Registration No. 333-66655
As filed with the Securities and Exchange Commission on April 14, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST WASHINGTON REALTY TRUST, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland 52-1879972
(State or Other Jurisdiction (IRS Employer Identification
of Incorporation or Organization) Number)
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
(301) 907-7800
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
William J. Wolfe
President and Chief Executive Officer
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
(301) 907-7800
(Name, Address, Including Zip Code, and Telephone Number, Including Area
Code, of Agent For Service) with a copy to:
R. Ronald Hopkinson, Esq.
Latham & Watkins
885 Third Avenue
Suite 1000
New York, New York 10022
(212) 906-1200
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this registration statement as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), other than securities offered only in connection
with dividend or interest reinvestment plans, please check the following box.
[X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
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registration statement number of the earlier effective registration statement
for the same offering. [ ] -----------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
This registration statement relates to the possible issuance of shares of
common stock of First Washington Realty Trust, Inc. upon the exchange of units
of limited partnership interest in First Washington Realty Limited Partnership.
These units were issued in transactions on September 1, 1998 and October 1,
1998, and became exchangeable after October 31, 1998.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment that specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not a solicitation of an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS SUBJECT TO COMPLETION, DATED APRIL 14, 1999
FIRST WASHINGTON REALTY TRUST, INC.
1,043,109 Shares
Common Stock
We are offering 1,043,109 shares of our common stock upon the
exchange of partnership units described more fully in this prospectus. We will
not receive any of the proceeds from the sale of the shares offered under this
prospectus.
Our common stock is listed on the New York Stock Exchange
under the symbol "FRW." On April 8, 1999, the closing sale price of our common
stock was $20.625 per share.
You should be aware that an investment in our common stock
involves various risks. See "Risk Factors" on page 1 and in our Current Report
on Form 8-K/A filed on March 24, 1999.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined that this prospectus is accurate or complete. It is illegal for any
person to tell you otherwise.
The date of this prospectus is April 14, 1999
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TABLE OF CONTENTS
PAGE
Risk Factors 1
Where You Can Find More Information 1
Incorporation of Documents by Reference 2
The Company 3
Description of Capital Stock 6
Partnership Agreement 11
Exchange of the Units 13
Provisions of Maryland Law and First Washington's Charter and Bylaws 20
Federal Income Tax Consequences 26
Experts 44
Legal Matters 44
Plan of Distribution 44
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RISK FACTORS
You should carefully consider, among other factors, the risk factors
described below and the risk factors in our Form 8-K/A, filed on March 24, 1999.
The exchange of units has tax consequences. If you redeem or exchange units
for cash or shares of stock, you will recognize gain or loss because the
redemption and exchange are each taxable transactions. Depending upon your
particular situation, it is possible that the amount of gain you recognize or
even your tax liability resulting from the gain could exceed the amount of cash
and the value of the shares of stock you receive upon the redemption or
exchange.
This prospectus and other documents we have filed with the SEC contain
forward- looking statements. Section 27A of the Securities Act does not,
however, apply to statements relating to the operations of a partnership. Also,
documents subsequently filed by us with the Commission will contain
forward-looking statements. Our actual results could differ materially from
those projected in the forward-looking statements as a result of the risk
factors described in our Form 8-K/A, filed on March 24, 1999. We caution you,
however, that any list of risk factors may not be exhaustive, particularly with
respect to future filings.
Although First Washington Realty Trust, Inc., First Washington Realty
Limited Partnership and First Washington Management, Inc. are separate entities,
for ease of reference, the terms "we," "us," and "ours" refer to the business
and properties of all of these entities, unless the context indicates otherwise.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934. Therefore, we file reports, proxy statements and other information
with the Securities and Exchange Commission. You may inspect and obtain copies
of our reports, proxy statements and other information at:
* Public Reference Section
Securities and Exchange Commission
Room 1024, Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
* Midwest Regional Office
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661-2511
* Northeast Regional Office
7 World Trade Center
Suite 1300
New York, New York 10048.
You may also contact the SEC by telephone at (800) 732-0330. The Commission also
maintains a website at http://www.sec.gov where you can retrieve this
information. You may inspect copies of these materials and
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other information about us at The New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
We have filed with the Commission a registration statement on
Form S-3 for the shares offered under this prospectus under the Securities Act
of 1933. The prospectus and any accompanying prospectus supplement do not
contain all of the information included in the registration statement. We have
omitted the cover and Part II of the registration statement in accordance with
the rules and regulations of the SEC. For further information, we refer you to
the registration statement, including its exhibits and schedules. Statements
contained in this prospectus and any accompanying prospectus supplement about
the provisions or contents of any contract, agreement or any other document
referred to are not necessarily complete. For each of these contracts,
agreements or documents filed as an exhibit to the registration statement, we
refer you to the actual exhibit for a more complete description of the matters
involved. You can obtain a copy of these exhibits by calling or writing to us at
4350 East-West Highway, Suite 400, Bethesda, MD 20814, Attention: Investor
Relations; telephone number (301) 907- 7800.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents, which we have previously filed with
the Commission, are incorporated by reference:
(1) our Annual Reports on Form 10-K for the year ended December 31,
1998 filed with the Commission on March 30, 1999 and for the year ended
December 31, 1997 filed with the Commission on March 31, 1998 (File No.
000-25230); (2) the description of our common stock contained in our
registration statement on Form S-3 filed with the Commission on August
9, 1996 (File No. 001-13822), and the description of our preferred
share purchase rights contained in our registration statement on Form
8-A filed on October 23, 1998 (File No. 001-14571); (3) our Proxy
Statement for our Annual Meeting of Stockholders held on May 8, 1998
(File No. 000-25230); (4) our quarterly reports on Form 10-Q for the
periods ended March 31, 1998, June 30, 1998, and September 30, 1998
(File No. 000-25230); and (5) our current reports on Form 8-K filed on
March 10, 1999, October 30, October 27, October 23, July 31, July 28,
June 26, June 17 and May 18, 1998 (File No. 000-25230).
We incorporate by reference all documents that we file
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this prospectus and before the termination of the offering of the shares
made under this prospectus. All of these documents shall be a part of this
prospectus from the date of filing. Any statement contained in a document filed
after the date of this prospectus will modify the statements we make in this
prospectus.
If you write or telephone, we will provide without charge a
copy of any or all of the documents listed above, except the exhibits to those
documents. You should direct requests for these copies to First Washington
Realty Trust, Inc., at 4350 East-West Highway, Suite 400, Bethesda, MD 20814,
Attention: Investor Relations; telephone number 301-907-7800.
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THE COMPANY
General
We are a real estate investment trust with expertise in the
acquisition, property management, leasing, renovation and development of
principally supermarket-anchored neighborhood shopping centers. We are an
integrated stand-alone company that manages its own properties, and administers
its own affairs. As of December 31, 1998, we owned a portfolio of 55 retail
properties containing a total of approximately 6.0 million square feet of gross
leasable area.
We have followed a highly focused business strategy with
respect to property type and location. We concentrate our efforts on
supermarket-anchored neighborhood shopping centers. We generally seek to own
properties located in densely populated areas with high visibility, open-air
designs and ease of entry and exit. Also, we seek to own properties that may be
readily adaptable over time to expansion, renovation and redevelopment.
Our retail properties are neighborhood shopping centers
principally anchored by well known tenants such as Giant Food, Safeway, Shoppers
Food Warehouse, Food Lion, A&P Superfresh, Winn Dixie, Weis Markets, Acme
Market, Dominick's Supermarket, CVS/Pharmacy and Rite Aid. Neighborhood shopping
centers are typically open-air centers ranging in size from 50,000 to 150,000
square feet of gross leasable area and anchored by supermarkets or drug stores
or both supermarkets and drug stores. Our retail properties range in size from
approximately 3,000 square feet of gross leasable area to approximately 335,000
square feet of gross leasable area, and average approximately 106,000 square
feet of gross leasable area. The anchor tenants typically offer daily necessity
items rather than specialty goods. Nine of our retail properties are relatively
small in size, with less than 50,000 square feet of gross leasable area. These
smaller properties do not have a large supermarket or drug store anchor tenant,
and, therefore, may experience greater variability in consumer traffic and
operating performance.
First Washington Realty Limited Partnership and First
Washington Management, Inc. hold all of our assets and conduct all of our
operations. Some of the properties are owned by partnerships or limited
liability companies in which First Washington Realty Trust, Inc., a subsidiary
of First Washington, or First Washington Limited Partnership, acts as general
partner or managing member and owns a controlling interest. We are the sole
general partner of First Washington Limited Partnership and we currently own
approximately 69.8% of the partnership interests in First Washington Limited
Partnership. The limited partners are individuals, partnerships and others who
have contributed their properties in exchange for units of partnership
interests. The limited partners may exchange their units for cash, or, at our
option, for our stock on a one for one basis.
First Washington Limited Partnership owns 100% of the
non-voting preferred stock of First Washington Management, and is entitled to
99% of the cash flow from First Washington Management.
First Washington Realty Trust, Inc. was formed in April 1994
to continue and expand the neighborhood shopping center acquisition, management
and renovation strategies of First Washington Management. First Washington
Management has been engaged in the business since 1983, and was founded by
Stuart D. Halpert, our Chairman, William J. Wolfe, our President and Chief
Executive Officer, and Lester Zimmerman, one of our Executive Vice Presidents.
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We have approximately 70 employees. These employees include a
team of asset andproperty managers and leasing agents and in-house legal,
architectural, engineering, accounting, marketing and computer specialists.
Our executive and principal property management office is located at 4350 East-
West Highway, Suite 400, Bethesda, Maryland 20814 and our telephone number is
301-907-7800. We also have regional property management offices located
in North Carolina, Pennsylvania and Virginia.
Growth Strategies
We seek to increase cash flow and distributions and the value
of our portfolio through intensive property management and strategic renovation
and expansion of our properties. We also seek the opportunistic acquisition of
additional neighborhood shopping centers within the Mid-Atlantic region and the
Chicago metropolitan area. We have extensive knowledge of local market growth
patterns and economic conditions in these two areas. We would also consider
acquisitions in other metropolitan markets which management determines to be
both attractive and conveniently accessible.
Intensive Management. A key aspect of our strategy is
improving the operating performance of our properties over time through
intensive property management. We seek to increase operating margins by
increasing revenues through increased occupancy and rental rates, maintaining
high tenant retention rates, and aggressively managing operating expenses.
We believe that, as a fully integrated real estate
organization with both owned and third-party managed properties, we enjoy
significant operating efficiencies. Many of our competitors operate smaller,
fragmented portfolios. Our operating efficiencies are the result of economies of
scale in operating expenses, more effective leasing and marketing efforts, and
enhanced tenant retention levels. We also benefit from effectively spreading our
fixed property management and leasing costs over our entire owned and
third-party managed portfolio. We believe that the scope of our portfolio,
combined with the professional and community ties of Messrs. Halpert and Wolfe
to the Mid-Atlantic region enables us to develop long-term relationships with
national and regional tenants which occupy multiple properties in our portfolio.
We believe that these relationships improve occupancy rates and tenant retention
levels.
Strategic Renovation and Expansion. We seek to increase
operating results through the strategic renovation and expansion of our
properties. The retail properties are typically adaptable for varied tenant
layouts and can be reconfigured to accommodate new tenants or the changing space
needs of existing tenants. In determining whether to proceed with a renovation
or expansion, we consider both the cost of expansion or renovation and the
increase in rent attributable to expansion or renovation. We believe that our
retail properties will provide opportunities for renovation and expansion.
As a fully-integrated real estate organization, we maintain
expertise in the development of new retail properties. We developed three of our
properties containing approximately 525,000 square feet of gross leasable area.
We believe that our principal anchor tenants and other real estate professionals
are likely to present us with development opportunities in the future.
Opportunistic Acquisitions. Another principal component of our
strategy is the acquisition of additional neighborhood shopping centers within
the Mid-Atlantic region and the Chicago metropolitan area. We will seek to
acquire properties which are strategically located along major traffic arteries
in well-established, densely populated communities. We typically select
properties in locations where we believe the supply of developable land and
zoning restrictions impede the development of competing shopping centers and
where tenants' location alternatives are limited. We would also consider
acquisitions in other metropolitan markets which management determines to be
both attractive and conveniently accessible.
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Through our third-party management, leasing and related
service business and network of regional management and leasing offices, we are
familiar with local conditions in our markets. Because our third-party clients
frequently seek assistance with the revitalization and disposition of their
properties, we believe that we are in a unique position to ultimately acquire
these properties. For example, First Washington Management provided property
management and leasing services for five properties acquired from third-party
clients. We believe opportunities for neighborhood shopping center acquisitions
are particularly attractive at this time, due to fragmented ownership of
neighborhood shopping center properties, limited availability of capital for
non-institutional owners of retail property, and declining construction of new
retail properties.
When evaluating potential acquisitions, we consider such factors as:
* economic, demographic and regulatory conditions in the property's local and
regional market;
* the location, construction quality and design of the property;
* the current and projected cash flow of the property and the potential to
increase cash flow;
* the potential for capital appreciation of the property;
* the terms of tenant leases, including the relationship between the
property's current rents and market rents and the ability to increase rents
upon lease rollover;
* the occupancy and demand by tenants for properties of a similar type in the
market area;
* the potential to complete a strategic renovation, expansion, or retenanting
of the property;
* the property's current expense structure and the potential to increase
operating margins; and
* competition from comparable retail properties in the market area.
We have successfully completed the acquisition of 39 properties since our
organization in April 1994.
Property Management, Leasing And Related Service Business
Through our interest in First Washington Management, we have
continued the property management, leasing and related service business of First
Washington Management. First Washington Limited Partnership owns all of the
non-voting preferred stock of First Washington Management and is entitled to 99%
of the cash flow of First Washington Management. Messrs. Halpert, Wolfe and
Zimmerman own the outstanding common stock of First Washington Management, and
are therefore entitled to 1% of its cash flow. In addition to servicing our
properties, as of December 31, 1998, First Washington Management provided
management, leasing and related services to 23 properties comprising
approximately 2.3 million square feet of gross leasable area for 13 third-party
clients. In addition to
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providing another source of growth for funds from operations, we believe that
the third-party management business allows us to:
* achieve operating efficiencies in managing our owned properties through the
bulk purchase of goods and services;
* develop more extensive, long-term relationships with tenants in multiple
properties; and
* identify additional acquisition opportunities from third-party clients
interested in the eventual sale of their properties.
First Washington Management provides services to third-party
owners under contracts of varying duration. These contracts generally provide
for management fees of up to 5.0% of monthly gross property receipts. The
management contracts are typically cancelable upon 30 days' notice or upon the
occurrence of specified events, including the sale of the property. Leasing fees
typically range from 3.0% to 6.0% of the minimum base rents payable during the
initial term of the lease. In addition to its third-party management and leasing
business, First Washington Management provides related services including
consulting and brokerage services for which it receives customary fees.
DESCRIPTION OF CAPITAL STOCK
The following description of the terms of our stock is only a
summary. For a complete description, we refer you to the Maryland General
Corporation Law, our charter and our bylaws. We have filed our charter as an
exhibit to our Annual Report on Form 10-K for the year ended December 31, 1997,
and our bylaws as an exhibit to this registration statement.
General
Our charter authorizes us to issue up to 90,000,000 shares of
common stock, par value $0.01 per share, and 10,000,000 shares of preferred
stock, par value $0.01 per share. As of December 31, 1998, we had 8,566,985
shares of common stock and 2,314,189 shares of convertible preferred stock
issued and outstanding. Under Maryland law, stockholders generally are not
liable for the corporation's debts or obligations. Our stockholders also have no
liability for further calls or assessments on their shares of common stock.
Common Stock
As a holder of common stock, you will be entitled to receive
distributions on common stock if, as and when our board of directors authorizes
and declares distributions. However, your rights to receive distributions may be
subordinated to the rights of holders of preferred stock. In any liquidation,
each outstanding common share entitles its holder to a proportionate share of
the assets that remain after we pay our liabilities and any preferential
distributions owed to preferred stockholders. Holders of shares of our
convertible preferred stock are entitled to a participating distribution in
amounts available for distribution on the common stock. The participating
distribution is equal to the amount of any distribution on the common stock in
excess of $0.4875 per share of common stock multiplied by the number or fraction
of shares of common stock into which each share of convertible preferred stock
is or will be convertible.
The amount of the aggregate liquidation preference of the convertible
preferred stock
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will not be counted as a liability in determining whether we are permitted under
Maryland law to make a distribution on our common stock, other than upon
voluntary or involuntary liquidation, by dividend, redemption or other
acquisition of shares or otherwise.
Subject to the matters discussed under "Provisions of Maryland
Law and First Washington's Charter and Bylaws--Control Share Acquisitions,"
holders of the common stock are entitled to one vote for each share on all
matters submitted to a stockholder vote. Unless our charter provides otherwise
with respect to preferred stock, the holders of common stock possess exclusive
voting power. There is no cumulative voting in the election of directors. This
means that the holders of a majority of the outstanding shares of common stock
can elect all of the directors then standing for election and the holders of the
remaining shares of common stock cannot elect any directors.
Holders of shares of common stock have no preference,
conversion, sinking fund, redemption or exchange rights or preemptive rights. A
conversion right entitles a stockholder to convert his shares to a different
security, such as debt or preferred stock. A redemption right entitles a
stockholder to redeem his shares for cash or other securities at some point in
the future. A sinking fund pairs a redemption right with an obligation of the
company to create an account into which the company must deposit money to fund
the redemption. Preemptive rights entitle stockholders to subscribe for a
percentage of any other securities we offer in the future based on the
percentage of shares owned. All shares of a particular class of issued common
stock have equal dividend, distribution, liquidation and other rights.
Under Maryland law, we generally cannot dissolve, amend our
charter, merge, sell all or substantially all of our assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter. However, as
permitted under Maryland law, our charter provides for approval of any of these
actions by a majority of the votes entitled to be cast on the matter, except in
the case of amendment of the charter provisions relating to removal of
directors, classification of the board of directors, voting rights of the common
stock or voting requirements for charter amendments, which require the
affirmative vote of holders of shares entitled to cast two-thirds of all the
votes entitled to be cast on the matter. In addition, a number of other
provisions of Maryland law could significantly affect the shares of common stock
and the rights and obligations of its holders and could delay, defer or prevent
a change in control or other transaction in which the holders of some or a
majority of the common stock might receive a premium for their common stock over
the then prevailing market price or which such holders might believe to be
otherwise in their best interest. See "Provisions of Maryland Law and First
Washington's Charter and Bylaws."
Power To Issue Additional Shares Of Stock
The charter grants the board of directors the power to
authorize the issuance of additional authorized but unissued shares of common
stock and preferred stock, including any unissued shares of any series of
preferred stock, to the extent permitted by the terms of the series. The board
of directors may also classify or reclassify unissued shares of common or
preferred stock and authorize the issuance of these classified or reclassified
shares of stock. Under Maryland law and the charter, the board of directors is
required to fix the terms and conditions for each class or series before the
issuance of the shares of each class or series of stock. These terms and
conditions include preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption.
We believe that this power of the board of directors provides us with
increased flexibility
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in structuring possible future financings and acquisitions and in meeting other
needs which might arise. Unless stockholder action is required by applicable law
or the rules of any stock exchange or automated quotation system on which our
securities may be listed or traded, the additional classes or series, as well as
the common stock, will generally be available for issuance without further
action by our stockholders. However, the issuance of additional series of
preferred stock with rights senior to the convertible preferred stock must be
approved by the holders of convertible preferred stock. Although the board of
directors does not intend to do so at the present time, it could authorize the
issuance of a class or series that could delay, defer or prevent a change of
control or other transaction that might involve a premium price for the common
stock and convertible preferred stock or otherwise be in the best interest of
the stockholders.
Restrictions On Ownership, Transfer And Conversion
Internal Revenue Code Requirements. To maintain our REIT
qualification, no less than six individuals can own, actually or constructively,
more than 50% in value of our issued and outstanding capital stock at any time
during the last half of a taxable year. For this test, individuals include the
entities that are set forth in Section 542(a)(2) of the Internal Revenue Code,
as currently in effect. In addition, attribution rules in the Internal Revenue
Code determine if any individual or entity actually or constructively owns our
capital stock under this requirement. Additionally, at least 100 or more persons
must beneficially own our capital stock during at least 335 days of a taxable
year. Also, rent from "related party tenants" is not qualifying income for
purposes of the gross income tests of the Internal Revenue Code. A tenant of
First Washington is a related party tenant if First Washington actually or
constructively owns 10% or more of such tenant. See "Federal Income Tax
Consequences--Taxation of First Washington--Requirements for Qualification." To
help ensure we meet these tests, our charter restricts the acquisition and
ownership of shares of our capital stock.
Transfer Restrictions in Charter. Generally, no holder may
own, either actually or constructively under the applicable attribution rules of
the Internal Revenue Code, more than 9.8%, by number or value, whichever is more
restrictive, of the outstanding shares of common stock. Except as described
below, this limit will not apply to holders of shares of common stock who exceed
the limit solely because they convert shares of convertible preferred stock into
shares of common stock. However, no person may actually or constructively
acquire or own shares of convertible preferred stock or shares of common stock,
or convert convertible preferred stock into common stock, if the total value of
convertible preferred stock and common stock actually and constructively owned
by the person would exceed 9.8% of the total value of the outstanding shares of
all of our capital stock. This limitation could prevent a person who owns shares
of convertible preferred stock from converting a portion of these shares into
shares of common stock.
Effect of Violation of Transfer Restrictions. If, as a result
of an attempted acquisition of capital stock, any person would acquire, either
actually or constructively under the applicable attribution rules of the
Internal Revenue Code, shares of capital stock in excess of an ownership
restriction, those shares will be automatically transferred to a trust for the
benefit of a charitable beneficiary. This transfer will be effective as of the
close of business on the business day prior to the attempted acquisition by the
person who would have owned the shares in excess of the ownership restriction.
While this stock is held in trust, the trustee shall have all of the shares'
voting rights and all dividends or distributions paid on the stock will be paid
to the trustee of the trust for the benefit of the charitable beneficiary. Any
dividend or distribution paid on shares of capital stock prior to our discovery
that the shares have been automatically transferred to the trust shall, upon
demand, be paid over to the trustee for the benefit of the charitable
beneficiary. Within 20 days of receiving notice from us of the transfer of
shares to the trust, the trustee of the trust must sell the shares held in the
trust to a person who
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may hold the shares without violating the ownership restrictions. Upon this
sale, the price paid for the shares by the person who acquired the shares from
the trust shall be distributed to the person who attempted to acquire the shares
in violation of the ownership restriction to the extent of the lesser of:
* the price paid by the person who attempted to acquire the shares in
violation of the ownership restriction;
* the price per share received by the trustee from the sale or other
disposition of the shares held in the trust; or
* in the case of a transfer of shares to a trust resulting from an event
other than an actual acquisition of shares by a person in violation of the
ownership restriction, the market price of the shares on the date the
shares were transferred to the trust. Market price is defined by the
charter to mean the last sale price for the shares, regular way. In case no
sale takes place on the day that market price is to be measured, market
price is defined to be the average of the closing bid and asked prices,
regular way, for the shares.
Any proceeds in excess of this amount shall be paid to the charitable
beneficiary.
We will automatically repurchase shares to the extent
necessary to prevent any violation of the ownership limits resulting from events
other than the actual or constructive acquisition of capital stock by the
holder. For example, changes in the relative value of different classes of our
capital stock could lead to a violation of the ownership limits and trigger an
automatic repurchase. In the event of any automatic repurchase, the repurchase
price of each share will be equal to the market price on the date of the event
that resulted in the repurchase. Any dividend or other distribution paid to a
holder of repurchased shares prior to the discovery by us that the shares have
been automatically repurchased by us as described above must be repaid to us
upon demand.
If shares of capital stock which would cause us to be
beneficially owned by less than 100 persons are issued or transferred to any
person, the issuance or transfer shall be null and void to the intended
transferee, and the intended transferee will acquire no rights to the stock.
The board of directors may waive the ownership limits for a
particular stockholder if the board of directors and our tax counsel are
satisfied that the ownership will not jeopardize our status as a REIT. As a
condition of the waiver, the board of directors may require opinions of counsel
satisfactory to it or an undertaking from the applicant with respect to
preserving our REIT status.
In addition to any of the foregoing ownership limits, no
holder may own, either actually or constructively under the applicable
attribution rules of the Internal Revenue Code, any shares of any class of our
capital stock if:
* more than 50% in value of our outstanding capital stock would be owned,
either actually or constructively under the applicable attribution rules of
the Internal Revenue Code, by five or fewer individuals. For this purpose,
individuals include the entities that are set forth in Section 542(a)(2) of
the Internal Revenue Code;
* our capital stock would be beneficially owned by less than 100 persons,
determined without reference to any rules of attribution; or
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* we would fail to qualify as a REIT.
Actual or constructive acquisition or ownership of our capital stock in
violation of these restrictions will result in automatic transfer of such stock
to a trust for the benefit of a charitable beneficiary, our automatic repurchase
of the violative shares, or voiding the violative transfer, as described above.
If the board of directors shall at any time determine in good
faith that a person intends to acquire or own, has attempted to acquire or own,
or may acquire or own our capital stock in violation of the limits described
above, the board of directors shall take actions to refuse to give effect to or
to prevent the ownership or acquisition. These actions include but are not
limited to authorizing us to repurchase stock, refusing to give effect to such
ownership or acquisition on our books, or instituting proceedings to enjoin such
ownership or acquisition.
The constructive ownership rules are complex and may cause
common stock or convertible preferred stock owned actually or constructively by
a group of related individuals 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 stock or less than 9.8% of the outstanding convertible
preferred stock, or the acquisition of an interest in an entity which owns
common stock or convertible preferred stock by an individual or entity could
cause that individual or entity, or another individual or entity, to
constructively own common stock or convertible preferred stock in excess of the
limits described above.
All certificates representing shares of our capital stock bear
a legend referring to the restrictions described above.
All persons who own at least a specified percentage of the
outstanding shares of our stock must file with us a completed questionnaire
annually containing information about their ownership of the shares, as set
forth in the Treasury Regulations. Under current Treasury Regulations, the
percentage will be set between 0.5% and 5.0%, depending on the number of record
holders of shares. In addition, each stockholder may be required to disclose to
us in writing information about the actual and constructive ownership of shares
as the board of directors deems necessary to comply with the provisions of the
Internal Revenue Code applicable to a REIT or to comply with the requirements of
any taxing authority or governmental agency.
These ownership limitations could discourage a takeover or
other transaction in which holders of some, or a majority, of shares of common
stock or convertible preferred stock might receive a premium for their shares
over the then prevailing market price or which stockholders might believe to be
otherwise in their best interest.
Registration Rights Agreements
Under various registration rights agreements, we have shelf
registration statements effective or have agreed to file a registration
statement that cover:
* the resale of shares of convertible preferred stock and shares of common
stock and the issuance of shares of common stock upon exchange of common
units that were issued in private placements at the time of and since our
formation; and
* the exchange of exchangeable debentures and exchangeable preferred units
for convertible preferred stock.
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We must use our best efforts to maintain the effectiveness of these registration
statements. The exchange of outstanding securities for common stock and
convertible preferred stock will increase the number of outstanding shares of
common stock and convertible preferred stock, and will increase our percentage
ownership interest in First Washington Limited Partnership.
NYSE Listing
The common stock is listed on the NYSE under the symbol "FRW."
The convertible preferred stock is listed on the NYSE under the symbol "FRW pf."
Transfer Agent
American Stock Transfer & Trust Company is the transfer agent
and registrar for the shares of common stock and convertible preferred stock.
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PARTNERSHIP AGREEMENT
The following description of the partnership agreement is only
a summary. For a complete description, we refer you to the partnership
agreement.
Management
First Washington Limited Partnership was organized as a
Maryland limited partnership pursuant to the Maryland Revised Uniform Limited
Partnership Act and the terms of the First Amended and Restated Agreement of
Limited Partnership. First Washington is the sole general partner and the holder
of a majority of the units of First Washington Limited Partnership. Generally,
pursuant to the partnership agreement, First Washington has full, exclusive and
complete responsibility and discretion in the management and control of First
Washington Limited Partnership. The limited partners of First Washington Limited
Partnership generally have no authority to participate in or exercise control or
management power over the business and affairs of First Washington Limited
Partnership.
Transferability of Interests
The partnership agreement generally provides that First
Washington may not voluntarily withdraw from First Washington Limited
Partnership, or transfer or assign its interest in First Washington Limited
Partnership. The limited partners, on the other hand, may transfer their
interests in First Washington Limited Partnership to investors who are
considered to be financially sophisticated by virtue of their wealth or
professional experience. Both First Washington and First Washington Limited
Partnership have a right of first refusal in the case of transfer by the limited
partners. No transferee may become a substituted limited partner without our
consent.
Capital Contributions
If we determine that First Washington Limited Partnership
requires additional funds at any time, then we, to the extent consistent with
our REIT status, will borrow such funds from a lender and lend such funds to
First Washington Limited Partnership on comparable terms. We will contribute the
amount of any required additional funds which were not borrowed from a lender as
an additional capital contribution to First Washington Limited Partnership. If
we contribute additional capital to First Washington Limited Partnership, our
partnership interest in First Washington Limited Partnership will be increased
on a proportionate basis based upon the amount of the additional capital
contributions. Conversely, the partnership interests of the limited partners
will be decreased on a proportionate basis in the event of additional capital
contributions by First Washington.
Exchange Rights
Under the partnership agreement, the holders of common units
have the right to require First Washington Limited Partnership to redeem part or
all of their common units for cash. We may elect to acquire the common units
tendered for redemption in exchange for shares of common stock on a one-for-one
basis. However, a holder of common units may not effect an exchange or a
redemption if an exchange for common stock would cause any person to violate any
provision of our charter, including those provisions relating to restrictions on
ownership and transfer of our capital stock. Holders of exchangeable preferred
units may require that we acquire exchangeable preferred units for shares of
convertible preferred stock on a one-for-one basis. See "Description of Capital
Stock--Restrictions on Ownership, Transfers and Conversion."
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Tax Matters
As provided in the partnership agreement, First Washington is
the tax matters partner of First Washington Limited Partnership. Accordingly,
First Washington makes whatever tax elections must be made under the Internal
Revenue Code. The net income or net loss of First Washington Limited Partnership
will generally be allocated to First Washington and the limited partners in
accordance with priorities of distribution. See "Federal Income Tax
Consequences--Tax Aspects of First Washington Limited Partnership."
Operations
The partnership agreement requires that First Washington
Limited Partnership be operated in a manner that will enable us to satisfy the
requirements for classification as a REIT. The partnership agreement provides
that distributions of cash will be distributed from time to time as determined
by us. Distributions will be pro rata in accordance with the distribution rights
of the holders of the preferred units and the common units. Under the
partnership agreement, First Washington Limited Partnership will also assume and
pay when due, or reimburse us for payment of, all costs and expenses relating to
the ownership of interests in and operation of First Washington Limited
Partnership.
Duties and Conflicts
The partnership agreement provides generally that all of our
business activities must be conducted through First Washington Limited
Partnership.
Term
The term of First Washington Limited Partnership continues
until December 31, 2094, or until sooner dissolved upon the occurrence of other
specified events.
Indemnification
The partnership agreement provides that First Washington
Limited Partnership will indemnify First Washington and the officers and
directors of First Washington or First Washington Management against any and all
claims, demands, actions, suits or proceedings, civil, criminal, administrative
or investigative, that relate to the operations of First Washington Limited
Partnership. First Washington's liability to First Washington Limited
Partnership and its partners for losses sustained, liabilities incurred or
benefits not derived as a result of good faith errors, mistakes of fact or law,
or acts or omissions is limited. See "Limitation of Liability and
Indemnification."
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EXCHANGE OF THE UNITS
Terms of the Exchange of Common Units
We have issued 1,043,109 common units of First Washington
Limited Partnership to the prior owners of or to the partners of entities that
owned properties as consideration for the contribution of these properties to
First Washington Limited Partnership. Information about the properties, date of
contribution, number of units and the date the units become exchangeable is set
forth below:
Property Contribution Date No. of Units Date Exchangeable
- ------------- ---------------- ------------- -----------------
Mitchellville 10/01/97 79,773 10/31/98
Mitchellville 10/01/97 62,250 10/31/98
Mitchellville 10/01/97 42,842 10/31/98
Shopping Centers Located in the Chicago Area 9/01/97 750,829 10/31/98
Shopping Centers Located in the Chicago Area 9/01/97 60,362 10/31/98
Shopping Centers Located in the Chicago Area 9/01/97 44,708 10/31/98
Shopping Centers Located in the Chicago Area 9/01/97 469 10/31/98
Shopping Centers Located in the Chicago Area 9/01/97 469 10/31/98
Shopping Centers Located in the Chicago Area 9/01/97 469 10/31/98
Shopping Centers Located in the Chicago Area 9/01/97 469 10/31/98
Shopping Centers Located in the Chicago Area 9/01/97 469 10/31/98
Holders of these common units may exchange their common units
for cash, or at our discretion, for a like number of shares of common stock.
These shares of common stock may be resold at any time. The number of shares of
stock for which the holders of units may exchange their units may be adjusted in
the event of stock splits, stock dividends, issuance of rights, extraordinary
distributions and similar events.
A holder of common units effecting an exchange must deliver to
us a notice of exchange. The tendering holder shall have the right to receive an
amount of cash from First Washington Limited Partnership equal to the full
market value, as of the date of receipt of the notice of exchange, of a like
number of shares of common stock. We may elect to acquire these tendered common
units in exchange for a like number of shares of common stock. If we do so, the
tendering holder shall have no right to cause First Washington Limited
Partnership to redeem the common units in exchange for cash.
The shares of common stock exchanged for tendered units shall
be delivered as duly authorized, validly issued, fully paid and nonassessable
shares, free of any pledge, lien, encumbrance or restriction, other than those
provided in our charter and bylaws, relevant state and federal securities laws,
and any applicable registration rights agreement entered into by the tendering
holder. Even if delivery is
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delayed, the tendering holder shall be deemed the owner of the shares and rights
for all purposes, as of the date of the exchange notice.
Each tendering holder shall continue to own all units subject
to any exchange, and be treated as a limited partner with respect to the units
for all purposes, until the units are transferred to us and paid for on the date
of the exchange notice. Until the date of the exchange notice, the tendering
holder shall have no rights as one of our stockholders.
Conditions to the Exchange
We will issue shares of stock in exchange for units to a
tendering holder promptly upon receipt of a notice of exchange unless:
* an exchange would cause the tendering holder or any other person to violate
the Restrictions on Ownership and Transfer provisions of the charter;
* the exchange is for less than 100 units, or if the tendering holder holds
less than 100 units, the exchange is for less than all of the units held by
the tendering holder; or
* the tendering holder wishes to effect an exchange during the period between
the record date established by us for a distribution from First Washington
Limited Partnership to the partners in First Washington Limited Partnership
and the record date established by us for a distribution to our
stockholders of some or all of our portion of the distribution.
Any attempted exchange in violation of any of the foregoing
conditions shall be void and the tendering holder shall not acquire any rights
or economic interest in the shares of stock otherwise issuable upon the
exchange.
Comparison of First Washington and First Washington Limited Partnership
Generally the nature of an investment in common stock is
similar in several respects to an investment in the units of First Washington
Limited Partnership. Holders of common stock and holders of common units receive
similar distributions. Shareholders and holders of units generally share in the
risks and rewards of ownership in the enterprise being conducted by us through
First Washington Limited Partnership. However, there are also differences
between ownership of units and ownership of stock, some of which may be material
to investors.
The information below highlights a number of the significant
differences between First Washington and First Washington Limited Partnership
including form of organization, management control, voting rights, liquidity and
federal income tax considerations. These comparisons are intended to assist
holders of units in understanding how their investment will be changed if they
exchange their units for common stock. This discussion is only a summary and
does not constitute a complete discussion of these matters. Holders of units
should carefully review the balance of this prospectus and the registration
statement of which this prospectus is a part for additional important
information. Form of Organization and Assets Owned
First Washington Limited Partnership is organized as a
Maryland limited partnership. First Washington Limited Partnership owns
interests in properties and other partnerships. First
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Washington Limited Partnership's purpose is to conduct any business that may be
lawfully conducted by a limited partnership organized under the Maryland Revised
Uniform Limited Partnership Act. However, its business must be conducted in a
manner that permits First Washington to qualify as a REIT unless it otherwise
ceases to qualify as a REIT.
First Washington is a Maryland corporation. It has elected to
be taxed as a REIT under the Internal Revenue Code, commencing with our taxable
year ended December 31, 1994. It intends to maintain its qualification as a
REIT. Its primary asset is its interest in First Washington Limited
Partnership, which gives it an indirect investment in the properties owned by
First Washington Limited Partnership. Under its charter, First Washington may
engage in any lawful activity permitted under Maryland law. However, under the
partnership agreement, First Washington, as general partner, may not conduct
any business other than the business of First Washington Limited Partnership.
Additional Equity
First Washington Limited Partnership may issue common units,
exchangeable preferred units and other partnership interests in exchange for
additional capital contributions as determined by First Washington, in its sole
discretion. These partnership interests may include partnership interests of
different series or classes that may be senior to common units. In exchange for
capital contributions, First Washington Limited Partnership may issue common
units and other partnership interests to First Washington, may issue additional
common units to existing limited partners, and may admit third parties as
additional limited partners.
The board of directors may, in its discretion, authorize the
issuance of additional common stock or shares of convertible preferred stock.
However, the total number of shares issued cannot exceed the authorized number
of shares of stock set forth in the charter. As long as First Washington
Limited Partnership is in existence, the proceeds of all equity capital raised
by First Washington will be contributed to First Washington Limited Partnership
in exchange for units in First Washington Limited Partnership.
Management Control
All management powers over the business and affairs of First Washington Limited
Partnership are vested in First Washington as the general partner. No limited
partner of First Washington Limited Partnership has any right to participate in
or exercise control or management power over the business and affairs of First
Washington Limited Partnership except:
* First Washington may not dispose of all or substantially all of First
Washington Limited Partnership's assets without the consent of the holders
of two-thirds of the outstanding common units; and
* First Washington is limited in its ability to cause or permit First
Washington Limited Partnership to dissolve. See "Vote Required to Dissolve
First Washington Limited Partnership or First Washington" below.
First Washington may not be removed as general partner by the holders of common
units with or without cause. First Washington's business and affairs are managed
under the direction of its board of directors. The Board is classified into
three classes of directors. At each annual meeting of the stockholders, the
successors of the class of directors whose terms expire at that meeting will be
elected. The board of directors may alter or eliminate its policies without a
vote of the stockholders. Accordingly, except for their vote in the elections of
directors, stockholders have no control over First Washington's ordinary
business policies. However, the board of directors cannot change the policy of
maintaining status as a REIT without the approval of holders of a majority of
the outstanding common stock.
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Duties of General Partners and Directors
Under Maryland law, First Washington, as general partner, is
accountable to First Washington Limited Partnership as a fiduciary.
Consequently, First Washington is required to exercise good faith and integrity
in all of its dealings with respect to partnership affairs. However, under the
partnership agreement, First Washington is not liable for monetary damages for
losses sustained or liabilities incurred by partners as a result of good faith
errors of judgment, acts or omissions.
Under Maryland law, the directors must perform their duties
in good faith, in a manner that they reasonably believe to be in First
Washington's best interests and with the care of an ordinarily prudent person
in a like position under similar circumstances. Directors who act in such a
manner generally will not be liable by reason of being a director.
Management Liability and Indemnification
As a matter of Maryland law, First Washington, as the general partner, has
liability for the payment of the obligations and debts of First Washington
Limited Partnership unless limitations upon such liability are stated in the
document or instrument evidencing the obligations. Under the partnership
agreement, First Washington Limited Partnership has agreed to indemnify First
Washington and any of its directors or officers from and against all losses,
claims, damages, liabilities, joint or several, expenses including legal fees
and expenses, judgments, fines, settlements and other amounts incurred in
connection with any actions relating to the operations of First Washington
Limited Partnership. However, First Washington Limited Partnership will not be
required to indemnify First Washington or its officers and directors if:
* a bad faith act was material to the action;
* First Washington or its officers or directors received an improper personal
benefit; or
* in the case of any criminal proceeding, First Washington or its officers or
directors had reasonable cause to believe the act was unlawful.
The reasonable expenses incurred by an indemnitee may be reimbursed by First
Washington Limited Partnership before the final disposition of the proceeding.
First, however, the indemnitee must deliver to First Washington Limited
Partnership an affirmation of his, her or its good faith belief that the
standard of conduct necessary for indemnification has been met and an
undertaking that the indemnitee shall repay the amount if it is determined that
such standard was not met.
The charter contains a provision which eliminates the
liability of directors and officers to First Washington and its stockholders to
the fullest extent permitted by Maryland law. The bylaws provide for
indemnification to directors and officers to the same extent that the directors
and officers, as officers and directors of the general partner of First
Washington Limited Partnership, have indemnification rights under the
partnership agreement. Antitakeover Provisions
Except in limited circumstances (See "Voting Rights" below),
First Washington has exclusive management power over the business and affairs
of First Washington Limited Partnership. First Washington may not be removed as
general partner by the limited partners with or without cause. A limited
partner may generally transfer its limited partnership interest without
restriction. However, both First Washington and First Washington Limited
Partnership have a right of first refusal for any proposed transfer.
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First Washington's charter and bylaws contain a number of provisions that may
delay or discourage an unsolicited proposal for acquisition or the removal of
incumbent management. These provisions include:
* a staggered board of directors;
* authorized stock that may be issued as preferred stock in the discretion of
the board of directors, with voting or other rights superior to the common
stock;
* a requirement that directors may be removed only for cause and only by the
affirmative vote of two-thirds of the aggregate number of votes then
entitled to be cast generally in the election of directors;
* provisions designed to avoid concentration of share ownership in a manner
that would jeopardize the status as a REIT under the Internal Revenue Code;
and
* a stockholder rights plan.
See "Description of Capital Stock-Restrictions on Ownership, Transfer and
Conversion." Maryland law also contains provisions which could delay, defer or
prevent a change of control or other transaction. See "Provisions of Maryland
Law and First Washington's Charter and Bylaws."
Voting Rights
Under the partnership agreement, the limited partners have
voting rights only as to the dissolution of First Washington Limited
Partnership, the sale of all or substantially all of the assets or merger of
First Washington Limited Partnership, and specified amendments to the
partnership agreement, as described more fully below. Otherwise, First
Washington makes all decisions relating to the operation and management of First
Washington Limited Partnership. As holders of common units exchange their common
units, First Washington's percentage ownership of the common units will
increase. If additional units are issued to third parties, First Washington's
percentage ownership of the units will decrease.
The board of directors consists of three classes having
staggered three-year terms of office. Stockholders elect one class at each
annual meeting of stockholders. Maryland law requires that major corporate
transactions, including most amendments to the charter, must have stockholder
approval as set forth below. All shares of common stock have one vote per
share. The charter permits the board of directors to classify and authorize the
issuance of preferred stock in one or more series having voting power which may
differ from that of the common stock. "See Description of Capital Stock."
The following is a comparison of the voting rights of the
holders of units of First Washington Limited Partnership and First Washington's
stockholders as they relate to major transactions:
A. Amendment of the Partnership Agreement or the Charter
The partnership agreement may be amended through a proposal by
First Washington as the general partner or any limited partner. Such proposal,
in order to be effective, must be approved by First Washington and by the
written vote of holders of at least a majority of the outstanding common units
and exchangeable preferred units. Each affected limited partner must approve
amendments that affect the fundamental rights of a holder of common units. In
addition, First Washington may, without the consent of the holders of common
units, amend the partnership agreement as to ministerial matters.
Under Maryland law and the charter, the board of directors
and holders of shares entitled to cast at least a majority of the votes
entitled to be cast on the matter generally must approve amendments to the
charter.
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B. Vote Required to Dissolve First Washington Limited Partnership or First
Washington
First Washington may not elect to dissolve First Washington
Limited Partnership without the prior written consent of the holders of at least
a majority of the outstanding common units and exchangeable preferred units.
Under Maryland law and the charter, the board of directors
and holders of at least a majority of the shares entitled to vote on the matter
must approve dissolution of First Washington.
C. Vote Required to Sell Assets or Merge
Under the partnership agreement, the disposition of all or
substantially all of First Washington Limited Partnership's assets or merger or
consolidation of First Washington Limited Partnership requires First
Washington's consent and that of holders of at least a majority of the
outstanding common units and exchangeable preferred units.
Under Maryland law and the charter, the sale of all or
substantially all of First Washington's assets or a merger or a consolidation
of First Washington requires the approval of the board of directors and holders
of at least a majority of the votes entitled to be cast on the matter. The sale
of less than all or substantially all of First Washington's assets does not
require approval of the stockholders.
Compensation, Fees and Distributions
First Washington does not receive any compensation for its
services as general partner of First Washington Limited Partnership. As a
partner in First Washington Limited Partnership, however, First Washington has
the same right to receive pro rata allocations and distributions as other
partners of First Washington Limited Partnership. In addition, First Washington
Limited Partnership will reimburse First Washington for all expenses incurred
relating to its ongoing operation and any other offering of additional
partnership interests in First Washington Limited Partnership.
First Washington's officers and outside directors may receive
compensation for their services.
Liability of Investors
Under the partnership agreement and applicable Maryland law,
the liability of the holders of common units and exchangeable preferred units
for First Washington Limited Partnership's debts and obligations is generally
limited to the amount of their investment in First Washington Limited
Partnership.
Under Maryland law, First Washington's stockholders are not
personally liable for First Washington's debts or obligations.
Liquidity
First Washington may not transfer its units except to a
successor general partner with the consent of a majority in interest of the
limited partners. Limited partners may generally transfer their units without
restriction, provided that both First Washington Limited Partnership and First
Washington have a right of first refusal for any proposed transfer.
The shares of stock will be freely transferable as registered
securities under the Securities Act, subject to prospectus delivery and other
requirements for registered securities.
Taxes
First Washington Limited Partnership itself is not subject to
Federal income taxes. Instead, each holder of units includes its allocable share
of First Washington Limited Partnership's taxable income or loss in determining
its individual federal income tax liability. Depending on facts that are
particular to each holder, a unit holder's allocable share of income and loss
from First Washington Limited Partnership may be subject to the "passive
activity" limitations. Under the "passive activity" rules, a unit holder's
allocable share of income and loss from First Washington Limited Partnership
that is considered "passive" generally can be offset only against a holder's
income and loss from other investments that constitute "passive activities."
Cash distributions from First Washington Limited Partnership are generally not
taxable to a holder of units. However, to the extent cash distributions exceed a
holder's basis in its interest in First Washington Limited Partnership, they are
taxable to the holder of the units. A holder's basis in its interest in First
Washington Limited Partnership will include the holder's allocable share of
First Washington Limited Partnership's nonrecourse debt. Holders of common units
may be required to file state income tax returns and/or pay state income taxes
in the states in which First Washington Limited Partnership owns property, even
if they are not residents of those states.
Dividends paid by First Washington will be treated as
"portfolio" income and cannot be offset with losses from "passive activities."
Distributions made by First Washington to its taxable domestic stockholders out
of current or accumulated earnings and profits will be taken into account by
domestic stockholders as ordinary income. Distributions that are designated as
capital gain dividends generally will be taxed as capital gain at a rate of 20%
or 25%. Distributions in excess of current or accumulated earnings and profits
will be treated as a non-taxable return of basis to the extent of a
stockholder's adjusted basis in its stock, with the excess taxed as capital
gain. See "Federal Income Tax Consequences -- Taxation of Taxable U.S.
Stockholders." First Washington may be required to pay state income taxes in
certain states.
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PROVISIONS OF MARYLAND
LAW AND FIRST WASHINGTON'S CHARTER AND BYLAWS
The following paragraphs summarize provisions of Maryland law
and describe First Washington's charter and bylaws. This is a summary, and does
not completely describe Maryland law, our charter or our bylaws. For a complete
description, we refer you to the Maryland General Corporation Law, our charter
and our bylaws.
Classification of the Board of Directors
Under the bylaws, the number of our directors may be
established by the board of directors. However, this number may not be fewer
than the minimum number required under Maryland law nor more than fifteen.
Maryland law requires a minimum of three directors under current circumstances.
A vacancy resulting from an increase in the number of directors may be filled by
a majority vote of the entire board of directors. Other vacancies will be
filled, at any regular meeting or at any special meeting called for that
purpose, by a majority of the remaining directors. Pursuant to the charter, the
directors are divided into three classes. Currently there are seven directors.
Two directors hold office for a term which expires at the annual meeting of
stockholders to be held in May 1999. Three directors hold office for a term
which expires at the annual meeting of stockholders to be held in May 2000. Two
directors hold office for a term which expires at the annual meeting of
stockholders to be held in May 2001. 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. We believe that classification of
the board of directors helps to assure the continuity and stability of our
business strategies and policies.
The classification of the Board may make the replacement of
incumbent directors more time-consuming and difficult. This could discourage a
third party from making a tender offer or otherwise attempting to obtain control
of us, even though such an attempt might be beneficial to us and our
stockholders. A change in a majority of the board of directors will generally
require at least two annual meetings of stockholders, instead of one. Thus, the
classified board provision could increase the likelihood that incumbent
directors will retain their positions. Holders of common stock have no right to
cumulative voting for the election of directors. Consequently, at each annual
meeting of stockholders, the holders of a majority of shares of common stock can
elect all of the successors of the class of directors whose term expires at that
meeting and the holders of the remaining shares of common stock cannot elect any
directors.
Removal of Directors
The charter provides that a director may be removed only for
cause, as defined in the charter, and only by the affirmative vote of at least
two-thirds of the votes entitled to be cast generally in the election of
directors. Therefore, because the board of directors is authorized to fill
vacant directorships, stockholders may not both remove incumbent directors and
fill the vacancies created by such removal with their own nominees.
Business Combinations
Under Maryland law, "business combinations" between a Maryland
corporation and an interested stockholder or an affiliate of an interested
stockholder are prohibited for five years after the most recent date on which
the interested stockholder becomes an interested stockholder. These business
combinations include a merger, consolidation, share exchange, or, in
circumstances specified in the statute, an asset transfer or issuance or
reclassification of equity securities. An interested stockholder is defined as:
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* any person who 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.
After the five-year prohibition, any business combination between the Maryland
corporation and an interested stockholder generally must be recommended by the
board of directors of the corporation and approved by the affirmative vote of at
least:
* 80% of the votes entitled to be cast by holders of outstanding shares of
voting stock of the corporation; and
* two-thirds of the votes entitled to be cast by holders of voting stock of
the corporation other than shares held by the interested stockholder with
whom or with whose affiliate the business combination is to be effected.
These super-majority vote requirements do not apply if the corporation's common
stockholders receive a minimum price, as defined under Maryland law, for their
shares in the form of cash or other consideration in the same form as previously
paid by the interested stockholder for its shares. None of these provisions of
the Maryland law will apply, however, to business combinations that are approved
or exempted by the board of directors of the corporation prior to the time that
the interested stockholder becomes an interested stockholder. Our board of
directors has exempted from these provisions of Maryland law any business
combination involving Messrs. Halpert and Wolfe and any of their affiliates or
associates or any person acting in concert with any of such persons. As a
result, these persons may be able to enter into business combinations with us
that may not be in the best interest of our stockholders, without compliance
with the super-majority vote requirements and the other provisions of the
statute.
The business combination statute may discourage others from
trying to acquire control of us and increase the difficulty of consummating any
offer.
Control Share Acquisitions
Maryland law 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. Shares of stock owned by the acquiror, by officers or by
directors who are employees of the corporation are excluded from shares entitled
to vote on the matter. "Control shares" are voting shares of stock which, if
aggregated with all other shares of stock owned by the acquiror or shares of
stock for which the acquiror is able to exercise or direct the exercise of
voting power except solely by virtue of a revocable proxy, would entitle the
acquiror to exercise voting power in electing directors within one of the
following ranges of voting power:
* one-fifth or more but less than one-third;
* one-third or more but less than a majority; or
* a majority or more of all voting power.
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Control shares do not include shares the acquiring person is
then entitled to vote as a result of having previously obtained stockholder
approval. Except as otherwise specified in the statute, a "control share
acquisition" means the acquisition of control shares.
Once a person who has made or proposes to make a control share
acquisition has undertaken to pay expenses and satisfied other conditions, the
person may compel the board of directors to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the corporation may itself
present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the
acquiring person does not deliver an acquiring person statement as required by
the statute, then the corporation may be able to redeem any or all of the
control shares for fair value, except for control shares for which voting rights
previously have been approved. Fair value is 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 stockholders at which the voting rights
of control shares are considered and not approved. If voting rights for control
shares are approved at a stockholders meeting and the acquiror becomes entitled
to vote a majority of the shares entitled to vote, all other stockholders may
exercise appraisal rights. The fair value of the shares as determined for
purposes of these appraisal rights may not be less than the highest price per
share paid in the control share acquisition. Some of the 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.
Our bylaws contain a provision exempting from the control
share acquisition statute any and all acquisitions by any person of our shares
of stock. Our board of directors may amend or eliminate this provision at any
time in the future.
Amendment to the Charter
Provisions of our charter on classification of the board of
directors, removal of directors, voting rights of common stock and voting
requirements for charter amendments may be amended only by the affirmative vote
of the holders of not less than two-thirds of all of the votes entitled to be
cast on the matter. Other amendments to our charter require the affirmative vote
of holders of shares entitled to cast a majority of all the votes entitled to be
cast on the matter.
Amendment to the Bylaws
Our board of directors has the exclusive power to adopt, alter
or repeal any provision of our bylaws and to make new bylaws.
Dissolution of the Company
Our dissolution 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.
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Advance Notice of Director Nominations and New Business; Procedures of Special
Meetings Requested by Stockholders
Our bylaws provide that nominations of persons for election to
the board of directors and the proposal of business to be considered by
stockholders at the annual meeting of stockholders may be made only:
* pursuant to our notice of the meeting;
* by or at the direction of the board of directors; and
* by a stockholder who is entitled to vote at the meeting and has complied
with the advance notice procedures, including the minimum time period, set
forth in the bylaws.
Our bylaws also provide that only the business specified in
our notice of meeting may be brought before a special meeting of stockholders.
Nominations of persons for election to the board of directors at a special
meeting of stockholders may be made only:
* pursuant to our notice of the meeting;
* by or at the direction of the board of directors; or
* provided that the board of directors has determined that directors shall be
elected to such meeting, by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice provisions, including the
minimum time period, set forth in the bylaws.
Our bylaws contain special procedures applicable to a special
meeting of stockholders that is called at the request of stockholders entitled
to cast not less than a majority of all the votes entitled to be cast at the
meeting.
Stockholder Rights Plan
Our board of directors has adopted a stockholder rights plan
as set forth in a Rights Agreement dated October 10, 1998, as amended from time
to time, between First Washington and American Stock Transfer & Trust Company,
as rights agent. The Rights Agreement assigns one right to purchase a fraction
of our newly created series of preferred stock for each share of our common
stock owned on or after October 26, 1998. Initially, the rights will not be
exercisable and will not trade separately from the common stock. Stockholders
will be able to exercise their rights if a person or group initiates an
unsolicited takeover by acquiring at least 15% of our common stock or by making
a tender offer to acquire 15% or more of our common stock. Ultimately, if an
unsolicited acquiror gains control of us, stockholders, other than the acquiror,
would be able to purchase our common stock or the acquiror's stock at a 50%
discount. The rights plan will expire on October 26, 2008.
Anti-Takeover Effect of Provisions of Maryland Law and of the Charter and Bylaws
The provisions in the charter on classification of the board
of directors and removal of directors, the business combination and, if the
applicable provision in our bylaws is rescinded, the control share acquisition
provisions of Maryland law, the advance notice provisions of our bylaws, the
provisions of our bylaws relating to stockholder-requested special meetings and
our stockholder rights plan may delay, defer or prevent a change of control or
other transaction in which holders of some, or a majority, of the common stock
might receive a premium for their common stock over the then prevailing market
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price or which such holders might believe to be otherwise in their best
interests.
Limitation of Liability and Indemnification
Maryland law permits a Maryland corporation to include in its
charter a provision eliminating the liability of its directors and officers to
the corporation and its stockholders for money damages. However, a Maryland
corporation may not eliminate liability resulting from actual receipt of an
improper benefit or profit in money, property or services. Also, liability
resulting from active and deliberate dishonesty may not be eliminated if a final
judgment establishes that the dishonesty is material to the cause of action. Our
charter contains a provision which eliminates liability of directors and
officers to the maximum extent permitted by Maryland law. This provision does
not limit our right or that of our stockholders to obtain equitable relief, such
as an injunction or rescission.
Our charter authorizes us:
* to the maximum extent permitted by Maryland law, to indemnify any present
or former director or officer from and against any claim or liability
incurred by reason of his status as one of our present or former directors
or officers;
* to the maximum extent permitted by Maryland law, to pay or reimburse
reasonable expenses before final disposition of a proceeding to any present
or former director or officer incurred by reason of his status as one of
our present or former directors or officers; and
* to indemnify any other persons permitted but not required to be indemnified
by Maryland law.
The bylaws obligate us, to the maximum extent permitted by
Maryland law, to indemnify and to pay or reimburse reasonable expenses before
final disposition of a proceeding to:
* any present or former director or officer who is made a party to the
proceeding by reason of his service in that capacity; or
* any individual who, while one of our directors and at our request, serves
or has served another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity.
The bylaws also permit us to indemnify and advance expenses to any person who
served one of our predecessors in any of the capacities described above and to
any of our or our predecessors' employees or agents.
Unless a corporation's charter provides otherwise, Maryland
law requires a corporation to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. Our charter
does not alter this requirement.
Maryland law permits a corporation to indemnify its present
and former directors and officers, among others, against:
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* judgments;
* penalties;
* fines;
* settlements; and
* reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made a party by reason of their service in
those or other capacities.
Maryland law does not permit a corporation to indemnify its
present and former directors and officers if it is established that:
* the act or omission of the director or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty;
* the director or officer actually received an improper personal benefit in
money, property or services; or
* in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
Under Maryland law, a Maryland corporation generally may not
indemnify for an adverse judgment in a suit by or in the right of the
corporation. Also, a Maryland corporation generally may not indemnify for a
judgment of liability on the basis that personal benefit was improperly
received. In either of these cases, a Maryland corporation may indemnify for
expenses only if a court so orders.
Maryland law permits a corporation to advance reasonable
expenses to a director or officer. First, however, the corporation must receive
a written affirmation by the director or officer of his good faith belief that
he has met the standard of conduct necessary for indemnification by the
corporation. The corporation must also receive a written undertaking, either by
the director or officer or on his behalf, to repay the amount paid or reimbursed
by the corporation if it shall ultimately be determined that the standard of
conduct was not met. 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.
The partnership agreement also provides for indemnification of
First Washington, as general partner, and its officers and directors generally
to the same extent as permitted by Maryland law for a corporation's officers and
directors. The partnership agreement also limits the liability of First
Washington to First Washington Limited Partnership and its partners in the case
of losses sustained, liabilities incurred or benefits not derived as a result of
errors in judgment or mistakes of fact or law or any act or omission made in
good faith. 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.
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FEDERAL INCOME TAX CONSEQUENCES
The following summary of material federal income tax
consequences regarding First Washington and the common stock we are registering
is based on current law, is for general information only and is not tax advice.
The information in this section is based on the Internal Revenue Code as
currently in effect, current, temporary and proposed Treasury Regulations
promulgated under the Internal Revenue Code, the legislative history of the
Internal Revenue Code, current administrative interpretations and practices of
the IRS, including its practices and policies as expressed in private letter
rulings which are not binding on the IRS except with respect to the particular
taxpayers who requested and received such rulings, and court decisions, all as
of the date of this prospectus. There is no assurance that future legislation,
Treasury Regulations, administrative interpretations and practices or court
decisions will not adversely affect existing interpretations. Any change could
apply retroactively to transactions preceding the date of the change.
We have not requested, and do not plan to request, any rulings
from the IRS concerning our tax treatment and the statements in this prospectus
are not binding on the IRS or a court. Thus, we can provide no assurance that
these statements will not be challenged by the IRS or sustained by a court if
challenged by the IRS.
The tax treatment to holders of common stock will vary
depending on a holder's particular situation and this discussion does not
purport to deal with all aspects of taxation that may be relevant to a holder of
common stock in light of his or her personal investments or tax circumstances,
or to stockholders subject to special treatment under the federal income tax
laws except to the extent discussed under the headings "Taxation of Tax-Exempt
Stockholders" and "Taxation of Non-U.S. Stockholders." Stockholders subject to
special treatment include, without limitation, insurance companies, financial
institutions or broker-dealers, tax-exempt organizations, stockholders holding
securities as part of a conversion transaction, or a hedge or hedging
transaction or as a position in a straddle for tax purposes, foreign
corporations and persons who are not citizens or residents of the United States.
In addition, the summary below does not consider the effect of any foreign,
state, local or other tax laws that may be applicable to holders of the common
stock.
If we meet the detailed requirements in the Internal Revenue
Code for qualification as a REIT which are summarized below, we will be treated
as a REIT for federal income tax purposes. In this case, we generally will not
be subject to federal corporate income taxes on our net income that is currently
distributed to our stockholders. This treatment substantially eliminates the
"double taxation" that generally results from investments in a corporation.
Double taxation refers to the imposition of corporate level tax on income earned
by a corporation and taxation at the shareholder level on funds distributed to a
corporation's shareholders. If we fail to qualify as a REIT in any taxable year,
we would not be allowed a deduction for dividends paid to our stockholders in
computing taxable income and would be subject to federal income tax at regular
corporate rates. Unless entitled to relief under specific statutory provisions,
we would be ineligible to be taxed as a REIT for the four succeeding tax years.
As a result the funds available for distribution to our stockholders would be
reduced.
Each prospective purchaser should consult his or her own tax
advisor regarding the specific tax consequences of the purchase, ownership and
sale of common stock, including the federal, state, local, foreign and other tax
consequences of such purchase, ownership and sale and of potential changes in
applicable tax laws.
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Tax Consequences of Redemption or Exchange of Units
If you redeem or exchange units for cash or shares of stock,
you will recognize gain or loss because the redemption and exchange are each
taxable transactions. Depending upon your particular situation, it is possible
that the amount of gain you recognize or even your tax liability resulting from
the gain could exceed the amount of cash and the value of the shares of stock
you receive upon the redemption or exchange. You are advised to consult your own
tax advisors regarding the specific tax consequences of the redemption or
exchange of units, including the federal, state, local, foreign or other tax
consequences of this transaction.
Taxation of First Washington
General. We elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code, commencing with our taxable year ended
December 31, 1994. We believe we have been organized and have operated in a
manner which qualifies for taxation as a REIT under the Internal Revenue Code
commencing with our taxable year ended December 31, 1994. We intend to continue
to operate in this manner. However, our qualification and taxation as a REIT
depends upon our ability to meet, through actual annual operating results, asset
diversification, distribution levels and diversity of stock ownership, the
various qualification tests imposed under the Internal Revenue Code.
Accordingly, there is no assurance that we have operated or will continue to
operate in a manner so as to qualify or remain qualified as a REIT. Further,
legislative, administrative or judicial action may change, perhaps
retroactively, the anticipated income tax treatment described in this
prospectus. See "--Failure to Qualify."
The sections of the Internal Revenue Code that relate to the
qualification and operation as a REIT are highly technical and complex. The
following sets forth the material aspects of the sections of the Internal
Revenue Code that govern the federal income tax treatment of a REIT and its
stockholders. This summary is qualified in its entirety by the applicable
Internal Revenue Code provisions, relevant rules and regulations promulgated
under the Internal Revenue Code, and administrative and judicial interpretations
of the Internal Revenue Code, and these rules and these regulations.
If we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income taxes on our net income that is currently
distributed to our stockholders. This treatment substantially eliminates the
"double taxation" that generally results from investment in a corporation.
However, First Washington will be subject to federal income tax as follows:
First, we will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital gains.
Second, we may be subject to the "alternative minimum tax" on
our items of tax preference under some circumstances.
Third, if we have (a) net income from the sale or other
disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (b) other nonqualifying income
from foreclosure property, we will be subject to tax at the highest corporate
rate on this income. Foreclosure property is defined generally as property we
acquired through foreclosure or after a default on a loan secured by the
property or a lease of the property.
Fourth, we will be subject to a 100% tax on any net income
from prohibited transactions. Prohibited transactions generally include sales or
other dispositions of property held primarily for sale to customers in the
ordinary course of business, other than the sale or disposition of foreclosure
property.
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Fifth, we will be subject to a 100% tax on an amount equal to
(a) the gross income attributable to the greater of the amount by which we fail
the 75% or 95% test multiplied by (b) a fraction intended to reflect our
profitability, if we fail to satisfy the 75% gross income test or the 95% gross
income test but have maintained our qualification as a REIT because we satisfied
other requirements. The gross income tests are discussed below.
Sixth, we would be subject to a 4% excise tax on the excess of
the required distribution over the amounts actually distributed if we fail to
distribute during each calendar year at least the sum of
* 85% of our REIT ordinary income for the year,
* 95% of our REIT capital gain net income for the year, and
* any undistributed taxable income from prior periods.
Seventh, if we acquire any asset from a corporation which is
or has been a C corporation in a transaction in which the basis of the acquired
asset in our hands is determined by reference to the basis of the asset in the
hands of the C corporation, and we subsequently recognize gain on the
disposition of the asset during the ten-year period beginning on the date on
which we acquired the asset, then we will be subject to tax at the highest
regular corporate tax rate on this gain to the extent of the "built-in-gain" of
the asset. The built-in-gain of an asset equals the excess of (a) the fair
market value of the asset over (b) our adjusted basis in the asset, determined
as of the date we acquired the asset from the C corporation. A C corporation is
generally a corporation subject to full corporate-level tax. The results
described in this paragraph with respect to the recognition of built-in gain
assume that we will make an election pursuant to IRS Notice 88-19 and that the
availability or nature of such election is not modified as proposed in the
Clinton Administration's fiscal year 2000 budget proposal.
Requirements for Qualification as a REIT. The Internal Revenue
Code defines a REIT as a corporation, trust or association that:
(1) is managed by one or more trustees or directors;
(2) uses transferable shares or transferable certificates to evidence
beneficial ownership;
(3) would be taxable as a domestic corporation, but for Sections 856 through
860 of the Internal Revenue Code;
(4) is not a financial institution referred to in Section 582(c) of the
Internal Revenue Code or an insurance company to which subchapter L of the
Internal Revenue Code applies;
(5) is beneficially owned by 100 or more persons;
(6) during the last half of each taxable year not more than 50% in value of its
outstanding stock is owned, actually or constructively, by five or fewer
individuals, as defined in the Internal Revenue Code to include the
entities set forth in Section 542(a)(2) of the Internal Revenue Code; and
(7) meets other tests, described below, regarding the nature of its income and
assets and the amount of its distributions.
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The Internal Revenue Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of twelve months, or
during a proportionate part of a taxable year of less than twelve months.
Conditions (5) and (6) do not apply until after the first taxable year for which
an election is made to be taxed as a REIT. For purposes of condition (6),
pension funds and some other tax-exempt entities are treated as individuals,
subject to a "look-through" exception in the case of pension funds.
We believe we have satisfied each of these conditions. In
addition, our charter provides for restrictions regarding ownership and transfer
of shares. These restrictions are intended to assist us in continuing to satisfy
the share ownership requirements described in (5) and (6) above. These ownership
and transfer restrictions are described in "Description of Capital
Stock--Restrictions on Ownership, Transfer and Conversion." Primarily, though
not exclusively, as a result of fluctuations in value among the different
classes of our stock, these restrictions may not ensure that we will, in all
cases, be able to satisfy the share ownership requirements described (5) and (6)
above. If we fail to satisfy these share ownership requirements, our status as a
REIT will terminate. However, if we comply with the rules contained in
applicable Treasury Regulations that require us to ascertain the actual
ownership of our shares and we do not know, or would not have known through the
exercise of reasonable diligence, that we failed to meet the requirement
described in condition (6) above, we will be treated as having met this
requirement. See "--Failure to Qualify."
In addition, a corporation may not elect to become a REIT
unless its taxable year is the calendar year. We have and will continue to have
a calendar taxable year.
Ownership of Subsidiaries. We own interests in partnerships
and limited liability companies through subsidiaries. Internal Revenue Code
Section 856(i) provides that a corporation which is a "qualified REIT
subsidiary" shall not be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction and credit of a "qualified REIT
subsidiary" shall be treated as assets, liabilities and items of income of the
REIT for all purposes of the Internal Revenue Code, including the REIT
qualification tests. A "qualified REIT subsidiary" is defined for taxable years
beginning on or before August 5, 1997, as any corporation if 100 percent of the
stock of the corporation is held by the REIT at all times during the period the
corporation was in existence. A "qualified REIT subsidiary" is defined for
taxable years beginning after August 5, 1997, as any corporation 100 percent of
the stock of which is owned by the REIT, without regard to prior ownership. Each
of our wholly-owned subsidiaries qualifies as a "qualified REIT subsidiary."
Thus, in applying the requirements described herein, our wholly-owned
subsidiaries are ignored, and all of our wholly-owned subsidiaries' assets,
liabilities and items of income, deduction and credit are treated as our assets,
liabilities and items of income, deduction, and credit for all purposes of the
Internal Revenue Code, including the REIT qualification tests. For this reason,
references under "Federal Income Tax Consequences" to our income and assets
include the income and assets of our wholly-owned subsidiaries. Because our
wholly-owned subsidiaries are treated as "qualified REIT subsidiaries" they will
not be subject to federal income tax. In addition, our ownership of the voting
securities of these subsidiaries will not violate the restrictions against
ownership of securities of any one issuer which constitutes more than 10% of
such issuer's voting securities or more than 5% in value of our assets,
described below under "-- Asset Tests."
Ownership of a Partnership Interest. In the case of a REIT
which is a partner in a partnership, IRS regulations provide that the REIT will
be deemed to own its proportionate share of the assets of the partnership. Also,
a partner in a partnership will be deemed to be entitled to the income of the
partnership attributable to its proportionate share. The character of the assets
and gross income of the partnership retains the same character in the hands of
First Washington for purposes of Section 856 of the Internal Revenue Code,
including satisfying the gross income tests and the asset tests. Thus, our
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proportionate share of the assets, liabilities and items of income of First
Washington Limited Partnership, including First Washington Limited Partnership's
share of these items for any partnership or limited liability company, are
treated as our assets, liabilities and items of income for purposes of applying
the requirements described in this prospectus. We have included a summary of the
rules governing the Federal income taxation of partnerships and their partners
below in "--Tax Aspects of First Washington Limited Partnership." We have direct
control of First Washington Limited Partnership and will continue to operate it
consistent with the requirements for qualification as a REIT.
Income Tests. We must satisfy two gross income requirements
annually to maintain our qualification as a REIT.
First, each taxable year we must derive directly or indirectly
at least 75% of our gross income from investments relating to real property or
mortgages on real property, including "rents from real property" and, in
specific circumstances, interest, or from particular types of temporary
investments. Gross income from prohibited transactions is excluded for purposes
of determining if we satisfy this test. Second, each taxable year we must derive
at least 95% of our gross income from these real property investments,
dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Gross income from
prohibited transactions is excluded for purposes of determining if we satisfy
these tests. The term "interest" generally does not include any amount received
or accrued, directly or indirectly, if the determination of the amount depends
in whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
Rents we receive will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met.
First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
Second, the Internal Revenue Code provides that rents received
from a "related party tenant" will not qualify as "rents from real property" in
satisfying the gross income tests. A related party tenant is a tenant of First
Washington that First Washington, or one or more actual or constructive owners
of 10% or more of First Washington, actually or constructively own in the
aggregate 10% or more of such tenant.
Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to personal
property will not qualify as "rents from real property."
Finally, for rents received to qualify as "rents from real
property," First Washington generally must not operate or manage the property or
furnish or render services to the tenants of the property, other than through an
independent contractor from whom First Washington derives no revenue. First
Washington may, however, directly perform services that are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant" of the property.
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We generally do not and do not intend to:
* charge rent for any property that is based in whole or in part on the
income or profits of any person, except by reason of being based on a
percentage of receipts or sales, as described above;
* rent any property to a related party tenant;
* derive rental income attributable to personal property, other than personal
property leased in connection with the lease of real property, the amount
of which is less than 15% of the total rent received under the lease; or
* perform services considered to be rendered to the occupant of the property,
other than through an independent contractor from whom we derive no
revenue.
Notwithstanding the foregoing, we may have taken and may continue to take the
actions set forth above to the extent these actions will not, based on the
advice of our tax counsel, jeopardize our status as a REIT.
First Washington Management receives fees in exchange for the
performance of management services. These fees will not accrue to us, but we
will derive dividends from First Washington Management which qualify under the
95% gross income test, but not the 75% gross income test. We believe that the
aggregate amount of any non-qualifying income in any taxable year has not
exceeded and will not exceed the limit on non-qualifying income under the gross
income tests.
If we fail to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, we may nevertheless qualify as a REIT for the
year if we are entitled to relief under specific provisions of the Internal
Revenue Code. Generally, we may avail ourselves of the relief provisions if:
* our failure to meet these tests was due to reasonable cause and not due to
willful neglect;
* we attach a schedule of the sources of our income to our federal income tax
return; and
* any incorrect information on the schedule was not due to fraud with intent
to evade tax.
It is not possible, however, to state whether in all circumstances we would be
entitled to the benefit of these relief provisions. For example, if we fail to
satisfy the gross income tests because nonqualifying income that we
intentionally incur exceeds the limits on nonqualifying income, the IRS could
conclude that our failure to satisfy the tests was not due to reasonable cause.
If these relief provisions do not apply to a particular set of circumstances, we
will not qualify as a REIT. As discussed above in "--Taxation of First
Washington Realty Trust, Inc.--General," even if these relief provisions apply,
and we retain our status as a REIT, a tax would be imposed with respect to our
excess net income. We may not always be able to maintain compliance with the
gross income tests for REIT qualification despite our periodic monitoring of our
income.
Prohibited Transaction Income. Any gain realized by us on the
sale of any property held as inventory or other property held primarily for sale
to customers in the ordinary course of business, including our share of any such
gain realized by First Washington Limited Partnership, will be treated as income
from a prohibited transaction that is subject to a 100% penalty tax. This
prohibited transaction income may also adversely effect our ability to satisfy
the income tests for qualification as a REIT. Under existing law, whether
property is held as inventory or primarily for sale to customers in the
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ordinary course of a trade or business is a question of fact that depends on all
the facts and circumstances surrounding the particular transaction. First
Washington Limited Partnership intends to hold the properties for investment
with a view to long-term appreciation, to engage in the business of acquiring,
developing, owning, and operating its properties and to make occasional sales of
the properties as are consistent with First Washington Limited Partnership's
investment objectives. However, the IRS may contend that that one or more of
these sales is subject to the 100% penalty tax.
Asset Tests. At the close of each quarter of our taxable year,
we also must satisfy three tests relating to the nature and diversification of
our assets.
First, at least 75% of the value of our total assets must be
represented by real estate assets, cash, cash items and government securities.
For purposes of this test, real estate assets include stock or debt instruments
held for one year or less that are purchased with the proceeds of a stock
offering or a long-term (at least five years) debt offering.
Second, not more than 25% of our total assets may be
represented by securities, other than those securities includible in the 75%
asset test.
Third, of the investments included in the 25% asset class, the
value of any one issuer's securities may not exceed 5% of the value of our total
assets and we may not own more than 10% of any one issuer's outstanding voting
securities.
First Washington Limited Partnership owns 100% of the
nonvoting preferred stock of First Washington Management and a note of First
Washington Management. First Washington Limited Partnership does not and will
not own any of the voting securities of First Washington Management. Therefore
we will not be considered to own more than 10% of the voting securities of First
Washington Management. In addition, we believe that the value of our pro rata
share of the securities of First Washington Management held by First Washington
Limited Partnership did not exceed at any time up to and including the date of
this prospectus 5% of the total value of our assets and will not exceed this
amount in the future.
After initially meeting the asset tests at the close of any
quarter, we will not lose our status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If we fail to satisfy the asset tests because we acquire additional securities
of First Washington Management or other securities or other property during a
quarter, including an increase in our interests in First Washington Limited
Partnership, we can cure this failure by disposing of sufficient nonqualifying
assets within 30 days after the close of that quarter. We have maintained and
will continue to maintain adequate records of the value of our assets to ensure
compliance with the asset tests and to take such other actions within the 30
days after the close of any quarter as may be required to cure any
noncompliance. If we fail to cure noncompliance with the asset tests within this
time period, we would cease to qualify as a REIT.
Annual Distribution Requirements. To maintain our
qualification as a REIT, we are required to distribute dividends, other than
capital gain dividends, to our stockholders in an amount at least equal to:
the sum of:
* 95% of our "REIT taxable income," computed without regard to the dividends
paid deduction and our net capital gain, and
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* 95% of the after tax net income, if any, from foreclosure property,
minus:
* the excess of the sum of particular items of noncash income over 5% of
"REIT taxable income" as described above.
These distributions must be paid in the taxable year to which
they relate, or in the following taxable year if they are declared before we
timely file our tax return for such year and if paid on or before the first
regular dividend payment after such declaration. These distributions are taxable
to holders of common stock and convertible preferred stock, other than
tax-exempt entities, as discussed below, in the year in which paid. This is so
even though these distributions relate to the prior year for purposes of our 95%
distribution requirement. The amount distributed must not be preferential --
e.g., every shareholder of the class of stock to which a distribution is made
must be treated the same as every other shareholder of that class, and no class
of stock may be treated otherwise than in accordance with its dividend rights as
a class. To the extent that we do not distribute all of our net capital gain or
distribute at least 95%, but less than 100%, of our "REIT taxable income," as
adjusted, we will be subject to tax thereon at regular ordinary and capital gain
corporate tax rates. We have made and intend to make timely distributions
sufficient to satisfy these annual distribution requirements.
We expect that our REIT taxable income will be less than our
cash flow due to the allowance of depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, we anticipate that we will generally
have sufficient cash or liquid assets to enable us to satisfy the distribution
requirements described above. However, from time to time, we may not have
sufficient cash or other liquid assets to meet these distribution requirements
due to timing differences between the actual receipt of income and actual
payment of deductible expenses, and the inclusion of income and deduction of
expenses in arriving at our taxable income. If these timing differences occur,
in order to meet the distribution requirements, we may need to arrange for
short-term, or possibly long-term, borrowings or need to pay dividends in the
form of taxable stock dividends.
Under specific circumstances identified in the Internal
Revenue Code, we may be able to rectify a failure to meet the distribution
requirement for a year by paying "deficiency dividends" to stockholders in a
later year, which may be included in our deduction for dividends paid for the
earlier year. Thus, we may be able to avoid being taxed on amounts distributed
as deficiency dividends. However, we will be required to pay interest based upon
the amount of any deduction taken for deficiency dividends.
Furthermore, we would be subject to a 4% excise tax on the
excess of the required distribution over the amounts actually distributed if we
should fail to distribute during each calendar year, or in the case of
distributions with declaration and record dates falling in the last three months
of the calendar year, by the end of January immediately following such year, at
least the sum of:
* 85% of our REIT ordinary income for such year,
* 95% of our REIT capital gain income for the year
* and any undistributed taxable income from prior periods.
Any REIT taxable income and net capital gain on which this excise tax is imposed
for any year is treated as an amount distributed during that year for purposes
of calculating such tax.
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Failure To Qualify
If we fail to qualify for taxation as a REIT in any taxable
year, and the relief provisions do not apply, we will be subject to tax,
including any applicable alternative minimum tax, on our taxable income at
regular corporate rates. Distributions to stockholders in any year in which we
fail to qualify will not be deductible by us and we will not be required to
distribute any amounts to our stockholders. As a result, our failure to qualify
as a REIT would reduce the cash available for distribution by us to our
stockholders. In addition, if we fail to qualify as a REIT, all distributions to
stockholders will be taxable as ordinary income to the extent of our current and
accumulated earnings and profits. In this event, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, we will also be ineligible to be taxed as a REIT
for the four tax years following the year during which we lost our
qualification. It is not possible to state whether in all circumstances we would
be entitled to this statutory relief. In addition, the Clinton Administration's
fiscal year 2000 budget proposal contains a provision which, if enacted in its
present form, would result in immediate taxation of all gain inherent in a C
corporation's assets upon an election by the corporation to become a REIT in
taxable years beginning after January 1, 2000. If enacted, this provision could
effectively preclude us from re-electing to be taxed as a REIT following a loss
of our status as a REIT.
Proposed Legislation
The Clinton Administration's fiscal year 2000 budget proposal,
announced February 1, 1999, includes a proposal that would limit a REITs ability
to own more than 10% by vote or value of the stock of another corporation. As
discussed above under the heading "Taxation of First Washington-- Asset Tests,"
a REIT cannot currently own more than 10% of the outstanding voting securities
of any one issuer. The budget proposal would allow a REIT to own all or a
portion of the voting stock and value of a "taxable REIT subsidiary" provided
all of a REIT's taxable subsidiaries do not represent more than 15% of the
REIT's total assets. In addition under the budget proposal, a "taxable REIT
subsidiary" would not be entitled to deduct any interest on debt funded directly
or indirectly by the REIT. The budget proposal, if enacted in its current form,
may require that we restructure our interest in First Washington Management
because we currently own more than 10% of the value of First Washington
Management and because we have loaned funds to First Washington Management. The
budget proposal, if enacted in its current form, would be effective after the
date of its enactment and would provide transition rules to allow corporations,
like First Washington Management to convert into "taxable REIT subsidiaries"
tax-free. It is presently uncertain whether any proposal regarding REIT
subsidiaries, including the budget proposal, will be enacted, or if enacted,
what the terms of such proposal, including its effective date, will be.
Taxation Of Taxable U.S. Stockholders
As used below, the term "U.S. stockholder" means a holder of
shares of common stock who, for United States federal income tax purposes,:
* is a citizen or resident of the United States;
* is a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of any state thereof or in the
District of Columbia, unless, in the case of a partnership, Treasury
Regulations provide otherwise;
* is an estate the income of which is subject to United States federal income
taxation regardless of its source; or
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* is a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who
have the authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in Treasury
Regulations, some trusts in existence on August 20, 1996, and treated as United
States persons prior to this date that elect to continue to be treated as United
States persons, are also considered U.S. stockholders.
Distributions Generally. As long as we qualify as a REIT,
distributions out of our current or accumulated earnings and profits, other than
capital gain dividends discussed below, will constitute dividends taxable to our
taxable U.S. stockholders as ordinary income. These distributions will not be
eligible for the dividends-received deduction in the case of U.S. stockholders
that are corporations. For purposes of determining whether distributions to
holders of common stock are out of current or accumulated earnings and profits,
our earnings and profits will be allocated:
* first to the convertible preferred stock, to the extent of the preferred
distribution on this stock;
* second to the common stock, to the extent of distributions equal to $0.4875
per quarter per share; and
* third, pro-rata between both the convertible preferred stock and the common
stock for any distributions in which the convertible preferred stock is
entitled to participate.
To the extent that we make distributions, other than capital
gain dividends discussed below, in excess of our current and accumulated
earnings and profits, these distributions will be treated first as a tax-free
return of capital to each U.S. stockholder. This treatment will reduce the
adjusted basis which each U.S. stockholder has in his shares of stock for tax
purposes by the amount of the distribution. This reduction will not, however,
reduce a holder's adjusted basis below zero. Distributions in excess of a U.S.
stockholder's adjusted basis in his shares will be taxable as capital gain,
provided that the shares have been held as a capital asset. In addition, these
distributions will be taxable as long-term capital gain if the shares have been
held for more than one year. Dividends that we declare in October, November, or
December of any year and that are payable to a stockholder of record on a
specified date in any of these months shall be treated as both paid by us and
received by the stockholder on December 31 of that year, provided we actually
pay the dividend on or before January 31 of the following calendar year.
Stockholders may not include in their own income tax returns any of our net
operating losses or capital losses.
Capital Gain Distributions. Distributions that we properly
designate as capital gain dividends will be taxable to taxable U.S. stockholders
as gains, to the extent that they do not exceed our actual net capital gain for
the taxable year, from the sale or disposition of a capital asset. Depending on
the characteristics of the assets which produced these gains, and on
designations which we may make, these gains may be taxable to non-corporate U.S.
stockholders at a 20% or 25% rate. U.S. stockholders that are corporations may,
however, be required to treat up to 20% of some capital gain dividends as
ordinary income.
Passive Activity Losses and Investment Interest Limitations.
Distributions we make and gain arising from the sale or exchange by a U.S.
stockholder of our shares will not be treated as passive activity income. As a
result, U.S. stockholders generally will not be able to apply any "passive
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losses" against this income or gain. Distributions we make, to the extent they
do not constitute a return of capital, generally will be treated as investment
income for purposes of computing the investment income limitation. Gain arising
from the sale or other disposition of our shares, however, will not be treated
as investment income under some circumstances.
Retention of Net Long-Term Capital Gains. We may elect to
retain, rather than distribute as a capital gain dividend, our net long-term
capital gains. If we make this election, we would pay tax on our retained net
long-term capital gains. In addition, to the extent we designate, a U.S.
stockholder generally would:
* include its proportionate share of our undistributed long-term capital
gains in computing its long-term capital gains in its return for its
taxable year in which the last day of our taxable year falls;
* be deemed to have paid the capital gains tax imposed on us on the
designated amounts included in the U.S. stockholder's long-term capital
gains;
* receive a credit or refund for the amount of tax deemed paid by it;
* increase the adjusted basis of its common stock by the difference between
the amount of includible gains and the tax deemed to have been paid by it;
and
* in the case of a U.S. stockholder that is a corporation, appropriately
adjust its earnings and profits for the retained capital gains in
accordance with Treasury Regulations to be prescribed by the IRS.
Dispositions of Common Stock
If you are a U.S. stockholder and you sell or dispose of your
shares of common stock, you will recognize gain or loss for federal income tax
purposes in an amount equal to the difference between the amount of cash and the
fair market value of any property you receive on the sale or other disposition
and your adjusted basis in the shares for tax purposes. This gain or loss will
be capital if you have held the common stock as a capital asset and will be
long-term capital gain or loss if you have held the common stock for more than
one year. In general, if you are a U.S. stockholder and you recognize loss upon
the sale or other disposition of common stock that you have held for six months
or less, after applying holding period rules set forth in the Internal Revenue
Code, the loss you recognize will be treated as a long-term capital loss, to the
extent you received distributions from us which were required to be treated as
long-term capital gains.
Backup Withholding
We report to our U.S. stockholders and the IRS the amount of
dividends paid during each calendar year, and the amount of any tax withheld.
Under the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless the holder
is a corporation or comes within other exempt categories and, when required,
demonstrates this fact, or provides a taxpayer identification number, certifies
as to no loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A U.S. stockholder that
does not provide us with his correct taxpayer identification number may also be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
will be creditable against the stockholder's income tax liability. In addition,
we may be required to
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withhold a portion of capital gain distributions to any stockholders who fail to
certify their non-foreign status. See "--Taxation of Non-U.S. Stockholders."
Taxation of Tax-Exempt Stockholders
The IRS has ruled that amounts distributed as dividends by a
qualified REIT do not constitute unrelated business taxable income when received
by a tax-exempt entity. Based on that ruling, provided that a tax-exempt
shareholder, except tax-exempt shareholders described below, has not held its
shares as "debt financed property" within the meaning of the Internal Revenue
Code and the shares are not otherwise used in a trade or business, dividend
income from us will not be unrelated business taxable income to a tax-exempt
shareholder. Similarly, income from the sale of shares will not constitute
unrelated business taxable income unless a tax-exempt shareholder has held its
shares as "debt financed property" within the meaning of the Internal Revenue
Code or has used the shares in its trade or business.
For tax-exempt shareholders which are social clubs, voluntary
employee benefit associations, supplemental unemployment benefit trusts, and
qualified group legal services plans exempt from federal income taxation under
Internal Revenue Code Section 501(c)(7), (c)(9), (c)(17) and (c)(20),
respectively, income from an investment in our shares will constitute unrelated
business taxable income unless the organization is able to properly deduct
amounts set aside or placed in reserve for certain purposes so as to offset the
income generated by its investment in our shares. These prospective investors
should consult their own tax advisors concerning these "set aside" and reserve
requirements.
Notwithstanding the above, however, the Omnibus Budget
Reconciliation Act of 1993 provides that, effective for taxable years beginning
in 1994, a portion of the dividends paid by a "pension held REIT" shall be
treated as unrelated business taxable income as to any trust which
* is described in Section 401(a) of the Internal Revenue Code;
* is tax-exempt under Section 501(a) of the Internal Revenue Code; and
* holds more than 10%, by value, of the interests in a REIT.
Tax-exempt pension funds that are described in Section 401(a) of the Internal
Revenue Code are referred to below as "qualified trusts."
A REIT is a "pension held REIT" if
* it would not have qualified as a REIT but for the fact that Section
856(h)(3) of the Internal Revenue Code provides that stock owned by
qualified trusts shall be treated, for purposes of the "not closely held"
requirement, as owned by the beneficiaries of the trust, rather than by the
trust itself; and
* either at least one such qualified trust holds more than 25%, by value, of
the interests in a REIT, or one or more such qualified trusts, each of
which owns more than 10%, by value, of the interests in a REIT, holds in
the aggregate more than 50%, by value, of the interests in the REIT.
The percentage of any REIT dividend treated as unrelated business taxable income
is equal to the ratio of:
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* the unrelated business taxable income earned by First Washington, treating
First Washington as if it were a qualified trust and therefore subject to
tax on unrelated business taxable income, to
* the total gross income of First Washington.
A de minimis exception applies where the percentage is less than 5% for any
year. The provisions requiring qualified trusts to treat a portion of REIT
distributions as unrelated business taxable income will not apply if First
Washington is able to satisfy the "not closely held" requirement without relying
upon the "look-through" exception with respect to qualified trusts. As a result
of the limitations on the transfer and ownership of stock contained in our
charter, we are not and do not expect to be classified as a "pension held REIT."
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Taxation of Non-U.S. Stockholders
When we use the term "non-U.S. stockholders," we mean holders
of shares of common stock that are nonresident alien individuals, foreign
corporations, foreign partnerships or foreign estates or trusts. The rules
governing United States federal income taxation of the ownership and disposition
of stock by persons that are non-U.S. stockholders are complex. No attempt is
made in this prospectus to provide more than a brief summary of these rules.
Accordingly, this discussion does not address all aspects of United States
federal income tax and does not address state, local or foreign tax consequences
that may be relevant to a non-U.S. stockholder in light of its particular
circumstances. In addition, this discussion is based on current law, which is
subject to change, and assumes that we qualify for taxation as a REIT.
Prospective non-U.S. stockholders should consult with their own tax advisers to
determine the impact of federal, state, local and foreign income tax laws with
regard to an investment in stock, including any reporting requirements.
Distributions. If we make a distribution that is not
attributable to gain from the sale or exchange of United States real property
interests and is not designated as capital gains dividends, then the
distribution will be treated as dividends of ordinary income to the extent it is
made out made out of current or accumulated earnings and profits. These
distributions ordinarily will be subject to withholding of United States federal
income tax on a gross basis at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty.
However, if the dividends are treated as effectively connected
with the conduct by the non-U.S. stockholder of a United States trade or
business, or if an income tax treaty applies, as attributable to a United States
permanent establishment of the Non- U.S. stockholder, the dividends will be
subject to tax on a net basis at graduated rates, in the same manner as domestic
stockholders are taxed with respect to such dividends and are generally not
subject to withholding. Any such dividends received by a non-U.S. stockholder
that is a corporation may also be subject to an additional branch profits tax at
a 30% rate or such lower rate as may be specified by an applicable income tax
treaty.
Under current Treasury Regulations, dividends paid to an
address in a country outside the United States are generally presumed to be paid
to a resident of the country for purposes of determining the applicability of
the withholding rules discussed above and the applicability of a tax treaty
rate. Under some treaties, lower withholding rates generally applicable to
dividends do not apply to dividends from a REIT. Certification and disclosure
requirements must be satisfied to be exempt from withholding under the
effectively connected income and permanent establishment exemptions discussed
above.
Distributions we make in excess of our current or accumulated
earnings and profits will not be taxable to a non-U.S. stockholder to the extent
that they do not exceed the adjusted basis of the stockholder's stock, but
rather will reduce the adjusted basis of such stock. To the extent that these
distributions exceed the adjusted basis of a non-U.S. stockholder's stock, they
will give rise to gain from the sale or exchange of his stock. The tax treatment
of this gain is described below. If it cannot be determined at the time a
distribution is made whether or not a distribution will be in excess of current
or accumulated earnings and profits, the distribution will generally be treated
as a dividend for withholding purposes. However, the IRS will generally refund
amounts that are withheld if it is subsequently determined that the distribution
was, in fact, in excess of our current or accumulated earnings and profits.
Distributions to a non-U.S. stockholder that we designate at
the time of distribution as capital gains dividends, other than those arising
from the disposition of a United States real property
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interest, generally will not be subject to United States federal income
taxation, unless:
* investment in the stock is effectively connected with the non-U.S.
stockholder's United States trade or business, in which case the non-U.S.
stockholder will be subject to the same treatment as domestic stockholders
with respect to such gain, except that a stockholder that is a foreign
corporation may also be subject to the 30% branch profits tax, as discussed
above; or
* the non-U.S. stockholder is a nonresident alien individual who is present
in the United States for 183 days or more during the taxable year and has a
"tax home" in the United States, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains.
Distributions to a non-U.S. stockholder that are attributable
to gain from our sale or exchange of United States real property interests will
cause the non-U.S. stockholder to be treated as recognizing this gain as income
effectively connected with a United States trade or business. non-U.S.
stockholders would thus generally be taxed at the same rates applicable to
domestic stockholders, subject to a special alternative minimum tax in the case
of nonresident alien individuals. Also, this gain may be subject to a 30% branch
profits tax in the hands of a non-U.S. stockholder that is a corporation, as
discussed above. We are required to withhold 35% of any such distribution. That
amount is creditable against the non-U.S. stockholder's United States federal
income tax liability.
We or any nominee (e.g., a broker holding shares in street
name) may rely on a certificate of non-foreign status on Form W-8 or Form W-9 to
determine whether withholding is required on gains realized from the disposition
of United States real property interests. A domestic person who holds shares of
common stock on behalf of a non-U.S. stockholder will bear the burden of
withholding, provided that we have properly designated the appropriate portion
of a distribution as a capital gain dividend.
Sale of Stock. If you are a non-U.S. stockholder and you
recognize gain upon the sale or exchange of shares of stock, the gain generally
will not be subject to United States taxation unless the stock constitutes a
"United States real property interest" within the meaning of FIRPTA. If we are a
"domestically controlled REIT", then the stock will not constitute a "United
States real property interest." A "domestically controlled REIT" is a REIT in
which at all times during a specified testing period less than 50% in value of
its stock is held directly or indirectly by non-U.S. stockholders. Because our
shares of stock are publicly traded, there is no assurance that we are or will
continue to be a "domestically- controlled REIT." Notwithstanding the foregoing,
if you are a non-U.S. stockholder and you recognize gain upon the sale or
exchange of shares of stock and the gain is not subject to FIRPTA, the gain will
be subject to United States taxation if:
* your investment in the stock is effectively connected with a United States
trade or business, or, if an income treaty applies, is attributable to a
United States permanent establishment; or
* you are a nonresident alien individual who is present in the United States
for 183 days or more during the taxable year and you have a "tax home" in
the United States. In this case, a nonresident alien individual will be
subject to a 30% United States withholding tax on the amount of such
individual's gain.
If we are not or cease to be a "domestically-controlled REIT,"
whether gain arising from
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the sale or exchange by a non-U.S. stockholder of shares of stock would be
subject to United States taxation under FIRPTA as a sale of a "United States
real property interest" will depend on whether the shares are "regularly
traded", as defined by applicable Treasury Regulations, on an established
securities market and on the size of the selling non-U.S. stockholder's interest
in our shares. If gain on the sale or exchange of shares of stock were subject
to taxation under FIRPTA, the non-U.S. stockholder would be subject to regular
United States income tax on this gain in the same manner as a U.S. stockholder,
and the purchaser of the stock would be required to withhold and remit to the
IRS 10% of the purchase price. In addition in this case, non-U.S. stockholder
would be subject to any applicable alternative minimum tax, nonresident alien
individuals may be subject to a special alternative minimum tax and foreign
corporations may be subject to the 30% branch profits tax.
Backup Withholding Tax and Information Reporting. Back up
withholding tax generally is a withholding tax imposed at the rate of 31% on
reportable payments, as defined in section 3406 of the Internal Revenue Code, to
persons that fail to furnish the required information under the United States
information reporting requirements. Backup withholding tax and information
reporting will generally not apply to distributions paid to non-U.S.
stockholders outside the United States that are treated as:
* dividends subject to the 30%, or lower treaty rate, withholding tax
discussed above;
* capital gains dividends; or
* distributions attributable to gain from our sale or exchange of United
States real property interests.
As a general matter, backup withholding and information reporting will not apply
to a payment of the proceeds of a sale of stock by or through a foreign office
of a foreign broker. Information reporting, but not backup withholding, will
apply, however, to a payment of the proceeds of a sale of stock by a foreign
office of a broker that:
* is a United States person;
* derives 50% or more of its gross income for specific periods from the
conduct of a trade or business in the United States; or
* is a "controlled foreign corporation" for United States tax purposes.
Information Reporting will not apply if the broker has documentary evidence in
its records that the holder is a non-U.S. stockholder and other conditions are
met, or the stockholder otherwise establishes an exemption.
Payment to or through a United States office of a broker of
the proceeds of sale of stocks is subject to both backup withholding and
information reporting unless the stockholder certifies under penalties of
perjury that the stockholder is a non-U.S. stockholder, or otherwise establishes
an exemption.
A non-U.S. stockholder may obtain a refund of any amounts
withheld under the backup withholding rules by filing the appropriate claim for
refund with the IRS.
New Withholding Regulations. Final regulations dealing with
withholding tax on income paid to foreign persons and related matters were
recently promulgated. In general, these new
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withholding regulations do not significantly alter the substantive withholding
and information reporting requirements, but unify current certification
procedures and forms and clarify reliance standards. For example, these new
withholding regulations adopt a certification rule under which a foreign
stockholder who wishes to claim the benefit of an applicable treaty rate with
respect to dividends received from a United Stated corporation will be required
to satisfy certification and other requirements. In addition, these new
withholding regulations require a corporation that is a REIT to treat as a
dividend the portion of a distribution that is not designated as a capital gain
dividend or return of basis and apply the 30% withholding tax, subject to any
applicable deduction or exemption, to such portion, and to apply the FIRPTA
withholding rules, discussed above, with respect to the portion of the
distribution designated by First Washington as capital gain dividend. These new
withholding regulations will generally be effective for payments made after
December 31, 1999, subject to transition rules. The discussion set forth above
in "Taxation of Non-U.S. Stockholders" does not take these new withholding
regulations into account. Prospective non-U.S. stockholders are strongly urged
to consult their own tax advisors with respect to these new withholding
regulations.
Tax Aspects Of First Washington Limited Partnership
General. Substantially all of our investments will be held
indirectly through First Washington Limited Partnership. In general,
partnerships are "pass-through" entities which are not subject to federal income
tax. Rather, partners are allocated their proportionate shares of the items of
income, gain, loss, deduction and credit of a partnership, and are potentially
subject to tax thereon, without regard to whether the partners receive a
distribution from the partnership. We will include in our income our
proportionate share of the foregoing partnership items for purposes of the
various REIT income tests and in the computation of our REIT taxable income.
Moreover, for purposes of the REIT asset tests, we will include our
proportionate share of assets held by First Washington Limited Partnership. See
"--Taxation of First Washington Realty Trust, Inc."
Entity Classification. Our interests in First Washington
Limited Partnership and the Lower-Tier Partnerships involve special tax
considerations, including the possibility of a challenge by the IRS of the
status of First Washington Limited Partnership or a Lower-Tier Partnership as a
partnership, as opposed to an association taxable as a corporation, for federal
income tax purposes. If First Washington Limited Partnership or a Lower-Tier
Partnership were treated as an association, it would be taxable as a corporation
and therefore be subject to an entity-level tax on its income. In such a
situation, the character of our assets and items of gross income would change
and preclude us from satisfying the asset tests and possibly the income tests
(see "--Taxation of First Washington Realty Trust, Inc. --Asset Tests" and
"--Income Tests"). This, in turn, would prevent us from qualifying as a REIT.
See "--Taxation of First Washington Realty Trust, Inc.--Failure to Qualify"
above for a discussion of the effect of our failure to meet these tests for a
taxable year. In addition, a change in First Washington Limited Partnership's or
a Lower-Tier Partnership's status for tax purposes might be treated as a taxable
event. If so, we might incur a tax liability without any related cash
distributions.
Treasury Regulations that apply for tax period beginning on or
after January 1, 1997 provide that an "eligible entity" may elect to be taxed as
a partnership for federal income tax purposes. An eligible entity is a domestic
business entity not otherwise classified as a corporation and which has at least
two members. Unless it elects otherwise, an eligible entity in existence prior
to January 1, 1997 will have the same classification for federal income tax
purposes that it claimed under the entity classification Treasury Regulations in
effect prior to this date. In addition, an eligible entity which did not exist,
or did not claim a classification, prior to January 1, 1997, will be classified
as a partnership for federal income tax purposes unless it elects otherwise.
First Washington Limited Partnership and each of the Lower-Tier Partnerships
have claimed and intend to continue to claim classification as a partnership
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under these regulations.
Partnership Allocations. A partnership agreement will
generally determine the allocation of income and losses among partners. However,
these allocations will be disregarded for tax purposes if they do not comply
with the provisions of Section 704(b) of the Internal Revenue Code and the
Treasury Regulations promulgated under this section of the Internal Revenue
Code. Generally, Section 704(b) and the Treasury Regulations promulgated under
this section of the Internal Revenue Code require that partnership allocations
respect the economic arrangement of the partners.
If an allocation is not recognized for federal income tax
purposes, the item subject to the allocation will be reallocated in accordance
with the partners' interests in the partnership. This reallocation will be
determined by taking into account all of the facts and circumstances relating to
the economic arrangement of the partners with respect to such item. First
Washington Limited Partnership's allocations of taxable income and loss are
intended to comply with the requirements of Section 704(b) of the Internal
Revenue Code and the Treasury Regulations promulgated under this section of the
Internal Revenue Code.
Tax Allocations with Respect to the Properties. Under Section
704(c) of the Internal Revenue Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership, must be allocated in
a manner so that the contributing partner is charged with the "book-tax
difference" associated with the property at the time of the contribution. The
book-tax difference with respect to property that is contributed to a
partnership is generally equal to the difference between the fair market value
of contributed property at the time of contribution and the adjusted tax basis
of the property at the time of contribution. These allocations are solely for
federal income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. First Washington Limited
Partnership was formed by way of contributions of appreciated property,
including some of the properties. Moreover, subsequent to the formation of First
Washington Limited Partnership, additional persons have contributed appreciated
property to First Washington Limited Partnership in exchange for interests in
First Washington Limited Partnership. The partnership agreement requires that
these allocations be made in a manner consistent with Section 704(c) of the
Internal Revenue Code.
In general, limited partners of First Washington Limited
Partnership who acquired their limited partnership interests through a
contribution of appreciated property will be allocated depreciation deductions
for tax purposes which are lower than these deductions would be if determined on
a pro rata basis. In addition, in the event of the disposition of any of the
contributed assets which have a book-tax difference, all income attributable to
the book-tax difference will generally be allocated to the limited partners who
contributed the property, and we will generally be allocated only our share of
capital gains attributable to appreciation, if any, occurring after the time of
contribution to First Washington Limited Partnership. This will tend to
eliminate the book-tax difference over the life of First Washington Limited
Partnership. However, the special allocation rules of Section 704(c) do not
always entirely eliminate the book-tax difference on an annual basis or with
respect to a specific taxable transaction such as a sale. Thus, the carryover
basis of the contributed assets in the hands First Washington Limited
Partnership may cause us to be allocated lower depreciation and other
deductions. Possibly we could be allocated an amount of taxable income in the
event of a sale of these contributed assets in excess of the economic or book
income allocated to us as a result of the sale. This may cause us to recognize
taxable income in excess of cash proceeds, which might adversely affect our
ability to comply with the REIT distribution requirements. See "--Taxation of
First Washington Realty Trust, Inc.--Annual Distribution Requirements."
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Treasury Regulations issued under Section 704(c) of the
Internal Revenue Code provide partnerships with a choice of several methods of
accounting for book-tax differences, including retention of the "traditional
method" or the election of other methods which would permit any distortions
caused by a book-tax difference to be entirely rectified on an annual basis or
with respect to a specific taxable transaction such as a sale. We and First
Washington Limited Partnership have determined to use the "traditional method"
for accounting for book-tax differences for the properties initially contributed
to First Washington Limited Partnership and for some assets acquired
subsequently. We and First Washington Limited Partnerships have not yet decided
what method will be used to account for book-tax differences for properties
acquired by First Washington Limited Partnership in the future.
Any property acquired by First Washington Limited Partnership
in a taxable transaction will initially have a tax basis equal to its fair
market value, and Section 704(c) of the Internal Revenue Code will not apply.
Basis in First Washington Limited Partnership Interest. The
adjusted tax basis in our interest in First Washington Limited Partnership
generally will be equal to:
* the amount of cash and the basis of any other property we contribute to
First Washington Limited Partnership,
* increased by our allocable share of First Washington Limited Partnership's
income and our allocable share of indebtedness of First Washington Limited
Partnership, and
* reduced, but not below zero, by our allocable share of losses suffered by
First Washington Limited Partnership, the amount of cash distributed to us
and constructive distributions resulting from a reduction in our share of
indebtedness of First Washington Limited Partnership.
If the allocation of our distributive share of First
Washington Limited Partnership's loss exceeds the adjusted tax basis of our
partnership interest in First Washington Limited Partnership, the recognition of
this excess loss will be deferred until such time and to the extent that we have
adjusted tax basis in our interest in First Washington Limited Partnership.
We will recognize taxable income to the extent that First
Washington Limited Partnership's distributions, or any decrease in our share of
the indebtedness of First Washington Limited Partnership, exceeds our adjusted
tax basis in First Washington Limited Partnership. A decrease in our share of
the indebtedness of First Washington Limited Partnership is considered a cash
distribution.
Other Tax Consequences
We may be subject to state or local taxation in various state
or local jurisdictions, including those in which we transact business and our
stockholders may be subject to state or location taxation in various state or
local jurisdiction, including those in which they reside. Our state and local
tax treatment may not conform to the federal income tax consequences discussed
above. In addition, your state and locate tax treatment may not conform to the
federal income tax consequences discussed above. Consequently, you should
consult your own tax advisors regarding the effect of state and local tax laws
on an investment in our shares.
A portion of the cash to be used by First Washington Limited
Partnership to fund distributions to partners is expected to come from First
Washington Management, through interest payments and dividends on non-voting
preferred stock to be held by First Washington Limited Partnership. First
Washington Management will pay federal and state tax on its net income at full
corporate rates, which will reduce the cash available for distribution to
stockholders.
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EXPERTS
The financial statements incorporated in this prospectus by
reference to the Annual Report on Form 10-K of First Washington Realty Trust,
Inc.for the year ended December 31, 1998 and Annual Report on Form 10-K of First
Washington Realty Trust, Inc. for the year ended December 31, 1997 and the
combined statement of revenues and certain expenses of the Acquired Properties,
as defined in footnote 1 of that statement, for the year ended December 31, 1997
included in First Washington's Form 8-K/A filed on June 26, 1998 and the
combined statement of revenues and certain expenses of the Acquired Properties,
as defined in footnote No. 1 of that statement, for the year ended December 31,
1997, included in First Washington's Form 8-K filed on March 10, 1999, have been
so incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
auditing and accounting.
LEGAL MATTERS
Latham & Watkins, Washington, D.C. will issue an opinion to us
regarding certain legal matters. Latham & Watkins will rely as to certain
matters of Maryland law, including the legality of the Common Stock, on the
opinion of Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland.
PLAN OF DISTRIBUTION
This prospectus relates to the possible issuance by us of up
to 1,043,109 shares of common stock if, and to the extent that, holders of up to
1,043,109 common units tender their units for exchange. We are registering the
common stock to provide the holders with freely tradeable securities, but the
registration of these shares does not necessarily mean that any of these shares
will be offered or sold by the holders. We have paid for all expenses in
connection with the registration statement. No commissions or selling expenses
will be paid by us in connection with the issuance of these shares. Except for
our expenses in preparing this registration statement, we do not expect to incur
other expenses in connection with the distribution of these shares.
We will not receive any proceeds from the issuance of the
common stock offered by this prospectus, but we will acquire the common units
previously owned by the persons to whom we issue stock.
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We have not authorized any person to make a statement that
differs from what is in this prospectus. If any person does make a statement
that differs from what is in this prospectus, you should not rely on that
statement. This prospectus is not an offer to sell, nor is it seeking an offer
to buy, these securities in any state where the offer or sale is not permitted.
The information in this prospectus is complete and accurate as of its date, but
the information may change after that date.
FIRST WASHINGTON REALTY TRUST, INC.
1,043,109 Shares
Common Stock
($0.01 Par Value Per Share)
PROSPECTUS
April 14, 1999
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INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the amount of fees and
expenses to be incurred in connection with the issuance and distribution of the
common stock registered under this prospectus:
SEC Registration Fee $ 6,751
Printing and Mailing Costs 1,000
Legal Fees and Expenses 20,000
Accounting Fees and Expenses 4,000
Miscellaneous 1,000
-----
Total $32,751
ITEM 15. LIMITATION OF LIABILITY AND INDEMNIFICATION
Maryland law permits a Maryland corporation to include in its
charter a provision eliminating the liability of its directors and officers to
the corporation and its stockholders for money damages. However, a Maryland
corporation may not eliminate liability resulting from actual receipt of an
improper benefit or profit in money, property or services. Also, liability
resulting from active and deliberate dishonesty may not be eliminated if a final
judgment establishes that the dishonesty is material to the cause of action. Our
charter contains a provision which eliminates liability of directors and
officers to the maximum extent permitted by Maryland law. This provision does
not limit our right or that of our stockholders to obtain equitable relief, such
as an injunction or rescission.
Our charter authorizes us:
* to the maximum extent permitted by Maryland law, to indemnify any present
or former director or officer from and against any claim or liability
incurred by reason of his status as one of our present or former directors
or officers;
* to the maximum extent permitted by Maryland law, to pay or reimburse
reasonable expenses before final disposition of a proceeding to any present
or former director or officer incurred by reason of his status as one of
our present or former directors or officers; and
* to indemnify any other persons permitted but not required to be indemnified
by Maryland law.
The bylaws obligate us, to the maximum extent permitted by
Maryland law, to indemnify and to pay or reimburse reasonable expenses before
final disposition of a proceeding to:
* any present or former director or officer who is made a party to the
proceeding by reason of his service in that capacity; or
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* any individual who, while one of our directors and at our request, serves
or has served another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity.
The bylaws also permit us to indemnify and advance expenses to any person who
served one of our predecessors in any of the capacities described above and to
any of our or our predecessors' employees or agents.
Unless a corporation's charter provides otherwise, Maryland
law requires a corporation to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. Our charter
does not alter this requirement.
Maryland law permits a corporation to indemnify its present
and former directors and officers, among others, against:
* judgments;
* penalties;
* fines;
* settlements; and
* reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made a party by reason of their service in
those or other capacities.
Maryland law does not permit a corporation to indemnify its
present and former directors and officers if it is established that:
* the act or omission of the director or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty;
* the director or officer actually received an improper personal benefit in
money, property or services; or
* in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
Under Maryland law, a Maryland corporation generally may not
indemnify for an adverse judgment in a suit by or in the right of the
corporation. Also, a Maryland corporation generally may not indemnify for a
judgment of liability on the basis that personal benefit was improperly
received. In either of these cases, a Maryland corporation may indemnify for
expenses only if a court so orders.
Maryland law permits a corporation to advance reasonable
expenses to a director or officer. First, however, the corporation must receive
a written affirmation by the director or officer of
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his good faith belief that he has met the standard of conduct necessary for
indemnification by the corporation. The corporation must also receive a written
undertaking, either by the director or officer or on his behalf, to repay the
amount paid or reimbursed by the corporation if it shall ultimately be
determined that the standard of conduct was not met. 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.
The partnership agreement also provides for indemnification of
First Washington, as general partner, and its officers and directors generally
to the same extent as permitted by Maryland law for a corporation's officers and
directors. The partnership agreement also limits the liability of First
Washington to First Washington Limited Partnership and its partners in the case
of losses sustained, liabilities incurred or benefits not derived as a result of
errors in judgment or mistakes of fact or law or any act or omission made in
good faith. 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.
ITEM 16. EXHIBITS
Exhibits
4.1(a) Articles of Restatement*
4.1(b) Articles Supplementary **
4.2 Amended and Restated Bylaws***
5 Opinion of Ballard Spahr Andrews & Ingersoll, LLP****
8 Opinion of Latham & Watkins regarding tax matters
23(a) Consent of Latham & Watkins (included in Exhibit 8)
23(b) Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5)
23(c) Consent of PricewaterhouseCoopers LLP
* Included as an exhibit to the Company's Form 10-K for the fiscal year ended
December 31, 1997, and incorporated herein by reference. ** Included in the
Company's Form 8-K filed October 23, 1998, and incorporated herein by
reference. *** Included as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998. ****Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
* To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the
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registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in the registration statement. However,
any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii)To include any material information about the plan of distribution not
previously disclosed in this registration statement or any material change
to this information in this registration statement.
However, subparagraphs (i) and (ii) do not apply if the information required to
be included in a post-effective amendment by those paragraphs is contained in
the periodic reports filed by the Registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in this registration statement.
* That for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the Securities offered herein, and the
offering of such Securities at that time shall be deemed to be the initial
bona fide offering thereof.
* To remove from registration by means of a post-effective amendment any of
the Securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby further undertakes that, for
the purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
in this registration statement shall be deemed to be a new registration
statement relating to the Securities offered herein, and the offering of such
Securities at that time shall be deemed to be the initial bona fide offering
thereof.
As far as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant under the provisions of this registration statement,
or otherwise (other than insurance), the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the Securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in such Act and
will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3, and has duly caused this Amendment
No. 2 to this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Bethesda, State of
Maryland on April 14, 1999.
FIRST WASHINGTON REALTY TRUST, INC.
By: /s/William J. Wolfe
William J. Wolfe
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
the registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- ---------------------- ------------------------- -----------------
/s/ Stuart D. Halpert* Chairman of the April 14, 1999
Stuart D. Halpert Board of Directors
/s/ William J. Wolfe President, Chief Executive April 14, 1999
William J. Wolfe Officer, Director
/s/ Lester Zimmerman* Director April 14, 1999
Lester Zimmerman
/s/ James G. Blumenthal Executive Vice President April 14, 1999
James G. Blumenthal and Chief Financial Officer
/s/ Stanley T. Burns* Director April 14, 1999
Stanley T. Burns
/s/ Matthew J. Hart* Director April 14, 1999
Matthew J. Hart
/s/ William M. Russell* Director April 14, 1999
William M. Russell
/s/ Heywood Wilansky* Director April 14, 1999
Heywood Wilansky
*By: William J. Wolfe
Attorney-in-fact
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[ON LATHAM & WATKINS LETTERHEAD]
April 14, 1999
First Washington Realty Trust, Inc.
4350 East/West Highway, Suite 400
Bethesda, MD 20814
Re: Federal Income Tax Consequences
Ladies and Gentlemen:
We have acted as tax counsel to First Washington Realty Trust,
Inc., a Maryland corporation (the "Company"), in connection with its issuance of
up to 1,043,109 shares of common stock of the Company pursuant to a registration
statement on Form S-3 under the Securities Act of 1933, as amended, filed with
the Securities and Exchange Commission on October 30, 1998 (and as so amended as
of the time it becomes effective) (the "Registration Statement").
You have requested our opinion concerning certain of the
federal income tax consequences to the Company in connection with the issuance
described above. This opinion is based on various facts and assumptions,
including the facts set forth in the Registration Statement concerning the
business, properties and governing documents of the Company and First Washington
Realty Limited Partnership (the "Operating Partnership"). We have also been
furnished with, and with your consent have relied upon, certain representations
made by the Company and the Operating Partnership with respect to certain
factual matters through a certificate of an officer of the Company (the
"Officer's Certificate").
In our capacity as tax counsel to the Company, we have made
such legal and factual examinations and inquiries, including an examination of
originals or copies certified or otherwise identified to our satisfaction of
such documents, corporate records and other instruments as we have deemed
necessary or appropriate for purposes of this opinion. For the purposes of our
opinion, we have not made an independent investigation, or audit of the facts
set forth in the above referenced documents or in the Officer's Certificate.
In our examination, we have assumed the authenticity of all
documents submitted to us as originals, the genuineness of all signatures
thereon, the legal capacity of natural persons executing such documents and the
conformity to authentic original documents of all documents submitted to us as
copies.
We are opining herein as to the effect on the subject
transaction only of the federal income tax laws of the United States and we
express no opinion with respect to the applicability thereto, or the effect
thereon, of other federal laws, the laws of any state or other jurisdiction or
as to any matters of municipal law or the laws of any other local agencies
within any state.
Based on such facts, assumptions and representations and
subject to the limitations set forth in the Registration Statement, the
statements in the Registration Statement
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April 14, 1999
Page 2
set forth under the caption "Federal Income Tax Consequences" are the opinion of
Latham & Watkins as to the material federal income tax consequences relevant to
purchasers of the Company's common stock. No opinion is expressed as to any
matter not discussed therein.
This opinion is rendered to you as of the date of this letter,
and we undertake no obligation to update this opinion subsequent to the date
hereof. This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the Registration Statement or
the Officer's Certificate may affect the conclusions stated herein. Moreover,
the Company's qualification and taxation as a real estate investment trust
depends upon the Company's ability to meet, through actual annual operating
results, asset diversification, distribution levels and diversity of stock
ownership, the various qualification tests imposed under the Code, the results
of which have not been and will not be reviewed by Latham & Watkins.
Accordingly, no assurance can be given that the actual results of the Company's
operation for any one taxable year will satisfy such requirements.
Except as provided below, this opinion is rendered only to
you, and is for your use in connection with the issuance of common stock by the
Company pursuant to the Registration Statement. This opinion may not be relied
upon by you for any other purpose, or furnished to, quoted to, or relied upon by
any other person, firm or corporation, for any purpose, without our prior
written consent, except that this opinion may be relied upon by the investors
who purchase common stock of the Company pursuant to the Registration Statement.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement.
Very truly yours,
LATHAM & WATKINS
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CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of First Washington
Realty Trust, Inc. (the "Company") of (1) our report dated January 31, 1999
appearing on page F-2 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, (2) our report dated January 31, 1998, except for Note
16, as to which the date is March 26, 1998, appearing on page F-2 of the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, (3)
our report on the combined statement of revenues and certain expenses of the
Acquired Properties (as defined in footnote No. 1 of the statement) for the year
ended December 31, 1997, which report is included in the Company's Form 8-K/A
filed on June 26, 1998, and (4) our report on the combined statement of revenues
and certain expenses of the Acquired Properties (as defined in footnote No. 1 to
the statement) for the year ended December 31, 1997, which report is included in
the Company's Form 8-K filed on March 10, 1999. We also consent to the reference
to us under the caption "Experts" in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
Washington, D.C.
April 12, 1999
<PAGE>
