UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1998
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from _____
to _____
Commission File Number 0-25230
FIRST WASHINGTON REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-1879972
(State of Incorporation or Organization) (I.R.S. employer
identification no.)
4350 East-West Highway (301) 907-7800
Suite 400 (Registrant's telephone
Bethesda, MD 20814 number, including area code)
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.01 par value New York Stock Exchange
9.75% Series A Cumulative Participating Convertible Preferred Stock
Liquidation Preference of $25 per Share New York Stock Exchange
Class B Junior Participating Preferred Stock Purchase Rights
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $179 million based on the closing price of such
shares on the New York Stock Exchange as of March 24, 1999.
The number of shares of the Registrant's Common Stock outstanding was 8,578,218
on March 25, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Portions of the definitive proxy statement for the Annual Meeting of
Shareholders presently scheduled to be held on May 7, 1999, to be filed pursuant
to Regulation 14A.
This report including Exhibits, contains 131 pages.
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC.
1998 ANNUAL REPORT ON FORM 10-K/A
TABLE OF CONTENTS
Item
No. Page
PART I
1. Business.................................................................1
2. Properties...............................................................7
3. Legal Proceedings.......................................................12
4. Submission of Matters to a Vote of Security Holders.....................12
PART II
5. Market for the Registrant's Common Equity
and Related Shareholder Matters.......................................13
6. Summary of Selected Financial Data......................................14
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................16
7a. Qualitative and Quantitative Disclosures About Market Risk..............23
8. Consolidated Financial Statements and Supplementary Data................23
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures...........................................24
PART III
10. Directors and Executive Officers of the Company.........................25
11. Executive Compensation..................................................25
12. Security Ownership of Certain Beneficial Owners and Management..........25
13. Certain Relationships and Related Transactions..........................25
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........25
<PAGE>
PART I
Item 1. Business (dollars in thousands)
General
First Washington Realty Trust, Inc. (the "Company") is a fully
integrated real estate organization with expertise in acquisitions, property
management, leasing, renovation and development of principally
supermarket-anchored neighborhood shopping centers. The Company currently owns a
portfolio of 56 retail properties (the "Retail Properties") containing a total
of approximately 6.0 million square feet of gross leasable area ("GLA") located
in the Mid-Atlantic region and the Chicago, Illinois metropolitan area. The
Company has elected to be taxed as a real estate investment trust ("REIT") under
the Internal Revenue Code of 1986, as amended (the "Code").
The Retail Properties are strategically located 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, Eckerd Drug and Rite Aid.
Neighborhood shopping centers are typically open-air centers ranging in size
from 50,000 to 150,000 square feet of GLA and anchored by supermarkets and/or
drug stores. The Retail Properties range in size from approximately 3,000 square
feet of GLA to approximately 335,000 square feet of GLA, and average
approximately 108,000 square feet of GLA. The anchor tenants typically offer
daily necessity items rather than specialty goods. Nine of the Retail Properties
are relatively small in size, with less than 50,000 square feet of GLA. Such
properties do not have a large supermarket or drug store anchor tenant, and as
such may be subject to greater variability in consumer traffic and operating
performance.
Organization
The Company was formed in April 1994 to continue and expand the
neighborhood shopping center acquisition, management and renovation strategies
of First Washington Management, Inc. ("FWM"), which has been engaged in the
business since 1983. FWM was founded by Stuart D. Halpert, the Company's
Chairman and William J. Wolfe, the Company's President and Chief Executive
Officer (the "Principals").
The Company's assets are held by, and all its operations conducted
through, First Washington Realty Limited Partnership (the "Operating
Partnership") and FWM. The Company is the sole general partner of the Operating
Partnership. The limited partners are individuals, partnerships and others who
have contributed their properties in exchange for partnership interests
("Units"). The limited partners may exchange their Units for cash or, at the
option of the Company, for stock of the Company on a 1 for 1 basis. As of
December 31, 1998 and 1997, the Company owned approximately 73% and 79% of the
Operating Partnership, respectively. This arrangement is commonly referred to as
an Umbrella Partnership or "UPREIT" structure. The Operating Partnership owns
100% of the non-voting preferred stock of FWM which entitles it to 99% of the
cash flow. Messrs. Halpert and Wolfe own 100% of the voting common stock of FWM
which entitles them to 1% of the cash flow. In addition, the Operating
Partnership holds an FWM promissory note in the amount of $4,000 with interest
payable quarterly in the amount of $120. FWM provides management, leasing and
related services to the Operating Partnership and also provides such services to
13 third-party clients consisting of 21 properties and 2.0 million square feet
of GLA. As of December 31, 1998, the Company and the Operating Partnership,
including subsidiary entities, collectively owned 100% of the properties. Due to
the Company's ability, as the general partner, to exercise both financial and
operational control over the Operating Partnership, the Operating Partnership is
consolidated for financial reporting purposes. Allocation of net income and
equity to the limited partners of the Operating Partnership is based on their
respective partnership interests and is reflected in the accompanying
Consolidated Financial Statements as minority interests. Losses allocable to the
limited partners in excess of their basis are allocated to the Common
Stockholders as the limited partners have no requirement to fund losses.
The Company is incorporated in the State of Maryland with its
headquarters located at 4350 East-West Highway, Suite 400, Bethesda, Maryland.
The telephone number is (301) 907-7800. FWM has regional property management
offices located in Illinois, Pennsylvania and Virginia. FWM has approximately 70
employees.
1
<PAGE>
Operating Strategies
The Company seeks to increase cash flow and distributions, as well as
the value of its portfolio, through intensive property management and strategic
renovation and expansion of its properties and the opportunistic acquisition of
additional neighborhood shopping centers within the Mid-Atlantic region and the
Chicago metropolitan area, where the Company has extensive knowledge of local
market growth patterns and economic conditions. The Company would also consider
acquisitions in other metropolitan markets which management determines to be
both attractive and conveniently accessible.
Intensive Management. A key aspect of the Company's strategy is
improving the operating performance of its properties over time through
intensive property management. The Company seeks to increase operating margins
through a combination of increasing revenues (through increased occupancy and/or
rental rates), maintaining high tenant retention rates (i.e., the percentage of
tenants who renew their leases upon expiration), and aggressively managing
operating expenses.
The Company believes that, as a fully integrated real estate
organization with both owned and third-party managed properties, it enjoys
significant operating efficiencies relative to many of its competitors that
operate smaller, fragmented portfolios. These operating efficiencies are the
result of economies of scale in operating expenses, more effective leasing and
marketing efforts, and enhanced tenant retention levels. The Company also
benefits from effectively spreading certain fixed property management and
leasing costs over its entire owned and third-party managed portfolio.
Management believes that the scope of the Company's portfolio, combined with
managements' professional and community ties to the Mid-Atlantic region and the
Chicago metropolitan area, enables the Company to develop long-term
relationships with national and regional tenants which occupy multiple
properties in its portfolio, which improves occupancy rates and tenant retention
levels.
Strategic Renovation and Expansion. The Company seeks to increase
operating results through the strategic renovation and expansion of certain of
the Retail 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, the Company considers both the cost of such expansion
or renovation and the increase in rent attributable to such expansion or
renovation. The Company believes that many of the Retail Properties provide
opportunities for renovation and expansion.
The following table sets forth information with respect to the
Company's recent and ongoing renovations and expansions:
Additional
Name Description Cost Square Feet
- ------------ ----------------------------------- ---- -----------
1998 Completed Projects:
Mallard Creek Facade & common area renovation $290 -
City Avenue Facade & common area renovation 721 -
City Avenue Expansion - Sears Paint and Hardware 520 (1) 4,327
Laburnum Park Expansion - Ukrop's Supermarket - (2) 10,000
Four Mile Fork Facade & common area renovation 124 -
McHenry Commons Common area renovation 130 -
Riverside Common area renovation 169 -
Spring Valley Facade & common area renovation 190 -
Stefko Blvd. Common area renovation 342 -
Stonebrook Common area renovation 204 -
The Oaks Common area renovation 405 -
Valley Centre Development of Pad Site - T.G.I. Friday's 323 6,830
----- ------------
$3,418 21,157
======= ============
2
<PAGE>
<TABLE>
<S>
<C> <C> <C>
Estimated Completion
Name Description Date
- ------------ ----------------------------------- --------------------
1999 Projects:
Bowie Plaza Common area renovation Second Quarter 1999
Newtown Square Expansion - Acme First Quarter 1999
Newtown Square Facade & common area renovation First Quarter 1999
Parkville Facade & common area renovation Third Quarter 1999
Parkville Expansion - Superfresh Fourth Quarter 1999
Willston I & II Facade & common area renovation Third Quarter 1999
The Village Facade renovation Second Quarter 1999
<C> <C>
Estimated Additional
Cost Square Feet
- -------------- --------------
$ 520 -
- (2) 10,000
650 -
475 -
1,800 22,500
1,500 -
150 -
- -------------- -------------
$5,095 32,500
============== =============
</TABLE>
(1) $370 of this amount represents an earn out payment, paid in Operating
Partnership Units to the seller of the property.
(2) To be paid by Tenant
As a fully-integrated real estate organization, the Company maintains
expertise in the development of new retail properties, having developed three of
the FWM Properties containing approximately 525,000 square feet of GLA.
Management believes the Company's principal anchor tenants and other real estate
professionals present the Company with development opportunities which the
Company may pursue.
Opportunistic Acquisitions. Another principal component of the
Company's strategy is the acquisition of additional neighborhood shopping
centers within the Mid-Atlantic region and Chicago, Illinois. The Company will
seek to acquire properties which are strategically located along major traffic
arteries in well-established, densely populated communities. The Company
typically selects properties in locations where it believes the supply of
developable land and zoning restrictions impede the development of competing
shopping centers and where tenants' location alternatives are limited. The
Company would also consider acquisitions in other metropolitan markets which
management determines to be both attractive and conveniently accessible.
Through its third-party management, leasing and related service
business and network of regional management and leasing offices, the Company is
familiar with local conditions in its given markets. Because the Company's
third-party clients frequently seek assistance with the revitalization and
disposition of the properties, the Company believes it is in a unique position
to ultimately acquire such properties. For example, FWM provided property
management and leasing services for nine properties acquired from third-party
clients. The Company believes opportunities for neighborhood shopping center
acquisitions are particularly attractive at this time because of the
fragmentation in ownership of such properties and the decline in the
construction of new retail properties.
When evaluating potential acquisitions, the Company will consider such
factors as: (i) economic, demographic, and regulatory conditions in the
property's local and regional market; (ii) the location, construction quality,
and design of the property; (iii) the current and projected cash flow of the
property and the potential to increase cash flow; (iv) the potential for capital
appreciation of the property; (v) 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; (vi) the occupancy and demand by
tenants for properties of a similar type in the market area; (vii) the potential
to complete a strategic renovation, expansion, or retenanting of the property;
(viii) the property's current expense structure and the potential to increase
operating margins; and, (ix) competition from comparable retail properties in
the market area. The Company successfully completed the acquisition of 43
properties since its organization in April 1994.
Recent Developments
In January 1999, the Company acquired Kamp Washington Shopping Center
located in Fairfax, Virginia. The total acquisition cost of $15,300 was financed
through assumed mortgage indebtedness of $3,100, a draw on the
3
<PAGE>
Company's Line of Credit of $9,800 and cash of $2,400, which included $1,800 of
proceeds from the sale of properties in 1998 which were treated as a Section
1031 exchange for tax purposes. The mortgage loan carries an all-in effective
interest rate of 7.0% and matures in October 2002. The Center contains 71,825
square feet of GLA and is anchored by Borders Books.
Financing Strategies
The Company intends to finance its acquisition and development
activities with the most appropriate sources of capital available at the time,
which may include undistributed funds from operations, the net proceeds from
issuance of equity securities (including Operating Partnership Units), bank and
other institutional borrowings, sale of properties, and the issuance of debt
securities.
Future borrowings may be either on a secured or unsecured basis. The
Company's ratio of debt to total market capitalization as of December 31, 1998
was approximately 41.8% and 37.6% assuming conversion of the Exchangeable
Debentures to equity. The Company is subject to a number of risks associated
with borrowing, including the uncertainty associated with the ability of the
Company to refinance mortgage indebtedness of approximately $113.3 million
(including the Exchangeable Debentures) maturing in 1999 and 2000, that the
indebtedness might be refinanced on less favorable terms, that there is a lack
of limitations on the amount of indebtedness that the Company may incur, that
interest rates might increase on variable rate or refinanced indebtedness and
that the Company's level of leverage may limit its ability to grow through
additional debt financing.
Marketing and Promotion
The Company engages in various marketing and promotional activities
designed to increase consumer traffic, retail sales and percentage rents at its
Properties.
Environmental Regulations
The Company, as an owner of real estate, is subject to various
environmental laws of Federal and local governments. Compliance by the Company
with existing laws has not had a material adverse effect on its financial
condition and management does not believe it will have such an effect in the
future. However, the Company cannot predict the impact of new or changed laws or
regulations on its current Properties. All of the Properties have been subjected
to Phase I environmental audits. A summary of environmental issues is set forth
below:
Contamination caused by dry cleaning solvents has been detected in
groundwater below the Penn Station Shopping Center. The source of the
contamination has not been determined. Potential sources include a dry cleaner
tenant at the Penn Station Shopping Center and a dry cleaner located in an
adjacent property. Sampling conducted at the site indicates that the
contamination is limited and is unlikely to have any effect on human health. The
Company has made a request for closure to the State of Maryland. Management
believes that there is minimal exposure at this time, and therefore has not
recorded an environmental clean-up liability.
Petroleum has been detected in the soil of a parcel adjacent to the Fox
Mill Shopping Center on property occupied by Exxon Corporation ("Exxon") for use
as a gas station (the "Exxon Station"). Exxon has taken steps to remediate the
petroleum in and around the Exxon Station, which is located down gradient from
the Fox Mill Shopping Center. Exxon has agreed to take full responsibility for
the remediation of such petroleum. Currently, the company is not aware of any
contamination of the Company's property and none is expected to occur. In
addition, a dry cleaning solvent has been detected in the groundwater below the
Fox Mill Shopping Center. A groundwater pump and treatment system, approved by
the Virginia Water Control Board, was installed in July 1992, and was operating
until recently when the Control Board ordered quarterly sampling to determine if
further remediation is necessary. The total cost of running the pumps and
monitoring the contamination is estimated to be approximately $75,000 and will
be expended over the course of the next three to four years. The previous owner
of the Fox Mill Shopping Center has agreed to pay for the costs of running the
pumps and monitoring the contamination and has agreed to fully remediate the
groundwater contamination to the extent required by the applicable regulatory
authority. Management believes that there is minimal exposure at this time and,
therefore, has not recorded an environmental clean-up liability.
A dry cleaning solvent has been detected in the soil and groundwater
below the Four Mile Fork Shopping Center. Testing conducted at the site
indicates that the contamination is limited and is unlikely to have any effect
on human health. In addition, the previous owner of the Four Mile Fork Shopping
Center has provided an indemnification
4
<PAGE>
for all costs and expenses to obtain closure from the responsible regulatory
authority, and the Commonwealth of Virginia Department of Environmental Quality
has issued a Certificate of Satisfactory Completion of Remediation. Management
believes that there is minimal exposure at this time and, therefore, has not
recorded an environmental clean-up liability.
A dry cleaning solvent has been detected in the soil below the Bowie
Plaza Shopping Center. Testing done at the site indicates that the contamination
is limited and is unlikely to have any effect on human health. In addition, the
previous owner of the property has provided an indemnification for all costs and
expenses to obtain closure from the responsible regulatory authority. Also,
petroleum has been detected in the soil and groundwater beneath the property
arising from a release from an adjoining Shell service station not owned by the
Company. Shell is liable for the clean up and is currently performing clean up
activities. Also, the contamination is unlikely to have an affect on human
health. In light of the above, management believes that there is minimal
exposure at this time and, therefore, has not recorded an environmental clean-up
liability for either of these items.
Petroleum has been detected in the soil and groundwater beneath the
Newtown Square Shopping Center arising from a release from an adjoining Mobil
service station not owned by the Company. Mobil is liable for the clean up and
is currently performing clean up activities. Also, the contamination is unlikely
to have an affect on human health. In light of the above, management believes
that there is minimal exposure at this time and, therefore, has not recorded an
environmental clean-up liability for either of these items.
Dry cleaning solvent and hydraulic fuel has been detected in the soil
below the Riverside Square. Testing done at the site indicates that the
contamination is limited and is unlikely to have any effect on human health, and
the environmental consultant recommended that no further investigation or
remediation was warranted at that time. In light of the above, management
believes that there is minimal exposure at this time and, therefore, has not
recorded an environmental clean-up liability.
Petroleum has been detected in the soil and groundwater beneath an
Exxon service station not owned by the Company which is adjacent to the Spring
Valley Shopping Center. Exxon is liable for the clean up and is currently
performing clean up activities. Also, the contamination is unlikely to have an
affect on human health. In light of the above, management believes that there is
minimal exposure at this time and, therefore, has not recorded an environmental
clean-up liability.
Petroleum has been detected in the soil below the Parkville Shopping
Center. Testing conducted at the site indicates that the contamination is
limited and is unlikely to have any effect on human health. In addition, the
previous owner of the Parkville Shopping Center provided an indemnification for
all costs and expenses to obtain closure from the responsible regulatory
authority, and the Maryland Department of the Environment has issued a "no
further action" letter. Management believes that there is minimal exposure at
this time and, therefore, has not recorded an environmental clean-up liability.
Petroleum and a dry cleaning solvent have been detected in the soil
below The Village Shopping Center. Testing conducted at the site indicates that
the contamination is limited and is unlikely to have any effect on human health.
In addition, the previous owner of The Village Shopping Center provided an
indemnification for all costs and expenses to obtain closure from the
responsible regulatory authority, and the Commonwealth of Virginia Department of
Environmental Quality has issued a "no further action" letter. Management
believes that there is minimal exposure at this time and, therefore, has not
recorded an environmental clean-up liability.
A dry cleaning solvent has been detected in the soil below the Kamp
Washington Shopping Center. Testing conducted at the site indicates that the
contamination is largely confined to the site and poses minimal risk to public
health or the environment. In addition, the previous owner of the Kamp
Washington Shopping Center has agreed to be responsible for a portion of the
costs and expenses to obtain closure from the responsible regulatory authority.
However, based on the available information at this time, management is unable
to make a judgement as to the outcome and, therefore, has not recorded an
environmental clean-up liability at this time.
5
<PAGE>
Insurance
The Company's tenants are generally responsible for providing adequate
insurance on the Retail Properties they lease. The Company believes the Retail
Properties are covered by adequate fire, flood and property insurance provided
by reputable companies. However, some of the Retail Properties are not covered
by disaster insurance with respect to certain hazards (such as earthquakes) for
which coverage is not available or available only at rates which, in the opinion
of the Company, are prohibitive.
Certain statements in this Form 10-K may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results of the
Company to be materially different from historical results or from any results
expressed or implied by such forward-looking statements. Such risks,
uncertainties and other factors include, but are not limited to, the following
risks: risks associated with borrowing; limitations on the level of
distributions payable on the Common Stock; the level of distributions on Common
Stock that represent a return of capital for federal income tax purposes;
general real estate investment and financing risks; risks associated with the
Company's third-party business; possible conflicts of interest; limitations on
the stockholders' ability to change control of the Company and failure of the
Company to qualify as a REIT.
6
<PAGE>
Item 2 Properties
The following table sets forth certain information relating to the
Properties as of December 31, 1998.
FIRST WASHINGTON REALTY TRUST, INC.
PROPERTY SUMMARY TABLE
<TABLE>
<S>
<C> <C> <C> <C>
Year Year
Property Location Constructed Acquired
- --------- ---------- ----------- --------
Maryland
Bowie Plaza Bowie, MD 1966 1998
Bryans Road Shopping Center Bryans Road, MD 1972 1990
Capital Corner Shopping Center Landover, MD 1987 1986
Clinton Square Shopping Center Clinton, MD 1979 1984
Clopper's Mill Shopping Center Germantown, MD 1995 1996
Elkridge Corners Shopping Center Elkridge, MD 1990 1998
Festival At Woodholme Baltimore, MD 1986 1995
Firstfield Shopping Center Gaithersburg, MD 1978 1995
Mitchellville Plaza Shopping Center Mitchellville, MD 1991 1997
Northway Shopping Center Millersville, MD 1987 1996
P.G. County Commercial Park Beltsville, MD 1988 1985
Parkville Shopping Center Baltimore, MD 1961 1998
Penn Station Shopping Center (1) District Heights, MD 1989 1986
Rosecroft Shopping Center Temple Hills, MD 1963 1985
Southside Marketplace Baltimore, MD 1990 1996
Takoma Park Shopping Center Takoma Park, MD 1960 1996
Valley Centre Owings Mills, MD 1987 1994
Watkins Park Plaza Mitchellville, MD 1985 1998
Virginia
Ashburn Farm Village Center Ashburn, VA 1996 1997
Brafferton Center Garrisonville, VA 1974 1994
Centre Ridge Marketplace Centreville, VA 1996 1996
7
<PAGE>
<C> <C> <C> <C> <C>
Land
Area Leasable Significant Tenants
(acres) Area (Sf) % (Lease Expiration Date) Encumbrances
- ------- --------- ----- ------------------------ ------------
10.8 104,836 95.1% Giant (2002), CVS (2003) $ 5,047
11.8 118,676 89.2 Safeway (2014), CVS/Pharmacy (2001) 38,500(4)
4.1 42,625 96.5 -
2.0 18,961 62.4 -
14.2 137,035 100.0 Shoppers Food Warehouse (2015),
CVS/Pharmacy (2006) 13,888
8.4 73,529 100.0 A & P Superfresh (2015),
Rite Aid (2005) 6,546
7.1 81,027 100.0 Sutton Place Gourmet (2006) 11,364
2.4 22,327 100.0 2,445
14.5 155,674 96.0 Food Lion (2016) 15,026
9.6 98,016 93.1 Metro Foods (2007), Rite Aid (1997) 7,928
9.7 146,422 92.2 -
12.7 140,925 98.5 A & P Superfresh (2003),
Rite Aid (2001) 3,465
22.5 334,970 95.8 Safeway (N/A), Service
Merchandise (2006) 25,000(5)
8.3 119,010 81.5 Food Lion (2015) -
9.1 126,646 84.7 Metro Foods (2016), Rite Aid (2001) 7,927
9.8 108,168 91.3 Shoppers Food Warehouse (2011) - (6)
33.0 251,928 97.5 Weis Markets (2007), TJ Maxx (2007),
Sony Theatres (2005) - (4)
12.8 112,143 97.9 Safeway (2007), CVS (2001) - (6)
10.2 88,917 100.0 A&P Superfresh (2016) 6,637
9.4 94,731 97.9 Giant Food (2009) - (6)
10.9 104,154 98.8 A&P Superfresh (2016),
Sears Paint & Hardware (2007) - (6)
</TABLE>
Item 2 Properties
FIRST WASHINGTON REALTY TRUST, INC.
PROPERTY SUMMARY TABLE
(Continued)
<TABLE>
<S>
<C> <C> <C> <C>
Year Year
Property Location Constructed Acquired
- --------- ---------- ----------- --------
Chesapeake Bagel Building Alexandria, VA Late 1800's 1983
Davis Ford Crossing Manassas, VA 1988 1994
Four Mile Fork Shopping Center Fredericksburg, VA 1975 1997
Fox Mill Shopping Center Reston, VA 1977 1994
Glen Lea Shopping Center Richmond, VA 1969 1995
Hanover Village Shopping Center Mechanicsville, VA 1971 1995
Kings Park Burke, VA 1966 1996
Laburnum Park (2) Richmond, VA 1988 1995
Laburnum Square Richmond, VA 1975 1995
Potomac Plaza Woodbridge, VA 1963 1985
Town Center at Sterling Sterling, VA 1973-1978 1998
The Village Shopping Center Richmond, VA 1948 1998
Willston Centre I Falls Church, VA 1952 1998
Willston Centre II Falls Church, VA 1986 1998
North Carolina
Shoppes Of Kildaire Cary, NC 1986 1986
Pennsylvania
Allen Street Shopping Center Allentown, PA 1958 1996
City Avenue Shopping Center Philadelphia, PA 1950's-60's 1997
Colonial Square Shopping Center York, PA 1955 1990
<C> <C> <C> <C> <C>
Land
Area Leasable Significant Tenants
(acres) Area (Sf) % (Lease Expiration Date) Encumbrances
- ------- --------- ----- ------------------------ ------------
0.1 11,288 100.0 735
20.8 149,917 91.1 Weis Markets (2010),
CVS/Pharmacy (2000) - (4)
10.3 101,360 83.6 Safeway (2000), CVS/Pharmacy (2001) - (6)
14.0 103,269 98.1 Giant Food (2018) - (5)
9.2 77,603 100.0 Winn Dixie (2005),
Eckerd Drug (2000) 12,968(7)
9.5 96,146 98.3 Rack `N Sack (2008), Rite Aid (2003) - (7)
8.6 78,712 97.4 Giant (2013), CVS/Pharmacy (2003) 4,625
9.3 113,992 100.0 Ukrop's Supermarket (N/A),
Rite Aid (2007) - (7)
11.4 109,405 95.4 Hannaford Brothers Supermarket (2013),
CVS/Pharmacy (1999) - (7)
5.4 85,400 93.3 3,656
14.3 179,002 83.5 Giant Food (2003) 9,274
11.7 110,885 99.0 Ukrop's Super Market (2019),
CVS (2003) -
5.9 86,468 79.9 CVS (2003) -
10.6 127,434 100.0 Safeway (2015) 10,576
14.0 148,204 99.3 Winn Dixie (2006) 7,574
4.1 46,503 98.1 Laneco (2003), Eckerd Drug (2004) 5,817(8)
12.2 161,454 96.6 Acme Market (1999), Eckerd
Drug (2004), T.J. Maxx (2001) 9,752
2.9 29,208 89.6 Minnichs Pharmacy (2003) -
8
</TABLE>
<PAGE>
Item 2 Properties
FIRST WASHINGTON REALTY TRUST, INC.
PROPERTY SUMMARY TABLE
(Continued)
<TABLE>
<S>
<C> <C> <C> <C>
Year Year
Property Location Constructed Acquired
- --------- ---------- ----------- --------
Kenhorst Plaza Shopping Center Reading, PA 1990 1995
Mayfair Shopping Center Philadelphia, PA 1988 1994
Newtown Square Newtown Square, PA 1960's-70's 1996
Stefko Boulevard Bethlehem, PA 1958-60-75 1996
Illinois
Mallard Creek Round Lake Beach, IL 1987 1997
McHenry Commons McHenry, IL 1988 1997
The Oaks Des Plaines, IL 1983 1997
Pheasant Hill Plaza Bolingbrook, IL 1983 1997
Riverside Square / River's Edge Chicago, IL 1986 1997
Stonebrook Plaza Merrionette Park, IL 1984 1997
Delaware
First State Plaza New Castle County, DE 1988 1994
Shoppes of Graylyn Wilmington, DE 1971 1997
South Carolina
James Island Shopping Center Charleston, SC 1967 1990
Washington, D.C.
The Georgetown Shops (3) Washington, DC Late 1800's 1981-89
Connecticut Avenue Shops Washington, DC 1954 1986
Spring Valley Shopping Center Washington, DC 1930 1997
<C> <C> <C> <C> <C>
Land
Area Leasable Significant Tenants
(acres) Area (Sf) % (Lease Expiration Date) Encumbrances
- ------- --------- ----- ------------------------ ------------
19.2 161,424 97.5 Redners (2009), Rite Aid (2000),
Sears Paint & Hardware (2007) - (6)
5.7 115,027 99.0 Shop 'N Bag Supermarket (2013),
Eckerd Drug (2006) 6,870
14.4 137,566 99.1 Acme Market (2014),
Eckerd Drug (1999) - (6)
10.3 135,864 94.2 Laneco (2003) - (8)
14.9 143,759 94.6 Dominick's Finer Foods (2008) 11,443
11.5 100,526 96.6 Dominick's Finer Foods (2008) 6,355
16.7 138,274 95.5 Dominick's Finer Foods (2017) 9,706
14.4 111,190 100.0 Dominick's Finer Foods (2005) 7,834
17.7 169,435 94.6 Dominick's Finer Foods (2017) 2,384
8.1 95,825 100.0 Dominick's Finer Foods (2005) 6,002
21.0 164,569 99.2 Shop Rite Supermarket (2009),
Cinemark USA (2011) - (4)
5.0 65,746 97.7 Rite Aid (2016) - (6)
6.5 88,557 100.0 Piggly Wiggly (2010), Kerr Drug (2002) - (4)
0.3 9,052 100.0 -
0.1 3,000 100.0 -
0.9 16,834 100.0 CVS (2004) -
Total/Average
574.3 5,953,618 95.3% $ 259,344
</TABLE>
9
<PAGE>
Year Year
Property Location Constructed Acquired
- --------- ---------- ----------- --------
Kamp Washington Fairfax, VA 1960 1999
=============== ============ =========== ========
Land
Area Leasable Significant Tenants
(acres) Area (Sf) % (Lease Expiration Date) Encumbrances
- ------- --------- ----- ------------------------ ------------
5.9 71,825 100.0 $ 3,100
======= ========= ===== ======================== ============
(1) Includes Safeway (50,000 sq.ft) and Bowling Alley (40,000 sq.ft) pad sites
owned by others.
(2) Includes Ukrop's Supermarket (49,000 sq ft) pad site owned by Ukrop's.
(3) Represents two (2) historic retail shops located in the central shopping
district of Georgetown, Washington, D.C.
(4) These properties are encumbered by first deeds of trust as collateral for
the $38,500 Nomura mortgage loan.
(5) These properties serve as collateral for the $25,000 Exchangeable
Debentures.
(6) These properties serve as collateral for the Line of Credit facilities. As
of December 31, 1998, $9,200 is outstanding on the Line of Credit.
(7) These properties are encumbered by first deeds of trust as collateral for a
$12,968 mortgage loan.
(8) These properties are encumbered by first deeds of trust as collateral for a
$5,817 mortgage loan.
10
<PAGE>
Competition
There are numerous commercial developers, real estate companies and
other owners of real estate that operate in the Mid-Atlantic region and the
Chicago metropolitan area which compete with the Company in seeking acquisition
opportunities and tenants for its properties. In addition, retailers at the
shopping centers face competition from malls, factory outlet centers, discount
shopping clubs, direct mail, telemarketing and the Internet.
Retail Properties. The Retail Properties are located in Maryland,
Virginia, North Carolina, Pennsylvania, Delaware, South Carolina, Illinois and
the District of Columbia. The 56 Retail Properties are primarily neighborhood
shopping centers containing a total of approximately 6.0 million square feet of
GLA occupied by approximately 1,200 tenants. The Retail Properties range in size
from approximately 3,000 square feet of GLA to approximately 335,000 square feet
of GLA, and average approximately 108,000 square feet of GLA. A substantial
portion of the income from the Properties consists of rent received under long
term leases. Most of these leases provide for the payment of fixed minimum rent
monthly in advance and for the payment by tenants of a pro-rata share of the
real estate taxes, insurance, utilities and common area maintenance of the
shopping centers. Certain of these tenant leases provide for exclusion from some
or all of these expenses. The Company's portfolio is comprised of a diversified
tenant base, with no single tenant representing more than 8.2% of the Company's
annualized minimum rent. All of the Retail Properties are managed by the
Company. As of December 31, 1998, the Retail Properties were 95.3% leased.
Lease Expirations. The majority of leases on the Retail Properties
provide for lease terms of between three and 20 years. The following table shows
lease expirations (excluding renewal options) for the calendar years 1999
through 2008 and thereafter:
<TABLE>
<S>
<C> <C> <C> <C> <C>
Number of Approximate Percent of Total Annualized
Leases GLA GLA Represented Minimum Rent of
Year Expiring in Square Feet by Expiring Leases Expiring Leases
- ---- ------------- ---------------- ------------------ ----------------
(in 000's) (in 000's)
1999 255 729 13.1% $ 7,932
2000 194 525 9.4% 6,362
2001 210 609 10.9% 7,923
2002 148 411 7.4% 5,786
2003 175 706 12.7% 8,670
2004 49 183 3.3% 2,484
2005 42 354 6.3% 4,301
2006 43 265 4.7% 3,522
2007 30 332 6.0% 2,553
2008 17 247 4.4% 2,421
Thereafter 52 1,218 21.8% 12,148
-- ----- ----- ------
Total 1,215 5,579 100.0% $64,102
===== ===== ====== =======
<C> <C>
Percent of Total Average Annual
Annualized Minimum Rent
Minimum Rent per Square Foot
- ---------------- ----------------
12.4% $10.88
9.9% 12.12
12.4% 13.01
9.0% 14.08
13.5% 12.28
3.9% 13.57
6.7% 12.15
5.5% 13.29
4.0% 7.69
3.7% 9.80
19.0% 9.97
----- ----
100.0% $11.49
====== ======
</TABLE>
11
<PAGE>
Tenant Diversification. The following table sets forth information
regarding the Company's leases with its 20 largest tenants based upon annualized
minimum rents as of December 31, 1998:
Percentage of
Aggregate
Number of Annualized Annualized
Tenant GLA (Sq. Ft.) Properties Minimum Rent Minimum Rents
- ------ -------------- ------------- ------------ -------------
(in 000's)
Safeway/Dominick's 577,089 9 $5,162 8.22%
Richfood (1) 261,565 5 2,151 3.43%
A&P Superfresh 170,489 4 1,568 2.50%
Giant Food 182,455 5 1,125 1.79%
Blockbuster Video 58,949 10 1,007 1.61%
CVS/Pharmacy 124,636 11 871 1.39%
Rite Aid 87,754 8 817 1.30%
Fashion Bug 73,273 9 804 1.28%
Weis Markets 94,960 2 786 1.25%
Food Lion 78,100 2 678 1.08%
Sears Paint & Hardware 65,816 3 670 1.07%
First Union Bank 19,963 8 641 1.02%
Ukrop's 41,503 1 546 0.87%
McDonald's 22,548 8 512 0.82%
Dollar Bills 39,699 10 500 0.80%
T.J. Maxx 54,686 2 500 0.80%
Acme Markets 86,226 2 500 0.80%
Winn Dixie 79,000 2 482 0.77%
Shop Rite Supermarket 57,333 1 459 0.73%
Eckerd Drug 45,752 5 431 0.69%
------- -------- --------
Total 2,221,796 $20,210 32.22%
========== ======== =======
(1) Includes Shoppers Food Warehouse, Metro Foods and Rack 'N Sack which are
owned by Richfood, Inc.
Mortgages, Notes and Loans Payable
Information relating to future maturities of mortgages, notes and loans
payable at December 31, 1998 is set forth in Management's Discussion and
Analysis of Financial Condition and Results of Operation and footnotes 5 and 6
to the Consolidated Financial Statements included with this Form 10-K and is
incorporated by reference herein.
Item 3. Legal Proceedings
The Company is not presently involved in any material litigation nor,
to its knowledge, is any material litigation threatened against the Company or
its properties, other than routine litigation arising in the ordinary course of
business or which is expected to be covered by the Company's liability
insurance. In the opinion of management of the Company, such litigation is not
expected to have a material adverse effect on the business, financial condition
or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of fiscal year
1998.
12
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
(a) Market Information
The Company's Common Stock and Preferred Stock began trading on the
NASDAQ National Market System on June 27, 1995. On August 13, 1996, the
Company's common and preferred stock began trading on the New York Stock
Exchange under the symbol FRW. The high and low market values of the Company's
Common Stock for 1997 and 1998 are as follows:
Distributions
High Low Per Share
------ --- -------------
1997
First Quarter $ 24.13 $ 22.25 $ .4875
Second Quarter 25.38 22.38 .4875
Third Quarter 25.25 22.88 .4875
Fourth Quarter 27.75 23.98 .4875
1998
First Quarter $ 28.00 $ 25.38 $ .4875
Second Quarter 27.13 22.31 .4875
Third Quarter 24.13 20.00 .4875
Fourth Quarter 24.00 22.06 .4875
(b) Holders of Record
As of March 25, the approximate number of holders of record of the
Common Stock was 190 and the approximate number of beneficial owners was 6,000.
(c) Dividends
The Company intends to make quarterly distributions to its common and
preferred stockholders. Quarterly distributions made during 1998 are as follows:
Record Date Payment Date Amount Per Share
- ----------- ------------ ----------------
Common Stock
February 1, 1998 February 15, 1998 $0.4875
May 1, 1998 May 15, 1998 $0.4875
August 1, 1998 August 15, 1998 $0.4875
November 1, 1998 November 15, 1998 $0.4875
Preferred Stock
February 1, 1998 February 15, 1998 $0.6094
May 1, 1998 May 15, 1998 $0.6094
August 1, 1998 August 15, 1998 $0.6094
November 1, 1998 November 15, 1998 $0.6094
The actual cash flow that the Company will realize will be affected by
a number of factors, including the revenues received from rental properties, the
operating expenses of the Company, the interest expense on its borrowing, the
ability of lessee's to meet their obligations to the Company, unanticipated
capital expenditures and dividends received from the Company's interest in FWM.
Future distributions paid by the Company will be at the discretion of the
Directors of the Company and will depend on the actual cash flow of the Company,
its financial condition, capital
13
<PAGE>
requirements, the annual distribution requirements under the REIT provisions of
the Internal Revenue Code of 1986, as amended (the "Code") and such other
factors as the Directors of the Company deem relevant.
For the fiscal year ended December 31, 1998, 25% of the distributions
made on the Common Stock represented a return of capital.
Recent Sales of unregistered equity securities
(a) Securities sold
The following table sets forth the date of sale, title and amount of
unregistered securities sold by the Company during the fourth quarter of fiscal
year 1998:
Date of Sale Title Amount Consideration
10/01/98 Common Units 515,084 units Retail properties having
a value of $13.1 million,
net of indebtedness.
11/01/98 Common Units 325,452 units Retail property having a
value of $12.7 million,
net of indebtedness.
(b) Underwriters and other purchasers
There were no underwriters retained in connection with the sale of the
above securities which were issued in transactions exempt from registration
under Section 4(2) of the Securities Act.
(c) Exemption from registration claimed.
Each of the transactions is exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended (the "Act").
(d) Terms of Conversion
The Common Units are exchangeable, at the Company's option, for cash equal
to the fair market value of a share of Common Stock at the time of exchange or
one share of Common Stock.
Item 6. Summary of Selected Financial Data
The following table sets forth selected financial and portfolio
information on the Company, and on a combined basis for its predecessor
business, and should be read in conjunction with the discussion set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and all of the consolidated financial statements and notes thereto
included in this Form 10-K.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION (1)
<TABLE>
<S>
Year Ended December 31,
<C> <C> <C>
1998 1997
---- ----
(dollars in thousands, except per share data)
OPERATING DATA:
Revenues:
Minimum Rent $56,702 $43,857
Tenant reimbursements 14,176 9,506
Percentage rent 1,613 1,060
Third-party fees - -
Other income 1,573 1,211
----- -----
Total revenues 74,064 55,634
------ ------
Expenses:
Property operating and maintenance 17,934 13,522
General and administrative 3,789 3,363
Interest 19,966 18,416
Depreciation and amortization 14,627 11,172
------ ------
Total expenses 56,316 46,473
------ ------
Income (loss) before gain on sale of properties, income from Management Company,
extraordinary item, minority interest
and distributions to Preferred Stockholders 17,748 9,161
Gain on sale of properties 2,371 549
Income from Management Company 82 433
-- ---
Income (loss) before extraordinary item, minority
interest and distribution to Preferred Stockholders 20,201 10,143
Extraordinary item (358) (954)
------- -------
Income before minority interest and distributions
to Preferred Stockholders 19,843 9,189
Income allocated to minority interest (4,521) (1,579)
------- -------
Income before distributions to Preferred Stockholders 15,322 7,610
Distributions to Preferred Stockholders (5,641) (5,641)
------- -------
Income (loss) allocated to Common Stockholders $9,681 $1,969
====== ======
Earnings (loss) per Common Share - Basic (2) $1.21 $0.35
===== =======
Earnings (loss) per Common Share - Diluted $1.20 $0.34
===== =======
Weighted average shares of Common Stock
(in thousands) - Basic 7,978 5,663
===== =======
Weighted average shares of Common Stock
(in thousands) - Diluted 8,055 5,730
====== ======
Cash dividends per Common Share $1.95 $1.95
===== -----
<PAGE>
Year Ended December 31,
<C> <C> <C>
1996 1995 1994
- ---- ---- -----
(dollars in thousands, except per share data)
$31,398 $22,793 $14,701
6,704 4,362 2,823
664 495 255
- - 1,912
1,672 1,447 508
- ------- ------- -------
40,438 29,097 20,199
------ ------- -------
9,743 6,746 6,299
3,137 2,831 1,356
14,986 11,230 9,301
8,019 5,808 4,579
- ------- ------- -------
35,885 26,615 21,535
- ------- -------- -------
4,553 2,482 (1,336)
- - -
221 449 500
- ------- ------- -------
34,774 2,931 (836)
- - 2,251
- ------- ------- -------
4,774 2,931 1,415
(694) (602) (1,101)
- ------- ------- -------
4,080 2,329 314
(5,641) (5,117) (1,811)
- -------- -------- --------
$(1,561) $(2,788) $(1,497)
======== ========= ========
($0.46) $($1.19) ($0.95)
======== ========= ========
($0.46) ($1.19) ($0.95)
======== ======== ========
3,367 2,351 1,574
======== ======== ========
3,367 2,351 1,574
======= ======== ========
$ 1.95 $1.95 $ 0.51
======= ======== ========
</TABLE>
<TABLE>
<S>
Year Ended December 31,
<C> <C> <C>
1998 1997
---- ----
(dollars in thousands, except per share data)
BALANCE SHEET DATA:
Rental properties $556,146 $456,798
Total assets $532,954 $439,141
Mortgage notes payable $244,113 $212,030
Debentures $25,000 $25,000
Total liabilities $280,655 $247,944
Minority interest $66,218 $38,255
Stockholders' equity $186,081 $152,942
PORTFOLIO PROPERTY DATA (end of period):
Retail occupancy 95.3% 96.2%
Number of retail properties 55 47
Number of multi-family properties - 2
Retail Properties GLA
(thousands of square feet) 5,954 4,931
Multi-family properties (number of units) - 401
OTHER DATA:
Funds From Operations- Diluted (3) (4) $34,519 $23,949
Cash flow from operating activities $27,149 $23,441
Cash flow (used in) investing activities $(28,230) $(25,689)
Cash flow provided by (used in) financing activities $1,103 $(6,390)
Year Ended December 31,
<C> <C> <C>
1996 1995 1994
- ---- ---- -----
(dollars in thousands, except per share data)
$314,235 $228,092 $175,213
$313,613 $227,405 $172,487
$167,047 $116,182 $ 89,858
$ 25,000 $25,000 $ 25,000
$198,375 $145,241 $117,925
$ 16,661 $11,088 $ 8,580
$ 98,577 $71,076 $ 45,982
96.4% 96.0% 96.4%
36 27 20
2 2 2
3,652 2,668 2,014
401 401 401
$ 16,352 $12,601 N/A
$ 11,616 $10,003 $3,164
$(56,994) $(29,884) $(56,236)
$ 49,352 $26,574 $53,615
</TABLE>
(1) See Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operation and Financial Statements.
(2) Net income (loss) per share is based on the weighted average total shares
of Common Stock outstanding. Because the Company's income is based on its
percentage interest in the Operating Partnership's income, the net income
(loss) per share would be unchanged for the periods presented even if the
Common Units were exchanged for Common Stock of the Company.
(3) The Company considers Funds From Operations to be an appropriate measure of
the performance of an equity REIT. Funds From Operations is defined by
NAREIT as net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from debt restructuring
and sales of property, plus depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. Adjustments
for unconsolidated partnerships and joint ventures are calculated to
reflect Funds of Operations on the same basis. Funds From Operations does
not represent cash generated from operating activities in accordance with
generally accepted accounting principles and is not necessarily indicative
of cash available to fund cash needs and should not be considered an
alternative to net income as an indicator of the Company's operating
performance or as an alternative
15
<PAGE>
to cash flow as a measure of liquidity or of ability to make distributions. Our
calculation of FFO may differ from that used by other companies and, therefore,
the amounts disclosed above for FFO may not be comparable directly to similarly
titled measures used by other companies.
(4) Before minority interest and distributions to Preferred Stockholders.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Overview
The following discussion should be read in conjunction with the
Financial Statements and notes thereto of the Company appearing elsewhere in
this Annual Report. Dollars are in thousands except per share data.
Certain information included in the following section of this report,
other than historical information, may contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. The
forward-looking statements are identified by terminology such as "may", "will",
"believe", "expect", "estimate", "anticipate", "continue", or similar terms.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, actual results may differ materially
from those projected in the forward- looking statements.
Comparison of the year ended December 31, 1998 to the year ended December 31,
1997.
For the year ended December 31, 1998, the income allocated to common
stockholders increased by $7,712 from a net income of $1,969 to a net income of
$9,681, when compared to the year ended December 31, 1997, primarily due to
increases in revenues and gains on sale of properties, and a decrease in
extraordinary losses offset by an increase in expenses and an increase in the
amount of income allocated to minority interests.
Total revenues increased by $18,430 or 33.1%, from $55,634 to $74,064,
due primarily to an increase in minimum rents of $12,845 and tenant
reimbursements of $4,670. The increases were primarily due to the purchase of
Ashburn Farm Village Shopping Center in March 1997, the six properties in
Chicago in September 1997, Mitchellville Plaza in October 1997 and Spring Valley
Shopping Center in December 1997 (the "1997 Acquisitions") (resulting in partial
year revenues being included in the year ended December 31, 1997), Bowie Plaza
in January 1998, Watkins Park Plaza in March 1998, Parkville Shopping Center in
April 1998, Elkridge Corners and Village Center in June 1998, Willston Centres I
& II in October 1998 and Town Center at Sterling in November 1998 (the "1998
Acquisitions").
Property operating and maintenance expense increased by $4,412, or
32.6%, from $13,522 to $17,934, due primarily to the 1997 and 1998 Acquisitions.
General and administrative expenses increased by $426 or 12.7%, from $3,363 to
$3,789, due primarily to increases in miscellaneous administrative costs of
$222, legal fees of $135, write off of abandoned project costs of $75, and
internal acquisition costs of $428 (prior to March 19, 1998, internal
acquisition costs were capitalized and included in the cost of the acquired
property), offset by a decrease in officers bonuses of $434.
Interest expense increased by $1,550, or 8.4%, from $18,416 to $19,966,
due primarily to the increase in mortgage indebtedness of $100,135 associated
with the 1997 Acquisitions ($64,614) and the 1998 Acquisitions ($35,521), offset
by a decrease in mortgage and Line of Credit indebtedness of $30,017 retired
with the proceeds of the sale of properties and a public offering of 1,150,000
shares of Common Stock in July 1998 (the "July 1998 Offering"). The average debt
outstanding increased from $216.6 million in 1997 to $251.0 million in 1998, and
the weighted average interest rate decreased from 8.5% to 8.0%.
Depreciation and amortization expenses increased by $3,455, or 30.9%,
from $11,172 to $14,627, primarily due to the 1997 and 1998 Acquisitions.
During 1998, a gain on sale of properties of $2,371 was realized due to
the sale of Branchwood and Park Place Apartments in March 1998 ($1,536), the
sale of a Georgetown property in March 1998 ($147), the sale of a Georgetown
property in September 1998 ($335) and the sale of a Georgetown property in
December 1998 ($353). During 1997, a gain on sale of properties of $549 was
realized from the sale of Thieves Market ($45) and a portion of Laburnum Park
($504). During 1998 the Mellon Bank and Corestates Lines of Credit were retired
with proceeds of the Union Bank of Switzerland Line of Credit and $3,826 of debt
was retired early due to the sale of Park Place Apartments resulting in
16
<PAGE>
a loss on early extinguishment of debt of $358. During 1997, debt in the amount
of $46,375 was retired with proceeds of the September 1997 common stock
offering, resulting in loss on early extinguishment of debt of $954.
Income allocated to minority interests increased by $2,942 from $1,579
to $4,521 due to an increase in net income and an increase in the minority
interests ownership of the Operating Partnership from 20.7% to 27.0%.
Net cash flow provided by operating activities increased from $23,441
in 1997 to $27,149 in 1998 primarily due to the acquisition of new properties
during 1998 and realizing the full years operations from properties purchased in
1997 and improved property performance. Net cash flows used in investing
activities increased from $25,869 in 1997 to $28,230 in 1998 primarily due to a
decrease in the amount of property acquisitions financed through the use of
assumed mortgage indebtedness during 1998. Net cash flow used in financing
activities changed from net cash used in financing activities of $6,390 to net
cash provided by financing activities of $1,103 primarily due to an increase in
Line of Credit proceeds used for the acquisition of rental properties. In 1997,
the acquisition of rental properties were more heavily financed through assumed
mortgage indebtedness.
Comparison of the year ended December 31, 1997 to the year ended December 31,
1996
For the year ended December 31, 1997, the income (loss) allocated to
common stockholders increased by $3,530 from a net loss of $1,561 to a net
income of $1,969, when compared to the year ended December 31, 1996, primarily
due to an increase in revenues and a gain on sale of property offset by an
increase in expenses, an item of extraordinary loss, and an increase in the
amount of income allocated to minority interests.
Total revenues increased by $15,196 or 37.6%, from $40,438 to $55,634,
due primarily to an increase in minimum rents of $12,459 and tenant
reimbursements of $2,802. The increases were primarily due to the purchase of
Centre Ridge Marketplace in March 1996, Takoma Park Shopping Center in April
1996, Southside Marketplace in June 1996, Kings Park Shopping Center in December
1996, Newtown Square Shopping Center in December 1996 and Northway Shopping
Center in December 1996 (the "1996 Acquisitions") (resulting in partial year
revenues being included in the year ended December 31, 1996), City Avenue
Shopping Center in January 1997, Four Mile Fork Shopping Center in January 1997,
Shoppes of Graylyn in January 1997, Ashburn Farm Village Shopping Center in
March 1997, the six properties in Chicago in September 1997, Mitchellville Plaza
in October 1997 and Spring Valley Shopping Center in December 1997 (the "1997
Acquisitions").
Property operating and maintenance expense increased by $3,779, or
38.8%, from $9,743 to $13,522, due primarily to the 1996 and 1997 Acquisitions.
General and administrative expenses increased by $226 or 7.2%, from $3,137 to
$3,363, due primarily to an increase in the amount of compensation paid or
payable in Company stock of $310 offset by a decrease in NYSE fees of $95.
Interest expense increased by $3,430, or 22.9%, from $14,986 to
$18,416, due primarily to the increase in mortgage indebtedness of $120,677
associated with the 1996 Acquisitions ($46,020) and the 1997 Acquisitions
($74,657), offset by a decrease in mortgage and line of credit indebtedness of
$46,375 retired with the proceeds of the September 1997 offering. The average
debt outstanding increased from $176.4 million in 1996 to $216.6 million in
1997, and the weighted average interest rate of 8.5% remained the same.
Depreciation and amortization expenses increased by $3,153, or 39.3%,
from $8,019 to $11,172, primarily due to the 1996 and 1997 Acquisitions.
During 1997, a gain on sale of properties of $549 was realized and
there was a $954 extraordinary loss due to the early extinguishment of debt.
Debt in the amount of $46,375 was retired with proceeds of the September 1997
common stock offering. There were no such items in 1996.
Income allocated to minority interests increased by $885 from $694 to
$1,579 due to an increase in net income and an increase in the minority
interests ownership of the Operating Partnership from 14.3% to 20.7%.
Net cash flow provided by operating activities increased from $11,616
in 1996 to $23,441 in 1997 primarily due to the acquisition of new properties
during 1997 and realizing the full years operations from properties purchased in
1996 and improved property performance. Net cash flows used in investing
activities decreased from $56,994 in 1996 to $25,869 in 1997 primarily due to an
increase in the amount of property acquisitions financed through the use
17
<PAGE>
of assumed mortgage indebtedness during 1997. Net cash flow provided by
financing activities changed from net cash provided by financing activities of
$49,352 to net cash used in financing activities of $6,390 primarily due to an
increase in the amount of mortgage loans retired with proceeds of the September
1997 offering and cash from operations. In 1996, the proceeds of the December
1996 offering were primarily used for acquisitions of rental properties. In
1997, the acquisition of rental properties were more heavily financed through
assumed mortgage indebtedness.
Liquidity and Capital Resources
In 1998, the Company continued to expand its portfolio of neighborhood
shopping centers. During the year, the Company acquired eight shopping centers
for an aggregate acquisition cost of $103,198. The acquisitions were primarily
located in the metropolitan areas of Washington, D.C. The acquisitions increased
the Company's portfolio by 935,000 square feet. The Company financed the
acquisitions through the issuance of Common Units with a value of $39,674,
assumed mortgage indebtedness of $35,521, deferred consideration of $828 and
cash of $27,175. The cash was provided by draws on the Company's Lines of
Credit, proceeds from the sale of properties and cash on hand.
In July 1998 the Company completed an offering of 1,150,000 shares of
Common Stock priced at $23.75 per share. Net proceeds (after deducting the
underwriters discount and other offering expenses) of $25,781 were used to pay
down the existing Lines of Credit.
The Company also closed five sales during the year resulting in net
proceeds of $6,071 after the repayment of associated debt. The two multi-family
properties (Branchwood and Park Place Apartments) were sold for a combined sales
price of $8,050. Three of the Georgetown Shops were also sold. 3269 M Street was
sold for $750, 3033 M Street was sold for $800, and 1328 Wisconsin Avenue was
sold for $1,075.
Subsequent to 1998, the Company acquired an additional Retail Property
(Kamp Washington) for an aggregate acquisition cost of $15,200. The acquisition
was financed through assumed mortgage indebtedness of $3,100, draws on the
Company's Lines of Credit of $9,800 and cash of $2,300 which included $1,800 of
proceeds from the sale of properties in 1998 which were treated as a Section
1031 exchange for tax purposes.
During 1998, the Company renovated nine of its properties (Mallard
Creek, McHenry Commons, Riverside, Stonebrook, The Oaks, City Avenue, Four Mile
Fork, Spring Valley and Stefko) for an aggregate cost of approximately $2,575
and expanded three properties (21,157 square feet) for an aggregate cost of
$843.
During 1999, the Company expects to renovate a minimum of five
properties for an aggregate cost of $3,295. The Company also plans to expend, at
a minimum, approximately $1,800 for the expansion of two of its properties.
These expansions will add approximately 32,500 square feet to the properties.
These expansions and renovations are expected to be financed primarily through
draws on the Company's Lines of Credit.
The Company expects to continue its renovation and acquisition program
for the remainder of 1999. However, the level of future acquisitions is
dependent on the Company's ability to raise additional capital through debt
proceeds and equity offerings.
Indebtedness
The following table sets forth certain information regarding the
indebtedness of the Company (excluding the Exchangeable Debentures) as of
December 31, 1998:
Balance Maturity
Mortgage Loans Interest Rate (1) (in thousands) (2) Date (3)
- -------------- ----------------- ------------------ -----------
Ashburn Farm Village (4) 6.67% $ 6,637 01/01/01
Bowie Plaza 7.07% 5,047 12/01/09
Chesapeake Bagel Building 6.59% 735 07/01/01
City Avenue Shopping Center 8.13% 9,752 10/18/05
Clopper's Mill 7.37% 13,888 03/21/06
Davis Ford, First State Plaza,
James Island,
Valley Centre and Bryans Road (5) 8.92% 38,500 07/01/99
Elkridge Corners 7.91% 6,546 11/01/10
Festival at Woodholme 9.83% 11,364 04/30/00
18
<PAGE>
(CONTINUED)
Balance Maturity
Mortgage Loans Interest Rate (1) (in thousands) (2) Date (3)
- -------------- ----------------- ------------------ -----------
Allen Street and Stefko
Boulevard (6) 8.40% 5,817 01/31/06
Firstfield 7.53% 2,445 12/01/05
Glen Lea, Hanover Village,
Laburnum Park
and Laburnum Square (7) 8.76% 12,968 10/01/02
Kings Park Shopping Center 8.05% 4,625 11/01/14
McHenry Commons 7.11% 6,355 06/01/99
Mallard Creek 7.18% 11,443 05/10/99
Mayfair Shopping Center (8)(9) 5.46% 6,870 06/24/10
Mitchellville Plaza Shopping Center 7.43% 15,026 06/24/05
Northway Shopping Center 7.98% 6,168 01/01/07
Northway Shopping Center (10) 8.84% 1,760 07/01/99
Parkville 7.12% 3,465 03/01/08
Pheasant Hill Shopping Center 7.33% 7,834 07/15/00
Potomac Plaza Shopping Center 7.03% 3,656 07/01/99
River's Edge 7.13% 2,384 07/10/99
Shoppes of Kildaire 7.89% 7,574 05/31/06
Southside Marketplace 8.77% 7,927 08/01/05
Stonebrook Plaza 7.34% 6,002 07/15/00
The Oaks 7.46% 9,706 05/01/03
Town Center at Sterling 7.00% 9,274 07/01/03
Valley Centre 7.75% 569 06/30/07
Willston II 6.97% 10,576 10/01/02
Lines of Credit 7.65% 9,200 02/01/01
------ -----
TOTALS 7.85% $244,113
===== ========
(1) The effective interest rate includes the amortization of deferred financing
costs and premiums over the term of the respective loan.
(2) Includes premiums on the assumption of mortgage debt in the amount of
$6,415.
(3) Many of the outstanding mortgages contain prepayment penalties, typically
calculated using a yield maintenance formula.
(4) The interest rate is adjusted monthly based on 30-day LIBOR plus 1.50%.
(5) This debt (the Nomura Mortgage Loan) is collateralized by these five
properties. The Company has entered into an interest rate swap agreement
which fixes the rate at 7.09% for the period July 1, 1996 through June 30,
1999.
(6) This debt is collateralized by these two properties. The loan can be
extended through January 11, 2021. The interest rate adjusts to the greater
of the initial interest rate plus five percentage points or the T-bill rate
plus five percentage points.
(7) This debt is collateralized by these four properties.
(8) The debt service on this mortgage loan is determined based upon a variable
rate of interest, plus a letter of credit enhancement fee of 1.5%. The
variable interest rate is determined weekly at the rate necessary to
produce a bid in the process of remarketing the Bond Obligations equal to
par plus accrued interest, based on comparable issues in the market.
(9) This debt matures in the year 2010. However, the letter of credit
enhancement expires in June 2003.
(10) This loan is a second trust which is also secured by a letter of credit.
As of December 31, 1998, the Company had total mortgage notes of
approximately $244,113, which consisted of approximately $237,243 in
indebtedness collateralized by 36 of the Properties and tax-exempt bond
financing obligations issued by the Philadelphia Authority for Industrial
Development (the "Bond Obligations") of approximately $6,870 collateralized by
one of the properties. Of the Company's indebtedness, $22,707 (9.3%) is variable
rate indebtedness and $221,406 (90.7%) is at a fixed rate. The fixed rate
indebtedness has interest rates ranging from 6.59% to 9.83%, with a weighted
average interest rate (excluding the Bond Obligations) of 7.92%, and will mature
between 1999 and 2014, with a weighted average remaining term to maturity of 3.4
years. A large portion of the Company's indebtedness will become due by 2000,
requiring balloon payments of $88,933 in 1999 and $24,381 in 2000. From 1999
through 2014, the Company will have to refinance an aggregate of approximately
$229,548. Since the Company anticipates that only a small portion of the
principal of such indebtedness will be repaid prior to maturity and the Company
will likely not have sufficient funds on hand to repay such indebtedness, the
Company will need to refinance such indebtedness through modification or
extension of existing indebtedness, additional debt financing or through
additional offering of equity securities.
In June 1994, the Company borrowed $38,500 under new mortgage loans
(collectively, the "Nomura Mortgage Loan") collateralized by five of the
Properties. These loans, which bear interest at 30-day LIBOR (5.06% at December
31, 1998) plus 2.0% and mature on July 1, 1999, were closed to prepayment for
the first 48 months and can be prepaid thereafter based on a 1.50% declining
prepayment penalty. To mitigate its exposure to these variable rate loans, the
Company entered into a five year interest rate protection agreement for a
notional amount of $38,500 that is effective through the loans maturity, and
caps the interest rate at 7.70% through the maturity date. The cost of the
interest rate protection agreement of approximately $3,200, is being amortized
over the life of the agreement using the effective interest rate method
resulting in an effective interest rate on the Nomura Mortgage Loan of
approximately 8.93% per
19
<PAGE>
annum. The fair market value of the interest rate swap is determined by the
amounts at which they could be settled. The estimated fair market value of the
interest rate protection agreement was approximately zero at December 31, 1998.
In December 1995, the Company entered into an interest rate swap
contract with a notional amount of $38,500. The Company intends to hold such
contract until the expiration date. The purpose of the swap is to fix the
interest rate on the $38,500 Nomura loan through its expiration date of June
1999 at 7.09%. Under the terms of the interest rate contract, the Company will
be paying a fixed rate of 5.09% to the other party to the contract (the "Counter
Party") through June 1999. The Company will be receiving variable payments from
the Counter Party based on 30-day LIBOR through June 1999. The Counter Party has
as collateral a $3,500 restriction on the $5,800 Line of Credit it provided the
Company (see below). The fair market value of the interest rate swap is
determined by the amounts at which they could be settled. If the Company had
settled these agreements with the Counter Party on December 31, 1998, the
Company would have paid approximately $12.
In anticipation of the large amounts of mortgage debt maturing in 1999
and 2000, the Company has entered into forward interest rate swap contracts. The
Company intends to hold such contracts until their expiration dates. The purpose
of the swaps is to mitigate any exposure to fluctuations in interest rates until
the maturity dates of the mortgages when the Company expects to refinance these
loans. Under the terms of the swap contract, the Company pays a fixed rate to
the other party to the contract ("Counter Party") while receiving variable
payments from the Counter Party based on 30-day LIBOR. This effectively fixes
the LIBOR rate for the Company during the period of the swap contracts. The
following is a summary of the Company's swap contracts as of December 31, 1998:
Fair
Notional Date Period Fixed Market
Amount of of Rate Value
(In 000's) Agreement Contract Payable (In 000's)
- ----------- ---------- -------- -------- ----------
$38,500 12/95 07/01/99 - 12/01/03 6.37% $(2,106)
20,000 08/97 03/01/99 - 03/01/04 6.44% (1,142)
15,000 11/97 06/01/99 - 06/01/04 6.18% ( 665)
24,000 01/98 05/01/00 - 05/02/05 5.85% ( 598)
------ ------ --------
$97,500 6.23% $(4,511)
======= ===== ========
In February 1999, the Company signed an application with Metropolitan
Life Insurance Company ( "Met Life") for loans totaling $75.0 million. Closing
of the loans is subject to the final approval of Met Life's investment committee
which is expected to occur by April 5, 1999. Although the Company believes that
the loans will be approved, there currently is no obligation of Met Life to
approve and make the loans. The following is a summary of the anticipated terms:
Collateral Amount Interest Rate Term (years)
- ----------- ------ ------------- ------------
Davis Ford Crossing $10,700 6.79% 10
First State Plaza 13,700 6.79% 10
Fox Mill Shopping Center 11,800 6.84% 12
Mallard Creek Shopping Center 10,900 6.85% 10
McHenry Commons 6,700 6.85% 10
Valley Centre 21,200 6.84% 12
------
$75,000
=======
There will be six separate loans and six separate mortgages. The loans
will not be cross-collateralized and will allow for the assumption of each
individual loan to a qualified buyer upon sale of the property by the Company.
The all-in weighted average interest rate of the loans will be 7.31% including
the amortization of financing costs and the costs of closing out interest rate
swap agreements as discussed below. Monthly debt service payments will be based
on a 25-year amortization schedule. The proceeds of the loans will be used to
retire
20
<PAGE>
1999 maturities of $63,933 (excluding the Exchangeable Debentures which are
expected to convert to Preferred Stock). Any excess proceeds will be used to pay
down outstandings on the Company's Lines of Credit. The Company expects to incur
a loss on the early extinguishment of debt of approximately $100 due to the
early retirement of the $38,500 Numura loan.
With the application to Met Life the Company executed a rate lock
agreement thereby fixing the interest rate for the term of the loans.
Accordingly, in February 1999 the Company closed out the three swap agreements
which were to commence in 1999. These agreements which had a combined notional
amount of $73.5 million were closed out at a combined cost to the Company of
$3,100. This cost will be amortized over the life of the Met Life loan using the
effective interest rate method.
Exchangeable Debentures
In June 1994, the Operating Partnership effected a private placement of
$25,000 aggregate principal amount of Exchangeable Debentures. The Debentures
are exchangeable in the aggregate for 1,000,000 shares of Preferred Stock of the
Company, subject to adjustment. Interest on the Debentures is payable quarterly,
in arrears. The Debentures mature on June 27, 1999. The rights of holders of
Common Stock and Preferred Stock are effectively subordinated to the rights of
holders of Debentures. The Debentures are collateralized by a first mortgage on
two of the Properties.
Lines of Credit
The Company currently has two collateralized revolving lines of credit
(the "Lines of Credit"). The Company has a collateralized revolving Line of
Credit of $45,000 with Union Bank of Switzerland. This line is collateralized by
seven properties (Kenhorst Plaza, Shoppes of Graylyn, Four Mile Fork, Takoma
Park, Centre Ridge Marketplace, Watkins Park Plaza and Newtown Square). The line
which matures on January 31, 2001 replaces the Lines of Credit the Company had
with Mellon Bank and Corestates Bank.Loans under this line will bear interest at
LIBOR plus one percent (1%). The Company has an additional collateralized
revolving Line of Credit of up to $5,775 from First Union Bank. Loans under this
line will bear interest at LIBOR plus two percent (2%) per annum, and will
mature on August 31, 1999. Loans under this line are collateralized by a first
mortgage lien on Brafferton Shopping Center. As of December 31, 1998, there was
$9,200 outstanding under the Lines of Credit.
The Lines of Credit are available to fund acquisitions, renovations,
expansions and other working capital requirements. Definitive agreements with
respect to the Lines of Credit contain customary representations, warranties and
covenants.
Liquidity
The Company expects to meet its short-term liquidity requirements
generally through its working capital, net cash provided by operations and draws
on its Lines of Credit. The Company believes that the foregoing sources of
liquidity will be sufficient to fund liquidity for the foreseeable future.
The Company expects to meet certain long-term liquidity requirements
such as development, property acquisitions, scheduled debt maturities,
renovations, expansions and other non-recurring capital improvements through
long-term secured and unsecured indebtedness, including the Lines of Credit and
the issuance of additional equity and debt securities. The Company also expects
to use funds available under the Lines of Credit to fund acquisitions,
development activities and capital improvements on an interim basis.
During 1999, $63,933 of the Company's indebtedness becomes due. The
Company believes that it will be able to retire this debt through a refinancing
of the debt using the properties as collateral (currently expected to be with
Met Life as discussed above). The Company currently believes that the
loan-to-values ratios on the Retail Properties are at a level that will enable
the Company to fully refinance the loans without an additional requirement for
capital. On June 27, 1999 The $25,000 Exchangeable Debentures mature. The holder
of The Exchangeable Debentures has the
21
<PAGE>
option of either converting its holding to 1,000,000 shares of Preferred Stock;
calling the loan; extending the loan on similar or revised terms; or a
combination of all of the above. The Company has had discussions with the holder
but no definitive agreements have been reached. It is possible that the holder
will wait until June 27, 1999 before making a decision on their course of
action. If the holder demands a payoff of the loan the Company will use draws
from its Lines of Credit, cash on hand, proceeds from a refinance of other
Retail Properties, or a combination of the above to retire the Exchangeable
Debentures.
Other
Year 2000 Issue
The "Year 2000 Issue" is the result of many existing computer programs
using only the last two digits to refer to a year. Therefore, these computer
programs may not properly recognize a year that begins with "20" instead of the
familiar "19". If not corrected, many computer applications could fail or create
erroneous results.
The Company is in the process of conducting a review of its computer
systems to identify which systems could be affected by the "Year 2000" problem
and to what extent such problems will have an impact on the Company's ability to
conduct its' business.
The Company has developed a Year 2000 Compliance Plan ("The Plan") to
address these issues. The Plan is being managed by two of the Company's senior
executives and has been approved by senior management. The progress of the Plan
is being monitored by the Company's Board of Directors. The Plan focuses on four
major components: IT systems such as the Company's accounting and property
management software packages and related hardware; non-IT systems such as the
Company's telephone system; voice mail system and other office equipment; the
state of readiness of the Company's critical trading partners such as its banks,
utilities and tenants; and embedded systems, particularly those located at the
Company's Retail Properties such as sprinkler systems, security systems, etc.
(Note: The Retail Properties' access does not rely on elevator service because
the structures are no higher than two stories.) The Plan contains ten phases as
follows:
Estimated Estimated
Phase Description Start Date Completion Date
------------------ ----------- ---------------
1. Educate senior management Commenced Completed
2. Designate a Plan manager Commenced Completed
3. Inventory all systems Commenced April 1, 1999
4. Contact suppliers of systems Commenced Mail by May 1, 1999
5. Send questionnaire to tenants All have been Currently receiving
mailed responses
6. Send questionnaire to other
critical trading partners Commenced Mail by May 1, 1999
7. Prioritize problems
(critical vs. non-critical) Commenced June 1, 1999
8. Identify solutions (repair
or replace) Commenced July 1, 1999
9. Test Solutions July 1, 1999 August 31, 1999
10. Anticipate contingencies including
the most reasonably likely
worst case scenario Commenced Continuous
The Company has incurred approximately $20 to date in the implementation of
the Plan. These costs have primarily been incurred to upgrade the desktop PC's
at the Company's home office. The Company has determined that implementing the
plan will cost less than $100. However, the Company has budgeted $500 to replace
its current accounting and property management software system. Although the
Company believes that the current system is materially Year 2000 compliant the
Company has decided to migrate because of the improved technology and reporting
capabilities of the new system. The Company anticipates going live on the new
system by October 1, 1999. These costs will be funded from the Company's cash
flow. The Plan efforts will be primarily staffed by employees of the Company.
The most reasonably likely worst case scenario is that the Company's
tenants are delayed in generating their rental payments due to their own Year
2000 IT problems. If this occurs the Company's property managers will attempt to
accelerate rental payments by requesting manual checks by personally visiting
the tenants or by contacting the appropriate personnel at the tenants' accounts
payable departments. Also, the Company will have available its lines of credit
to fund immediate cash flow needs if such delay occurs.
The Company presently believes that the Year 2000 issue will not pose
significant operational problems for the Company. However, if all Year 2000
issues are not properly identified, or if assessment, remediation and testing
are not effected timely or accurately with respect to Year 2000 issues that are
identified, there can be no assurance that
22
<PAGE>
the Year 2000 issue will not materially adversely affect the Company's results
of operations. Also, there can be no assurance that the Year 2000 issues of the
Company's suppliers, vendors, tenants and other important trading partners will
not have a material adverse impact on the Company's business or results of
operations.
The costs of the Company's Year 2000 identification, assessment,
remediation and testing efforts and the dates on which the Company believes it
will complete such efforts are based upon management's best estimates, which
were derived using numerous assumptions regarding future events, including the
continued availability of certain resources, third-party remediation plans, and
other factors. There can be no assurance that these estimates will prove to be
accurate, and actual results could differ materially from those currently
anticipated. Specific factors that could cause such material differences
include, but are not limited to, the availability and cost of relevant computer
codes and embedded technology, and similar uncertainties. Although some of the
Company's agreements with suppliers and contractors contain provisions requiring
such parties to indemnify the Company under some circumstances, there can be no
assurance that such indemnification agreements will cover all of the Company's
liabilities and costs related to claims by third parties related to the Year
2000 issue.
Inflation, Economic Conditions
Most of the Company's leases contain provisions designed to partially
mitigate the adverse impact of inflation. Such provisions include escalation
clauses with fixed increases or increased related to changes in the Consumer
Price Index or similar inflation indices. The leases may also contain clauses
enabling the Company to receive percentage rents based on tenant's gross sales
above predetermined levels, which generally increase as prices rise. Most of the
Company's leases require the tenant to pay its pro rata share of the property
operating expenses, including common area maintenance, real estate taxes and
insurance, thereby reducing the Company's exposure to increases in costs and
operating expenses resulting from inflation. In addition, the Company
periodically evaluates its exposure to interest rate fluctuations, and may enter
into interest rate protection agreements which mitigate, but do not eliminate,
the effect of changes in interest rates on its floating rate loans. The Company,
as a general policy, endeavors to obtain fixed rate financing.
The Company's financial results are affected by general economic
conditions in the markets in which its properties are located. An economic
recession, or other adverse changes in general or local economic conditions,
could result in the inability of some existing tenants of the Company to meet
their lease obligations and could otherwise adversely affect the Company's
ability to attract or retain tenants. The Company's properties are typically
anchored by supermarkets, drug stores and other consumer necessity and service
retailers which usually offer day-to-day necessities rather than luxury items.
These types of tenants, in the experience of the Company, generally maintain
more consistent sales performance during periods of adverse economic conditions.
New Accounting Standards
On March 19, 1988, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board reached a consensus opinion on issue
No.97-11, "Accounting for Internal Costs Relating to Real Estate Property
Acquisitions" which requires that the internal costs of preacquisition
activities incurred in connection with the acquisition of an operating property
be expensed as incurred. The Company has historically capitalized internal pre
acquisition cost of operating properties as a component of the acquisition
price. The Company capitalized $227 for the period January 1 through March 19,
1998 and $229 for the twelve months ended December 31, 1997. The Company
experienced an increase in general and administrative expense due to the
adoption of this ruling.
During the second quarter, the Financial Accounting Standards Board
issued Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities", which will be effective for the Company's fiscal year 2000. This
statement establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments imbedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. The Company is currently assessing the impact of
this new statement on its consolidated financial position, liquidity, and
results of operations.
Item 7a. Qualitative and Quantitative Disclosures about Market Risk
The Company is exposed to certain financial market risks, the most
predominant being fluctuations in interest rates. Interest rate fluctuations are
monitored by management as an integral part of the Company's overall risk
management program, which recognizes the unpredictability of financial markets
and seeks to reduce the potentially adverse effect on the Company's results. Our
interest rate risk management objective is to limit the impact of interest rate
changes on earnings and cash flows and to lower our overall borrowing costs. To
achieve these objectives, from time to time we enter into interest rate hedge
contracts such as swap and cap agreements in order to mitigate our interest rate
risk with respect to various debt instruments. We do not hold or issue these
derivative contracts for trading or speculative purposes. The effect of interest
rate fluctuations historically has been small relative to other factors
affecting operating results, such as rental rates and occupancy.
The Company's operating results are affected by changes in interest
rates on variable rate borrowings including the Company's Line of Credit
facilities as well as other mortgages and notes with variable interest rates. If
interest rates increased by 100 basis points, the Company's annual interest
expense would have increased by $220, based on balances during the year ending
December 31, 1998. The following is a summary of the Company's long term debt as
of December 31, 1998:
Expected Maturity Date of Balloon Payments
<TABLE>
<S>
<C> <C> <C> <C> <C> <C> <C>
1999 2000 2001 2002 2003 Thereafter
------- ------- ------- ------- ------- ----------
FIXED RATE (1) $50,433 $24,381 $735 $9,031 $14,924 $72,658
- --------------
Average Interest
Rate 7.7% 8.5% 6.6% 7.0% 7.2% 8.5%
VARIABLE RATE
- --------------
LIBOR-based(2):
Line of Credit (LIBOR
plus 1.0%)(3) 9,200
Nomura (LIBOR
plus 2.0%) (4) 38,500
Ashburn Farms
(LIBOR plus 1.5%) 6,451
------- ------- ------- ------- ------- ----------
Total LIBOR-based 38,500 0 15,651 0 0 0
Tax-exempt:
Mayfair Shopping
Center (5) 3,235
------- ------- ------- ------- ------- ----------
Total variable
rate debt 38,500 0 15,651 0 0 3,235
------- ------- ------- ------- ------- ----------
Total Debt $88,933 $24,381 $16,386 $9,031 $14,924 $75,893
======= ======= ======= ======= ======= ==========
<C> <C>
Fair Value
of Debt as of
Total 12/31/98
-------- -----------
$172,162 $248,482
7.8%
9,200 9,200
38,500 38,500
6,451 6,451
-------- -----------
54,151 54,151
3,235 3,235
-------- -----------
57,386 57,386
-------- -----------
$229,548 $305,868
======== ===========
</TABLE>
<PAGE>
(1) See the schedule of Indebtedness in Management's Discussion and
Analysis for rates on individual debt instruments.
(2) At December 31, 1998 the LIBOR rate was 5.06%.
(3) This schedule assumes that the Line of Credit is repaid at the maturity
date. Management believes that the line will be renewed at maturity
under similar terms.
(4) The Company has entered into an interest rate cap and an interest rate
swap to fix the rate on this loan at 7.09%. Including the amortization
of the interest rate cap and other loan fees the all-in interest rate
on this loan is 8.96%. At December 31, 1998 the cap and interest rate
swap had a combined value of $12.
(5) The interest rate is determined weekly at the rate necessary to produce
a bid in the process of remarketing the obligation equal to par plus
accrued interest. The Company also pays a 1.5% letter of credit
enhancement fee to Mellon Bank.
For a discussion of our interest rate hedge contracts in effect at December
31, 1998, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Indebtedness." If
interest rates increase by 100 basis points, the aggregate fair market value of
these interest rate hedge contracts as of December 31, 1998 would increase by
approximately $4.0 million. If interest rates decrease by 100 basis points, the
aggregate fair market value of these interest rate hedge contracts as of
December 31, 1998 would decrease by approximately $4.3 million. In addition, we
are exposed to certain losses in the event of nonperformance by the counter
parties under the hedge contracts. We expect these counter parties, which are
major financial institutions, to perform fully under these contracts. However,
if the counter parties were to default on their obligations under the interest
rate hedge contracts, we could be required to pay the full rates on our debt,
even if such rates were in excess of the rates in the contracts.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements is included on Page F-1 of this
report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
24
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company*
Item 11. Executive Compensation*
Item 12. Security Ownership of Certain Beneficial Owners and Management*
Item 13. Certain Relationships and Related Transactions*
*The information called for by Part III, Items 10, 11, 12 and 13, is
hereby incorporated by reference to the Company's definitive Proxy Statement to
be filed with the Securities and Exchange Commission within 120 days after the
year covered by this Form 10-K with respect to the Company's Annual Meeting of
Shareholders presently scheduled for May 7, 1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
A. The following documents are filed as part of this report.
1. The Consolidated Financial Statements of First Washington Realty Trust,
Inc. and Subsidiaries.
See Index to Financial Statements on Page F-1 included herein.
2. Financial Statement Schedules.
B. Reports on Form 8-K
1. The Company filed a Current Report on Form 8-K on October 23, 1998
announcing the adoption of a Stockholder Rights Plan.
2. The Company filed a Current Report on Form 8-K on October 27, 1998
reporting other events under Item 5.
3. The Company filed a Current Report on Form 8-K on October 30, 1998
reporting other events under Item 5.
C. Exhibits - pursuant to Item 601 of Regulation S-K
3.1 Articles of Incorporation of the Company (amendments and originals). (1)
3.2 Amended and Restated Bylaws of the Company. (2)
10.1 First Amended and Restated Agreement of Limited Partnership of First
Washington Realty Limited Partnership. (3)
10.2 Promissory Note in the principal amount of $38,500 dated June 27, 1994 from
the Company in favor of Nomura Asset Capital Corporation. (3)
10.3 Cash Collateral Account Security, Pledge and Assignment Agreement among JFD
Limited Partnership, Greenspring Associates Limited Partnership and
FW-Bryans Road Limited Partnership as borrowers, and Nomura Asset Capital
Corporation, as Lender. (3)
25
<PAGE>
10.4 Second Amended and Restated Employment Agreement between the Company and
William J. Wolfe, dated May 1, 1998. (4)
10.5 Second Amended and Restated Employment Agreement between the Company and
Stuart J. Halpert, dated May 1, 1998. (4)
10.6 Revolving Credit Agreement dated January 22, 1998 between Union Bank of
Switzerland and First Washington Realty Limited Partnership. (5)
21.1 List of Subsidiaries. (1)
23.1 Consent of PricewaterhouseCoopers LLP. (1)
27 Financial Data Schedule. (1)
(1) Filed herewith
(2) Incorporated herein by reference from the Company's Current Report on Form
8-K filed on October 23, 1998.
(3) Incorporated herein by reference from the Company's Registration Statement
on Form S-11 (No. 33-83960).
(4) Incorporated herein by reference from the Company's Current Report on Form
8-K/A filed on January 19, 1999.
(5) Incorporated herein by reference from the Company's Annual Report on Form
10-K for the year ended December 31, 1997.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST WASHINGTON REALTY TRUST, INC.
Date: June 8, 1999 /s/ James G. Blumenthal
-----------------------
By: James G. Blumenthal
Executive Vice President and
Chief Financial Officer
27
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Financial Statements:
Report of Independent Accountants.......................................F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997............F-3
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1998...................................F-4
Consolidated Statements of Changes in Stockholders' Equity
for each of the three years in the period ended
December 31, 1998.......................................................F-5
Consolidated Statements of Cash Flows each of the three years
in the period ended December 31, 1998...................................F-6
Notes to Consolidated Financial Statements..............................F-7
Financial Statement Schedules:
II -- Valuation and Qualifying Accounts................................F-23
III -- Real Estate and Accumulated Depreciation........................F-24
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF FIRST WASHINGTON REALTY TRUST, INC.
IN OUR OPINION, THE CONSOLIDATED FINANCIAL STATEMENTS LISTED IN THE
ACCOMPANYING INDEX ON PAGE F-1 PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE
FINANCIAL POSITION OF FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES AT
DECEMBER 31, 1998 AND 1997, AND THE RESULTS OF THEIR OPERATIONS AND THEIR CASH
FLOWS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1998, IN
CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. THESE FINANCIAL
STATEMENTS ARE THE RESPONSIBILITY OF THE COMPANY'S MANAGEMENT; OUR
RESPONSIBILITY IS TO EXPRESS AN OPINION ON THESE FINANCIAL STATEMENTS BASED ON
OUR AUDITS. WE CONDUCTED OUR AUDITS OF THESE STATEMENTS IN ACCORDANCE WITH
GENERALLY ACCEPTED AUDITING STANDARDS WHICH REQUIRE THAT WE PLAN AND PERFORM THE
AUDIT TO OBTAIN REASONABLE ASSURANCE ABOUT WHETHER THE FINANCIAL STATEMENTS ARE
FREE OF MATERIAL MISSTATEMENT. AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS,
EVIDENCE SUPPORTING THE AMOUNTS AND DISCLOSURES IN THE FINANCIAL STATEMENTS,
ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES MADE BY
MANAGEMENT, AND EVALUATING THE OVERALL FINANCIAL STATEMENT PRESENTATION. WE
BELIEVE THAT OUR AUDITS PROVIDE A REASONABLE BASIS FOR THE OPINION EXPRESSED
ABOVE.
PRICEWATERHOUSECOOPERS LLP
Washington, D.C.
January 31, 1999
F-2
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of December 31, 1998 and 1997
(dollars in thousands, except share data)
-----------
1998 1997
-------- ------
ASSETS
Rental properties:
Land $108,562 $89,042
Buildings and improvements 447,584 367,756
------- -------
556,146 456,798
Accumulated depreciation (51,475) (40,839)
-------- --------
Rental properties, net 504,671 415,959
Cash and equivalents 3,163 3,142
Tenant receivables, net 9,463 7,274
Deferred financing costs, net 1,921 2,734
Other assets 13,736 10,032
-------- -------
Total assets $532,954 $439,141
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $244,113 $212,030
Debentures 25,000 25,000
Accounts payable and accrued expenses 11,542 10,914
------ -----------
Total liabilities 280,655 247,944
Minority interest 66,218 38,255
Commitments and contingencies (note 11)
Stockholders' equity:
Convertible preferred stock $.01 par value; 3,800,000 shares designated;
2,314,189 shares issued and outstanding (aggregate
liquidation preference of $57,855) 23 23
Common stock $.01 par value; 90,000,000 shares
authorized; 8,566,985 and 7,291,732 shares
issued and outstanding, respectively 86 72
Additional paid-in capital 218,345 179,356
Accumulated distributions in excess
of earnings (32,373) (26,509)
-------- ----------
Total stockholders' equity 186,081 152,942
-------- --------
Total liabilities and stockholders'
equity $532,954 $439,141
======== ========
The accompanying notes are an integral
part of these consolidated financial
statements.
F-3
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1998, 1997 and 1996
(amounts in thousands, except per share data)
-----------
1998 1997 1996
---- ---- ----
Revenues:
Minimum rents $56,702 $43,857 $31,398
Tenant reimbursements 14,176 9,506 6,704
Percentage rents 1,613 1,060 664
Other income 1,573 1,211 1,672
----- ----- ------
Total revenues 74,064 55,634 40,438
------ ------ -------
Expenses:
Property operating and
maintenance 17,934 13,522 9,743
General and administrative 3,789 3,363 3,137
Interest 19,966 18,416 14,986
Depreciation and amortization 14,627 11,172 8,019
------ ------ -------
Total expenses 56,316 46,473 35,885
------ ------ -------
Income before gain on sale of properties, income from Management Company,
extraordinary item, minority interest and distributions
to Preferred Stockholders 17,748 9,161 4,553
Gain on sale of properties 2,371 549 -
Income from Management Company 82 433 221
------- ------- ------
Income before extraordinary item,
minority interest and
distributions to Preferred
Stockholders 20,201 10,143 4,774
Extraordinary item - Loss on
early extinguishment of debt (358) (954) -
--------- --------- -------
Income before minority interest
and distributions to Preferred
Stockholders 19,843 9,189 4,774
Income allocated to minority
interest (4,521) (1,579) (694)
--------- ------- -------
Income before distributions
to Preferred Stockholders 15,322 7,610 4,080
Distributions to Preferred
Stockholders (5,641) (5,641) (5,641)
--------- --------- ---------
Income (loss) allocated
to Common Stockholders $9,681 $1,969 $(1,561)
======= ======= ========
Earnings (loss) per
Common Share - Basic
Income (loss) before
extraordinary item $1.26 $0.52 $(0.46)
Extraordinary item (0.05) (0.17) -
------- ------ -------
Net income (loss) $1.21 $0.35 $(0.46)
====== ====== ========
Earnings (loss) per
Common Share - Diluted
Income (loss) before
extraordinary item $1.25 $0.51 $(0.46)
Extraordinary item (0.05) (0.17) -
------ ------- --------
Net income (loss) $1.20 $0.34 $(0.46)
===== ======= =========
Weighted average
Common Shares - Basic 7,978 5,663 3,367
Dilutive effect of stock options
and common stock equivalents 77 67 -
------ ------- --------
Weighted average
common shares - Diluted 8,055 5,730 3,367
===== ===== ======
The accompanying notes are an integral
part of these consolidated financial
statements.
F-4
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1998, 1997 and 1996
(dollars in thousands)
---------
<TABLE>
<S>
<C> <C> <C> <C>
Convertible Additional
Preferred Common Paid-in
Stock Stock Capital
------------ --------- ----------
Balance, December 31, 1995 $23 $32 $80,699
Income before distributions
to Preferred Stockholders
Issuance of Common Stock
(1,655,000 shares) 17 33,418
Cash distributions to Common and
Preferred Stockholders
Exchange of common units for
common shares (17,416 shares) 83
Adjustment for minority interests'
ownership of the Operating Partnership 1,868
----- ------ ----------
Balance, December 31, 1996 23 49 116,068
Income before distributions
to Preferred Stockholders
Issuance of Common Stock
(2,155,562 shares) 22 48,850
Issuance of Common Stock for compensation
(144,084 shares) 1 3,447
Exercise of Stock Options (2,956 shares) 58
Cash distributions to Common and
Preferred Stockholders
Exchange of common units for
common shares (38,251) 320
Adjustment for minority interests'
ownership of the Operating Partnership 10,613
-------- --------- ------
Balance, December 31, 1997 23 72 179,356
Income before distributions
to Preferred Stockholders
Issuance of Common Stock
(1,150,000 shares) 12 25,769
Issuance of Common Stock for
Compensation (10,000 shares) 1 269
Vesting of Restricted Shares
for Compensation (25,290 shares) 1 617
Exercise of Stock Options
(2,919 shares) 56
Cash distributions to Common and
Preferred Stockholders
Exchange of Common Units
for Common Shares (100,456 shares) 1,297
Adjustment for minority interests'
ownership of the Operating Partnership 10,981
------- -------- ------
Balance, December 31, 1998 $23 $86 $218,345
=== === ========
<C> <C>
Accumulated
Distributions
in Excess of
Earnings Total
- ------------- ----------
$(9,678) $71,076
4,080 4,080
33,435
(11,965) (11,965)
83
1,868
- -------------- ----------
Balance, December 31, 1996
(17,563) 98,577
7,610 7,610
48,872
3,448
58
(16,556) (16,556)
320
10,613
- ------------ ----------
Balance, December 31, 1997
(26,509) 152,942
15,322 15,322
25,781
270
618
56
(21,186) (21,186)
1,297
10,981
- ------------ --------
Balance, December 31, 1998
$(32,373) $186,081
============== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998 1997 and 1996
(Dollars in thousands)
--------
1998 1997 1996
-------- -------- ------
Operating activities:
Income before distributions
to Preferred Stockholders $15,322 $7,610 4,080
Adjustments to reconcile to
net cash provided by operating
activities:
Income allocated to
minority interest 4,521 1,579 694
Depreciation and
amortization 14,627 11,172 8,019
Gain on sale of rental
properties (2,371) (549) -
Loss on early
extinguishment of debt 358 954 -
Amortization of deferred
financing costs and loan
premiums (629) 979 2,167
Equity in earnings of
Management Company 398 47 259
Compensation paid or payable
in Company stock 1,284 1,866 1,649
Provision for uncollectable
accounts 1,993 1,285 527
Recognition of deferred rent (1,122) (1,337) (921)
Net changes in:
Tenant receivables (3,060) (2,582) (1,032)
Other assets (4,729) (1,525) (4,230)
Accounts payable and accrued
expenses 556 3,942 404
--- --------- ---------
Net cash provided by operating
activities 27,148 23,441 11,616
------ -------- --------
Investing activities:
Additions to rental
properties (7,126) (7,891) (4,476)
Acquisition of rental
properties (27,175) (19,864) (52,518)
Proceeds from sale of rental
properties 6,071 2,066 -
--------- ---------- --------
Net cash used in investing
activities (28,230) (25,689) (56,994)
----------- --------- ---------
Financing activities:
Proceeds from Line of
Credit draws 38,138 23,800 9,867
Proceeds from mortgage notes 318 398 31,376
Proceeds from issuance
of Common Stock 25,781 48,930 33,651
Proceeds from exercise
of Stock Option 56 - -
Repayment of Line of Credit (32,237) (20,500) (9,867)
Repayment on mortgage notes (3,325) (38,704) (823)
Additions to deferred financing
costs (639) (686) (739)
Prepayment Penalties (56) (169) -
Distributions paid to
Preferred Stockholders (5,641) (5,641) (5,641)
Distributions paid to
Common Stockholders (15,545) (10,915) (6,324)
Distributions paid to
minority interest (5,747) (2,903) (2,148)
-------- -------- --------
Net cash provided by (used in)
financing activities 1,103 (6,390) 49,352
----- --------- ------
Net increase (decrease)
in cash and equivalents 21 (8,638) 3,974
Cash and equivalents,
beginning of year 3,142 11,780 7,806
------- -------- --------
Cash and equivalents,
end of year $3,163 $3,142 $11,780
===== ======== =======
The accompanying notes are an integral
part of these consolidated financial
statements.
F-6
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
--------
1. Organization and Business
First Washington Realty Trust, Inc. (the "Company") is a
fully integrated real estate organization that acquires, manages,
leases, renovates and develops principally supermarket-anchored
neighborhood shopping centers. As of December 31, 1998 the Company owned
a portfolio of 55 retail properties (the " Retail Properties")
containing a total of approximately 6.0 million square feet of gross
leasable area ("GLA") located in the Mid-Atlantic region and the
Chicago, Illinois metropolitan area.
The Retail Properties are strategically located
neighborhood shopping centers principally anchored by 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, Eckerd Drug and Rite Aid. Neighborhood shopping centers
are typically open-air centers ranging in size from 50,000 to 150,000
square feet of GLA and anchored by supermarkets and/or drug stores. The
Retail Properties range in size from approximately 3,000 square feet of
GLA to approximately 335,000 square feet of GLA, and average
approximately 108,000 square feet of GLA.
The Company, incorporated in Maryland in April 1994, is
self-managed and self-administered and has elected to be taxed as a real
estate investment trust ("REIT") under the Internal Revenue Code of
1986, as amended (the "Code").
The Company's assets are held by, and all its operations
conducted through, First Washington Realty Limited Partnership (the
"Operating Partnership") and First Washington Management, Inc. ("FWM").
The Company is the sole general partner of the Operating Partnership.
The limited partners are individuals, partnerships and others who have
contributed their properties in exchange for partnership interests
("Units"). The limited partners may exchange their Units for cash, or at
the option of the Company, for stock of the Company on a 1 for 1 basis.
As of December 31, 1998 and 1997, the Company owned approximately 73%
and 79% of the Operating Partnership, respectively. This arrangement is
commonly referred to as an Umbrella Partnership or "UPREIT" structure.
The Operating Partnership owns 100% of the non-voting preferred stock of
FWM which entitles it to 99% of the cash flow. Certain officers of the
Company own 100% of the voting common stock of FWM which entitles them
to 1% of the cash flow. In addition, the Operating Partnership holds an
FWM promissory note in the amount of $4,000 with interest payable
quarterly in the amount of $120. FWM provides management, leasing and
related services to the Operating Partnership and also provides such
services to 13 third-party clients consisting of 21 properties and 2.0
million square feet of GLA. As of December 31, 1998, the Company and the
Operating Partnership, including subsidiary partnerships, collectively
owned 100% of the Retail Properties. Due to the Company's ability, as
the general partner, to exercise both financial and operational control
over the Operating Partnership, the Operating Partnership is
consolidated for financial reporting purposes. Allocation of net income
and equity to the limited partners of the Operating Partnership is based
on their respective partnership interests and is reflected in the
accompanying Consolidated Financial Statements as minority interests.
Losses allocable to the limited partners in excess of their basis are
allocated to the Common Stockholders as the limited partners have no
requirement to fund losses.
In December 1996, the Company completed a public offering
of 1,655,000 shares of Common Stock (the "December 1996 Offering"). The
shares of stock were priced at $21.75 per share, resulting in net
proceeds of $30,200.
In September 1997, the Company completed a public offering
of 2,070,000 shares of Common Stock (the "September 1997 Offering"). The
shares were priced at $24.00 per share resulting in net offering
proceeds of $46,900.
F-7
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
--------
In July 1998, the Company completed a public offering of
1,150,000 shares of Common Stock (the "July 1998 Offering"). The shares
were priced at $23.75 per share resulting in net offering proceeds of
$25,781.
The Company's financial results are affected by general
economic conditions in the markets in which its properties are located.
An economic recession, or other adverse changes in general or local
economic conditions, could result in the inability of some existing
tenants of the Company to meet their lease obligations and could
otherwise adversely affect the Company's ability to attract or retain
tenants. The Retail Properties are typically anchored by supermarkets,
drug stores and other consumer necessity and service retailers which
usually offer day-to-day necessities rather than luxury items. These
types of tenants, in the experience of the Company, generally maintain
more consistent sales performance during periods of adverse economic
conditions.
2. Acquisition of Rental Properties
During 1998, the Company acquired eight shopping centers
for an aggregate acquisition cost of approximately $103,198. All the
acquisitions were accounted for using the purchase method of accounting
and the operations of each property are included in the Company's
Statement of Operations from their respective dates of acquisition. The
following is a summary of the acquisitions:
Total
Date Acquisition Anchor Anchor
Acquired Property Name Location GLA Cost Tenant (GLA)
- -------- ------------- -------- --- ----------- ----- -----
01/98 Bowie Plaza Bowie, MD 104,836 $12,189 Giant, 21,750
CVS 15,000
03/98 Watkins Park Plaza Mitchell-
ville, MD 112,143 14,662 Safeway, 43,205
CVS 11,192
04/98 Parkville Baltimore, MD 140,925 8,388 A&P 18,750
Superfresh,
Rite Aid 8,608
06/98 Elkridge Corners Baltimore, MD 73,529 8,862 A&P 39,571
Superfresh
Rite Aid 10,408
06/98 Village Center Richmond, VA 110,885 13,305 Ukrop's 39,003
Super
Market,
CVS 11,700
11/98 Willston Centre I Falls
Church, VA 86,468 10,382 CVS 11,206
11/98 Willston Centre II Falls
Church, VA 127,434 13,339 Safeway 42,491
11/98 Town Center
at Sterling Sterling, VA 179,002 22,071 Giant
Food 39,187
------- ------ ------
935,222 $103,198 312,071
======= ======== =======
The acquisitions were funded as follows:
Assumed Mortgage Debt (including premiums) $35,521
Market Value of 1,618,794 Common Units 39,674
Deferred consideration 828
Cash 27,175
-----------
Total $103,198
==========
F-8
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
--------
The deferred consideration is due October 1999 and is to be
paid in the form of 36,000 common Operating Partnership Units. The
deferred consideration was determined at the date of acquisition and
was included in determining the cost of the related acquisition.
The following unaudited pro forma condensed combined results
of operations for the years ended December 31, 1998 and 1997 are
presented as if the acquisitions and sales of the rental properties
that occurred during 1998 and 1997 had occurred on January 1 of the
period presented. In preparing the pro forma data, adjustments have
been made to assume that the September 1997 and July 1998 Offerings
occurred on January 1, of the periods presented. The proforma
statements are based on historical information and do not necessarily
reflect the actual results that would have occurred if the Company had
owned the properties for the periods presented nor are they
necessarily indicative of future results of operations of the Company.
1998 1997
-------- ------
(unaudited)
Total revenues $79,680 $76,083
======= =======
Income before minority interest and
distributions to Preferred Stockholders $20,429 $18,996
======= ========
Net income per common share - Basic $1.17 $0.99
======== =========
Net income per common share - Diluted $1.16 $0.98
======== =========
3. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the
Company, the Operating Partnership and other limited partnerships and limited
liability companies which are majority owned by the Operating Partnership. All
significant intercompany balances and transactions have been eliminated.
The Company's investment in the preferred stock of FWM is accounted for
under the equity method of accounting. In addition to receiving fees under
third-party management, leasing and brokerage agreements, FWM manages, leases
and provides other related services to all the properties owned by the Operating
Partnership and its affiliates in exchange for a fee.
Use of Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. These estimates involve judgments with respect to, among other
things, various future economic factors which are difficult to predict and are
beyond the control of the Company. Therefore, actual amounts could differ from
these estimates.
F-9
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
--------
Rental Properties
Rental properties are carried at the lower of depreciated cost or fair
value less costs to sell. Depreciation is computed on the straight-line basis
over the estimated useful lives of the assets. The Company uses a 31.5 to 40
year estimated life for buildings and 5 to 40 year estimated life for capital
improvements. Tenant improvement expenditures are depreciated over the term of
the related lease. Expenditures for ordinary maintenance and repairs are charged
to operations as incurred while significant renovations and improvements that
improve and/or extend the useful life of the asset are capitalized and
depreciated over the estimated useful life.
In determining whether there has been any impairment losses, the Company
determines that the property's net projected undiscounted cash flow before debt
service is sufficient to recover the cost of the asset. An impairment loss would
result if the carrying value were greater than the cumulative undiscounted net
cash flow. The amount of an impairment would be calculated by determining the
difference between the carrying value and the cumulative discounted net cash
flow.
Cash and Equivalents
All demand, money market accounts, certificates of deposit and
repurchase agreement accounts with an original maturity of three months or less
at date of purchase are considered to be cash and equivalents. The Company
places its temporary cash investments with high quality financial institutions.
The deposits at such financial institutions are guaranteed by the Federal
Deposit Insurance Corporation ("FDIC") up to $100. At various times during the
year, the Company has deposits in excess of the FDIC insurance limit. In
addition, the Company is required to maintain escrow deposits with certain
lenders. Such amounts which are included in other assets, are also in excess of
FDIC insurance limits.
Deferred Lease Costs
Fees and costs incurred to initiate and renew operating leases,
including amounts incurred by FWM, are amortized over the lease term and are
included in other assets.
Deferred Financing Costs
Costs of interest rate caps, interest rate swaps, interest rate buydowns
and fees incurred to obtain long-term financing are being amortized over the
terms of the respective loans using the effective interest method. Unamortized
deferred financing costs are charged to expense when debt is retired before the
maturity date. Accumulated amortization of deferred financing costs at December
31, 1998 and 1997 was $8,022 and $7,683, respectively. Deferred financing cost
amortization expense is included in interest expense and amounted to $1,148,
$1,546 and $2,167 during 1998, 1997 and 1996, respectively.
Revenue Recognition
Rental income attributable to leases is recorded when due from tenants.
Certain of the leases provide for escalating base rents, which are recognized on
a straight-line basis over the term of the agreement. Rents accrued, but not yet
paid, are included in accounts receivable. As of December 31, 1998 and 1997 the
amounts of these straight-line receivables were $5,685 and $4,689, respectively.
The amount of rental income from the straight-lining of rents amounted to
$1,122, $1,337 and $921 for the years ended 1998, 1997 and 1996 respectively.
Certain of the leases also provide for additional revenue to be paid based upon
the level of sales achieved by the lessee and are recorded as percentage rents.
Additional rental revenue is recognized when it
F-10
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
--------
is probable that the lessee will reach the established level of sales. Most
leases provide for tenant reimbursement of common area maintenance and other
operating expenses.
An allowance for doubtful accounts has been provided against the portion
of tenant accounts receivable which is estimated to be uncollectable. Tenant
accounts receivable in the accompanying consolidated balance sheets are shown
net of an allowance for doubtful accounts of $2,493 and $1,453 as of December
31, 1998 and 1997, respectively.
Income Taxes
The Company operates and intends to continue to operate in a manner
intended to qualify as a REIT under the Code. A trust which distributes at least
95% of its taxable income to its shareholders each year and which meets certain
other conditions will not be taxed on that portion of its taxable income which
is distributed to its shareholders. The following per share distributions (and
their tax classifications) were paid during 1998 (unaudited):
Ordinary Return Capital Total
Income of Capital G Paid
------ ---------- ------- ------
Preferred $2.44 $0.00 $0.00 $2.44
Common $1.46 $0.49 $0.00 $1.95
If the Company fails to qualify as a REIT in any tax year, the Company
will be subject to Federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. Even if the
Company qualifies for taxation as a REIT, the Company may be subject to certain
state and local taxes on its income and property and federal income and excise
taxes on its undistributed income.
Earnings (Loss) per Common Share
Basic earnings (loss) per common share is calculated by dividing income
after minority interest, less preferred distributions by the weighted average
number of common shares outstanding during the respective periods. Diluted
earnings (loss) per common share reflects the dilutive effect of outstanding
employee stock options using the treasury stock method and other common stock
equivalents. The assumed conversion of the partnership units (3,707,364,
2,121,089 and 782,360 common units as of December 31, 1998, 1997 and 1996
respectively and 429,147, 429,147, 419,609 preferred units as of December 31,
1998, 1997 and 1996, respectively), held by the limited partners of the
Operating Partnership would result in the elimination of earnings and losses
allocated to minority interests. The conversion of the preferred units would be
anti-dilutive while the conversion of the common units would have no effect on
the periods presented. The conversion of Preferred Stock (2,966,908 common share
equivalents as of December 31, 1998, 1997, and 1996) and the Exchangeable
Debentures (1,282,051 common share equivalents as of December 31, 1998, 1997 and
1996) would be anti-dilutive for the periods presented.
Minority Interest
Minority interest represents the limited partners' interest of 3,707,364
and 2,121,089 common units in the Operating Partnership as of December 31, 1998
and 1997, respectively, and 429,147 Exchangeable Preferred Units in the
Operating Partnership as of December 31, 1998 and 1997. The Exchangeable
Preferred Units have an aggregate liquidation preference of $10,729. At the date
of formation, the minority interest was established based on their interest in
the value of the Operating Partnership. Annually, the income is assigned to
Preferred Stockholders to the extent of their distributions and amounts
necessary to maintain their balance
F-11
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
--------
at its liquidation value. Any remaining income is assigned to minority Common
Stockholders based on their percentage interest during the period the income is
generated. Losses of the Operating Partnership are allocated to minority Common
Stockholders based on their percentage interest to the extent that they have
capital available. In the event that consolidated net assets decrease below the
Preferred Stock liquidation value, operating losses are allocated to the
Preferred minority interest based on their percentage ownership. Additionally,
the impact on stockholders equity of changes in minority interest percentage
ownership caused by the issuance of common stock or the issuance of units of the
Operating Partnership are reflected in additional paid in capital.
New Accounting Pronouncements
On June 16, 1998, FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), which is effective
for fiscal years beginning after June 15, 1999. SFAS 133 establishes accounting
and reporting standards for derivative instruments and hedging activities. Under
this statement derivatives are recognized at fair market value and changes in
fair market value are recognized as gains or losses. Management has not assessed
the impact of the adoption of SFAS 133 due to plans for refinancing the debt
associated with interest rate swaps.
4. Rental Properties
Depreciation expense for each of the years ended December 31,
1998, 1997 and 1996 was $13,997, $10,719, and $7,675, respectively.
For each of the years ended December 31, 1998, 1997, and 1996,
maintenance and repairs expense was $4,299, $3,501 and $2,767,
respectively, and real estate taxes were $7,535, $4,968 and $3,070
respectively. Such amounts are included in property operating and
maintenance expense in the accompanying consolidated statements of
operations.
During 1998, the Company sold its two multifamily properties
and three of the Georgetown Properties. The two multifamily properties
(Branchwood and Park Place Apartments) were sold in March for a combined
sales price of approximately $8,050. The gain on sale was approximately
$1,536. In addition, in March 1998, the Company sold one of the
Georgetown retail shops consisting of 5,000 square feet for $750. The
gain on sale was approximately $147. In September 1998, the Company sold
one of the Georgetown retail shops consisting of 3,700 square feet for
$800. The gain on sale was approximately $335. In December 1998, the
Company sold another one of the Georgetown retail Shops consisting of
4,100 square feet for $1,075. The gain on sale was approximately $353.
5. Mortgage Debt
Mortgage and other notes payable consisted of the following as
of December 31, 1998 and 1997, respectively:
1998 1997
-------- ------
Fixed-rate debt payable to 2014 at 6.59%
to 9.90% (a)(b)(c) $221,406 $194,925
Notes Payable under the Lines of Credit 9,200 -
F-12
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
--------
Industrial revenue bonds payable June 2010 (d) 6,870 7,075
Other variable rate mortgage
payable January 2001 at LIBOR + 1.50% 6,637 10,030
----- ------
Total $244,113 $212,030
======== ========
(a) As part of the loans the lenders require the Company to establish escrow
accounts for real estate taxes, insurance and a replacement reserve. These
escrows, totaling $3,034 December 31, 1998 are included in other assets.
(b) On June 27, 1994, the Company borrowed $38,500 under new mortgage loans
(collectively, the "Nomura Mortgage Loan") collateralized by five of the
Properties. These loans, which bear interest at 30-day LIBOR (5.06% at
December 31, 1998) plus 2.0% and mature on July 1, 1999, were closed to
prepayment until July 1, 1998 and can be prepaid thereafter based on a
1.50% declining prepayment penalty. To mitigate its exposure to these
variable rate loans, the Company entered into a five year interest rate
protection agreement for a notional amount of $38,500 that is effective
through the loans maturity, and caps the interest rate at 7.70% through
maturity. The cost of the interest rate protection agreement of
approximately $3,200, is being amortized over the life of the agreement
using the effective interest rate method resulting in an effective interest
rate on the Nomura Mortgage Loan of approximately 8.9% per annum. The
estimated fair market value of the interest rate protection agreement, as
determined by the issuing financial institution, was $0 at December 31,
1998.
(c) In December 1995, the Company entered into an interest rate swap contract
with a notional amount of $38,500. The Company intends to hold such
contract until the expiration date. The purpose of the swap is to fix the
interest rate on the $38,500 Nomura loan through its expiration date of
July 1, 1999 at 7.09%. Under the terms of the interest rate contract, the
Company will be paying a fixed rate of 5.09% to the other party to the
contract (the "Counter Party") through June 1999. The Company will be
receiving variable payments from the Counter Party based on 30-day LIBOR
through June 1999. The Counter Party has as collateral a $3,500 restriction
on the $5,800 Line of Credit it provided the Company (see below). The fair
market value of the interest rate swap is determined by the amounts at
which they could be settled. If the Company had settled these agreements
with the Counter Party on December 31, 1998, the Company would have paid
approximately $12.
(d) The Company assumed Bond Obligations of $7,600 collateralized by Mayfair
Shopping Center. The Bond Obligations bear interest at a variable rate,
plus a letter of credit enhancement fee of 1.5%. The variable rate is
determined weekly at the rate necessary to produce a bid in the process of
remarketing the Bond Obligations equal to par plus accrued interest, based
on comparable issues in the market. The interest rate, including the 1.5%
credit enhancement fee, was 4.25% at December 31, 1998 The Bond Obligations
have a stated maturity of February 1, 2010, however, the letter of credit
supporting the Bond Obligations expires on June 24, 2003.
The Nomura Mortgage Loan, the Debentures (see Note 6), and the Bond Obligations,
contain affirmative and negative covenants, events of default and other
provisions as are customarily required for such instruments. The most
restrictive covenants require the Company to maintain a leverage ratio (total
indebtedness divided by net worth) of at least 2.0, maintain a debt service
coverage ratio (net income before interest and depreciation divided by scheduled
debt service payments) of at least 1.50 and require the Operating Partnership to
maintain a net worth of at least $150,000. At December 31, 1998 the Company is
in compliance with all restrictive covenants.
Maturities of the existing indebtedness at December 31, 1998 are as
follows:
Principal Amortization Balloon
Curtailment of Premiums Amount Total
----------- ------------ ------- --------
1999 $ 3,877 $ 1,480 $ 63,933 $ 69,290
2000 3,864 1,133 24,381 29,378
2001 4,121 952 16,386 21,459
2002 4,115 881 9,031 14,027
2003 3,578 608 14,924 19,110
Thereafter 13,594 1,362 75,893 90,849
------- ------- --------- -----------
$33,149 $6,416 $204,548 $244,113
======= ====== ======== ========
F-13
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
--------
In anticipation of the large amounts of mortgage debt maturing in 1999 and
2000, the Company has entered into forward interest rate swap contracts. The
Company intends to hold such contracts until their expiration dates. The purpose
of the swaps is to mitigate any exposure to fluctuations in interest rates until
the maturity dates of the mortgages when the Company expects to refinance these
loans. Under the terms of the swap contract, the Company pays a fixed rate to
the other party to the contract ("Counter Party") while receiving variable
payments from the Counter Party based on 30-day LIBOR. This effectively fixes
the LIBOR rate for the Company during the period of the swap contracts. The
following is a summary of the Company's swap contracts as of December 31, 1998:
Date Period Fixed Fair
Notational of of Rate Market
Amount Agreement Contract Payable Value
- ---------- --------- --------- ------- ------
(in 000's) (in 000's)
$38,500 12/95 07/01/99 - 12/01/03 6.37% $ (2,106)
20,000 08/97 03/01/99 - 03/01/04 6.44% (1,142)
15,000 11/97 06/01/99 - 06/01/04 6.18% ( 665)
24,000 01/98 05/01/00 - 05/02/05 5.85% ( 598)
- -------- ------ --------
$97,500 6.23% $ (4,511)
======= ===== =========
The Company currently has two collateralized revolving lines of credit (the
"Lines of Credit"). The Company has a collateralized revolving Line of Credit of
up to $45,000 with Union Bank of Switzerland. This line is collateralized by
seven properties (Kenhorst Plaza, Shoppes of Graylyn, Watkins Park Plaza, Four
Mile Fork, Takoma Park, Centre Ridge Marketplace and Newtown Square). The line
which closed on January 22, 1998 and matures on January 31, 2001 replaces the
Lines of Credit the Company had with Mellon Bank and Corestates Bank. Loans
under this line will bear interest at LIBOR plus one percent (1%). The Company
has an additional collateralized revolving Line of Credit of up to $5,775 from
First Union Bank. Loans under this line will bear interest at LIBOR plus two
percent (2%) per annum, and will mature on August 31, 1999. This Line of Credit
is collateralized by a first mortgage lien on Brafferton Shopping Center. As of
December 31, 1998, there was $9,200 outstanding under the Lines of Credit.
The Lines of Credit are available to fund acquisitions, renovations,
expansions and other working capital requirements. Definitive agreements with
respect to the Lines of Credit contain customary representations, warranties and
covenants.
Interest paid for the years ended December 31, 1998, 1997, and 1996 was
$20,595, $17,437, and $12,471, respectively.
6. Debentures
In June 1994, the Company effected a private placement with respect to
$25,000 of aggregate principal amount of 8.25% Debentures due June 27, 1999,
with interest payable quarterly beginning September 27, 1994. The Debentures are
exchangeable in the aggregate for one million shares of Convertible Preferred
Stock, representing approximately 7.5% of all shares of Common Stock (assuming
exchange/conversion of all Common Units and Convertible Preferred Stock (or
securities exchangeable into Convertible Preferred Stock or Common Stock)). The
Debentures are collateralized by two of the Retail Properties.
F-14
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
--------
7. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following as of
December 31, 1998 and 1997, respectively:
1998 1997
----------- -------
Accrued real estate taxes $2,780 $2,577
Deferred acquisition payments 1,939 2,223
Tenant security deposits 2,170 1,767
Accrued compensation payable in Company stock 1,479 682
Accounts payable and other accrued expenses 3,174 3,665
----- -----
Total $11,542 $10,914
======== =========
8. Preferred Stock
The Company's charter authorizes the issuance of up to 10,000,000 shares of
preferred stock, par value $.01 per share. Currently 3,800,000 shares of
preferred stock are designated as 9.75% Convertible Preferred Stock, of which
2,314,189 shares are issued and outstanding. The Convertible Preferred Stock has
a liquidation preference equal to $25.00 per share plus an amount equal to any
accrued and unpaid dividend (the "Convertible Preferred Liquidation Preference
Amount"). Holders of the Convertible Preferred Stock are entitled to receive
cumulative preferential cash dividends in an amount per share of Convertible
Preferred Stock equal to $0.6094 per quarter plus a participating dividend equal
to the amount, if any, of dividends in excess of $0.4875 per quarter with
respect to the number of shares of Common Stock into which a share of
Convertible Preferred Stock is then convertible. Shares of Convertible Preferred
Stock are convertible on or after May 31, 1999 into 1.282051 shares of Common
Stock. The Company may redeem the Convertible Preferred Stock commencing July
15, 1999 at a redemption price of $27.44 per share. The redemption price reduces
annually thereafter to $26.95, $26.46, $25.98, $25.49 and $25.00.
9. Summary of Noncash Investing and Financing Activities
Significant noncash transactions for the years ended December 31, 1998,
1997, and 1996 were as follows:
1998 1997 1996
--------- -------- ------
Liabilities assumed in purchase
of rental properties $ 35,521 $74,657 $20,171
Common and Preferred Units in the
Operating Partnership issued in
connection with the purchase
of rental properties $ 39,674 $33,851 $8,978
Common Units in the Operating Partnership
F-15
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
--------
Issued to pay deferred consideration liability $1,462 - -
Adjustment for minority interest's
ownership of the Operating Partnership $10,981 $10,613 $1,868
Exchange of Common Units in the
Operating Partnership for Common Shares $1,297 $320 $83
10. Lease Agreements
The Company is the lessor of retail properties with initial lease terms
expiring through the year 2020. Many leases are renewable for three to five
years at the lessee's option. Future minimum lease receipts under noncancelable
operating leases as of December 31, 1998 are as follows:
1999 $ 59,651
2000 51,964
2001 45,244
2002 38,418
2003 31,091
Thereafter 170,966
--------
$397,334
========
These future rentals do not include additional rent which may be received
from tenants for pass-through provisions in leases related to increases in
operating expenses or for percentage rentals.
11. Commitments and Contingencies
Legal Proceedings
The Company is not presently involved in any material litigation nor, to
its knowledge, is any material litigation threatened against the Company or its
properties, other than routine litigation arising in the ordinary course of
business or which is expected to be covered by the Company's liability
insurance. In the opinion of management of the Company, such litigation is not
expected to have a material adverse effect on the business, financial condition
or results of operations of the Company.
Environmental
The Company, as an owner of real estate, is subject to various
environmental laws of Federal and local governments. Compliance by the Company
with existing laws has not had a material adverse effect on its financial
condition and management does not believe it will have such an effect in the
future. However, the Company cannot predict the impact of new or changed laws or
regulations on its current Properties.
All of the Properties have been subjected to Phase I environmental audits.
Such audits have not revealed, nor is management aware of any environmental
liability that management believes would have a material adverse impact on the
consolidated financial position, results from operations or liquidity.
F-16
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
--------
Management is unaware of any instances in which it would incur and be
financially responsible for any material environmental costs if any or all
Properties were sold, disposed or abandoned.
12. Related-Party Transactions
The Operating Partnership owns 100% of the non-voting
Preferred stock of First Washington Management, Inc. (FWM), which
entitles it to 99% of the cash flow of FWM. Certain of the officers of
the Company own 100% of the Common Stock of FWM which entitles them to
1% of the cash flow of FWM. In addition, the Company received $480
annually of interest income, included in income from Management Company,
on the FWM Note in 1998, 1997 and 1996. The Company's equity in earnings
of FWM for the year ended December 31, 1998, 1997 and 1996 was $398, $47
and $259 respectively.
FWM provides property management, leasing and other related
services to the Company. Management and other fees paid by the Company
in 1998, 1997 and 1996 amounted to $4,546, $3,687, and $1,955,
respectively.
13. Stock and Stock Option Plans
Stock Option Plans
Under various plans and agreements, the Company has authorized
the issuance of stock and stock options to certain officers and
employees of the Company. In 1995, the FASB issued FAS No. 123
"Accounting for Stock Based Compensation" (FAS 123). As permitted by FAS
123, the Company continues to apply APB Opinion No. 25 and related
Interpretations in accounting for its plans.
The Company established a Stock Option Plan (the "Stock Option
Plan") for the Company's directors, executive officers and other key
employees. The Stock Option Plan provides that the compensation
committee of the Board of Directors (or Board, in the case of options
granted to independent directors) may grant or issue stock options. Each
grant or issuance will be set forth in a separate agreement with the
person receiving the award and will indicate the type, terms and
conditions of the award. The plan provides for both non-qualified and
incentive stock options. The Stock Option Plan provides that 1,296,691
shares of Common Stock will be reserved for issuance.
FAS 123 requires pro forma information regarding net income
and earnings per share as if the Company accounted for its stock options
under the fair value method of that statement. The fair value of the
options issued in 1998, 1997 and 1996 are estimated to be $161.4, $221.0
and $5.3 respectively, as of the date of the grant, using a binomial
model with the following weighted-average assumptions: risk-free
interest rates of 5.50%, 7.37% and 7.37%; dividend rate of 9.34%, 8.71%
and 8.71%; volatility factors of the expected market price of the
Company's shares of 17.27%, 16.96% and 16.96%; and a weighted average
expected life of the options of 3.00, 3.82 and 3.82 years.
Because option valuation models require input of highly
subjective assumptions, such as the expected stock price volatility, and
because changes in these assumptions can materially affect the fair
value estimate, the existing model may not necessarily provide a
reliable single measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair
value of the options are amortized to expense over the options' vesting
period. The pro forma income (loss) allocated to Common Stockholders is
as follows:
F-17
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
--------
1998 1997 1996
---- ---- ----
Pro forma net income (loss) before
extraordinary item $ 9,878 $2,702 $(1,566)
Extraordinary item (358) (954) -
----- ------- --------
Pro forma net income (loss) $ 9,520 $1,748 $(1,566)
======= ======= ========
Pro forma earnings (loss)
per Common Share - Basic
Income (loss) before
extraordinary item $ 1.24 $0.48 $(0.47)
Extraordinary item (0.05) (0.17) -
------- ------ --------
Net income (loss) $1.19 $0.31 $(0.47)
======= ====== ========
Pro forma earnings per Common
Share - Diluted
Income (loss) before
extraordinary item $1.23 $0.47 $(0.47)
Extraordinary item (0.05) (0.17) -
------ ------ --------
Net income (loss) $1.18 $0.30 $(0.47)
====== ====== ========
A summary of the Company's stock option activity for the years ended
December 31 is as follows:
Shares Weighted
Available Average Range of
Options for Future Exercise Exercise
Outstanding Option Grants Price Price
----------- ------------ ---------- --------
December 31,1995 338,818 12,722 $19.50 $19.50
Options granted 3,500 (3,500) $19.50 $19.50
Options expired/
forfeited (2,670) 2,670 $19.50 $19.50
----------- -------------
December 31, 1996 339,648 11,892 $19.50 $19.50
Amendment of Stock
Option Plan - 450,000
Options granted 145,500 (145,500) $24.00 $24.00
Options exercised (2,956) - $19.50 $19.50
Options expired/
forfeited (228) 228 $19.50 $19.50
---------- ---------------
December 31, 1997 481,964 316,620 $20.86 $19.50 - $24.00
Amendment of Stock
Option Plan - 500,000
Options granted 105,500 (105,500) $25.50 $25.50
Options exercised (2,919) - $19.50 $19.50
Options expired/
forfeited (8,228) 8,228 $23.69 $19.50 - $25.50
------- ---------------
December 31, 1998 576,317 719,348 $21.67 $19.50 - $25.50
======= ===============
At December 31, 1998, 1997 and 1996 options for 379,150 shares, 334,131
shares and 336,148 shares, respectively were exercisable. The average remaining
contractual life of options outstanding at December 31, 1998, 1997 and 1996 were
7.2 years, 7.9 years and 8.0 years, respectively. The weighted average grant
date fair value per options granted in 1998, 1997 and 1996 was $1.53, $1.52 and
$1.54 respectively.
F-18
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
--------
Contingent and Restricted Stock Plans
Two of the Company's senior officers have entered into three
year employment agreements. The agreements call for a base salary plus
an incentive compensation arrangement based on the Company meeting
certain operating result requirements. The incentive compensation is in
the form of common stock grants. Up to 100,000 shares of stock may be
issued to each of the two officers (or their designees). These
additional shares of stock will be recorded as additional compensation
in the period earned. During 1995, 22,417 shares were issued to each of
the two officers. The weighted average fair value of the shares issued
was $400. No additional shares were issued during 1996. In 1997, 47,380
shares were issued to each of the officers with a total value of
$2,300. Total compensation cost recognized under this plan was $1,100,
$1,500 and $1,800 for the years ended December 31, 1997, 1996 and 1995,
respectively.
In April 1996, the stockholders of the Company approved a
Contingent Stock Agreement and a Restricted Stock Plan for each of
these officers. The Contingent Stock Agreements have reserved for grant
60,000 shares of common stock (30,000 shares each) for the period July
1, 1997 through December 31, 1999. The agreements are administered by
the Compensation Committee of the Board of Directors ("Committee"). The
grants will be awarded if the Committee determines that the Company has
materially met certain targeted performance criteria. During 1998,
5,000 shares were issued to each of the two officers. The weighted
average fair value of the shares was $270. The two officers were issued
39,200 shares each under the Restricted Stock Plan, which is also
administered by the Compensation Committee. The shares issued under
this plan are subject to a vesting schedule as follows:
Vesting Date Number of Shares Vested
July 1, 1997 5,000
March 31, 1998 11,400
March 31, 1999 11,400
March 31, 2000 11,400
------
TOTAL 39,200
======
The Company will record compensation expense as the shares
vest based on the fair market value of the stock as of the date of
issuance (i.e. $24.25 per share).
In addition to the above restricted shares, during 1998 each
of the two officers elected to receive a cash bonus in the form of
4,750 restricted shares. Such restricted shares are subject to a 3 year
vesting period.
An additional 50,000 shares of common stock are reserved under
the Restricted Stock Plan for grants to officers and employees of the
Company, of which 22,862 were issued as of December 31, 1998.
On May 8, 1998, the Board amended the employment agreements of
the two senior officers effective March 1998. The terms of the
employment agreements were extended an additional three years. The
amended employment agreements continue to provide for a base salary
plus an incentive compensation arrangement, payable in cash based on
the Company meeting certain operating result requirements. The amended
employment agreements further provide for a grant of 150,000 shares
each of additional Restricted Stock on January 1, 2000. The shares
issued will be subject to vesting as follows: 25,000 shares on January
1, 2001; 50,000 shares on January 1, 2002, and 75,000 shares on January
1, 2003. The amended employment agreements also provide for the
issuance of an additional 25,000 shares each of Contingent Stock on
each of March 31, 2001, 2002 and 2003, based on the Company's
attainment of performance goals during the preceding fiscal year.
F-19
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
--------
Stock Plan Amendments
To provide for the additional options and shares described
above on May 8, 1998 the Stockholders approved amendments to the Stock
Option Plan (increasing the shares available for issuance by 500,000),
Restricted Stock Plan (increasing the number of shares available for
issuance by 350,000 shares to 368,508 shares), and the Contingent Stock
Agreements by granting an additional 150,000 shares.
14. Condensed Quarterly Financial Information (Unaudited)
1998 First Second Third Fourth
- ---- ----- ------ ----- ------
Total revenues $16,640 $18,112 $18,563 $20,749
Income before extraordinary
item, preferred distributions
and minority interest $5,507 $3,940 $5,151 $5,603
Extraordinary item $(358) - - -
Income allocated
to Common Stockholders $2,673 $1,643 $2,625 $2,740
Earnings per Common Share-Basic:
Income before extraordinary item $0.41 $0.22 $0.31 $0.32
Extraordinary item (0.05) - - -
----- ---------- -------- --------
Net income $0.36 $0.22 $0.31 $0.32
===== ======= ===== =====
Earnings per Common Share-Diluted:
Income before extraordinary item $0.41 $0.22 $0.31 $0.32
Extraordinary item (0.05) - - -
------ -------- ------- --------
Net income $0.36 $0.22 $0.31 $0.32
====== ======= ======= ======
1997 First Second Third Fourth
- ---- ----- ------ ----- ------
Total revenues $12,359 $12,888 $14,116 $16,271
Income before extraordinary
item, minority interest
and preferred distributions $1,822 $1,617 $2,633 $4,071
Extraordinary item $(134) - $(561) $(259)
Income (loss) allocated $21 $(35) $323 $1,660
to Common Stockholders
Earnings (loss) per Common
Share-Basic
Income (loss) before
extraordinary item $0.03 $(0.01) $0.16 $0.33
Extraordinary item (0.03) - (0.10) (0.04)
----- -------- ------ -----
Net Income (loss) $ 0.00 $(0.01) $0.06 $0.29
======= ======== ===== =====
Earnings (loss) per
Common Share - Diluted:
Income (loss) before
extraordinary item $(0.03) $(0.01) $0.16 $0.26
Extraordinary item (0.03) - (0.10) (0.04)
------ -------- ------ ------
Net income (loss) $0.00 $(0.01) $0.06 $0.22
====== ======== ===== =====
F-20
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
--------
15. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair values
of the Company's financial instruments:
Cash and Equivalents: The carrying amount approximates fair value.
Mortgage notes payable and Debentures: The fair values were estimated by
discounting the future cash flows using the current rates for similar types of
borrowing arrangements.
Interest Rate Swaps: The fair value of these contracts was estimated based
upon the amount the Company would have received/paid to terminate the swaps.
The estimated fair values of the Company's financial instruments at
December 31 are as follows:
1998 1997
------------------------- ---------------------
Carrying Fair Carrying Fair
Financial Assets: Value Value Value Value
-------- ----- -------- ------
Cash and Equivalents $3,163 $3,163 $3,142 $3,142
Financial Liabilities:
Mortgage notes payable $244,113 $275,499 $212,030 $248,200
Debentures $25,000 $ 30,369 $25,000 $35,256
Off-Balance Sheet Assets/
Liabilities:
Interest Rate Swaps and
Caps receive/(pay) - $(4,523) - $(612)
16. Business Segments
The Company owns one property type only i.e. neighborhood shopping centers.
The Company's management makes decisions on allocation of resources, designs
compensation packages and performs internal financial analysis based on the
following business segments:
F-21
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
--------
<TABLE>
<S>
<C> <C> <C>
Retail
Properties FWM, Inc.
---------- ---------
Year ended December 31, 1998:
Revenues $72,942 $6,487
Operating and maintenance expenses 17,934 6,405
------ -----
Income from operations $55,008 $82
======= ===
Commercial real estate property
expenditures $110,646 $0
======== ==
Segment assets at December 31, 1998 $532,954 $0
======== ==
Year ended December 31, 1997:
Revenues $54,297 $5,902
Operating and maintenance expenses 13,522 5,469
------ -----
Income from operations $40,775 $433
======= ====
Commercial real estate property
expenditures $144,411 $0
======== ==
Segment assets at December 31, 1997 $439,141 $0
======== ==
Year ended December 31, 1996:
Revenues $39,517 $5,652
Operating and maintenance expenses 9,743 5,431
----- -----
Income from operations $29,774 $221
======= ====
Commercial real estate property
expenditures $86,143 $0
======= ==
Segment assets at December 31, 1996 $313,613 $0
======== ==
<C> <C>
Other (1) Total
- --------- -----
($5,365) $74,064
(6,405) 17,934
------- ------
$1,040 $56,130
======= =======
$0 $110,646
======= ========
$0 $532,954
======= ========
($4,565) $55,634
(5,469) 13,522
------- ------
$904 $42,112
======= =======
$0 $144,411
======= ========
$0 $439,141
======= ========
($4,731) $40,438
(5,431) 9,743
------- -------
$700 $30,695
======= =======
$0 $86,143
======= =======
$0 $313,613
======= =======
</TABLE>
The following table reconciles income from operations for reportable
segments to income (loss) before extraordinary items as reported in the
Consolidated Statements of Operations.
Years ended December 31
-----------------------
1998 1997 1996
---- ---- ----
Income from operations for reportable segments $56,130 $42,112 $30,695
General and administrative expenses (3,789) (3,363) (3,137)
Interest expense (19,966) (18,416) (14,986)
Depreciation and amortization (14,627) (11,172) (8,019)
Income allocated to minority interest (4,521) (1,579) (694)
Distributions to Preferred Stockholders (5,641) (5,641) (5,641)
Income from Management Company 82 433 221
Gain on sale of properties 2,371 549 -
----- ------- --------
Income (loss) before extraordinary items $10,039 $2,923 ($1,561)
======= ====== ========
(1) Represents the adjustment for straight-lining of rents and reflecting the
net income from FWM using the equity method of accounting.
F-22
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
--------
17. Subsequent Events
On January 18, 1999 the Board of Directors declared a distribution of
$0.4875 and $0.6094 per Common and Preferred share of stock, respectively to
shareholders of record as of February 1, 1999. On February 15, 1999,
distributions in the amount of $7,606 were paid.
On January 5, 1999 the Company acquired Kamp Washington Shopping Center
located in Fairfax, Virginia. The total acquisition cost of $15,200 was financed
through assumed mortgage indebtedness of $3,100, a draw on the Company's Line of
Credit of $9,800 and cash of $2,300, which included $1,800 of proceeds from the
sale of properties in 1998, which were treated as a Section 1031 exchange for
tax purposes. The mortgage loan carries an all-in effective interest rate of
7.0% and matures in December 2009. Kamp Washington contains 71,825 square feet
of GLA and is anchored by Borders Books.
F-23
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years Ended December 31, 1998, 1997 and 1996
--------
Balance at Additions Deduction
Beginning Charged to Bad Amounts Balance at
Description of Year Debt Expense Written Off End of Year
- ----------- --------- -------------- ----------- -----------
Allowance for
Doubtful Accounts:
Year Ended
December 31, 1998 $1,453 $1,993 $(953) $2,493
====== ====== ====== ======
Year Ended
December 31, 1997 $683 $1,285 $(515) $1,453
==== ====== ====== ======
Year Ended
December 31, 1996 $418 $527 $(262) $683
==== ==== ====== ====
F-24
<PAGE>
SCHEDULE III - REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1998
-----------------------------
(dollars in thousands)
<TABLE>
<S>
<C> <C> <C>
Property Location Encumbrance
- -------- -------- -----------
Retail:
Allen Street (1) Allentown, PA $5,817
Ashburn Village Ashburn, VA 6,637
Bowie Plaza Bowie, MD 5,047
Brafferton (2) Garrisonville, VA -
Bryans Road (3) Bryans Road ,MD 38,500
Capital Corner Landover, MD -
Centre Ridge Marketplace (2)Centreville, VA 9,200
Chesapeake Bagel Building Alexandria, VA 735
City Avenue Shopping Center Philadelphia, PA 9,751
Clinton Square Clinton, MD -
Clopper's Mill Germantown, MD 13,888
4483 Connecticut Washington, D.C. -
Colonial Square York, PA -
Davis Ford Crossing (3) Manassas, VA -
Elkridge Corner Elkridge, MD 6,546
Festival at Woodholme Baltimore, MD 11,364
Firstfield Gaithersburg, MD 2,445
First State Plaza (3) New Castle, DE -
Four Mile Fork (2) Fredericksburg, VA -
Fox Mill (4) Reston, VA 25,000
Georgetown Shops (5) Washington, D.C. -
Glen Lea (6) Richmond, VA 12,968
Hanover Village (6) Mechanicsville, VA -
James Island (3) Charleston, SC -
Kenhorst Plaza (2) Reading, PA -
Kings Park Burke, VA 4,626
Laburnum Park (6) Richmond, VA -
Laburnum Square (6) Richmond, VA -
McHenry Commons McHenry, IL 6,355
Mallard Creek Round Lake Beach, IL 11,443
Mayfair Philadelphia, PA 6,870
Mitchellville Plaza Mitchellville, MD 15,026
Newtown Square (2) Newtown Square, PA -
Northway Millersville, MD 7,928
Parkville Shopping Center Baltimore, MD 3,465
Penn Station (4) District Heights, MD -
P.G. County Comm & Tech Pk. Beltsville, MD -
Pheasant Hill Bolingbrook, IL 7,834
Potomac Plaza Woodbridge, VA 3,656
Riverside Square/
River's EDGE Chicago, IL 2,384
Rosecroft Temple Hills, MD -
Gross amounts at
Capitalized which carried at
Initial Cost Subsequent to the close of period
- ------------ ------------- -------------------
<C> <C> <C> <C> <C>
Building & Acquisition
Land Improvements Improvements Land Improvement
- ---- ------------ ------------ ---- ----------
$ 867 $2,404 $1,029 $ 867 $ 3,433
2,373 7,494 13 2,373 7,507
2,256 9,933 405 2,256 10,338
1,595 6,385 490 1,595 6,875
1,214 3,314 4,056 1,230 7,354
966 0 3,512 989 3,489
4,847 3,807 2,223 5,108 5,769
191 804 661 192 1,464
3,135 12,540 1,899 3,259 14,315
242 1,437 (140) 251 1,288
4,011 16,006 125 4,011 16,131
91 932 152 95 1,080
639 1,678 258 646 1,929
2,574 10,092 293 2,543 10,416
1,625 7,236 15 1,625 7,251
2,915 11,660 230 2,915 11,890
699 2,797 235 699 3,032
2,575 10,358 792 2,575 11,150
1,196 4,783 192 1,196 4,975
2,752 11,019 395 2,752 11,414
949 3,174 (2,153) 516 1,454
757 3,027 204 757 3,231
1,081 4,323 198 1,081 4,521
1,321 2,758 427 1,324 3,182
2,253 9,013 1,654 2,253 10,667
1,153 4,613 622 1,153 5,235
1,194 4,774 (367) 1,148 4,453
1,104 4,418 1,037 1,105 5,454
1,669 6,676 146 1,609 6,882
2,674 10,695 76 2,560 10,885
2,463 9,860 360 2,463 10,220
4,279 17,114 112 3,877 17,628
2,508 10,031 48 2,508 10,079
1,838 7,400 586 1,837 7,987
1,678 6,711 7 1,678 6,718
4,275 0 21,377 4,285 21,367
1,309 972 5,513 1,342 6,452
2,012 8,047 56 1,899 8,216
795 4,235 1,200 733 5,497
2,772 11,086 424 2,749 11,533
664 2,723 2,535 688 5,234
<C> <C> <C> <C>
Accumulated Date of Date
Total Depreciation Construction Acquired
- ------------- ------------ ------------ ---------------
$4,300 $336 1958 1996
9,880 437 1996 1997
12,594 315 1966 1998
8,470 998 1974 1994
8,584 1,968 1972 1990
4,478 1,506 1987 1986
10,877 473 1996 1996
1,656 701 1800's 1983
17,574 845 1950's-60's 1997
1,539 748 1979 1984
20,142 1,432 1995 1996
1,175 420 1954 1986
2,575 551 1955 1990
12,959 1,483 1988 1994
8,876 121 1990 1998
14,805 1,385 1986 1995
3,731 299 1978 1995
13,725 1,730 1988 1994
6,171 323 1975 1997
14,166 1,648 1988 1994
1,970 599 1800's 1983-1989
3,988 371 1969 1995
5,602 538 1971 1995
4,506 902 1967 1990
12,920 1,142 1990 1995
6,388 341 1966 1996
5,601 513 1988 1995
6,559 633 1975 1995
8,491 290 1988 1997
13,445 468 1987 1997
12,683 1,502 1988 1994
21,505 704 1991 1997
12,587 642 1960's-70's 1996
9,824 517 1987 1996
8,396 178 1961 1998
25,652 6,495 1989 1986
7,794 2,586 1985 1985
10,115 347 1983 1997
6,230 1,926 1963 1985
14,282 482 1986 1997
5,922 2,010 1963 1985
</TABLE>
F-25
<PAGE>
SCHEDULE III - REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1998
------------------------
(dollars in thousands)
(Continued)
<TABLE>
<S>
<C> <C> <C>
Property Location Encumbrance
- -------- -------- -----------
Retail:
Shoppes of Graylyn (2) Wilmington, DE -
Shoppes of Kildaire Cary, NC 7,574
Southside Marketplace Baltimore, MD 7,927
Spring Valley Shopping Center Washington, DC -
Stefko Boulevard (1) Bethlehem, PA -
Stonebrook Plaza Merrionette Park, IL 6,002
Takoma Park (2) Takoma Park -
The Oaks Des Plaines, IL 9,706
Town Center at Sterling Sterling, VA 9,274
Valley Center (3) Owings Mills, MD 569
Village Shopping Center Richmond, VA -
Watkins Park (2) Mitchellville, MD -
Willston Centre I Falls Church, VA -
Willston Centre II Falls Church, VA 10,576
------
$269,113
Gross amounts at
Capitalized which carried at
Initial Cost Subsequent to the close of period
- ------------ ------------- -------------------
<C> <C> <C> <C> <C>
Building & Acquisition
Land Improvements Improvements Land Improvement
- ---- ------------ ------------ ---- ----------
1,478 5,912 79 1,478 5,991
2,202 8,833 2,102 2,208 10,929
2,209 8,835 366 2,209 9,201
1,175 4,698 211 1,175 4,909
1,149 3,187 1,889 1,149 5,076
1,657 6,626 136 1,570 6,849
957 3,829 1,148 957 4,977
2,892 11,570 549 2,735 12,276
4,414 14,659 3,000 4,414 17,659
4,718 18,938 2,044 5,551 20,149
2,660 10,638 24 2,660 10,662
2,932 11,729 3 2,932 11,732
2,076 8,305 228 2,115 8,494
2,667 10,671 15 2,667 10,685
----- ------ -------- ------- ------
$108,697 $384,759 $62,691 $108,562 $447,584
======== ======== ======= ========= ========
<C> <C> <C> <C>
Accumulated Date of Date
Total Depreciation Construction Acquired
- ------------- ------------ ------------ ---------------
7,469 394 1971 1997
13,137 3,953 1986 1986
11,410 762 1990 1996
6,084 164 1930 1997
6,225 503 1958-60-75 1996
8,419 295 1984 1997
5,934 410 1960 1996
15,011 520 1983 1997
22,073 74 1973-1978 1998
25,700 2,889 1987 1994
13,322 198 1948 1998
14,664 291 1985 1998
10,609 53 1952 1998
13,352 64 1986 1998
$556,146 $51,475
========= =======
</TABLE>
(1) These properties are encumbered by first deeds of trust as collateral for a
$5,817 mortgage loan.
(2) These properties serve as collateral for the Line of Credit facilities.
(3) These properties are encumbered by first deeds of trust as collateral for
the $38,500 Nomura mortgage loan.
(4) These properties serve as collateral for the $25,000 Exchangeable
Debentures.
(5) Consists of five locations in the shopping district of Georgetown in
Washington, DC.
Three properties was subsequently sold in 1998.
(6) These properties are encumbered by first deeds of trust as collateral for a
$12,968 mortgage loan.
(7) These properties were subsequently sold in 1998. (8) The retail properties
and the multi-family properties have depreciable lives of 31.5 years and
40.0 years respectively.
Property
Acquisitions Additions/ Cost Balance
Balance at Charges to Improvements of at
Beginning Depreciation to Estate End of
of Year Expense Properties Sold Year
=========== ============ ============ ====== =======
Rental Properties $456,798 $103,191 $7,455 $(11,298) $556,146
======== ======== ======= ========= ========
Accumulated
Depreciation 40,839 13,997 - (3,361) $51,475
======= ====== ======= ======== =========
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC.
ARTICLES OF RESTATEMENT
THIS IS TO CERTIFY THAT:
FIRST: First Washington Realty Trust, Inc., a Maryland corporation (the
"Corporation"), desires to restate its charter as currently in effect.
SECOND: The following provisions are all the provisions of the charter
currently in effect:
ARTICLE I
Name
The name of the Corporation (the "Corporation") is First Washington Realty
Trust, Inc.
ARTICLE II
Principal Office, Registered Office, and Agent
The address of the Corporation's principal office in the State of Maryland
is c/o The Prentice Hall Corporation System, Maryland, 11 East Chase Street,
Baltimore, Maryland 21202. The name and address of the Corporation's resident
agent in the State of Maryland are The Prentice Hall Corporation System,
Maryland, 11 East Chase Street, Baltimore, Maryland 21202. The registered agent
is a corporation located in the State of Maryland.
ARTICLE III
Purpose
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Maryland General Corporation
Law as now or hereafter in force (the "MGCL").
ARTICLE IV
Capitalization
4.1 STOCK
Section 4.1.1 Authority to Issue Stock. The Board of Directors of the
Corporation may authorize the issuance from time to time of shares of its stock,
whether now or hereafter authorized, for such consideration as the Board of
Directors may deem advisable, subject to such limitations as may be set forth in
the Charter or the Bylaws of the Corporation.
- 1 -
<PAGE>
Section 4.1.2 Shares and Par Value. The total number of shares of all
classes of stock that the Corporation has authority to issue is one hundred
million (100,000,000), consisting of (i) ninety million (90,000,000) shares of
common stock having a par value of one cent ($.01) per share (the "Common
Stock") and (ii) ten million (10,000,000) shares of preferred stock having a par
value of one cent ($.01) per share (the "Preferred Stock"), of which three
million seven hundred fifty thousand (3,750,000) shares shall be designated as
9.75% Series A Cumulative Participating Convertible Preferred Stock (the "Series
A Preferred Stock"). The aggregate par value of all authorized shares of stock
having par value is one million dollars ($1,000,000). Subject to the express
terms of any other classes of Common Stock or of any other series of Preferred
Stock outstanding at the time and notwithstanding any other provision of the
Charter, the Board of Directors of the Corporation may increase or decrease the
number of shares of, or alter the designation of, or classify or reclassify into
one or more classes or series, any unissued shares of Common Stock or Preferred
Stock by setting or changing, in any one or more respects, from time to time
before issuing the shares, the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption of shares of Common Stock or
of Preferred Stock.
Section 4.1.3 Declaration of Dividends. To the extent declared by the Board
of Directors of the Corporation out of assets legally available therefor,
dividends payable in respect of the Series A Preferred Stock and the Common
Stock will have identical record and payment dates.
Section 4.1.4 Determination of Funds Legally Available for Distribution. In
determining whether a distribution (other than upon voluntary or involuntary
liquidation) by dividend, redemption or other acquisition of shares or otherwise
of Capital Stock is permitted under the MGCL, no effect shall be given to
amounts that would be needed, if the Corporation were to be dissolved at the
time of the distribution, to satisfy the preferential rights upon dissolution of
holders of shares of Capital Stock whose preferential rights upon dissolution
are superior to those receiving the distribution.
Section 4.1.5 Preemptive Rights. No holder of shares of stock of the
Corporation shall, as such holder, have any preemptive or other right to
purchase or subscribe for any shares of Series A Preferred Stock, Common Stock
or any other class of Capital Stock which the Corporation may issue or sell.
4.2 CERTAIN DEFINITIONS
Unless the context otherwise requires, the terms defined in this Section
4.2 shall have, for all purposes of this Charter, the meanings herein specified
(with terms defined in the singular having comparable meanings when used in the
plural).
Acquire. The term "Acquire" shall mean the acquisition of Beneficial
Ownership or Constructive Ownership of shares of Capital Stock by any means
including, without limitation, a Transfer, the exercise of or right to exercise
any rights under any option, warrant, convertible security, pledge or other
security interest or similar right to acquire shares, but shall not include the
acquisition of any such rights unless, as a result, the acquiror would be
considered a Beneficial Owner or Constructive Owner, as defined below.
- 2 -
<PAGE>
The term "Acquisition" shall have the correlative meaning.
Aggregate Stock Ownership Limit. The term "Aggregate Stock Ownership Limit"
shall mean not more than 9.8% (in value) of the aggregate of the outstanding
shares of Capital Stock. The number and value of shares of the outstanding
shares of Capital Stock shall be determined by the Board of Directors of the
Corporation in good faith, which determination shall be conclusive for all
purposes hereof.
Beneficial Ownership. The term "Beneficial Ownership" shall mean ownership
of Capital Stock by a Person who is or would be an actual owner of such shares
of Capital Stock or who is or would be treated as a constructive owner of such
shares through the application of Section 544 of the Code, as modified by
Section 856(h)(1)(B) of the Code (except where expressly provided otherwise).
The terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned" shall
have the correlative meanings.
Business Day. The term "Business Day" shall mean any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a day on which banking
institutions in New York City are authorized or required by law, regulation or
executive order to close.
Capital Stock. The term "Capital Stock" shall mean all classes or series of
stock of the Corporation, including, without limitation, Common Stock, Preferred
Stock and Series A Preferred Stock.
Capital Gains Amount. The term "Capital Gains Amount" shall have the
meaning set forth in Section 4.3.1(g) hereof.
Charitable Beneficiary. The term "Charitable Beneficiary" shall mean one or
more beneficiaries of the Trust as determined pursuant to Section 4.4.6 or
Section 4.6.6 each of which shall be an organization described in Sections
170(b)(1)(A), 170(c)(2) and 501(c)(3) of the Code.
Code. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
Common Stock. The term "Common Stock" shall have the meaning set forth in
Section 4.1.2.
Common Stock Affected Persons. The term "Common Stock Affected Persons"
shall have the meaning set forth in Section 4.5.5(c) herein.
Common Stock Ownership Limit. The term "Common Stock Ownership Limit" shall
mean not more than 9.8% (in value or in number of shares, whichever is more
restrictive) of the aggregate of the outstanding shares of Common Stock of the
Corporation. The number and value of outstanding shares of Common Stock of the
Corporation shall be determined by the Board of Directors of the Corporation
- 3 -
<PAGE>
in good faith, which determination shall be conclusive for all purposes hereof.
Common Stock Constructive Ownership Event. The term "Common Stock
Constructive Ownership Event" shall have the meaning set forth in Section
4.5.5(c).
Constructive Ownership. The term "Constructive Ownership" shall mean
ownership of Capital Stock by a Person who is or would be an actual owner of
Capital Stock or who is or would be treated as a constructive owner of such
shares through the application of Section 318(a) of the Code, as modified by
Section 856(d)(5) of the Code. The terms "Constructive Owner," "Constructively
Owns" and "Constructively Owned" shall have the correlative meanings.
Conversion. The term "Conversion" shall mean a conversion of shares of
Series A Preferred Stock into shares of Common Stock, as provided in Section
4.3.6 hereof.
Conversion Commencement Date. The term "Conversion Commencement Date" shall
mean May 31, 1999.
Conversion Holder. The term "Conversion Holder" shall mean any Person who
is the Beneficial or Constructive Owner of shares of Common Stock in excess of
the Common Stock Ownership Limit by reason of the Conversion of (or the right to
convert) shares of Series A Preferred Stock into shares of Common Stock.
Conversion Price. The term "Conversion Price" shall have the meaning set
forth in Section 4.3.6(a) hereof.
Dividend Payment Date. The term "Dividend Payment Date" shall have the
meaning set forth in Section 4.3.1(b) hereof.
Dividend Period. The term "Dividend Period" shall mean the period from, and
including, the Initial Issuance Date to, but not including, the first Dividend
Payment Date and thereafter each quarterly period from, and including, the
Dividend Payment Date to, but not including, the next Dividend Payment Date (or
earlier date on which dividends are paid), as the case may be.
Funds from Operations of the Operating Partnership. The term "Funds from
Operations of the Operating Partnership" shall have the meaning set forth in
Section 4.3.6(e)(ix) hereof.
Initial Issuance Date. The term "Initial Issuance Date" shall mean the date
that shares of Series A Preferred Stock and Common Stock are issued by the
Corporation pursuant to the Private Placement.
Market Price. The term "Market Price" on any date shall mean, with respect
to any class or series of outstanding shares of Capital Stock, the Closing Price
for such Capital Stock on such date. The "Closing Price" on any date shall mean
the last sale price for such Capital Stock,
- 4 -
<PAGE>
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, for such Capital Stock in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the NYSE or, if such
Capital Stock is not listed or admitted to trading on the NYSE, as reported in
the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which such
Capital Stock is listed or admitted to trading or, if such Capital Stock is not
listed or admitted to trading on any national securities exchange, the last
quoted price, or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotation system that may then be
in use or, if such Capital Stock is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in such Capital Stock selected by the Board of
Directors of the Corporation.
MGCL. The term "MGCL" shall have the meaning set forth in Article III.
NYSE. The term "NYSE" shall mean the New York Stock Exchange.
Operating Partnership. The term "Operating Partnership" shall mean First
Washington Realty Limited Partnership, a Maryland limited partnership.
Partnership Agreement. The term "Partnership Agreement" shall mean the
Agreement of Limited Partnership of First Washington Realty Limited Partnership,
of which the Corporation is the sole general partner, dated as of April 28,
1994, as such agreement may be amended from time to time.
Person. The term "Person" shall mean an individual, corporation,
partnership, estate, trust (including a trust qualified under Sections 401(a) or
501(c)(17) of the Code), a portion of a trust permanently set aside for or to be
used exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity and also includes a group as that term
is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended.
Preferred Stock Affected Persons. The term "Preferred Stock Affected
Persons" shall have the meaning set forth in Section 4.3.7(c) herein.
Preferred Stock Constructive Ownership Event. The term "Preferred Stock
Constructive Ownership Event" shall have the meaning set forth in Section
4.3.7(c).
Private Placement. The term "Private Placement" means the closing of the
sale of shares of Series A Preferred Stock and Common Stock on or about June 27,
1994.
- 5 -
<PAGE>
Purported Beneficial Transferee. The term "Purported Beneficial Transferee"
shall mean, with respect to any purported Transfer or Acquisition which results
in a transfer to a Trust, as provided in Section 4.4 or Section 4.6, the
purported beneficial transferee for whom the Purported Record Transferee would
have acquired shares of Capital Stock if such Transfer or Acquisition had not
violated the provisions of Sections 4.3.7 or 4.5.5. The Purported Beneficial
Transferee and the Purported Record Transferee may be the same Person.
Purported Record Transferee. The term "Purported Record Transferee" shall
mean, with respect to any purported Transfer or Acquisition which results in a
transfer to a Trust, as provided in Section 4.4 or Section 4.6, the Person who
would have been the record holder of the Capital Stock if such Transfer or
Acquisition had not violated the provisions of Sections 4.3.7 or 4.5.5. The
Purported Beneficial Transferee and the Purported Record Transferee may be the
same Person.
Record Date. The term "Record Date" shall mean, for any class or series of
Capital Stock, the date designated by the Board of Directors of the Corporation
at the time a dividend is declared as the date for determining holders of record
entitled to such dividend; provided, however, that, to the extent permitted by
the MGCL, such Record Date shall be the first day of the calendar month in which
the applicable Dividend Payment Date falls or such other date designated by the
Board of Directors for the payment of dividends that is not more than thirty
(30) days nor less than ten (10) days prior to such Dividend Payment Date.
Registration Rights Agreement. The term "Registration Rights Agreement"
shall have the meaning set forth in Section 4.3.1(h) hereof.
REIT. The term "REIT" shall mean a real estate investment trust within the
meaning of Section 856 of the Code.
Restriction Termination Date. The term "Restriction Termination Date" shall
mean the first day after the date of the Private Placement on which the
Corporation determines pursuant to Section 5.1 hereof that it is no longer in
the best interests of the Corporation to attempt to, or continue to, qualify as
a REIT or that compliance with the restrictions and limitations on Beneficial
Ownership, Constructive Ownership and Transfers and Acquisitions of shares of
Capital Stock set forth herein is no longer required in order for the
Corporation to qualify as a REIT.
Series A Preferred Liquidation Preference. The term "Series A Preferred
Liquidation Preference" shall have the meaning set forth in Section 4.3.2(a)
hereof.
Series A Preferred Stock Limitation Price. The term "Series A Preferred
Stock Limitation Price" shall have the meaning set forth in Section 4.4.5(a)
hereof.
Series A Preferred Stock Ownership Limit. The term "Series A Preferred
Stock Ownership Limit" shall mean not more than 9.8% (in value or in number of
shares, whichever is
- 6 -
<PAGE>
more restrictive) of the aggregate of the outstanding Series A Preferred Stock
of the Corporation. The number and value of outstanding shares of Series A
Preferred Stock of the Corporation shall be determined by the Board of Directors
of the Corporation in good faith, which determination shall be conclusive for
all purposes hereof.
Series A Redemption Date. The term "Series A Redemption Date" shall have
the meaning set forth in Section 4.3.3(b) hereof.
Series A Redemption Price. The term "Series A Redemption Price" shall have
the meaning set forth in Section 4.3.3(a) hereof.
Special Triggering Event. The term "Special Triggering Event" shall mean
either (i) the election by one or more holders of shares of Series A Preferred
Stock to convert all or a portion of such Series A Preferred Stock into shares
of Common Stock, (ii) the redemption or purchase by the Corporation of all or a
portion of the outstanding shares of Capital Stock, or (iii) a change in the
relative values of classes of Capital Stock.
Total Dividends. The term "Total Dividends" shall have the meaning set
forth in Section 4.3.1(g) hereof.
Transfer. The term "Transfer" shall mean any sale, transfer, gift,
assignment, devise or other disposition of Capital Stock or the right to vote or
receive dividends on Capital Stock including (i) the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Capital Stock or the right to vote or receive dividends on Capital Stock or (ii)
the sale, transfer, assignment or other disposition of any securities or rights
convertible into or exchangeable for Capital Stock, in each case whether
voluntary or involuntary, whether of record or Beneficially or Constructively
Owned (including without limitation Transfers of interests in other entities
which result in changes in Beneficial or Constructive Ownership of Capital
Stock), and whether by operation of law or otherwise. The terms "Transferring"
and "Transferred" shall have the correlative meanings.
Trust. The term "Trust" shall mean each of the trusts provided for in
Sections 4.4.1 and 4.6.1.
Trustee. The term "Trustee" shall mean the Person unaffiliated with the
Corporation, or the Purported Beneficial Transferee, or the Purported Record
Transferee, that is appointed by the Corporation to serve as trustee of the
Trust.
Units. The term "Units" shall mean units of convertible preferred
partnership interests and common partnership interests in the Operating
Partnership.
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4.3 SERIES A PREFERRED STOCK
Section 4.3.1 Dividends.
(a) Subject to the preferential rights of any series of Preferred Stock
ranking senior as to dividends to the Series A Preferred Stock and to Section
4.4.2, the record holders of shares of Series A Preferred Stock shall be
entitled to receive dividends, when and as declared by the Board of Directors of
the Corporation, out of assets legally available for the payment of dividends.
Subject to the provisions of Section 4.3.1(h), such dividends shall be payable
by the Corporation in an amount per share equal to (i) $0.6094 per quarter
($2.4375 per annum) (or such higher number as is determined under Section
4.3.1(h)) plus (ii) a participating dividend equal to the amount, if any, of
dividends in excess of $0.4875 payable on the applicable Dividend Payment Date
with respect to the number of shares of Common Stock (or fraction thereof) into
which a share of Series A Preferred Stock is then (or will be) convertible. The
amount of participating dividend referred to in clause (ii) payable on any
Dividend Payment Date shall equal the number of shares of Common Stock, or
fraction thereof, into which a share of Series A Preferred Stock is then
convertible, multiplied by the quarterly dividend in excess of $0.4875 per share
paid with respect to a share of Common Stock on such Dividend Payment Date.
(b) Dividends on shares of Series A Preferred Stock shall accrue and be
cumulative from the Initial Issuance Date and will be payable quarterly in
arrears on the fifteenth day of each August, November, February, and May (each,
a "Dividend Payment Date"), beginning August 15, 1994. If any Dividend Payment
Date occurs on a day that is not a Business Day, any accrued dividends otherwise
payable on such Dividend Payment Date shall be paid on the next succeeding
Business Day. Dividends payable in respect of any Dividend Period which is less
than a full Dividend Period in length will be computed from the immediately
preceding Dividend Payment Date (or the Initial Issuance Date in the case of the
first Dividend Period) to, but not including the date on which dividends are
paid, on the basis of a 360-day year consisting of twelve 30-day months.
Dividends shall be paid to the holders of record of shares of Series A Preferred
Stock as their names shall appear on the stock transfer records of the
Corporation at the close of business on the Record Date for such dividend.
Dividends in respect of any past Dividend Period that is in arrears may be
declared and paid at any time to holders of record on the Record Date thereof.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on the Series A Preferred Stock that may be in
arrears.
(c) Notwithstanding anything herein to the contrary, no dividends on
shares of Series A Preferred Stock shall be declared by the Board of Directors
of the Corporation or paid or set apart for payment by the Corporation at such
time as, and to the extent that, the terms and provisions of any agreement of
the Corporation, including any agreement relating to its indebtedness, or any
provisions of this Charter relating to any series of Preferred Stock ranking
senior to the Series A Preferred Stock as to dividends, prohibit such
declaration, payment or setting apart for payment or provide that such
declaration, payment or setting apart for payment
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would constitute a breach thereof or a default thereunder, or if such
declaration or payment shall be restricted or prohibited by law.
(d) If any shares of Series A Preferred Stock are outstanding, no full
dividends shall be declared or paid or set apart for payment on any series of
Capital Stock ranking, as to dividends, junior to or on a parity with the Series
A Preferred Stock as to dividends for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for such payment on the Series
A Preferred Stock for all past Dividend Periods and the then current Dividend
Period. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon the shares of the Series A Preferred Stock and
the shares of any other series of Preferred Stock ranking on a parity as to
dividends with the Series A Preferred Stock, all dividends declared upon shares
of Series A Preferred Stock and any other series of Preferred Stock ranking on a
parity as to dividends with the Series A Preferred Stock shall be declared pro
rata so that the amount of dividends declared per share on the Series A
Preferred Stock and such other series of Preferred Stock shall in all cases bear
to each other the same ratio that accrued and unpaid dividends per share on the
shares of the Series A Preferred Stock and such other series of Preferred Stock
bear to each other.
(e) Except as provided in Section 4.3.1(d), unless full cumulative
dividends on the Series A Preferred Stock have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for all past Dividend Periods and the then current Dividend
Period, no dividends (other than dividends payable in Common Stock or other
Capital Stock ranking junior to the Series A Preferred Stock as to dividends and
upon liquidation, dissolution or winding up) shall be declared or paid or set
aside for payment, and no other distribution shall be declared or made, upon any
series or class of Capital Stock ranking junior to or on a parity with the
Series A Preferred Stock as to dividends, nor, subject to the Corporation's
right to purchase shares of stock held in Trust for one or more Charitable
Beneficiaries as otherwise provided in this Charter and subject to the automatic
repurchase by the Corporation of shares of stock pursuant to Section 4.3.7(d) or
Section 4.5.5(d), shall shares of any series of Capital Stock ranking junior to
or on a parity with the Series A Preferred Stock as to dividends or upon
liquidation, dissolution or winding up be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any shares of any such stock), by the
Corporation (except by conversion into or exchange for other Capital Stock
ranking junior to the Series A Preferred Stock as to dividends and upon
liquidation, dissolution or winding up).
(f) Notwithstanding anything contained herein to the contrary,
dividends on the Series A Preferred Stock, if not paid on a Dividend Payment
Date, shall accrue whether or not dividends are declared for such Dividend
Payment Date, whether or not the Corporation has earnings and whether or not
there are assets legally available for the payment of such dividends. Any
dividend payment made on shares of Series A Preferred Stock shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such Series A Preferred Stock which remains payable.
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(g) If, for any taxable year, the Corporation elects to designate as
"capital gain dividends" (as defined in Section 857 of the Code) any portion
(the "Capital Gains Amount") of the dividends (within the meaning of the Code)
paid or made available for the year to holders of all classes of stock (the
"Total Dividends"), then the portion of the Capital Gains Amount that shall be
allocable to the holders of Series A Preferred Stock shall be the Capital Gains
Amount multiplied by a fraction, the numerator of which shall be the total
dividends (within the meaning of the Code) paid or made available to the holders
of the Series A Preferred Stock for the year and the denominator of which shall
be the Total Dividends.
(h) In the event that the Corporation fails to file a registration
statement within the period of time required by the Registration Rights
Agreement dated as of the Initial Issuance Date (the "Registration Rights
Agreement"), or the required registration statement does not become effective
within the period of time required by the Registration Rights Agreement, or the
Corporation fails to maintain the effectiveness of the registration statement as
required by the Registration Rights Agreement, (i) the stated quarterly dividend
rate set forth in clause (i) of Section 4.3.1(a) will be increased by an
additional $0.0625 for each Dividend Period (or fraction thereof) during which
any such registration statement is not filed or declared effective, as
applicable (which number shall not increase if the registration statement delay
continues for more than one Dividend Period), and such increased stated dividend
rate shall remain in effect until such registration statement is filed or
declared effective, as applicable, and (ii) the amount per share of Common Stock
set forth in clause (ii) of Section 4.3.1(a) (in excess of which a participating
dividend is payable) will be increased by an additional $0.04875 for each
dividend period (or fraction thereof) during which any such registration
statement is not filed or declared effective, as applicable (which number shall
not increase if the registration statement delay continues for more than one
Dividend Period), and such increased stated dividend rate shall remain in effect
until such registration statement is filed or declared effective, as applicable.
Section 4.3.2 Liquidation Rights.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, subject to the prior preferences or other rights of any series of
Capital Stock ranking senior to the Series A Preferred Stock upon liquidation,
dissolution or winding up, the holders of shares of Series A Preferred Stock
shall be entitled to be paid out of the assets of the Corporation legally
available for distribution to its stockholders a liquidating distribution in
cash or property at its fair market value as determined by the Board of
Directors of the Corporation in an amount equal to the sum of $25.00 per share
plus an amount equal to any accrued and unpaid dividends thereon (whether or not
earned or declared) to the date of payment (the "Series A Preferred Liquidation
Preference"), before any distribution or payment shall be made to the holders of
any shares of Capital Stock that rank junior to the Series A Preferred Stock in
the distribution of assets upon liquidation, dissolution or winding up. After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of shares of Series A Preferred Stock shall have no right
or claim to any of the remaining assets of the Corporation and shall not be
entitled to any other distribution in the event of liquidation, dissolution or
winding up of the affairs of the Corporation.
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(b) In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the legally available assets of the
Corporation are insufficient to pay the Series A Preferred Liquidation
Preference on all outstanding shares of Series A Preferred Stock and the
corresponding amounts payable on all shares of other classes or series of
Capital Stock ranking on a parity with the Series A Preferred Stock in the
distribution of assets upon liquidation, dissolution or winding up, then the
holders of the Series A Preferred Stock and all other such classes or series of
Capital Stock shall share ratably in any such distribution of assets in
proportion to the full liquidating distributions to which they would otherwise
be respectively entitled.
(c) Neither the consolidation or merger of the Corporation with or into
any other entity, nor the sale, lease, transfer or conveyance of all or
substantially all of the property or business of the Corporation to any other
entity, shall be deemed to constitute a liquidation, dissolution or winding up
of the Corporation within the meaning of this Section 4.3.2.
Section 4.3.3 Redemption by the Corporation.
(a) The Series A Preferred Stock may be redeemed, in whole or from time
to time in part, at any time on and after July 15, 1999 at the option of the
Corporation at the price per share set forth below (the "Series A Redemption
Price"):
If the Redemption Date is: Price Per Share
- -------------------------- ---------------
On or after July 15, 1999
but prior to July 14, 2000....................................... $ 27.4375
On or after July 15, 2000
but prior to July 14, 2001....................................... $ 26.9500
On or after July 15, 2001
but prior to July 14, 2002....................................... $ 26.4625
On or after July 15, 2002
but prior to July 14, 2003....................................... $ 25.9750
On or after July 15, 2003
but prior to July 14, 2004....................................... $ 25.4875
On or after July 15, 2004.......................................... $ 25.00
in each case in cash plus all accrued and unpaid dividends thereon to the Series
A Redemption Date, except as may be provided below, without interest.
(b) Each date fixed for redemption pursuant to Section
4.3.3(d) below is called a "Series A Redemption Date." If the Series A
Redemption Date is after a Record Date and before the related Dividend Payment
Date, the dividend payable on such Dividend Payment Date shall be paid to the
holder in whose name the Series A Preferred Stock to be redeemed is registered
at the close of business on such Record Date notwithstanding the redemption
thereof between such Record Date and the related Dividend Payment Date or the
Corporation's default in the payment of the dividend due.
(c) In case of redemption of less than all shares of Series A
Preferred Stock at the time outstanding, the shares to be redeemed shall be
selected pro rata from the holders of record of such shares in proportion to the
number of shares held by such holders (with adjustments to avoid redemption of
fractional shares) or, if a pro rata redemption would result in a violation of
the Series A Preferred Stock Ownership Limit, the Common Stock Ownership Limit,
or the Aggregate Stock Ownership Limit, by any other equitable method determined
by the Board of Directors of the Corporation, to the extent practicable, that
would not result in such a violation.
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(d) Notice of any redemption will be given by publication in a
newspaper of general circulation in the City of New York, such publication to be
made once a week for two successive weeks commencing not less than 30 nor more
than 60 days prior to the Series A Redemption Date. A similar notice will be
mailed by the Corporation, postage prepaid, not less than 30 nor more than 60
days prior to the Series A Redemption Date, addressed to the respective holders
of record of the Series A Preferred Stock to be redeemed at their respective
addresses as they appear on the stock transfer records of the Corporation. No
failure to give such notice or any defect therein or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any shares of
Series A Preferred Stock except as to the holder to whom the Corporation has
failed to give notice or except as to the holder to whom notice was defective.
In addition to any information required by law or by the applicable rules of any
exchange upon which Series A Preferred Stock may be listed or admitted to
trading, such notice shall state: (i) the Series A Redemption Date; (ii) the
Series A Redemption Price; (iii) the aggregate number of shares of Series A
Preferred Stock to be redeemed and, if less than all shares held by such holder
are to be redeemed, the number of such shares to be redeemed; (iv) the place or
places where certificates for such shares are to be surrendered for payment of
the Series A Redemption Price; (v) that dividends on the shares to be redeemed
will cease to accrue on the Series A Redemption Date; and (vi) that any
conversion rights with respect to such shares shall terminate at the close of
business on the third Business Day immediately preceding the Series A Redemption
Date.
(e) If notice has been mailed in accordance with Section
4.3.3(d) above and provided that on or before the Series A Redemption Date
specified in such notice all funds necessary for such redemption shall have been
set aside by the Corporation, separate and apart from its other funds in trust
for the pro rata benefit of the holders of the shares so called for redemption,
so as to be and to continue to be available therefor, then, from and after the
Series A Redemption Date, dividends on the shares of the Series A Preferred
Stock so called for redemption shall cease to accrue, and such shares shall no
longer be deemed to be outstanding and shall not have the status of shares of
Series A Preferred Stock, and all rights of the holders thereof as stockholders
of the Corporation (except the right to receive from the Corporation the Series
A Redemption Price) shall cease. Notwithstanding the foregoing, upon the
Corporation's default in the payment of the dividend due, the holders of shares
of Series A Preferred Stock at the close of business on any Record Date will be
entitled to receive the dividend payable with respect to such Series A Preferred
Stock on the corresponding Dividend Payment Date, although such Series A
Preferred Stock shall have been redeemed between such Record Date and such
corresponding Dividend Payment Date. Upon surrender, in accordance with the
redemption notice, of the certificates for any shares of Series A Preferred
Stock so redeemed (properly endorsed or assigned for transfer, if the
Corporation shall so require and the notice shall so state), such shares shall
be redeemed by the Corporation at the Series A Redemption Price. In case fewer
than all the shares represented by any such certificate are redeemed, a new
certificate or certificates shall be issued representing the unredeemed shares
without cost to the holder thereof.
(f) Any deposit of funds with a bank or trust company for the
purpose of redeeming Series A Preferred Stock shall be irrevocable except that:
(i) the Corporation shall be entitled to receive from
such bank or trust company the interest or other earnings, if any,
earned on any money so deposited in trust, and the holders of any
shares redeemed shall have no claim to such interest or other earnings;
and
(ii) any balance of monies so deposited by the
Corporation and unclaimed by the holders of the Series A Preferred
Stock entitled thereto at the expiration of two (2) years
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after the applicable Series A Redemption Date shall be repaid, together
with any interest or other earnings earned thereon, to the Corporation,
and after such repayment, the holders of the shares entitled to the
funds so repaid to the Corporation shall look only to the Corporation
for payment without interest or other earnings.
(g) No Series A Preferred Stock may be redeemed except with
funds legally available for the payment of the Series A Redemption Price.
(h) Unless full cumulative dividends on all outstanding shares
of Series A Preferred Stock shall have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past Dividend Periods and the then current Dividend Period, no
shares of any Series A Preferred Stock shall be redeemed unless all outstanding
shares of Series A Preferred Stock are simultaneously redeemed, provided,
however, that the foregoing shall not prevent the purchase or acquisition of
shares of Series A Preferred Stock pursuant to a purchase or exchange offer made
on the same terms to holders of all outstanding shares of Series A Preferred
Stock; and, unless full cumulative dividends on all outstanding shares of Series
A Preferred Stock have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past Dividend Periods and the then current Dividend Period, the Corporation
shall not purchase or otherwise acquire directly or indirectly, through a
subsidiary or otherwise, any shares of Series A Preferred Stock (except by
conversion into or exchange for Capital Stock ranking junior to the Series A
Preferred Stock as to dividends and upon liquidation, dissolution or winding
up).
(i) All shares of Series A Preferred Stock redeemed pursuant
to this Section 4.3.3 shall be retired and shall be restored to the status of
authorized and unissued shares of Preferred Stock, without designation as to
series, and may thereafter be reissued as shares of any series of Preferred
Stock.
(j) Notwithstanding any other provision of this Section 4.3.3,
the Corporation shall not , pursuant to this Section 4.3.3, redeem shares of
Series A Preferred Stock held by any holder of such shares if such holder (i)
has provided notice of conversion with respect to such shares pursuant to
Section 4.3.6(b) and (ii) such holder could not, at the time of such redemption,
convert such shares of Series A Preferred Stock into shares of Common Stock
pursuant to Section 4.3.6 due to the restriction set forth in Section 4.3.6(l).
Section 4.3.4 Voting Rights.
(a) The holders of record of shares of Series A Preferred
Stock shall not be entitled to any voting rights or to notice of any meeting of
stockholders except as hereinafter provided in this Section 4.3.4. The
Corporation shall not, without the affirmative vote or consent of the holders of
at least two-thirds of the shares of the Series A Preferred Stock outstanding at
the time, given in person or by proxy, either in writing or at a meeting (such
Series A Preferred Stock voting separately as a class), (i) authorize, create,
or increase the authorized or issued amount of, any class or series of Capital
Stock ranking senior to the Series A Preferred Stock as to dividends or upon
liquidation, dissolution or winding up, or reclassify any authorized shares of
Capital Stock into shares of any such senior Capital Stock, or create, authorize
or issue any obligation or security convertible into or evidencing the right to
purchase shares of any such senior Capital Stock; or (ii) amend, alter or repeal
the provisions of this Charter, whether by merger, consolidation or otherwise,
so as to materially and adversely affect any
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right, preference, privilege or voting power of the Series A Preferred Stock or
the holders thereof; provided, however, that any increase in the amount of the
authorized Preferred Stock or the creation or issuance of any other series of
Preferred Stock, or any increase in the amount of authorized shares of the
Series A Preferred Stock or any other series of Preferred Stock, in each case
ranking on a parity with or junior to the Series A Preferred Stock with respect
to payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up, shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting powers.
(b) If and whenever dividends payable on Series A Preferred
Stock shall be in arrears for six (6) or more quarterly periods, then the
holders of shares of Series A Preferred Stock, voting separately as a class
(together with any certain other series of preferred stock as provided in
Section 4.3.4(f) below), shall be entitled at the next annual meeting of the
stockholders or at any special meeting of stockholders to elect two (2)
additional directors. Upon election, such directors shall become additional
directors of the Corporation and the authorized number of directors of the
Corporation shall thereupon be automatically increased by such number of
directors.
(c) Whenever the voting right under Section 4.3.4(b) shall
have vested, such right may be exercised initially either at a special meeting
of the holders of Series A Preferred Stock, called as hereinafter provided, or
at any annual meeting of stockholders held for the purpose of electing
directors, and thereafter at such annual meetings or by the written consent of
holders of Series A Preferred Stock. Such right of the holders of Series A
Preferred Stock to elect directors may be exercised until all dividends to which
the holders of Series A Preferred Stock shall have been entitled for all
previous Dividend Periods and the current Dividend Period shall have been paid
in full or declared and a sum of money sufficient for the payment thereof set
aside for payment, at which the time the right of the holders of Series A
Preferred Stock to elect such number of directors shall cease, the term of such
directors previously elected shall thereupon terminate, and the authorized
number of directors of the Corporation shall thereupon return to the number of
authorized directors otherwise in effect, but subject always to the same
provisions for the renewal and divestment of such special voting rights in the
case of any such future dividend default or defaults and subject to the rights
of any other series of preferred stock to vote for the election of directors,
together with the Series A Preferred Stock, as described in Section 4.3.4(f),
that shall not have then expired.
(d) At any time when the voting right described under Section
4.3.4(b) shall have vested in the holders of shares of Series A Preferred Stock
and if such right shall not already have been initially exercised, the Secretary
of the Corporation shall, upon the written request of holders of record of at
least ten percent (10%) of the shares of Series A Preferred Stock or any other
series of Preferred Stock entitled to vote on such matter as described in
Section 4.3.4(f) then outstanding, addressed to the Secretary of the
Corporation, call a special meeting of holders of Series A Preferred Stock. Such
meeting shall be held in accordance with Maryland law at the earliest
practicable date at a place designated by the Secretary of the Corporation. If
such meeting shall not be called by the Secretary of the Corporation within
thirty (30) days after the personal service of such written request upon the
Secretary of the Corporation, or within thirty (30) days after mailing the same
within the United States, by registered mail, addressed to the Secretary of the
Corporation at its principal office (such mailing to be evidenced by the
registry receipt issued by the postal authorities), then the holders of record
of at least ten percent (10%) of the shares of Series A Preferred Stock or of
other Preferred Stock entitled to vote on such matter as described in Section
4.3.4(f) then outstanding may designate in writing a holder of Series A
Preferred Stock or such other Preferred Stock to call such meeting at the
expense of the Corporation, and such meeting may be called by such person so
designated upon the notice required for
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annual meetings of stockholders and shall be held in accordance with Maryland
law at a place designated by such holder. Any holder of shares of Series A
Preferred Stock that would be entitled to vote at such meeting shall have access
to the stock books of the Corporation for the purpose of causing a meeting of
stockholders to be called pursuant to the provisions of this Section 4.3.4(d).
Notwithstanding the provisions of this Section 4.3.4(d), however, no such
special meeting shall be called if any such request is received less than ninety
(90) days before the date fixed for the next ensuing annual or a special meeting
of stockholders.
(e) If any director so elected by the holders of shares of
Series A Preferred Stock shall cease to serve as a director before such
director's term shall expire, the holders of shares of Series A Preferred Stock
(and any other series of Preferred Stock, if any, entitled to vote on such
matter, as described in Section 4.3.4(f)) then outstanding may, at a special
meeting of the holders called as provided above, elect a successor to hold
office for the unexpired term of the director whose place shall be vacant.
(f) If, at any time when the holders of shares of Series A
Preferred Stock are entitled to elect directors pursuant to the foregoing
provisions of this Section 4.3.4, the holders of shares of any one or more
additional series of Preferred Stock are entitled to elect directors by reason
of any default or event specified in this Charter, as in effect at the time
(including the articles supplementary for such series), and if the terms for
such other additional series so permit, then the voting rights of the two or
more series then entitled to vote shall be combined (with each series having a
number of votes proportional to the aggregate liquidation preference of its
outstanding shares). In such case, the holders of shares of Series A Preferred
Stock and of all such other series then entitled so to vote, voting as class,
shall elect such directors. If the holders of shares of any such other series
have elected such directors prior to the happening of the default or event
permitting the holders of shares of Series A Preferred Stock to elect directors,
or prior to a written request for the holding of a special meeting being
received by the Secretary of the Corporation as required in Section 4.3.4(d)
above, then a new election shall be held with holders of shares of all such
other series of Preferred Stock and the Series A Preferred Stock voting together
as a single class for such directors, resulting in the termination of the term
of such previously elected directors upon the election of such new directors. If
the holders of shares of any such other series are entitled to elect in excess
of two directors, the Series A Preferred Stock shall not participate in the
election of more than two such directors, and those directors whose terms first
expire shall be deemed to be the directors elected by the holder of shares of
Series A Preferred Stock; provided that, if at the expiration of such terms, the
holders of shares of Series A Preferred Stock are entitled to vote in the
election of directors pursuant to the provisions of this Section 4.3.4, then the
Secretary of Corporation shall call a meeting (which meeting may be the annual
meeting or special meeting of stockholders referred to in Section 4.3.4(c)
above) of holders of shares of Series A Preferred Stock for the purpose of
electing replacement directors (in accordance with the provisions of this
Section 4.3.4) to be held at or prior to the time of expiration of the expiring
terms referred to above.
(g) The holders of record of shares of Series A Preferred
Stock then outstanding shall be entitled to vote, together with any other class
or series of Capital Stock entitled to vote then outstanding, on any resolution
presented by the Board of Directors pursuant to Section 5.1.
(h) In any matter in which holders of shares of Series A
Preferred Stock may vote, including any action by written consent, each share of
Series A Preferred Stock shall be entitled to one (1) vote (except as expressly
provided herein or as may be required by law).
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(i) Except as required by law, the foregoing voting provisions
shall not apply if, at or prior to the time when the act with respect to which
such vote would otherwise be required shall be effected, all outstanding shares
of the Series A Preferred Stock shall have been redeemed or shall have been
called for redemption upon proper notice and sufficient funds shall have been
deposited in trust to effect such redemption.
Section 4.3.5 Ranking.
The Series A Preferred Stock shall, with respect to dividend
rights and distributions upon liquidation, dissolution, and winding up, rank (i)
senior to the Common Stock, and shares of all other Capital Stock issued from
time to time by the Corporation the terms of which specifically provide that the
shares of such series rank junior to the Series A Preferred Stock with respect
to dividend rights and distributions upon liquidation, dissolution, or winding
up of the Corporation, (ii) on a parity with the shares of all other Capital
Stock issued by the Corporation the terms of which specifically provide that the
shares of such series rank on a parity with the Series A Preferred Stock with
respect to dividends and distributions upon liquidation, dissolution, or winding
up of the Corporation or make no specific provision as to their ranking; and
(iii) junior to all other Capital Stock issued by the Corporation the terms of
which specifically provide that the shares rank senior to the Series A Preferred
Stock with respect to dividends and distributions upon liquidation, dissolution
or winding up of the Corporation (the issuance of which must have been approved
by a vote of holders of at least a majority of the outstanding shares of Series
A Preferred Stock).
Section 4.3.6 Conversion Rights.
Subject to any other provisions of this Article IV and Article
V hereof, the holders of shares of Series A Preferred Stock shall have the
right, at their option, to convert such shares into shares of Common Stock on
the following terms and conditions:
(a) Shares of Series A Preferred Stock shall be convertible at
any time and from time to time on or after the Conversion Commencement Date into
fully paid and nonassessable shares of Common Stock at a conversion price of
$19.50 per share of Common Stock (as such price may be adjusted from time to
time, the "Conversion Price"). For purposes of this Section 4.3.6, references to
shares of Series A Preferred Stock shall apply equally to fractional shares
thereof. The Conversion Price shall be subject to adjustment from time to time
as hereinafter provided. For purposes of such conversion, each share of Series A
Preferred Stock will be valued at $25.00 plus an amount equal to any accrued and
unpaid dividends on such share to the date of conversion. No payment or
adjustment shall be made on account of any accrued and unpaid dividends on
shares of Series A Preferred Stock surrendered for conversion prior to the
Record Date for the determination of stockholders entitled to such dividends or
on account of any dividends on the shares of Common Stock issued upon such
conversion subsequent to the Record Date for the determination of stockholders
entitled to such dividends. If any shares of Series A Preferred Stock shall be
called for redemption, the right to convert the shares designated for redemption
shall terminate at the close of business on the third Business Day immediately
preceding the date fixed for redemption unless default is made in the payment of
the Series A Redemption Price. In the event of default in the payment of the
Series A Redemption Price, the right to convert the shares designated for
redemption shall terminate at the close of business on the Business Day
immediately preceding the date that such default is cured.
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(b) In order to convert shares of Series A Preferred Stock
into shares of Common Stock, the holder thereof shall, on or after the
Conversion Commencement Date, surrender the certificates therefor, duly endorsed
if the Corporation shall so require, or accompanied by appropriate instruments
of transfer satisfactory to the Corporation, at the office of the transfer agent
for the Series A Preferred Stock or at such other office as may be designated by
the Corporation, together with written notice that such holder irrevocably
elects to convert such shares. Such notice shall also state the name and address
in which such holder wishes the certificate for the shares of Common Stock
issuable upon conversion to be issued. As soon as practicable after receipt of
the certificates representing the shares of Series A Preferred Stock to be
converted and the notice of election to convert the same, the Corporation shall
issue and deliver at said office a certificate for the number of whole shares of
Common Stock issuable upon conversion of the shares of Series A Preferred Stock
surrendered for conversion, together with a cash payment in lieu of any fraction
of a share, as hereinafter provided, to the person entitled to receive the same.
If more than one stock certificate for Series A Preferred Stock shall be
surrendered for conversion at one time by the same holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares represented by all the certificates so
surrendered. Shares of Series A Preferred Stock shall be deemed to have been
converted immediately prior to the close of business on the date such shares are
surrendered for conversion and notice of election to convert the same is
received by the Corporation in accordance with the foregoing provision, and the
person entitled to receive the Common Stock issuable upon such conversion shall
be deemed for all purposes as the record holder of such shares of Common Stock
as of such date.
(c) In the case of any share of Series A Preferred Stock which
is converted after any Record Date with respect to the payment of a dividend on
the Series A Preferred Stock and on or prior to the corresponding Dividend
Payment Date, the dividend due on such Dividend Payment Date shall be payable on
such Dividend Payment Date to the holder of record of such shares on such
preceding Record Date notwithstanding such conversion. Shares of Series A
Preferred Stock surrendered for conversion during the period from the close of
business on any Record Date with respect to the payment of a dividend on the
Series A Preferred Stock next preceding any Dividend Payment Date to the opening
of business on such Dividend Payment Date shall (except in the case of shares of
Series A Preferred Stock which have been called for redemption on a Series A
Redemption Date within such period) be accompanied by payment in New York
Clearing House funds or other funds acceptable to the Corporation of an amount
equal to the dividend payable on such Dividend Payment Date on the shares of
Series A Preferred Stock being surrendered for conversion. The dividend with
respect to a share of Series A Preferred Stock called for redemption on a Series
A Redemption Date during the period from the close of business on any Record
Date with respect to the payment of a dividend on the Series A Preferred Stock
next preceding any dividend payment to the opening of business on such Dividend
Payment Date shall be payable on such Dividend Payment Date to the holder of
record of such share on such Record Date, notwithstanding the conversion of such
share of Series A Preferred Stock after such Record Date and prior to such
Dividend Payment Date, and the holder converting such share of Series A
Preferred Stock called for redemption need not include a payment of such
dividend amount upon surrender of such share of Series A Preferred Stock for
conversion.
(d) No fractional shares of Common Stock shall be issued upon
conversion of any shares of Series A Preferred Stock. If more than one share of
Series A Preferred Stock is surrendered at one time by the same holder, the
number of full shares issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares so surrendered. If the conversion of any
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shares of Series A Preferred Stock results in a fractional share of Common
Stock, the Corporation shall pay cash in lieu thereof in an amount equal to such
fraction multiplied by the closing price of the Common Stock, determined as
provided in Section 4.3.6(e)(vi) below, on the date on which the shares of
Series A Preferred Stock were duly surrendered for conversion, or if such date
is not a trading date, on the next succeeding trading date.
(e) The Conversion Price shall be adjusted from time to time
as follows:
(i) In case the Corporation shall pay or make a
dividend or other distribution on shares of Common Stock in Common
Stock, the Conversion Price in effect at the opening of business on the
date following the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution shall be
reduced by multiplying such Conversion Price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at
the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total
number of shares of Common Stock constituting such dividend or other
distribution, such reduction to become effective immediately after the
opening of business on the day following the date fixed for such
determination. For purposes of this subsection, the number of shares of
Common Stock at any time outstanding shall not include authorized but
unissued shares but shall include shares issuable in respect to scrip
certificates issued in lieu of fractions of shares of Common Stock. The
Corporation will not pay any dividend or make any distribution on
authorized but unissued shares of Common Stock.
(ii) In case the Corporation shall issue additional
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price per share
less than the then current market price per share (determined as
provided in Section 4.3.6(e)(vi) below) of the Common Stock on the date
fixed for the determination of stockholders entitled to receive such
rights or warrants (other than pursuant to a dividend reinvestment
plan), the Conversion Price in effect at the opening of business on the
day following the date fixed for such determination shall be reduced by
multiplying such Conversion Price by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination plus the number of
shares of Common Stock which the aggregate of the offering price of the
total number of shares of Common Stock so offered for subscription or
purchase would purchase at such current market price (determined as
provided in Section 4.3.6(e)(vi) below) and the denominator shall be
the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of
shares of Common Stock so offered for subscription or purchase, such
reduction to become effective immediately after the opening of business
on the day following the date fixed for such determination. For the
purposes of this Section 4.3.6(e)(ii), the number of shares of Common
Stock at any time outstanding shall not include authorized but unissued
shares but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock. The
Corporation will not issue any rights or warrants in respect of shares
of authorized but unissued Common Stock.
(iii) In case outstanding shares of Common Stock
shall be subdivided into a greater number of shares of Common Stock,
the Conversion Price in effect at the opening of business on the date
following the day upon which such subdivision becomes effective shall
be
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proportionately reduced, and, conversely, in case outstanding shares of
Common Stock shall be combined into a smaller number of shares of
Common Stock, the Conversion Price in effect at the opening of business
on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(iv) In case the Corporation shall, by dividend or
otherwise, distribute to all holders of its Common Stock evidence of
its indebtedness or assets (including securities, but excluding (1) any
rights or warrants referred to in Section 4.3.6(e)(ii) above, (2) any
dividend described in Section 4.3.6(e)(ix) below, and (3) any dividend
or distribution referred to in Section 4.3.6(e)(i) above), the
Conversion Price shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such distributions by
a fraction of which the numerator shall be the current market price per
share (determined as provided in Section 4.3.6(e)(vi) below) of the
Common Stock on the date fixed for such determination less the fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive and shall be described in a statement
filed with the transfer agent for the Series A Preferred Stock) of the
portion of the evidences of the indebtedness or assets so distributed
applicable to one share of Common Stock and the denominator shall be
such current market price per share of Common Stock, such adjustment to
become effective immediately prior to the opening of business on the
day following the date fixed for the determination of stockholders
entitled to receive such distribution.
(v) For the purposes of this Section 4.3.6, the
reclassification of Common Stock into securities including securities
other than Common Stock (other than any reclassification upon a
consolidation or merger to which Section 4.3.6(g) below applies) shall
be deemed to involve (A) a distribution of such securities other than
Common Stock to all holders of Common Stock (and the effective date of
such reclassification shall be deemed to be "the date fixed for the
determination of stockholders entitled to receive such distribution"
and the "date fixed for such determination" within the meaning of
Section 4.3.6(e)(vi) above), and (B) a subdivision or combination, as
the case may be, of the number of shares of Common Stock outstanding
immediately thereafter (and the effective date of such reclassification
shall be deemed to be "the day upon which such subdivision became
effective" and "the day upon which such subdivision or combination
becomes effective," as the case may be) within the meaning of Section
4.3.6(e)(iii) above.
(vi) For the purpose of any computation under Section
4.3.6 and (iv) above, the "current market price per share" of Common
Stock on any day shall be deemed to be the average of the daily closing
prices for the thirty (30) consecutive trading days commencing
forty-five (45) days before the day in question. The closing price for
each day shall be the reported last sale price or, in case no such
reported sale takes place on such day, the average of the reported
closing bid and asking prices, in either case on the NYSE, or, if the
Common Stock is not quoted on such exchange, on the principal national
securities exchange on which the Common Stock is then listed or
admitted to trading or, if the Common Stock is not quoted on any
national securities exchange, the average of the closing bid and asked
prices in the Nasdaq Stock Market, or in the over-the-counter market as
furnished by a NYSE
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member first selected from time to time by the Board of Directors of
the Corporation for that purpose.
(vii) Notwithstanding the foregoing, no adjustment in
the Conversion Price for the Series A Preferred Stock shall be required
unless such adjustment would require an increase or decrease of at
least 1% in such price; provided, however, that any adjustment which by
reason of this Section 4.3.6(e)(vii) is not required to be made shall
be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 4.3.6 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
(viii) In the event of a distribution of evidences of
indebtedness or other assets (as described in Section 4.3.6(e)(iv)) or
a dividend to all holders of Common Stock of rights to subscribe for
additional shares of Capital Stock (other than those referred to in
Section 4.3.6(e)(ii) above), the Corporation may, instead of making an
adjustment of the Conversion Price, make proper provision so that each
holder who converts such shares will be entitled to receive upon such
conversion, in addition to shares of Common Stock, an appropriate
number of such rights, warrants, evidences of indebtedness or other
assets.
(ix) No adjustment will be made for Ordinary Cash
Dividends (defined as dividends or other distributions to holders of
Common Stock in an amount not exceeding the accumulated Funds from
Operations of the Operating Partnership including for this purpose
consolidated partnerships since the Initial Issuance Date, after
deducting cumulative dividends or other distributions (A) paid in
respect of all classes of Capital Stock and in respect of Units held by
persons other than the Corporation or (B) accrued in respect of Series
A Preferred Stock and any other shares of Preferred Stock of the
Corporation ranking on a parity with or senior to the Series A
Preferred Stock as to dividends, in each case since the Initial
Issuance Date). For this purpose, "Funds from Operations of the
Operating Partnership" shall mean net income (loss) (computed in
accordance with generally accepted accounting principles consistently
applied), excluding gains (or losses) from debt restructuring and sales
of property, plus depreciation and amortization of, and after
adjustments for unconsolidated partnerships and joint ventures of the
Operating Partnership.
(f) Whenever the Conversion Price shall be adjusted as herein
provided, (i) the Corporation shall forthwith make available at the office of
the transfer agent for the Series A Preferred Stock a statement describing in
reasonable detail the adjustment, the facts requiring such adjustment and the
method of calculation used; and (ii) the Corporation shall cause to be mailed by
first class mail, postage prepaid, as soon as practicable to each holder of
record of shares of Series A Preferred Stock a notice stating that the
Conversion Price has been adjusted and setting forth the adjusted Conversion
Price.
(g) In the event of any consolidation of the Corporation with
or merger of the Corporation into any other corporation (other than a merger in
which the Corporation is the surviving corporation) or a sale, lease (other than
in the ordinary course of business) or conveyance of the assets of the
Corporation as an entirety or substantially as an entirety, or any statutory
exchange of securities with another corporation, the holder of each share of
Series A Preferred Stock shall, notwithstanding anything in this Section 4.3.6
to the contrary, have the right, after such consolidation, merger, sale, lease,
conveyance or exchange, to convert such share into the number and kind of shares
of stock or other securities and the amount and kind of property which such
holder would have been entitled to
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receive immediately upon such consolidation, merger, sale, lease, conveyance or
exchange for the number of shares of Common Stock that would have been issued to
such holder had such shares of Series A Preferred Stock been converted
immediately prior to such consolidation, merger, sale, lease, conveyance or
exchange. The provisions of this Section 4.3.6(g) shall similarly apply to
successive consolidations, mergers, sales, leases, conveyances or exchanges.
(h) The Corporation shall pay any taxes that may be payable in
respect of the issuance of shares of Common Stock upon conversion of shares of
Series A Preferred Stock, but the Corporation shall not be required to pay any
taxes which may be payable in respect of any transfer involved in the issuance
of shares of Common Stock in a name other than that in which the shares of
Series A Preferred Stock so converted are registered, and the Corporation shall
not be required to issue or deliver any such shares unless and until the person
requesting such issuance shall have paid to the Corporation the amount of any
such taxes or shall have established to the satisfaction of the Corporation that
such taxes have been paid.
(i) The Corporation may (but shall not be required to) make
such reductions in the Conversion Price, in addition to those required by
Sections 4.3.6(e)(i) through (iv) above, as it considers to be advisable in
order that any event treated for federal income tax purposes as a dividend of
stock or stock rights shall not be taxable to the recipients.
(j) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock the full
number of shares of Common Stock issuable upon the conversion of all shares of
Series A Preferred Stock then outstanding.
(k) In the event that:
(i) the Corporation shall declare a dividend or any
other distribution on its Common Stock, other than an Ordinary Cash
Dividend; or
(ii) the Corporation shall authorize the granting to
the holders of its Common Stock of rights to subscribe for or purchase
any shares of Capital Stock of any class or of any other rights; or
(iii) any capital reorganization of the Corporation,
reclassification of the Capital Stock, consolidation or merger of the
Corporation with or into another corporation (other than a merger in
which the Corporation is the surviving corporation), or sale, lease
(other than in the ordinary course of business) or conveyance of the
assets of the Corporation as an entirety or substantially as an
entirety to another corporation occurs; or
(iv) the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation shall occur;
the Corporation shall cause to be mailed to the holders of record of shares of
Series A Preferred Stock at least fifteen (15) days prior to the applicable date
hereinafter specified a notice stating (A) the date on which a record is to be
taken for the purpose of such dividend, distribution or grant of rights or, if a
record is not to be taken, the date as of which the holders of shares of Common
Stock of record to be entitled to such dividend, distribution. or grant of
rights are to be determined or (B) the date on which such reorganization,
reclassification, consolidation, merger, sale, lease (other than in the ordinary
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course of business), conveyance, dissolution, liquidation or winding up is
expected to take place, and the date, if any is to be fixed, as of which holders
of shares of Common Stock of record shall be entitled to exchange their shares
of Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, lease,
conveyance, dissolution, liquidation or winding up. Failure to give such notice,
or any defect therein, shall not affect the legality of such dividend,
distribution, grant, reorganization, reclassification, consolidation, merger,
sale, lease, conveyance, dissolution, liquidation or winding up.
(l) No shares of Series A Preferred Stock may be converted
into shares of Common Stock if such conversion would result in any violation of
the applicable restrictions set forth in Section 4.5.5.
Section 4.3.7 Series A Preferred Stock Ownership Limitations.
(a) During the period commencing on the Initial Issuance Date
and prior to the Restriction Termination Date:
(i) except as provided in Section 4.3.13, no Person
shall Acquire any shares of Series A Preferred Stock if, as the result
of such Acquisition, such Person shall Beneficially or Constructively
Own shares of Series A Preferred Stock in excess of the Series A
Preferred Stock Ownership Limit;
(ii) except as provided in Sections 4.3.13 and
4.5.11, no Person shall Acquire or Beneficially Own or Constructively
Own shares of Series A Preferred Stock or Common Stock in excess of the
Aggregate Stock Ownership Limit; and
(iii) no Person shall Acquire or Beneficially or
Constructively Own shares of Capital Stock to the extent that such
Acquisition or Beneficial or Constructive Ownership of Capital Stock
would result in the Corporation being "closely held" within the meaning
of Section 856(h) of the Code, or otherwise failing to qualify as a
REIT (including, but not limited to, an Acquisition or Beneficial or
Constructive Ownership that would result in the Corporation owning
(actually or Constructively) an interest in a tenant that is described
in Section 856(d)(2)(B) of the Code if the income derived by the
Corporation from such tenant would cause the Corporation to fail to
satisfy any of the gross income requirements of Section 856(c) of the
Code).
(b) If, during the period commencing on the Initial Issuance
Date and prior to the Restriction Termination Date, any Transfer or Acquisition
of shares of Series A Preferred Stock (other than a Transfer or Acquisition to
which Section 4.3.7(c) applies) (whether or not such Transfer or Acquisition is
the result of a transaction entered into through the facilities of the NYSE or
any other national securities exchange or automated inter-dealer quotation
system) occurs which, if effective, would result in any Person Acquiring shares
of Series A Preferred Stock in violation of Section 4.3.7(a), (i) then that
number of shares of the Series A Preferred Stock being Transferred or Acquired
that otherwise would cause such Person to violate Section 4.3.7(a) (rounded up
to the nearest whole share) shall be automatically transferred to a Trust for
the benefit of a Charitable Beneficiary, as described in Section 4.4, effective
as of the close of business on the Business Day prior to the date of such
Transfer or Acquisition, and such Person shall acquire no rights in such shares;
or (ii) if the transfer to the Trust described in clause (i) of this sentence
would not be effective for any reason to
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prevent any Person from Acquiring or Transferring Series A Preferred Stock in
violation of Section 4.3.7(a), then the Transfer or Acquisition of that number
of shares of Series A Preferred Stock that otherwise would cause any Person to
violate Section 4.3.7(a) shall be void ab initio, and the intended transferee
shall acquire no rights in such shares of Series A Preferred Stock.
(c) If, during the period commencing on the Initial Issuance
Date and prior to the Restriction Termination Date, a change in the relationship
between two or more Persons ("Preferred Stock Affected Persons") results in any
of such Preferred Stock Affected Persons Beneficially or Constructively Owning
shares of Series A Preferred Stock in violation of Section 4.3.7(a) because of
the application of Section 318(a) of the Code (as modified by Section 856(d)(5)
of the Code) or Section 544 of the Code (as modified by Section 856(h)(1)(B) of
the Code) (a "Preferred Stock Constructive Ownership Event"), then that number
of shares of Series A Preferred Stock Beneficially or Constructively Owned by
the Preferred Stock Affected Persons (rounded up to the nearest whole share)
that otherwise would violate Section 4.3.7(a) shall be automatically transferred
to a Trust for the benefit of a Charitable Beneficiary, as described in Section
4.4, effective as of the close of business on the Business Day prior to such
Preferred Stock Constructive Ownership Event, and such Preferred Stock Affected
Person or Persons shall acquire no rights in such shares.
(d) Notwithstanding anything to the contrary in Section 4.3.3,
if during the period commencing on the Initial Issuance Date and prior to the
Restriction Termination Date, a Special Triggering Event (if effective) or other
event or occurrence (if effective), other than a Transfer or Acquisition
described in Section 4.3.7(b) or a Preferred Stock Constructive Ownership Event
described in Section 4.3.7(c), would result in any violation of Section
4.3.7(a), then (i) the number of shares of Series A Preferred Stock (rounded up
to the nearest whole share) that would (but for this Section 4.3.7(d)) cause any
Person to Beneficially or Constructively Own Series A Preferred Stock in
violation of Section 4.3.7(a) shall be automatically repurchased by the
Corporation from the actual owner of such shares of Series A Preferred Stock,
effective as of the close of business on the Business Day prior to the date of
such Special Triggering Event or other event or occurrence; or (ii) if the
automatic repurchase described in clause (i) of this sentence would not be
effective for any reason to prevent any Person from Beneficially or
Constructively Owning Series A Preferred Stock in violation of Section 4.3.7(a),
then that number of shares of Series A Preferred Stock (rounded up to the
nearest whole share) that otherwise would cause any Person to violate Section
4.3.7(a) shall be automatically transferred to a Trust for the benefit of a
Charitable Beneficiary, as described in Section 4.4, effective as of the close
of business on the Business Day prior to the date of such Special Triggering
Event or other event or occurrence, and the actual owner shall retain no rights
in such shares of Series A Preferred Stock; or (iii) if the transfer to the
Trust described in clause (ii) of this sentence would not be effective for any
reason to prevent any Person from Beneficially or Constructively Owning Series A
Preferred Stock in violation of Section 4.3.7(a), then the Special Triggering
Event or other event or occurrence that would otherwise cause such Person to
violate Section 4.3.7(a) shall be void ab initio. The repurchase price of each
share of Series A Preferred Stock automatically repurchased pursuant to this
Section 4.3.7(d) shall be a price per share equal to the Market Price on the
date of the Special Triggering Event or other event or occurrence that resulted
in the repurchase. Dividends which were accrued but unpaid with respect to the
repurchased shares as of the date of the Special Triggering Event or other event
or occurrence that resulted in the repurchase shall be paid. Any dividend or
other distribution paid after the Special Triggering Event or other event or
occurrence that resulted in the repurchase, but prior to the discovery by the
Corporation that shares of Series A Preferred Stock have been automatically
repurchased by the Corporation, shall be paid to the Corporation upon demand.
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(e) Subject to Section 5.2 and notwithstanding any other
provisions contained herein, during the period commencing on the Initial
Issuance Date and prior to the Restriction Termination Date, any Transfer or
Acquisition of shares of Series A Preferred Stock (whether or not such Transfer
or Acquisition is the result of a transaction entered into through the
facilities of the NYSE or any other national securities exchange or automated
inter-dealer quotation system) that, if effective, would result in the Capital
Stock being beneficially owned by less than 100 Persons (determined without
reference to any rules of attribution) shall be void ab initio, and the intended
transferee shall acquire no rights in such shares of Series A Preferred Stock.
Section 4.3.8 Remedies for Breach. If the Board of Directors
of the Corporation or any duly authorized committee thereof shall at any time
determine in good faith that a Transfer or other event has taken place that
results in a violation of Section 4.3.7 or that a Person intends to Acquire or
has attempted to Acquire Beneficial or Constructive Ownership of any shares of
Series A Preferred Stock in violation of Section 4.3.7 (whether or not such
violation is intended), the Board of Directors or a committee thereof shall take
such action as it deems advisable, subject to Section 5.2 hereof, to refuse to
give effect to or to prevent such Transfer or other event, including, but not
limited to, causing the Corporation to redeem shares, refusing to give effect to
such Transfer on the books of the Corporation or instituting proceedings to
enjoin such Transfer; provided, however, that any Transfers or attempted
Transfers or, in the case of an event other than a Transfer, Beneficial or
Constructive Ownership, in violation of Section 4.3.7 shall automatically result
in the transfer to the Trust described above (or the automatic repurchase) and,
where applicable, such Transfer (or other event) shall be void ab initio as
provided above irrespective of any action (or non-action) by the Board of
Directors or a committee thereof.
Section 4.3.9 Notice of Restricted Transfer. Any Person who
Acquires or attempts or intends to Acquire shares of Series A Preferred Stock in
violation of Section 4.3.7 or any Person who is a transferee in a Transfer or is
otherwise affected by an event other than a Transfer that results in a violation
of Section 4.3.7 shall immediately give written notice to the Corporation of
such Acquisition, Transfer or other event and shall provide to the Corporation
such other information as the Corporation may request in order to determine the
effect, if any, of such Acquisition, Transfer or attempted, intended or
purported Acquisition, Transfer or other event on the Corporation's status as a
REIT.
Section 4.3.10 Owners Required To Provide Information. From
the Initial Issuance Date and prior to the Restriction Termination Date:
(a) every owner of more than five percent (5%) (or such lower
percentage as required by the Code or the Treasury Regulations promulgated
thereunder) of the outstanding shares of Series A Preferred Stock, within 30
days after December 31 of each year, shall give written notice to the
Corporation stating the name and address of such owner, the number of shares of
Series A Preferred Stock and other shares of the Capital Stock Beneficially
Owned, and a description of the manner in which such shares are held. Each such
owner shall provide to the Corporation such additional information as the
Corporation may request in order to determine the effect, if any, of such
Beneficial Ownership on the Corporation's status as a REIT and to ensure
compliance with the Series A Preferred Stock Ownership Limit; and
(b) each Person who is a Beneficial or Constructive Owner of
Series A Preferred Stock and each Person (including the stockholder of record)
who is holding Series A Preferred Stock for a Beneficial or Constructive Owner
shall provide to the Corporation such information as the
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Corporation may request, in good faith, in order to determine the Corporation's
status as a REIT and to comply with requirements of any taxing authority or
governmental authority or to determine such compliance.
Section 4.3.11 Remedies Not Limited. Subject to Section 5.1
and Section 5.2, nothing contained in this Section 4.3 shall limit the authority
of the Board of Directors of the Corporation to take such other action as it
deems necessary or advisable to protect the Corporation and the interests of its
stockholders in preserving the Corporation's status as a REIT.
Section 4.3.12 Ambiguity. In the case of an ambiguity in the
application of any of the provisions of this Section 4.3, Section 4.4, or any
definition contained in Section 4.2, the Board of Directors of the Corporation
shall have the power to determine the application of the provisions of this
Section 4.3 or Section 4.4 with respect to any situation based on the facts
known to it. In the event Section 4.3 or 4.4 requires an action by the Board of
Directors and this Charter fails to provide specific guidance with respect to
such action, the Board of Directors shall have the power to determine the action
to be taken so long as such action is not contrary to the provisions of Sections
4.2, 4.3 or 4.4. Absent a decision to the contrary by the Board of Directors
(which the Board may make in its sole and absolute discretion), the shares to be
affected by the remedies set forth in Section 4.3.7(b), (c), and (d) shall be as
follows: (1) if a Person would have (but for the remedies set forth in Section
4.3.7(b), (c), and (d) as applicable) Acquired shares of Series A Preferred
Stock in violation of Section 4.3.7(a), such remedies (as applicable) shall
apply first to the shares which, but for such remedies, would have been Acquired
and actually owned by such Person, second to shares which, but for such
remedies, would have been Acquired by such Person and which would have been
Beneficially Owned or Constructively Owned (but not actually owned) by such
Person, pro rata among the Persons who actually own such shares based upon the
relative value of the shares held by each such Person; and (2) if a Person is in
violation of Section 4.3.7(a) as a result of an event other than an Acquisition
of shares of Series A Preferred Stock by such Person, the remedies set forth in
Section 4.3.7(b), (c), or (d) (as applicable) shall apply first to shares which
are actually owned by such Person and second to shares which are Beneficially or
Constructively Owned (but not actually owned) by such Person, pro rata among the
Persons who actually own such shares based upon the relative value of the shares
held by each such Person.
Section 4.3.13 Exceptions.
(a) Subject to Section 4.3.7(a)(iii), the Board of Directors
of the Corporation, in its sole discretion, may exempt a Person from the Series
A Preferred Stock Ownership Limit or the Aggregate Stock Ownership Limit, as the
case may be, if: (A) such Person is not (i) an individual for purposes of
Section 542(a)(2) of the Code as modified by Section 856(h) of the Code, or (ii)
treated as the owner of such stock for purposes of Section 542(a)(2) of the Code
as modified by Section 856(h) of the Code, and the Board of Directors obtains
such representations and undertakings from such Person as are reasonably
necessary to ascertain that no individual's Beneficial or Constructive Ownership
of such shares of Series A Preferred Stock will violate Section 4.3.7; (B) such
Person does not and represents that it will not own, actually or Constructively,
an interest in a tenant of the Corporation (or a tenant of any entity owned or
controlled by the Corporation) that would cause the Corporation to own, actually
or Constructively, more than a 9.9% interest (as set forth in Section
856(d)(2)(B) of the Code) in such tenant and the Board of Directors obtains such
representations and undertakings from such Person as are reasonably necessary to
ascertain this fact; and (C) such Person agrees that any violation or attempted
violation of such representations or undertakings (or other action which is
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contrary to the restrictions contained in Sections 4.3.7 through 4.3.12) will
result in such shares of Series A Preferred Stock being automatically
transferred to a Trust or automatically repurchased in accordance with Section
4.3.7. Solely for purposes of clause (B) above, a tenant from whom the
Corporation (or an entity owned or controlled by the Corporation) derives (and
is expected to continue to derive) a sufficiently small amount of revenue such
that, in the opinion of the Board of Directors of the Corporation, rent from
such tenant would not adversely affect the Corporation's ability to qualify as a
REIT, shall not be treated as a tenant of the Corporation.
(b) Prior to granting any exception pursuant to Section
4.3.13(a), the Board of Directors of the Corporation may require a ruling from
the Internal Revenue Service, or an opinion of counsel, in either case in form
and substance satisfactory to the Board of Directors in it sole discretion, as
it may deem necessary or advisable in order to determine or ensure the
Corporation's status as a REIT. Notwithstanding the receipt of any ruling or
opinion, the Board of Directors may impose such conditions or restrictions as it
deems appropriate in connection with granting such exception.
(c) Subject to Section 4.3.7(a)(iii), an underwriter which
participates in a public offering or a private placement of Capital Stock (or
securities convertible into or exchangeable for Capital Stock) may Acquire or
Beneficially Own or Constructively Own shares of Capital Stock (or securities
convertible into or exchangeable for Capital Stock) in excess of the Series A
Preferred Stock Ownership Limit or the Aggregate Stock Ownership Limit, but only
to the extent necessary to facilitate such public offering or private placement.
Section 4.3.14 Legend. Each certificate for shares of Series
A Preferred Stock shall bear the following legend:
"The shares represented by this certificate are subject to restrictions
on Beneficial and Constructive Ownership and Transfer for the purpose
of the Corporation's maintenance of its status as a Real Estate
Investment Trust under the Internal Revenue Code of 1986, as amended
(the "Code"). Subject to certain further restrictions and except as
expressly provided in the Corporation's Charter, (i) no Person may
Beneficially or Constructively Acquire shares of the Corporation's
Series A Preferred Stock in excess of 9.8% of the outstanding shares of
Series A Preferred Stock of the Corporation; (ii) no Person (other than
a Conversion Holder with respect to such holder's conversion rights)
may Beneficially or Constructively Own shares of the Corporation's
Common Stock in excess of 9.8% of the outstanding shares of Common
Stock of the Corporation; (iii) no Person may Beneficially or
Constructively Own shares of Capital Stock of the Corporation which has
an aggregate value in excess of 9.8% of the value of the total
outstanding shares of Capital Stock of the Corporation; (iv) no Person
may Beneficially or Constructively Own Series A Preferred Stock or
Common Stock that would result in the Corporation being "closely held"
under Section 856(h) of the Code or otherwise cause the Corporation to
fail to qualify as a REIT; and (v) no Person may Transfer or Acquire
shares of Series A Preferred Stock if such Transfer or Acquisition
would result in the Capital Stock of the Corporation being owned by
fewer than 100 Persons. Any Person who Beneficially or Constructively
Owns or attempts to Beneficially or Constructively Own shares of Series
A Preferred Stock or Common Stock which causes or will cause a Person
to Beneficially or Constructively Own shares of Series A Preferred
Stock or Common Stock in excess of the above limitations must
immediately notify the Corporation. If any of the restrictions on
transfer or ownership
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are violated, the shares of Series A Preferred Stock represented hereby
will be automatically transferred to a Trustee of a Trust for the
benefit of one or more Charitable Beneficiaries, or in certain
circumstances such shares will be automatically repurchased by the
Corporation. In addition, the Corporation may redeem shares upon the
terms and conditions specified by the Board of Directors in its sole
discretion if the Board of Directors determines that ownership or a
Transfer or other event may violate the restrictions described above.
Furthermore, upon the occurrence of certain events, attempted Transfers
in violation of the restrictions described above may be void ab initio.
All capitalized terms in this legend have the meanings defined in the
charter of the Corporation, as the same may be amended from time to
time, a copy of which, including the restrictions on transfer and
ownership, will be furnished to each holder of Series A Preferred Stock
on request and without charge."
4.4 TRANSFER OF SERIES A PREFERRED STOCK IN TRUST
Section 4.4.1 Ownership in Trust. Upon any purported Transfer,
Acquisition, or other event described in 4.3.7(b), (c) or (d) that is to result
in a transfer of shares of Series A Preferred Stock to a Trust, such shares of
Series A Preferred Stock shall be deemed to have been transferred to the Trustee
in his capacity as trustee of a Trust for the exclusive benefit of one or more
Charitable Beneficiaries. Such transfer to the Trustee shall be deemed to be
effective as of the close of business on the Business Day prior to the purported
Transfer, Acquisition, or other event that results in the transfer to the Trust
pursuant to Section 4.3.7. The Trustee shall be appointed by the Corporation and
shall be a Person unaffiliated with the Corporation, any Purported Beneficial
Transferee, or any Purported Record Transferee. Each Charitable Beneficiary
shall be designated by the Corporation as provided in Section 4.4.6.
Section 4.4.2 Status of Shares Held by the Trustee. Shares of
Series A Preferred Stock held by the Trustee shall be issued and outstanding
shares of Capital Stock. The Purported Beneficial Transferee or Purported Record
Transferee shall have no rights in the shares held by the Trustee. The Purported
Beneficial Transferee or Purported Record Transferee shall not benefit
economically from ownership of any shares held in trust by the Trustee, shall
have no rights to dividends and shall not possess any rights to vote or other
rights attributable to the shares held in the Trust.
Section 4.4.3 Dividend and Voting Rights. The Trustee shall
have all voting rights and rights to dividends with respect to shares of Series
A Preferred Stock held in the Trust, which rights shall be exercised for the
exclusive benefit of the Charitable Beneficiary. Any dividend or distribution
paid prior to the discovery by the Corporation that the shares of Series A
Preferred Stock have been transferred to the Trustee shall be paid with respect
to such shares of Series A Preferred Stock to the Trustee upon demand, and any
dividend or distribution declared but unpaid shall be paid when due to the
Trustee. Any dividends or distributions so paid over to the Trustee shall be
held in trust for the Charitable Beneficiary. The Purported Record Transferee
shall have no voting rights with respect to shares held in the Trust and any
vote cast by a Purported Record Transferee prior to the discovery by the
Corporation that the shares of Series A Preferred Stock have been transferred to
the Trustee will be rescinded as void and shall be recast in accordance with the
desires of the Trustee acting for the benefit of the Charitable Beneficiary.
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Section 4.4.4 Sale of Shares by Trustee. Within 20 days of
receiving notice from the Corporation that shares of Series A Preferred Stock
have been transferred to the Trust, the Trustee of the Trust shall sell the
shares held in the Trust to a person, designated by the Trustee, whose ownership
of the shares will not violate the ownership limitations set forth in Section
4.3.7(a). Upon such sale, the interest of the Charitable Beneficiary in the
shares sold shall terminate and the Trustee shall distribute the net proceeds of
the sale to the Purported Record Transferee and to the Charitable Beneficiary as
provided in this Section 4.4.4. The Purported Record Transferee shall receive
the lesser of (1) the price paid by the Purported Record Transferee for the
shares or, if the Purported Record Transferee did not give value for the shares
(through a gift, devise or other transaction), the Market Price of the shares on
the day of the event causing the shares to be held in the Trust and (2) the
price per share received by the Trustee from the sale or other disposition of
the shares held in the Trust. Any net sales proceeds in excess of the amount
payable to the Purported Record Transferee shall be immediately paid to the
Charitable Beneficiary. If, prior to the discovery by the Corporation that
shares of Series A Preferred Stock have been transferred to the Trustee, such
shares are sold by a Purported Record Transferee then (i) such shares shall be
deemed to have been sold on behalf of the Trust and (ii) to the extent that the
Purported Record Transferee received an amount for such shares that exceeds the
amount that such Purported Record Transferee was entitled to receive pursuant to
this Section 4.4.4, such excess shall be paid to the Trustee upon demand.
Section 4.4.5 Purchase Right in Stock Transferred to the
Trustee. Shares of Series A Preferred Stock transferred to the Trustee shall be
deemed to have been offered for sale to the Corporation, or its designee, at a
price per share equal to the lesser of (i) the price per share in the
transaction that resulted in such transfer to the Trust (or, in the case of a
devise or gift, the Market Price at the time of such devise or gift) and (ii)
the Market Price on the date the Corporation, or its designee, accepts such
offer. The Corporation shall have the right to accept such offer until the
Trustee has sold the shares held in the Trust pursuant to Section 4.4.4. Upon
such a sale to the Corporation, the interest of the Charitable Beneficiary in
the shares sold shall terminate and the Trustee shall distribute the net
proceeds of the sale to the Purported Record Transferee.
Section 4.4.6 Designation of Charitable Beneficiaries. By
written notice to the Trustee, the Corporation shall designate one or more
nonprofit organizations to be the Charitable Beneficiary of the interest in the
Trust such that (i) the shares of Series A Preferred Stock held in the Trust
would not violate the restrictions set forth in Section 4.3.7(a) in the hands of
such Charitable Beneficiary and (ii) each Charitable Beneficiary is an
organization described in Sections 170(b)(1)(A), 170(c)(2) and 501(c)(3) of the
Code.
4.5 COMMON STOCK
Section 4.5.1 Dividends. Subject to the preferential rights of
any class or series within any such class of Capital Stock ranking senior as to
dividends to the Common Stock, including the Series A Preferred Stock, and to
the provisions of Section 4.6 of this Charter, each record holder of shares of
Common Stock shall be entitled to receive, out of the assets of the Corporation
which are legally available therefor, such dividends as from time to time may be
declared by the Board of Directors of the Corporation. All such holders shall
share ratably, in accordance with the number of shares of Common Stock held by
each such holder, in all dividends paid on the Common Stock.
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Section 4.5.2 Distribution Upon Liquidation, Dissolution or
Winding Up. In the event of any dissolution, liquidation or winding up of the
affairs of the Corporation, after payment or provision for payment of the debts
and other liabilities of the Corporation and subject to the preferential rights
of any class of Capital Stock ranking senior to the Common Stock as to
liquidation preferences and to the provisions of Articles IV and V of this
Charter (including Series A Preferred Stock and all classes or series of
Preferred Stock), the holders of shares of Common Stock shall be entitled to
receive, ratably with each other holder of shares of Common Stock, a portion of
the assets of the Corporation available for distribution to the holders of its
Common Stock calculated by dividing the number of shares of Common Stock held by
such holder by the total number of shares of Common Stock then outstanding.
Section 4.5.3 Voting Rights. Except as otherwise provided in
this Charter or required by applicable law, each holder of shares of Common
Stock shall be entitled to notice of, and the right to vote at, any meeting of
the stockholders of Common Stock and each outstanding share of Common Stock
shall be entitled to one vote on each matter submitted to a vote at a meeting of
stockholders. The holders of record of shares of Common Stock shall be entitled
to vote, together with any other class or series of Capital Stock entitled to
vote then outstanding, on any resolution presented by the Board of Directors of
the Corporation pursuant to Section 5.1.
Section 4.5.4 Exclusion of Other Rights. Except as may
otherwise be required by law, the shares of Common Stock shall not have any
preferences or relative, participating, optional or other special rights, other
than those specifically set forth in this Charter.
Section 4.5.5 Common Stock Ownership Limitations.
(a) During the period commencing on the Initial Issuance Date
and prior to the Restriction Termination Date:
(i) except as provided in Section 4.5.11, no Person,
other than a Conversion Holder, shall Acquire or Beneficially or
Constructively Own any shares of Common Stock if, as the result of such
Acquisition or Beneficial or Constructive Ownership, such Person shall
Beneficially or Constructively Own shares of Common Stock in excess of
the Common Stock Ownership Limit, provided, however, a Conversion
Holder shall only be permitted to Acquire or Beneficially Own or
Constructively Own shares of Common Stock in excess of the limitation
provided herein to the extent that such excess Beneficial or
Constructive Ownership was caused by a conversion of (or the right to
convert) Series A Preferred Stock into Common Stock and, provided
further, solely for purposes of facilitating the exercise of stock
options pursuant to the Stock Option Plan, and subject to Sections
4.5.5(a)(ii) and 4.5.5(a)(iii) below, the Operating Partnership may
Constructively Own Common Stock in excess of the Common Stock Ownership
Limit;
(ii) except as provided in Sections 4.5.11 and
4.3.13, no Person, including but not limited to a Conversion Holder,
shall Acquire or Beneficially or Constructively Own shares of Series A
Preferred Stock or Common Stock in excess of the Aggregate Stock
Ownership Limit; however, solely for purposes of facilitating the
exercise of stock options pursuant to the Stock Option Plan, the
Operating Partnership may Constructively Own Common Stock to the extent
that as a result of such Constructive Ownership, the value of the
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shares of Capital Stock Constructively Owned by the Operating
Partnership, in the aggregate, does not exceed 9.9% of the aggregate
value of the outstanding shares of Capital Stock; and
(iii) no Person shall Acquire or Beneficially or
Constructively Own shares of Capital Stock to the extent that such
Acquisition or Beneficial or Constructive Ownership of Capital Stock
would result in the Corporation being "closely held" within the meaning
of Section 856(h) of the Code, or otherwise failing to qualify as a
REIT (including, but not limited to, an Acquisition or Beneficial or
Constructive Ownership that would result in the Corporation owning
(actually or Constructively) an interest in a tenant that is described
in Section 856(d)(2)(B) of the Code if the income derived by the
Corporation from such tenant would cause the Corporation to fail to
satisfy any of the gross income requirements of Section 856(c) of the
Code).
(b) If, during the period commencing on the Initial Issuance
Date and prior to the Restriction Termination Date, any Transfer or Acquisition
of shares of Common Stock (other than a Transfer or Acquisition to which Section
4.5.5(c) applies) (whether or not such Transfer or Acquisition is the result of
a transaction entered into through the facilities of the NYSE or any other
national securities exchange or automated inter-dealer quotation system) occurs
which, if effective, would result in any Person Acquiring shares of Common Stock
in violation of Section 4.5.5(a), (i) then that number of shares of the Common
Stock being Transferred or Acquired that otherwise would cause such Person to
violate Section 4.5.5(a) (rounded up to the nearest whole share) shall be
automatically transferred to a Trust for the benefit of a Charitable
Beneficiary, as described in Section 4.6, effective as of the close of business
on the Business Day prior to the date of such Transfer or Acquisition, and such
Person shall acquire no rights in such shares or (ii) if the transfer to the
Trust described in clause (i) of this sentence would not be effective for any
reason to prevent any Person from Acquiring or Transferring Common Stock in
violation of Section 4.5.5(a), then the Transfer or Acquisition of that number
of shares of Common Stock that otherwise would cause any Person to violate
Section 4.5.5(a) shall be void ab initio, and the intended transferee shall
acquire no rights in such shares of Common Stock.
(c) If, during the period commencing on the Initial Issuance
Date and prior to the Restriction Termination Date, a change in the relationship
between two or more Persons ("Common Stock Affected Persons") results in any of
such Common Stock Affected Persons Beneficially or Constructively Owning shares
of Common Stock in violation of Section 4.5.5(a) because of the application of
Section 318(a) of the Code (as modified by Section 856(d)(5) of the Code) or
Section 544 of the Code (as modified by Section 856(h)(1)(B) of the Code) (a
"Common Stock Constructive Ownership Event"), then that number of shares of
Common Stock Beneficially or Constructively Owned by the Common Stock Affected
Persons (rounded up to the nearest whole share) that otherwise would violate
Section 4.5.5(a) shall be automatically transferred to a Trust for the benefit
of a Charitable Beneficiary, as described in Section 4.6, effective as of the
close of business on the Business Day prior to such Common Stock Constructive
Ownership Event, and such Common Stock Affected Person or Persons shall acquire
no rights in such shares.
(d) If during the period commencing on the Initial Issuance
Date and prior to the Restriction Termination Date, a Special Triggering Event
(if effective) or other event or occurrence (if effective), other than a
Transfer or Acquisition described in Section 4.5.5(b) or a Common Stock
Constructive Ownership Event described in Section 4.5.5(c), would result in any
violation of Section 4.5.5(a), then: (i) the number of shares of Common Stock
(rounded up to the nearest whole share) that would (but for this Section
4.5.5(d)) cause any Person to Beneficially or Constructively Own Common
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Stock in violation of Section 4.5.5(a) shall be automatically repurchased by the
Corporation from the actual owner of such shares of Common Stock, effective as
of the close of business on the Business Day prior to the date of such Special
Triggering Event or other event or occurrence; or (ii) if the automatic
repurchase described in clause (i) of this sentence would not be effective for
any reason to prevent any Person from Beneficially or Constructively Owning
Common Stock in violation of Section 4.5.5(a), then that number of shares of
Common Stock (rounded up to the nearest whole share) that otherwise would cause
any Person to violate Section 4.5.5(a) shall be automatically transferred to a
Trust for the benefit of a Charitable Beneficiary, as described in Section 4.6,
effective as of the close of business on the Business Day prior to the date of
such Special Triggering Event or other event or occurrence, and the actual owner
shall retain no rights in such shares of Common Stock; or (iii) if the transfer
to the Trust described in clause (ii) of this sentence would not be effective
for any reason to prevent any Person from Beneficially or Constructively Owning
Common Stock in violation of Section 4.5.5(a), then the Special Triggering Event
or other event or occurrence that would otherwise cause such Person to violate
Section 4.5.5(a) shall be void ab initio. The repurchase price of each share of
Common Stock automatically repurchased pursuant to this Section 4.5.5(d) shall
be a price per share equal to the Market Price on the date of the Special
Triggering Event or other event or occurrence that resulted in the repurchase.
Dividends which were accrued but unpaid with respect to the repurchased shares
as of the date of the Special Triggering Event or other event or occurrence that
resulted in the repurchase shall be paid. Any dividend or other distribution
paid after the Special Triggering Event or other event or occurrence that
resulted in the repurchase, but prior to the discovery by the Corporation that
shares of Common Stock have been automatically repurchased by the Corporation,
shall be paid to the Corporation upon demand.
(e) Subject to Section 5.2 and notwithstanding any other
provisions contained herein, during the period commencing on the Initial
Issuance Date and prior to the Restriction Termination Date, any Transfer or
Acquisition of shares of Common Stock (whether or not such Transfer or
Acquisition is the result of a transaction entered into through the facilities
of the NYSE or any other national securities exchange or automated inter-dealer
quotation system) that, if effective, would result in the Capital Stock being
beneficially owned by less than 100 Persons (determined without reference to any
rules of attribution) shall be void ab initio, and the intended transferee shall
acquire no rights in such shares of Common Stock.
Section 4.5.6 Remedies for Breach. If the Board of Directors
of the Corporation or any duly authorized committee thereof shall at any time
determine in good faith that a Transfer or other event has taken place that
results in a violation of Section 4.5.5 or that a Person intends to Acquire or
has attempted to Acquire Beneficial or Constructive Ownership of any shares of
Common Stock in violation of Section 4.5.5 (whether or not such violation is
intended), the Board of Directors or a committee thereof shall take such action
as it deems advisable, subject to Section 5.2 hereof, to refuse to give effect
to or to prevent such Transfer or other event, including, but not limited to,
causing the Corporation to redeem shares, refusing to give effect to such
Transfer on the books of the Corporation or instituting proceedings to enjoin
such Transfer; provided, however, that any Transfers or attempted Transfers or,
in the case of an event other than a Transfer, Beneficial or Constructive
Ownership in violation of Section 4.5.5 shall automatically result in the
transfer to the Trust described above (or the automatic repurchase), and, where
applicable, such Transfer (or other event) shall be void ab initio as provided
above irrespective of any action (or non-action) by the Board of Directors or a
committee thereof.
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Section 4.5.7 Notice of Restricted Transfer. Any Person who
Acquires or attempts or intends to Acquire shares of Common Stock in violation
of Section 4.5.5 or any Person who is a transferee in a Transfer or is otherwise
affected by an event other than a Transfer that results in a violation of
Section 4.5.5 shall immediately give written notice to the Corporation of such
Acquisition, Transfer or other event and shall provide to the Corporation such
other information as the Corporation may request in order to determine the
effect, if any, of such Acquisition, Transfer or attempted, intended or
purported Acquisition, Transfer or other event on the Corporation's status as a
REIT.
Section 4.5.8 Owners Required To Provide Information. From
the Initial Issuance Date and prior to the Restriction Termination Date:
(a) every owner of more than five percent (5%) (or such lower
percentage as required by the Code or the Treasury Regulations promulgated
thereunder) of the outstanding shares of Common Stock shall, within 30 days
after December 31 of each year, give written notice to the Corporation stating
the name and address of such owner, the number of shares of Common Stock and
other shares of the Common Stock Beneficially or Constructively Owned, and a
description of the manner in which such shares are held. Each such owner shall
provide to the Corporation such additional information as the Corporation may
request in order to determine the effect, if any, of such Beneficial or
Constructive Ownership on the Corporation's status as a REIT and to ensure
compliance with the Common Stock Ownership Limit; and
(b) each Person who is a Beneficial or Constructive Owner of
Common Stock and each Person (including the stockholder of record) who is
holding Common Stock for a Beneficial or Constructive Owner shall provide to the
Corporation such information as the Corporation may request, in good faith, in
order to determine the Corporation's status as a REIT and to comply with
requirements of any taxing authority or governmental authority to determine such
compliance.
Section 4.5.9 Remedies Not Limited. Subject to Section 5.1 and
Section 5.2, nothing contained in this Section 4.5 shall limit the authority of
the Board of Directors of the Corporation to take such other action as it deems
necessary or advisable to protect the Corporation and the interests of its
stockholders in preserving the Corporation's status as a REIT.
Section 4.5.10 Ambiguity. In the case of an ambiguity in the
application of any of the provisions of this Section 4.5, Section 4.6, or any
definition contained in Section 4.2, the Board of Directors of the Corporation
shall have the power to determine the application of the provisions of this
Section 4.5 or Section 4.6 with respect to any situation based on the facts
known to it. In the event Section 4.5 or 4.6 requires an action by the Board of
Directors of the Corporation, and the Charter fails to provide specific guidance
with respect to such action, the Board of Directors of the Corporation shall
have the power to determine the action to be taken so long as such action is not
contrary to the provisions of Sections 4.2, 4.5 or 4.6. Absent a decision to the
contrary by the Board of Directors (which the Board may make in its sole and
absolute discretion), the shares to be affected by the remedies set forth in
Section 4.5.5(b), (c), and (d) shall be as follows: (1) if a Person would have
(but for the remedies set forth in Section 4.5.5(b), (c), and (d) as applicable)
Acquired shares of Common Stock in violation of Section 4.5.5(a), such remedies
(as applicable) shall apply first to the shares which, but for such remedies,
would have been Acquired and actually owned by such Person, second to shares
which, but for such remedies, would have been Acquired by such Person and which
would have been Beneficially Owned or Constructively Owned (but not actually
owned) by such Person, pro rata among the Persons who actually own such shares
based upon the relative value of the shares held
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by each such Person; and (2) if a Person is in violation of Section 4.5.5(a) as
a result of an event other than an Acquisition of shares of Common Stock by such
Person, the remedies set forth in Section 4.5.5(b), (c), or (d) (as applicable)
shall apply first to shares which are actually owned by such Person and second
to shares which are Beneficially or Constructively Owned (but not actually
owned) by such Person, pro rata among the Persons who actually own such shares
based upon the relative value of the shares held by each such Person.
Section 4.5.11 Exceptions.
(a) Subject to Section 4.5.5(a)(iii), the Board of Directors
of the Corporation, in its sole discretion, may exempt a Person from the Common
Stock Ownership Limit or the Aggregate Stock Ownership Limit, as the case may
be, if: (A) such Person is not (i) an individual for purposes of Section
542(a)(2) of the Code as modified by Section 856(h) of the Code, or (ii) treated
as the owner of such stock for purposes of Section 542(a)(2) of the Code as
modified by Section 856(h) of the Code, and the Board of Directors obtains such
representations and undertakings from such Person as are reasonably necessary to
ascertain that no individual's Beneficial or Constructive Ownership of such
shares of Common Stock will violate Section 4.5.5; (B) such Person does not and
represents that it will not own, actually or Constructively, an interest in a
tenant of the Corporation (or a tenant of an entity owned or controlled by the
Corporation) that would cause the Corporation to own, actually or
Constructively, more than a 9.8% interest (as set forth in Section 856(d)(2)(B)
of the Code) in such tenant and the Board of Directors obtains such
representations and undertakings from such Person as are reasonably necessary to
ascertain this fact; and (C) such Person agrees that any violation or attempted
violation of such representations or undertakings (or other action which is
contrary to the restrictions contained in Sections 4.5.5 through 4.5.10) will
result in such Common Stock being automatically transferred to a Trust or
automatically repurchased in accordance with Section 4.5.5. Solely for purposes
of clause (B) above, a tenant from whom the Corporation (or an entity owned or
controlled by the Corporation) derives (and is expected to continue to derive) a
sufficiently small amount of revenue such that, in the opinion of the Board of
Directors of the Corporation, rent from such tenant would not adversely affect
the Corporation's ability to qualify as a REIT, shall not be treated as a tenant
of the Corporation.
(b) Prior to granting any exception pursuant to Section
4.5.11(a), the Board of Directors of the Corporation may require a ruling from
the Internal Revenue Service, or an opinion of counsel, in either case in form
and substance satisfactory to the Board of Directors in it sole discretion, as
it may deem necessary or advisable in order to determine or ensure the
Corporation's status as a REIT. Notwithstanding the receipt of any ruling or
opinion, the Board of Directors may impose such conditions or restrictions as it
deems appropriate in connection with granting such exception.
(c) Subject to Section 4.5.5(a)(iii), an underwriter which
participates in a public offering or a private placement of Capital Stock (or
securities convertible into or exchangeable for Capital Stock) may Acquire or
Beneficially Own or Constructively Own shares of Capital Stock (or securities
convertible into or exchangeable for Capital Stock) in excess of the Common
Stock Ownership Limit or the Aggregate Stock Ownership Limit, but only to the
extent necessary to facilitate such public offering or private placement.
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Section 4.5.12 Legend. Each certificate for shares of Common
Stock shall bear the following legend:
"The shares represented by this certificate are subject to restrictions
on Beneficial and Constructive Ownership and Transfer for the purpose
of the Corporation's maintenance of its status as a Real Estate
Investment Trust under the Internal Revenue Code of 1986, as amended
(the "Code"). Subject to certain further restrictions and except as
expressly provided in the Corporation's Charter, (i) no Person (other
than a Conversion Holder with respect to such holder's conversion
rights) may Beneficially or Constructively Acquire shares of the
Corporation's Common Stock in excess of 9.8% of the outstanding shares
of Common Stock of the Corporation; (ii) no Person may Beneficially or
Constructively Own shares of Capital Stock of the Company which has an
aggregate value in excess of 9.8% of the value of the total outstanding
shares of Capital Stock of the Corporation; (iii) no Person may
Beneficially or Constructively Own Common Stock that would result in
the Corporation being "closely held" under Section 856(h) of the Code
or otherwise cause the Corporation to fail to qualify as a REIT; and
(iv) no Person may Transfer or Acquire Shares of Common Stock if such
Transfer or Acquisition would result in the Corporation being owned by
fewer than 100 Persons. Any Person who Beneficially or Constructively
Owns or attempts to Beneficially or Constructively Own shares of Common
Stock which causes or will cause a Person to Beneficially or
Constructively Own shares of Common Stock in excess of the above
limitations must immediately notify the Corporation. If any of the
restrictions on transfer or ownership are violated, the shares of
Common Stock represented hereby will be automatically transferred to a
Trustee of a Trust for the benefit of one or more Charitable
Beneficiaries, or in certain circumstances such shares will
automatically repurchased by the Corporation. In addition, the
Corporation may redeem shares upon the terms and conditions specified
by the Board of Directors in its sole discretion if the Board of
Directors determines that ownership or a Transfer or other event may
violate the restrictions described above. Furthermore, upon the
occurrence of certain events, attempted Transfers in violation of the
restrictions described above may be void ab initio. All capitalized
terms in this legend have the meanings defined in the charter of the
Corporation, as the same may be amended from time to time, a copy of
which, including the restrictions on transfer and ownership, will be
furnished to each holder of Common Stock on request and without
charge."
4.6 TRANSFERS OF COMMON STOCK IN TRUST
Section 4.6.1 Ownership in Trust. Upon any purported Transfer,
Acquisition, or other event described in Section 4.5.5(b), (c), or (d) that is
to result in a transfer of shares of Common Stock to a Trust, such shares of
Common Stock shall be deemed to have been transferred to the Trustee in his
capacity as trustee of a Trust for the exclusive benefit of one or more
Charitable Beneficiaries. Such transfer to the Trustee shall be deemed to be
effective as of the close of business on the Business Day prior to the purported
Transfer, Acquisition, or other event that results in a transfer to the Trust
pursuant to Section 4.5.5. The Trustee shall be appointed by the Corporation and
shall be a Person unaffiliated with the Corporation, any Purported Beneficial
Transferee, or any Purported Record Transferee. Each Charitable Beneficiary
shall be designated by the Corporation as provided in Section 4.6.6.
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Section 4.6.2 Status of Shares Held by the Trustee. Shares of
Common Stock held by the Trustee shall be issued and outstanding shares of
Capital Stock of the Corporation. The Purported Beneficial Transferee or
Purported Record Transferee shall have no rights in the shares held by the
Trustee. The Purported Beneficial Transferee or Purported Record Transferee
shall not benefit economically from ownership of any shares held in trust by the
Trustee, shall have no rights to dividends and shall not possess any rights to
vote or other rights attributable to the shares held in the Trust.
Section 4.6.3 Dividend and Voting Rights. The Trustee shall
have all voting rights and rights to dividends with respect to shares of Common
Stock held in the Trust, which rights shall be exercised for the exclusive
benefit of the Charitable Beneficiary. Any dividend or distribution paid prior
to the discovery by the Corporation that the shares of Common Stock have been
transferred to the Trustee shall be paid to the Trustee upon demand, and any
dividend or distribution declared but unpaid shall be paid when due to the
Trustee with respect to such shares of Common Stock. Any dividends or
distributions so paid over to the Trustee shall be held in trust for the
Charitable Beneficiary. The Purported Record Transferee shall have no voting
rights with respect to shares held in the Trust and any vote cast by a Purported
Record Transferee prior to the discovery by the Corporation that the shares of
Common Stock have been transferred to the Trustee will be rescinded as void and
shall be recast in accordance with the desires of the Trustee acting for the
benefit of the Charitable Beneficiary.
Section 4.6.4 Sale of Shares by Trustee. Within 20 days of
receiving notice from the Corporation that shares of Common Stock have been
transferred to the Trust, the Trustee of the Trust shall sell the shares held in
the Trust to a person, designated by the Trustee, whose ownership of the shares
will not violate the ownership limitations set forth in Section 4.5.5(a). Upon
such sale, the interest of the Charitable Beneficiary in the shares sold shall
terminate and the Trustee shall distribute the net proceeds of the sale to the
Purported Record Transferee and to the Charitable Beneficiary as provided in
this Section 4.6.4. The Purported Record Transferee shall receive the lesser of
(1) the price paid by the Purported Record Transferee for the shares or, if the
Purported Record Transferee did not give value for the shares (through a gift,
devise or other transaction), the Market Price of the shares on the day of the
event causing the shares to be held in the Trust and (2) the price per share
received by the Trustee from the sale or other disposition of the shares held in
the Trust. Any net sales proceeds in excess of the amount payable to the
Purported Record Transferee shall be immediately paid to the Charitable
Beneficiary. If, prior to the discovery by the Corporation that shares of Common
Stock have been transferred to the Trustee, such shares are sold by a Purported
Record Transferee then (i) such shares shall be deemed to have been sold on
behalf of the Trust and (ii) to the extent that the Purported Record Transferee
received an amount for such shares that exceeds the amount that such Purported
Record Transferee was entitled to receive pursuant to this Section 4.6.4, such
excess shall be paid to the Trustee upon demand.
Section 4.6.5 Purchase Right in Stock Transferred to the
Trustee. Shares of Common Stock transferred to the Trustee shall be deemed to
have been offered for sale to the Corporation, or its designee, at a price per
share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the Trust (or, in the case of a devise or gift, the
Market Price at the time of such devise or gift) and (ii) the Market Price on
the date the Corporation, or its designee, accepts such offer. The Corporation
shall have the right to accept such offer until the Trustee has sold the shares
held in the Trust pursuant to Section 4.6.4. Upon such a sale to the
Corporation, the interest of the Charitable Beneficiary in the shares sold shall
terminate and the Trustee shall distribute the net proceeds of the sale to the
Purported Record Transferee.
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Section 4.6.6 Designation of Charitable Beneficiaries. By
written notice to the Trustee, the Corporation shall designate one or more
nonprofit organizations to be the Charitable Beneficiary of the interest in the
Trust such that (i) the shares of Common Stock held in the Trust would not
violate the restrictions set forth in Section 4.5.5(a) in the hands of such
Charitable Beneficiary and (ii) each Charitable Beneficiary is an organization
described in Sections 170(b)(1)(A), 170(c)(2) and 501(c)(3) of the Code.
ARTICLE V
General REIT Provisions
Section 5.1 Termination of REIT Status. The Board of Directors
of the Corporation shall take no action to terminate the Corporation's status as
a REIT until such time as (i) the Board of Directors adopts a resolution
recommending that the Corporation terminate its status as a REIT, (ii) the Board
of Directors presents the resolution for consideration at an annual or special
meeting of the stockholders and (iii) such resolution is approved by the vote of
holders of a majority of the shares entitled to be cast on the matter.
Section 5.2 Exchange or Market Transactions. Nothing in
Article IV or this Article V shall preclude the settlement of any transaction
entered into through the facilities of any national securities exchange or
automated inter-dealer quotation system. The fact that the settlement of any
transaction has occurred shall not negate the effect of any other provision of
Article IV or this Article V and any transferee in such a transaction shall be
subject to all of the provisions and limitations set forth in Article IV and
this Article V.
Section 5.3 Severability. If any provision of Article IV or
this Article V or any application of any such provision is determined to be
invalid by any federal or state court having jurisdiction over the issues, the
validity of the remaining provisions shall not be affected and other
applications of such provision shall be affected only to the extent necessary to
comply with the determination of such court.
ARTICLE VI
Board of Directors
Section 6.1 Management. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors.
Section 6.2 Number. The number of directors which will
constitute the entire Board of Directors shall be fixed by, or in the manner
provided in, the Bylaws but shall in no event be less than three. Any increase
or decrease in the size of the board shall be apportioned as nearly equally as
possible among the classes of directors. There are currently three directors in
office whose names are as follows:
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William J. Wolfe
Stuart D. Halpert
Lester Zimmerman
Section 6.3 Classification. The directors shall be classified,
with respect to the time for which they severally hold office, into three
classes, as nearly equal in number as possible. As shall be provided in the
Bylaws of the Corporation, one class shall originally be elected for a term
expiring at the annual meeting of stockholders to be held in 1995, another class
shall originally be elected for a term expiring at the annual meeting of
stockholders to be held in 1996, and another class shall originally be elected
for a term expiring at the annual meeting of stockholders to be held in 1997,
with each class to hold office until its successors are elected and qualify.
Except as otherwise provided in this Charter, at each annual meeting of the
stockholders of the Corporation, the date of which shall be fixed by or pursuant
to the Bylaws of the Corporation, the successors of the class of directors whose
terms expire at that meeting shall be elected to hold office for a term expiring
at the annual meeting of stockholders held in the third year following the year
of their election. No election of directors need be by written ballot. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
Section 6.4 Vacancies. Except as otherwise provided in this
Charter, newly created directorships resulting from any increase in the number
of directors may be filled by the majority vote of the Board of Directors, and
any vacancies on the Board of Directors resulting from death, resignation,
removal or other cause shall be filled by the affirmative vote of a majority of
the remaining directors then in office, even if less than a quorum of the Board
of Directors, or, if applicable, by a sole remaining director. Any director
elected in accordance with the preceding sentence shall hold office until the
next annual meeting of the Corporation, at which time a successor shall be
elected to fill the remaining term of the position filled by such director.
Section 6.5 Removal. Except as otherwise provided in this
Charter, any director may be removed from office 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. For purposes of this Section
6.5, "cause" shall mean the willful and continuous failure of a director to
substantially perform the duties to the Corporation of such director (other than
any such failure resulting from temporary incapacity due to physical or mental
illness) or the willful engaging by a director in gross misconduct materially
and demonstrably injurious to the Corporation.
Section 6.6 Bylaws. The Board of Directors shall have the
exclusive power to adopt, amend, alter, change and repeal any Bylaws of the
Corporation.
Section 6.7 Powers. The enumeration and definition of
particular powers of the Board of Directors included elsewhere in this Charter
shall in no way be limited or restricted by reference to or inference from the
terms of any other clause of this or any other Article of this Charter, or
construed as excluding or limiting, or deemed by inference or otherwise in any
manner to exclude or limit, the powers conferred upon the Board of Directors
under the MGCL as now or hereafter in force.
ARTICLE VII
Liability
To the fullest extent permitted by Maryland law, in effect
from time to time, no person who at any time was or is a director or officer of
the Corporation shall be personally liable to the Corporation or its
stockholders for money damages. No amendment of this Charter or repeal of any of
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its provisions shall limit or eliminate any of the benefits provided to
directors and officers under this Article VII in respect of any act or omission
that occurred prior to such amendment or repeal.
ARTICLE VIII
Indemnification
The Corporation shall have the power to obligate itself to
indemnify, to the fullest extent permitted by Maryland law in effect from time
to time, all persons who at any time were or are directors or officers of the
Corporation for any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) relating to any
action alleged to have been taken or omitted in such capacity as a director or
an officer and to pay or reimburse all reasonable expenses incurred by a present
or former director or officer of the Corporation in connection with any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) in which the present or former
director or officer is a party, in advance of the final disposition of the
proceeding. The Corporation may indemnify any other persons permitted but not
required to be indemnified by Maryland law, as applicable from time to time, if
and to the extent indemnification is authorized and determined to be
appropriate, in each case in accordance with applicable law, by the Board of
Directors of the Corporation, the majority of the stockholders of the
Corporation entitled to vote thereon or special legal counsel appointed by the
Board of Directors. No amendment of this Charter or repeal of any of its
provisions shall limit or eliminate any of the benefits provided to directors
and officers under this Article VIII in respect of any act or omission that
occurred prior to such amendment or repeal.
ARTICLE IX
Written Consent or Stockholders
Any corporate action upon which a vote of stockholders is
required or permitted may be taken without a meeting with the unanimous written
consent of each stockholder entitled to vote on the matter.
ARTICLE X
Miscellaneous
The Corporation reserves the right to amend, alter or repeal
any provision contained in this Charter, including any amendment altering the
terms or contract rights, as expressly set forth in this Charter, of any
outstanding shares of stock. Notwithstanding any provision of law permitting or
requiring any action to be taken or approved by the affirmative vote of the
holders of shares entitled to cast a greater number of votes, any such action
shall be effective and valid if taken or approved by the affirmative vote of
holders of shares entitled to cast a majority of all the votes entitled to be
cast on the matter; provided, however, subject to the voting rights of the
Series A Preferred Stock, the affirmative vote of the holders of two-thirds of
all the votes then entitled to be cast generally in the election of directors
shall be required to amend Sections 4.5.3, 6.3 and 6.5 and this Article X
hereof. All rights conferred upon stockholders herein are subject to this
reservation.
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ARTICLE XI
Existence
The Corporation is to have a perpetual existence.
THIRD: The foregoing restatement of the charter has been approved by the
entire Board of Directors.
FOURTH: The charter is not amended by these Articles of Restatement.
FIFTH: The current address of the principal office of the Corporation is
set forth in Article II of the foregoing restatement of the charter.
SIXTH: The name and address of the Corporation's current resident agent is
set forth in Article II of the foregoing restatement of the charter.
SEVENTH: The number of directors of the Corporation and the names of those
currently in office are set forth in Article VI of the foregoing restatement of
the charter.
EIGHTH: The undersigned President acknowledges these Articles of
Restatement to be the corporate act of the Corporation and as to all matters or
facts required to be verified under oath, the undersigned President acknowledges
that to the best of his knowledge, information and belief, these matters and
facts are true in all material respects and that this statement is made under
the penalties for perjury.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles to be signed
in its name and on its behalf by its President and attested to by its Secretary
on this 28th day of June, 1996.
ATTEST: FIRST WASHINGTON REALTY
TRUST, INC.
/s/ /s/
__________________________ By:_______________________________(SEAL)
Jeffrey S. Distenfeld William J. Wolfe
Secretary President
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ARTICLES SUPPLEMENTARY
OF
FIRST WASHINGTON REALTY TRUST, INC.
First Washington Realty Trust, Inc., a corporation organized and existing
under the laws of the State of Maryland (the "Corporation"), hereby certifies to
the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority granted to and vested in the Board of
Directors of the Corporation (the "Board of Directors") in accordance with
Article IV Section 4.1.2 of the charter of the Corporation (the "Charter"), the
Board of Directors, at a meeting held on March 14, 1997, adopted resolutions
designating 50,000 shares (the "Shares") of Preferred Stock (as defined in the
Charter), as Series A Preferred Stock (as defined in the Charter) with the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications, and terms
and conditions of redemption of such Series A Preferred Stock set forth in the
Charter.
SECOND: The Shares have been designated by the Board of Directors under a
power contained in the Charter.
THIRD: These Articles Supplementary have been approved by the Board of
Directors in the manner and by the vote required by law.
FOURTH: The undersigned President of the Corporation acknowledges these
Articles Supplementary to be the corporate act of the Corporation, and as to all
matters or facts required to be verified under oath, the undersigned President
acknowledges that to the best of his knowledge, information and belief, these
matters and facts are true in all material respects and that the statement is
made under the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary
to be signed in its name and on its behalf by its President and attested to by
its Secretary on this 17th day of March, 1997.
ATTEST: FIRST WASHINGTON REALTY TRUST, INC.
/s/ /s/
_________________________ By:________________________________(SEAL)
Jeffrey S. Distenfeld William J. Wolfe,
Secretary President
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC.
ARTICLES SUPPLEMENTARY
CLASS B JUNIOR PARTICIPATING PREFERRED STOCK
-----------------------------
First Washington Realty Trust, Inc., a Maryland corporation
(the "Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland, pursuant to Sections 2-105(a)(9) and 2-208(a) of the
Maryland General Corporation Law (the "MGCL") that:
FIRST: Under a power contained in Section 4.12 of the charter
of the Corporation (the "Charter"), the Board of Directors, as required by
Section 2-208(a) of the MGCL by a resolution duly adopted, at a meeting duly
called and held on October 10, 1998, has classified and designated 1,000,000
unissued shares of Preferred Stock of the Corporation, $.01 par value per share,
as shares of Class B Junior Participating Preferred Stock, with the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications and terms and conditions of
redemption as follows, which upon any restatement of the Charter shall be made
part of Article 4 of the Charter, with any necessary or appropriate changes to
the enumeration or lettering of the provisions hereof:
CLASS B JUNIOR PARTICIPATING PREFERRED STOCK
Section 1. Designation and Amount. The shares of such series
shall be designated as "Class B Junior Participating Preferred Stock" (the
"Class B Preferred Stock") and the number of shares constituting the Class B
Preferred Stock shall be one million (1,000,000). Such number of shares may be
increased or decreased by resolution of the Board of Directors; provided, that
no decrease shall reduce the number of shares of Class B Preferred Stock to a
number less than the number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Class B Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of
any shares of any class or series of stock of this Corporation ranking
prior and superior to the Class B Preferred Stock with respect to
dividends, the holders of shares of Class B Preferred Stock, in
preference to the holders of Common Stock, par value $.01 per share
(the "Common Stock"), of the Corporation, and of any other stock
ranking junior to the Class B Preferred Stock, shall be entitled to
receive, when, as and if authorized by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in
cash on the fifteenth day of February, May, August and November of each
year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend
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Payment Date after the first issuance of a share or fraction of a share
of Class B Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1.00 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per
share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Class B Preferred Stock. In the
event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision, combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Class B Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Class B Preferred Stock as provided in paragraph (A) of this
Section 2 immediately after it declares a dividend or distribution on
the Common Stock (other than a dividend payable in shares of Common
Stock); provided that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $1.00 per share on the Class B
Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Class B Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Class B Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares
of Class B Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Class B Preferred Stock
entitled to receive payment of a dividend or
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<PAGE>
distribution declared thereon, which record date shall be not more than
60 days prior to the date fixed for the payment thereof.
(D) In determining whether a dividend or distribution (other
than upon voluntary or involuntary liquidation), by dividend,
redemption or other acquisition of shares or otherwise, is permitted
under the MGCL, as herein defined, amounts that would be needed, if the
Corporation were to be dissolved at the time of the dividend or
distribution, to satisfy the preferential rights upon dissolution of
holders of the Class B Preferred Stock shall not be added to the
Corporation's total liabilities.
Section 3. Voting Rights. The holders of shares of Class B Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Class B Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Class B Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, or in any other
Articles Supplementary creating a series of Preferred Stock or any
similar stock, the holders of shares of Class B Preferred Stock and the
holders of shares of Common Stock and any other shares of stock of the
Corporation having general voting rights shall vote together as one
class on all matters submitted to a vote of stockholders of the
Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Class B Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Class B Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Class B Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
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<PAGE>
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Class B Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Class B Preferred Stock, except dividends
paid ratably on the Class B Preferred Stock and all such
parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Class B Preferred Stock, provided that the Corporation may
at any time redeem, purchase or otherwise acquire shares of
any such junior stock in exchange for shares of any stock of
the Corporation ranking junior (both as to dividends and upon
dissolution, liquidation or winding up) to the Class B
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Class B Preferred Stock, or any
shares of stock ranking on a parity with the Class B Preferred
Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Class B Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein, in the charter, or in
any other Articles Supplementary creating a series of Preferred Stock or any
similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon
any liquidation, dissolution or winding up of the Corporation, voluntary or
otherwise no distribution shall be made (1) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Class B Preferred Stock unless, prior thereto, the holders of
shares
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of Class B Preferred Stock shall have received an amount per share (the "Class B
Liquidation Preference") equal to $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Class B
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Class B Preferred Stock, except distributions made ratably on the Class B
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision, combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the aggregate amount to which holders of
shares of Class B Preferred Stock were entitled immediately prior to such event
under the proviso in clause (1) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that are
outstanding immediately prior to such event.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Class B Liquidation
Preference and the liquidation preferences of all other classes and
series of stock of the Corporation, if any, that rank on a parity with
the Class B Preferred Stock in respect thereof, then the assets
available for such distribution shall be distributed ratably to the
holders of the Class B Preferred Stock and the holders of such parity
shares in proportion to their respective liquidation preferences.
(C) Neither the merger or consolidation of the Corporation
into or with another corporation nor the merger or consolidation of any
other corporation into or with the Corporation shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the
meaning of this Section 6.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Class B Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of
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Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Class B Preferred
Stock shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Class B Preferred Stock shall not
be redeemable by the Company.
Section 9. Rank. The Class B Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up, junior to all series of any other class
of the Corporation's Preferred Stock, except to the extent that any such other
series specifically provides that it shall rank on a parity with or junior to
the Class B Preferred Stock.
Section 10. Amendment. At any time any shares of Class B
Preferred Stock are outstanding, the charter shall not be amended in any manner
which would materially alter or change the powers, preferences or special rights
of the Class B Preferred Stock, as set forth herein, so as to affect them
adversely without the affirmative vote of the holders of at least two-thirds of
the outstanding shares of Class B Preferred Stock, voting separately as a single
class.
Section 11. Fractional Shares. Class B Preferred Stock may be
issued in fractions of a share that shall entitle the holder, in proportion to
such holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Class B Preferred Stock.
Section 12. Restrictions on Ownership and Transfer to Preserve Tax Benefit.
(A) Definitions. For the purposes of this Section 12 of these Articles
Supplementary, the following terms shall have the following meanings:
"Aggregate Stock Ownership Limit" shall mean not more
than 9.8% (in value) of the aggregate of the outstanding
shares of Capital Stock. The number and value of shares of the
outstanding capital shares of Capital Stock shall be
determined by the Board of Directors of the Corporation in
good faith, which determination shall be conclusive for all
purposes hereof.
"Beneficial Ownership" shall mean ownership of Class
B Preferred Stock by a Person (whether the interest in Class B
Preferred Stock is held directly or indirectly, including by a
nominee) who is or would be treated as an owner of such Class
B Preferred Stock either actually or constructively through
the application of Section 544 of the Code, as modified by
Section 856(h)(1)(B) of the Code. The terms "Beneficial
Owner," "Beneficially Owns" and "Beneficially Owned" shall
have
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the correlative meanings.
"Capital Stock" shall mean all classes or series of
stock of the Corporation, including, without limitation,
Common Stock, Preferred Stock, Series A Preferred Stock and
Class B Preferred Stock.
"Charitable Beneficiary" shall mean one or more
beneficiaries of a Trust, as determined pursuant to Section
12(C)(6) of these Articles Supplementary.
"Code" shall mean the Internal Revenue Code
of 1986, as amended from time to time, or any successor
statute.
"Constructive Ownership" shall mean
ownership of Class B Preferred Stock by a Person (whether the
interest in Class B Preferred Stock is held directly or
indirectly, including by a nominee) who is or would be treated
as an owner of such Class B Preferred Stock either actually or
constructively through the application of Section 318(a) of
the Code, as modified by Section 856(d)(5) of the Code. The
terms "Constructive Owner," "Constructively Owns" and
"Constructively Owned" shall have the correlative meanings.
"IRS" means the United States Internal Revenue Service.
"Market Price" shall mean the last sales price of the
Class B Preferred Stock reported on the New York Stock
Exchange on the trading day immediately preceding the relevant
date, or if the Class B Preferred Stock is not then traded on
the New York Stock Exchange, the last reported sales price of
the Class B Preferred Stock on the trading day immediately
preceding the relevant date as reported on any exchange or
quotation system over which the Class B Preferred Stock may be
traded, or if the Class B Preferred Stock is not then traded
over any exchange or quotation system, then the fair market
value of the Class B Preferred Stock on the relevant date as
determined in good faith by the Board of Directors of the
Corporation.
"MGCL" shall mean the Maryland General Corporation
Law, as amended from time to time, and any successor statute
hereafter enacted.
"Class B Ownership Limit" shall mean 9.8% (by value
or by number of shares, whichever is more restrictive) of the
outstanding shares of Class B Preferred Stock of the
Corporation. The number and value of shares of the outstanding
capital shares of Class B Preferred Stock shall be determined
by the Board of Directors of the Corporation in good faith,
which determination shall be conclusive for all purposes
hereof.
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<PAGE>
"Person" shall mean an individual, corporation,
partnership, limited liability company, estate, trust
(including a trust qualified under Section 401(a) or
501(c)(17) of the Code), a portion of a trust permanently set
aside for or to be used exclusively for the purposes described
in Section 642(c) of the Code, association, private foundation
within the meaning of Section 509(a) of the Code, joint stock
company or other entity; but does not include an underwriter
acting in a capacity as such in a public offering of shares of
Class B Preferred Stock provided that the ownership of such
shares of Class B Preferred Stock by such underwriter would
not result in the Corporation being "closely held" within the
meaning of Section 856(h) of the Code, or otherwise result in
the Corporation failing to qualify as a REIT.
"Purported Beneficial Transferee" shall mean, with
respect to any purported Transfer (or other event) which
results in a transfer to a Trust, as provided in Section
12(B)(2) of these Articles Supplementary, the Person who would
have acquired or owned the beneficial interest in such shares
of Class B Preferred Stock if the purported Transfer had been
valid under Section 12(B)(1) of the Articles Supplementary.
"Purported Record Transferee" shall mean, with
respect to any purported Transfer (or other event) which
results in a transfer to a Trust, as provided in Section
12(B)(2) of these Articles Supplementary, the Person who would
have been the record holder of the shares of Class B Preferred
Stock if such Transfer had been valid under Section 12(B)(1)
of these Articles Supplementary.
"REIT" shall mean a real estate investment trust
under Sections 856 through 860 of the Code, and, for purposes
of taxation of the Company under applicable state law,
analogous provisions of the law of such state.
"Restriction Termination Date" shall mean the first
day after the date hereof on which the Board of Directors of
the Corporation determines that it is no longer in the best
interests of the Corporation to attempt to, or continue to,
qualify as a REIT.
"Transfer" shall mean any sale, transfer, gift,
assignment, devise or other disposition of Class B Preferred
Stock, including (i) the granting of any option or entering
into any agreement for the sale, transfer or other disposition
of Class B Preferred Stock or (ii) the sale, transfer,
assignment or other disposition of any securities or rights
convertible into or exchangeable for Class B Preferred Stock,
whether voluntary or involuntary, whether such transfer has
occurred of record or beneficially or Beneficially or
Constructively (including but not limited to transfers of
interests in other entities which result in changes in
Beneficial or Constructive Ownership of Class B Preferred
Stock), and whether such transfer has occurred by operation of
law or otherwise.
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<PAGE>
"Trust" shall mean each of the trusts provided for in
Section 12(C) of these Articles Supplementary.
"Trustee" shall mean any Person, unaffiliated with
the Corporation, a Purported Beneficial Transferee, or a
Purported Record Transferee, that is appointed by the
Corporation to serve as trustee of a Trust.
(B) Restriction on Ownership and Transfers.
(1) Prior to the Restriction Termination Date:
(a) except as provided in Section 12(I) of these terms of the Class B Preferred
Stock, no Person shall Beneficially Own shares of Class B Preferred Stock
in excess of the Class B Ownership Limit;
(b) except as provided in Section 12(I) of these terms of the Class B Preferred
Stock, no Person shall Constructively Own shares of Class B Preferred
Stock, in excess of the Class B Ownership Limit;
(c) except as provided in Section 12(I) of these terms of the Class B Preferred
Stock, no Person shall Beneficially or Constructively Own shares of Class B
Preferred Stock, Series A Preferred Stock or Common Stock in excess of the
Aggregate Stock Ownership Limit;
(d) no Person shall Beneficially Own or Constructively Own shares of Class B
Preferred Stock which, taking into account any other Capital Stock of the
Corporation Beneficially Owned or Constructively Owned by such Person,
would result in the Corporation being "closely held" within the meaning of
Section 856(h) of the Code (without regard to whether the ownership
interest is held during the last half of a taxable year), or otherwise
failing to qualify as a REIT (including but not limited to ownership that
would result in the Corporation owning (actually or Constructively) an
interest in a tenant that is described in Section 856(d)(2)(B) of the Code
if the income derived by the Corporation (either directly or indirectly
through one or more partnerships) from such tenant would cause the
Corporation to fail to satisfy any of the gross income requirements of
Section 856(c) of the Code) or analogous provisions of state law.
(2) If, prior to the Restriction Termination Date, any
Transfer (whether or not such Transfer is the result of a transaction entered
into through the facilities of the New York Stock Exchange ("NYSE")) or other
event occurs that, if effective, would result in any Person Beneficially Owning
or Constructively Owning shares of Class B Preferred Stock in violation of
Section 12(B)(1) of these terms of the Class B Preferred Stock, (1) then that
number of shares of Class B Preferred Stock that otherwise would cause such
Person to violate Section 12(B)(1) of these Articles Supplementary (rounded up
to the nearest whole share) shall be automatically transferred to a Trust for
the benefit of a Charitable Beneficiary, as described in Section 12(C),
effective as of the close
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<PAGE>
of business on the business day prior to the date of such Transfer or other
event, and such Person shall thereafter have no rights in such shares or (2) if,
for any reason, the transfer to the Trust described in clause (1) of this
sentence is not automatically effective as provided therein to prevent any
Person from Beneficially Owning or Constructively Owning shares of Class B
Preferred Stock in violation of Section 12(B)(1) of these terms of the Class B
Preferred Stock, then the Transfer of that number of shares of Class B Preferred
Stock that otherwise would cause any Person to violate Section 12(b)(1) shall be
void ab initio, and such Person shall have no rights in such shares.
(3) Notwithstanding any other provisions contained herein,
prior to the Restriction Termination Date, any Transfer of Class B Preferred
Stock (whether or not such Transfer is the result of a transaction entered into
through the facilities of the NYSE) that, if effective, would result in the
capital stock of the Corporation being beneficially owned by less than 100
Persons (determined without reference to any rules of attribution) shall be void
ab initio, and the intended transferee shall acquire no rights in such Class B
Preferred Stock.
(C) Transfers of Class B Preferred Stock in Trust.
(1) Upon any purported Transfer or other event described in
Section 12(B)(2) of these terms of the Class B Preferred Stock, then that number
of shares of Class B Preferred Stock that otherwise would cause a violation of
Section 12(B)(1) (rounded up to the nearest whole share) shall be deemed to have
been automatically transferred to the Trustee in his capacity as trustee of a
Trust for the exclusive benefit of one or more Charitable Beneficiaries. Such
transfer to the Trustee shall be deemed to be effective as of the close of
business on the business day prior to the purported Transfer or other event that
results in a transfer to the Trust pursuant to Section 12(B)(2). The Trustee
shall be appointed by the Corporation and shall be a Person unaffiliated with
the Corporation, any Purported Beneficial Transferee, or any Purported Record
Transferee. Each Charitable Beneficiary shall be designated by the Corporation
as provided in Section 12(C)(6) of these terms of the Class B Preferred Stock.
(2) Class B Preferred Stock held by the Trustee shall be
issued and outstanding Class B Preferred Stock of the Corporation. The Purported
Beneficial Transferee or Purported Record Transferee shall have no rights in the
shares of Class B Preferred Stock held by the Trustee. The Purported Beneficial
Transferee or Purported Record Transferee shall not benefit economically from
ownership of any shares held in trust by the Trustee, shall have no rights to
dividends and shall not possess any rights to vote or other rights attributable
to the shares of Class B Preferred Stock held in the Trust.
(3) The Trustee shall have all voting rights and rights to
dividends with respect to Class B Preferred Stock held in the Trust, which
rights shall be exercised for the exclusive benefit of the Charitable
Beneficiary. Any dividend or distribution paid prior to the discovery by the
Corporation that shares of Class B Preferred Stock have been transferred to the
Trustee shall be paid by the recipient thereof to the Trustee upon demand, and
any dividend or distribution declared but unpaid shall be paid when due to the
Trustee with respect to such Class B Preferred Stock. Any
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<PAGE>
dividends or distributions so paid over to the Trustee shall be held in trust
for the Charitable Beneficiary. The Purported Record Transferee and Purported
Beneficial Transferee shall have no voting rights with respect to the Class B
Preferred Stock held in the Trust and, subject to Maryland law, effective as of
the date the Class B Preferred Stock has been transferred to the Trustee, the
Trustee shall have the authority (at the Trustee's sole discretion) (i) to
rescind as void any vote cast by a Purported Record Transferee with respect to
such Class B Preferred Stock prior to the discovery by the Corporation that the
Class B Preferred Stock has been transferred to the Trustee and (ii) to recast
such vote in accordance with the desires of the Trustee acting for the benefit
of the Charitable Beneficiary; provided, however, that if the Corporation has
already taken irreversible corporate action, then the Trustee shall not have the
authority to rescind and recast such vote. Notwithstanding any other provision
of these terms of the Class B Preferred Stock to the contrary, until the
Corporation has received notification that the Class B Preferred Stock has been
transferred into a Trust, the Corporation shall be entitled to rely on its share
transfer and other stockholder records for purposes of preparing lists of
stockholders entitled to vote at meetings, determining the validity and
authority of proxies and otherwise conducting votes of stockholders.
(4) Within 20 days of receiving notice from the Corporation
that shares of Class B Preferred Stock have been transferred to the Trust, the
Trustee of the Trust shall sell the shares of Class B Preferred Stock held in
the Trust to a Person, designated by the Trustee, whose ownership of the shares
of Class B Preferred Stock will not violate the ownership limitations set forth
in Section 12(B)(1). Upon such sale, the interest of the Charitable Beneficiary
in the shares of Class B Preferred Stock sold shall terminate and the Trustee
shall distribute the net proceeds of the sale to the Purported Record Transferee
and to the Charitable Beneficiary as provided in this Section 12(C)(4). The
Purported Record Transferee shall receive the lesser of (1) the price paid by
the Purported Record Transferee or the Purported Beneficial Transferee for the
shares of Class B Preferred Stock in the transaction that resulted in such
transfer to the Trust or, to the extent that neither the Purported Record
Transferee nor the Purported Beneficial Transferee gave fair value for such
shares of Class B Preferred Stock, the Market Price of such shares of Class B
Preferred Stock on the day of the event which resulted in the transfer of the
shares of Class B Preferred Stock to the Trust and (2) the price per share
received by the Trustee (net of any commissions and other expenses of sale) from
the sale or other disposition of the shares of Class B Preferred Stock held in
the Trust. Any net sales proceeds in excess of the amount payable to the
Purported Record Transferee shall be immediately paid to the Charitable
Beneficiary together with any dividends or other distributions thereon. If,
prior to the discovery by the Corporation that shares of such Class B Preferred
Stock have been transferred to the Trustee, such shares of Class B Preferred
Stock are sold by a Purported Record Transferee then (i) such shares of Class B
Preferred Stock shall be deemed to have been sold on behalf of the Trust and
(ii) to the extent that the Purported Record Transferee or the Purported
Beneficial Transferee received an amount for such shares of Class B Preferred
Stock that exceeds the amount that such Purported Record Transferee or the
Purported Beneficial Transferee was entitled to receive pursuant to this Section
12(C)(4), such excess shall be paid to the Trustee upon demand.
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<PAGE>
(5) Class B Preferred Stock transferred to the Trustee shall
be deemed to have been offered for sale to the Corporation, or its designee, at
a price per share equal to the lesser of (i) the price paid by the Purported
Record Transferee or the Purported Beneficial Transferee for the shares of Class
B Preferred Stock in the transaction that resulted in such transfer to the Trust
or, if neither the Purported Record Transferee or the Purported Beneficial
Transferee gave value for the Market Price of such shares of Class B Preferred
Stock on the day of the event which resulted in the transfer of such shares of
Class B Preferred Stock to the Trust, and (ii) the Market Price on the date the
Corporation, or its designee, accepts such offer. The Corporation shall have the
right to accept such offer until the Trustee has sold the shares of Class B
Preferred Stock held in the Trust pursuant to Section 12(C)(4). Upon such a sale
to the Corporation, the interest of the Charitable Beneficiary in the shares of
Class B Preferred Stock sold shall terminate and the Trustee shall distribute
the net proceeds of the sale to the Purported Record Transferee and any
dividends or other distributions held by the Trustee with respect to such Class
B Preferred Stock shall thereupon be paid to the Charitable Beneficiary.
(6) By written notice to the Trustee, the Corporation shall
designate one or more nonprofit organizations to be the Charitable Beneficiary
of the interest in the Trust such that (i) the Class B Preferred Stock held in
the Trust would not violate the restrictions set forth in Section 12(B)(1) in
the hands of such Charitable Beneficiary and (ii) each Charitable Beneficiary is
an organization described in Sections 170(b)(1)(A), 170(c)(2) or 501(c)(3) of
the Code.
(D) Remedies For Breach. If the Board of Directors or a committee
thereof (or other designees if permitted under the MGCL) shall at any time
determine in good faith that a Transfer or other event has taken place in
violation of Section 12(B) of these terms of the Class B Preferred Stock or that
a Person intends to acquire, has attempted to acquire or may acquire beneficial
ownership (determined without reference to any rules of attribution), Beneficial
Ownership or Constructive Ownership of any shares of Class B Preferred Stock of
the Corporation in violation of Section 12(B) of these terms of the Class B
Preferred Stock, the Board of Directors or a committee thereof (or other
designees if permitted under the MGCL) shall take such action as it deems
advisable to refuse to give effect or to prevent such Transfer, including, but
not limited to, causing the Corporation to redeem shares of Class B Preferred
Stock, refusing to give effect to such Transfer on the books of the Corporation
or instituting proceedings to enjoin such Transfer; provided, however, that any
Transfers (or, in the case of events other than a Transfer, ownership or
Constructive Ownership or Beneficial Ownership) in violation of Section 12(B)(1)
of these terms of the Class B Preferred Stock, shall automatically result in the
transfer to a Trust as described in Section 12(B)(2) and any Transfer in
violation of Section 12(B)(3) shall automatically be void ab initio irrespective
of any action (or non-action) by the Board of Directors.
(E) Notice of Restricted Transfer. Any Person who acquires or attempts
to acquire shares of Class B Preferred Stock in violation of Section 12(B) of
these terms of the Class B Preferred Stock, or any Person who is a Purported
Beneficial Transferee or Purported Record Transferee such that an automatic
transfer to a Trust results under Section 12(B)(2) of these terms of the Class B
Preferred Stock, shall immediately give written notice to the Corporation of
such event and shall
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provide to the Corporation such other information as the Corporation may request
in order to determine the effect, if any, of such Transfer or attempted Transfer
on the Corporation's status as a REIT.
(F) Owners Required To Provide Information. Prior to the Restriction
Termination Date each Person who is a beneficial owner or Beneficial Owner or
Constructive Owner of Class B Preferred Stock and each Person (including the
shareholder of record) who is holding Class B Preferred Stock for a beneficial
owner or Beneficial Owner or Constructive Owner shall provide to the Corporation
such information that the Corporation may request, in good faith, in order to
determine the Corporation's status as a REIT.
(G) Remedies Not Limited. Nothing contained in these terms of the Class
B Preferred Stock (but subject to Section 12(M) of these terms of the Class B
Preferred Stock) shall limit the authority of the Board of Directors to take
such other action as it deems necessary or advisable to protect the Corporation
and the interests of its shareholders by preservation of the Corporation's
status as a REIT.
(H) Ambiguity. In the case of an ambiguity in the application of any of
the provisions of this Section 12 of these terms of the Class B Preferred Stock,
including any definition contained in Section 12(A), the Board of Directors
shall have the power to determine the application of the provisions of this
Section 12 with respect to any situation based on the facts known to it
(subject, however, to the provisions of Section 12(M) of these terms of the
Class B Preferred Stock). In the event Section 12 requires an action by the
Board of Directors and these terms of the Class B Preferred Stock fail to
provide specific guidance with respect to such action, the Board of Directors
shall have the power to determine the action to be taken so long as such action
is not contrary to the provisions of Section 12. Absent a decision to the
contrary by the Board of Directors (which the Board may make in its sole and
absolute discretion), if a Person would have (but for the remedies set forth in
Section 12(B)) acquired Beneficial or Constructive Ownership of Class B
Preferred Stock in violation of Section 12(B)(1), such remedies (as applicable)
shall apply first to the shares of Class B Preferred Stock which, but for such
remedies, would have been actually owned by such Person, and second to shares of
Class B Preferred Stock which, but for such remedies, would have been
Beneficially Owned or Constructively Owned (but not actually owned) by such
Person, pro rata among the Persons who actually own such shares of Class B
Preferred Stock based upon the relative number of the shares of Class B
Preferred Stock held by each such Person.
(I) Exceptions.
(1) Subject to Section 12(B)(1)(d), the Board of Directors, in
its sole discretion, may exempt a Person from the limitation on a Person
Beneficially Owning Class B Preferred Stock in excess of the Class B Ownership
Limit or in excess of the Aggregate Stock Ownership Limit if the Board of
Directors obtains such representations and undertakings from such Person as are
reasonably necessary to ascertain that no individual's Beneficial Ownership or
Constructive Ownership of such Class B Preferred Stock will violate the Class B
Ownership Limit or the
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Aggregate Stock Ownership Limit, as the case may be, or that any such violation
will not cause the Corporation to fail to qualify as a REIT under the Code, and
agrees that any violation of such representations or undertaking (or other
action which is contrary to the restrictions contained in Section 12(B) of these
terms of the Class B Preferred Stock) or attempted violation will result in such
Class B Preferred Stock being transferred to a Trust in accordance with Section
12(B)(2) of these terms of the Class B Preferred Stock.
(2) Subject to Section 12(B)(1)(d), the Board of Directors, in
its sole discretion, may exempt a Person from the limitation on a Person
Constructively Owning Class B Preferred Stock in excess of the Class B Ownership
Limit or the Aggregate Stock Ownership Limit if such Person does not and
represents that it will not own, actually or Constructively, an interest in a
tenant of the Corporation (or a tenant of any entity owned in whole or in part
by the Corporation) that would cause the Corporation to own, actually or
Constructively more than a 9.8% interest (as set forth in Section 856(d)(2)(B)
of the Code) in such tenant and the Corporation obtains such representations and
undertakings from such Person as are reasonably necessary to ascertain this fact
and agrees that any violation or attempted violation will result in such Class B
Preferred Stock being transferred to a Trust in accordance with Section 12(B)(2)
of these terms of the Class B Preferred Stock. Notwithstanding the foregoing,
the inability of a Person to make the certification described in this Section
12(I)(2) shall not prevent the Board of Directors, in its sole discretion, from
exempting such Person from the limitation on a Person Constructively Owning
Class B Preferred Stock in excess of the Class B Ownership Limit if the Board of
Directors determines that the resulting application of Section 856(d)(2)(B) of
the Code would affect the characterization of less than 0.5% of the gross income
(as such term is used in Section 856(c)(2) of the Code and analogous provisions
of applicable state law) of the Corporation in any taxable year, after taking
into account the effect of this sentence with respect to all other Class B
Preferred Stock to which this sentence applies.
(3) Prior to granting any exception pursuant to Sections
12(I)(1) or (2) of these terms of the Class B Preferred Stock, the Board of
Directors may require a ruling from the Internal Revenue Service, or an opinion
of counsel, in either case in form and substance satisfactory to the Board of
Directors in its sole discretion, as it may deem necessary or advisable in order
to determine or ensure the Corporation's status as a REIT.
(J) Preemptive Rights. No holder of shares of Class B Preferred Stock
shall have any preemptive or preferential right to subscribe or to purchase any
additional shares of any class, or any bonds or convertible securities of any
nature.
(K) Legend. Each certificate for Class B Preferred Stock shall bear
substantially the following legends:
- 14 -
<PAGE>
Class of Stock
"THE CORPORATION IS AUTHORIZED TO ISSUE STOCK OF MORE THAN ONE CLASS,
CONSISTING OF COMMON STOCK AND ONE OR MORE CLASSES OF PREFERRED STOCK.
THE BOARD OF DIRECTORS IS AUTHORIZED TO DETERMINE THE PREFERENCES,
LIMITATIONS AND RELATIVE RIGHTS OF ANY CLASS OF THE PREFERRED STOCK
BEFORE THE ISSUANCE OF SHARES OF SUCH CLASS OF PREFERRED STOCK. THE
CORPORATION WILL FURNISH TO ANY STOCKHOLDER, ON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE INFORMATION REQUIRED BY SECTION
2-211(B) OF THE MARYLAND GENERAL CORPORATION LAW WITH RESPECT TO THE
DESIGNATIONS AND ANY PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING
POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS AND OTHER
DISTRIBUTIONS, QUALIFICATIONS AND TERMS AND CONDITIONS OF REDEMPTION OF
THE STOCK OF EACH CLASS WHICH THE CORPORATION HAS THE AUTHORITY TO
ISSUE AND, IF THE CORPORATION IS AUTHORIZED TO ISSUE ANY PREFERRED OR
SPECIAL SERIES AND SERIES, (I) THE DIFFERENCES IN THE RELATIVE RIGHTS
AND PREFERENCES BETWEEN THE SHARES OF EACH CLASS OR SERIES TO THE
EXTENT SET, AND (II) THE AUTHORITY OF THE BOARD OF DIRECTORS TO SET
SUCH RIGHTS AND PREFERENCES OF SUBSEQUENT CLASSES OR SERIES. THE
FOREGOING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE CHARTER OF THE
CORPORATION (THE "CHARTER"), A COPY OF WHICH WILL BE SENT WITHOUT
CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS. REQUESTS FOR SUCH WRITTEN
STATEMENT MAY BE DIRECTED TO THE SECRETARY OF THE CORPORATION, AT THE
CORPORATION'S PRINCIPAL OFFICE.
Restriction on Ownership and Transfer
THE SHARES OF CLASS B PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP
AND TRANSFER FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS
STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED (THE "CODE"). SUBJECT TO CERTAIN FURTHER
RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE ARTICLES
SUPPLEMENTARY FOR THE CLASS B PREFERRED STOCK, (I) NO PERSON MAY
BENEFICIALLY OWN SHARES OF THE CORPORATION'S CLASS B PREFERRED STOCK IN
EXCESS OF 9.8% (BY VALUE OR BY NUMBER OF SHARES, WHICHEVER IS MORE
RESTRICTIVE) OF THE
- 15 -
<PAGE>
OUTSTANDING CLASS B PREFERRED STOCK OF THE CORPORATION; (II) NO PERSON
MAY CONSTRUCTIVELY OWN SHARES OF THE CORPORATION'S CLASS B PREFERRED
STOCK IN EXCESS OF 9.8% (BY VALUE OR BY NUMBER OF SHARES, WHICHEVER IS
MORE RESTRICTIVE) OF THE OUTSTANDING CLASS B PREFERRED STOCK OF THE
CORPORATION; (III) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWN
SHARES OF CAPITAL STOCK OF THE CORPORATION WHICH HAS AN AGGREGATE VALUE
IN EXCESS OF 9.8% OF THE VALUE OF THE TOTAL OUTSTANDING SHARES OF
CAPITAL STOCK OF THE CORPORATION; (IV) NO PERSON MAY BENEFICIALLY OR
CONSTRUCTIVELY OWN CLASS B PREFERRED STOCK THAT WOULD RESULT IN THE
CORPORATION BEING "CLOSELY HELD" UNDER SECTION 856(H) OF THE CODE OR
OTHERWISE CAUSE THE CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (V)
NO PERSON MAY TRANSFER CLASS B PREFERRED STOCK IF SUCH TRANSFER WOULD
RESULT IN THE CAPITAL STOCK OF THE CORPORATION BEING OWNED BY FEWER
THAN 100 PERSONS. ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR
ATTEMPTS TO BENEFICIALLY OR CONSTRUCTIVELY OWN CLASS B PREFERRED STOCK
WHICH CAUSES OR WILL CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY
OWN CLASS B PREFERRED STOCK IN EXCESS OF THE ABOVE LIMITATIONS MUST
IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE RESTRICTIONS ON
TRANSFER OR OWNERSHIP ARE VIOLATED, THE CLASS B PREFERRED STOCK
REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED TO THE TRUSTEE OF
A TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN
ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE TERMS AND
CONDITIONS SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION
IF THE BOARD OF DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR
OTHER EVENT MAY VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE,
UPON THE OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION
OF THE RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL TERMS IN
THIS LEGEND DEFINED IN THE ARTICLES SUPPLEMENTARY FOR THE CLASS B
PREFERRED STOCK, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, SHALL
HAVE THE MEANINGS ASCRIBED TO THEM IN SUCH ARTICLES SUPPLEMENTARY, A
COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER AND OWNERSHIP,
WILL BE FURNISHED TO EACH HOLDER OF CLASS B PREFERRED STOCK ON REQUEST
AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO THE
SECRETARY OF THE CORPORATION, AT THE CORPORATION'S PRINCIPAL OFFICE."
- 16 -
<PAGE>
Instead of the foregoing legend, the share certificate may state that
the Corporation will furnish a full statement about certain restrictions on
transferability to a stockholder on request and without charge.
(L) Severability. If any provision of this Section 12 or any
application of any such provision is determined to be invalid by any Federal or
state court having jurisdiction over the issues, the validity of the remaining
provisions shall not be affected and other applications of such provision shall
be affected only to the extent necessary to comply with the determination of
such court.
(M) NYSE. Nothing in this Section 12 shall preclude the settlement of
any transaction entered into through the facilities of the NYSE. The fact that
the settlement of any transaction is so permitted shall not negate the effect of
any other provision of this Section 12 and any transferee in such a transaction
shall be subject to all the provisions and limitations of this Section 12.
(N) Applicability of Section 12. The provisions set forth herein under
Section 12 shall apply to the Class B Preferred Stock notwithstanding any
contrary provisions of the Class B Preferred Stock provided for elsewhere in
these terms of the Class B Preferred Stock.
SECOND: The Shares have been classified and designated by the Board of
Directors under the authority contained in the Charter.
THIRD: These Articles Supplementary have been approved by the Board of
Directors in the manner and by the vote required by law.
FOURTH: The undersigned Chairman of the Board acknowledges these Articles
Supplementary to be the corporate act of the Corporation and, as to all matters
of fact required to be verified under oath, the undersigned Chairman of the
Board acknowledges that to the best of his or her knowledge, information and
belief, these matters and facts are true in all material respects and that this
statement is made under the penalties for perjury.
- 17 -
<PAGE>
IN WITNESS WHEREOF, these Articles Supplementary are executed on behalf of
the Corporation by its Chairman of the Board this 23rd day of October, 1998.
FIRST WASHINGTON REALTY TRUST, INC.
a Maryland corporation
/s/
By:_________________________ (SEAL)
Chairman of the Board
Attest:
/s/
- ----------------------------
Secretary
- 18 -
<PAGE>
LIST OF SUBSIDIARIES
Allenbeth Associates Limited Partnership
Branchwood Apartments Limited Partnership
Branchwood, Inc.
Bryans QRS, Inc.
Capitol Place I Investment Limited Partnership
City Line Shopping Center Associates
Cloppers Mill Village Center L.L.C.
Enterprise Associates General Partnership
First Capital Realty, Inc.
First Washington Management, Inc.
First Washington Realty Limited Partnership
FWR Trust
FW-Bryans Road Limited Partnership
Greenspring Associates Limited Partnership
JFD, Inc.
JFD Limited Partnership
L&M Development Company Limited Partnership
Northway Limited Partnership
Parkville Shopping Center L.L.C.
Southside Marketplace Limited Partnership
Southside Nominee, Inc.
SP Associates Limited Partnership
Valley Centre, Inc.
Woodholme Properties Limited Partnership
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in (1) the Prospectus
constituting part of the Registration Statement on Form S-3 (File No. 333-24017)
and (2) the Registration Statements on Form S-3 (File Nos. 333-24543, 333-44681,
333-66355 and 333-70837) and Form S-8 (File Nos. 333-57237 and 333-57241) of
First Washington Realty Trust, Inc. and Subsidiaries of our report dated January
31, 1999 appearing on page F-2 of this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Washington, DC
March 24, 1999
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,163
<SECURITIES> 0
<RECEIVABLES> 9,463
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 556,146
<DEPRECIATION> 51,475
<TOTAL-ASSETS> 532,954
<CURRENT-LIABILITIES> 0
<BONDS> 244,113
0
23
<COMMON> 86
<OTHER-SE> 218,345
<TOTAL-LIABILITY-AND-EQUITY> 532,954
<SALES> 0
<TOTAL-REVENUES> 74,064
<CGS> 0
<TOTAL-COSTS> 56,316
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,966
<INCOME-PRETAX> 0
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<INCOME-CONTINUING> 10,039
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