a foreign broker. Information reporting, but not backup
withholding, will apply, however, to a payment of the proceeds of a sale of
stock by a foreign office of a broker that: is a United States person;
derives 50% or more of its gross income for specific periods from the
conduct of a trade or business in the United States; or is a "controlled
foreign corporation" for United States tax purposes. Information Reporting
will not apply if the broker has documentary evidence in its records that
the holder is a non-U.S. stockholder and other conditions are met, or the
stockholder otherwise establishes an exemption. Payment to or through a
United States office of a broker of the proceeds of sale of stocks is
subject to both backup withholding and information reporting unless the
stockholder certifies under penalties of perjury that the stockholder is a
non-U.S. stockholder, or otherwise establishes an exemption. A non-U.S.
stockholder may obtain a refund of any amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS.
New Withholding Regulations. Final regulations dealing with
withholding tax on income paid to foreign persons and related matters were
recently promulgated. In general, these new withholding regulations do not
significantly alter the substantive withholding and information reporting
requirements, but unify current certification procedures and forms and
clarify reliance standards. For example, these new withholding regulations
adopt a certification rule under which a foreign stockholder who wishes to
claim the benefit of an applicable treaty rate with respect to dividends
received from a United Stated corporation will be required to satisfy
certification and other requirements. In addition, these new withholding
regulations require a corporation that is a REIT to treat as a dividend the
portion of a distribution that is not designated as a capital gain dividend
or return of basis and apply the 30% withholding tax, subject to any
applicable deduction or exemption, to such portion, and to apply the FIRPTA
withholding rules, discussed above, with respect to the portion of the
distribution designated by Home Properties as capital gain dividend. These
new withholding regulations will generally be effective for payments made
after December 31, 2000, subject to transition rules. The discussion set
forth above in "Taxation of Non-U.S. Stockholders" does not take these new
withholding regulations into account. Prospective non-U.S. stockholders are
strongly urged to consult their own tax advisors with respect to these new
withholding regulations.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
General. Substantially all of our investments will be held indirectly
through the Operating Partnership. In general, partnerships are "pass-
through" entities which are not subject to federal income tax. Rather,
partners are allocated their proportionate shares of the items of income,
gain, loss, deduction and credit of a partnership, and are potentially
subject to tax thereon, without regard to whether the partners receive a
distribution from the partnership. We will include in our income our
proportionate share of the foregoing partnership items for purposes of the
various REIT income tests and in the computation of our REIT taxable
income. Moreover, for purposes of the REIT asset tests, we will include our
proportionate share of assets held by the Operating Partnership. See
"Taxation of Home Properties."
Entity Classification. Our interests in the Operating Partnership
involve special tax considerations, including the possibility of a
challenge by the IRS of the status of the Operating Partnership as a
partnership, as opposed to an association taxable as a corporation, for
federal income tax purposes. If the Operating Partnership were treated as
an association, it would be taxable as a corporation and therefore be
subject to an entity-level tax on its income. In such a situation, the
character of our assets and items of gross income would change and preclude
us from satisfying the asset tests and possibly the income tests (see
"Taxation of Home Properties - Asset Tests" and "-Income Tests"). This, in
turn, would prevent us from qualifying as a REIT. See "Taxation of Home
Properties - Failure to Qualify" above for a discussion of the effect of
our failure to meet these tests for a taxable year. In addition, a change
in the Operating Partnership's status for tax purposes might be treated as
a taxable event. If so, we might incur a tax liability without any related
cash distributions.
Treasury Regulations that apply for tax period beginning on or after
January 1, 1997 provide that an "eligible entity" may elect to be taxed as
a partnership for federal income tax purposes. An eligible entity is a
domestic business entity not otherwise classified as a corporation and
which has at least two members. Unless it elects otherwise, an eligible
entity in existence prior to January 1, 1997, will have the same
classification for federal income tax purposes that it claimed under the
entity classification Treasury Regulations in effect prior to this date. In
addition, an eligible entity which did not exist, or did not claim a
classification, prior to January 1, 1997, will be classified as a
partnership for federal income tax purposes unless it elects otherwise. The
Operating Partnership intends to claim classification as a partnership
under these regulations.
Even if the Operating Partnership is taxable as a partnership under
these Treasury Regulations, it could be treated as a corporation for
federal income tax purposes under the "publicly traded partnership" rules
of Section 7704 of the Internal Revenue Code. A publicly traded partnership
is a partnership whose interests trade on an established securities market
or are readily tradable on a secondary market, or the substantial
equivalent thereof. While units of the Operating Partnership are not and
will not be traded on an established trading market, there is some risk
that the IRS might treat the units held by the limited partners of the
Operating Partnership as readily tradable because, after any applicable
holding period, they may be exchanged for our common stock, which is traded
on an established market. A publicly traded partnership will be treated as
a corporation for federal income tax purposes unless at least 90% of such
partnership's gross income for a taxable year consists of "qualifying
income" under the publicly traded partnership provisions of Section 7704 of
the Internal Revenue Code. "Qualifying income" under Section 7704 of the
Internal Revenue Code includes interest, dividends, real property rents,
gains from the disposition of real property, and certain income or gains
from the exploitation of natural resources. Therefore, qualifying income
under Section 7704 of the Internal Revenue Code generally includes any
income that is qualifying income for purposes of the 95% gross income test
applicable to REITs. We anticipate that the Operating Partnership will
satisfy the 90% qualifying income test under Section 7704 of the Internal
Revenue Code and, thus, will not be taxed as a corporation.
There is one significant difference, however, regarding rent received
from related party tenants. For a REIT, rent from a tenant does not qualify
as rents from real property if the REIT and/or one or more actual or
constructive owners of 10% or more of the REIT actually or constructively
own 10% or more of the tenant. See "Taxation of Home Properties - Income
Tests." Under Section 7704 of the Internal Revenue Code, rent from a tenant
is not qualifying income if a partnership and/or one or more actual or
constructive owners of 5% or more of the partnership actually or
constructively own 10% or more of the tenant.
As described above, as a result of the passage of the REIT
Modernization Act, for taxable years beginning after December 31, 2000, the
Operating Partnership should be able to lease its real properties to a
taxable REIT subsidiary and the rents received from that subsidiary would
not be disqualified from being "rents from real property" under the REIT
rules by reason of the Operating Partnership's ownership interest in the
subsidiary. See "Federal Income Taxation of Home Properties-Income Tests."
Home Properties and the Operating Partnership have not made a decision
whether or not to lease any properties to taxable REIT subsidiaries in the
future. If should be noted, though, that as a further result of the
passage of the REIT Modernization Act, rent received from a taxable REIT
subsidiary also would not be disqualified from being "qualifying income"
under Section 7704 of the Internal Revenue Code because of the Operating
Partnership's ownership of the taxable REIT subsidiary. Accordingly, Home
Properties could lease its real property to one or more taxable REIT
subsidiaries without, by virtue of that act, causing the Operating
Partnership to be treated as a corporation for federal income tax purposes.
Accordingly, we will need to monitor compliance with both the REIT
rules and the publicly traded partnership rules. The Operating Partnership
has not requested, nor does it intend to request, a ruling from the IRS
that it will be treated as a partnership for federal income tax purposes.
In the opinion of Nixon Peabody LLP, which is based on the provisions of
the partnership agreement of the Operating Partnership and on certain
factual assumptions and representations of Home Properties, the Operating
Partnership has a reasonable basis for its claim to be classified as a
partnership for federal income tax purposes and therefore should be taxed
as a partnership rather than an association taxable as a corporation for
periods prior to January 1, 1997. Nixon Peabody LLP's opinion is not
binding on the IRS or the courts.
Partnership Allocations. A partnership agreement will generally
determine the allocation of income and losses among partners. However,
these allocations will be disregarded for tax purposes if they do not
comply with the provisions of Section 704(b) of the Internal Revenue Code
and the Treasury Regulations promulgated under this section of the Internal
Revenue Code. Generally, Section 704(b) and the Treasury Regulations
promulgated under this section of the Internal Revenue Code require that
partnership allocations respect the economic arrangement of the partners.
If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership. This reallocation will be
determined by taking into account all of the facts and circumstances
relating to the economic arrangement of the partners with respect to such
item. The Operating Partnership's allocations of taxable income and loss
are intended to comply with the requirements of Section 704(b) of the
Internal Revenue Code and the Treasury Regulations promulgated under this
section of the Internal Revenue Code.
Tax Allocations with Respect to the Properties. Under Section 704(c)
of the Internal Revenue Code, income, gain, loss and deduction attributable
to appreciated or depreciated property that is contributed to a partnership
in exchange for an interest in the partnership, must be allocated in a
manner so that the contributing partner is charged with the "book-tax
difference" associated with the property at the time of the contribution.
The book-tax difference with respect to property that is contributed to a
partnership is generally equal to the difference between the fair market
value of contributed property at the time of contribution and the adjusted
tax basis of the property at the time of contribution. These allocations
are solely for federal income tax purposes and do not affect the book
capital accounts or other economic or legal arrangements among the
partners. The Operating Partnership was formed by way of contributions of
appreciated property, including some of the properties. Moreover,
subsequent to the formation of the Operating Partnership, additional
persons have contributed appreciated property to the Operating Partnership
in exchange for interests in the Operating Partnership.
The partnership agreement requires that these allocations be made in a
manner consistent with Section 704(c) of the Internal Revenue Code. In
general, limited partners of the Operating Partnership who acquired their
limited partnership interests through a contribution of appreciated
property will be allocated depreciation deductions for tax purposes which
are lower than these deductions would be if determined on a pro rata basis.
In addition, in the event of the disposition of any of the contributed
assets which have a book-tax difference all income attributable to the
book-tax difference will generally be allocated to the limited partners who
contributed the property, and we will generally be allocated only our share
of capital gains attributable to appreciation, if any, occurring after the
time of contribution to the Operating Partnership. This will tend to
eliminate the book-tax difference over the life of the Operating
Partnership. However, the special allocation rules of Section 704(c) do 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 assets in the hands the Operating
Partnership may cause us to be allocated lower depreciation and other
deductions. Possibly we could be allocated an amount of taxable income in
the event of a sale of these contributed assets in excess of the economic
or book income allocated to us as a result of the sale. This may cause us
to recognize taxable income in excess of cash proceeds, which might
adversely affect our ability to comply with the REIT distribution
requirements. See "Taxation of Home Properties - Annual Distribution
Requirements."
Treasury Regulations issued under Section 704(c) of the Internal
Revenue Code provide partnerships with a choice of several methods of
accounting for book- tax differences, including retention of the
"traditional method" or the election of other methods which would permit
any distortions caused by a book-tax difference to be entirely rectified on
an annual basis or with respect to a specific taxable transaction such as a
sale. We and the Operating Partnership have determined to use the
"traditional method" for accounting for book-tax differences for the
properties initially contributed to the Operating Partnership and for some
assets acquired subsequently. We and the Operating Partnerships have not
yet decided what method will be used to account for book-tax differences
for properties acquired by the Operating Partnership in the future. Any
property acquired by the Operating Partnership in a taxable transaction
will initially have a tax basis equal to its fair market value, and Section
704(c) of the Internal Revenue Code will not apply.
Basis in the Operating Partnership Interest. The adjusted tax basis in
our interest in the Operating Partnership generally will be equal to: the
amount of cash and the basis of any other property we contribute to the
Operating Partnership, increased by our allocable share of the Operating
Partnership's income and our allocable share of indebtedness of the
Operating Partnership, and reduced, but not below zero, by our allocable
share of losses suffered by the Operating Partnership, the amount of cash
distributed to us and constructive distributions resulting from a reduction
in our share of indebtedness of the Operating Partnership. If the
allocation of our distributive share of the Operating Partnership's loss
exceeds the adjusted tax basis of our partnership interest in the Operating
Partnership, the recognition of this excess loss will be deferred until
such time and to the extent that we have adjusted tax basis in our interest
in the Operating Partnership. We will recognize taxable income to the
extent that the Operating Partnership's distributions, or any decrease in
our share of the indebtedness of the Operating Partnership, exceeds our
adjusted tax basis in the Operating Partnership. A decrease in our share of
the indebtedness of the Operating Partnership is considered a cash
distribution.
Sale of Partnership Property. Generally, any gain realized by a
partnership on the sale of property held by the partnership for more than
one year will be long-term capital gain, except for any portion of such
gain that is treated as depreciation or cost recovery recapture. However,
under the REIT Requirements, Home Properties' share as a partner of any
gain realized by the Operating Partnership on the sale of any property held
as inventory or other property held primarily for sale to customers in the
ordinary course of a trade or business will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. See "Taxation
of Home Properties." Such prohibited transaction income will also have an
adverse effect upon Home Properties' ability to satisfy the income tests
for REIT status. Under existing law, whether property is held as inventory
or primarily for sale to customers in the ordinary course of a trade or
business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction.
A safe harbor to avoid classification as a prohibited transaction
exists as to real estate assets held for the production of rental income by
a REIT for at least four years where in any taxable year the REIT has made
no more than seven sales of property or, in the alternative, the aggregate
of the adjusted bases of all properties sold does not exceed 10% of the
adjusted bases of all of the REIT's properties during the year and the
expenditures includable in a property's basis made during the four-year
period prior to disposition must not exceed 30% of the property's net sales
price. The Operating Partnership intends to hold its properties for
investment with a view to long- term appreciation, to engage in the
business of acquiring, developing, owning, and operating and leasing the
properties and to make such occasional sales of the properties, including
adjoining land, as are consistent with Home Properties' and the Operating
Partnership's investment objectives. No assurance can be given, however,
that every property sale by the Operating Partnership will constitute a
sale of property held for investment.
OTHER TAX CONSEQUENCES
State and Local Tax Considerations. We may be subject to state or
local taxation in various state or local jurisdictions, including those in
which we transact business and our stockholders may be subject to state or
local taxation in various state or local jurisdiction, including those in
which they reside. Our state and local tax treatment may not conform to the
federal income tax consequences discussed above. In addition, your state
and local tax treatment may not conform to the federal income tax
consequences discussed above. Consequently, you should consult your own tax
advisors regarding the effect of state and local tax laws on an investment
in our shares.
The Management Companies. A portion of the cash to be used by the
Operating Partnership to fund distributions to partners is expected to come
from the Management Companies, through interest payments and dividends on
non-voting preferred stock to be held by the Operating Partnership. The
Management Companies will pay federal and state tax on their net income at
full corporate rates, which will reduce the cash available for distribution
to stockholders. Home Properties expects that the Management Companies'
income, after deducting its expenses, will not give rise to significant
corporate tax liabilities. The amount of corporate tax liability will
increase if the IRS disallows the items of expense which Home Properties
expects to be allocated to the Management Companies.
As described above in "Taxation of Home Properties - Income Tests" and
" - Asset Tests," some of the non-controlled subsidiaries may elect to be
treated as a taxable REIT subsidiary for years commencing after December
31, 2000. The non-controlled subsidiaries that make this election will be
restrained in their ability to reduce their tax liability for two reasons.
First, taxable REIT subsidiaries will be limited in their ability to deduct
interest payments made to an affiliated REIT. Accordingly, if a non-
controlled subsidiary elects to be treated as a taxable REIT subsidiary, it
will be limited significantly in its ability to deduct interest payments on
notes issued to the Operating Partnership. Second, if a taxable REIT
subsidiary pays an amount to a REIT that exceeds the amount that would be
paid in an arm's length transaction, the REIT generally will be subject to
an excise tax equal to 100% of the excess. This rule generally will apply
to amounts paid to the Operating Partnership by a non-controlled subsidiary
that elects to be treated as a taxable REIT subsidiary.
Possible Federal Tax Developments. The rules dealing with federal
income taxation are constantly under review by the IRS, the Treasury
Department and Congress. New federal tax legislation or other provisions
may be enacted into law or new interpretations, rulings or Treasury
Regulations could be adopted, all of which could affect the taxation of
Home Properties or of its stockholders. No prediction can be made as to the
likelihood of passage of any new tax legislation or other provisions either
directly or indirectly affecting Home Properties or its stockholders.
Consequently, the tax treatment described herein may be modified
prospectively or retroactively by legislative, judicial or administrative
action.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
<TABLE>
<CAPTION>
For The Three Original
Months Properties*
Ended Aug. 4- Jan. 1-
Sep. 30, Year Ended December 31, Dec. 31, Aug. 3,
1999 1998 1997 1996 1995 1994 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Combined Fixed
Charges and
Preferred Stock
Dividends 1.77 2.31 2.06 1.52 1.68 2.78 1.24
</TABLE>
*Original Properties is not a legal entity but rather a combination of
twelve entities which were wholly owned by the predecessor corporation
and its affiliates prior to the Company's initial public offering on
August 4, 1994.
For purposes of computing the ratio of earnings to combined fixed charges,
"earnings" consists of income from operations before Federal income taxes
and fixed charges. "Fixed charges" consists of interest expense,
capitalized interest, amortization of debt expense, such portion of
rental expense as can be demonstrated to be representative of the interest
factor in the particular case and preferred stock dividend requirements.
Please refer to Exhibit 12.1 for detailed computation.
PLAN OF DISTRIBUTION
This Prospectus relates to the offer by the Selling Shareholder of
1,679,543 shares of Common Stock issuable upon conversion of the Series B
Preferred Stock. The Selling Shareholder is offering the shares for its
own account, and not for the account of Home Properties. Home Properties
will not receive any proceeds from the sale of the shares by the Selling
Shareholder.
The Common Stock offered hereby may be sold by the Selling Shareholder
or by pledgees, donees, transferees or other successors-in-interest
(including sales after exercise of conversion privileges). Such sales may
be made in the over-the-counter market, in privately negotiated
transactions, or otherwise, at prices and at terms then prevailing, at
prices related to the then-current market prices or at negotiated prices,
or, with respect to the common stock, in transactions on the New York Stock
Exchange. The shares may be sold by one or more of the following methods:
a block trade in which the broker or dealer so engaged will attempt to sell
the stock as agent but may position and resell a portion of the block as
principal in order to consummate the transaction; a purchase by a broker or
dealer as principal, and the resale by such broker or dealer for its
account pursuant to this prospectus, including resale to another broker or
dealer; or ordinary brokerage transactions and transactions in which the
broker solicits purchasers.
In effecting sales, brokers or dealers engaged by the Selling
Shareholder may arrange for other brokers or dealers to participate. Any
such brokers or dealers will receive commissions or discounts from a
selling shareholder in amounts to be negotiated immediately prior to the
sale. Such brokers or dealers and any other participating brokers or
dealers may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933. Any gain realized by such a broker or dealer on the
sale of shares that it purchases as a principal may be deemed to be
compensation to the broker or dealer in addition to any commission paid to
the broker by the Selling Shareholder.
The Selling Shareholder may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of shares
against certain liabilities, including liabilities arising under the
Securities Act of 1933.
The Selling Shareholder has not advised Home Properties that it has
entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of its shares, or that
there is an underwriter or coordinating broker acting in connection with
the proposed sale of shares by the Selling Shareholder.
The securities covered by this prospectus may also be sold under Rule
144 instead of under this prospectus. Rule 144 provides an exemption from
registration for the resale of securities by persons other than the issuer
after the securities have been held by persons for at least one year from
original issuance, and such securities are sold in strict compliance with
Rule 144 "manner of sale" requirements and maximum number of shares
requirements.
Home Properties will pay all reasonable expenses of registration of
the Common Stock (other than fees and expenses of investment bankers,
brokerage commissions and the Selling Shareholder's counsel fees and
expenses, if any). In addition, we have agreed to indemnify the Selling
Shareholder against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The Selling Shareholder will be subject to the prospectus delivery
requirements of the Securities Act of 1933, which may include, with respect
to the Common Stock, delivery through the facilities of the New York Stock
Exchange pursuant to Rule 153.
The anti-manipulation rules of Regulation M under the Securities
Exchange Act of 1934 may apply to sales of the shares in the market and to
the activities of the Selling Shareholder.
There is no assurance that the Selling Shareholder will sell any or
all of the shares offered hereby.
EXPERTS
The consolidated balance sheets as of December 31, 1998 and 1997, and
the consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1998,
incorporated in this Prospectus by reference to the Annual Report on
Form 10-K, have been incorporated herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
In addition, the Statement of Revenues and Certain Expenses for the
year ended December 31, 1998, incorporated by reference in this Prospectus,
for the audits of (1) CRC Portfolio included in Form 8-K/A Amendment No. 1
dated July 1, 1999 and filed on July 29, 1999; (2) the Mid Atlantic Portfolio
included in Form 8-K dated July 15, 1999 and filed July 30, 1999; and (3) the
Ridley Portfolio and the Colony Apartments included in Form 8-K/A Amendment
No. 1 dated February 18, 1999 and filed on November 12, 1999, 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
The legality of the shares of Common Stock offered hereby, which is to
be issued upon conversion of the Series B Preferred Stock, will be passed
upon by Nixon Peabody LLP. In addition, Nixon Peabody LLP will provide
an opinion with respect to certain tax matters described under "Federal
Income Tax Considerations."
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table is an itemized listing of expenses to be incurred by
Home Properties in connection with the issuance and distribution of the
shares of Common Stock being registered hereby, other than discounts and
commissions:
SEC Registration Fee ........................... $11,916.36
NYSE Listing Fee ........................... 2,000.00*
Legal Fees and Expenses .................... 3,500.00*
Accounting Fees and Expenses ............... 1,500.00*
Miscellaneous .............................. 2,000.00*
----------
Total ................................ $20,916.36*
*Estimate
Item 15. Indemnification of Directors and Officers
Home Properties' officers and directors are and will be indemnified
under Maryland law, the Articles of Incorporation of Home Properties and
the Partnership Agreement ("Operating Partnership Agreement") of Home
Properties of New York, L.P., a New York limited partnership of which Home
Properties is the general partner, against certain liabilities. The
Articles of Incorporation require Home Properties to indemnify its
directors and officers to the fullest extent permitted from time to time by
the laws of Maryland. The Bylaws contain provisions which implement the
indemnification provisions of the Articles of Incorporation.
The Maryland General Corporation Law ("MGCL") permits a corporation to
indemnify its directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by
them in connection with any proceeding to which they may be made a party by
reason of their service in those or other capacities unless it is
established that the act or omission of the director or officer 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 the
director or officer actually received an improper personal benefit in
money, property or services, or in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or
omission was unlawful. No amendment of the Articles of Incorporation of
Home Properties shall limit or eliminate the right to indemnification
provided with respect to acts or omissions occurring prior to such
amendment or repeal. Maryland law permits Home Properties to provide
indemnification to an officer to the same extent as a director, although
additional indemnification may be provided if such officer is not also a
director.
The MGCL permits the articles of incorporation of a Maryland
corporation to include a provision limiting the liability of its directors
and officers to the II-1 corporation and its stockholders for money
damages, subject to specified restrictions. The MGCL does not, however,
permit the liability of directors and officers to the corporation or its
stockholders to be limited to the extent that (1) it is proved that the
person actually received an improper benefit or profit in money, property
or services (to the extent such benefit or profit was received) or (2) a
judgment or other final adjudication adverse to such person is entered in a
proceeding based on a finding that the person's action, or failure to act,
was the result of active and deliberate dishonesty and was material to the
cause of action adjudicated in the proceeding. The Articles of
Incorporation of Home Properties contain a provision consistent with the
MGCL. No amendment of the Articles of Incorporation shall limit or
eliminate the limitation of liability with respect to acts or omissions
occurring prior to such amendment or repeal.
The Operating Partnership Agreement also provides for indemnification
of Home Properties and its officers and directors to the same extent
indemnification is provided to officers and directors of Home Properties
in its Articles of Incorporation, and limits the liability of Home
Properties and its officers and directors to the Operating Partnership and
its partners to the same extent liability of officers and directors of
Home Properties to Home Properties and its stockholders is limited under
Home Properties' Articles of Incorporation.
Home Properties has entered into indemnification agreements with each
of Home Properties' directors and certain of its officers. The
indemnification agreements require, among other things, that Home
Properties indemnify its directors and those officers to the fullest extent
permitted by law, and advance to the directors and officers all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. Home Properties also must indemnify and
advance all expenses incurred by directors and officers seeking to enforce
their rights under the indemnification agreements, and cover directors and
officers under Home Properties' directors' and officers' liability
insurance. Although the form of indemnification agreement offers
substantially the same scope of coverage afforded by provisions in the
Articles of Incorporation and the Bylaws and the Operating Partnership
Agreement of the Operating Partnership, it provides greater assurance to
directors and officers that indemnification will be available, because, as
a contract, it cannot be modified unilaterally in the future by the Board
of Directors or by the stockholders to eliminate the rights it provides.
Home Properties has purchased insurance under a policy that insures both
Home Properties and its officers and directors against exposure and
liability normally insured against under such policies, including exposure
on the indemnities described above.
Item 16. Exhibits
3.1 Articles Supplementary with respect to the Series A
Convertible Preferred Stock*
4.1 Amendment to Partnership Interest Purchase Agreement and
Exchange Agreement*
4.2 Amendment No. 27 to Second Amended and Restated Agreement
of Limited Partnership of the Operating Partnership*
5.1 Opinion of Nixon Peabody LLP as to legality of Common Stock*
8.1 Opinion of Nixon Peabody LLP as to certain tax matters*
12.1 Computation of Ratios of Earnings to Combined Fixed Charges
and Preferred Stock Dividend*
23.1 Consent of Nixon Peabody LLP (included as part of Exhibits 5.1 and 8.1)
23.2 Consent of PricewaterhouseCoopers LLP*
24 Power of Attorney (included on signature page)
* Included with this filing.
Item 17. Undertakings
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 foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer 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 the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being
made, a post- effective amendment to this registration statement to include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement.
(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.
(3) For purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(4) 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.
<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 Rochester, New York, on the 28th
day of December, 1999.
HOME PROPERTIES OF NEW YORK, INC.
By: /s/ Amy L. Tait
---------------------------
Amy L. Tait
Executive Vice President
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints Norman P.
Leenhouts, Nelson B. Leenhouts, Richard J. Crossed and Amy L. Tait, and
each of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post- effective amendments) to the Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto such
attorney-in-fact and agents, and each of them, full power and authority to
do and person each and every act and thing requisite or necessary that he
might do in person. 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.
Signature Title Date
/S/ NORMAN P. LEENHOUTS Director, Chairman December 28, 1999
Norman P. Leenhouts and Co-Chief Executive
Officer
(Principal Executive Officer)
/S/ NELSON B. LEENHOUTS Director, President December 28, 1999
Nelson B. Leenhouts and Co-Chief Executive
Officer
(Principal Executive Officer)
/S/ RICHARD J. CROSSED Director, Executive December 28, 1999
Richard J. Crossed Vice President
/S/ AMY L. TAIT Director, Executive December 28, 1999
Amy L. Tait Vice President and
Chief Operating Officer
/S/ DAVID P. GARDNER Vice President,Chief December 28, 1999
David P. Gardner Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
/S/ BURTON S. AUGUST, SR Director December 28, 1999
Burton S. August, Sr
/S/ WILLIAM BALDERSTON, III Director December 28, 1999
William Balderston, III
/S/ LEONARD F. HELBIG, III Director December 28, 1999
Leonard F. Helbig, III
/S/ ALAN L. GOSULE Director December 28, 1999
Alan L. Gosule
/S/ ROGER W. KOBER Director December 28, 1999
Roger W. Kober
/S/ ALBERT H. SMALL Director December 28, 1999
Albert H. Small
/S/ CLIFFORD W. SMITH, JR Director December 28, 1999
Clifford W. Smith, Jr.
/S/ PAUL L. SMITH Director December 28, 1999
Paul L. Smith
<PAGE>
EXHIBIT INDEX
Home Properties of New York, Inc.
(the "Company")
Registration Statement on Form S-3 No. 333-______
NUMBER DESCRIPTION LOCATION
3.1 Articles Supplementary with respect *
to the Series A Convertible Preferred Stock
4.1 Amendment to Partnership Interest *
Purchase Agreement and Exchange Agreement
4.2 Amendment No. 27 to Second Amended *
and Restated Agreement
of Limited Partnership of the Operating
Partnership
5.1 Opinion of Nixon Peabody LLP regarding *
the legality of the Common Stock being
registered
8.1 Opinion of Nixon Peabody LLP regarding *
certain tax matters
12.1 Computation of Ratios of Earnings to *
Combined Fixed Charges and Preferred
Stock Dividend
23.1 Consent of Nixon Peabody LLP Included with
Exhibits 5.1
and 8.1
23.2 Consent of PricewaterhouseCoopers LLP *
24 Power of Attorney Included on
signature page
* Filed herewith
EXHIBIT 3.1
ARTICLES SUPPLEMENTARY
OF
SERIES A SENIOR CONVERTIBLE PREFERRED STOCK
OF
HOME PROPERTIES OF NEW YORK, INC.
Home Properties of New York, Inc., a corporation organized and
existing under the laws of the State of Maryland (the "COMPANY"), hereby
certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: Pursuant to the authority granted to and vested in the Board
of Directors of the Company (the "BOARD OF DIRECTORS") in accordance with
Article VI of the Articles of Amendment and Restatement of the Articles of
Incorporation of the Company, including these Articles Supplementary (the
"CHARTER"), the Board of Directors adopted resolutions
reclassifying 1,666,667 shares (the "SHARES") of Preferred Stock (as
defined in the Charter) as a separate class of stock, Series A Senior
Convertible Preferred Stock, $.01 par value per share (the "SERIES A
PREFERRED STOCK"), and authorizing the issuance of the Series A Preferred
Stock, with the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends or other distributions,
qualifications, and terms and conditions of redemption set forth below.
Series A Senior Convertible Preferred Stock.
1. DESIGNATION AND AMOUNT
There shall be a series of Preferred Stock that shall be designated as
"Series A Senior Convertible Preferred Stock" (hereinafter referred to as
"SERIES A PREFERRED STOCK") and the number of shares constituting such
series shall be 1,666,667. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, however, that
no decrease shall reduce the number of shares of Series A Preferred Stock
to fewer than the number of shares then issued and outstanding plus the
number of shares issuable upon exercise of outstanding rights, options,
warrants or upon conversion of outstanding securities issued by the Company
or otherwise issuable pursuant to Section 5 below.
2. CERTAIN DEFINITIONS. As used in these Articles Supplementary,
the following terms have the meaning set forth below:
"Accrued Return" has the meaning set forth in Section 3(e).
"Affiliate of SMRS" means any Person that controls, is controlled by
or is under common control with SMRS, as evidenced by contract or
agreement.
"Articles Supplementary" shall mean these Articles Supplementary
relating to the Series A Preferred Stock.
"Board of Directors" shall mean the Board of Directors of the Company.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by
law to close.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"Common Stock" means the Company's common stock, par value $.01 per
share.
"Conversion Date" has the meaning set forth in Section 5(a)
"Conversion Notice" has the meaning set forth in Section 5(a).
"Conversion Price" has the meaning set forth in Section 5(b).
"Conversion Right" has the meaning set forth in Section 5(a).
"Conversion Shares" means the shares of Common Stock received on
conversion of all or any of the shares of Series A Preferred Stock that
have not previously been sold or otherwise transferred on a Public Basis.
"Convertible Securities" has the meaning set forth in Section 5(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Junior Stock" has the meaning set forth in Section 6(c).
"Market Value" means, with respect to a share of Common Stock, the
average of the daily market price for the 10 consecutive trading days
immediately preceding the date on which the Market Value is to be
determined. The market price for each such trading day shall be: (i) if
the shares of Common Stock are listed or admitted to trading on any
securities exchange or the NASDAQ-National Market System, the closing
price, regular way, on such day, or if no such sale takes place on such
day, the average of the closing bid and asked prices on such day, or
(ii) if the shares of Common Stock are not listed or admitted to trading on
any securities exchange or the NASDAQ-National Market System, the last
reported sale price on such day or, if no sale takes place on such day, the
average of the closing bid and asked prices on such day, as reported by a
reliable quotation source designated by the Company, or if no such last
reported sale price or closing bid and asked prices are available, the
average of the reported high bid and low asked prices on such day, as
reported by a reliable quotation source designated by the Company, or if
there shall be no bid and asked prices on such day, the average of the high
bid and low asked prices, as so reported, on the most recent day (not more
than 10 days prior to the date in question) for which prices have been so
reported; provided, that if there are no bid and asked prices reported
during the 10 days prior to the date in question, the Market Value of a
share of Common Stock shall be determined by the Company acting in good
faith on the basis of such quotations and other information as it
considers, in its reasonable judgment, appropriate provided that the
holders of the Series A Preferred Stock, by accepting the issuance or
assignment to them of shares of the Series A Preferred Stock or the
Conversion Shares, covenant and agree that, during the 10 consecutive
trading days immediately preceding the date on which the Market Value is to
be determined, they will not purchase or sell any shares of Common Stock,
cause the purchase and sale of any shares of Common Stock or take any other
actions that are intended to or that actually affect the market price of
shares of Common Stock.
"9.0% Preferred Return Period" has the meaning set forth in
Section 3(a).
"Operating Partnership" means Home Properties of New York, L.P.
"Parity Stock" has the meaning set forth in Section 6(b).
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Return" has the meaning set forth in Section 3(a).
"Preferred Return Payment Date" has the meaning set forth in Section
3(c).
"Public Basis" means the sale of any shares of Common Stock by means
of any public stock exchange or in any Public Offering.
"Public Offering" means a public offering of shares of Common Stock or
shares of Preferred Stock of the Company or interests in the Operating
Partnership (including Units), other than a registration relating solely to
the sale of securities to participants in a dividend reinvestment plan, a
registration relating to a business combination or similar transaction
permitted to be registered on a Form S-4 or any form serving a comparable
purpose, a registration relating solely to the sale of securities to
participants in a stock or employee benefit plan, or a registration
permitted under Rule 462 under the Securities Act registering additional
securities of the same class as were included in an earlier registration
statement for the same offering and declared effective.
"Qualified REIT Subsidiary" means the Operating Partnership or any
other qualified real estate investment trust subsidiary, as such term in
defined in the Code, of the Company.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Stock" has the meaning set forth in Section 6(a).
"Series A Issuance Date" has the meaning set forth in Section 3(c).
"Series A Liquidation Preference" has the meaning set forth in
Section 8(a).
"Series A Preferred Stock" has the meaning set forth in Section 1.
"SMRS" means Michigan Public School Employees' Retirement System,
State Employees' Retirement System, Michigan State Police Retirement System
and Michigan Judges' Retirement System.
"Units" means the limited partnership units of the Operating
Partnership.
3. PREFERRED RETURN.
(a) The Company shall pay a distribution equal to the Preferred
Return to the holders of the shares of Series A Preferred Stock, then
outstanding, on a quarterly basis in accordance with Section 3(c) prior to
the payment of any distributions to the holders of Junior Stock, whether
such distributions constitute dividends or a return of capital. Commencing
on the date of issuance of the shares of Series A Preferred Stock and,
except as provided below in this subparagraph, continuing to December 30,
2003 (the "9.0% PREFERRED RETURN PERIOD"), the holders of the Series A
Preferred Stock shall receive, on a quarterly basis in accordance with
Section 3(c), a distribution equal to the greater of: (x) an amount equal
to the product of (i) the number of outstanding shares of Series A
Preferred Stock held by such holders multiplied by the Series A Liquidation
Preference and (ii) 2.25% (or 9.0% per annum), or (y) an amount equal to
the dividends and other distributions that would have been paid on the
number of shares of Common Stock equal to $35,000,000 divided by the
Conversion Price (as such may be adjusted from time to time pursuant to
Section 3(d)) (the "PREFERRED RETURN"). Notwithstanding the above, if on
December 30, 2003, the holders of Series A Preferred Stock have not been
paid actual distributions of at least $809,375 (as such may be adjusted
from time to time pursuant to Section 3(d)) on each of the prior eight (8)
consecutive Preferred Return Payment Dates (as hereinafter defined) or any
distribution of a Preferred Return from any prior period remains unpaid,
the 9.0% Preferred Return Period shall continue until the Preferred Return
Payment Date which shall be the eighth (8th) consecutive Preferred Return
Payment Date thereafter occurring on which the holders of Series A
Preferred Stock have been paid actual distributions of at least $809,375
(as such may be adjusted from time to time pursuant to Section 3(d)) and
until there remains outstanding no unpaid distribution of a Preferred
Return.
(b) On and after December 30, 2003, the holders of the Series A
Preferred Stock shall continue to receive, on a quarterly basis in
accordance with Section 3(c), an amount equal to the dividends and other
distributions that would have been paid on the number of shares of Common
Stock equal to $35,000,000 divided by the Conversion Price (as such may be
adjusted from time to time pursuant to Section 3(d)).
(c) The distributions required by this Section 3 shall be cumulative,
shall accrue from the Series A Issuance Date (as hereinafter defined) and
shall be payable to the holders of the Series A Preferred Stock, when, as
and if declared by the Company's Board of Directors, out of funds legally
available for the payment of distributions, on a calendar quarterly basis
on the same date that the Company pays a quarterly dividend or other
distribution to the holders of Common Stock. If the Company does not pay a
distribution to the holders of Common Stock, the distributions required by
this Section 3 shall be payable on the fourth Tuesday of each of February,
May, August and November or on the next Business Day thereafter if such day
shall not be a Business Day. Each of the dates on which such a
distribution shall be so payable shall be a "PREFERRED RETURN PAYMENT
DATE." The first distribution payable to the holders of the Series A
Preferred Stock shall be pro-rated for the number of days occurring from
the date the 1,666,667 shares of Series A Preferred Stock are originally
issued (the "SERIES A ISSUANCE DATE") to and including the last day of the
calendar quarter in which the Series A Issuance Date occurs.
(d) To the extent that the holders of the Series A Preferred Stock
convert any or all of the shares of Series A Preferred Stock held by them
into shares of Common Stock as permitted by Section 5 below, the
distributions described in Sections 3(a) and 3(b) above shall terminate
with respect to those shares of Series A Preferred Stock so converted;
provided, however, that on the next Preferred Return Payment Date the
holders of the Common Stock issued upon the conversion of the Series A
Preferred Stock shall receive a distribution equal to the distribution
which would otherwise have been payable with respect to such shares of
Series A Preferred Stock multiplied by a fraction, the numerator of which
is the number of days between the Preferred Return Payment Date immediately
preceding the conversion and the date of the conversion and the denominator
of which is 90, less any dividend payable to the holders of Common Stock
during the same 90 day period.
(e) To the extent that a distribution required by this Section 3 is
not paid on any Preferred Return Payment Date, the amount not paid shall
accumulate and accrue interest at the rate of 9.0% per annum during the
9.0% Preferred Return Period, compounded quarterly on each Preferred Return
Payment Date that it remains unpaid (the "ACCRUED RETURN"). Thereafter,
any distributions paid by the Company shall first be applied to pay any
Accrued Return previously due, but not paid.
(f) So long as any of the shares of Series A Preferred Stock are
outstanding, no distributions (other than dividends or distributions paid
in shares of, or options, warrants or rights to subscribe for or purchase
shares of, Junior Stock) shall be declared or paid or set apart for payment
by the Company or other distribution of cash or other property declared or
made directly or indirectly by the Company or any affiliate or any Person
acting on behalf of the Company or any of its affiliates with respect to
any shares of Junior Stock, nor shall any shares of Junior Stock be
redeemed, purchased or otherwise acquired (other than a redemption,
purchase or other acquisition of Common Stock made for purposes of an
employee incentive or benefit plan of the Company or any subsidiary) for
any consideration (or any moneys be paid to or made available for a sinking
fund for the redemption of any shares of any such stock) directly or
indirectly by the Company or any affiliate or any Person acting on behalf
of the Company or any of its affiliates (except by conversion into or
exchange for Junior Stock), nor shall any other cash or other property
otherwise be paid or distributed to or for the benefit of any holder of
shares of Junior Stock in respect thereof, directly or indirectly, by the
Company or any affiliate or any Person acting on behalf of the Company or
any of its affiliates unless in each case (i) the full cumulative dividends
(including all accumulated, accrued and unpaid dividends) on all
outstanding shares of the Series A Preferred Stock and any other Parity
Stock of the Company shall have been paid or such dividends have been
declared and set apart for payment for all past dividend periods with
respect to the Series A Preferred Stock and all past dividend periods with
respect to such Parity Stock and (ii) sufficient funds shall have been paid
or set apart for the payment of the full dividend for the current dividend
period with respect to the Series A Preferred Stock and the current
dividend period with respect to such Parity Stock. In addition, none of
the actions described in this Section 3(f) regarding Junior Stock, shall be
made with respect to Parity Stock, other than on a pari passu basis with
the Series A Preferred Stock.
4. TRANSFER RIGHTS.
(a) Shares of the Series A Preferred Stock may be transferred at any
time providing that: (i) no transfer of all or any of the shares of Series
A Preferred Stock to any Person other than an Affiliate of SMRS may be made
to a Person unless, in the written opinion of legal counsel reasonably
acceptable to the Company, such transfer would not require the registration
of such securities under the Securities Act or any state securities laws;
and (ii) no transfer of all or any of the shares of Series A Preferred
Stock shall be valid and effective and the Company shall not recognize the
same for the payment of the Preferred Return or Approval Rights (as
hereinafter defined) until the certificate(s) representing such shares with
a duly executed assignment or stock power is delivered to the Company or
its stock transfer agent.
(b) The following legend shall be required to be placed on each
certificate representing shares of the Series A Preferred Stock:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE, HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND
SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN
EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AND REPURCHASE OPTIONS
SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER OF SUCH
SECURITIES AND THE INITIAL HOLDER OF SUCH SECURITIES."
5. CONVERSION RIGHTS.
(a) Any holder of Series A Preferred Stock shall have the right to
convert all or any of its shares of Series A Preferred Stock into shares of
Common Stock (the "CONVERSION RIGHT"). In the event that any holder of the
Series A Preferred Stock wishes to exercise its Conversion Right, it shall
so notify the Company in writing (the "CONVERSION NOTICE"), specifying the
number of shares of Series A Preferred Stock that it wishes to convert.
Within 10 days after the receipt of a Conversion Notice (the "CONVERSION
DATE"), the Company will issue and deliver, or will cause to be issued and
delivered, to the holder requesting conversion, on the holder's written
order, a certificate or certificates representing the number of full shares
of Common Stock issuable upon the conversion of the number of shares of
Series A Preferred Stock specified in such Conversion Notice. Any
fractional share of Common Stock arising upon a conversion will be settled
as provided in Section 4(e). Each conversion will be deemed to have been
effected on the Conversion Date and the Person in whose name a certificate
for shares of Common Stock is to be issued upon a conversion will be deemed
to have become the holder of record of the shares of Common Stock
represented by that certificate at such effective time. All shares of
Common Stock delivered upon conversion of shares of Series A Preferred
Stock will, upon delivery, be duly and validly issued and fully paid and
nonassessable, free of all liens and charges and not subject to any
preemptive rights. The shares of Series A Preferred Stock so converted
will no longer be deemed to be outstanding and all rights of the holder
with respect to those shares so converted will immediately terminate,
except the right to receive shares of Common Stock and any unpaid Accrued
Return and/or other accumulated, accrued and unpaid dividends.
(b) Upon each conversion, the holder of the shares of Series A
Preferred Stock so converted will receive that number of shares of Common
Stock as shall equal the product of (i) the percentage determined by
dividing the number of shares of Series A Preferred Stock so converted by
such holder by the 1,666,667 shares of the Series A Preferred Stock
originally issued hereby and (ii) $35,000,000, divided by the conversion
price, which as of the effective date of these Articles Supplementary was
$21.00 and is subject to adjustment as follows from time to time if any of
the events described below occurs (the "CONVERSION PRICE"):
(i) If the Company: (x) pays a dividend or makes a distribution
on Common Stock in shares of Common Stock; (y) subdivides the
outstanding shares of Common Stock into a greater number of
shares of Common Stock; or (z) combines the outstanding shares of
Common Stock into a smaller number of shares of Common Stock, the
Conversion Price in effect immediately prior to that event will
be adjusted so that the holder of all or any of the shares of
Series A Preferred Stock to be converted after that event will
receive the number of shares of Common Stock which such holder
would have received as a result of such event if the shares of
Series A Preferred Stock to be converted had been converted
immediately before the happening of such event (or, if there is
more than one such event, if the shares of Series A Preferred
Stock to be converted had been converted immediately before the
first of those events and the holder had retained all of the
Common Stock or other securities or assets received after the
conversion). An adjustment made pursuant to this Section 4(b)(i)
will become effective immediately after the record date in the
case of a dividend or distribution, and will become effective
immediately after the effective date in the case of a subdivision
or combination. If such dividend or distribution is declared but
is not paid or made, the Conversion Price then in effect will be
appropriately readjusted. However, a readjustment of the
Conversion Price will not affect any conversion which takes place
before the readjustment.
(ii) If the Company issues rights or warrants to the holders of
the Common Stock as a class entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than
the Conversion Price in effect on the record date for the
determination of shareholders entitled to receive the rights or
warrants, the Conversion Price in effect immediately before the
issuance of the rights or warrants will be reduced in accordance
with the equation set forth on EXHIBIT A hereto, which is hereby
incorporated by reference herein. The adjustment provided for
this Section 5(b)(ii) will be made successively whenever any
rights or warrants are issued, and will become effective
immediately after each record date. In determining whether any
rights or warrants entitle the holders of Common Stock to
subscribe for or purchase shares of Common Stock at less than the
Conversion Price, and in determining the aggregate sale price of
the shares of Common Stock issuable on the exercise of rights or
warrants, there will be taken into account any consideration
received by the Company for the rights or warrants, with the
value of that consideration, if other than cash, to be determined
by the Board of Directors of the Company (whose determination, if
made in good faith, will be conclusive). If any rights or
warrants which lead to an adjustment of the Conversion Price
expire or terminate without having been exercised, the Conversion
Price then in effect will be appropriately readjusted. However,
a readjustment of the Conversion Price will not affect any
conversion which takes place before the readjustment.
(iii) If the Company distributes to the holders of Common Stock
as a class any shares of stock of the Company (other than Common
Stock) or evidences of indebtedness or assets (other than cash
dividends or distributions) or rights or warrants (other than
those referred to in Section 5(b)(ii)) to subscribe for or
purchase any of its securities, then, in each such case, the
Conversion Price will be reduced so that it will equal the price
determined by multiplying the Conversion Price in effect
immediately prior to the record date for the distribution by a
fraction of which the numerator is the Market Value of the Common
Stock on the record date for the distribution less the then fair
market value (as determined by the Board of Directors, whose
determination, if made in good faith, will be conclusive) of the
stock, evidences of indebtedness, assets, rights or warrants
which are distributed with respect to one share of Common Stock,
and of which the denominator is the Market Value of the Common
Stock on that record date. Each adjustment will become effective
immediately after the record date for the determination of the
shareholders entitled to receive the distribution. If any
distribution is declared but not made, or if any rights or
warrants expire or terminate without having been exercised,
effective immediately after the decision is made not to make the
distribution or the rights or warrants expire or terminate, the
Conversion Price then in effect will be appropriately readjusted.
However, a readjustment will not affect any conversion which
takes place before the readjustment.
(iv) If the Company issues or sells (or the Operating Partnership
or any Qualified REIT Subsidiary of the Company issues or sells)
any equity or debt securities which are convertible, directly or
indirectly, into or exchangeable for shares of Common Stock
("CONVERTIBLE SECURITIES") or any rights, options (other than the
issuance or exercise after December 23, 1996 of stock options
covering no more than 699,778 shares of Common Stock, the
exercise price of which will be no less than the Market Value of
the Common Stock on the date of grant as determined in good faith
by the Board of Directors, which number of shares of Common Stock
shall be subject to appropriate adjustment to the extent that the
Company: (x) pays a dividend or makes a distribution on the
Common Stock; (y) subdivides the outstanding shares of Common
Stock into a greater number of shares; or (z) combines the
outstanding shares of Common Stock into a smaller number of
shares, issued to employees or directors of the Company and its
subsidiaries under the Company's existing employee stock
incentive plans) or warrants to purchase shares of Common Stock
at a conversion, exchange or exercise price per share which is
less than the Conversion Price, unless the provisions of
Section 5(b)(ii) or (iii) are applicable, the Company will be
deemed to have issued or sold, on the later of the date on which
the Convertible Securities, rights, options or warrants are
issued or the date on which they first may be converted,
exchanged or exercised, the maximum number of shares of Common
Stock into or for which the Convertible Securities may then be
converted or exchanged or which are then issuable upon the
exercise of the rights, options or warrants immediately prior to
the close of business on the later of the date on which the
Convertible Securities, rights, options or warrants are issued or
the date on which they may first be converted, exchanged or
exercised, and the Conversion Price shall be adjusted downward as
if it were an event covered by Section 5(b)(v). However, no
further adjustment of the Conversion Price will be made as a
result of the actual issuance of shares of Common Stock upon
conversion, exchange or exercise of the Convertible Securities,
rights, options or warrants. If any Convertible Securities,
rights, options or warrants to which this Section applies are
redeemed, retired or otherwise extinguished or expire without any
shares of Common Stock having been issued upon conversion,
exchange or exercise thereof, effective immediately after the
Convertible Securities, rights, options or warrants expire, the
Conversion Price then in effect will be readjusted to what it
would have been if those Convertible Securities, rights options
or warrants had not been issued. However, a readjustment will
not affect any conversion which takes place before the
readjustment. For the purposes of this Section 5(b)(iv), (x) the
price of shares of Common Stock issued or sold upon conversion or
exchange of Convertible Securities or upon exercise of rights,
options or warrants will be: (A) the consideration paid to the
Company for the Convertible Securities, rights, options or
warrants, plus (B) the consideration contemplated to be paid to
the Company upon conversion, exchange or exercise of the
Convertible Securities, rights, options or warrants, with the
value of the consideration, if other than cash, to be determined
by the Board of Directors of the Company (whose determination, if
made in good faith, will be conclusive) and (y) any change in the
conversion or exchange price of Convertible Securities or the
exercise price of rights, options or warrants will be treated as
an extinguishment, when the change becomes effective, of the
Convertible Securities, rights, options or warrants which had the
old conversion, exchange or exercise price and an immediate
issuance of new Convertible Securities, rights, options or
warrants with the new conversion, exchange or exercise price.
(v) If the Company issues or sells any shares of Common Stock
(other than on conversion or exchange of Convertible Securities
or exercise of rights, options or warrants to which
Section 5(b)(ii), (iii) or (iv) applies) for a consideration per
share less than the Conversion Price on the date of the issuance
or sale (or on exercise of options or warrants, for less than the
Conversion Price on the day the options or warrants are issued),
upon consummation of the issuance or sale, the Conversion Price
in effect immediately prior to the issuance or sale will be
reduced in accordance with the equation set forth on EXHIBIT A
hereto, which is hereby incorporated by reference herein.
(vi) If there is a reclassification or change of outstanding
shares of Common Stock (other than a change in par value, or as a
result of a subdivision or combination), or a merger or
consolidation of the Company with any other entity that results
in a reclassification, change, conversion, exchange or
cancellation of outstanding shares of Common Stock, or a sale or
transfer of all or substantially all of the assets of the Company
or the Operating Partnership, upon any subsequent conversion of
any shares of Series A Preferred Stock, each holder of the Series
A Preferred Stock so converted will be entitled to receive the
kind and amount of securities, cash and other property which the
holder would have received if the holder had converted the Series
A Preferred Stock into shares of Common Stock immediately before
the first of any of the foregoing events and had retained all the
securities, cash and other assets received as a result of such
events. In the event that a transaction may be viewed as causing
this Section 5(b)(vi) to be applicable and Section 5(b)(iii) is
also applicable, then Section 5(b)(iii) will be applied and this
Section 5(b)(vi) will not be applied.
(vii) Notwithstanding anything to the contrary above, no
adjustment in the Conversion Price will be required in the
following situations: (x) the Company issues (or the Operating
Partnership or a Qualified REIT Subsidiary issues) any shares of
Common Stock or interests in the Operating Partnership or any
equity or debt securities which are convertible, directly or
indirectly, into or exchangeable for shares of Common Stock at a
price or exchange or exercise price per share which is less than
the Conversion Price as consideration for all or a portion of the
purchase price in connection with the acquisition of property or
real estate operating businesses; (y) the Company issues or sells
(or the Operating Partnership or any Qualified REIT Subsidiary
issues or sells) to the Series A Preferred Stock Holders any
shares of Common Stock or any equity or debt securities which are
convertible, directly or indirectly, into or exchangeable for
shares of Common Stock at a price or exchange or exercise price
per share which is less than the Conversion Price; and (z) the
Company issues shares of Common Stock at less than the Conversion
Price pursuant to the dividend reinvestment portion of the
Company's Dividend Reinvestment, Stock Purchase, Resident Stock
Purchase and Employee Stock Purchase Plan.
(viii) No adjustment in the Conversion Price will be required
unless the adjustment would require a change of at least 1% in
the Conversion Price; provided, however, that any adjustments
which are not made because of this Section 5(b)(viii) will be
carried forward and taken into account in any subsequent
adjustments. All calculations under this Section 5 will be made
to the nearest cent or to the nearest one hundredth of a share,
as the case may be.
(ix) Whenever the Conversion Price is adjusted, the Company will
promptly send each holder of Series A Preferred Stock a notice of
the adjustment of the Conversion Price setting forth the adjusted
Conversion Price and the date on which the adjustment becomes
effective and containing a brief description of the events which
caused the adjustment.
(c) If any one of the events in Section 5(b)(i) through 5(b)(v)
occurs, then the Company will mail to each of the holders of record of the
Series A Preferred Stock, no later than 15 Business Days after the
applicable date specified below, a notice stating, as applicable, one of
the following: (i) the date on which a record was taken for the purpose of
the dividend, distribution or grant of rights or warrants, or, if no record
was taken, the date as of which the holders of Common Stock of record who
were entitled to the dividend, distribution or rights or warrants was
determined; (ii) the date on which the Convertible Securities were issued
or the date on which the change in the conversion, exchange or exercise
price of the Convertible Securities, rights, options or warrants was
effective; (iii) the date on which the Company sold shares of Common Stock
for less than the Conversion Price on the date of the sale; or (vi) the
date on which the reclassification, consolidation, merger, share exchange,
sale, transfer, dissolution, liquidation or winding up became effective,
and the date on which holders of record of Common Stock were entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon the reclassification, consolidation, merger, share
exchange, sale, transfer, dissolution, liquidation or winding up. Failure
to give any such notice or any defect in the notice will not affect the
legality or validity of the reclassification, consolidation, merger, share
exchange, sale, transfer, dissolution, liquidation or winding up.
(d) (i) The Company will at all times reserve and keep available,
free from preemptive rights, out of the authorized but unissued
shares of Common Stock, for the purpose of effecting conversion
of the Series A Preferred Stock, the maximum number of shares of
Common Stock which the Company would be required to deliver upon
the conversion of all the outstanding Series A Preferred Stock.
For the purpose of this Section 5(d)(i), the number of shares of
Common Stock which the Company would be required to deliver upon
the conversion of all the outstanding shares of Series A
Preferred Stock will be computed as if at the time of the
computation all the outstanding shares of Series A Preferred
Stock were held by a single holder; and
(ii) Before taking any such action which would cause an
adjustment reducing the Conversion Price below the then par value
(if any) of the Common Stock deliverable upon conversion of the
Series A Preferred Stock, the Company will take all corporate
action which may, in the written opinion of its counsel, be
necessary in order that the Company may validly and legally issue
fully paid and non-assessable Common Stock at the adjusted
Conversion Price.
(e) No fractional shares of Common Stock will be issued upon
conversion of the Series A Preferred Stock. Any fractional interest in a
share of Common Stock resulting from conversion of the Series A Preferred
Stock will be paid in cash (computed to the nearest cent) based on the
Market Value of the Common Stock on the trading day next preceding the
Conversion Date.
(f) With respect to Conversion Dates occurring on or after December
31, 2001, a holder of the shares of Series A Preferred Stock so converted
shall receive, in addition to the shares of Common Stock to be issued
pursuant to Section 4(b), that additional number of shares of Common Stock,
if any, as shall be necessary in order that such holder will receive, on
the next date on which dividends are paid by the Company with respect to
Common Stock, dividends equal to $.4725 per share of the Series A Preferred
Stock converted, assuming that the dividend paid per share of Common Stock
did at the time of conversion not change from the dividend paid on the
dividend payment date immediately preceding the Conversion Date.
6. RANKING.
(a) Any class or series of capital stock of the Company shall be
deemed to rank:
(i) prior or senior to the Series A Preferred Stock, as to the
payment of dividends and as to distribution of assets upon
liquidation, dissolution or winding up, if the holders of such
class or series shall be entitled to the receipt of dividends or
of amounts distributable upon liquidation, dissolution or winding
up, as the case may be, in preference or priority to the holders
of the Series A Preferred Stock ("SENIOR STOCK");
(ii) on a parity with the Series A Preferred Stock, as to the
payment of dividends and as to distribution of assets upon
liquidation, dissolution or winding up, whether or not the
dividend rates, dividend payment dates or redemption or
liquidation prices per share thereof be different from those of
the Series A Preferred Stock, if the holders of such class of
stock or series and the Series A Preferred Stock shall be
entitled to the receipt of dividends and of amounts distributable
upon liquidation, dissolution or winding up in proportion to
their respective amounts of accrued and unpaid dividends per
share or liquidation preferences, without preference or priority
of one over the other ("PARITY STOCK"); and
(iii) junior to the Series A Preferred Stock, as to the payment
of dividends or as to the distribution of assets upon
liquidation, dissolution or winding up, if such stock or series
shall be Common Stock or if the holder of the Series A Preferred
Stock shall be entitled to receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders of shares
of such class or series (the "JUNIOR STOCK").
(b) The Series A Preferred Stock is prior in right and senior to the
Series B Convertible Cumulative Preferred Stock, par value $0.01 per
share, as to the payment of dividends and as to distribution of assets
upon liquidation, dissolution or winding up.
7. VOTING RIGHTS.
(a) GENERAL. The Series A Preferred Stock will not have any voting
rights, except as set forth below.
(b) CERTAIN VOTING RIGHTS. So long as any shares of Series A
Preferred Stock remain outstanding, the Company shall not, without the
affirmative vote of the holders of at least a majority of the Series A
Preferred Stock outstanding at the time: (i) designate or create, or
increase the authorized or issued amount of any Senior Stock or reclassify
any authorized shares of the Company into any such shares, or create,
authorize or issue any obligations or security convertible into or
evidencing the right to purchase any such shares, (ii) designate or create,
or increase the authorized or issued amount of, any Parity Stock or
reclassify any authorized shares of the Company into any such shares, or
create, authorize or issue any obligations or security convertible into or
evidencing the right to purchase any such shares, or (iii) either
(A) consolidate, merge into or with, or convey, transfer or lease its
assets substantially as an entirety, to any corporation or other entity, or
(B) amend, alter or repeal the provisions of the Company's Articles of
Incorporation (including these Articles Supplementary) or By-laws, whether
by merger, consolidation or otherwise, in each case that would materially
and adversely affect the powers, special rights, preferences, privileges or
voting power of the Series A Preferred Stock or the holders thereof;
provided, however, that with respect to the occurrence of a merger,
consolidation or a sale or lease of all of the Company's assets as an
entirety, so long as (a) the Company is the surviving entity and the
Series A Preferred Stock remains outstanding with the terms thereof
unchanged, or (b) the resulting, surviving or transferee entity is a
corporation organized under the laws of any state and substitutes the
Series A Preferred Stock for other preferred stock having substantially the
same terms and same rights as the Series A Preferred Stock, including with
respect to distributions, voting rights and rights upon liquidation,
dissolution or winding-up, then the occurrence of any such event shall not
be deemed to materially and adversely affect such rights, privileges or
voting powers of the holders of the Series A Preferred Stock; provided,
further, that any increase in the amount of authorized Preferred Stock or
the creation or issuance of any other class or series of Preferred Stock,
or any increase in an amount or authorized shares of each class or series,
in each case ranking either junior to the Series A Preferred Stock with
respect to payment of distributions and 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.
8. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) Upon liquidation, dissolution, or winding up (voluntary or
otherwise) of the Company, the holders of Series A Preferred Stock shall
receive an amount equal to $35,000,000 multiplied by a fraction, the
numerator of which is the number of shares of Series A Preferred Stock
outstanding and the denominator of which is 1,666,667, plus an amount equal
to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "SERIES A LIQUIDATION
PREFERENCE"). Following the payment of the full amount of the Series A
Liquidation Preference, and the capital adjustment in respect of all
outstanding shares of Series A Preferred Stock and Common Stock,
respectively, shall receive their ratable and proportionate share of the
remaining assets to be distributed with respect to such Preferred Stock and
Common Stock, and a per share basis, respectively.
(b) For purposes of this Section 8, a consolidation or a merger of
the Company with another entity wherein the Company is not the surviving
entity, or a sale of all or substantially all of the Company's assets for
cash or securities, will be considered a liquidation of the Company.
9. REDEMPTION OF THE SERIES A PREFERRED STOCK
(a) Shares of the Series A Preferred Stock are not redeemable by the
Company prior to December 30, 2006. On and after December 30, 2006, the
Company at its option, upon not less than 35 Business Days written notice,
may redeem, in whole but not in part, the remaining shares of the Series A
Preferred Stock that have not yet been converted into Common Stock, at a
redemption price per share equal to $35,000,000 multiplied by a fraction,
the numerator of which is the number of shares of Series A Preferred Stock
outstanding and the denominator of which is 1,666,667, plus an amount equal
to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such redemption. Within 30 Business Days after
receipt of the above described notice of intention from the Company, the
holders of the shares of Series A Preferred Stock shall notify the Company
as to whether they plan to exercise their Conversion Right with respect to
such remaining shares of Series A Preferred Stock prior to the redemption
of the Series A Preferred Stock. If the holders do not so exercise their
Conversion Right, then upon payment of the Redemption Price, all of the
rights of the holders of the Series A Preferred Stock under these Articles
Supplementary shall terminate.
(b) Unless full cumulative distributions on all shares of Series A
Preferred Stock and Parity Stock shall have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past distribution periods and the then
current distribution period, no shares of Series A Preferred Stock and
Parity Stock shall be redeemed unless all shares of Series A Preferred
Stock and Parity Stock are simultaneously redeemed; provided, however, that
the foregoing shall not prevent the purchase or acquisition of shares of
Series A Preferred Stock and Parity Stock pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding shares
of Series A Preferred Stock and Parity Stock, as the case may be.
Furthermore, unless full cumulative distributions on all outstanding shares
of Series A Preferred Stock and Parity 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 distribution periods and the
then current distribution period, the Company shall not purchase or
otherwise acquire, directly or indirectly, any shares of Series A Preferred
Stock and Parity Stock (except by conversion into or exchange for shares of
Junior Stock).
(c) Series A Preferred Stock will not be subject to any sinking fund
or mandatory redemption.
10. STOCK TO BE RETIRED
All shares of Series A Preferred Stock which shall have been issued
and reacquired in any manner by the Company shall be restored to the status
of authorized, but unissued shares of Preferred Stock, without designation
as to series. The Company may also retire any unissued shares of Series A
Preferred Stock, and such shares shall then be restored to the status of
authorized by unissued shares of Preferred Stock, without designation as to
series.
11. RECORD HOLDERS
The Company and the Transfer Agent may deem and treat the record
holder of any share of the Series A Preferred Stock as the true and lawful
owner thereof and for all purposes, and neither the Company nor the
Transfer Agent shall be affected by any notice to the contrary.
SECOND: The Shares have been reclassified by the Board of Directors
pursuant to Article VI of the Charter.
THIRD: These Articles Supplementary have been approved by the Board
of Directors in the manner and by the vote required by law.
FOURTH: The undersigned President of the Company acknowledges these
Articles Supplementary to be the corporate act of the Company and, as to
all matters or facts required to be verified under oath, the undersigned
President acknowledges that to the best of his knowledge, information and
belief, these matters and facts are true in all material respects and that
this statement is made under the penalties for perjury.
IN WITNESS WHEREOF, the Company has caused these Articles
Supplementary to be signed in its name and on its behalf by its Executive
Vice President and attested to by its Secretary on this 9th day of
December, 1999.
Home Properties of New York, Inc.
/S/ Amy L. Tait
Amy L. Tait
Executive Vice President
Attest:
/s/ Ann M. McCormick
Ann M. McCormick
Secretary
<PAGE>
EXHIBIT A
HOME PROPERTIES OF NEW YORK, INC.
SERIES A SENIOR CONVERTIBLE PREFERRED STOCK
("Adjustment Formula")
OBJECTIVE: To keep the holders of Series A Senior Convertible Preferred Stock
relative ownership percentage constant (as compared to a transaction
consummated at the Conversion Price), upon the issuance of a "New Dilutive
Security" (see definition below), the then applicable Conversion Price of each
share the Series A Senior Convertible Preferred Stock will be adjusted as
follows:
<TABLE>
<CAPTION>
PRIOR ANTI-DILUTION ADJUSTED
CONVERSION PRICE ADJUSTMENT CONVERSION
FORMULA PRICE
<S> <C> <C> <C> <C>
PCP x (A+B+C)+EX = ACP
(A+B+C*)+EX*
</TABLE>
.*.must be solved for per calculation
included in example below
DEFINITIONS:
PCP - Conversion Price of Series A Senior Convertible Preferred Stock prior
to issuance of "New Dilutive Security."
"New Dilutive Security" - A Common Stock or Common Stock equivalent issuance at
a price below PCP.
ACP - Conversion Price of share of Series A Senior Convertible Preferred
Stock adjusted for issuance of "New Dilutive Security".
A - The number of Common Stock equivalent shares outstanding which
includes: (i) shares of Common Stock issued and outstanding; (ii) all
Dilutive (defined below) convertible securities outstanding, excluding
Units of limited partnership in Home Properties of New York, L.P. and
the number of shares of Common Stock issuable upon conversion of the
1,666,667 shares of Series A Senior Convertible Preferred Stock; and
(iii) all Dilutive options issued and outstanding on an as-exercised
basis (excluding stock options covering 699,778 shares of Common Stock)
prior to issuance of "New Dilutive Security". For purposes of this
definition, a security described under (ii) or (iii) will be considered
"Dilutive" in all subsequent applications of the Adjustment Formula if
it triggers the Adjustment Formula upon issuance.
B - Shares of Common Stock issuable upon conversion of all Units
outstanding prior to issuance of "New Dilutive Security"
C - Shares of Common Stock issuable upon conversion of the entire 1,666,667
shares of Series A Senior Convertible Preferred Stock, assuming the
prior Conversion Price (or PCP).
C* - Shares of Common Stock issuable upon conversion of the entire 1,666,667
shares of Series A Senior Convertible Preferred Stock, assuming the
adjusted Conversion Price for the New Dilutive Security issuance (or
ACP).
EX - "New Dilutive Security" equivalent common shares, assuming the prior
Conversion Price (or PCP).
EX* - "New Dilutive Security" equivalent common shares, based on actual
conversion of security.
EXAMPLE:
Assume a 1.5 million share Common Stock issuance at $19.50/share (the "New
Dilutive Security") following an investment of $35 million for the 1,666,667
shares of Series A Senior Convertible Preferred Stock at a $21.00 Conversion
Price:
SOLUTION:
Prior to solving for C*, the following table must be created:
<TABLE>
<CAPTION>
POST NEW DILUTIVE POST NEW DILUTIVE
SECURITY SECURITY
ISSUANCE AT ISSUANCE AT
$19.50/SHARE $21.00/SHARE
UNADJUSTED
<S> <C> <C> <C> <C>
SHARE # OF SHARES PERCENTAGE # OF SHARES PERCENTAGE
CAPITALIZATION
Common Stock (A) 5,900,000 58.0328 5,900,000 58.6509
Partnership Units Outstanding in 1,100,000 10.8197 1,100,000 10.9349
Home Properties of New York, L.P.
(B)
Shares Series A Senior 1,666,667 16.3934 1,666,667 16.5681
Convertible Preferred Stock (C)
New Dilutive Security
Shares (EX*/EX) 1,500,000 14.7541 1,392,857 13.8461
TOTAL 10,166,667 100.00% 10,059,524 100.00%
</TABLE>
C* is the number of Common Stock into which the outstanding 1,666,667 shares of
Series A Senior Convertible Preferred Stock must convert in order to maintain
the holders of Series A Senior Convertible Preferred Stock ownership percentage
at 16.5681 (i.e., as if the issuance were done at the Conversion Price prior to
the issuance (or PCP) given the new Dilutive Security issuance at $19.50 per
Common Stock). To solve for C*, the following calculations must be made:
<TABLE>
<CAPTION>
# OF COMMON EQUIVALENT
SHARES
<S> <C>
Share Capitalization, post New Dilutive Security Issuance 10,166,667
as issued at $19.50 per share and unadjusted
- - (C) (1,666,667)
= Share Capitalization less 1,666,667 shares of/(100% - 8,500,000
---------
16.5681) or 100% less ownership percentage holders of .834319
Series A Senior Convertible Preferred Stock are to
maintain
= Total Share Capitalization Requires for Series A Senior 10,187,950
Convertible Preferred Stock to maintain ownership
percentage at 16.5681%
x Requires ownership percentage pursuant to above 16.5681%
=C* 1,687,950
</TABLE>
GIVEN C*, ONE SOLVES FOR ACP AS FOLLOWS:
<TABLE>
<CAPTION>
PRICE CONVERSION ADJUSTMENT FORMULA
PRICE OR PCP
<S> <C> <C>
$21.00 X (5,900,000+1,100,000+1,666,667)+($29,250,000/21)
(5,900,000+1,100,000+1,687,950)+($29,250,000/19.50)=
$21.00 X 98.7394% =
$20.74 = ACP
</TABLE>
PROOF OF CALCULATION:
<TABLE>
<CAPTION>
POST-NEW DILUTIVE SECURITY ISSUANCE AS
ISSUED AT $19.50 PER SHARE AND AS
ADJUSTED
<S> <C> <C>
# OF SHARES %
Share Capitalization of 5,900,000 57.9115
Common Stock (A)
Partnership Units (B) 1,100,000 10.7971
Shares of Series A Senior Convertible 1,687,950 16.5681
Preferred Stock (C*/C)
New Dilutive Security 1,500,000 14.7233
Shares (EX*/EX)
TOTAL 10,187,950 100.00%
</TABLE>
NOTE: Some of the numbers included in this Exhibit A are not the actual
numbers and are included for illustration purposes only.
EXHIBIT 4.1
AMENDMENT TO PARTNERSHIP INTEREST PURCHASE AGREEMENT
AND
EXCHANGE AGREEMENT
This Amendment to Partnership Interest Purchase Agreement and Exchange
Agreement (the "Amendment") is made as of December 22, 1999 by and among
Home Properties of New York, L.P., a New York limited partnership (the
"Partnership"), Home Properties of New York, Inc., a Maryland corporation
(the "General Partner"), Home Properties Trust, a Maryland real estate
investment trust and wholly owned subsidiary of the General Partner (the
"Trust"), and the State Treasurer of the State of Michigan, Custodian of
Michigan Public School Employees' Retirement System, State Employees'
Retirement System, Michigan State Police Retirement System and Michigan
Judges' Retirement System (collectively, "SMRS") and amends, to the extent
set forth herein, and supplements the Partnership Interest Purchase
Agreement (the "Agreement"), dated as of December 23, 1996, among the
Partnership, the General Partner and SMRS, pursuant to which SMRS acquired
a Class A limited partnership interest (the "Class A Interest") in the
Partnership. Terms otherwise not defined in this Amendment shall have the
meanings ascribed to them in the Agreement.
WHEREAS, pursuant to the terms of the Agreement, SMRS purchased from
the Partnership for $35,000,000 the Class A Interest containing such
rights, preferences and terms as described in Amendment No. 9 to the
Partnership's Agreement of Limited Partnership.
WHEREAS, the Company and SMRS have determined to exchange SMRS'
Class A Interest for 1,666,667 shares of Series A Senior Convertible
Preferred Stock, par value $0.01 per share (the "Series A Preferred
Stock"), of the Company having the same rights, preferences and terms as
the Class A Interest as such are described in the Company's Articles
Supplementary relating to the Series A Preferred Stock and this Amendment;
WHEREAS, pursuant to the terms of this Amendment, SMRS has agreed to
contribute the Class A Interest to the Trust in exchange for 1,666,667
shares of Series A Preferred Stock;
WHEREAS, pursuant to the terms of the Articles Supplementary and this
Amendment, the Series A Preferred Stock shall be convertible, at the option
of the holder thereof, into shares of common stock, par value $0.01 per
share, of the Company;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained in this Amendment, SMRS, the Partnership, the General
Partner and the Trust agree as follows:
I. EXCHANGE. On the date of this Amendment, the Trust hereby
exchanges its 1,666,667 shares of Series A Preferred Stock of the General
Partner for all of the interest of SMRS in and to the Class A Interest. To
effect the transfer, SMRS hereby assigns the Class A Interest to the Trust,
and the General Partner hereby consents to such assignment and to the
admission of the Trust as a limited partner of the Partnership holding the
Class A Interest. To reflect the withdrawal of SMRS as a partner of the
Partnership and the admission of the Trust as holder of the Class A
Interest, and to make certain changes to the rights of the holders of the
Class A Interest, the General Partner, the Trust and SMRS shall execute
Amendment No. 26 to the Partnership Agreement. The Trust herewith assigns
and delivers to SMRS a certificate representing 1,666,667 shares of the
Series A Preferred Stock of the General Partner and a stock power, executed
in blank, with respect thereto.
II. AMENDMENTS AND MODIFICATIONS TO THE AGREEMENT.
*A. The Agreement is hereby amended as follows:
*B. Unless the context shall otherwise require, each
reference to the term "Class A Interest" in the Agreement
shall be deemed to be a reference to the "Series A
Preferred Stock," as such term is defined herein.
*C. Each reference to the term "Class A Interest Holder" in
the Agreement shall be deemed to be a reference to any
Person holding all or any of the shares of Series A
Preferred Stock.
*D. The following definitions are hereby added to Section 1
of the Agreement in appropriate alphabetical order:
"Affiliate of SMRS" means any Person that
controls, is controlled by or is under common control
with SMRS, as evidenced by contract or agreement.
"Articles Supplementary" means the Articles
Supplementary to the General Partner's Articles of
Incorporation relating to the Series A Preferred Stock.
"Business Combination" has the meaning set forth
in Section 6.5 below.
"Change of Control" means the occurrence of any of
the following events: (i) the General Partner takes or
fails to take any action such that it ceases to be
required to file reports under Section 13 of the
Exchange Act, or any successor to that Section; (ii)
any "person" (as defined in Sections 13(d) and 14(d) of
the Exchange Act) is permitted by the General Partner
or any of its Qualified REIT Subsidiaries, or their
respective Boards of Directors, to become the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of either (a)
30% of more of the outstanding shares of Common Stock,
or (b) 30% or more (by right to vote or grant or
withhold any approval) of the outstanding securities of
any other class or classes which individually or
together have the power to elect a majority of the
members of such Board of Directors; (iii) the Board of
Directors of the General Partner or any of the
Qualified REIT Subsidiaries, as the case may be,
determines to recommend the acceptance of any proposal
set forth in a tender offer statement or proxy
statement filed by any person with the Securities and
Exchange Commission which indicates the intention on
the part of that person to acquire, or acceptance of
which would otherwise have the effect of that person
acquiring, control of the General Partner or any such
Qualified REIT Subsidiaries; (iv) the General Partner
ceases to be the sole general partner of the Operating
Partnership or grants or sells to any third party the
power to control or direct the actions of such
partnership as if such third party were a general
partner of such partnership; or (v) the Operating
Partnership is a party to any entity conversion or any
merger or consolidation in which such partnership is
not the surviving entity in such merger or
consolidation.
"Exchange Act" means the Securities Exchange Act
of 1934, as amended.
"Market/Offer Price" means the product of: (i)
the greater of (a) the highest price (or value of other
consideration) per share of Common Stock agreed upon
during any 12-month period pursuant to any Business
Combination, which was made during such 12-month period
and was not terminated or withdrawn prior to the end of
such period; and (b) the average closing price per
share of Common Stock as shown on the composite tape of
the New York Stock Exchange over such 12-month period;
and (ii) the number of shares of Common Stock that
would have been received upon conversion of shares of
Series A Preferred Stock had such shares not been
repurchased by the General Partner pursuant to
Section 6.5.
"Person" means an individual, a partnership, a
corporation, a limited liability company, an
association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a
governmental entity or any department, agency or
political subdivision thereof.
"Related Entity" means the Partnership, the
General Partner or any person in which the Partnership
or the General Partner has beneficial ownership,
whether direct or indirect, of: (x) 50% or more of the
outstanding shares of any class of stock or any class
of ownership interest or (y) such lower percentage of
the outstanding shares of any class of stock or any
class of such other ownership interest as is sufficient
to render such person a subsidiary of the Partnership
or the General Partner for purposes of generally
accepted accounting principles as in effect at the time
of determination of the status of such Person for
purposes of this definition.
"Total Capitalization" means the aggregate of the
Equity Capitalization plus the aggregate outstanding
principal amount at the time the determination is made
of all liabilities of the Partnership and the General
Partner arising from the borrowing of any money or the
deferral of any of the purchase price of any asset or
pursuant to any capital lease.
*A. The definitions of the following terms set forth in the
Agreement are hereby replaced in their entirety as
follows:
1.3 "Approval Breach" shall mean the taking by the
General Partner of any of the actions described in
Sections 6.4 and 6.5 of the Agreement without obtaining
the prior approvals specified in those Sections.
1.12 "Equity Capitalization" shall mean the
aggregate of the Value of the Series A Preferred Stock,
the Value of the Units not owned by the General Partner
or the Trust and the Market Value of all outstanding HP
Shares at the time that the determination is made.
1.13 "Equity Ownership" shall mean, with respect
to each Holder of Series A Preferred Stock, the
percentage obtained by dividing the sum of the Value of
the shares of Series A Preferred Stock and the Value of
the HP Conversion Shares held by that Holder on the
date that the calculation is made by the Equity
Capitalization.
1.16 "HP Conversion Shares" shall mean the HP
Shares received on conversion of all or any shares of
the Series A Preferred Stock that have not previously
been transferred on a Public Basis.
1.18 "Investor Group Representative" shall mean
the Person appointed by the Rights Holders to act as
their representative as described paragraph (d) of
Section 6.4 and paragraph (c) of Section 6.5 of this
Agreement.
1.25 "Market Value" shall have the meaning given
it in Section 2 of the Articles Supplementary, provided
that the Rights Holders, by accepting the issuance or
assignment to them of any shares of Series A Preferred
Stock or HP Conversion Shares, covenant and agree that
during the ten (10) consecutive trading days
immediately preceding the date on which the Market
Value is to be determined, they will not purchase or
sell any HP Shares, cause the purchase and sale of any
HP Shares or take any other actions that are intended
to or that actually affect the market price of HP
Shares.
1.29 "Preferred Return" shall mean the
distribution payable to the holders of Series A
Preferred Stock as described in the Articles
Supplementary.
1.39 "Rights Holders" shall mean, collectively,
the Holders of the Series A Preferred Stock and the
holders of HP Conversion Shares.
1.40 "Rights Termination Date" shall mean the date
on which the combined Value of the Series A Preferred
Stock and the Value of the HP Conversion Shares held by
the Rights Holders: (i) shall be less than $35,000,000
and (ii) shall cease to exceed 8% of the Equity
Capitalization for a period of 30 consecutive trading
days.
1.47 "Value of the Series A Preferred Stock" shall
mean the Market Value of the HP Shares into which the
Series A Preferred Stock can be converted.
*A. The following new section "Section 6.5" is hereby added
as follows:
6.5 VOTING RIGHTS.
(a) Prior to the Rights Termination Date, the
General Partner or the Partnership, as the case may be,
shall not take any of the following actions without
obtaining the prior written approval of the Rights
Holders, voting as a group:
(i) permit the outstanding principal liabilities
of the Related Entities arising from the
borrowing of any money (for this purpose, any
indebtedness or other liability which is
guaranteed, endorsed or discounted with
recourse by a Related Entity shall be deemed
to be a principal liability of such Related
Entity) or the deferral of the purchase price
of any asset or pursuant to any capital lease
to exceed 50% of the Total Capitalization;
(ii) purchase of any assets in a single
transaction or series of related transactions
(including by way of merger, consolidation or
other combination with any other Person or
the purchase of equity interests in the
entity owning such assets) if the
consideration to be paid for those assets
exceeds 25% of Total Capitalization;
(iii) sell, exchange, lease or otherwise dispose
of any assets or securities in a single
transaction or a series of related
transactions (including by way of merger,
consolidation or other combination with any
other Person or the sale of equity interests
in the entity owning such assets) if the
assets or securities to be sold, exchanged,
leased or otherwise disposed of have a value
exceeding 25% of the Total Capitalization;
(iv) amend any provision of the Articles of
Incorporation or By-laws of the General
Partner, the Partnership Agreement of the
Operating Partnership or the Articles
Supplementary if such amendment would
adversely affect the rights of the holders of
the Series A Preferred Stock;
(v) liquidate or dissolve any Related Entity;
(vi) with respect to any Related Entity, commence
a voluntary case under any applicable
bankruptcy, insolvency or other similar law
now or hereafter in effect, or consent to the
entry of an order for relief in an
involuntary case under any such law;
(vii) terminate the election, or take any action
which would cause termination other than by
election, of the General Partner as a real
estate investment trust under the Code;
(viii) alter any business purpose (as may be
stated in the Articles of Incorporation of
the General Partner and the Subsidiaries, the
Partnership Agreement of the Operating
Partnership or otherwise) of, or allow a
Change of Control to occur with respect to,
any Related Entity;
(ix) create or issue any security which would be
pari passu or senior in right, either as to
distributions or upon liquidation, to the
Series A Preferred Stock or reclassify the
Series A Preferred Stock or any shares of
capital stock if such creation, issuance or
reclassification would adversely affect the
rights or benefits of the holders of the
Series A Preferred Stock;
(x) increase the size of the Board of the General
Partner, except to the extent necessary to
add an Investor Nominee pursuant to the
Agreement; and
(xi) except as otherwise provided in the Articles
Supplementary, require the exchange of the
Series A Preferred Stock for other
securities.
(b) The General Partner shall provide the Investor
Group Representative with a written request for the
approval of any matter described in paragraph (a) of
this Section 6.5. Such written notice shall include a
reasonable description of the matter for which approval
is sought and shall be made in writing and delivered
personally, sent by documented overnight delivery
service or, to the extent receipt is confirmed,
telecopy, telefax or other electronic transmission
serviced to the appropriate address or number specified
by the person to receive such notice. If the Investor
Group Representative does not respond within fifteen
(15) Business Days after the date of receipt of such a
written request the Rights Holders shall be deemed to
have approved the matter as to which their approval was
sought.
(c) With respect to their approval rights pursuant
to paragraph (a) of this Section 6.5, the Rights
Holders shall only be permitted to act as a group. In
the event that there is more than one Rights Holder,
the Rights Holders shall select one Person to act as
their Investor Group Representative and shall so notify
the General Partner. Upon failure of the Rights
Holders to select an Investor Group Representative, the
largest single holder of shares of Series A Preferred
Stock shall be designated by the General Partner as the
Investor Group Representative. The General Partner and
the Partnership shall be entitled and obligated to rely
on any and all notifications and directions given to it
by the Investor Group Representative and shall have no
obligation to verify that such notifications and
directions constitute the consensus of the Rights
Holders. In addition, upon receipt of notice from any
or all other Rights Holders that such notifications and
directions do not constitute the consensus of the
Rights Holders, the General Partner shall still be
obligated to follow the directions of the Investor
Group Representative.
(d) If the General Partner solicits the approval
of the Rights Holders for any of the matters described in
paragraph (b) of Section 6.4 of the Agreement or this
Section 6.5 and is informed by the Investor Group
Representative that the Rights Holders do not approve of
the matter submitted, then the General Partner
shall have the right to purchase the remaining shares of
Series A Preferred Stock from the holders thereof at a
price (the "Series A Purchase Price") that is equal to 105%
of the greater of: (i) the Value of the Series A
Preferred Stock as of the date of purchase (the "Purchase
Closing"), including any Accrued Return; and (ii)
$35,000,000, plus any Accrued Return, times the percentage
of the 1,666,667 shares of Series A Preferred Stock
originally issued that has not been converted to shares of
Common Stock. Upon full payment of the purchase
right described in this paragraph (d) of Section 6.5
(the "Purchase Right"), the holder of any HP Conversion
Shares shall cease to be a Rights Holder for purposes hereof
and of the Agreement. If the General Partner
intends to exercise its Purchase Right, it shall so notify
the holders of Series A Preferred Stock in writing
within five (5) Business Days after receipt of notice
that the Rights Holders have not approved any matter
submitted to them for approval pursuant to this Section 6.5
or Section 6.4 of the Agreement. Payment of the
Series A Purchase Price as described above shall be made
in cash within twenty (20) Business Days after receipt
of that notice by the holders of the Series A Preferred
Stock. In the event that the General Partner exercises
its Purchase Right in connection with the refusal of the
Rights Holders to approve any tender or exchange offer
or merger, consolidation, share exchange, business
combination, or similar transaction involving the General
Partner (each, a "Business Combination"), then at the
completion of the 12-month period following the Purchase
Closing, the General Partner shall determine the
Market/Offer Price for shares of Common Stock. If the
Market/Offer Price is higher than the Series A Purchase
Price paid at the Purchase Closing, the General Partner
shall pay over to the holders of record of the Series A
Preferred Stock as of the date of the Purchase Closing,
an additional amount (the "Additional Amount") equal to
such difference. The payment of the Additional Amount
shall be due on the earlier of: (i) ten days after the
end of such 12-month period; or (ii) the closing date of
any Business Combination Transaction closed during such
period. In the event that the Rights Holders on two
occasions do not approve a matter submitted for their
approval pursuant to paragraph (b) of Section 6.4 of the
Agreement or this Section 6.5 and the General Partner
does not exercise its Purchase Right, then the Rights
Holders may request from the General Partner a waiver
of the Volume Limitation, as defined in the letter
agreement from SMRS to the General Partner whereby SMRS
acknowledges certain restrictions on the sale of the HP
Conversion Shares. The General Partner shall not
unreasonably withhold its approval of such a waiver,
provided that it shall not be unreasonable for the
General Partner to withhold its approval if the sale of
shares of Common Stock beyond the Volume Limitation is
reasonably anticipated to have a material negative effect
on the market for, and the market price of, shares of
Common Stock.
*A. The rights and obligations of each SMRS, the General Partner
and the Partnership contained in the Agreement are hereby
modified as follows:
*B. To the extent that any rights and/or obligations or SMRS,
the General Partner and the Partnership contained in the
Agreement conflict with any of the rights and/or
obligations contained in the Articles Supplementary such
terms and/or obligations contained in the Articles
Supplementary shall be deemed to govern; provided,
however, that this provision shall not be deemed to apply
to any rights and/or obligations contained in Sections 6
or 7 of the Agreement; and
*C. To the extent that the Agreement provides rights to, or
imposes obligations on, SMRS, the General Partner and the
Partnership which are not set forth in the Articles
Supplementary, such terms and/or obligations contained in
the Agreement shall continue to remain in full force and
effect.
*D. Except as otherwise amended or modified in this Section 2,
the Agreement shall remain in full force and effect and, as
amended and modified, is hereby ratified by SMRS, the
General Partner and the Partnership. Further, the parties
hereto acknowledge and agree that nothing contained herein
or in the Articles Supplementary shall be deemed or
construed to modify, alter or amend the rights and
obligations or each of SMRS, the General Partner and the
Partnership contained in Sections 6 and 7 of the Agreement.
II. REPRESENTATIONS AND WARRANTIES OF THE GENERAL PARTNER AND THE
PARTNERSHIP. The General Partner, the Partnership and the Trust hereby
represent and warrant as follows:
**1. ORGANIZATION AND QUALIFICATION.
*B. The General Partner is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Maryland. The General Partner has all requisite
corporate power and authority to enter into this Amendment,
the Articles Supplementary, the Amendment to the
Registration Rights Agreement and the Amendment to the Lock-
Up Letter and to perform its obligations hereunder and
thereunder. The General Partner has all the requisite
governmental licenses, authorizations, consents and
approvals to own, operate, lease and encumber its properties
and carry on its business as now conducted, except where the
failure to do so could not, individually or in the
aggregate, reasonably be expected to result in a material
adverse effect.
*C. The Partnership is a limited partnership duly organized,
validly existing and in good standing under the laws of the
State of New York. The Partnership is duly qualified and in
good standing in each jurisdiction in which it owns real
property. The Partnership has all requisite partnership
power and authority to enter into this Amendment, to consent
to the transfer of the Class A Interest to the Trust and to
admit the Trust as the holder of the Class A Interest. The
Partnership has all the requisite governmental licenses,
authorizations, consents and approvals to own, operate,
lease and encumber its properties and carry on its business
as now conducted, except where the failure to do so could
not, individually or in the aggregate, reasonably be
expected to result in a material adverse effect.
*D. The Trust is a Maryland real estate investment trust duly
organized and validly existing under the laws of the State
of Maryland. The Trust has all requisite power and
authority to enter into this Amendment and to perform its
obligations hereunder.
**1. AUTHORITY RELATIVE TO AGREEMENTS; BOARD APPROVAL.
*E. The execution, delivery and performance of this Amendment,
the Amendment to the Registration Rights Agreement, and the
Amendment to the Lock- Up Letter by the General Partner, the
Partnership and the Trust, as the case may be, the execution
and filing with the State Department of Assessment and
Taxation of Maryland of the Articles Supplementary by the
General Partner and the issuance and delivery of the
1,666,667 shares of Series A Preferred Stock and the
issuance of shares of Common Stock on conversion of such
Series A Preferred Stock in accordance with the Articles
Supplementary have been duly and validly authorized by all
necessary corporate action on the part of the General
Partner. This Amendment and the transactions contemplated
thereby have been duly authorized by the Trust. This
Amendment and Amendment No. 26 and the transactions
contemplated hereby and thereby have been duly authorized by
all necessary partnership action on the part of the
Partnership. Each of this Amendment, the Amendment to the
Registration Rights Agreement, and the Amendment to the
Lock-Up Letter has been duly executed and delivered by the
General Partner for itself and as the general partner of the
Partnership and by the Trust, to the extent each is a party
thereto, and constitutes the valid and legally binding
obligations of the General Partner, the Partnership and the
Trust, respectively, enforceable against the General
Partner, the Partnership and the Trust to the extent such
entity is a party thereto, in accordance with their
respective terms.
*F. The Board has, as of the date hereof, approved the
transactions contemplated hereby, the filing of the Articles
Supplementary, the issuance of the 1,666,667 shares of
Series A Preferred Stock to the Trust and the exchange of
such shares by the Trust for the Class A Interest, and the
Registration Rights Agreement, as amended, and the Lock-Up
Letter, as amended.
*G. The shares of Series A Preferred Stock to be acquired
pursuant to this Amendment have been duly authorized for
issuance by the General Partner, and upon issuance will be
duly and validly issued, fully paid and nonassessable. The
shares of Common Stock issuable by the General Partner upon
conversion of the shares of Series A Preferred Stock, or any
portion thereof, have been duly and validly reserved for
such issuance and, when issued upon such conversion in
accordance with the Articles Supplementary, will be duly and
validly issued, fully paid and nonassessable.
*H. The issuance of the Series A Preferred Stock and the
issuance of shares of Common Stock by the General Partner
upon conversion of the Series A Preferred Stock or any
portion thereof will not: (i) require the approval of any
partner of the Partnership or any stockholder of the General
Partner; (ii) result in the violation or a breach of any
provision of the Partnership Agreement of the Partnership,
the Articles of Incorporation or By-laws of the General
Partner or the General Corporation Law of the State of
Maryland; or (iii) require the additional approval of any
stockholder of the General Partner under, or result in the
violation or a breach of any provision of, the rules,
regulations or requirements of the New York Stock Exchange.
**1. CAPITAL STOCK AND UNITS.
*I. The authorized capital stock of the General Partner on the
date hereof consists of 50,000,000 shares of Common Stock,
par value $0.01 per share, 10,000,000 shares of Preferred
Stock, par value $0.01 per share, and 10,000,000 shares of
Excess Stock, par value $.01 per share. Of the authorized
Preferred Stock, 1,666,667 shares have been designated in
the Articles Supplementary as Series A Preferred Stock and
2,000,000 have been designated as Series B Convertible
Cumulative Preferred Stock, par value $0.01 per share.
*J. The only Class A Interest in the Partnership is the Class A
Interest issued to SMRS.
*K. SMRS has been exempted from the "Ownership Limit" set forth
in Article VII of the Articles of Incorporation with respect
to the Series A Preferred Shares and the Common Stock
issuable upon conversion of the Series A Preferred Shares
with the result that the issuance of the Series A Preferred
Shares to SMRS and the conversion of the Series A Preferred
Shares to Common Stock will not violate the Ownership Limit.
*L. The General Partner has taken all steps that may be
necessary to irrevocably exempt SMRS and the present or
future affiliates or associates of SMRS or any other person
acting in concert or as a group with any of the foregoing
from the business combination provisions of Section 3-601 et
seq. and from the control share provisions of Section 3-701
et seq. of the Maryland General Corporation Law or any
successor statutory provisions.
*M. As of the date of this Amendment, the Common Stock is
approved for listing on the New York Stock Exchange subject
to official notice of issuance. The General Partner will
hereafter continue the listing of the Common Stock required
to be delivered upon conversion of all or any portion of the
Class A Preferred Shares, on the New York Stock Exchange or
on each national securities exchange, if any, upon which the
outstanding Common Stock are listed as the time of delivery.
**1. NO CONFLICTS; NO DEFAULTS; REQUIRED FILINGS AND CONSENTS.
Except as contemplated hereby, neither the execution and delivery
by the General Partner, the Partnership or the Trust of this
Amendment nor the consummation by the General Partner, the
Partnership or the Trust of the transactions contemplated hereby in
accordance with the terms hereof will:
*N. conflict with or result in a breach of any provisions of the
Articles of Incorporation as amended by the Articles
Supplementary or by-laws of the General Partner or the
Partnership Agreement of the Partnership or the
organizational documents of the Trust;
*O. result in a breach or violation of, a default under, or the
triggering of any payment or other obligations pursuant to,
or accelerate vesting under the stock option plan of the
General Partner, or similar compensation plan, or any grant
or award made under the foregoing;
*P. violate or conflict with any statute, regulation, judgment,
order, writ, decree or injunction applicable to the General
Partner, the Partnership or the Trust;
*Q. violate or conflict with or result in a breach of any
provision of, or constitute a default (or any event which,
with notice or lapse of time or both, would constitute a
default) under, or result in the termination or in a right
of termination or cancellation of, or accelerate the
performance required by, or result in the creation of any
Lien upon any of the Properties of the General Partner, the
Partnership or the Trust under, or result in being declared
void, voidable or without further binding effect, any of the
terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust or any license, franchise, permit,
lease, contract, agreement or other instrument, commitment
or obligation to which the General Partner, the Partnership
or the Subsidiaries is a party, or by which the General
Partner, the Partnership or the Subsidiaries or any of their
Properties is bound or affected; or
*R. require any consent, approval or authorization of, or
declaration, notice to, filing or registration with, any
Governmental or Regulatory Authority, except for the filing
of a Current Report on Form 8-K with the SEC and the NYSE
disclosing this Amendment and the Articles Supplementary and
the consummation of the transactions contemplated hereby.
**1. SEC AND OTHER DOCUMENTS.
*S. The General Partner has made available to SMRS each of its
registration statements, reports, proxy statements and
exhibits thereto (the "Company Reports") filed with the
Securities and Exchange Commission (the "SEC") pursuant to
the Securities Act of 1933 or the Securities Exchange Act of
1934 (the "Securities Laws") since January 1, 1997. The
Company Reports were filed with the SEC in a timely manner
and constitute all forms, reports and documents required to
be filed by the General Partner under the Securities Laws
through the date of this Amendment. As of their respective
dates, the Company Reports (i) complied as to form in all
material respects with the applicable requirements of the
Securities Laws; and (ii) did not contain any untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances
under which they were made, not misleading. There is no
unresolved comments issued or violation asserted by the SEC
or any other Governmental or Regulatory Authority with
respect to any of the Company Reports.
*T. Each of the consolidated balance sheets of the General
Partner included in or incorporated by reference into the
Company Reports (including the related notes and schedules)
fairly presented the consolidated financial position of the
General Partner or other entities to which it relates as of
its date and each of the statements or operations,
stockholders' equity (deficit) and cash flows included in or
incorporated by reference into the Company Reports
(including any related notes and schedules) fairly presented
the results of operations, retained earnings or cash flows,
as the case may be, of the General Partner on a consolidated
basis for the periods set forth therein, in each case in
accordance with GAAP consistently applied during the periods
involved, except as may be noted therein and except, in the
case of any unaudited statements, normal recurring year-end
adjustments which would not, individually or in the
aggregate, reasonably be expected to result in a Material
Adverse Effect.
**1. LITIGATION; COMPLIANCE WITH LAW.
*U. There are no legal actions pending or, to the General
Partner's knowledge, threatened against the General Partner,
the Partnership or any Subsidiaries that would, individually
or in the aggregate, reasonably be expected to result in a
Material Adverse Effect, or to result in any material change
in the equity ownership of the General Partner, the
Partnership or any Subsidiaries, or which question the
validity of this Amendment, the Articles Supplementary, the
Registration Rights Agreement, as amended, Amendment No. 26
or the Lock-Up Letter, as amended, or any action taken or to
be taken in connection herewith or therewith.
*V. None of the General Partner, the Partnership or any of the
Subsidiaries is in violation of any statute, rule,
regulation, order, writ, decree or injunction of any
Governmental or Regulatory Authority or any body having
jurisdiction over them or any of their respective Properties
which, if enforced, could, individually or in the aggregate,
reasonably be expected to result in a Material Adverse
Effect.
**1. INVESTMENT COMPANY. The General Partner and the Partnership
are not, and after giving effect to the sale and issuance of the
Series A Preferred Stock, will not be, an "investment company"
required to be registered under the Investment Company Act of 1940,
as amended.
**2. SOLICITATION; ACCESS TO INFORMATION. No form of general
solicitation or general advertising was used by the General Partner
or the Partnership or any other person acting on their behalf in
respect of or in connection with the offer and sale of the Series A
Preferred Stock.
**3. TAX MATTERS; REIT AND PARTNERSHIP STATUS.
*W. Each of the General Partner, the Partnership and the Trust
has timely filed with the appropriate taxing authority all
tax returns required to be filed by it or has timely
requested extensions and any such request has been granted
and has not expired. Each such tax return is true, complete
and correct in all respects. Each of the General Partner,
the Partnership and the Trust have paid within the time and
manner prescribed by law, all taxes that are due and
payable.
*X. The General Partner: (i) was eligible and has elected in its
federal income tax return for its taxable year ended
December 31, 1994 to be taxed as a REIT and such election
has and will continue to remain in effect for each of the
General Partner's subsequent taxable years and has complied
(or will comply) with all applicable provisions of the Code
relating to a REIT, for each of its taxable years; (ii) has
operated, and intends to continue to operate, in such a
manner as to qualify as a REIT for each of its taxable
years; (iii) has not taken or omitted to take any action
which would reasonably be expected to result in a challenge
to its status as a REIT, and, to the General Partner's
knowledge, no such challenge is pending or threatened; and
(iv) assuming the accuracy of SMRS' representation in
Section 4.5, will not be rendered unable to qualify as a
REIT for federal income tax purposes as a consequence of the
transactions contemplated hereby.
**1. EMPLOYEE BENEFIT PLANS. All of the employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")), and plans, programs, policies,
practices, arrangements or contracts (whether group or individual)
providing for payments, benefits or reimbursements to employees,
former employees and independent contractors, or their
beneficiaries and dependents, under which such employees, former
employees or independent contractors, or their beneficiaries or
dependents, are covered due to an employment or other contractual
relationship with the General Partner, the Partnership or any
entity required to be aggregated in a controlled group or
affiliated service group with the General Partner for purposes of
ERISA or the Code, including without limitation, under
Section 414(b), (c), (m) or (o) of the Code or Section 4001 of
ERISA, at any relevant time are referred to herein as the "Benefit
Plans". With respect to each Benefit Plan, to the extent
applicable: (i) Such Benefit Plan has been maintained and operated
in material compliance with its terms and with the applicable
provisions of ERISA, the Code and all other applicable governmental
laws and regulations; each such Benefit Plan intended to qualify
under Section 401(a) of the Code is the subject of a favorable
unrevoked determination letter issued by the IRS as to its tax-
qualified status under the Code; (ii) There is no material suit,
action, dispute, claim, arbitration or legal, administrative or
other proceeding or governmental investigation pending, or
threatened, alleging any breach of the terms of any such Benefit
Plan or of any fiduciary duties thereunder or violation of any
applicable statute, law, rule or regulation with respect to any
Benefit Plan; (iii) No Benefit Plan is or has ever been subject to
Title IV of ERISA or Section 412 of the Code; and (iv) None of the
General Partner, the Partnership or any Subsidiary, or any "party
in interest" (as defined in Section 3(14) of ERISA) or any
"disqualified person" (as defined in Section 4975 of the Code) with
respect to any such Benefit Plan, has engaged in a non-exempt
"prohibited transaction" within the meaning of Section 4975 of the
Code or Section 406 of ERISA. SMRS nor any plan maintained by SMRS
or any of its Affiliates shall be subject to any tax, fine, penalty
or other liability of any kind whatsoever, that would not have been
incurred by SMRS or any of its Affiliates but for the transactions
contemplated hereby.
**2. DEFAULTS UNDER AGREEMENTS. Neither the General Partner nor the
Trust is in default under or in violation of any provision of its
Articles of Incorporation or by-laws. The Partnership is not in
default under or in violation of the Partnership Agreement. None
of the General Partner, the Partnership or the Trust is in default
under or violation of any agreement filed as an exhibit to the
Company Reports except where such default or violation would not
result in a Material Adverse Effect.
I. REPRESENTATIONS AND WARRANTIES OF SMRS. SMRS hereby represents and
warrants to the General Partner and the Partnership as follows:
**(1) ORGANIZATION. SMRS is a government sponsored retirement
system, duly created, validly existing and in good standing under
the laws of the State of Michigan. SMRS has all requisite power and
authority to enter into this Amendment, Amendment No. 26, the
Amendment to the Registration Rights Agreement and the Amendment to
the Lock-Up Letter and to perform its obligations hereunder and
thereunder.
**(2) DUE AUTHORIZATION. The execution, delivery and performance of
this Amendment, Amendment No. 26, the Amendment to the Registration
Rights Agreement, and the Amendment to the Lock-Up Letter have been
duly and validly authorized by all necessary action on the part of
SMRS. This Amendment, Amendment No. 26, the Amendment to the
Registration Rights Agreement and the Amendment to the Lock-Up
Letter have been duly executed and delivered by and constitute the
valid and legally binding obligations of SMRS, enforceable against
SMRS in accordance with their terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating
to creditors' rights or general principles of equity.
**(3) CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the
execution and delivery of this Amendment, Amendment No. 26, the
Amendment to the Registration Rights Agreement, and the Amendment
to the Lock-Up Letter nor the performance by SMRS of its
obligations herein or thereunder will conflict with, result in a
breach of the terms, conditions or provisions of, constitute a
default under, result in the creation of any mortgage, security
interest, encumbrance, lien or charge of any kind upon any of the
properties or assets of SMRS, pursuant to, or require any consent,
approval or other action by or any notice to or filing with any
government authority other than those consents or approvals that
have already been obtained or actions that have already been taken
as of the date hereof.
**(4) ACQUISITION FOR INVESTMENT; SOPHISTICATION. SMRS is acquiring
the shares of Series A Preferred Stock for its own account for the
purpose of investment and not with a view to or for sale in
connection with any distribution thereof, and SMRS has no present
intention or plan to effect any distribution of the shares of
Series A Preferred Stock; provided, however, that the disposition
of the Series A Preferred Stock and the shares of Common Stock to
which the shares of Series A Preferred Stock can be converted shall
at all times be and remain within its control, subject to the
provisions of this Amendment, the Agreement, the Registration
Rights Agreement, as amended, and the Lock-Up Letter, as amended.
SMRS is able to bear the economic risk of the acquisition of the
shares of Series A Preferred Stock pursuant hereto and can afford
to sustain a total loss on such investment, and has such knowledge
and experience in financial and business matters that it is capable
of evaluating the merits and risks of the proposed investment, and
therefore has the capacity to protect its own interests in
connection with the acquisition of the Series A Preferred Stock
pursuant hereto.
**(5) REIT QUALIFICATION MATTERS. SMRS is a "qualified trust"
described in Section 401(a) of the Code and exempt from tax under
Section 501(a) of the Code. Under Section 856(h) of the Code, SMRS
will not be treated as an "individual" for purposes of Section
542(a)(2) of the Code (as modified by Section 856(h) of the Code)
and no "individual" owns or would be considered to own (taking into
account the ownership attribution rules under Section 544 of the
Code, as modified by Section 856(h) of the Code) in excess of 5.0%
of the value of the outstanding equity interests in SMRS.
**(6) TAX MATTERS. SMRS acknowledges that none of the General
Partner, the Partnership, the Trust nor their respective officers,
directors, employees or agents have provided advice to SMRS
regarding the tax consequences of its investment in the Class A
Interest, the exchange of the Class A Interest for the shares of
Series A Preferred Stock, or shares of Common Stock into which it
may be converted, and SMRS has consulted with its tax advisors
regarding such consequences.
II. CERTAIN ADDITIONAL COVENANTS.
**(a) RESALE. SMRS acknowledges and agrees that the shares of Series A
Preferred Stock that SMRS will acquire will not be registered
under the Securities Act or the securities laws of any state and
that it may be sold or otherwise disposed of only in one or more
transactions registered under the Securities Act and, where
applicable, such state securities laws or as to which an exemption
from the registration requirements of the Securities Act and,
where applicable, such state securities laws is available.
**(b) TAKING OF NECESSARY ACTION. Each party hereto agrees to use
their best efforts promptly to take or cause to be taken all
action and promptly to do or cause to be done all things
necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Amendment, the Articles Supplementary, the
Amendment to the Registration Rights Agreement, the Amendment to
the Lock Up Letter and Amendment No. 26, subject to the terms and
conditions hereof and thereof.
**(c) CONVERSION. The General Partner hereby covenants and agrees
that it shall take, or refrain from taking, as the case may be,
any and all actions reasonably necessary or appropriate to allow
the holders of the Series A Preferred Stock to convert all or a
portion of the shares of the Series A Preferred Stock into HP
Shares as described in the Articles Supplementary.
**(a) PUBLIC ANNOUNCEMENTS; CONFIDENTIALITY.
*B. Subject to each party's disclosure obligations imposed by
law and any stock exchange or similar rules and the
confidentiality provisions contained in Section 5.4(b), the
General Partner, the Partnership and SMRS will cooperate
with each other in the development and distribution of all
news releases and other public information disclosures with
respect to this Amendment, the amendment to the Registration
Rights Agreement, Amendment No. 26, the amendment to the
Lock-Up Letter and any of the transactions contemplated
hereby or thereby.
*C. The General Partner, the Partnership and the Trust agree
that all information provided to them or any of their
representatives pursuant to this Amendment shall be kept
confidential, and the General Partner, the Partnership and
the Trust shall not disclose such information to any persons
other than the directors, officers, employees, financial
advisors, legal advisors, accountants, consultants and
affiliates of the General Partner, the Partnership or the
Trust, as the case may be, who reasonably need to have
access to the confidential information and who are advised
of the confidential nature of such information; provided,
however, the foregoing obligation of the General Partner,
the Partnership and the Trust shall not: (i) relate to any
information that: (1) is or becomes generally available
other than as a result of unauthorized disclosure by the
General Partner, the Partnership and the Trust or by persons
to whom they have made such information available; or (2) is
or becomes available to the General Partner, the Partnership
and the Trust on a non-confidential basis from a third party
that is not, to the knowledge of the General Partner, the
Partnership and the Trust, bound by any other
confidentiality agreement with SMRS; or (ii) prohibit
disclosure of any information if required or requested by
law, rule, regulation, court order or other legal or
governmental process.
*D. SMRS covenants and agrees that all information provided to
them and their representatives pursuant to this Amendment
shall be kept confidential and that SMRS shall not disclose
such information to any persons other than its directors,
officers, employees, financial advisors, legal advisors,
accountants, consultants and affiliates, as the case may be,
who reasonably need to have access to the confidential
information and who are advised of the confidential nature
of such information; provided, however, the foregoing
obligation of SMRS shall not: (i) relate to any information
that: (1) is or becomes generally available other than as a
result of unauthorized disclosure by SMRS or by persons to
whom they have made such information available; or (2) is or
becomes available to SMRS on a non-confidential basis from a
third party that is not, to the knowledge of SMRS, bound by
any other confidentiality agreement with the General Partner
and the Partnership; or (ii) prohibit disclosure of any
information if required or requested by law, rule,
regulation, court order or other legal or governmental
process.
**(a) INFORMATION AND ACCESS. Prior to the Rights Termination Date,
the General Partner, the Partnership and each of the Subsidiaries
shall afford to SMRS and its accountants, counsel and other
representatives full and reasonable access during normal business
hours (and at such other times as the parties may mutually agree)
to its Properties, books, contracts, commitments, records and
personnel and, during such period, shall furnish promptly to SMRS
(i) a copy of each report, schedule, and other document filed or
received by it pursuant to the requirements of the Securities
Laws; and (ii) all other information concerning its business,
personnel and properties as SMRS may reasonably request. SMRS and
its accountants, counsel and other representatives shall, in the
exercise of the rights described in this Section, not unduly
interfere with the operation of the business of the General
Partner, the Partnership or the Trust.
**(b) REVOCATION OF EXEMPTION. The Board has approved the exemption
of SMRS from the Ownership Limit, as defined in the Articles of
Incorporation, with respect to (i) the Class A Interest and the
Common Stock into which the Class A Interest can be converted and
(ii) the Series A Preferred Stock and the Common Stock into which
the Series A Preferred Stock can be converted. In the event that
the exemption is revoked for any reason, other than the fact that
a re-structuring or re-organization of SMRS causes it to cease to
be entitled to "look-through" treatment pursuant to
Section 856(h)(3) of the Code ("SMRS Change"), then, at the
request of SMRS, the General Partner shall purchase all of the
Common Stock or Series A Preferred Stock then held by SMRS that
shall have become Excess Stock, as defined in the Articles of
Incorporation (the "Exemption Right"). Such request by SMRS shall
be made within twenty (20) Business Days of the receipt of written
notice by SMRS from the General Partner that the exemption
described above has been revoked. The purchase price (the
"Exemption Purchase Price") for the Common Stock or Series A
Preferred Stock, as the case may be, to be so purchased pursuant
to this Section 5.6 shall be 110% of the greater of: (i) the Value
of the Common Stock or the Value of the Series A Preferred Stock,
as the case may be, as of the date of purchase; and (ii) the
Original Investment, including any Accrued Return, times the
percentage of the number of shares of Series A Preferred Stock
originally issued hereby still held by SMRS (with all shares of
Common Stock issued upon conversion of Series A Preferred Stock
held by SMRS being treated for the purposes of this calculation as
if they had not been converted), with the result multiplied by the
percentage of the number of shares of Series A Preferred Stock
originally issued hereby or shares of Common Stock issued upon
conversion of Series A Preferred Stock, as the case may be, still
held by SMRS that have become Excess Stock. Payment of the
Exemption Purchase Price shall be made in cash within twenty (20)
Business Days after receipt by the General Partner of notice from
SMRS that SMRS is requiring the General Partner to purchase the
Common Stock or Series A Preferred Stock, as the case may be, that
have become Excess Stock. In the event that the exemption is
revoked as a result of a SMRS Change, then SMRS shall still have
the Exemption Right, but the Exemption Purchase Price shall be
100% of the greater of: (i) Value of the Series A Preferred Stock
or the Value of the Common Stock into which it has been converted,
as the case may be, as of the date of purchase; and (ii) the
Original Investment, including any Accrued Return, times the
percentage of the number of shares of Series A Preferred Stock
still held by SMRS (with all shares of Common Stock which the
Series A Preferred Stock has been converted held by SMRS being
treated for purposes of this calculation as if they had not been
converted), with the result multiplied by the percentage of the
number of shares of Series A Preferred Stock originally issued
hereby or shares of Common Stock into which the Series A Preferred
Stock has been converted, as the case may be, still held by SMRS
that have become Excess Stock.
**(c) NEW YORK STOCK EXCHANGE LISTING. The General Partner will
confirm the approval for listing on the New York Stock Exchange of
the shares of Common Stock into which the Series A Preferred Stock
may be converted subject to official notice of issuance. The
General Partner will cause to be continued such listing on the New
York Stock Exchange or on each national securities exchange, if
any, upon which the outstanding shares of Common Stock are listed
at the time of delivery of the shares of Common Stock required to
be delivered upon conversion of all or any portion of the shares
of Series A Preferred Stock.
I. MISCELLANEOUS PROVISIONS.
**(a) SURVIVAL. All representations, warranties and covenants and
agreements of the parties contained herein, including indemnity or
indemnification agreements contained herein, or in any Schedule or
Exhibit hereto, or any certificate, documents or other instrument
delivered in connection herewith shall survive the transfer of the
Class A Interest to the Trust and the delivery of the Shares of
Series A Preferred Stock to SMRS.
**(b) INDEMNIFICATION BY THE GENERAL PARTNER AND THE PARTNERSHIP.
From and after the date of this Amendment, the General Partner and
the Partnership shall indemnify and hold harmless SMRS, its
successors and assigns, from and against any and all loss and
expenses (including, without limitation, reasonable attorneys'
fees and expenses), suffered, directly or indirectly, by SMRS by
reason of, or arising out of: (i) any breach as of the date made
or deemed made or required to be true of any representation or
warranty made by the General Partner or the Partnership in or
pursuant to this Amendment and any statements made in any
certificate delivered pursuant to this Amendment; or (ii) any
failure by the General Partner or the Partnership to perform or
fulfill any of their covenants or agreements set forth herein, or
in any other agreement contemplated hereby. Notwithstanding any
other provision of this Amendment to the contrary, in no event
shall loss and expenses include a party's incidental or
consequential damages.
**(c) THIRD-PARTY CLAIMS. If a claim by a third party is made against
an indemnified party and if such indemnified party intends to seek
indemnity with respect thereto under Section 6.2, such indemnified
party shall promptly notify the General Partner and the
Partnership in writing of such claims setting forth such claims in
reasonable detail. The General Partner and the Partnership shall
have 10 days after receipt of such notice to undertake, through
counsel of its own choosing and at its own expense, the settlement
or defense thereof, and the indemnified party shall cooperate with
it in connection therewith. Notwithstanding the above, the
indemnified party may participate in such settlement or defense
through counsel chosen by such indemnified party, provided that
the fees and expenses of such counsel shall be borne by such
indemnified party, unless: (i) the employment of counsel by the
indemnified party has been authorized by the General PARTNER and
the Partnership; or (ii) the indemnified party shall have
reasonably concluded that there may be a conflict of interest
between the General Partner and the Partnership on the one hand
and the indemnified party on the other in the conduct of the
defense of such action which would materially hinder the ability
of counsel to the General Partner and the Partnership to
represent the indemnified party. The indemnified party shall not
pay or settle any claim which the General Partner or the
Partnership is contesting. Notwithstanding the foregoing, the
indemnified party shall have the right to pay or settle any such
claim, provided that in such event it shall waive any right to
indemnity therefor by the General Partner and the Partnership. If
the General Partner or the Partnership does not promptly notify
the indemnified party within 10 days after the receipt of the
indemnified party's notice of a claim of indemnity hereunder that
it elects to undertake the defense thereof, the indemnified party
shall have the right to contest, settle or compromise the claim at
the expense of the General Partner and the Partnership, but
shall not thereby waive any right to indemnity therefor pursuant
to this Amendment.
**(d) COUNTERPARTS. This Amendment may be executed in one or more
counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more
counterparts have been signed by each party hereto and delivered
to the other party. Copies of executed counterparts transmitted
by telecopy, telefax or other electronic transmission SERVICE
shall be considered original executed counterparts for purposes
of this Section, provided receipt of copies of such counterparts
is confirmed.
**(e) GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York
without reference to the choice of law principles thereof.
**(f) ENTIRE AGREEMENT. This Amendment, the ARTICLES Supplementary,
the Agreement, the Partnership Agreement, Amendment No. 26, the
Registration Rights Agreement, as amended, the Lock-up Letter, as
amended, and all other agreements or other instruments executed by
the parties hereto on or prior to the date of this Amendment and
referred to herein contain the entire agreement between the
parties with respect to the subject matter hereof and there are no
agreements, understandings, representations or warranties between
the parties other than those set forth or referred to herein.
This Amendment is not intended to confer upon any person not a
party hereto (and their successors and assigns) any rights or
remedies hereunder.
NOTICES. All notices and other communications hereunder shall be
sufficiently given for all purposes hereunder if in writing and
delivered personally, sent by documented overnight delivery
service or, to the extent receipt is confirmed, telecopy, telefax
or other electronic transmission service to the appropriate
address or number as set forth below. Notices to the General
Partner and the Partnership shall be addressed to:
Home Properties of New York, Inc.
850 Clinton Square
Rochester, New York 14604
Attn: Amy L. Tait
(716) 546-4900
Telecopier No.: (716) 546-5433
with a copy to:
Ann M. McCormick, Esq.
c/o Home Properties of New York, Inc.
850 Clinton Square
Rochester, New York 14604
(716) 546-4900
Telecopier No.: (716) 546-5433
or at such other address and to the attention of such other person
as the General Partner or the Partnership may designate by written
notice to SMRS. Notices to SMRS shall be addressed to:
Express Mail:
Michigan Department of Treasury
Bureau of Investments
2501 Coolidge Road, Suite 400
East Lansing, Michigan 48823
Attn: Administrator
(517) 373-0702
Telecopy No: (517) 373-0635
Other Mail:
Michigan Department of Treasury
Bureau of Investments
2501 Coolidge Road, Suite 400
East Lansing, Michigan 48823
Attn: Administrator
with a copy to:
Michigan Department of Attorney General
Finance Division
One Michigan Avenue Building
120 North Washington Square
Lansing, Michigan 48933
Attn: Assistant in Charge
(517) 373-1130
Telecopy No: (517) 335-3088
and an additional copy to:
Rogers & Wells
200 Park Avenue
New York, New York 10166-0153
Attn: Jay Bernstein
or at such other address and to the attention of such other person
as SMRS may designate by written notice to the General Partner.
Notices to other Rights Holders, the Holders and the Investor
Group Representative shall be by the above means and to such
addresses and to the attention of such person as the Rights
Holders, Holders and the Investor Group Representative may
designate by written notice to the General Partner.
For purposes of this Agreement, the Investor Group Representative
and SMRS will only be deemed to have received any notice upon the
written acknowledgment by one individual designated by the
Investor Group Representative with authority to acknowledge such
receipt or upon refusal by any such designee to accept receipt of
any notice. The Investor Group Representative shall at all times
provide the General Partner with a written designation of at least
two individuals or titles of positions that are so designated with
authority to acknowledge receipt of written notices.
In all cases where a failure by the Rights Holders, the Holders
and/or the Investor Group Representative to respond within a
specified time frame shall be deemed to be their approval pursuant
to this Agreement or to mean that they do not wish to purchase
securities pursuant to this Agreement, then the written notice or
request provided by the General Partner as described in this
agreement hereof shall specifically state that a failure to
respond within the indicated time frame shall be deemed to be an
approval of the matter for which approval was sought.
**(a) SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon
and inure to the benefit of the parties hereto and their
respective SUCCESSORS. It is hereby agreed that any internal re-
structuring or re-organization of SMRS shall not be deemed to be
an assignment to a third party.
**(b) HEADINGS. The Section, Article and other headings contained in
this Amendment are inserted for convenience of reference only and
will not affect the meaning or interpretation of this Amendment.
All references to Sections or Articles contained herein mean
Sections or Articles of this Amendment unless otherwise stated.
**(c) AMENDMENTS AND WAIVERS. This Amendment may not be modified or
amended except by an instrument or instruments in writing signed
by the party against whom enforcement of any such modification or
amendment is sought. Either party hereto may, only by an
instrument in writing, waive compliance by the other party hereto
with any term or provision hereof on the party of such other party
hereto to be performed or complied with. The waiver by any party
hereto of a breach of any term or provision hereof shall not be
construed as a waiver of any subsequent breach.
**(d) INTERPRETATION. For the purposes hereof: (i) words in the
singular shall be held to include the plural and vice versa and
words of one gender shall be held to include the other gender as
the context requires; (ii) terms "hereof", "herein", and
"herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Amendment as a whole and not
to any particular provision of this Amendment, and Article,
Section, references are to the Articles, Sections, paragraphs,
Exhibits and Schedules to this Amendment unless otherwise
specified; (iii) the word "including" and words of similar import
when used in this Amendment shall mean "including, without
limitation," unless the context otherwise requires or unless
otherwise specified; (iv) the word "or "shall not be exclusive;
and (v) provisions shall apply, when appropriate, to successive
events and transactions.
**(e) SEVERABILITY. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such
invalidity or un-enforceability, without affecting in any way the
remaining provisions hereof.
**(f) FURTHER ASSURANCES. The General Partner, the Partnership and
SMRS agree that, from time to time, each of them will execute and
deliver such further instruments of conveyance and transfer and
take such other action as may be necessary to carry out the
purposes and intents hereof.
**(g) SPECIFIC PERFORMANCE. The General Partner, the Partnership, the
Trust and SMRS each acknowledge that, in view of the uniqueness of
the parties hereto, the parties hereto would not have an adequate
remedy at law for money damages in the event that this Amendment
were not performed in accordance with its terms, and therefore
agree that the parties hereto shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy
to which the parties hereto may be entitled at law or in equity.
IN WITNESS WHEREOF, this Amendment has been signed by or on behalf of each
of the parties hereto on the dates set forth below to be effective as of
August 1, 1999 as of the day first above written.
HOME PROPERTIES OF NEW YORK, INC.
By:
Amy L. Tait, Executive Vice President
HOME PROPERTIES OF NEW YORK, L.P.
By: Home Properties of New York, Inc.
General Partner
By:
Amy L. Tait, Executive Vice President
STATE TREASURER OF THE STATE OF MICHIGAN,
CUSTODIAN OF MICHIGAN PUBLIC SCHOOL
EMPLOYEES' RETIREMENT SYSTEM, STATE,
EMPLOYEES' RETIREMENT SYSTEM, MICHIGAN STATE
POLICE RETIREMENT SYSTEM AND MICHIGAN JUDGES'
RETIREMENT SYSTEM
By:
Jon Braeutigam
Administrator
EXHIBIT 4.2
HOME PROPERTIES OF NEW YORK, L.P.
AMENDMENT NO. 27
TO
SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
This Amendment amends, as of December 22, 1999, the Second Amended and
Restated Agreement of Limited Partnership, as amended ("Partnership
Agreement"), dated as of September 23, 1997, of Home Properties of New York
L.P. (the "Partnership") among Home Properties of New York, Inc., as
general partner (the "General Partner"), and each of the persons listed on
Schedule A to the Partnership Agreement, as amended from time to time, as
limited partners.
WHEREAS, the Class A Limited Partnership Interest ("Class A Interest")
was created pursuant to Article X of the Partnership Agreement and was
issued to the State Treasurer of the State of Michigan, Custodian of
Michigan Public School Employees' Retirement System, State Employees'
Retirement System, Michigan State Police Retirement System and Michigan
Judges' Retirement System (collectively, the "SMRS") as of December 30,
1996.
WHEREAS, the General Partner has been advised that it is preferable
for SMRS to hold their investment through a class of preferred stock of the
General Partner rather than through the existing Class A Interest in the
Partnership; and
WHEREAS, the General Partner has created a new class of preferred
stock entitled "Series A Convertible Preferred Stock" (the "Series A
Preferred Stock") with substantially the same rights and privileges as the
Class A Interest pursuant to the terms of Articles Supplementary (the
"Articles Supplementary") to the Amended and Restated Articles of
Incorporation of the General Partner, as amended; and
WHEREAS, the General Partner has contributed 1,666,667 shares of the
Series A Preferred Stock to the capital of its wholly-owned "qualified REIT
subsidiary" Home Properties Trust (the "QRS") so that the QRS may deliver
the 1,666,667 shares of Series A Preferred Stock to SMRS in exchange for
the Class A Interest currently held by SMRS and, thereafter, hold such
Class A Interest pursuant to the terms of the Amendment to Partnership
Interest Purchase Agreement and Exchange Agreement, dated as of the date
hereof, among the General Partner, the Partnership and SMRS (the "Exchange
Agreement"); and
WHEREAS, SMRS has agreed to exchange its Class A Interest for
1,666,667 shares of the Series A Preferred Stock as further provided in the
Exchange Agreement; and
WHEREAS, the parties desire to reflect the withdrawal, as of December
22, 1999, of SMRS as a partner of the Partnership and to reflect to
admission of the QRS as holder of all of the Class A Interest and to amend
certain rights and benefits of the Class A Interest to parallel those set
forth for the Series A Preferred Stock in the Articles Supplementary.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained in the Exchange Agreement and this Amendment, SMRS,
the Partnership, and the General Partner agree as follows:
1. Except as otherwise defined herein, capitalized terms used in
this Amendment shall have the meaning ascribed thereto in the Partnership
Agreement.
2. SMRS hereby transfers and assigns the Class A Interest to the QRS
and the QRS assumes such Class A Interest, modified as set forth below, and
SMRS hereby withdraws as a limited partner of the Partnership effective as
of December 1, 1999. The General Partner hereby consents to the admission
of the QRS as a limited partner of the Partnership holding the Class A
Interest and the Trust is so admitted.
3. Article X of the Partnership Agreement is hereby deleted and
replaced in its entirety with the following:
ARTICLE X
CLASS A LIMITED PARTNERSHIP INTERESTS
Section 10.01 NAME. Pursuant to Section 3.03 of this
Partnership Agreement, a class of Partnership Interest was
created as of December 30, 1996 known as the Class A Limited
Partnership Interest (the "Class A Interest").
Section 10.02 CAPITAL CONTRIBUTION. On December 30, 1996,
the State Treasurer of the State of Michigan, Custodian of
Michigan Public School Employees' Retirement System, State
Employees' Retirement System, Michigan State Police Retirement
System and Michigan Judges' Retirement System ("SMRS")
contributed $35,000,000 (the "Original Investment") to the
Partnership in consideration for the issuance to it by the
Partnership of the Class A Interest which was deemed to be the
Capital Contribution of the Class A Interest Holder(s). The
QRS shall assume the Capital Account of SMRS with respect to
the Class A Interest as of December 1, 1999.
Section 10.03 STATUS OF HOLDERS. Holder(s) of all or any
portion of the Class A Interest shall be Limited Partner(s) of
the Partnership and, except as otherwise provided herein, shall
be entitled to all of the rights and privileges of the other
Limited Partners, as well as the additional rights and
privileges described below. For purposes of voting on matters
that must be approved by the Limited Partners, the Class A
Interest Holder(s) shall be deemed to hold the number of Units
equal to $35,000,000 divided by the Conversion Price times the
percentage of the Class A Interest originally issued hereby
that has not been converted into Conversion Units (as defined
in, and subject to adjustment in accordance with, Section
10.06(b) below) provided, however, if at any time the Class A
Interest is held by an Affiliated Person, the Class A Interest
Holder(s) shall have no right to vote on matters that must be
approved by the Limited Partners other than those matters to be
voted on by the Class A Interest Holder(s) as a class, as set
forth in Section 10.08 below.
Section 10.04 CERTAIN ADDITIONAL DEFINITIONS. As used in
this Article X, the following terms have the meaning set forth
below:
"Accrued Return" has the meaning set forth in Section
10.05(e).
"Articles Supplementary" shall mean the Articles
Supplementary relating to the Series A Preferred Stock.
"Board of Directors" shall mean the Board of Directors of
the General Partner.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York, New York are
authorized or required by law to close.
"Code" means the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder.
"Common Stock" means the General Partner's common stock,
par value $.01 per share.
"Conversion Date" has the meaning set forth in Section
10.06(a)
"Conversion Notice" has the meaning set forth in Section
10.06(a).
"Conversion Price" has the meaning set forth in Section
10.06(b).
"Conversion Right" has the meaning set forth in Section
10.06(a).
"Conversion Units" means the Units received on conversion
of all or any of the Series A Interest that have not previously
been sold or otherwise transferred on a Public Basis.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Junior Units" has the meaning set forth in Section
10.07(a).
"Market Value" means, with respect to a share of Common
Stock, the average of the daily market price for the 10
consecutive trading days immediately preceding the date on
which the Market Value is to be determined. The market price
for each such trading day shall be: (i) if the shares of
Common Stock are listed or admitted to trading on any
securities exchange or the NASDAQ-National Market System, the
closing price, regular way, on such day, or if no such sale
takes place on such day, the average of the closing bid and
asked prices on such day, or (ii) if the shares of Common Stock
are not listed or admitted to trading on any securities
exchange or the NASDAQ-National Market System, the last
reported sale price on such day or, if no sale takes place on
such day, the average of the closing bid and asked prices on
such day, as reported by a reliable quotation source designated
by the General Partner, or if no such last reported sale price
or closing bid and asked prices are available, the average of
the reported high bid and low asked prices on such day, as
reported by a reliable quotation source designated by the
General Partner, or if there shall be no bid and asked prices
on such day, the average of the high bid and low asked prices,
as so reported, on the most recent day (not more than 10 days
prior to the date in question) for which prices have been so
reported; provided, that if there are no bid and asked prices
reported during the 10 days prior to the date in question, the
Market Value of a share of Common Stock shall be determined by
the General Partner acting in good faith on the basis of such
quotations and other information as it considers, in its
reasonable judgment, appropriate.
"9.0% Preferred Return Period" has the meaning set forth in
Section 10.05(a).
"Parity Units" has the meaning set forth in
Section10.07(a).
"Preferred Return" has the meaning set forth in Section
10.05(a).
"Preferred Return Payment Date" has the meaning set forth
in Section 10.05(c).
"Public Basis" means the sale of any shares of Common Stock
by means of any public stock exchange or in any Public
Offering.
"Public Offering" means a public offering of shares of
Common Stock or shares of Preferred Stock of the General
Partner or interests in the Partnership (including Units),
other than a registration relating solely to the sale of
securities to participants in a dividend reinvestment plan, a
registration relating to a business combination or similar
transaction permitted to be registered on a Form S-4 or any
form serving a comparable purpose, a registration relating
solely to the sale of securities to participants in a stock or
employee benefit plan, or a registration permitted under Rule
462 under the Securities Act registering additional securities
of the same class as were included in an earlier registration
statement for the same offering and declared effective.
"Qualified REIT Subsidiary" means the Partnership, the QRS
or any other qualified real estate investment trust subsidiary,
as such term in defined in the Code, of the General Partner.
"Securities Act" means the Securities Act of 1933, as
amended.
"Senior Units" has the meaning set forth in Section
10.07(a).
"Series A Issuance Date" has the meaning set forth in
Section 10.05(c).
"Series A Liquidation Preference" has the meaning set forth
in Section 10.09(a).
"Series A Preferred Stock" means the class of preferred
stock described in the Articles Supplementary and designated
"Series A Convertible Preferred Stock ."
"SMRS" means Michigan Public School Employees' Retirement
System, State Employees' Retirement System, Michigan State
Police Retirement System and Michigan Judges' Retirement
System.
Section 10.05 PREFERRED RETURN.
(a) The General Partner shall pay a distribution equal to the
Preferred Return to the holders of the Series A Interest on a quarterly
basis in accordance with Section 10.05(c) prior to the payment of any
distributions to the holders of Junior Units, whether such distributions
constitute Available Cash, a return of capital or other distribution.
Commencing as of December 1, 1999 and, except as provided below in this
subparagraph, continuing to December 30, 2003 (the "9.0% PREFERRED RETURN
PERIOD"), the holders of the Class A Interest shall receive, on a
quarterly basis in accordance with Section 10.05 (c), a distribution
equal to the greater of: (x) an amount equal to the product of (i) the
number of Units equal to $35,000,000 divided by the Conversion Price
times the percentage of the Class A Interest originally issued hereby
that has not been converted into Conversion Units (as defined in, and
subject to adjustment in accordance with, Section 10.06(b) below) held by
such holders multiplied by the Series A Liquidation Preference and
(ii) 2.25% (or 9.0% per annum), or (y) an amount equal to the dividends
and other distributions that would have been paid on the number of
Conversion Units equal to $35,000,000 divided by the Conversion Price (as
such may be adjusted from time to time pursuant to Section 10.05(d)) (the
"PREFERRED RETURN"). Notwithstanding the above, if on December 30, 2003,
the holders of the Class A Interest have not been paid actual
distributions of at least $809,375 (as such may be adjusted from time to
time pursuant to Section 10.05(d)) on each of the prior eight (8)
consecutive Preferred Return Payment Dates (as hereinafter defined) or
any distribution of a Preferred Return from any prior period remains
unpaid, the 9.0% Preferred Return Period shall continue until the
Preferred Return Payment Date which shall be the eighth (8th) consecutive
Preferred Return Payment Date thereafter occurring on which the holders
of the Class A Interest have been paid actual distributions of at least
$809,375 (as such may be adjusted from time to time pursuant to
Section 10.05(d)) and until there remains outstanding no unpaid
distribution of a Preferred Return.
(b) On and after December 30, 2003, the holders of the Class A
Interest shall continue to receive, on a quarterly basis in accordance
with Section 10.05(c), an amount equal to the dividends and other
distributions that would have been paid on the number of Conversion Units
equal to $35,000,000 divided by the Conversion Price (as such may be
adjusted from time to time pursuant to Section 10.06(b)).
(c) The distributions required by this Section 10.05 shall be cumulative,
shall accrue from the Series A Issuance Date (as hereinafter defined) and
shall be payable to the holders of the Class A Interest, when, as and if
declared by the Board of Directors, out of funds legally available for
the payment of distributions, on a calendar quarterly basis on the same
date that the General Partner pays a quarterly or other distribution to
the holders of the Units. If the General Partner does not pay a
distribution to the holders of the Units, the distributions required by
this Section 10.05 shall be payable on the fourth Tuesday of each of
February, May, August and November or on the next Business Day thereafter
if such day shall not be a Business Day. Each of the dates on which such
a distribution shall be so payable shall be a "PREFERRED RETURN PAYMENT
DATE." The first distribution payable to the holders of the Class A
Interest after the Series A Issuance Date shall be pro-rated for the
number of days occurring from the date the 1,666,667 shares of Series A
Preferred Stock are originally issued to SMRS (the "SERIES A ISSUANCE
DATE") to and including the last day of the calendar quarter in which the
Series A Issuance Date occurs.
(d) To the extent that any portion of the Class A interest is converted
into Conversion Units in accordance with Section 10.06 below, the
distributions described in Sections 10.05(a) and 10.05(b) above shall
terminate with respect to the portion of the Class A Interest so
converted; provided, however, that on the next Preferred Return Payment
Date the holders of the Conversion Units issued upon the conversion of
the Class A Interest corresponding to the number of Series A Preferred
Stock converted shall receive a distribution equal to the distribution
which would otherwise have been payable with respect to such the
equivalent portion of the Class A Interest multiplied by a fraction, the
numerator of which is the number of days between the Preferred Return
Payment Date immediately preceding the conversion and the date of the
conversion and the denominator of which is 90, less any distribution
payable to the holders of Units during the same 90 day period.
(e) To the extent that a distribution required by this Section 10.05 is
not paid on any Preferred Return Payment Date, the amount not paid shall
accumulate and accrue interest at the rate of 9.0% per annum during the
9.0% Preferred Return Period, compounded quarterly on each Preferred
Return Payment Date that it remains unpaid (the "ACCRUED RETURN").
Thereafter, any distributions paid by the General Partner shall first be
applied to pay any Accrued Return previously due, but not paid.
(f) So long as any of the Class A Interest is outstanding, no
distributions (other than dividends or distributions paid in kind, or
options, warrants or rights to subscribe for or purchase of, Junior
Units) shall be declared or paid or set apart for payment by the General
Partner or the Partnership or other distribution of cash or other
property declared or made directly or indirectly by the General Partner,
the Partnership or any affiliate or any Person acting on behalf of the
General Partner or the Partnership or any of their affiliates with
respect to any Junior Units, nor shall any shares of Junior Units, be
redeemed, purchased or otherwise acquired (other than a redemption,
purchase or other acquisition of Units made for purposes of an employee
incentive or benefit plan of the General Partner or any subsidiary or an
acquisition of an immaterial number of Units as determined by the Board
of Directors to be in the best interests of the General Partner and/or
the Partnership) for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such Units)
directly or indirectly by the General Partner, the Partnership or any
affiliate or any Person acting on behalf of the General Partner, the
Partnership or any of their affiliates (except by conversion into or
exchange for Junior Units or Conversion Units), nor shall any other cash
or other property otherwise be paid or distributed to or for the benefit
of any holder of Junior Units in respect thereof, directly or indirectly,
by the General Partner, the Partnership or any affiliate or any Person
acting on behalf of the General Partner, the Partnership or any of their
affiliates unless in each case (i) the full cumulative distributions
(including all accumulated, accrued and unpaid dividends) on the Class A
Interest and any other Parity Units of the Partnership shall have been
paid or such distributions have been declared and set apart for payment
for all past periods with respect to the Class A Units and all past
distribution periods with respect to such Parity Units and
(ii) sufficient funds shall have been paid or set apart for the payment
of the full dividend for the current dividend period with respect to the
Class A Interest and the current dividend period with respect to such
Parity Units. In addition, none of the actions described in this Section
10.05(f) regarding Junior Units, shall be made with respect to Parity
Units, other than on a pari passu basis with the Class A Interest.
Section 10.06. CONVERSION RIGHTS.
(a) All or a portion of the Class A Interest shall be deemed to have
automatically converted into Conversion Units upon any conversion of the
Series A Preferred Stock as provided in the Articles Supplementary (the
"CONVERSION RIGHT"). In the event that any holder of the Series A
Preferred Stock has exercised its Conversion Right, the General Partner
shall notify the holders of the Class A Interest that their interest
shall automatically be converted on a pro rata basis with respect to that
portion of the Class A Interest corresponding to the number of shares of
Series A Preferred Stock that are to be converted (the "CONVERSION
NOTICE"). Within 10 days after the giving of a Conversion Notice (the
"CONVERSION DATE"), the General Partner will notify each holder of the
Class A Interest of the number of Units issuable upon the conversion of
the portion of the Class A Interest specified in such Conversion Notice.
Any fractional Unit arising upon a conversion will be settled as provided
in Section 10.06(e). The portion of the Class A Interest so redeemed
will no longer be deemed to be outstanding and all rights of the holder
with respect to that potion of the Class A Interest so converted will
immediately terminate, except the right to receive Units and any unpaid
Accrued Return and/or other accumulated, accrued and unpaid
distributions.
(b) Upon each conversion, the holder of the shares of Class A Interest so
converted will receive that number of Conversion Units as shall equal the
product of (i) the percentage determined by dividing the number of shares
of Series A Preferred Stock so converted by the 1,666,667 shares of the
Series A Preferred Stock originally issued hereby and (ii) $35,000,000,
divided by the Conversion Price, for the shares of Class A Preferred
Stock determined in accordance with the Articles Supplementary, which as
of December 1, 1999 was $21.00, and is subject to adjustment as provided
in the Articles Supplementary (the "CONVERSION PRICE").
(c) The General Partner will at all times reserve and keep available,
free from preemptive rights, for the purpose of effecting conversion of
the Class A Interest, the maximum number of Units which the General
Partner would be required to deliver upon the conversion of all the
outstanding Class A Interest. For the purpose of this Section 10.06(c),
the number of Units which the General Partner would be required to
deliver upon the conversion of all of the Class A Interest will be
computed as if at the time of the computation all the outstanding Class A
Interest were held by a single holder.
(d) No fractional Units will be issued upon conversion of the Class A
Interest. Any fractional Unit resulting from conversion of the Class A
Interest will be paid in cash (computed to the nearest cent) based on the
Market Value of the HP Shares on the trading day next preceding the
Conversion Date.
(e) With respect to Conversion Dates occurring on or after December 31,
2001, a holder of the Class A Interest so converted shall receive, in
addition to the Units to be issued pursuant to Section 10.06(b), that
additional number of Units, if any, as shall be necessary in order that
such holder will receive, on the next date on which distributions are
paid by the General Partner with respect to the Units, distributions
equal to $.4725 per share of the Conversion Units converted, assuming
that the distribution paid per Unit did at the time of conversion not
change from the distribution paid on the payment date immediately
preceding the Conversion Date.
(f) Except as otherwise provided in Sections 10.06(a) and (b),
the Class A Interest shall not be convertible in to any other
securities of the Partnership or the General Partner.
Section 10.07. RANKING.
(a) Any class or series of interests in the Partnership shall
be deemed to rank:
(i) prior or senior to the Class A Interest, as to the payment
of periodic distributions and as to distribution of assets upon
liquidation, dissolution or winding up, if the holders of such
class or series shall be entitled to the receipt of
distributions or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or
priority to the holders of the Class A Interest ("SENIOR
UNITS");
(ii) on a parity with the Class A Interest, as to the payment
of periodic distributions and as to distribution of assets upon
liquidation, dissolution or winding up, whether or not the
distribution rates, payment dates or redemption or liquidation
prices per share thereof be different from those of the Class A
Interest, if the holders of such class of stock or series and
the Class A Interest shall be entitled to the receipt of
periodic distributions and of amounts distributable upon
liquidation, dissolution or winding up in proportion to their
respective amounts of accrued and unpaid distributions per
share or liquidation preferences, without preference or
priority of one over the other ("PARITY UNITS"); and
(iii) junior to the Class A Interest, as to the payment of
periodic distributions or as to the distribution of assets upon
liquidation, dissolution or winding up, if such class or series
shall be Units or if the holder of the Class A Interest shall
be entitled to receipt of periodic distributions or of amounts
distributable upon liquidation, dissolution or winding up, as
the case may be, in preference or priority to the holders of
such class or series (the "JUNIOR UNITS").
(b) The Class A Interest is prior in right and senior to the
Class B Interest as to the payment of periodic distributions
and as to distribution of assets upon liquidation, dissolution
or winding up.
Section 10.08. VOTING RIGHTS.
(a) GENERAL. Except as set forth below, the holders of the
Class A Interest shall vote together with the other Limited
Partners as a single class, provided, however, that any portion
of the Class A Interest held by an Affiliated Person, will not
have any voting rights, except as set forth below.
(b) CERTAIN VOTING RIGHTS. So long as any portion of the Class
A Interests remain outstanding, the Partnership shall not,
without the affirmative vote of the holders of at least a
majority in interest of the Class A Interest outstanding at the
time (i) designate or create, or increase the authorized or
issued amount of any class or series of Senior Units or
reclassify any authorized interests in the Partnership into any
such class or series, or create, authorize or issue any
obligations or security convertible into or evidencing the
right to purchase any such class of series of Senior Units,
(ii) designate or create, or increase the authorized or issued
amount of, any class or series of Parity Units or reclassify
any authorized interests in the Partnership into any such class
or series, or create, authorize or issue any obligations or
security convertible into or evidencing the right to purchase
any such class or series, or (iii) either (A) consolidate,
merge into or with, or convey, transfer or lease its assets
substantially as an entirety, to any corporation or other
entity, or (B) amend, alter or repeal the provisions of the
Partnership Agreement (including this Article X), whether by
merger, consolidation or otherwise, in each case that would
materially and adversely affect the powers, special rights,
preferences, privileges or voting power of the Class A Interest
or the holders thereof; provided, however, that with respect to
the occurrence of a merger, consolidation or a sale or lease of
all of the Partnership's assets as an entirety, so long as
(a) the Partnership or the General Partner is the surviving
entity and the Class A Interest or a Convertible Units remains
outstanding with the terms thereof unchanged, or (b) the
resulting, surviving or transferee entity is a corporation,
partnership or similar entity organized under the laws of any
state and substitutes the Class A Interest for other preferred
securities having substantially the same terms and same rights
as the Class A Interest, including with respect to
distributions, voting rights and rights upon liquidation,
dissolution or winding-up, then the occurrence of any such
event shall not be deemed to materially and adversely affect
such rights, privileges or voting powers of the holders of the
Class A Interest; provided, further, that any increase in the
amount of authorized preferred interest or the creation or
issuance of any other class or series of preferred interest, or
any increase in an amount or authorized number of each class or
series, in each case ranking either junior to the Class A
Interest with respect to payment of periodic distributions and
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.
Section 10.09 LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) Upon liquidation, dissolution, or winding up (voluntary or
otherwise) of the Partnership, the holders of Class A Interest
shall receive an amount equal to $35,000,000 multiplied by a
fraction, the numerator of which is the number of shares of
Series A Preferred Stock outstanding and the denominator of
which is 1,666,667, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Series A Liquidation
Preference"). Following the payment of the full amount of the
Series A Liquidation Preference, and the capital adjustment in
respect of all outstanding preferred interests and Units,
respectively, shall receive their ratable and proportionate
share of the remaining assets to be distributed with respect to
such preferred interests and Units, on a per unit equivalent
basis, respectively.
(b) For purposes of this Section 10.09, a consolidation or a
merger of the Partnership with another entity wherein the
Partnership, the General Partner or an Affiliated Person is not
the surviving entity, or a sale of all or substantially all of
the Partnership's assets for cash or securities other than to
the General Partner or an Affiliated Person, will be considered
a liquidation of the Partnership.
Section 10.10. REDEMPTION OF THE CLASS A INTEREST
(a) The Class A Interest is not redeemable by the Partnership
prior to December 30, 2006. On and after December 30, 2006,
the Partnership, upon not less than 20 Business Days written
notice, shall redeem, in whole but not in part, the remaining
Class A Interest to the extent that the General Partner redeems
shares of the Series A Preferred Stock that have not yet been
converted into Common Stock, at a redemption price per share
equal to $35,000,000 multiplied by a fraction, the numerator of
which is the number of shares of Series A Preferred Stock then
outstanding and the denominator of which is 1,666,667 plus an
amount equal to accrued and unpaid distributions thereon,
whether or not declared, to the date of such redemption.
Within 10 Business Days prior to such redemption, the General
Partner shall notify the holders of the Class A Interest as to
whether any holders of the Series A Preferred Stock plan to
exercise their right under the Articles Supplementary to
convert such remaining shares of Series A Preferred Stock into
Common Stock prior to the redemption of the Series A Preferred
Stock. If the holders of the Series A Preferred Stock do not
so exercise their Conversion Right and, accordingly, none of
the Class A Interest is converted into Conversion Units as
provided in Section 10.06, then upon payment of the Redemption
Price, all of the rights of the holders of the Class A Interest
under this Partnership Agreement shall terminate.
(b) Unless full cumulative distributions on all shares of
Senior Units and Parity Units shall have been or
contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for
all past distribution periods and the then current distribution
period, none of the Class A Interest, any other Senior Units or
any Parity Units shall be redeemed unless all of the Class A
Interest, other Senior Units and Parity Units are
simultaneously redeemed. Furthermore, unless full cumulative
distributions on any outstanding Class A Interest, other Senior
Units and Parity Units 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 distribution
periods and the then current distribution period, neither the
Partnership nor the General Partner shall purchase or otherwise
acquire, directly or indirectly, the Class A Interest, any
other Senior Units or any Parity Units (except by conversion
into or exchange for shares of Junior Units).
(c) The Class A Interest will not be subject to any sinking
fund or mandatory redemption.
Section 10.11 TRANSFER RIGHTS. The Class A Interest shall
not be transferred by the QRS in whole or in part except to the
General Partner or any Affiliated Person (which is not an
individual). Upon receipt of a duly executed assignment of
Class A Interest to such a permitted transferee, the General
Partner shall execute an amendment to this Partnership
Agreement adding the name or names of such Persons to Schedule
A and the assignee shall be admitted to the Partnership as an
Additional Limited Partner.
4. Entire Agreement. This Amendment, the Partnership
Agreement, the Articles Supplementary and the Exchange
Agreement contain the entire agreement between the parties with
respect to the matters contained herein, and supersede all
negotiations, agreements, representations, warranties,
commitments, whether in writing or oral, prior to the date
hereof.
5. Execution and Counterparts. This Amendment may be executed
in any number of counterparts, each of which when so executed
and delivered shall be deemed an original, and such
counterparts together shall constitute one instrument. Each
party shall receive a duplicate original of the counterpart
copy or copies executed by it and by the General Partner.
6. Full Force and Effect. Except as expressly set forth in
this Amendment the Partnership Agreement shall continue in full
force and effect as written and shall be enforceable against
the parties thereto in accordance with its terms except as
amended hereby.
<PAGE>
IN WITNESS WHEREOF, this Amendment No. 27 to the Second
Amended and Restated Agreement of Limited Partnership of Home
Properties of New York, L.P. is hereby executed on the dates
set forth below to be effective as of the date first above
written.
Date: December 22, 1999 GENERAL PARTNER
HOME PROPERTIES OF NEW YORK, INC.
By:/S/ Norman P. Leenhouts
Norman P. Leenhouts
Its: Chairman
WITHDRAWING CLASS A LIMITED
PARTNER
Date: December 22, 1999 STATE TREASURER OF THE STATE OF
MICHIGAN, CUSTODIAN OF MICHIGAN PUBLIC SCHOOL EMPLOYEES'
RETIREMENT SYSTEM, STATE EMPLOYEES' RETIREMENT SYSTEM, MICHIGAN
STATE POLICE RETIREMENT SYSTEM AND MICHIGAN JUDGES' RETIREMENT
SYSTEM
By: /s/ Jon Braeutigam
-------------------------
Jon Braeutigam, Administrator
NEW CLASS A LIMITED PARTNER
HOME PROPERTIES TRUST
Date: December 22, 1999
By:/s/ Norman Leenhouts
Title:
Date: December __, 1999 LIMITED PARTNERS LISTED ON ATTACHED SCHEDULE A:
By: Home Properties of New York, Inc.,
as attorney-in-fact
By: ___________________
Title: __________________
Exhibit 5.1
Nixon Peabody LLP
Attorneys at Law
Clinton Square Post Office Box 1051
Rochester, New York 14603-1051
(716) 263-1000
Fax: (716) 263-1600
December 28, 1999
Home Properties of New York, Inc.
850 Clinton Square
Rochester, New York 14604
Ladies and Gentlemen:
We have acted as counsel to Home Properties of New York, Inc.(the
"Company") in connection with the Registration Statement on Form S-3, filed
today, by the Company with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, relating to the offer and sale of up to
1,679,543 of shares of common stock, par value $0.01 per share (the "Common
Stock"), which may be issued from time to time to the "Selling
Shareholders" named in the prospectus ("Prospectus") forming a portion of
the Registration Statement. This opinion is being provided to you in
connection with the filing of the Registration Statement.
We have examined the originals or copies, certified or otherwise
identified to our satisfaction, of such records of the Company and all such
agreements, certificates of public officials, certificates of officers o
other representatives of the Company, and such other documents,
certificates and corporate or other records as we have deemed necessary or
appropriate as a basis for the opinions set forth herein, including (i) the
Articles of Amendment and Restatement of the Articles of Incorporation of
the Company, as amended to the date hereof (the "Articles of
Incorporation"), (ii) the Amended and Restated By-Laws of the Company, as
amended to the date hereof (the "By-Laws"), (iii) certified copies of
certain resolutions duly adopted by the Board of Directors of the Company,
and (iv) the Second Amended and Restated Agreement of Limited Partnership,
as amended (the "Partnership Agreement") of Home Properties of New York,
L.P. (the "Operating Partnership").
As to factual matters material to the opinions set forth below we have
relied, without investigation, upon the representations and statements of
the Company in the Registration Statement and in such certificates of
government officials and officers of the Company as we have deemed
necessary for the purposed of the opinions expressed herein. The opinions
stated herein are limited to the federal laws of the United States, the
laws of the State of New York and the General Corporation Law of the State
of Maryland.
Based upon and subject to the conditions and limitations set forth
herein, we are of the opinion that:
When the Registration Statement has become effective under the Act and
the shares of Common Stock have been issued in exchange for Units as
described in the Partnership Agreement, and the certificates representing
such shares of Common Stock are authenticated and delivered, such shares of
Common Stock issued will be duly authorized, validly issued, fully paid and
non-assessable by the Company.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name as it
appears under the caption "Legal Matters" in the Prospectus contained in
such Registration Statement.
Very truly yours,
/s/ Nixon Peabody LLP
EXHIBIT 8.1
NIXON PEABODY LLP
Attorneys at Law
Clinton Square
Post Office Box 1051
Rochester, New York 14603-1051
(716) 263-1000
Fax: (716) 263-1600
December 28, 1999
Home Properties of New York, Inc.
850 Clinton Square
Rochester, New York 14604
Gentlemen:
We have acted as counsel to Home Properties of New York, Inc. ("Home
Properties") in connection with the Registration Statement on Form S-3 filed
with the Securities and Exchange Commission today (the "Registration
Statement"). This opinion relates to the Company's qualification for federal
income tax purposes as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended (the "Code"), for taxable years
beginning with the taxable year ending December 31, 1994 and to the accuracy of
the "FEDERAL INCOME TAX CONSIDERATIONS" section of the Registration Statement.
All capitalized terms used but not defined herein shall have the meaning
assigned to them in the Registration Statement.
For the purpose of rendering our opinion, we have examined and are relying
upon the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents:
1. The Articles of Amendment and Restatement of the Articles of
Incorporation of Home Properties, as amended, and the Articles of Incorporation
of the Management Companies.
2. The By-Laws of Home Properties, as amended, and the By-Laws of the
Management Companies.
3. The Certificate of Limited Partnership and the Second Amended and
Restated Agreement of Limited Partnership of Home Properties of New York, L.P.,
as amended (the "Operating Partnership").
4. The Registration Statement.
5. Representations made to us by officers of Home Properties, the
Operating Partnership and the Management Companies in certificates (the
"Certificates") delivered to us in connection with the Registration Statement
or this opinion, which we have no reason to believe contain any material
inaccuracies.
In connection with rendering this opinion, we have assumed and are relying
upon, without any independent investigation or review thereof, the following:
(i) the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as copies,
and authenticity of the originals of such documents; (ii) that neither Home
Properties, the Operating Partnership nor the Management Companies will make
any amendments to its organizational documents after the date of this opinion
that would adversely affect Home Properties' qualification as a REIT for any
taxable year (iii) that no actions will be taken by Home Properties, the
Operating Partnership or the Management Companies after the date hereof that
would have the effect of altering the facts upon which the opinions set forth
below are based; and (iv) that all documents, certificates, representations,
warranties and covenants on which we have relied in rendering the opinions set
forth below and that were given or dated earlier than the date of this opinion
continue to remain accurate, insofar as relevant to the opinions set forth
herein, from such earlier date through and including the date of this letter.
We have neither independently investigated nor verified such representations,
and we assume that such representations are true, correct and complete. We
assume that Home Properties has been and will operated in accordance with
applicable laws and the terms and that the descriptions of Home Properties, the
Operating Partnership and the Management Companies and their activities,
operations and governance set forth in the Registration Statement are true and
correct.
Based on our examination of the foregoing items, subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we
are of the opinion that:
1. Commencing with Home Properties' taxable year ending December 31,
1994, Home Properties was organized in conformity with the requirements for
qualification as a REIT under the Internal Revenue of 1986, as amended (the
"Code"), its method of operation has enabled it to meet the requirements for
qualification and taxation as a REIT under the Code, and the proposed method of
operation described in the Prospectus included in the Registration Statement
will enable Home Properties to satisfy the requirements for such qualification
under the Code for subsequent taxable years.
2. Home Properties is properly treated as a partner for federal income
tax purposes in the Operating Partnership, and the Operating Partnership is
properly classified as a partnership for federal income tax purposes and not as
an association taxable as a corporation.
3. The statements in the Prospectus included in the Registration
Statement under the caption "FEDERAL INCOME TAX CONSIDERATIONS" to the extent
such information constitutes matters of law, summaries of legal matters or
legal conclusions, have been reviewed by us and are accurate in all material
respect and fairly summarize the federal income tax considerations that are
likely to be material to holders of common stock who are United States citizens
or residents or domestic corporations and who are not subject to special
treatment under the tax laws.
Our opinions expressed herein are based upon our interpretation of the
current provisions of the Code and existing judicial decisions, administrative
regulations and published rulings and procedures (including the practices and
policies in issuing private letter rulings, which are not binding on the
Internal Revenue Service except with respect to the taxpayer who receives such
ruling). Our opinions are not binding upon the Internal Revenue Service or
courts and there is no assurance that the Internal Revenue Service will not
successfully challenge the conclusions set forth herein. The Internal Revenue
Service has not yet issued regulations or administrative interpretations with
respect to various provisions of the Code relating to REIT qualification.
Consequently, no assurance can be given that future legislative, judicial or
administrative changes, on either a prospective or retroactive basis, would not
adversely affect the accuracy of the conclusions stated herein. We undertake
no obligation to advise you of changes in law which may occur after the date
hereof.
Our opinions are limited to the federal income tax matters and the federal
law of the United States of America addressed herein, and no other opinions are
rendered with respect to any other matter not specifically set forth in the
foregoing opinion and we assume no responsibility as to the applicability
thereto, or the effect thereon, of the laws of any other jurisdiction.
Home Properties' qualification and taxation as a real estate investment
trust depend upon Home Properties' ability to satisfy, through actual operating
results, the applicable asset composition, source of income, shareholder
diversification, distribution, record keeping and other requirements of the
Code necessary to qualify and be taxed as a REIT. The foregoing opinions are
based upon the method of operation as described in the Registration Statement
and facts stated in the Certificates and other documents described herein. We
undertake no obligation to review at any time in the future whether Home
Properties has fulfilled the requirements listed in this paragraph and,
consequently, no assurance can be given that the actual results of Home
Properties' operations for any taxable year will satisfy the requirements of
the Code necessary to qualify or be taxed as a REIT.
In the event any one of the statements, representations, warranties or
assumptions we have relied upon to issue this opinion is incorrect in a
material respect, our opinions might be adversely affected and may not be
relied upon.
We hereby consent to the reference to us under the captions "FEDERAL
INCOME TAX CONSIDERATIONS" and "LEGAL MATTERS" in the Registration Statement,
and to the filing of this opinion as an Exhibit to the Registration Statement,
without implying or admitting that we are experts within the meaning of the
Securities Act of 1933, as amended, with respect to any part of the
Registration Statement.
This letter is furnished to Home Properties, the Operating Partnership and
the Management Companies and is solely for your benefit. This letter may not
be relied upon by any other person or for any other purpose and may not be
referred to or quoted from without our prior written consent.
Very truly yours,
/s/ Nixon Peabody LLP
EXHIBIT 12.1
<TABLE>
<CAPTION>
Home Properties of New York, Inc.
Computation of Ratios of Earnings to Combined Fixed Charges
and Preferred Stock Dividend
(In Thousands)
For The Three Original
Months Properties*
Ended Aug. 4- Jan. 1-
Sep. 30, Year Ended December 31, Dec. 31, Aug. 3,
1999 1998 1997 1996 1995 1994 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Income before loss on disposition
of property, minority interest
and extraordinary item $ 9,243 $32,251 $12,958 $ 5,044 $ 4,500 $2,641 $ 783
Interest expense (including debt
amortization) 11,606 23,980 11,967 9,208 6,432 1,444 3,126
Adjusted income 20,849 56,231 24,925 14,252 10,932 4,085 3,909
Fixed charges:
Interest expense 11,606 23,980 11,967 9,208 6,432 1,444 3,126
Capitalized interest 51 189 - 63 - - -
Rent expense 85 219 123 126 67 28 39
Preferred stock dividend 12 - - - - - -
Total fixed charges 11,754 24,388 12,090 9,397 6,499 1,472 3,165
Ratio 1.77 2.31 2.06 1.52 1.68 2.78 1.24
</TABLE>
* Original Properties is not a legal entity but rather a combination of
twelve entities which were wholly owned by the predecessor corporation
and its affiliates prior to the Company's initial public offering on
August 4, 1994.
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated January 30, 1999 relating to the
consolidated financial statements, which appears in Home Properties of New
York, Inc.'s Annual Report on Form 10-K as of December 31, 1998. We also
consent to the incorporation by reference of our report dated January 30, 1999
relating to the financial statement schedule, which appears in such Annual
Report on Form 10-K. We also consent to the incorporation by reference of our
reports (1) dated June 18, 1999 on our audit of the CRC Portfolio for the year
ended December 31, 1998, which report is included in Form 8-K/A Amendment No. 1
dated July 1, 1999 and filed on July 29, 1999, (2) dated July 1, 1999 on our
audit of the Mid-Atlantic Portfolio for the year ended December 31, 1998, which
report is included in Form 8-K dated July 15, 1999 and filed on July 30, 1999,
and (3) dated October 26, 1999 and November 2, 1999 on our audits of the Ridley
Portfolio and Colony Apartments, respectively, for the year ended December 31,
1998, which are included in Form 8-K/A Amendment No. 1 dated February 18, 1999
and filed on November 12, 1999. We also consent to the reference to us under
the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Rochester, New York
December 28, 1999
