<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration No. 33-96756
P_R_O_S_P_E_C_T_U_S_S_U_P_P_L_E_M_E_N_T
(TO PROSPECTUS DATED DECEMBER 8, 1995)
1,800,000 SHARES
EVANS WITHYCOMBE RESIDENTIAL, INC.
COMMON STOCK
[LOGO]
------------------
Evans Withycombe Residential, Inc., a Maryland corporation (the "Company"),
is one of the largest developers and managers of multifamily apartment
communities in Arizona and has expanded its operations into selected sub-markets
in Southern California which the Company believes provide attractive investment
opportunities. The Company owns and manages 44 stabilized multifamily apartment
communities located in Arizona, containing a total of 12,005 apartments. In
addition, the Company owns five stabilized multifamily apartment communities in
Southern California, which contain a total of 1,900 apartments. The Company is
also in the process of developing or expanding five apartment communities in
Arizona with a total of 1,078 apartments. The Company has also entered into
agreements to purchase an additional two apartment communities in Southern
California with an aggregate of 498 apartment units. In addition, the Company
owns sites intended for the development of four additional multifamily apartment
communities which, if completed, are expected to contain approximately 1,115
apartments.
The Company operates as a self-administered and self-managed real estate
investment trust (a "REIT") and conducts all of its operations through Evans
Withycombe Residential, L.P., a Delaware limited partnership (the "Operating
Partnership"), either directly or through subsidiaries. The Company is the sole
general partner and a limited partner of the Operating Partnership and owned an
approximately 79.7% interest therein at December 31, 1996.
All the shares of common stock, par value $.01 per share, of the Company
(the "Common Shares") being offered hereby (the "Offering") are being sold by
the Company. See "Underwriting." Upon completion of the Offering, approximately
31.0% of the equity of the Company will be held by officers and directors of the
Company. To ensure that the Company maintains its qualification as a REIT,
ownership of Common Shares by any person is, with certain exceptions, limited to
9.8% of the outstanding shares. See "Risk Factors -- Limitations on Acquisition
and Change in Control."
Since the Company completed its initial public offering in August 1994 (the
"Initial Public Offering"), the Company has paid regular quarterly dividends to
holders of its Common Shares. The Common Shares are listed on the New York Stock
Exchange (the "NYSE") under the symbol "EWR." On February 10, 1997, the last
reported sale price of the Common Shares on the NYSE was $21 per share. See
"Price Range of Common Shares and Dividends."
SEE "RISK FACTORS" BEGINNING ON PAGE S-11 FOR A DISCUSSION OF CERTAIN
FACTORS RELATING TO AN INVESTMENT IN THE COMMON SHARES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Underwriter has agreed to purchase from the Company the Common Shares
offered hereby at a purchase price of $19.90 per Common Share, resulting in
proceeds to the Company of $35,820,000. The Company has granted to the
Underwriter a 30-day option to purchase up to 270,000 additional Common Shares
at a purchase price of $19.90 per Common Share, solely to cover over-allotments,
if any. If such option is exercised in full, the total proceeds to the Company
will be $41,193,000. See "Underwriting."
The Commons Shares offered hereby may be offered by the Underwriter from
time to time in one or more transactions on the NYSE or otherwise, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, or at negotiated prices. See "Underwriting."
<PAGE>
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
See "Underwriting."
------------------------
The Common Shares are offered by the Underwriter subject to prior sale,
withdrawal, cancellation or modification of the offer without notice, to
delivery and acceptance by the Underwriter and to certain further conditions. It
is expected that delivery of the Common Shares will be made in New York, New
York on or about February 14, 1997.
------------------------
MERRILL LYNCH & CO.
----------------
The date of this Prospectus Supplement is February 10, 1997.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information...................................................................................... S-3
Prospectus Supplement Summary.............................................................................. S-4
Risk Factors............................................................................................... S-11
Use of Proceeds............................................................................................ S-13
Capitalization............................................................................................. S-14
Price Range of Common Shares and Dividends................................................................. S-15
Federal Income Tax Considerations.......................................................................... S-17
Underwriting............................................................................................... S-26
Legal Matters.............................................................................................. S-26
Experts.................................................................................................... S-26
PROSPECTUS
Available Information...................................................................................... 2
Incorporation of Certain Information by Reference.......................................................... 3
The Company................................................................................................ 4
Use of Proceeds............................................................................................ 4
Consolidated Ratios of Earnings to Fixed Charges........................................................... 5
Description of the Capital Stock........................................................................... 6
Certain Provisions of Maryland Law and of the Company's Charter and Bylaws................................. 10
Description of Warrants.................................................................................... 14
Description of the Debt Securities......................................................................... 16
Federal Income Tax Considerations.......................................................................... 22
Plan of Distribution....................................................................................... 22
Experts.................................................................................................... 23
Legal Matters.............................................................................................. 23
</TABLE>
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, amended (the "Exchange Act"), and other applicable legal
or NYSE requirements, pursuant to which the Company files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information filed
by the Company under the Exchange Act may be examined without charge at, or
copies obtained upon payment of prescribed fees from, the Public Reference
Section of the Commission at Judiciary Plaza Office Building, 450 Fifth Street,
N.W., Washington, D.C. 20549 and will also be available for inspection and
copying at the regional offices of the Commission located at 7 World Trade
Center, 13th Floor, New York, New York 10048 and at Citicorp Center, Suite 1400,
500 West Madison Street, Chicago, Illinois 60661, and at the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005. Electronic filings
made through the Electronic Data Gathering, Analysis and Retrieval System are
publicly available through the Commission's Web site (http://www.sec.gov).
S-3
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS OR INCORPORATED HEREIN OR THEREIN BY REFERENCE.
CAPITALIZED TERMS USED IN THIS PROSPECTUS SUPPLEMENT SUMMARY HAVE THE MEANINGS
SET FORTH ELSEWHERE IN THE PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS.
UNLESS OTHERWISE INDICATED OR AS THE CONTEXT OTHERWISE REQUIRES, (A) REFERENCES
TO THE "COMPANY" INCLUDE THE COMPANY'S PREDECESSOR, EVANS WITHYCOMBE, INC., AND
ITS AFFILIATES, PREDECESSORS AND PARTNERS (COLLECTIVELY, "EVANS WITHYCOMBE") AND
EVANS WITHYCOMBE RESIDENTIAL, L.P. (THE "OPERATING PARTNERSHIP"), EVANS
WITHYCOMBE FINANCE PARTNERSHIP, L.P. (THE "FINANCING PARTNERSHIP") AND EVANS
WITHYCOMBE MANAGEMENT, INC. (THE "MANAGEMENT COMPANY") AND (B) REFERENCES TO THE
OPERATING PARTNERSHIP INCLUDE THE FINANCING PARTNERSHIP. UNLESS OTHERWISE
INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT ASSUMES NO
EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION.
THE COMPANY
The Company is one of the largest developers and managers of upscale
apartment communities in Arizona and is expanding its operations into selected
sub-markets in Southern California. The Company's property portfolio consists of
stabilized communities and communities under construction. The Company owns and
manages 44 stabilized multifamily apartment communities located in Arizona and
five stabilized multifamily apartment communities located in Southern
California, containing a total of 13,905 apartments, of which 12,005 are in
Arizona and 1,900 are in Southern California. The 49 stabilized communities in
Arizona and California are referred to herein as the "Stabilized Communities."
The Company is also in the process of developing or expanding five apartment
communities in Arizona with a total of 1,078 apartments (the "Communities Under
Construction" and, together with the Stabilized Communities, the "Communities").
The Company considers a property stabilized when it reaches 93% physical
occupancy. The Company has also entered into agreements to purchase two
apartment communities in Southern California containing an additional 498 units,
although there can be no assurance that any such purchase will be consummated.
In addition, the Company owns sites intended for the development of four
additional multifamily apartment communities which, if completed, are expected
to contain approximately 1,115 apartments. There can be no assurance that the
Company will succeed in obtaining any necessary governmental approvals or any
financing required to develop these projects, or that the Company will decide to
develop any particular project.
All of the Communities and substantially all of the other assets of the
Company are held by, and all of the Company's operations are conducted through,
the Operating Partnership (either directly or through subsidiaries). The Company
is the sole general partner and also a limited partner of the Operating
Partnership and owned an approximately 79.7% interest therein at December 31,
1996. To maintain the Company's qualification as a REIT while realizing income
from its fee management and related service business, the Company's management
operations are conducted through the Management Company pursuant to the terms of
management agreements with the Operating Partnership and the Financing
Partnership.
The Company's principal executive office is located at 6991 East Camelback
Road, Suite A-200, Scottsdale, Arizona 85251, and its telephone number is (602)
840-1040.
S-4
<PAGE>
RECENT DEVELOPMENTS
ARIZONA DEVELOPMENT ACTIVITY
During 1996 the Company completed construction and reached stablized
occupancy on four new apartment communities and four expansions of existing
communities. The new apartment communities and expansions, divided by
geographical area, are as follows:
<TABLE>
<CAPTION>
TOTAL
STABILIZED UNITS
FROM DEVELOPMENT
NAME CITY ADDED IN 1996
- -------------------------------------------------------------- ---------- -------------------
<S> <C> <C>
Ladera........................................................ Phoenix 248
Mirador....................................................... Phoenix 316
The Ingleside................................................. Phoenix 120
Country Brook III............................................. Chandler 120
Towne Square III.............................................. Chandler 116
Park Meadow II................................................ Gilbert 68
-----
988
La Paloma..................................................... Tucson 312
Orange Grove Village II....................................... Tucson 144
-----
456
-----
1,444
-----
-----
</TABLE>
EXPANSION INTO RIVERSIDE/SAN BERNARDINO AND SAN DIEGO
In 1996, the Company acquired four apartment communities in Southern
California, increasing its California portfolio to five apartment communities
containing a total of 1,900 apartments.
In June 1996, the Company acquired the Canyon Crest Views apartments, a 178
unit apartment community in Riverside, California for a total purchase price of
approximately $12.8 million. In July 1996, the Company acquired Portofino, a 176
unit apartment community in Chino Hills, California for a total purchase price
of approximately $12.2 million in cash and Parkview Terrace Club Apartments, a
558 unit apartment community in Redlands, California for $9.3 million in cash
and the assumption of approximately $22.6 million in tax exempt bonds. In
December 1996, the Company acquired the Redlands Lawn & Tennis Club Apartments,
a 496 unit apartment community in Redlands, California, for a total purchase
price of $28.8 million, including the assumption of approximately $24 million in
tax exempt bond financing.
The Company has entered into purchase agreements for an additional two
properties (together, the "Acquisition Properties") located in Southern
California containing an aggregate of 498 apartment units. The aggregate
consideration for the Acquisition Properties will be approximately $34 million,
approximately $18.35 million of which is expected to be comprised of the
assumption of existing mortgage indebtedness. See "Use of Proceeds." The
purchases of the Acquisition Properties are expected to close shortly after the
completion of the Offering. However, the acquisition of each of the Acquisition
Properties is subject to a number of conditions including the completion of due
diligence and therefore, there can be no assurance that such purchases will be
consummated. Additionally, the Company is actively pursuing and is in
preliminary negotiations regarding additional properties in Riverside/San
Bernardino and San Diego, but no assurance can be given that it will continue to
pursue or consummate any acquisitions as a result of these negotiations.
DIVIDEND INCREASES
Since the Initial Public Offering, the Company has increased its quarterly
dividend three times. On September 17, 1996, the Company announced a 2.5%
increase in its quarterly dividend, increasing the quarterly dividend on its
Common Shares from $0.39 per share to $0.40 per share, which is equal to $1.60
on an annualized basis. The increase in the Company's quarterly dividend is less
than the percentage
S-5
<PAGE>
increase in the Company's Funds From Operations (as defined herein), which is
consistent with the Company's goal of decreasing its payout ratio in order to
retain and reinvest additional funds in acquisition and new development
opportunities at attractive rates of return.
FINANCING ACTIVITY AND OTHER RECENT DEVELOPMENTS
- DEBT RATING. At December 31, 1996, the Company's total debt was
approximately $436.2 million and the Company's debt to total market
capitalization (market equity plus debt) was approximately 47.4%. The
Company received an investment grade rating of "BBB-" from Standard &
Poor's Corporation and "Baa3" from Moody's Investors Service, Inc. in
December 1996 with respect to prospective issuances of senior unsecured
debt.
- EXPANDED REVOLVING CREDIT FACILITY. On September 25, 1996, the Company
expanded its existing $125 million unsecured revolving credit facility
("Revolving Credit Facility") to $225 million with a bank group. The
Revolving Credit Facility bears interest at a floating rate of LIBOR plus
150 basis points (or, at the option of the Company, at the prime rate
announced by the banks). The interest rate was reduced 25 basis points
upon the Company achieving an investment grade rating of "Baa3" or "BBB-."
The Revolving Credit Facility has a term of three years, with an option to
extend for one year, and provides for monthly payments of interest only.
It will be used to finance acquisitions, to fund construction and
development and renovation costs and for working capital purposes. At
December 31, 1996, there was $152 million outstanding on the Revolving
Credit Facility with an effective interest rate of 7.20%.
- COMMON STOCK OFFERING. In the second quarter of 1996, the Company
completed a public offering of 4,700,000 shares of its common stock of
which 2,088,889 shares were sold by the Company and an aggregate of
2,611,111 shares were sold by two institutional shareholders. Net proceeds
to the Company were approximately $40,891,000. The Company used the
proceeds from the sale of common stock to pay down its Revolving Credit
Facility.
THE PROPERTIES
The Company's portfolio consists of Stabilized Communities and Communities
Under Construction:
- STABILIZED COMMUNITIES. The Company owns and manages 44 Stabilized
Communities located in the Phoenix and Tucson metropolitan areas,
containing a total of 12,005 apartments. In addition, the Company owns and
manages five Stabilized Communities in the Riverside/San Bernardino,
California region, which contain a total of 1,900 apartments.
- COMMUNITIES UNDER CONSTRUCTION. The Company owns five Communities Under
Construction with a total of 1,078 apartments. Three of these communities
are new developments and two are expansions of existing communities owned
by the Company.
S-6
<PAGE>
STABILIZED COMMUNITIES
The following sets forth certain information regarding the current
Stabilized Communities. All of the Communities are owned 100% in fee by the
Company.
<TABLE>
<CAPTION>
YEAR AVERAGE PHYSICAL
DEVELOPED AVERAGE UNIT PHYSICAL OCCUPANCY AS OF
NUMBER OF DEVELOPED/ OR SIZE OCCUPANCY DECEMBER 31,
STABILIZED COMMUNITIES CITY APARTMENTS ACQUIRED ACQUIRED (SQUARE FEET) DURING 1996(1) 1996(1)
- ------------------------ ------------ ------------- ------------ ---------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
ARIZONA
Phoenix:
Acacia Creek............ Scottsdale 508 Acquired 1995 910 97% 98%
Bayside at the
Islands................ Gilbert 272 Developed 1988 870 93% 94%
Country Brook(2)........ Chandler 396 Acq/Dev 1991/93/96 961 93% 92%
Deer Creek Village...... Phoenix 308 Acquired 1991 819 97% 92%
Gateway Villas.......... Phoenix 180 Developed 1995 998 96% 97%
Greenwood Village....... Tempe 270 Acquired 1993 884 96% 93%
Heritage Point.......... Mesa 148 Acquired 1994 773 95% 91%
La Mariposa............. Mesa 222 Acquired 1990 928 95% 93%
La Valencia............. Mesa 361 Acquired 1990 950 92% 87%
Ladera.................. Phoenix 248 Developed 1996 1,012 95% 98%
Little Cottonwoods...... Tempe 379 Acq/Acq/Dev 1989/89/90 1,023 91% 85%
Los Arboles(3).......... Chandler 232 Developed 1985 851 95% 92%
Mirador................. Phoenix 316 Developed 1996 987 85% 94%
Miramonte............... Scottsdale 151 Developed 1983 782 98% 99%
Morningside............. Scottsdale 160 Acquired 1992 1,019 95% 99%
Mountain Park Ranch..... Phoenix 240 Developed 1995 961 93% 93%
Park Meadow(2).......... Gilbert 224 Acq/Dev 1992/1996 880 96% 93%
Preserve at Squaw
Peak................... Phoenix 108 Acquired 1991 952 96% 90%
Promontory Pointe(4).... Phoenix 304 Acquired 1988 986 91% 83%
Rancho Murietta......... Tempe 292 Acquired 1995 866 97% 87%
Scottsdale Courtyards... Scottsdale 274 Developed 1993 1,044 97% 100%
Scottsdale Meadows...... Scottsdale 168 Developed 1984 888 95% 99%
Shadow Brook............ Phoenix 224 Acquired 1993 1,010 97% 98%
Shores at Andersen
Springs................ Chandler 299 Developed 1989/1993 889 97% 97%
Silver Creek............ Phoenix 174 Acquired 1991 775 98% 97%
Sonoran................. Phoenix 429 Developed 1995 965 93% 89%
Sun Creek............... Glendale 175 Acquired 1993 762 98% 98%
Superstition Vista...... Mesa 316 Acquired 1995 950 97% 96%
The Enclave............. Tempe 204 Developed 1995 952 97% 100%
The Heritage............ Phoenix 204 Developed 1995 973 93% 92%
The Ingleside........... Phoenix 120 Developed 1995 987 96% 94%
The Meadows............. Mesa 306 Acquired 1987 809 94% 92%
The Palms............... Phoenix 132 Developed 1990 1,026 93% 96%
The Pines............... Mesa 194 Acquired 1992 887 96% 94%
Towne Square(2)......... Chandler 584 Acq/Dev 1992/95/96 960 92% 90%
Villa Encanto........... Phoenix 382 Developed 1983 810 99% 99%
Village at Lakewood..... Phoenix 240 Developed 1988 857 94% 98%
------
9,744
------
Tucson:
Harrison Park(4)........ Tucson 172 Acq/Dev 1991/1996 809 87% 85%
La Reserve.............. Oro Valley 240 Developed 1988 900 91% 92%
Orange Grove
Village(2)............. Tucson 400 Acq/Dev 1991/1996 714 93% 87%
Suntree Village......... Oro Valley 424 Acquired 1992 831 91% 93%
The Arboretum........... Tucson 496 Acq/Dev 1992/1995 886 93% 89%
</TABLE>
S-7
<PAGE>
<TABLE>
<CAPTION>
YEAR AVERAGE PHYSICAL
DEVELOPED AVERAGE UNIT PHYSICAL OCCUPANCY AS OF
NUMBER OF DEVELOPED/ OR SIZE OCCUPANCY DECEMBER 31,
STABILIZED COMMUNITIES CITY APARTMENTS ACQUIRED ACQUIRED (SQUARE FEET) DURING 1996(1) 1996(1)
- ------------------------ ------------ ------------- ------------ ---------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Legends............. Tucson 312 Developed 1995 1,041 94% 94%
Village at Tanque
Verde.................. Tucson 217 Acq/Dev 1990/1994 694 90% 83%
------
2,261
------
Total Arizona........... 12,005
------
California:
The Ashton.............. Corona Hills 492 Acquired 1995 850 94% 92%
Canyon Crest Views(5)... Riverside 178 Acquired 1996 1,193 97% 96%
Portofino(6)............ Chino Hills 176 Acquired 1996 873 99% 98%
Parkview Terrace
Club(6)................ Redlands 558 Acquired 1996 801 96% 95%
Redlands Lawn & Tennis
Club(7)................ Redlands 496 Acquired 1996 795 89% 89%
------
Total California........ 1,900
------
------
Total............. 13,905 44,343
------ ------
------ ------
Weighted Average 283 905
------ ------
------ ------
</TABLE>
- ------------------------------
(1) Physical occupancy is defined as apartments occupied or leased (including
models and employee apartments) divided by the total number of leasable
apartments within the Community, expressed as a percentage.
(2) A new phase of this community was completed and reached stabilized occupancy
in 1996.
(3) The Company owns approximately a 10 percent interest in the joint venture
that owns Los Arboles II, as well as two promissory notes with an
outstanding balance of approximately $760,000, secured by subordinated liens
on such property. Los Arboles II contains 200 apartments, was developed in
1987, has an average unit size of 843 square feet and had average physical
occupancy during 1996 of 95 percent and physical occupancy as of December
31, 1996 of 92 percent.
(4) Another phase of this community is currently under development. See
"Communities Under Construction" below.
(5) Property was acquired in June 1996.
(6) Property was acquired in July 1996.
(7) Property was acquired in December 1996.
Of the Stabilized Communities included in the table, 37 are located in the
greater Phoenix area, seven are located in the Tucson area and five are located
in Southern California. All of the Stabilized Communities are managed and
operated by the Company and have an average size of 283 units. The Stabilized
Communities are primarily oriented to upscale residents seeking high levels of
amenities, such as clubhouses, exercise rooms, tennis courts, swimming pools,
therapy pools and covered parking. The average unit size of the Stabilized
Communities and Communities Under Construction combined is 905 square feet. All
have fully-equipped kitchens with upgraded cabinets, individual utility
metering, dishwashers, microwave ovens, separate dining areas, individual
storage, spacious patios and balconies and ceramic tile entries. Most have
washers/dryers; and many offer high ceilings, fireplaces and alarm system
prewiring.
S-8
<PAGE>
COMMUNITIES UNDER CONSTRUCTION.
The apartment communities under construction and in lease-up are listed
below:
<TABLE>
<CAPTION>
AVERAGE ESTIMATED ACTUAL DATE OF ACTUAL
NUMBER OF UNIT SIZE CONSTRUCTION CONSTRUCTION COMMENCEMENT OF
NAME CITY UNITS (SQ.FT.) COST (MILLIONS) COMMENCEMENT LEASE-UP
- ---------------------------- ----------- ----------- ----------- --------------- ----------------- -----------------
QUARTER
------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PHOENIX
The Hawthorne............... Phoenix 276 904 $ 17 4:95 3:96
The Isle at Arrowhead
Ranch...................... Glendale 256 940 17 2:96 4:96
Promontory Pointe II
Expansion.................. Phoenix 120 1,013 8 4:95 3:96
----- ---
652 42
TUCSON
Bear Canyon................. Tucson 238 973 15 3:95 2:96
Harrison Park II
Expansion.................. Tucson 188 974 10 3:95 2:96
----- ---
426 25
----- ---
Total................. 1,078 $ 67
----- ---
----- ---
<CAPTION>
ESTIMATED
DATE OF
STABILIZED
NAME OCCUPANCY
- ---------------------------- -------------
<S> <C>
PHOENIX
The Hawthorne............... 3:97
The Isle at Arrowhead
Ranch...................... 4:97
Promontory Pointe II
Expansion.................. 2:97
TUCSON
Bear Canyon................. 2:97
Harrison Park II
Expansion.................. 2:97
Total.................
</TABLE>
The information set forth in the table above is forward looking and involves
various risks and uncertainties. Such information is based upon a number of
estimates and assumptions that are inherently subject to business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Company's control. While all apartment communities previously developed by the
Company have been developed on schedule and within budget, the actual
development cost, completion date and stabilization date of any project will be
dependent upon a variety of factors beyond the control of the Company including,
for example, labor and other personnel costs, material costs, weather
conditions, government fees and leasing rate. The inclusion of estimates herein
should not be regarded as a representation by the Company, the Underwriter or
any other person that the estimates will be achieved.
The Company owns sites intended for the development of four additional
multifamily apartment communities which, if completed, are expected to contain
approximately 1,115 apartments. There can be no assurance that the Company will
succeed in obtaining any necessary governmental approvals or any financing
required to develop these projects, or that the Company will decide to develop
any particular project.
S-9
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Shares Offered............. 1,800,000 Shares(1)
Common Shares to be Outstanding
after the Offering.............. 20,239,134 Shares(1)
Use of Proceeds................... The net proceeds to the Company from this Offering will
be used to repay indebtedness outstanding under the
Company's Revolving Credit Facility.
NYSE Symbol....................... "EWR"
</TABLE>
- ------------------------
(1) Assumes that the Underwriter's over-allotment option is not exercised. See
"Underwriting."
DIVIDEND POLICY
The Company, for itself and in its capacity as general partner of the
Operating Partnership, currently intends to cause the Operating Partnership to
make regular quarterly distributions to holders of units of limited partnership
in the Operating Partnership ("Units"), and to continue paying regular quarterly
dividends to holders of Common Shares in amounts sufficient to maintain its
status as a REIT. Future dividends will be at the direction of the Board of
Directors and will depend upon factors deemed relevant by the Board of
Directors, including actual Funds From Operations (as defined below) of the
Company, its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), and other factors. Although the Company intends to
continue to make quarterly distributions to its stockholders, no assurance can
be given as to the amounts to be distributed in the future. See "Price Range of
Common Shares and Dividends."
The Company and industry analysts consider Funds from Operations ("Funds
From Operations" or "FFO") to be an appropriate measure of the performance of an
equity REIT because it is predicated on cash flow analyses. The Company computes
FFO in accordance with standards established by the National Association of Real
Estate Investment Trusts ("NAREIT"). FFO is defined as net income (loss)
determined in accordance with GAAP, excluding gains (or losses) from debt
restructuring and sales of property plus depreciation and amortization,
excluding depreciation on non-real estate assets and amortization of deferred
financing costs. Funds From Operations should not be considered as an
alternative to net income (determined in accordance with GAAP) as an indicator
of the company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's needs. The
Company believes that in order to facilitate a clear understanding of the
consolidated historical operating results of the Company, FFO should be examined
in conjunction with net income, as presented in the consolidated financial
statements incorporated by reference into the accompanying Prospectus. For
additional information regarding FFO see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Funds from Operations" in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996,
incorporated by reference into the accompanying Prospectus.
S-10
<PAGE>
RISK FACTORS
This Prospectus Supplement and the accompanying Prospectus, including the
documents incorporated by reference in the accompanying Prospectus, contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"). Also, documents subsequently
filed by the Company with the Commission and incorporated herein by reference
will contain forward-looking statements. Actual results could differ materially
from those projected in the forward-looking statements as a result of the risk
factors set forth below and the matters set forth or incorporated in this
Prospectus Supplement and the accompanying Prospectus generally. The Company
cautions the reader, however, that this list of factors may not be exhaustive,
particularly with respect to future filings. Prospective investors should
carefully consider, among other factors, the matters described below before
purchasing Common Shares in the Offering.
REAL ESTATE INVESTMENT RISKS
GENERAL RISKS. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate depend on the
amount of income generated and expenses incurred. If the Company's Communities
do not generate revenues sufficient to meet operating expenses, including debt
service and capital expenditures, the Company's cash flow and ability to make
distributions to its shareholders will be adversely affected. A multifamily
apartment community's revenues and value may be adversely affected by a number
of factors including: the national economic climate; the local economic climate
(which may be adversely impacted by plant closings, industry slowdowns, changing
demographics, military base closings and other factors); local real estate
conditions (such as oversupply of or reduced demand for apartments); the
perceptions by prospective residents of the safety, convenience and
attractiveness of the communities or neighborhoods in which they are located and
the quality of local schools and other amenities; the ability of the owner to
provide adequate management, maintenance and insurance; and increased operating
costs (including real estate taxes and utilities). Certain significant
expenditures associated with each equity investment (such as mortgage payments,
if any, real estate taxes, insurance and maintenance costs) are generally not
reduced when circumstances cause a reduction in income from the investment. If a
property is mortgaged to secure payment of indebtedness, and if the Company is
unable to meet its mortgage payments, a loss could be sustained as a result of
foreclosure on the property or the exercise of other remedies by the mortgagee.
In addition, real estate values and income from properties are also affected by
such factors as applicable laws, including tax laws, interest rate levels and
the availability of financing.
OPERATING RISKS. The Communities are subject to all operating risks common
to multifamily apartment communities in general, any and all of which might
adversely affect apartment occupancy or rental rates. Increases in unemployment
in the areas in which the communities owned or managed by the Company are
located might adversely affect multifamily apartment occupancy or rental rates.
Increases in operating costs due to inflation and other factors may not
necessarily be offset by increased rents. Residents may be unable or unwilling
to pay rent increases. If operating expenses increase, the local rental market
may limit the extent to which rents may be increased to meet increased expenses
without decreasing occupancy rates. If any of the above occurs, the Company's
ability to make distributions to shareholders could be adversely affected.
DEPENDENCE ON PRIMARY MARKETS. The Communities are located in Arizona and
selected sub-markets in Southern California, and the Company's performance could
be adversely affected by economic conditions in, and other factors relating to,
these geographic areas, including supply and demand for apartments in these
areas, zoning or other regulatory conditions and competition from other
available apartments and alternative forms of housing. These and other factors
or a decline in the economy or real estate values in the Arizona markets and
selected sub-markets of Southern California may adversely affect the ability of
the Company to make distributions to its shareholders.
ENVIRONMENTAL RISKS. Under various federal, state and local laws,
ordinances and regulations, the Company may be considered an owner or operator
of real property or may have arranged for the disposal
S-11
<PAGE>
or treatment of hazardous or toxic substances and, therefore, may become liable
for the costs of removal or remediation of certain hazardous substances released
on or in its property or disposed of by it, as well as certain other potential
costs which could relate to hazardous or toxic substances (including
governmental fines and injuries to persons and property). Such liability may be
imposed whether or not the Company knew of, or was responsible for, the presence
of such hazardous or toxic substances.
RISKS OF DEVELOPMENT ACTIVITIES. The Company intends to continue to
actively pursue development projects, including the expansion of existing
apartment communities. Such projects generally require the expenditure of
capital as well as various forms of government and other approvals, the receipt
of which cannot be assured. Consequently, there can be no assurance that any
such projects will be completed or that such projects will prove to be
profitable.
COMPETITION. There are numerous housing alternatives that compete with the
Communities in attracting residents. The Communities compete directly with other
multifamily rental apartments and single family homes that are available for
rent in the markets in which the Communities are located. The Communities also
compete for residents with new and existing homes and condominiums. In addition,
other competitors for development and acquisitions of properties may have
greater resources than the Company.
UNINSURED LOSS. The Company carries comprehensive liability, fire, extended
coverage and rental loss insurance with respect to all of the Communities, with
policy specifications, insured limits and deductibles customarily carried for
similar properties. There are, however, certain types of losses (such as losses
arising from acts of war or from earthquakes) that are not generally insured
because they are either uninsurable or not economically insurable. Should an
uninsured loss or a loss in excess of insured limits occur, the Company could
lose its capital invested in a property, as well as the anticipated future
revenues from such property and would continue to be obligated on any mortgage
indebtedness or other obligations related to the property. Any such loss would
adversely affect the Company and its ability to make distributions.
NO LIMITATION ON INCURRENCE OF DEBT
The Company currently has a policy of incurring debt only if upon such
incurrence the ratio of debt to total market capitalization (i.e., the total
consolidated debt of the Company as a percentage of the market value of issued
and outstanding Common Shares and Units plus total consolidated debt) would be
50% or less, but the organizational documents of the Company do not contain any
limitation on the amount of indebtedness the Company may incur. Accordingly, the
Board of Directors could alter or eliminate this policy. If this policy were
changed, the Company could become more highly leveraged, resulting in an
increase in debt service that could adversely affect the Company's cash
available for distribution to shareholders and could increase the risk of
default on the Company's indebtedness.
LIMITATIONS ON ACQUISITION AND CHANGE IN CONTROL
In addition to the Ownership Limit (as defined in "Description of the
Capital Stock--Restrictions on Ownership" in the accompanying Prospectus),
certain provisions contained in the Company's Charter and under Maryland law may
have the effect of discouraging a third party from making an acquisition
proposal for the Company and may thereby inhibit a change in control of the
Company. For example, such provisions may (i) deter tender offers for the Common
Shares, which offers may be beneficial to shareholders or (ii) deter purchases
of large blocks of Common Shares, thereby limiting the opportunity for
shareholders to receive a premium for their Common Shares over then-prevailing
market prices. See "Description of the Capital Stock--Common Shares" and
"Certain Provisions of Maryland Law and of the Company's Charter and Bylaws" in
the accompanying Prospectus.
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<PAGE>
ADVERSE IMPACT ON DISTRIBUTIONS OF FAILURE TO QUALIFY AS A REIT
Since the Company's commencement of operations in 1994, the Company has
operated in a manner to qualify as a REIT under the Code, and the Company
intends to continue to operate in such a manner so as to permit the Company to
qualify as a REIT under the Code. Although the Company believes that it will
continue to operate in such a manner, no assurance can be given that the Company
will remain qualified as a REIT. If in any taxable year the Company were to fail
to qualify as a REIT, the Company would not be allowed a deduction for
distributions to shareholders in computing taxable income and would be subject
to Federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Shares offered
hereby are estimated to be approximately $35.8 million ($41.2 million if the
Underwriter's over-allotment is exercised in full). The Company will use such
net proceeds to repay indebtedness then outstanding under the Company's
Revolving Credit Facility. Pending such use, which the Company anticipates will
occur concurrently with or shortly following the consummation of the Offering,
the Company may invest such net proceeds in short-term income-producing
investments such as investment grade commercial paper, government securities or
money market funds that invest in government securities.
After the repayment of indebtedness under the Company's Revolving Credit
Facility with the net proceeds of the Offering, the Company expects to borrow
approximately $15.65 million under its Revolving Credit Facility to fund the
purchase of the Acquisition Properties and thereafter may borrow under the
Revolving Credit Facility for general corporate purposes and to fund its future
acquisition and development activities. At December 31, 1996, there was $152
million outstanding on the Revolving Credit Facility with an effective interest
rate of 7.20%.
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<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1996, the actual
capitalization of the Company and the capitalization as adjusted to give effect
to the issuance and sale of the Common Shares offered hereby. The information
set forth in the table should be read in conjunction with the consolidated
financial statements of the Company and notes thereto incorporated by reference
into the accompanying Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
DEBT (1):
Mortgage and notes payable........................................................... $ 40,143 $ 40,143
$131 million securitized debt, net of unamortized discount of $480................... 130,520 130,520
$50 million securitized debt......................................................... 49,509 49,509
Revolving Credit Facility............................................................ 152,000 116,180
Variable rate tax free IDA bonds..................................................... 64,000 64,000
---------- -----------
Total debt....................................................................... 436,172 400,352
MINORITY INTEREST IN OPERATING PARTNERSHIP............................................. 56,592 56,592
STOCKHOLDERS' EQUITY:
Preferred Shares, $.01 par value; 10,000,000 authorized:
none issued and outstanding........................................................ -- --
Common Shares, $.01 par value; 100,000,000 authorized:
18,366,902 issued and outstanding 20,166,902, as adjusted(2)....................... 184 202
Additional paid-in-capital........................................................... 253,425 289,227
Unamortized employee restricted stock compensation................................... (465) (465)
Distributions in excess of net income................................................ (24,139) (24,139)
---------- -----------
Total stockholders' equity........................................................... 229,005 264,825
----------
Total capitalization................................................................... $ 721,769 $ 721,769
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources" and Note 5 of the Notes to
consolidated financial statements of the Company incorporated into the
accompanying Prospectus by reference for information relating to the
indebtedness. The $131 million securitized debt is rated "AA" by Standard &
Poor's Corporation.
(2) Does not include (i) 4,677,810 Common Shares at December 31, 1996 that may
be issued upon the exchange of Units and (ii) approximately 357,700 Common
Shares issuable upon the exercise of options granted under the Company's
1994 Stock Incentive Plan. A total of 1,830,000 Common Shares has been
reserved for issuance under the 1994 Stock Incentive Plan.
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<PAGE>
PRICE RANGE OF COMMON SHARES AND DIVIDENDS
The Company's Common Shares have been traded on the NYSE under the symbol
"EWR" since August 10, 1994. On February 10, 1997, the last reported sale price
of the Common Shares on the NYSE was $21.00 per share. The following table sets
forth the quarterly high and low sales prices per share reported on the NYSE and
the dividends declared and paid by the Company with respect to each quarterly
period since the Initial Public Offering.
<TABLE>
<CAPTION>
SALE PRICES DIVIDENDS
-------------------- DECLARED AND
PERIOD HIGH LOW PAID
- ------------------------------------------------------------------------------------- --------- --------- ------------
<S> <C> <C> <C>
1994:
Third Quarter (from August 10 to September 30, 1994)............................... $ 21 1/4 $ 19 3/8 $ 0.18(1)
Fourth Quarter..................................................................... $ 21 1/2 $ 17 7/8 $ 0.37
1995:
First Quarter...................................................................... $ 20 7/8 $ 19 1/2 $ 0.37
Second Quarter..................................................................... $ 20 7/8 $ 18 3/8 $ 0.37
Third Quarter...................................................................... $ 20 5/8 $ 18 1/2 $ 0.38
Fourth Quarter..................................................................... $ 21 5/8 $ 18 7/8 $ 0.38
1996:
First Quarter...................................................................... $ 23 1/4 $ 20 3/4 $ 0.39
Second Quarter..................................................................... $ 23 1/4 $ 20 1/4 $ 0.39
Third Quarter...................................................................... $ 21 7/8 $ 19 3/4 $ 0.40
Fourth Quarter..................................................................... $ 22 1/4 $ 20 7/8 $ 0.40
1997:
First Quarter (through February 10, 1997).......................................... $ 22 1/4 $ 20 5/8
</TABLE>
- ------------------------
(1) Paid with respect to the period August 17, 1994 to September 30, 1994.
Since the Initial Public Offering, the Company has increased its quarterly
dividend three times. On September 17, 1996, the Company announced a 2.5%
increase in its quarterly dividend, increasing the quarterly dividend on its
Common Shares from $0.39 per share to $0.40 per share, which is equal to $1.60
on an annualized basis. On March 13, 1996, the Company announced a 2.6% increase
in its quarterly dividend, increasing the quarterly dividend on its Common
Shares from $0.38 per share to $0.39 per share, which is equal to $1.56 on an
annualized basis. The higher dividend rate commenced with the Company's dividend
with respect to the first quarter of 1996. The Company previously announced, in
September 1995, a 2.7% increase in its quarterly dividend (from $0.37 per share
to $0.38 per share), which, together with the March and September increases,
represents an aggregate increase of 8.1% of its quarterly dividends since
September 1995.
The Company, for itself and in its capacity as general partner of the
Operating Partnership, currently intends to cause the Operating Partnership to
make regular quarterly distributions to holders of Units, and to continue paying
regular quarterly dividends to holders of Common Shares in amounts sufficient to
maintain its status as a REIT. Since the Initial Public Offering, the Company
has decreased its dividend payout ratio from 95.3% in 1994 to 88.3% in 1996,
based on the current definition of Funds From Operations. The Company's goal is
to decrease further its dividend payout ratio in order to retain and reinvest
additional funds in acquisition and new development opportunities. The Company
currently anticipates that future dividend increases per share, if any, would be
less than future increases in funds from operations, if any, on a percentage
basis; however, although it has no current plans to do so, the Company may amend
or alter its policy in this regard at any time.
Future dividends will be at the direction of the Board of Directors and will
depend upon factors deemed relevant by the Board of Directors, including actual
Funds From Operations of the Company, its financial condition, capital
requirements, the annual distribution requirements under the REIT provisions
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<PAGE>
of the Code and other factors. Although the Company intends to continue to make
quarterly distributions to its stockholders, no assurance can be given as to the
amounts to be distributed in the future.
The Company anticipates that Funds From Operations will exceed net income
(as determined in accordance with GAAP) due to non-cash expenses, primarily
depreciation and amortization, to be incurred by the Company; however, no
assurance may be given that the Company's actual results will prove this premise
to be correct. Distributions by the Company to the extent of its current and
accumulated earnings and profits for Federal income tax purposes will be taxable
to stockholders as ordinary dividend income. Distributions in excess of earnings
and profits generally will be treated as a non-taxable reduction of the
stockholder's basis in the Common Shares (return of capital) to the extent
thereof, and thereafter as taxable gain. Such distributions will have the effect
of deferring taxation until the sale of such Common Shares. In order to maintain
its qualification as a REIT, the Company must make annual distributions to
stockholders of at least 95% of its taxable income (which does not include
capital gains). Under certain circumstances (which the Company does not expect
to occur), the Company could be required to make distributions in excess of cash
available for distribution in order to meet such distribution requirements.
Of the dividends declared for 1996, 36% represented a return of capital to
shareholders for tax purposes. The Company currently anticipates that
approximately 35% of the dividends expected to be declared in 1997 will
represent a return of capital for tax purposes. There can be no assurance,
however, that the estimate for 1997 will not vary from actual results for 1997
which will depend, in 1997 and future years, among other things, upon the
Company's actual taxable income and amounts distributed.
As of February 7, 1997, the Company's transfer agent reported 226 holders of
record of the Company's Common Shares. The transfer agent and registrar of the
Common Stock is Norwest Bank, Minnesota, National Association.
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<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the material federal income tax considerations
regarding the Offering is based on current law, is for general information only
and is not tax advice. This discussion does not purport to deal with all aspects
of taxation that may be relevant to particular shareholders in light of their
personal investment or tax circumstances, or to certain types of shareholders
including insurance companies, tax-exempt organizations (except to the extent
discussed under the heading "-- Taxation of Tax-Exempt Shareholders"), financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States (except to the extent discussed under
the heading "-- Taxation of Non-U.S. Shareholders"), which are subject to
special treatment under the federal income tax laws.
EACH PROSPECTIVE PURCHASER OF COMMON SHARES IS URGED TO CONSULT WITH ITS OWN
TAX ADVISOR TO DETERMINE THE IMPACT OF SUCH PROSPECTIVE PURCHASER'S PERSONAL TAX
SITUATION ON THE ANTICIPATED TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
SALE OF COMMON SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REIT, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. The Company has made an election to be taxed as a REIT under
Sections 856 through 860 of the Code, commencing with its taxable year ended
December 31, 1994. The Company believes that it has been organized and has
operated in such a manner as to qualify for taxation as a REIT under the Code,
and the Company intends to continue to operate in such a manner, but no
assurance can be given that it has operated or will operate in a manner so as to
qualify or remain qualified.
The sections of the Code and Treasury Regulations governing REITs are highly
technical and complex. The following sets forth the material aspects of the
sections that govern the federal income tax treatment of a REIT and its
shareholders. This summary is qualified in its entirety by the applicable Code
provisions, Treasury Regulations and rules promulgated thereunder, and
administrative and judicial interpretations thereof.
In the opinion of Gibson, Dunn & Crutcher LLP, commencing with the Company's
taxable year ended December 31, 1994, the Company was organized in conformity
with the requirements for qualification as a REIT, and its proposed method of
operation has enabled and will enable it to continue to meet the requirements
for qualification and taxation as a REIT, under the Code. It must be emphasized
that this opinion is based on various assumptions and is conditioned upon the
accuracy of certain representations made by the Company as to factual matters
relating to the Company's organization, operations, income, assets,
distributions and stock ownership. The Company's qualification as a REIT depends
on the Company having met and continuing to meet -- through actual operating
results, distribution levels and diversity of stock ownership -- the various
qualification tests imposed under the Code and discussed below, the results of
which have not been and will not be reviewed by Gibson, Dunn & Crutcher LLP.
Accordingly, no assurance can be given that the actual results of the Company's
operations for any particular taxable year have satisfied or will satisfy such
requirements. An opinion of counsel is not binding on the IRS or the courts, and
no assurance can be given that the IRS will not challenge the Company's
eligibility for taxation as a REIT. Further, the anticipated federal income tax
treatment described in this Prospectus may be changed, perhaps retroactively, by
legislative, administrative or judicial action at any time. See "-- Failure to
Qualify."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) of income that generally
results from an investment in a regular corporation. However, the Company will
be subject to federal income tax as follows: First, the Company will be taxed at
regular corporate rates on any undistributed "REIT taxable income" (as defined
below), including undistributed net capital gains. Second, under certain
circumstances
S-17
<PAGE>
the Company may be subject to the "alternative minimum tax" as a consequence of
its items of tax preference to the extent that tax exceeds its regular tax.
Third, if the Company has (i) net income from the sale or other disposition of
"foreclosure property" (generally, property acquired by reason of default on
indebtedness held by the Company) that is held primarily for sale to customers
in the ordinary course business or (ii) other nonqualifying income from
foreclosure property, it will be subject to tax at the highest corporate rate on
such income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business, other than
foreclosure property), such income will be subject to a 100% tax. Fifth, if the
Company should fail to satisfy the 75% gross income test or the 95% gross income
test (as discussed below), but has nonetheless maintained its qualification as a
REIT because certain other requirements have been met, it will be subject to a
100% tax on an amount equal to (a) the greater of the amount by which the
Company fails the 75% or 95% test, multiplied by (b) a fraction intended to
reflect the Company's profitability. Sixth, if the Company should fail to
distribute during each calendar year at least the sum (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income for
such year, and (iii) any undistributed taxable income from prior periods, the
Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, with respect to any
asset (a "Built-in Gain Asset") acquired by the Company from a corporation which
is or has been a C corporation (I.E., generally a corporation subject to full
corporate-level tax) in certain transactions in which the basis of the Built-in
Gain Asset in the hands of the Company is determined by reference to the basis
of the asset in the hands of the C corporation, if the Company recognizes gain
on the disposition of such asset during the 10-year period (the "Recognition
Period") beginning on the date on which such asset was acquired by the Company,
then, to the extent of the Built-in Gain (I.E., the excess of (a) the fair
market value of such asset over (b) the Company's adjusted basis in such asset,
determined as of the beginning of the Recognition Period), such gain will be
subject to tax at the highest regular corporate rate pursuant to IRS regulations
that have not yet been promulgated.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) that would be taxable
as a domestic corporation but for Sections 856 through 859 of the Code; (iv)
that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) the beneficial ownership of which is held by
100 or more persons; (vi) in which 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 Code to include
certain entities); and (vii) that meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(i) to (iv), inclusive, must be met during the entire taxable year and that
condition (v) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
Conditions (v) and (vi) will not apply until after the first taxable year for
which an election is made to be taxed as a REIT.
The Company believes that it has issued sufficient shares to allow it to
satisfy conditions (v) and (vi). In addition, the Company's Charter provides for
restrictions regarding the transfer and ownership of shares, which restrictions
are intended to assist the Company in continuing to satisfy the share ownership
requirements described in (v) and (vi) above. Such transfer and ownership
restrictions are described in "Description of the Capital Stock -- Restrictions
on Ownership" in the accompanying Prospectus. These restrictions may not ensure
that the Company will, in all cases, be able to satisfy the share ownership
requirements described above. If the Company fails to satisfy such share
ownership requirements, the Company's status as a REIT will terminate. See
"Failure to Qualify."
To monitor the Company's compliance with the share ownership requirements,
the Company is required to maintain records regarding the actual ownership of
its shares. To do so, the Company must demand written statements each year from
the record holders of certain percentages of its shares of stock in which the
record holders are to disclose the actual owners of the shares (I.E., the
persons required to include in gross income the REIT dividends). A REIT with
2,000 or more record shareholders must
S-18
<PAGE>
demand statements from record holders of 5% or more of its shares, one with less
than 2,000, but more than 200 record shareholders must demand statements from
record holders of 1% or more of the shares, while a REIT with 200 or fewer
record shareholders must demand statements from record holders of 0.5% or more
of the shares. A list of those persons failing or refusing to comply with this
demand must be maintained as part of the Company's records. A shareholder who
fails or refuses to comply with the demand must submit a statement with its tax
return disclosing the actual ownership of the shares and certain other
information.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and the assets tests, discussed below. Thus,
the Company's proportionate share of the assets, liabilities and items of income
of the Operating Partnership (including the Operating Partnership's share of
such items of the Financing Partnership and any other partnership in which the
Operating Partnership has a direct or indirect interest) are treated as assets,
liabilities and items of income of the Company for purposes of applying the
requirements described herein. The Company controls the Operating Partnership
and the Financing Partnership and believes it has operated them in a manner
consistent with the requirements for qualification as a REIT, and intends to
continue to operate them in such a manner. However, there can be no assurance
that the Company has actually operated or will actually operate such
partnerships in a manner that has satisfied or will continue to satisfy the REIT
provisions of the Code.
The Company owns an indirect 1% interest as a general partner in the
Financing Partnership, which is held through Evans Withycombe Finance, Inc., a
wholly owned subsidiary of the Company that has been organized and operated as a
"qualified REIT subsidiary" within the meaning of the Code. Qualified REIT
subsidiaries are not treated as separate entities from their parent REIT for
federal income tax purposes. Instead, all assets, liabilities and items of
income, deduction and credit of Evans Withycombe Finance, Inc. are treated as
assets, liabilities and items of the Company. Evans Withycombe Finance, Inc.,
therefore, is not subject to federal corporate income taxation, although it may
be subject to state or local taxation. In addition, the Company's ownership of
the voting stock of Evans Withycombe Finance, Inc. will not violate the general
restriction against ownership of more than 10% of the voting securities of any
issuer.
INCOME TESTS. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from certain sales of real
property held primarily for sale) for each taxable year must be derived directly
or indirectly from investments relating to real property or mortgages on real
property (including "rents from real property" and, in certain circumstances,
interest) or from certain types of temporary investments. Second, at least 95%
of the Company's gross income (excluding gross income from certain sales of real
property held primarily for sale) for each taxable year must be derived from
items of income that qualify under the 75% test, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing). Third, gain from the sale or other disposition of stock or
securities held for less than one year, gain from certain sales of real property
held primarily for sale and gain from the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the Company's
gross income for each taxable year.
Rents received by the Company 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, rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income test if the Company,
or an owner of 10% or more of the Company, actually or constructively owns 10%
or more of such tenant (a "Related Party Tenant"). Third, if rent attributable
to personal property, leased in connection with a lease of real
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<PAGE>
property, is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
"rents from real property." Finally, for rents received to qualify as "rents
from real property," the Company generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an independent contractor from whom the Company derives no revenue,
provided, however, the Company may directly perform certain services that are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and not otherwise considered "rendered to the occupant" of the
property.
The Company regularly monitors its activities to ensure that the foregoing
tests are satisfied. The Company believes that the aggregate amount of any
nonqualifying income in any taxable year has not exceeded and will not exceed
the limits on nonqualifying income under the gross income tests.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if (i) the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches to its return for that year a schedule of the nature and amount
of each item of its income and (iii) any incorrect information on the schedule
was not due to fraud with intent to evade tax. However, in the event the Company
does not meet these tests, the Company would not be entitled to the benefit of
these relief provisions. If these relief provisions are inapplicable to a
particular set of circumstances involving the Company, the Company will not
qualify as a REIT. As discussed above in "-- General," even if these relief
provisions apply, a tax would be imposed with respect to the excess
nonqualifying income. There are no comparable relief provisions which could
mitigate the consequences of a failure to satisfy the 30% gross income test.
ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets, stock or debt instruments held for not more than one year
purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of the Company, cash, cash items and government securities.
Second, not more than 25% of Company's total assets may be represented by
securities other than those included in the 75% asset test. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by the Company may not exceed 5% of the value of the Company's
total assets and the Company may not own more than 10% of any one issuer's
outstanding voting securities. In applying these tests, the Company will be
deemed to own a proportionate share of any assets owned, directly or indirectly,
by the Operating Partnership based on its capital interest in the Operating
Partnership and the Operating Partnership's direct or indirect capital interest
in any other partnership, including the Financing Partnership.
The Company believes that it has complied and will continue to comply with
the asset tests. Substantially all of the Company's investments are in the
properties owned by the Operating Partnership and Financing Partnership, which
represent qualifying real estate assets. The Company's proportionate share of
the Management Company's voting and nonvoting common stock owned by the
Operating Partnership also is within the permissible range, since these
interests do not exceed a 10% voting interest. In addition, the Company believes
that the value of its interests in the stock of the Management Company will be
less than the permitted 5% of the total value of the Company's assets. Gibson,
Dunn & Crutcher LLP, in issuing its opinion referred to above, is relying on the
Company's representations as to the value of its interest in the stock of the
Management Company relative to the value of the Company's assets. There can be
no assurance that the IRS will not contend that the value of the securities of
the Management Company held by the Company (through the Operating Partnership)
exceeds the 5% value limitation.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (i) the sum of (a) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (b) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum of certain
items of noncash income. "REIT taxable income" for any year means the taxable
income of the Company for such year (excluding any net income
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<PAGE>
derived either from property held primarily for sale to customers or from
foreclosure property), subject to certain adjustments provided in the REIT
provision of the Code. In addition, if the Company disposes of any Built-in Gain
Asset during such asset's Recognition Period, the Company will be required,
pursuant to IRS regulations which have not yet been promulgated, to distribute
at least 95% of the Built-in Gain (after tax), if any, recognized on the
disposition of such asset. Such distributions must be paid in the taxable year
to which they relate, or in the following taxable year if declared before the
Company timely files its tax return for such year and if paid on or before the
first regular dividend payment after such declaration. The Company intends to
make, and to cause the Operating Partnership and Financing Partnership to make,
timely distributions sufficient to satisfy these annual distribution
requirements. To the extent that the Company does not distribute all of its net
capital gain or distributes at least 95%, but less than 100%, of its REIT
taxable income, as adjusted, it will be subject to tax thereon at regular
capital gain and ordinary corporate tax rates.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the distribution requirements described
above due to timing differences between the actual receipt of income and actual
payment of deductible expenses and the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company, or if nondeductible
capital expenditures such as principal amortization or capital expenditures
exceed the amount of noncash deductions. In the event that such timing
differences occur, in order to meet the distribution requirements, the Company
may find it necessary to arrange, or to cause the Operating Partnership or
Financing Partnership to arrange, for short-term, or possibly long-term,
borrowing, to sell assets, or to pay dividends in the form of taxable stock
dividends. In this regard, the Partnership Agreement authorizes the Company, 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 the
Company to meet these distribution requirements.
Under certain circumstances, the Company may be able to rectify a failure to
meet the above distribution requirements for a year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. The Company will,
however, be required to pay interest based upon the amount of any deduction
taken for deficiency dividends.
Furthermore, if the Company should fail to distribute each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain income for such year and (iii) any undistributed taxable
income from prior periods, the Company will be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed. Any
REIT taxable income and capital gains on which tax is imposed for any year is
treated as an amount distributed during that year for purposes of this excise
tax.
FAILURE TO QUALIFY
If the Company should fail to qualify for taxation as a REIT in any taxable
year, and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
rates applicable to regular C corporations. Distributions to shareholders in any
year in which the Company fails to qualify as a REIT will not be deductible by
the Company nor will they be required to be made. As a result, the Company's
failure to qualify as a REIT will reduce the cash available for distribution by
the Company to shareholders. In addition, if the Company fails to qualify as a
REIT, all distributions to shareholders will be taxable as ordinary income to
the extent of the Company's current and accumulated earnings and profits, and,
subject to certain limitations in the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, the Company will also be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all circumstances
the Company would be entitled to such statutory relief.
S-21
<PAGE>
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic shareholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. Distributions that are properly designated
by the Company as capital gain dividends will be taxed as long-term capital gain
(to the extent they do not exceed the Company's actual net capital gain for the
taxable year) without regard to the period for which the shareholder has held
its shares. However, corporate shareholders may be required to treat up to 20%
of certain capital gain dividends as ordinary income. Distributions (not
designated as capital gain dividends) in excess of current and accumulated
earnings and profits will be treated as tax-free returns of capital to the
extent of the shareholder's basis in the shares, and will reduce the adjusted
basis of such shares (but not below zero). To the extent distributions in excess
of current and accumulated earnings and profits exceed the basis of a
shareholder's shares they will be included in income as long-term capital gain
(or short-term capital gain if the shares have been held for one year or less),
assuming the shares are a capital asset in the hands of the shareholder. In
addition, any dividend declared by the Company in October, November or December
of any year payable to a shareholder of record on a specified date in any such
month shall be treated as both paid by the Company and received by the
shareholder on December 31 of such year, provided that the dividend is actually
paid by the Company during January of the following calendar year. Shareholders
may not include in their individual income tax returns any net operating losses
or capital losses of the Company.
Upon any sale or other disposition of shares, a domestic shareholder will
recognize gain or loss for federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition and (ii) the holder's
adjusted basis in such shares for tax purposes. In general, provided the shares
were held as a capital asset, any gain or loss realized on a taxable disposition
of shares will be treated as long-term capital gain or loss if the shares have
been held for more than twelve months and otherwise as short-term capital gain
or loss. However, any loss upon a sale or exchange of shares by a shareholder
who has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such shareholder as
long-term capital gain.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company reports to its domestic shareholders and the IRS the amount of
dividends paid with respect to each calendar year, and the amount of tax
withheld therefrom, if any. Under the backup withholding rules, a shareholder
may be subject to backup withholding at a rate of 31% with respect to dividends
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) 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 shareholder that does not provide the Company with its
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount withheld under the backup withholding rules will be
creditable against the shareholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain distributions made
to any shareholders who fail to certify to their non-foreign status to the
Company. See "-- Taxation of Non-U.S. Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
The IRS has ruled that amounts distributed as dividends by a REIT do not
constitute unrelated business taxable income ("UBTI") when received by a
tax-exempt entity. Based on that ruling, dividend income from the Company should
not, subject to certain exceptions described below, be UBTI to a qualified plan,
IRA or other tax-exempt entity (a "Tax-Exempt Shareholder") provided the
Tax-Exempt Shareholder has not held its shares as "debt financed property"
within the meaning of Section 514 of the Code and the shares are not otherwise
used in an unrelated trade or business of the Tax-Exempt
S-22
<PAGE>
Shareholder. Similarly, income from the sale of Common Shares should not,
subject to certain exceptions described below, constitute UBTI unless the
Tax-Exempt Shareholder has held such Common Shares as a dealer (under Section
512(b)(5)(B) of the Code) or as "debt-financed property."
For Tax-Exempt Shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code, respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective investors should consult their tax advisors concerning these
"set-aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by the
Company shall be treated as UBTI to certain trusts if the Company is treated as
a "pension held REIT." A trust will be subject to this rule if it (i) is
described in Section 401(a) of the Code, (ii) is tax-exempt under Section 501(a)
of the Code and (iii) holds more than 10% (by value) of the interests in the
REIT. Tax-exempt pension funds that are described in Section 401(a) of the Code
are referred to below as "qualified trusts."
The Company will be treated as a "pension held REIT" if (i) it would not
have qualified as a REIT but for the fact that Section 856(h)(3) of the Code
provides that stock owned by qualified trusts shall be treated, for purposes of
the "five or fewer" shareholder requirement (discussed above), as owned by the
beneficiaries of the trust (rather than by the trust itself) and (ii) either (a)
at least one such qualified trust holds more than 25% (by value) of the
interests in the Company or (b) one or more such qualified trusts, each of whom
owns more than 10% (by value) of the interests in the Company, hold in the
aggregate more than 50% (by value) of the interests in the Company. The Company
believes that it has not been, and is not, a "pension held REIT."
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing United States federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, "Non-U.S. Shareholders") are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United States
federal income tax law and does not address state, local or foreign tax
consequences that may be relevant to a Non-U.S. Shareholder in light of its
particular circumstances. In addition, this discussion is based on current law,
which is subject to change, and assumes that the Company qualifies for taxation
as a REIT. Prospective Non-U.S. Shareholders should consult with their own tax
advisors to determine the impact of federal, state, local and foreign income and
other tax laws with regard to an investment in Common Shares, including any
reporting requirements.
DISTRIBUTIONS. Distributions by the Company to a Non-U.S. Shareholder that
are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor designated by the Company as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are made out of current or accumulated earnings and profits of the
Company. Such distributions generally will be subject to withholding of United
States federal income tax at a 30% rate on the total amount distributed unless
an applicable income tax treaty reduces or eliminates that tax. However,
dividends that are "effectively connected" with the conduct of a trade or
business by the Non-U.S. Shareholder will be subject to tax on a net basis at
graduated rates, in the same manner as domestic shareholders are taxed with
respect to such dividends, and are generally not subject to withholding. Any
such "effectively connected" dividends received by a Non-U.S. Shareholder 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.
Pursuant to 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 such country for purposes of ascertaining the requirement of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed
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<PAGE>
Treasury Regulations not currently in effect, however, a Non-U.S. Shareholder
who seeks to claim the benefit of an applicable treaty rate would be required to
satisfy certain certification and other requirements. Under certain treaties,
lower withholding rates generally applicable to dividends do not apply to
dividends from a REIT, such as the Company. A Non-U.S. Shareholder must file a
properly completed and executed IRS Form 4224 with the Company's withholding
agent certifying that the investment to which the distribution relates is
effectively connected with the conduct of a United States trade or business of
such Non-U.S. Shareholder in order to qualify for the exemption from withholding
under the effectively connected income exemption discussed above.
Distributions that are neither attributable to gain from sales or exchanges
by the Company of United States real property interests nor designated by the
Company as capital gains dividends and that are in excess of current or
accumulated earnings and profits of the Company will not be taxable to a
Non-U.S. Shareholder to the extent that they do not exceed the adjusted basis of
the shareholder's Common Shares, but rather will reduce the adjusted basis of
such Common Shares. To the extent such distributions in excess of the Company's
current and accumulated earnings and profits exceed the adjusted basis of a
Non-U.S. Shareholder's Common Shares, they will give rise to gain from the sale
or exchange of the Common Shares, the tax treatment of which is described below.
If it cannot be determined at the time a distribution is made whether or not
such distribution will be in excess of current or accumulated earnings and
profits, the distribution will generally be treated as a dividend subject to
withholding. However, amounts thus withheld are generally refundable if it is
subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of the Company.
Distributions to a Non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those
attributable to gain from sales or exchanges by the Company of United States
real property interests) generally will not be subject to United States federal
income taxation unless (i) the investment in the Common Shares is effectively
connected with the Non-U.S. Shareholder's United States trade or business, in
which case the Non-U.S. Shareholder will be subject to the same treatment as
domestic shareholders with respect to such gain (except that a shareholder that
is a foreign corporation may also be subject to the 30% branch profits tax, as
discussed above) or (ii) the Non-U.S. Shareholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and either has a "tax home" in the United States or sold his shares
under circumstances where the sale is attributable to a U.S. office, in which
case the nonresident alien individual will be subject a 30% tax on the
individual's capital gains.
Distributions to a Non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
be treated as income that is effectively connected with a United States trade or
business of the Non-U.S. Shareholder. Non-U.S. Shareholders would thus generally
be taxed on such distributions at the same rates applicable to domestic
shareholders (subject to a special alternative minimum tax in the case of
nonresident alien individuals). Also, such gain may be subject to a 30% branch
profits tax in the hands of a corporate Non-U.S. Shareholder that is not
entitled to a treaty exemption or rate reduction. The Company is required to
withhold 35% of any such distribution, and the withheld amount is creditable
against the Non-U.S. Shareholder's United States federal income tax liability.
SALE OF COMMON SHARES. Gain recognized by a Non-U.S. Shareholder upon a
sale or other disposition of Common Shares generally will not be subject to
United States federal income tax unless (i) the Company is not a "domestically
controlled REIT," or (ii) the investment in the Common Shares is effectively
connected with the Non-U.S. Shareholder's United States trade or business or
(iii) in the case of a Non-U.S. Shareholder who is a nonresident alien
individual, the individual is present in the United States for 183 days or more
during the taxable year and either has a "tax home" in the United States or sold
his shares under circumstances where the sale is attributable to a U.S. office.
A domestically controlled REIT is defined generally as a REIT in which at all
times during a specified testing period less than 50% in value of the stock was
held directly or indirectly by foreign persons. The Company currently believes
that it is a domestically controlled REIT. However, because the Common Shares
will be publicly traded, no assurance can be given that the Company will
continue to be a domestically-controlled REIT. In the circumstances
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<PAGE>
described above in clauses (i) and (ii), the Non-U.S. Shareholders will
generally be subject to the same treatment as domestic shareholders with respect
to such gain (subject to a special alternative minimum tax in the case of
nonresident alien individuals in the circumstances described above in clause (i)
and, in the case of foreign corporations, subject to the possible application of
the 30% branch profits tax, discussed above). In the circumstances described
above in clause (iii), the nonresident alien individual will be subject to a 30%
tax on the individual's capital gain.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The Company must report
annually to the IRS and to each Non-U.S. Shareholder the amount of distributions
subject to withholding as described above and the tax withheld with respect to
such distributions, regardless of whether withholding is actually required.
Copies of the information returns reporting such distributions and withholding
may also be made available to the tax authorities in the country in which the
Non-U.S. Shareholder resides under the provisions of an applicable income tax
treaty. Additional issues may arise pertaining to information reporting and
backup withholding for Non-U.S. Shareholders. Non-U.S. Shareholders should
consult their tax advisors with regard to U.S. information reporting and backup
withholding.
OTHER TAX CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
The Management Company does not qualify as a REIT, and therefore it is
subject to federal, state and local taxes on its income.
S-25
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the purchase agreement
between the Underwriter and the Company (the "Purchase Agreement"), the
Underwriter has agreed to purchase from the Company, and the Company has agreed
to sell to the Underwriter, the entire amount of the Common Shares offered
hereby.
The Purchase Agreement provides that the Underwriter's obligation to
purchase Common Shares is subject to the satisfaction of certain conditions,
including the receipt of certain legal opinions. The nature of the Underwriter's
obligation is such that it is committed to purchase all of the Common Shares if
any are purchased.
The Underwriter has advised the Company that it proposes to offer the Common
Shares offered hereby for sale, from time to time, to purchasers directly or
through agents, or through brokers in brokerage transactions on the NYSE, or to
underwriters or dealers in negotiated transactions or in a combination of such
methods of sale, at fixed prices which may be changed, at market prices
prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices.
Brokers, dealers, agents and underwriters that participate in the
distribution of the Common Shares offered hereby may be deemed to be
underwriters under the Securities Act. Those who act as an underwriter, broker,
dealer or agent in connection with the sale of the Common Shares offered hereby
will be selected by the Underwriter and may have other business relationships
with the Company and its subsidiaries or affiliates in the ordinary course of
business.
The Company has granted to the Underwriter an option to purchase up to an
additional 270,000 Common Shares, solely to cover over-allotments, if any. Such
option may be exercised at any time until 30 days after the date of this
Prospectus Supplement at the price set forth on the cover page of this
Prospectus Supplement.
The Company, its directors and its executive officers have also agreed, with
limited exceptions, including the issuance of options or Common Shares under
employee and director stock plans, the issuance of Common Shares or Units in
connection with the acquisition of any apartment community or interest therein
and the issuance of Common Shares upon the redemption of Units, not to offer,
sell, contract to sell, or otherwise dispose of any Common Shares or Units or
any securities convertible into or exercisable or exchangeable for Common Shares
or Units for a period of 60 days after the date hereof without the prior written
consent of the Underwriter.
In the Purchase Agreement, the Company has agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act. The Underwriter has agreed to reimburse the Company for certain
of its expenses related to the Offering, estimated to be approximately $100,000.
The Underwriter has, from time to time, performed investment banking services
for the Company, for which it has received usual and customary fees.
LEGAL MATTERS
The validity of the Common Shares offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. Certain legal
matters related to the Offering will be passed upon for the Company by Gibson,
Dunn & Crutcher LLP, Los Angeles, California and certain legal matters will be
passed upon for the Underwriter by Latham & Watkins, Los Angeles, California.
Gibson, Dunn & Crutcher LLP and Latham & Watkins will rely on Ballard Spahr
Andrews & Ingersoll as to certain matters of Maryland law.
EXPERTS
The consolidated financial statements and related financial statement
schedule of the Company appearing in the Company's Annual Report (Form 10-K) for
the year ended December 31, 1996, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated in the accompanying Prospectus by reference. Such consolidated
financial statements and related financial statement schedule are incorporated
in the accompanying Prospectus by reference in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
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<PAGE>
PROSPECTUS
$200,000,000
EVANS WITHYCOMBE RESIDENTIAL, INC.
DEBT SECURITIES, PREFERRED STOCK, COMMON STOCK
[LOGO]
AND
WARRANTS TO PURCHASE THE ABOVE SECURITIES
------------------
Evans Withycombe Residential, Inc. (the "Company") may offer and issue from
time to time (i) its debt securities (the "Debt Securities"), (ii) shares of its
Preferred Stock, par value $.01 per share (the "Preferred Stock"), (iii) shares
of its Common Stock, par value $.01 per share (the "Common Stock"), or (iv)
warrants to purchase Debt Securities, Preferred Stock or Common Stock (the
"Warrants"). The Debt Securities, Preferred Stock, Common Stock and Warrants are
herein collectively referred to as the "Securities." The Securities may be
offered in one or more separate classes or series, in amounts, at prices and on
terms to be determined by market conditions at the time of sale and to be set
forth in a supplement or supplements to this Prospectus (a "Prospectus
Supplement"). Any Securities may be offered with other Securities or separately.
Debt Securities or Preferred Stock may be convertible into shares of Common
Stock. The aggregate offering price of the Securities will not exceed
$200,000,000.
Certain terms of any Debt Securities in respect of which this Prospectus is
being delivered will be set forth in the accompanying Prospectus Supplement
including, without limitation, the specific designation (including whether such
Debt Securities are senior or subordinated and whether such Debt Securities are
convertible), aggregate principal amount, purchase price, maturity, interest
rate (which may be fixed or variable) and time of payment of interest (if any),
terms (if any) for the subordination, redemption or conversion thereof, listing
(if any) on a securities exchange and any other specific terms of the Debt
Securities. Certain terms of any Preferred Stock in respect of which this
Prospectus is being delivered will be set forth in the accompanying Prospectus
Supplement including, without limitation, the designation, number of shares,
liquidation preference, purchase price, dividend, voting, redemption and
conversion provisions and any listing on a securities exchange. Certain terms of
any Warrants in respect of which this Prospectus is being delivered will be set
forth in the accompanying Prospectus Supplement, including the specific
designation, number, duration, purchase price and terms thereof, any listing of
the Warrants or the underlying securities on a securities exchange and any other
terms in connection with the offering, sale and exercise of the Warrants, as
well as the terms on which and the securities for which such Warrants may be
exercised. In addition, terms of the Securities may include limitations on
direct and beneficial ownership and restrictions on transfer of the Securities,
in each case as may be appropriate to preserve the status of the Company as a
real estate investment trust for federal income tax purposes.
To ensure that the Company maintains its qualification as a real estate
investment trust (a "REIT"), ownership of Common Stock by any person is, with
certain exceptions, limited to 9.8% of the outstanding shares. The Common Stock
is listed on the New York Stock Exchange under the trading symbol "EWR."
The applicable Prospectus Supplement will contain information, where
appropriate, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Securities may be sold on a negotiated basis to or through underwriters
or dealers designated from time to time or to other purchasers directly or
through agents designated from time to time. Certain terms of the offering and
sale of Securities, including, where applicable, the names of the underwriters,
dealers or agents, if any, the principal amount or number of shares or Warrants
to be purchased, the purchase price of the Securities and the proceeds to the
Company from such sale, and any applicable commissions, discounts and other
items constituting compensation of such underwriters, dealers or agents, will
also be set forth in the accompanying Prospectus Supplement.
The date of this Prospectus is December 8, 1995
<PAGE>
IN CONNECTION WITH AN OFFERING, THE UNDERWRITERS FOR SUCH OFFERING MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF THE SECURITIES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE,
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS
NOT PASSED ON OR ENDORSED THE MERITS OF
THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus or any Prospectus Supplement, and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Company or by any underwriter, agent or dealer. This
Prospectus and any Prospectus Supplement shall not constitute an offer to sell
or a solicitation of an offer to buy any of the Securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus and
any Prospectus Supplement nor any sale made thereunder shall, under any
circumstances, create any implication that the information therein is correct as
of the time subsequent to the date thereof.
Unless otherwise indicated or as the context otherwise requires, (a)
references to the "Company" shall include the Company's predecessor, Evans
Withycombe, Inc., and its affiliates, predecessors and partners (collectively,
"Evans Withycombe") and Evans Withycombe Residential, L.P. (the "Operating
Partnership"), Evans Withycombe Finance Partnership, L.P. (the "Financing
Partnership") and Evans Withycombe Management, Inc. (the "Management Company"),
and (b) references to the Operating Partnership include the Financing
Partnership.
------------------------
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Securities
Act"), covering the Securities offered hereby. This Prospectus omits certain
information and exhibits included in the Registration Statement, copies of which
may be obtained upon payment of a fee prescribed by the Commission or may be
examined free of charge at the principal office of the Commission in Washington,
D.C. Statements contained in this Prospectus as to the content of any contract
or other document are not necessarily complete, and in each instance reference
is made to the copy of the contract or other document filed as an exhibit to the
Registration Statement, each statement being qualified in all respects by such
reference and the exhibits and schedules thereto. For further information
regarding the Company and the Securities offered hereby, reference is hereby
made to the Registration Statement, including the exhibits and schedules
thereto, which may be inspected without charge at the Commission's principal
office at 450 Fifth Street, N.W., Washington, D.C. and copies of the
Registration Statement or any part thereof may be obtained from such office,
upon payment of the fees prescribed by the Commission.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed with the
Commission by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 500 West
Madison Street, Room 1400, Chicago, Illinois 60661-2511 and at 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company's Common
Stock is listed on the New York Stock Exchange (the "NYSE")
2
<PAGE>
and the reports, proxy and information statements and other information filed by
the Company with the NYSE can also be inspected at the offices of the NYSE at 20
Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission (File No. 1-13256)
pursuant to the Exchange Act are incorporated herein by reference:
(1) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994;
(2) the Company's Quarterly Reports on Form 10-Q for the quarterly periods
ended March 31, 1995, June 30, 1995 and September 30, 1995;
(3) the description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A filed with the Commission on August 1,
1994; and
(4) all other documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the filing of a post-effective amendment which
indicates that all Securities offered hereby have been sold or which
deregisters all Securities then remaining unsold.
Any statement contained in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents or into this Prospectus) will be
provided without charge to each person, including any beneficial owner, to whom
this Prospectus is delivered, upon a written or oral request to Evans Withycombe
Residential, Inc., Attention: Secretary, 6991 East Camelback Road, Suite A-200,
Scottsdale, Arizona 85251, telephone number: (602) 840-1040.
3
<PAGE>
THE COMPANY
The Company is a developer, owner and manager of apartments in the Western
United States. The Company's property portfolio consists of stabilized
properties and properties under construction (a property is considered
stabilized when it reaches 93% occupancy). As of September 30, 1995, the Company
owned and managed 38 stabilized multifamily apartment communities located in the
metropolitan Phoenix and Tucson areas, which contained a total of 9,789
apartments. As of September 30, 1995, the Company also owned 11 apartment
communities under construction or initial lease-up with a total of 2,138
apartments. Seven of these communities were new developments and four were
expansions of existing communities owned by the Company. The stabilized
communities and the communities under construction are referred to herein
collectively as the "Communities."
In August 1994, the Company completed an initial public offering of
8,685,000 shares of Common Stock (the "Initial Public Offering"), and
subsequently completed the sale of an additional 1,302,750 shares of Common
Stock upon exercise of the underwriters' over-allotment option. Concurrently
with the Initial Public Offering, the Company, through the Financing
Partnership, borrowed $102.0 million aggregate principal amount of 7.98%
mortgage financing, under a loan with a total amount of up to $131 million
securitized by certain Communities (the "Mortgage Loan"). Subsequently, the
Company borrowed the remaining $29.0 million, so that, as of September 30, 1995,
the outstanding balance of the Mortgage Loan was $131 million. The Company also
entered into a $35.0 million Credit Facility that is secured by first mortgage
liens on four properties and is used to finance acquisitions, to fund
construction and development renovation costs and for working capital (the
"Credit Facility").
All of the Communities and other assets of the Company are held by, and all
of the Company's operations are conducted through, the Operating Partnership
(either directly or through subsidiaries). The Company is the sole general
partner and also a limited partner of the Operating Partnership and, as of
September 30, 1995, owned an approximately 77.6% interest therein. To maintain
the Company's qualifications as a REIT while realizing income from its fee
management and related service business, the Company's management operations are
conducted through the Management Company pursuant to the terms of management
agreements with the Operating Partnership and the Financing Partnership. The
Management Company also provides other services to third parties, including
construction, development and related services.
The Company was incorporated in Maryland in May 1994. The principal
executive offices of the Company are located at 6991 East Camelback Road, Suite
A-200, Scottsdale, Arizona 85251, telephone number: (602) 840-1040.
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement, proceeds
from the sale of the Securities will be used by the Company for general
corporate purposes, which may include the repayment of existing indebtedness,
the development of new apartment communities and the acquisition of additional
apartment communities. Proceeds from the sales of Securities initially may be
temporarily invested in short-term securities.
4
<PAGE>
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to fixed
charges of the Company and for the predecessor to the Company prior to August
17, 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges................ 1.83x 1.78x (0.08x)(1) 1.02x 0.69x(2)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1995
---------------------
<S> <C>
Ratio of Earnings to Fixed Charges................ 1.87x
</TABLE>
- ------------------------------
(1) In 1992, the predecessor to the Company had a loss before minority interest
and extraordinary item of $6,709,000, which included a non-cash write down
of real estate assets of $10,284,000 related to one of the Communities. The
predecessor wrote down the carrying value of such Community in conjunction
with the negotiated discounted payoff of the Community's mortgage. The
computation of the ratio of earnings to fixed charges for such year
indicates that earnings were inadequate to cover fixed charges by
approximately $6,801,000. If the non-cash write down of the Community were
added back to earnings, the Company would have had earnings in excess of
fixed charges of $3,295,000.
(2) Although the Company and the predecessor have historically generated
positive net cash flow, the financial statements of the predecessor show net
losses for 1990. Consequently, the computation of the ratio of earnings to
fixed charges for such year indicates that earnings were inadequate to cover
fixed charges by approximately $1,542,000.
For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of income before minority interest and extraordinary items, and
fixed charges. Fixed charges consist of interest expense, capitalized interest
and amortization of deferred financing costs. To date, the Company has not
issued any Preferred Stock; therefore, the ratios of earnings to combined fixed
charges and preferred stock dividend requirements are the same as the ratios of
earnings to fixed charges presented above.
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<PAGE>
DESCRIPTION OF THE CAPITAL STOCK
GENERAL
The Articles of Incorporation of the Company, as amended and supplemented
from time to time (the "Charter"), provide that the Company may issue up to
110,000,000 shares of capital stock, consisting of 100,000,000 shares of Common
Stock, par value $.01 per share (the "Common Shares"), and 10,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Shares"). Under
Maryland law, shareholders generally are not liable for the corporation's debts
or obligations.
The following summary does not purport to be complete and is qualified in
its entirety by reference to the applicable provisions of Maryland law and the
Company's Charter.
COMMON SHARES
Subject to the preferential rights of any class of Preferred Shares, and to
the provision of the Company's Charter regarding the consequences of actually or
constructively owning Common Shares in violation of the Ownership Limit
Provision (as discussed below), holders of Common Shares are entitled to receive
distributions on such Common Shares if, as and when authorized and declared by
the Board of Directors of the Company out of assets legally available therefor
and to share ratably in the assets of the Company legally available for
distribution to its shareholders in the event of its liquidation, dissolution or
winding-up after payment of, or adequate provision for, all known debts and
liabilities of the Company. The Company intends to continue to make quarterly
distributions to holders of Common Shares.
Subject to the provisions of the Company's Charter regarding the
consequences of actually or constructively owning Common Shares in violation of
the Ownership Limit Provision and to the matters discussed under "Certain
Provisions of Maryland Law and of the Company's Charter and Bylaws--Control
Share Acquisitions," each outstanding Common Share entitles the holder to one
vote on all matters submitted to a vote of shareholders, including the election
of directors, and, except as otherwise required by law or except as provided
with respect to any other class or series of stock, the holders of such shares
will possess the exclusive voting power. There is no cumulative voting in the
election of directors, which means that the holders of a majority of the
outstanding Common Shares can elect all of the directors then standing for
election and the holders of the remaining shares will not be able to elect any
directors.
Holders of Common Shares have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of the Company. See
"--Restrictions on Ownership."
Subject to the provisions of the Company's Charter regarding the
consequences of actually or constructively owning Common Shares in violation of
the Ownership Limit Provision, all Common Shares will have equal dividend,
distribution, liquidation and other rights and will have no preference,
appraisal or exchange rights.
Pursuant to the Maryland General Corporation Law (the "MGCL"), a corporation
generally cannot dissolve, amend its charter, merge, sell all or substantially
all of its assets, engage in a share exchange or engage in similar transactions
outside the ordinary course of business unless approved by the affirmative vote
of shareholders holding at least two-thirds of the shares entitled to vote on
the matter unless a lesser percentage (but not less than a majority of all of
the votes to be cast on the matter) is set forth in the corporation's charter.
The Company's Charter provides that a majority of all of the votes to be cast is
the required vote of shareholders in such situations, except that any proposal
(i) to permit cumulative voting in the election of directors, (ii) to alter
provisions of the Company's Charter with respect to the classified Board,
removal of directors, amendment of the Company's Bylaws, as amended (the
"Bylaws"), preemptive rights, indemnification of corporate agents and limitation
of liability of officers and directors, or (iii) that would jeopardize the
Company's status as a REIT for tax purposes, requires, in each case, the
approval of two-thirds of the Common Shares entitled to vote. In addition, a
number of other provisions of the MGCL could have a significant effect on the
Common Shares and the rights and obligations of holders thereof. See "Certain
Provisions of Maryland Law and of the Company's Charter and Bylaws."
6
<PAGE>
PREFERRED SHARES
Preferred Shares may be issued from time to time, in one or more classes, as
authorized by the Board of Directors. Prior to issuance of shares of each class,
the Board of Directors is required by the MGCL and the Company's Charter to fix
for each such class, the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption, as are permitted by
Maryland law. The Board could authorize the issuance of Preferred Shares with
terms and conditions which could have the effect of discouraging a takeover or
other transaction which holders of some, or a majority, of the Company's
outstanding shares might believe to be in their best interests or in which
holders of some, or a majority, of shares might receive a premium for their
shares over the market price of such shares. As of the date hereof, no Preferred
Shares are outstanding. If and when issued, the Preferred Shares will be subject
to the restrictions on ownership set forth below.
The applicable Prospectus Supplement will describe the following terms of
any Preferred Shares in respect of which this Prospectus is being delivered (to
the extent applicable to such Preferred Shares): (1) the specific designation,
number of shares, seniority and purchase price; (2) any liquidation preference
per share; (3) any date of maturity; (4) any redemption, repayment or sinking
fund provisions; (5) any dividend rate or rates and the dates on which any such
dividends will be payable (or the method by which such rates or dates will be
determined); (6) any voting rights; (7) whether the Preferred Shares are
convertible and, if so, the securities or rights into which such Preferred
Shares are convertible (which may include other Preferred Shares) and the terms
and conditions upon which such conversions will be effected including the
initial conversion prices or rates, the conversion period and any other related
provisions; (8) the place or places where dividends and other payments on the
Preferred Shares will be payable; (9) any additional voting, dividend,
liquidation, redemption and other rights, preferences, privileges, limitations
and restrictions, including restrictions directed at maintaining the Company's
REIT status; and (10) all material federal income tax considerations applicable
to such Preferred Shares. The Preferred Shares offered hereby will, when issued,
be fully paid and nonassessable.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
shares may be owned, actually or constructively, by five or fewer individuals
(as defined in the Code to include certain entities) during the last half of a
taxable year and the shares must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months (or during a
proportionate part of a shorter taxable year). In addition, certain income
received by the Company from related parties will not be treated as "rents from
real property" in determining whether the Company satisfies the REIT income
tests. Because the Board of Directors believes it is essential for the Company
to qualify as a REIT, the Board of Directors has adopted, and the shareholders
have approved, a provision in the Charter restricting the acquisition of shares
of the Company's capital stock (the "Ownership Limit Provision").
The Ownership Limit Provision provides that, subject to certain exceptions,
no shareholder may actually own, beneficially own (within the meaning of Section
13(d)(3) of the Exchange Act), or be deemed to own by virtue of the constructive
ownership provisions of the Code, more than the Ownership Limit, which is equal
to 9.8% of the lesser in value of the total number or value of the outstanding
Common Shares or Preferred Shares (or such other number or value of Preferred
Shares as the Board of Directors may determine in fixing the terms of the
Preferred Shares). The constructive ownership rules of the Code are complex and
may cause shares owned actually or constructively by two or more related
individuals and/ or entities to be constructively owned by one individual or
entity. As a result, the acquisition of less than 9.8% of the outstanding Common
Shares or 9.8% (or such other number or value) of the Preferred Shares (or the
acquisition of an interest in an entity which owns shares) by an individual or
entity could cause that individual or entity (or another individual or entity)
to own constructively in excess of 9.8% of the outstanding Common Shares or 9.8%
(or such other number or value) of the outstanding Preferred Shares, and thus
subject such shares to the Ownership Limit Provision. The Ownership Limit
Provision
7
<PAGE>
also prohibits the acquisition or transfer of Common Shares and Preferred Shares
if the acquisition or transfer would result in the outstanding shares of capital
stock of the Company being owned by fewer than 100 persons, and prohibits actual
or constructive ownership of capital stock if as a result of such ownership the
Company would violate the "five or fewer" rule discussed above or would
otherwise cause the Company to fail to qualify as a REIT.
The Board of Directors may in its sole discretion waive the Ownership Limit
with respect to a particular acquisition of actual or constructive ownership of
the Company's shares, provided certain conditions are met. The Board of
Directors is not required to consider a request for such waiver, and, as a
condition for granting such a waiver, the Board of Directors may require
opinions of counsel or rulings satisfactory to it and/or an undertaking from the
applicant with respect to preserving the REIT status of the Company.
Except as provided below, in the event of a transfer, acquisition or other
ownership of the Company's capital stock (including any constructive acquisition
or transfer or ownership) in violation of the Ownership Limit Provision, such
transfer, acquisition or ownership shall be null and void AB INITIO, and the
intended transferee or owner will acquire no rights to, or economic interest in,
the shares.
The Charter provides that, if the Board of Directors requests and receives a
ruling from the IRS or an opinion of counsel satisfactory to the Board of
Directors and is otherwise satisfied such actions can be taken without
jeopardizing the Company's REIT status, shares of the Company's capital stock
owned, actually or constructively, or transferred to or otherwise acquired,
actually or constructively, by a person in violation of the Ownership Limit
Provision ("Prohibited Shares") will become subject to a mechanism that, in
effect, is designed to prohibit the person who purported to acquire those shares
from voting, receiving dividends or other distributions, and participating in
the appreciation in value of those shares. In general, pursuant to this
mechanism, the Prohibited Shares would automatically be transferred to a trustee
of a trust, the beneficiary of which would be one or more charitable
organizations, at the close of business on the day preceding the violative
transaction. The intended owner of the Prohibited Shares would have no right to
vote or receive distributions on the Prohibited Shares, and generally would be
entitled to receive only the net proceeds from a sale of the Prohibited Shares,
or the purchase price paid by such person for the Prohibited Shares (or value as
of the date of the acquisition, in the case of an acquisition other than a
purchase), whichever is less. The Company will have a right to purchase the
Prohibited Shares for fair market value during a specified period. Until the
Board of Directors requests and receives a ruling from the IRS or an opinion of
counsel and is otherwise satisfied that implementation of these provisions will
not jeopardize the Company's REIT status, these provisions will not take effect
and attempted transfers or ownership of shares in violation of the Ownership
Limit Provision will be void AB INITIO.
The Ownership Limitation Provision contains an exception for Common Shares
acquired by affiliates of Aldrich, Eastman and Waltch, L.P. ("AEW") and funds
managed by an affiliate of Copley Real Estate Advisors, Inc. ("Copley") in the
transactions undertaken in connection with the formation of the Company (the
"Formation Shares"), that are intended to prevent such entities from violating
the Ownership Limitation Provision as a result of participating in such
transactions. This exception continues to apply to Formation Shares in the hands
of a direct and indirect transferee of these entities, provided the transferee
is a qualified pension fund and other conditions are met.
The Ownership Limit Provision will not be automatically removed even if the
REIT provisions of the Code are changed so as to remove any ownership
concentration limitation. Except as otherwise described above, any change of the
Ownership Limit Provision would require an amendment to the Charter. Such
amendment to the Charter requires the affirmative vote of holders owning a
majority of the outstanding shares entitled to vote, unless such amendment would
cause the Company to lose its status as a REIT for tax purposes, in which event
the affirmative vote of holders of two-thirds of the outstanding shares entitled
to vote would be required. In addition to preserving the Company's status as a
REIT, the Ownership Limit Provision may have the effect of precluding an
acquisition of control of the Company without the approval of the Board of
Directors.
8
<PAGE>
All certificates representing Common Shares bear a legend referring to the
restrictions described above.
All persons who own a specified percentage (or more) of the outstanding
shares of the Company's capital stock must file a statement with the Company
containing information regarding their ownership of Common Shares, as set forth
in the income tax regulations promulgated under the Code (the "Treasury
Regulations").
TRANSFER AGENT AND REGISTRAR
The Company has appointed Norwest Bank, Minnesota, National Association as
its transfer agent and registrar.
9
<PAGE>
CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and
the Company's Charter and Bylaws. The summary does not purport to be complete
and is subject to and qualified in its entirety by reference to the Company's
Charter and Bylaws, copies of which are filed as exhibits to the Registration
Statement of which this Prospectus is a part, and to Maryland law.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company's Charter provides that the initial number of directors of the
Company was three (3), which number may be increased or decreased pursuant to
the Bylaws of the Company but in no event shall be less than the minimum number
required by the MGCL, which in the case of the Company is three (3). The
Company's Bylaws currently provide that the number of directors of the Company
may be established by the Board of Directors but may not be fewer than the
minimum number required by the MGCL nor more than fifteen (15). The Company has
set the number of directors to seven (7). Any vacancy will be filled, at any
regular meeting or at any special meeting called for that purpose, by a majority
of the remaining directors, except that a vacancy resulting from an increase in
the number of directors will be filled by a majority of the entire board of
directors. Pursuant to the terms of the Charter, the directors are divided into
three classes. One class held office initially for a term that expired at the
annual meeting of shareholders held in 1995 (and such directors were re-elected
to terms expiring in 1998), another class holds office initially for a term
expiring at the annual meeting of shareholders to be held in 1996 and the
remaining class holds office initially for a term expiring at the annual meeting
of shareholders to be held in 1997. As the term of each class expires, directors
in that class will be elected for a term of three years and until their
successors are duly elected and qualify. The Company believes that
classification of the Board of Directors will help to assure the continuity and
stability of the Company's business strategies and policies as determined by the
Board of Directors.
The classified director provision could have the effect of making the
removal of incumbent directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its shareholders. At least two annual meetings of
shareholders, instead of one, will generally be required to effect a change in a
majority of the Board of Directors. Thus, the classified board provision could
increase the likelihood that incumbent directors will retain their positions.
Holders of voting shares will have no right to cumulative voting for the
election of directors. Consequently, at each annual meeting of shareholders, the
holders of a majority of shares entitled to vote will be able to elect all of
the successors of the class of directors whose term expires at that meeting.
REMOVAL OF DIRECTORS
The Charter provides that a director may be removed with or without cause by
the affirmative vote of at least two-thirds of the votes entitled to be cast in
the election of directors, and by the vote required to elect a director, the
shareholders may fill a vacancy on the Board resulting from removal. This
provision, when coupled with the provision in the Bylaws authorizing the Board
of Directors to fill vacant directorships, could preclude shareholders from
removing incumbent directors except upon a substantial affirmative vote and
filling the vacancies created by such removal with their own nominees.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Charter limits the liability of the Company's directors and
officers to the Company and its shareholders to the fullest extent permitted
from time to time by Maryland law. Maryland law presently permits the liability
of directors and officers to a corporation or its shareholders for money damages
to be limited, except (i) to the extent that it is proved that the director or
officer actually received an improper benefit or profit, or (ii) to the extent
that a judgment or other final adjudication is entered in a proceeding based on
a finding that the director's or officer's action, or failure to act, was the
result of
10
<PAGE>
active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding. This provision does not limit the ability of the
Company or its shareholders to obtain other relief, such as an injunction or
rescission.
The Company's Charter and Bylaws require the Company to indemnify its
directors, officers and certain other parties to the fullest extent permitted
from time to time by Maryland law. The Charter also permits the Company to
indemnify employees, agents and other persons acting on behalf of or at the
request of the Company. The MGCL permits a corporation to indemnify its
directors, officers and certain other parties 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 to or at the request of the corporation, unless it is established
that: (i) the act or omission of the indemnified party 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; (ii) the indemnified party actually
received an improper personal benefit; or (iii) in the case of any criminal
proceeding, the indemnified party had reasonable cause to believe that the act
or omission was unlawful. Indemnification may be made against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by the
director or officer in connection with the proceeding; provided, however, that
if the proceeding is one by or in the right of the corporation, indemnification
may not be made with respect to any proceeding in which the director or officer
has been adjudged to be liable to the corporation. In addition, a director or
officer may not be indemnified with respect to any proceeding charging improper
personal benefit to the director or officer in which the director or officer was
adjudged to be liable on the basis that personal benefit was improperly
received. The termination of any proceeding by conviction, or upon a plea of
nolo contendere or its equivalent, or an entry of any order of probation prior
to judgment, creates a rebuttable presumption that the director or officer did
not meet the requisite standard of conduct required for indemnification to be
permitted. It is the position of the Commission that indemnification of
directors and officers for liabilities arising under the Securities Act is
against public policy and is unenforceable pursuant to Section 14 of the
Securities Act.
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 directly or indirectly beneficially owns ten
percent or more of the voting power of the corporation's shares or an affiliate
of the corporation who, at any time within the two-year period prior to the date
in question, was the beneficial owner of ten percent or more of the voting power
of the then-outstanding voting stock of the corporation (an "Interested
Shareholder") or an affiliate thereof are prohibited for five years after the
most recent date on which the Interested Shareholder became an Interested
Shareholder. Thereafter, any such business combination must be recommended by
the Board of Directors of such corporation and approved by the affirmative vote
of at least (a) 80% of the votes entitled to be cast by holders of outstanding
voting shares of the corporation and (b) two-thirds of the votes entitled to be
cast by holders of outstanding voting shares of the corporation other than
shares held by the Interested Shareholder with whom the business combination is
to be effected, unless, among other things, the corporation's shareholders
receive a minimum price (as defined in the MGCL) for their shares and the
consideration is received in cash or in the same form as previously paid by the
Interested Shareholder for its shares. These provisions of Maryland law do not
apply, however, to business combinations that are approved or exempted by the
Board of Directors of the corporation prior to the time that the Interested
Shareholder becomes an Interested Shareholder. The Board of Directors has
exempted from these provisions of the MCGL any business combination with certain
officers of the Company including Stephen O. Evans and F. Keith Withycombe, and
Evans Withycombe, AEW and Copley and all present or future affiliates or
associates of, or any other person acting in concert or as a group with, any of
the foregoing persons.
11
<PAGE>
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror or by officers or directors who
are employees of the corporation. "Control Shares" are voting shares of stock
which, if aggregated with all other such shares of stock previously acquired by
such person, or in respect of which such person is able to exercise or direct
the exercise of voting power, would entitle the acquiror directly or indirectly
to exercise voting power in electing directors within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third, (ii)
one-third or more but less than a majority, or (iii) a majority of all voting
power. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained shareholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the Board of Directors to call a special meeting of shareholders to
be held within 50 days of demand to consider the voting rights of the shares. If
no request for a meeting is made, the corporation may itself present the
question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the 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 of any meeting of shareholders at which the voting rights of such shares are
considered and not approved. If voting rights for control shares are approved at
a shareholders meeting and, as a result, the acquiror becomes entitled to vote a
majority of the then outstanding shares entitled to vote, all other shareholders
may exercise appraisal rights. The fair value of the shares as determined for
purposes of such appraisal rights may not be less than the highest price per
share paid in the control share acquisition, and certain limitations and
restrictions otherwise applicable to the exercise of dissenters' rights do not
apply in the context of a control share acquisition.
The control share acquisition statute does not apply to 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.
The Bylaws of the Company contain a provision exempting from the control
share acquisition statute any and all acquisitions of Shares by any officer or
director of the Company and by Stephen O. Evans, F. Keith Withycombe, Evans
Withycombe, AEW and Copley and all present or future affiliates or associates
of, or any other person acting in concert or as a group with, any of the
foregoing persons. There can be no assurance that such provision will not be
amended or eliminated at any point in the future.
AMENDMENTS TO THE CHARTER
The Company's Charter may be amended only by the affirmative vote of the
holders of not less than a majority of all of the votes entitled to be cast on
the matter, except that any proposal (i) to permit cumulative voting in the
election of directors; (ii) to alter provisions of the Company's Charter with
respect to the classified Board, removal of directors, amendment of the Bylaws,
preemptive rights, indemnification of corporate agents and limitation of
liability of officers and directors; or (iii) that would jeopardize the
Company's status as a REIT for tax purposes, requires, in each case, the
approval of two-thirds of the shares entitled to vote. The Company's Bylaws may
be amended by the affirmative vote of holders of not less than two-thirds of all
of the votes entitled to be cast on the matter. Subject to the right of the
shareholders to adopt, alter and repeal Bylaws, the Board of Directors is
authorized to adopt, alter or repeal the Bylaws.
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DISSOLUTION OF THE COMPANY
The dissolution of the Company must be approved by the affirmative vote of
the holders of not less than a majority of all of the votes entitled to be cast
on the matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (a) with respect to an annual meeting
of shareholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by shareholders may be made only
(i) pursuant to the Company's notice of the meeting, (ii) by the Board of
Directors or (iii) by a shareholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws, and (b)
with respect to special meetings of shareholders, only the business specified in
the Company's notice of meeting may be brought before the meeting of
shareholders, and nominations of persons for election to the Board of Directors
may be made only (i) pursuant to the Company's notice of the meeting, (ii) by
the Board of Directors or (iii) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by a shareholder who
is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
The provisions in the Charter on classification of the Board of Directors,
the business combination provisions of the MGCL and, control share acquisition
provisions of the MGCL, and the advance notice provisions of the Bylaws could
have the effect of discouraging a takeover or other transaction in which holders
of some, or a majority, of the shares might receive a premium for their shares
over the then prevailing market price or which such holders might believe to be
otherwise in their best interests.
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DESCRIPTION OF WARRANTS
The Company may issue warrants to purchase Debt Securities (the "Debt
Warrants"), Preferred Stock (the "Preferred Stock Warrants") or Common Stock
(the "Common Stock Warrants," collectively with the Debt Warrants and the
Preferred Stock Warrants, the "Warrants"). Warrants may be issued independently
or together with any Securities and may be attached to or separate from such
Securities. The Warrants are to be issued under warrant agreements (each, a
"Warrant Agreement") to be entered into between the Company and a bank or trust
company, as warrant agent (the "Warrant Agent"), all as shall be set forth in
the Prospectus Supplement relating to the Warrants being offered pursuant
thereto.
DEBT WARRANTS
The applicable Prospectus Supplement will describe the terms of Debt
Warrants offered thereby, the Warrant Agreement relating to such Debt Warrants
and the debt warrant certificates representing such Debt Warrants, including the
following: (1) the title of such Debt Warrants; (2) the aggregate number of such
Debt Warrants; (3) the price or prices at which such Debt Warrants will be
issued; (4) the designation, aggregate principal amount and terms of the Debt
Securities purchasable upon exercise of such Debt Warrants, and the procedures
and conditions relating to the exercise of such Debt Warrants; (5) the
designation and terms of any related Debt Securities with which such Debt
Warrants are issued, and the number of such Debt Warrants issued with each such
security; (6) the date, if any, on and after such Debt Warrants and the related
Debt Securities will be separately transferable; (7) the principal amount of
Debt Securities purchasable upon exercise of each Debt Warrant, and the price at
which such principal amount of Debt Securities may be purchased upon such
exercise; (8) the date on which the right to exercise such Debt Warrants shall
commence, and the date on which such right shall expire; (9) the maximum or
minimum number of such Debt Warrants which may be exercised at any time; (10) a
discussion of material federal income tax considerations, if any; and (11) any
other terms of such Debt Warrants and terms, procedures and limitations relating
to the exercise of such Debt Warrants.
Debt Warrant certificates will be exchangeable for new Debt Warrant
certificates of different denominations, and Debt Warrants may be exercised at
the corporate trust office of the Warrant Agent or any other office indicated in
the Prospectus Supplement. Prior to the exercise of their Debt Warrants, holders
of Debt Warrants will not have any of the rights of holders of the securities
purchasable upon such exercise and will not be entitled to payments of principal
of (or premium, if any) or interest, if any, on the securities purchasable upon
such exercise.
OTHER WARRANTS
The applicable Prospectus Supplement will describe the following terms of
Preferred Stock Warrants and Common Stock Warrants in respect of which this
Prospectus is being delivered: (1) the title of such Warrants; (2) the
Securities for which such Warrants are exerciseable; (3) the price or prices at
which such Warrants will be issued; (4) the number of such Warrants issued with
each share of Preferred Stock or Common Stock; (5) any provisions for adjustment
of the number or amount of shares of Preferred Stock or Common Stock receivable
upon exercise of such Warrants or the exercise price of such Warrants; (6) if
applicable, the date on and after which such Warrants and the related Preferred
Stock or Common Stock will be separately transferable; (7) if applicable, a
discussion of material federal income tax considerations; (8) any other terms of
such Warrants, including terms, procedures and limitations relating to the
exchange and exercise of such Warrants; (9) the date on which the right to
exercise such Warrants shall commence, and the date on which such right shall
expire; and (10) the maximum or minimum number of such Warrants which may be
exercised at any time.
EXERCISE OF WARRANTS
Each Warrant will entitle the holder of Warrants to purchase for cash such
principal amount of Debt Securities or shares of Preferred Stock or Common Stock
at such exercise price as shall in each case be set forth in, or be determinable
as set forth in, the Prospectus Supplement relating to the Warrants offered
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thereby. Warrants may be exercised at any time up to the close of business on
the expiration date set forth in the Prospectus Supplement relating to the
Warrants offered thereby. After the close of business on the expiration date,
unexercised Warrants will become void.
Warrants may be exercised as set forth in the Prospectus Supplement relating
to the Warrants offered thereby. Upon receipt of payment and the warrant
certificate properly completed and duly executed at the corporate trust office
of the Warrant Agent or any other office indicated in the Prospectus Supplement,
the Company will, as soon as practicable, forward the Debt Securities or shares
of Preferred Stock or Common Stock purchasable upon such exercise. If less than
all of the Warrants represented by such warrant certificate are exercised, a new
warrant certificate will be issued for the remaining Warrants.
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DESCRIPTION OF THE DEBT SECURITIES
The following sets forth certain general terms and provisions of the
indentures under which the Debt Securities are to be issued. The particular
terms of the Debt Securities will be set forth in a Prospectus Supplement
relating to such Debt Securities.
The Debt Securities will represent unsecured general obligations of the
Company, unless otherwise provided in the Prospectus Supplement. As indicated in
the applicable Prospectus Supplement, the Debt Securities will either be senior
debt, senior to all future subordinated indebtedness of the Company and pari
passu with other current and future unsecured, unsubordinated indebtedness of
the Company or, in the alternative, subordinated debt subordinate in right of
payment to current and future senior debt and pari passu with other future
subordinated indebtedness of the Company. The Debt Securities will be issued
under an indenture in the form that has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part, subject to such
amendments or supplemental indentures as are adopted from time to time (each an
"Indenture" and collectively, the "Indentures"). The Indentures will be executed
by the Company and one or more trustees (each a "Trustee"). The following
summary of certain provisions of the Indentures does not purport to be complete
and is subject to, and qualified in its entirety by, reference to all the
provisions of the Indentures, including the definitions therein of certain
terms. Wherever particular sections or defined terms of the Indentures are
referred to, it is intended that such sections or defined terms shall be
incorporated herein by reference.
GENERAL
The Indentures will not limit the amount of Debt Securities which may be
issued thereunder. Reference is made to the Prospectus Supplement of the
following terms of the Debt Securities offered pursuant thereto: (i) designation
(including whether they are senior debt or subordinated debt and whether such
debt is convertible), aggregate principal amount, purchase price and
denomination; (ii) the date of maturity; (iii) interest rate or rates (or method
by which such rate will be determined), if any; (iv) the dates on which any such
interest will be payable; (v) the place or places where the principal of and
interest, if any, on the Debt Securities will be payable; (vi) any redemption or
sinking fund provisions; (vii) any rights of the holders of Debt Securities
(each a "Holder") to convert the Debt Securities into other securities or
property of the Company; (viii) the terms, if any, on which such Debt Securities
will be subordinate to other debt of the Company; (ix) if other than the
principal amount hereof, the portion of the principal amount of the Debt
Securities which will be payable upon declaration of acceleration of the
maturity thereof or provable in bankruptcy; (x) any Events of Default in
addition to or in lieu of those described herein and remedies therefor; (xi) any
trustees, authenticating or paying agents, transfer agents or registrars or any
other agents with respect to the Debt Securities; (xii) listing (if any) on a
securities exchange; (xiii) whether such Debt Securities will be certificated or
in book-entry form; and (xiv) any other specific terms of the Debt Securities,
including any additional events of default or covenants provided for with
respect to Debt Securities, and any terms which may be required by or advisable
under United States laws or regulations.
Debt Securities may be presented for exchange or transfer in the manner, at
the places and subject to the restrictions set forth in the Debt Securities and
the Prospectus Supplement. Such services will be provided without charge, other
than any tax or other governmental charge payable in connection therewith, but
subject to the limitations provided in the Indentures.
Debt Securities will bear interest at a fixed rate or a floating rate. Debt
Securities bearing no interest or interest at a rate which, at the time of
issuance, is below the prevailing market rate, will be sold at a discount below
its stated principal amount. Special United States federal income tax
considerations applicable to any such discounted Debt Securities or to any Debt
Securities issued at par which is treated as having been issued at a discount
for United States income tax purposes will be described in the relevant
Prospectus Supplement.
The Indentures will not contain any covenant or other specific provision
affording protection to Holders of the Debt Securities in the event of a highly
leveraged transaction or a change in control of the
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Company, except to the limited extent described below under "--Consolidation,
Merger and Sale of Assets." Restrictions on ownership and transfers of the
Company's Common Stock are designed to preserve its status as a REIT and,
therefore, may act to prevent or hinder a change of control. The Company's
Charter and Bylaws also contain other provisions which may prevent or limit a
change of control. See "Description of the Capital Stock."
MODIFICATION AND WAIVER
Each Indenture will provide that modifications and amendments of such
Indenture may be made by the Company and the applicable Trustee, with the
consent of the Holders of a majority in aggregate principal amount of the
outstanding Debt Securities issued under such Indenture which are affected by
the modification or amendment voting as one class; provided that no such
modification or amendment may, without the consent of the Holder of each such
Debt Security affected thereby, among other things: (a) extend the final
maturity of such Debt Securities, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon, or reduce any
amount payable on redemption thereof, or reduce the amount of the principal of
Debt Securities issued with original issue discount that would be due and
payable upon an acceleration of the maturity thereof or the amount thereof
provable in bankruptcy, or extend the time or reduce the amount of any payment
to any sinking fund or analogous obligation relating to such Debt Securities, or
materially and adversely affect any right to convert such Debt Securities in
accordance with such Indenture or impair or affect the right of any Holder of
Debt Securities to institute suit for the payment thereof or, if such Debt
Securities provide therefor, any right of repayment at the option of the Holder,
(b) reduce the aforesaid percentage of such Debt Securities of any series, the
consent of the Holders of which is required for any such supplemental indenture,
(c) reduce the percentage of such Debt Securities of any series necessary to
consent to waive any past default under such Indenture to less than a majority,
or (d) modify any of the provisions of the sections of such Indenture relating
to supplemental indentures with the consent of the Holders, except to increase
any such percentage or to provide that certain other provisions of such
Indenture cannot be modified or waived without the consent of each Holder
affected thereby, provided, however, that this clause shall not be deemed to
require the consent of any Holder with respect to changes in the references to
"the Trustee" and concomitant changes in such section or the deletion of this
proviso.
Each Indenture will provide that a supplemental indenture which changes or
eliminates any covenant or other provision of such Indenture which has expressly
been included solely for the benefit of one or more particular series of Debt
Securities, or which modifies the rights of the Holders of such series with
respect to such covenant or other provision, shall be deemed not to affect the
rights under such Indenture of the Holders of Debt Securities of any other
series.
The indenture in the form that has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part and each supplemental
indenture entered into thereunder will provide that the Company and the
applicable Trustee may, without the consent of the Holders of any series of Debt
Securities issued thereunder, enter into additional supplemental indentures for
one of the following purposes: (1) to secure any Debt Securities issued
thereunder; (2) to evidence the succession of another corporation to the Company
and the assumption by any such successor of the covenants, agreements and
obligations of the Company, in such Indenture and in the Debt Securities issued
thereunder; (3) to add to the covenants of the Company or to add any additional
events of default; (4) to cure any ambiguity, to correct or supplement any
provision in such Indenture that may be inconsistent with any other provision of
such Indenture or to make any other provisions with respect to matters or
questions arising under such Indenture, provided that such action shall not
adversely affect the interests of the Holders of any series of Debt Securities
issued thereunder in any material respect; (5) to establish the form and terms
of Debt Securities issued thereunder; (6) to evidence and provide for a
successor trustee under such Indenture with respect to one or more series of
Debt Securities issued thereunder or to provide for or facilitate the
administration of the trusts under such Indenture by more than one trustee; (7)
to permit or facilitate the issuance of Debt Securities in global form or bearer
form or to provide for uncertificated Debt Securities to be issued thereunder;
(8) to change or eliminate any provision of such Indenture, provided that any
such
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change or elimination shall become effective only when there are no Debt
Securities outstanding of any series created prior to the execution of such
supplemental Indenture which are entitled to the benefit of such provision; or
(9) to amend or supplement any provision contained in such Indenture, which was
required to be contained in the Indenture in order for the Indenture to be
qualified under the Trust Indenture Act of 1939, if the Trust Indenture Act of
1939 or regulations thereunder change what is so required to be included in
qualified indentures, in any manner not inconsistent with what then may be
required for such qualification.
EVENTS OF DEFAULT
Unless otherwise provided in any Prospectus Supplement, the following will
be events of default under each Indenture with respect to each series of Debt
Securities issued thereunder: (a) failure to pay principal (or premium, if any)
on any series of the Debt Securities outstanding under such Indenture when due;
(b) failure to pay any interest on any series of the Debt Securities outstanding
under such Indenture when due, continued for 30 days; (c) default in the
payment, if any, of any sinking fund installment when due, payable by the terms
of such series of Debt Securities; (d) failure to perform any other covenant or
warranty of the Company contained in such Indenture or such Debt Securities
continued for 90 days after written notice; (e) certain events of bankruptcy,
insolvency or reorganization of the Company; and (f) any other Event of Default
provided in a supplemental indenture with respect to a particular series of Debt
Securities. In case an event of default described in (a), (b) or (c) above shall
occur and be continuing with respect to any series of such Debt Securities, the
applicable Trustee or the Holders of not less than 25% in aggregate principal
amount of the Debt Securities of such series then outstanding (each such series
acting as a separate class) may declare the principal (or, in the case of
discounted Debt Securities, the amount specified in the terms thereof) of such
series to be due and payable. In case an event of default described in (d) above
shall occur and be continuing, the applicable Trustee or the Holders of not less
than 25% in aggregate principal amount of all Debt Securities of each affected
series then outstanding under such Indenture (treated as one class) may declare
the principal (or, in the case of discounted Debt Securities, the amount
specified in the terms thereof) of all Debt Securities of all such series to be
due and payable. If an event of default described in (e) above shall occur and
be continuing then the principal amount (or, in the case of discounted Debt
Securities, the amount specified in the terms thereof) of all the Debt
Securities outstanding shall be and become due and payable immediately, without
notice or other action by any Holder or the applicable Trustee, to the full
extent permitted by law. Any event of default with respect to particular series
of Debt Securities under such Indenture may be waived by the Holders of a
majority in aggregate principal amount of the outstanding Debt Securities of
such series (voting as a class), except in each case a failure to pay principal
of or premium, if any, or interest on such Debt Securities or a default in
respect of a covenant or provision which cannot be modified or amended without
the consent of each Holder affected thereby.
Each Indenture will provide that the applicable Trustee may withhold notice
to the Holders of any default with respect to any series of Debt Securities
(except in payment of principal of or interest or premium on, or sinking fund
payment in respect of, the Debt Securities) if the applicable Trustee considers
it in the interest of Holders to do so.
The Company will be required to furnish to each Trustee annually a statement
as to its compliance with all conditions and covenants in the applicable
Indenture.
Each Indenture will contain a provision entitling the applicable Trustee to
be indemnified by the Holders before proceeding to exercise any trust or power
under such Indenture at the request of such Holders. Each Indenture will provide
that the Holders of a majority in aggregate principal amount of the then
outstanding Debt Securities of any series may direct the time, method and place
of conducting any proceedings for any remedy available to the applicable Trustee
or of exercising any trust or power conferred upon the applicable Trustee with
respect to the Debt Securities of such series, provided, however, that the
applicable Trustee may decline to follow any such direction if, among other
reasons, the applicable Trustee determines in good faith that the actions or
proceedings as directed may not lawfully be taken, would involve the applicable
Trustee in personal liability or would be unduly prejudicial to the
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Holders of the Debt Securities of such series not joining in such direction. The
right of a Holder to institute a proceeding with respect to the applicable
Indenture will be subject to certain conditions precedent including, without
limitation, that the Holders of not less than 25% in aggregate principal amount
of the Debt Securities of such series then outstanding under such Indenture make
a written request upon the applicable Trustee to exercise its powers under such
Indenture, indemnify the applicable Trustee and afford the applicable Trustee
reasonable opportunity to act, but the Holder has an absolute right to receipt
of the principal of, premium, if any, and interest when due on the Debt
Securities, to require conversion of Debt Securities if such Indenture provides
for convertibility at the option of the Holder and to institute suit for the
enforcement thereof.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Each Indenture will provide that the Company may not consolidate with, merge
into or sell, convey or lease all or substantially all of its assets to any
Person unless the Company is the surviving corporation or the successor Person
is a corporation organized under the laws of any domestic jurisdiction and
assumes the Company's obligations on the Debt Securities issued thereunder, and
under such Indenture, and after giving effect thereto no event of default, and
no event which, after notice or lapse of time or both, would become an event of
default shall have occurred and be continuing, and that certain other conditions
are met.
CERTAIN COVENANTS
EXISTENCE. Except as permitted under "--Consolidation, Merger or Sale of
Assets," the Indentures will require the Company to do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (by articles of incorporation, bylaws and statute) and
franchises, PROVIDED, HOWEVER, that the Company shall not be required to
preserve any right or franchise if its Board of Directors determines that the
preservation thereof is no longer desirable in the conduct of its business.
MAINTENANCE OF PROPERTIES. The Indentures will require the Company to cause
all of its material properties used or useful in the conduct of its business or
the business of any subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; PROVIDED, HOWEVER, that the Company and
its subsidiaries shall not be prevented from selling or otherwise disposing of
their properties for value in the ordinary course of business.
INSURANCE. The Indentures will require the Company to cause each of its and
its subsidiaries' insurable properties to be insured against loss or damage with
insurers of recognized responsibility and, if described in the applicable
Prospectus Supplement, in specified amounts and with insurers having a specified
rating from a recognized insurance rating service.
PAYMENT OF TAXES AND OTHER CLAIMS. The Indentures will require the Company
to pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any subsidiary or upon the income, profits or property of the
Company or any subsidiary and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any subsidiary; PROVIDED, HOWEVER, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith.
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Indentures will require the
Company, within 15 days of each of the respective dates by which the Company
would have been required to file annual reports, quarterly reports and other
documents with the Commission if the Company were so subject, (i) to transmit by
mail to all holders of Debt Securities, as their names and addresses appear in
the applicable register for such Debt Securities,
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without cost to the holders, copies of the annual reports, quarterly reports and
other documents that the Company would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Company
were subject to such Sections, (ii) to file with the applicable Trustee copies
of the annual reports, quarterly reports and other documents that the Company
would have been required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act if the Company were subject to such Sections and (iii)
to supply, promptly upon written request and payment of the reasonable cost of
duplication and delivery, copies of the documents to any prospective holder.
ADDITIONAL COVENANTS. Any additional covenants of the Company with respect
to any series of Debt Securities will be set forth in the Prospectus Supplement
relating thereto.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the conversion price (or
manner of calculation thereof), the conversion period, provisions as to whether
conversion will be at the option of the Holders or the Company, the events
requiring an adjustment of the conversion price and provisions affecting
conversion in the event of redemption of such Debt Securities and any
restrictions on conversion, including restrictions directed at maintaining the
Company's REIT status.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Each Indenture will provide with respect to each series of Debt Securities
issued thereunder that the Company may terminate its obligations under such Debt
Securities of a series and such Indenture with respect to Debt Securities of
such series if: (i) all Debt Securities of such series previously authenticated
and delivered, with certain exceptions, have been delivered to the applicable
Trustee for cancellation and the Company has paid all sums payable by it under
the Indenture; or (ii) (A) the Debt Securities of such series mature within one
year or all of them are to be called for redemption within one year under
arrangements satisfactory to the applicable Trustee for giving the notice of
redemption, (B) the Company irrevocably deposits in trust with the applicable
Trustee, as trust funds solely for the benefit of the Holders of such Debt
Securities, for that purpose, money or U.S. Government Obligations or a
combination thereof sufficient (unless such funds consist solely of money, in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the applicable
Trustee), without consideration of any reinvestment, to pay principal of and
interest on the Debt Securities of such series to maturity or redemption, as the
case may be, and to pay all other sums payable by it under such Indenture, and
(C) the Company delivers to the applicable Trustee an officers' certificate and
an opinion of counsel, in each case stating that all conditions precedent
provided for in such Indenture relating to the satisfaction and discharge of
such Indenture with respect to the Debt Securities of such series have been
complied with. With respect to the foregoing clause (i), only the Company's
obligations to compensate and indemnify the applicable Trustee under the
Indenture shall survive. With respect to the foregoing clause (ii) only the
Company's obligations to execute and deliver Debt Securities of such series for
authentication, to maintain an office or agency in respect of the Debt
Securities of such series, to have moneys held for payment in trust, to register
the transfer or exchange of Debt Securities of such series, to deliver Debt
Securities of such series for replacement or to be cancelled, to compensate and
indemnify the applicable Trustee and to appoint a successor trustee, and its
right to recover excess money held by the applicable Trustee shall survive until
such Debt Securities are no longer outstanding. Thereafter, only the Company's
obligations to compensate and indemnify the applicable Trustee, and its right to
recover excess money held by the applicable Trustee shall survive.
Each Indenture will provide that the Company (i) will be deemed to have paid
and will be discharged from any and all obligations in respect of the Debt
Securities issued thereunder of any series, and the provisions of such Indenture
will, except as noted below, no longer be in effect with respect to the Debt
Securities of such series ("legal defeasance") and (ii) may omit to comply with
any term, provision, covenant or condition of such Indenture, and such omission
shall be deemed not to be an Event of Default
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under clause (d) of the first paragraph of "--Events of Default" with respect to
the outstanding Debt Securities of such series ("covenant defeasance"); PROVIDED
that the following conditions shall have been satisfied: (A) the Company has
irrevocably deposited in trust with the applicable Trustee as trust funds solely
for the benefit of the Holders of the Debt Securities of such series, for
payment of the principal of and interest of the Debt Securities of such series,
money or U.S. Government Obligations or a combination thereof sufficient (unless
such funds consist solely of money, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the applicable Trustee) without consideration of any
reinvestment and after payment of all federal, state and local taxes or other
charges and assessments in respect thereof payable by the applicable Trustee, to
pay and discharge the principal of and accrued interest on the outstanding Debt
Securities of such series to maturity or earlier redemption (irrevocably
provided for under arrangements satisfactory to the applicable Trustee), as the
case may be; (B) such deposit will not result in a breach or violation of, or
constitute a default under, such Indenture or any other material agreement or
instrument to which the Company is a party or by which it is bound; (C) no
default with respect to such Debt Securities of such series shall have occurred
and be continuing on the date of such deposit; (D) the Company shall have
delivered to such Trustee an opinion of counsel that (1) the Holders of the Debt
Securities of such series will not recognize income, gain or loss for federal
income tax purposes as a result of the Company's exercise of its option under
this provision of such Indenture and will be subject to federal income tax on
the same amount and in the same manner and at the same times as would have been
the case if such deposit and defeasance had not occurred, and (2) the Holders of
the Debt Securities of such series have a valid security interest in the trust
funds subject to no prior liens under the Uniform Commercial Code; and (E) the
Company has delivered to the applicable Trustee an officers' certificate and an
opinion of counsel, in each case stating that all conditions precedent provided
for in such Indenture relating to the defeasance contemplated have been complied
with. In the case of legal defeasance under clause (i) above, the opinion of
counsel referred to in clause (D)(l) above may be replaced by a ruling directed
to the applicable Trustee received from the Internal Revenue Service to the same
effect. Subsequent to a legal defeasance under clause (i) above, the Company's
obligations to execute and deliver Debt Securities of such series for
authentication, to maintain an office or agency in respect of the Debt
Securities of such series, to have moneys held for payment in trust, to register
the transfer or exchange of Debt Securities of such series, to deliver Debt
Securities of such series for replacement or to be cancelled, to compensate and
indemnify the applicable Trustee and to appoint a successor trustee, and its
right to recover excess money held by the applicable Trustee shall survive until
such Debt Securities are no longer outstanding. After such Debt Securities are
no longer outstanding, in the case of legal defeasance under clause (i) above,
only the Company's obligations to compensate and indemnify the applicable
Trustee and its right to recover excess money held by the applicable Trustee
shall survive.
APPLICABLE LAW
The Indentures will provide that the Debt Securities and the Indentures will
be governed by and construed in accordance with the laws of the State of New
York.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a brief and general summary of certain provisions that
currently govern the federal income tax treatment of the Company and its
stockholders.
The Company believes it has operated, and the Company intends to continue to
operate, in such a manner as to qualify as a REIT under the Code, but no
assurance can be given that it will at all times so qualify. The provisions of
the Code pertaining to REITs are highly technical and complex. For the
particular provisions that govern the federal income tax treatment of the
Company and its stockholders, reference is made to Section 856 through 860 of
the Code and the regulations thereunder. The following summary is qualified in
its entirety by such reference.
Under the Code, if certain requirements are met in a taxable year, a REIT
generally will not be subject to federal income tax with respect to income that
it distributes to its stockholders. If the Company fails to qualify during any
taxable year as a REIT, unless certain relief provisions are available, it will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates, which could have a material adverse
effect upon its stockholders.
In any year in which the Company qualifies to be taxed as a REIT,
distributions made to its stockholders out of current or accumulated earnings
and profits will be taxed to stockholders as ordinary income except that
distributions of net capital gains designated by the Company as capital gain
dividends will be taxed as long-term capital gain income to the stockholders. To
the extent that distributions exceed current or accumulated earnings and
profits, they will constitute a return of capital, rather than dividend or
capital gain income, and will reduce the basis for the stockholders' capital
stock with respect to which the distribution is paid and, to the extent that
they exceed such basis, will be taxed in the same manner as gain from the sale
of those shares of capital stock.
Investors are urged to consult their own tax advisors with respect to the
appropriateness of an investment in the Securities and with respect to the tax
consequences arising under federal law and the laws of any state, municipality
or other taxing jurisdiction, including tax consequences resulting from such
investor's own tax characteristics. In particular, foreign investors should
consult their own tax advisors concerning (i) income taxes on effectively
connected income, (ii) withholding taxes on dividends or interest, (iii) branch
profits taxes, (iv) taxes imposed under the Foreign Investment in Real Property
Tax Act and (v) other tax consequences that may arise under federal, state or
local law.
PLAN OF DISTRIBUTION
The Securities may be sold (i) through agents, (ii) through underwriters,
(iii) through dealers or (iv) directly to purchasers. The distribution of
Securities may be effected from time to time in one or more transactions at a
fixed price or prices, which may be changed, or at market prices prevailing at
the time of sale, at prices relating to such prevailing market prices or at
negotiated prices.
Offers to purchase the Securities may be solicited by agents designated by
the Company from time to time. Any such agent involved in the offer or sale of
the Securities will be named, and any commissions payable by the Company to such
agent will be set forth in the Prospectus Supplement. Unless otherwise indicated
in the Prospectus Supplement, any such agent will be acting on a best efforts
basis for the period of its appointment. Any such agent may be deemed to be an
underwriter, as that term is defined in the Securities Act, of the Securities so
offered and sold.
If an underwriter or underwriters are utilized in the sale of Securities,
the Company will execute an underwriting agreement with such underwriter or
underwriters at the time an agreement for such sale is reached, and the names of
the specific managing underwriter or underwriters, as well as any other
underwriters, and the terms of the transactions, including compensation of the
underwriters and dealers, if any, will be set forth in the Prospectus
Supplement, which will be used by the underwriters to make resales of the
Securities.
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If a dealer is utilized in the sale of the Securities, the Company will sell
such Securities to the dealer, as principal. The dealer may then resell such
Securities to the public at varying prices to be determined by such dealer at
the time of resale. The name of the dealer and the terms of the transactions
will be set forth in the Prospectus Supplement relating thereto.
Offers to purchase the securities may be solicited directly by the Company
and sales thereof may be made by the Company directly to institutional investors
or others. The terms of any such sales will be described in the Prospectus
Supplement relating thereto.
Agents, underwriters and dealers may be entitled under agreements which may
be entered into with the Company to indemnification by the Company against
certain liabilities, including liabilities under the Securities Act, and any
such agents, underwriters or dealers, or their affiliates may be customers of,
engage in transactions with or perform services for the Company in the ordinary
course of business.
If so indicated in the Prospectus Supplement, the Company will authorize
agents and underwriters to solicit offers by certain institutions to purchase
Debt Securities from the Company at the public offering price set forth in the
Prospectus Supplement pursuant to Delayed Delivery Contracts ("Contracts")
providing for payment and delivery on the date stated in the Prospectus
Supplement. Such Contracts will be subject to only those conditions set forth in
the Prospectus Supplement. A commission indicated in the Prospectus Supplement
will be paid to underwriters and agents soliciting purchases of Debt Securities
pursuant to Contracts accepted by the Company.
EXPERTS
The consolidated financial statements of Evans Withycombe Residential, Inc.
(the Company) and Evans Withycombe Residential Group (the Predecessor) appearing
in the Company's Annual Report (Form 10-K) for the year ended December 31, 1994,
have been audited by Ernst & Young, LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the Debt Securities offered hereby will be passed upon for
the Company by Gibson, Dunn & Crutcher, Los Angeles, California and the validity
of the Common Stock, Preferred Stock and Warrants offered hereby will be passed
upon for the Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland.
Gibson, Dunn & Crutcher will rely as to all matters of Maryland law, including
the legality of the Common Stock, on the opinion of Ballard Spahr Andrews &
Ingersoll.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, THE SHARES IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information.......................... S-3
Prospectus Supplement Summary.................. S-4
Risk Factors................................... S-11
Use of Proceeds................................ S-13
Capitalization................................. S-14
Price Range of Common Shares and Dividends..... S-15
Federal Income Tax Considerations.............. S-17
Underwriting................................... S-26
Legal Matters.................................. S-26
Experts........................................ S-26
PROSPECTUS
Available Information.......................... 2
Incorporation of Certain Information by
Reference..................................... 3
The Company.................................... 4
Use of Proceeds................................ 4
Consolidated Ratios of Earnings to Fixed
Charges....................................... 5
Description of the Capital Stock............... 6
Certain Provisions of Maryland Law and of the
Company's Charter and Bylaws.................. 10
Description of Warrants........................ 14
Description of the Debt Securities............. 16
Federal Income Tax Considerations.............. 22
Plan of Distribution........................... 22
Experts........................................ 23
Legal Matters.................................. 23
</TABLE>
1,800,000 SHARES
[LOGO]
EVANS WITHYCOMBE RESIDENTIAL, INC.
COMMON STOCK
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
FEBRUARY 10, 1997
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