As filed with the Securities and Exchange Commission on March 24, 1999
Registration No. 333-66355
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST WASHINGTON REALTY TRUST, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland 52-1879972
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
(301) 907-7800
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
William J. Wolfe
President and Chief Executive Officer
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
(301) 907-7800
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
with a copy to:
R. Ronald Hopkinson, Esq.
Latham & Watkins
885 Third Avenue
Suite 1000
New York, New York 10022
(212) 906-1200
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this registration statement as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 (the "Securities Act"), other than securities
offered only in connection with dividend or interest reinvestment plans,
please check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
___________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
This registration statement relates to the possible issuance
of shares of common stock of First Washington Realty Trust, Inc. upon the
exchange of units of limited partnership interest in First Washington Realty
Limited Partnership. These units were issued in transactions on September 1,
1998 and October 1, 1998, and became exchangeable after October 31, 1998.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment that specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not a solicitation of an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
SUBJECT TO COMPLETION, DATED MARCH 24, 1999
FIRST WASHINGTON REALTY TRUST, INC.
1,043,109 Shares
Common Stock
We are offering 1,043,109 shares of our common stock upon the exchange
of partnership units described more fully in this prospectus. We will not
receive any of the proceeds from the sale of the shares offered under this
prospectus.
Our common stock is listed on the New York Stock Exchange under the
symbol "FRW." On March 19, 1999, the closing sale price of our common stock
was $21.125 per share.
You should be aware that an investment in our common stock involves
various risks. See "Risk Factors" on page 1 and in our Current Report on
Form 8-K/A filed on March 24, 1999.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined that this prospectus is accurate or complete. It is illegal for
any person to tell you otherwise.
The date of this prospectus is March 24, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
Risk Factors 1
Where You Can Find More Information 1
Incorporation of Documents by Reference 2
The Company 3
Description of Capital Stock 6
Partnership Agreement 11
Exchange of the Units 13
Provisions of Maryland Law and First Washington's Charter and Bylaws 20
Federal Income Tax Consequences 26
Experts 45
Legal Matters 45
Plan of Distribution 46
RISK FACTORS
You should carefully consider, among other factors, the risk factors
described below and the risk factors in our Form 8-K/A, filed on March 24,
1999.
The exchange of units has tax consequences. If you redeem or exchange
units for cash or shares of stock, you will recognize gain or loss because
the redemption and exchange are each taxable transactions. Depending upon
your particular situation, it is possible that the amount of gain you
recognize or even your tax liability resulting from the gain could exceed
the amount of cash and the value of the shares of stock you receive upon
the redemption or exchange.
This prospectus and other documents we have filed with the SEC contain
forward-looking statements. Section 27A of the Securities Act does not,
however, apply to statements relating to the operations of a partnership.
Also, documents subsequently filed by us with the Commission will contain
forward-looking statements. Our actual results could differ materially from
those projected in the forward-looking statements as a result of the risk
factors described in our Form 8-K/A, filed on March 24, 1999. We caution
you, however, that any list of risk factors may not be exhaustive,
particularly with respect to future filings.
Although First Washington Realty Trust, Inc., First Washington Realty
Limited Partnership and First Washington Management, Inc. are separate
entities, for ease of reference, the terms "we," "us," and "ours" refer to
the business and properties of all of these entities, unless the context
indicates otherwise.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934. Therefore, we file reports, proxy statements and
other information with the Securities and Exchange Commission. You may
inspect and obtain copies of our reports, proxy statements and other
information at:
* Public Reference Section
Securities and Exchange Commission
Room 1024, Jdiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
* Midwest Regional Office
Citicorp Center
500 West Madison Street, Suite 1400
Chicago, Illinois 60661-2511
* Northeast Regional Office
7 World Trade Center, Suite 1300
New York, New York 10048
You may also contact the SEC by telephone at (800) 732-0330. The
Commission also maintains a website at http://www.sec.gov where you can
retrieve this information. You may inspect copies of these materials and
other information about us at The New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
We have filed with the Commission a registration statement on Form S-3
for the shares offered under this prospectus under the Securities Act of
1933. The prospectus and any accompanying prospectus supplement do not
contain all of the information included in the registration statement. We
have omitted the cover and Part II of the registration statement in
accordance with the rules and regulations of the SEC. For further
information, we refer you to the registration statement, including its
exhibits and schedules. Statements contained in this prospectus and any
accompanying prospectus supplement about the provisions or contents of any
contract, agreement or any other document referred to are not necessarily
complete. For each of these contracts, agreements or documents filed as an
exhibit to the registration statement, we refer you to the actual exhibit
for a more complete description of the matters involved. You can obtain a
copy of these on exhibits by calling or writing to us at 4350 East-West
Highway, Suite 400, Bethesda, MD 20814, Attention: Investor Relations;
telephone number (301) 907-7800.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents, which we have previously filed with the
Commission, are incorporated by reference:
(1) our Annual Report on Form 10-K for the year ended December 31, 1997 filed
with the Commission on March 31, 1998 (File No. 000-25230);
(2) the description of our common stock contained in our registration statement
on Form S-3 filed with the Commission on August 9, 1996 (File No.
001-13822), and the description of our preferred share purchase rights
contained in our registration statement on Form 8-A filed on October 23,
1998 (File No. 001-14571);
(3) our Proxy Statement for our Annual Meeting of Stockholders held on May 8,
1998 (File No. 000-25230);
(4) our quarterly reports on Form 10-Q for the periods ended March 31, 1998,
June 30, 1998, and September 30, 1998 (File No. 000-25230); and
(5) our current reports on Form 8-K filed on March 10, 1999, October 30,
October 27, October 23, July 31, July 28, June 26, June 17 and May 18, 1998
(File No. 000-25230).
We incorporate by reference all documents that we file pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this prospectus and before the termination of the offering of
the shares made under this prospectus. All of these documents shall be
a part of this prospectus from the date of filing. Any statement
contained in a document filed after the date of this prospectus will
modify the statements we make in this prospectus.
If you write or telephone, we will provide without charge a copy
of any or all of the documents listed above, except the exhibits to
those documents. You should direct requests for these copies to First
Washington Realty Trust, Inc., at 4350 East-West Highway, Suite 400,
Bethesda, MD 20814, Attention: Investor Relations; telephone number
301-907-7800.
THE COMPANY
General
We are a real estate investment trust with expertise in the
acquisition, property management, leasing, renovation and development
of principally supermarket-anchored neighborhood shopping centers. We
are an integrated stand-alone company that manages its own properties,
and administers its own affairs. As of December 31, 1998, we owned a
portfolio of 55 retail properties containing a total of approximately
6.0 million square feet of gross leasable area.
We have followed a highly focused business strategy with respect
to property type and location. We concentrate our efforts on
supermarket-anchored neighborhood shopping centers. We generally seek
to own properties located in densely populated areas with high
visibility, open-air designs and ease of entry and exit. Also, we seek
to own properties that may be readily adaptable over time to
expansion, renovation and redevelopment.
Our retail properties are neighborhood shopping centers
principally anchored by well known tenants such as Giant Food,
Safeway, Shoppers Food Warehouse, Food Lion, A&P Superfresh, Winn
Dixie, Weis Markets, Acme Market, Dominick's Supermarket, CVS/Pharmacy
and Rite Aid. Neighborhood shopping centers are typically open-air
centers ranging in size from 50,000 to 150,000 square feet of gross
leasable area and anchored by supermarkets or drug stores or both
supermarkets and drug on stores. Our retail properties range in size
from approximately 3,000 square feet of gross leasable area to
approximately 335,000 square feet of gross leasable area, and average
approximately 106,000 square feet of gross leasable area. The anchor
tenants typically offer daily necessity items rather than specialty
goods. Nine of our retail properties are relatively small in size,
with less than 50,000 square feet of gross leasable area. These
smaller properties do not have a large supermarket or drug store
anchor tenant, and, therefore, may experience greater variability in
consumer traffic and operating performance.
First Washington Realty Limited Partnership and First Washington
Management, Inc. hold all of our assets and conduct all of our
operations. Some of the properties are owned by partnerships or
limited liability companies in which First Washington Realty Trust,
Inc., a subsidiary of First Washington, or First Washington Limited
Partnership, acts as general partner or managing member and owns a
controlling interest. We are the sole general partner of First
Washington Limited or Partnership and we currently own approximately
69.8% of the partnership interests in First Washington Limited
Partnership. The limited partners are individuals, partnerships and
others who have contributed their properties in exchange for units of
partnership interests. The limited partners may exchange their units
for cash, or, at our option, for our stock on a one for one basis.
First Washington Limited Partnership owns 100% of the non-voting
preferred stock of First Washington Management, and is entitled to 99%
of the cash flow from First Washington Management.
First Washington Realty Trust, Inc. was formed in April 1994 to
continue and expand the neighborhood shopping center acquisition,
management and renovation strategies of First Washington Management.
First Washington Management has been engaged in the business since
1983, and was founded by Stuart D. Halpert, our Chairman, William J.
Wolfe, our President and Chief Executive Officer, and Lester
Zimmerman, one of our Executive Vice Presidents.
We have approximately 70 employees. These employees include a
team of asset and property managers and leasing agents and in-house
legal, architectural, engineering, accounting, marketing and computer
specialists. Our executive and principal property management office is
located at 4350 East-West Highway, Suite 400, Bethesda, Maryland 20814
and our telephone number is 301-907-7800. We also have regional
property management offices located in North Carolina, Pennsylvania
and or Virginia.
Growth Strategies
We seek to increase cash flow and distributions and the value of our
portfolio through intensive property management and strategic renovation and
expansion of our properties. We also seek the opportunistic acquisition of
additional neighborhood shopping centers within the Mid-Atlantic region and the
Chicago metropolitan area. We have extensive knowledge of local market growth
patterns and economic conditions in these two areas. We would also consider
acquisitions in other or metropolitan markets which management determines to be
both attractive and conveniently accessible.
Intensive Management. A key aspect of our strategy is improving the
operating performance of our properties over time through intensive property
management. We seek to increase operating margins by increasing revenues through
increased occupancy and rental rates, maintaining high tenant retention rates,
and aggressively managing operating expenses.
We believe that, as a fully integrated real estate organization with both
owned and third-party managed properties, we enjoy significant operating
efficiencies. Many of our competitors operate smaller, fragmented portfolios.
Our operating efficiencies are the result of economies of scale in operating
expenses, more effective leasing and marketing efforts, and enhanced tenant
retention levels. We also benefit from effectively spreading our fixed property
management and leasing costs over our entire owned and third-party managed
portfolio. We believe that the scope of our portfolio, combined with the
professional and community ties of Messrs. Halpert and Wolfe to the Mid-Atlantic
region enables us to develop long-term relationships with national and regional
tenants which occupy multiple properties in our portfolio. We believe that these
relationships improve occupancy rates and tenant retention levels.
Strategic Renovation and Expansion. We seek to increase operating results
through the strategic renovation and expansion of our properties. The retail
properties are typically adaptable for varied tenant layouts and can be
reconfigured to accommodate new tenants or the changing space needs of existing
tenants. In determining whether to proceed with a renovation or expansion, we
consider both the cost of expansion or renovation and the increase in rent
attributable to expansion or renovation. We believe that our retail properties
will provide opportunities for renovation and expansion.
As a fully-integrated real estate organization, we maintain expertise in
the development of new retail properties. We developed three of our properties
containing approximately 525,000 square feet of gross leasable area. We believe
that our principal anchor tenants and other real estate professionals are likely
to present us with development opportunities in the future.
Opportunistic Acquisitions. Another principal component of our strategy is
the acquisition of additional neighborhood shopping centers within the
Mid-Atlantic region and the Chicago metropolitan area. We will seek to acquire
properties which are strategically located along major traffic arteries in
well-established, densely populated communities. We typically select properties
in locations where we believe the supply of developable land and zoning
restrictions impede the on development of competing shopping centers and where
tenants' location alternatives are limited. We would also consider acquisitions
in other metropolitan markets which management determines to be both attractive
and conveniently accessible.
Through our third-party management, leasing and related service business
and network of regional management and leasing offices, we are familiar with
local conditions in our markets. Because our third-party clients frequently seek
assistance with the revitalization and disposition of their properties, we
believe that we are in a unique position to ultimately acquire these properties.
For example, First Washington Management provided property management and
leasing services for five properties acquired from third-party clients. We
believe opportunities for neighborhood shopping center acquisitions are
particularly attractive at this time, due to fragmented ownership of
neighborhood shopping center properties, limited availability of capital for
non-institutional owners of retail property, and declining construction of new
retail properties.
When evaluating potential acquisitions, we consider such factors as:
* economic, demographic and regulatory conditions in the property's local and
regional market;
* the location, construction quality and design of the property;
* the current and projected cash flow of the property and the potential to
increase cash flow;
* the potential for capital appreciation of the property;
* the terms of tenant leases, including the relationship between the
property's current rents and market rents and the ability to increase rents
upon lease rollover;
* the occupancy and demand by tenants for properties of a similar type in the
market area;
* the potential to complete a strategic renovation, expansion, or retenanting
of the property;
* the property's current expense structure and the potential to increase
operating margins; and
* competition from comparable retail properties in the market area.
We have successfully completed the acquisition of 39 properties since our
organization in April 1994.
Property Management, Leasing And Related Service Business
Through our interest in First Washington Management, we have continued the
property management, leasing and related service business of First Washington
Management. First Washington Limited Partnership owns all of the non-voting
preferred stock of First Washington Management and is entitled to 99% of the
cash flow of First Washington Management. Messrs. Halpert, Wolfe and Zimmerman
own the outstanding common stock of First Washington Management, and are
therefore entitled to 1% of its cash flow. In addition to servicing our
properties, as of December 31, 1998, First Washington Management provided
management, leasing and related services to 23 properties comprising
approximately 2.3 million square feet of gross leasable area for 13 third-party
clients. In addition to providing another source of growth for funds from
operations, we believe that the third-party management business allows us to:
* achieve operating efficiencies in managing our owned properties through the
bulk purchase of goods and services;
* develop more extensive, long-term relationships with tenants in multiple
properties; and
* identify additional acquisition opportunities from third-party clients
interested in the eventual sale of their properties.
First Washington Management provides services to third-party owners under
contracts of varying duration. These contracts generally provide for management
fees of up to 5.0% of monthly gross property receipts. The management contracts
are typically cancelable upon 30 days' notice or upon the occurrence of
specified events, including the sale of the property. Leasing fees typically
range from 3.0% to 6.0% of the minimum base rents payable during the initial
term of the lease. In addition to its third-party management and leasing
business, First Washington Management provides related services including
consulting and brokerage services for which it receives customary fees.
DESCRIPTION OF CAPITAL STOCK
The following description of the terms of our stock is only a summary. For
a complete description, we refer you to the Maryland General Corporation Law,
our charter and our bylaws. We have filed our charter as an exhibit to our
Annual Report on Form 10-K for the year ended December 31, 1997, and our bylaws
as an exhibit to this registration statement.
General
Our charter authorizes us to issue up to 90,000,000 shares of common stock, par
value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01
per share. As of December 31, 1998, we had 8,566,985 shares of common stock and
2,314,189 shares of convertible preferred stock issued and outstanding. Under
Maryland law, stockholders generally are not liable for the corporation's debts
or obligations. Our stockholders also have no liability for further calls or
assessments on their shares of common stock.
Common Stock
As a holder of common stock, you will be entitled to receive distributions on
common stock if, as and when our board of directors authorizes and declares
distributions. However, your rights to receive distributions may be subordinated
to the rights of holders of preferred stock. In any liquidation, each
outstanding common share entitles its holder to a proportionate share of the
assets that remain after we pay our liabilities and any preferential
distributions owed to preferred stockholders. Holders of shares of our
convertible preferred stock are entitled to a participating distribution in
amounts available for distribution on the common stock. The participating
distribution is equal to the amount of any distribution on the common stock in
excess of $0.4875 per share of common stock multiplied by the number or fraction
of shares of common stock into which each share of convertible preferred stock
is or will be convertible.
The amount of the aggregate liquidation preference of the convertible preferred
stock will not be counted as a liability in determining whether we are permitted
under Maryland law to make a distribution on our common stock, other than upon
voluntary or involuntary liquidation, by dividend, redemption or other
acquisition of shares or otherwise.
Subject to the matters discussed under "Provisions of Maryland Law and First
Washington's Charter and Bylaws--Control Share Acquisitions," holders of the
common stock are entitled to one vote for each share on all matters submitted to
a stockholder vote. Unless our charter provides otherwise with respect to
preferred stock, the holders of common stock possess exclusive voting power.
There is no cumulative voting in the election of directors. This means that the
holders of a majority of the outstanding shares of common stock can elect all
of the directors then standing for election and the holders of the remaining
shares of common stock cannot elect any directors.
Holders of shares of common stock have no preference, conversion, sinking fund,
redemption or exchange rights or preemptive rights. A conversion right entitles
a stockholder to convert his shares to a different security, such as debt or
preferred stock. A redemption right entitles a stockholder to redeem his shares
for cash or other securities at some point in the future. A sinking fund pairs a
redemption right with an obligation of the company to create an account into
which the company must deposit money to fund the redemption. Preemptive rights
entitle stockholders to subscribe for a percentage of any other securities we
offer in the future based on the percentage of shares owned. All shares of a
particular class of issued common stock have equal dividend, distribution,
liquidation and other rights.
Under Maryland law, we generally cannot dissolve, amend our charter, merge, sell
all or substantially all of our assets, engage in a share exchange or engage in
similar transactions outside the ordinary course of business unless approved by
the affirmative vote of stockholders holding at least two-thirds of the shares
entitled to vote on the matter. However, as permitted under Maryland law, our
charter provides for approval of any of these actions by a majority of the
votes entitled to be cast on the matter, except in the case of amendment of the
charter provisions relating to removal of directors, classification of the board
of directors, voting rights of the common stock or voting requirements for
charter amendments, which require the affirmative vote of holders of shares
entitled to cast two-thirds of all the votes entitled to be cast on the matter.
In addition, a number of other provisions of Maryland law could significantly
affect the shares of common stock and the rights and obligations of its holders
and could delay, defer or prevent a change in control or other transaction in
which the holders of some or a majority of the common stock might receive a
premium for their common stock over the then prevailing market price or which
such holders might believe to be otherwise in their best interest. See
"Provisions of Maryland Law and First Washington's Charter and Bylaws."
Power To Issue Additional Shares Of Stock
The charter grants the board of directors the power to authorize the issuance of
additional authorized but unissued shares of common stock and preferred stock,
including any unissued shares of any series of preferred stock, to the extent
permitted by the terms of the series. The board of directors may also classify
or reclassify unissued shares of common or preferred stock and authorize the
issuance of these classified or reclassified shares of stock. Under Maryland law
and the charter, the board of directors is required to fix the terms and
conditions for each class or series before the issuance of the shares of each
class or series of stock. These terms and conditions include preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption.
We believe that this power of the board of directors provides us with increased
flexibility in structuring possible future financings and acquisitions and in
meeting other needs which might arise. Unless stockholder action is required by
applicable law or the rules of any stock exchange or automated quotation system
on which our securities may be listed or traded, the additional classes or
series, as well as the common stock, will generally be available for issuance
without further action by our stockholders. However, the issuance of additional
series of preferred stock with rights senior to the convertible preferred stock
must be approved by the holders of convertible preferred stock. Although the
board of directors does not intend to do so at the present time, it could
authorize the issuance of a class or series that could delay, defer or prevent a
change of control or other transaction that might involve a premium price for
the common stock and convertible preferred stock or otherwise be in the best
interest of the stockholders.
Restrictions On Ownership, Transfer And Conversion
Internal Revenue Code Requirements. To maintain our REIT qualification, no less
than six individuals can own, actually or constructively, more than 50% in value
of our issued and outstanding capital stock at any time during the last half of
a taxable year. For this test, individuals include the entities that are set
forth in Section 542(a)(2) of the Internal Revenue Code, as currently in effect.
In addition, attribution rules in the Internal Revenue Code determine if any
individual or entity actually or constructively owns our capital stock under
this requirement. Additionally, at least 100 or more persons must beneficially
own our capital stock during at least 335 days of a taxable year. Also, rent
from "related party tenants" is not qualifying income for purposes of the gross
income tests of the Internal Revenue Code. A tenant of First Washington is a
related party tenant if First Washington actually or constructively owns 10% or
more of such tenant. See "Federal Income Tax Consequences--Taxation of First
Washington--Requirements for Qualification." To help ensure we meet these tests,
our charter restricts the acquisition and ownership of shares of our capital
stock.
Transfer Restrictions in Charter. Subject to exceptions specified in our
charter, no holder may own, either actually or constructively under the
applicable attribution rules of the Internal Revenue Code, more than 9.8%, by
number or value, whichever is more restrictive, of the outstanding shares of
common stock. Except as described below, this limit will not apply to holders of
shares of common stock who exceed the limit solely because they convert shares
of convertible preferred stock into shares of common stock. However, no person
may actually or constructively acquire or own shares of convertible preferred
stock or shares of common stock, or convert convertible preferred stock into
common stock, if the total value of convertible preferred stock and common stock
actually and constructively owned by the person would exceed 9.8% of the total
value of the outstanding shares of all of our capital stock. This limitation
could prevent a person who owns shares of convertible preferred stock from
converting a portion of these shares into shares of common stock.
Effect of Violation of Transfer Restrictions. If, as a result of an attempted
acquisition of capital stock, any person would acquire, either actually or
constructively under the applicable attribution rules of the Internal Revenue
Code, shares of capital stock in excess of an ownership restriction, those
shares will be automatically transferred to a trust for the benefit of a
charitable beneficiary. This transfer will be effective as of the close of
business on the business day prior to the attempted acquisition by the person
who would have owned the shares in excess of the ownership restriction. While
this stock is held in trust, the trustee shall have all of the shares' voting
rights and all dividends or distributions paid on the stock will be paid to the
trustee of the trust for the benefit of the charitable beneficiary. Any dividend
or distribution paid on shares of capital stock prior to our discovery that the
shares have been automatically transferred to the trust shall, upon demand, be
paid over to the trustee for the benefit of the charitable beneficiary. Within
20 days of receiving notice from us of the transfer of shares to the trust, the
trustee of the trust must sell the shares held in the trust to a person who may
hold the shares without violating the ownership restrictions. Upon this sale,
the price paid for the shares by the person who acquired the shares from the
trust shall be distributed to the person who attempted to acquire the shares in
violation of the ownership restriction to the extent of the lesser of:
* the price paid by the person who attempted to acquire the shares in
violation of the ownership restriction;
* in the case of a transfer of shares to a trust resulting from an event
other than an actual acquisition of shares by a person in violation of the
ownership restriction, the market price, as defined in the charter, of the
shares on the date the shares were transferred to the trust; or
* the price per share received by the trustee from the sale or other
disposition of the shares held in the trust.
Any proceeds in excess of this amount shall be paid to the charitable
beneficiary.
We will automatically repurchase shares to the extent necessary to prevent
any violation of the ownership limits resulting from events other than the
actual or constructive acquisition of capital stock by the holder. For example,
changes in the relative value of different classes of our capital stock could
lead to a violation of the ownership limits and trigger an automatic repurchase.
In the event of any automatic repurchase, the repurchase price of each share o
will be equal to the market price on the date of the event that resulted in the
repurchase. Any dividend or other distribution paid to a holder of repurchased
shares prior to the discovery by us that the shares have been automatically
repurchased by us as described above must be repaid to us upon demand.
If shares of capital stock which would cause us to be beneficially owned by
less than 100 persons are issued or transferred to any person, the issuance or
transfer shall be null and void to the intended transferee, and the intended
transferee will acquire no rights to the stock.
The board of directors may waive the ownership limits for a particular
stockholder if the board of directors and our tax counsel are satisfied that the
ownership will not jeopardize our status as a REIT. As a condition of the
waiver, the board of directors may require opinions of counsel satisfactory to
it or an undertaking from the applicant with respect to preserving our REIT
status.
In addition to any of the foregoing ownership limits, no holder may own,
either actually or constructively under the applicable attribution rules of the
Internal Revenue Code, any shares of any class of our capital stock if:
* more than 50% in value of our outstanding capital stock would be owned,
either actually or constructively under the applicable attribution rules of
the Internal Revenue Code, by five or fewer individuals. For this purpose,
individuals include the entities that are set forth in Section 542(a)(2) of
the Internal Revenue Code;
* our capital stock would be beneficially owned by less than 100 persons,
determined without reference to any rules of attribution; or
* we would fail to qualify as a REIT.
Actual or constructive acquisition or ownership of our capital stock in
violation of these restrictions will result in automatic transfer of such stock
to a trust for the benefit of a charitable beneficiary, our automatic repurchase
of the violative shares, or voiding the violative transfer, as described above.
If the board of directors shall at any time determine in good faith that a
person intends to acquire or own, has attempted to acquire or own, or may
acquire or own our capital stock in violation of the limits described above, the
board of directors shall take actions to refuse to give effect to or to prevent
the ownership or acquisition. These actions include but are not limited to
authorizing us to repurchase stock, refusing to give effect to such ownership or
o acquisition on our books, or instituting proceedings to enjoin such ownership
or acquisition.
The constructive ownership rules are complex and may cause common stock or
convertible preferred stock owned actually or constructively by a group of
related individuals or entities to be constructively owned by one individual or
entity. As a result, the acquisition of less than 9.8% of the outstanding common
stock or less than 9.8% of the outstanding convertible preferred stock, or the
acquisition of an interest in an entity which owns common stock or convertible
preferred stock by an individual or entity could cause that individual or
entity, or another individual or entity, to constructively own common stock or
convertible preferred stock in excess of the limits described above.
All certificates representing shares of our capital stock bear a legend
referring to the restrictions described above.
All persons who own at least a specified percentage of the outstanding
shares of our stock must file with us a completed questionnaire annually
containing information about their ownership of the shares, as set forth in the
Treasury Regulations. Under current Treasury Regulations, the percentage will be
set between 0.5% and 5.0%, depending on the number of record holders of shares.
In addition, each stockholder may be required to disclose to us in writing
information about the actual and constructive ownership of shares as the board
of directors deems necessary to comply with the provisions of the Internal
Revenue Code applicable to a REIT or to comply with the requirements of any
taxing authority or governmental agency.
These ownership limitations could discourage a takeover or other
transaction in which holders of some, or a majority, of shares of common stock
or convertible preferred stock might receive a premium for their shares over the
then prevailing market price or which stockholders might believe to be otherwise
in their best interest.
Registration Rights Agreements
Under various registration rights agreements, we have shelf registration
statements effective or have agreed to file a registration statement that cover:
* the resale of shares of convertible preferred stock and shares of common
stock and the issuance of shares of common stock upon exchange of common
units that were issued in private placements at the time of and since our
formation; and
* the exchange of exchangeable debentures and exchangeable preferred units
for convertible preferred stock.
We must use our best efforts to maintain the effectiveness of these registration
statements. The exchange of outstanding securities for common stock and
convertible preferred stock will increase the number of outstanding shares of
common stock and convertible preferred stock, and will increase our percentage
ownership interest in First Washington Limited Partnership.
NYSE Listing
The common stock is listed on the NYSE under the symbol "FRW." The
convertible preferred stock is listed on the NYSE under the symbol "FRW pf."
Transfer Agent
American Stock Transfer & Trust Company is the transfer agent and registrar
for the shares of common stock and convertible preferred stock.
PARTNERSHIP AGREEMENT
The following description of the partnership agreement is only a summary.
For a complete description, we refer you to the partnership agreement.
Management
First Washington Limited Partnership was organized as a Maryland limited
partnership pursuant to the Maryland Revised Uniform Limited Partnership Act and
the terms of the First Amended and Restated Agreement of Limited Partnership.
First Washington is the sole general partner and the holder of a majority of the
units of First Washington Limited Partnership. Generally, pursuant to the
partnership agreement, First Washington has full, exclusive and complete
responsibility and discretion in the management and control of First Washington
Limited Partnership, subject to limited exceptions. The limited partners of
First Washington Limited Partnership generally have no authority to participate
in or exercise control or management power over the business and affairs of
First Washington Limited Partnership.
Transferability of Interests
The partnership agreement generally provides that First Washington may not
voluntarily withdraw from First Washington Limited Partnership, or transfer or
assign its interest in First Washington Limited Partnership. The limited
partners, on the other hand, may transfer their interests in First Washington
Limited Partnership to a qualified transferee, as defined in the partnership
agreement. Both First Washington and First Washington Limited Partnership have a
right of first refusal in the case of transfer by the limited partners. No
transferee may become a substituted limited partner without our consent.
Capital Contributions
If we determine that First Washington Limited Partnership requires
additional funds at any time, then we, to the extent consistent with our REIT
status, will borrow such funds from a lender and lend such funds to First
Washington Limited Partnership on comparable terms. We will contribute the
amount of any required additional funds which were not borrowed from a lender as
an additional capital contribution to First Washington Limited Partnership. If
we contribute additional capital to First Washington Limited Partnership, our
partnership interest in First Washington Limited Partnership will be increased
on a proportionate basis based upon the amount of the additional capital
contributions. Conversely, the partnership interests of the limited partners
will be decreased on a proportionate basis in the event of additional capital
contributions by First Washington.
Exchange Rights
Under the partnership agreement, the holders of common units have the right
to require First Washington Limited Partnership to redeem part or all of their
common units for cash. We may elect to acquire the common units tendered for
redemption in exchange for shares of common stock on a one-for-one basis.
However, a holder of common units may not effect an exchange or a redemption if
an exchange for common stock would cause any person to violate any provision of
our charter, including those provisions relating to restrictions on ownership
and transfer of our capital stock. Holders of exchangeable preferred units may
require that we acquire exchangeable preferred units for shares of convertible
preferred stock on a one-for-one basis, subject to the limitation set forth in
the charter. See "Description of Capital Stock--Restrictions on Ownership,
Transfers and Conversion."
Tax Matters
As provided in the partnership agreement, First Washington is the tax
matters partner of First Washington Limited Partnership. Accordingly, First
Washington makes whatever tax elections must be made under the Internal Revenue
Code. The net income or net loss of First Washington Limited Partnership will
generally be allocated to First Washington and the limited partners in
accordance with priorities of distribution. See "Federal Income Tax
Consequences--Tax Aspects of First Washington Limited Partnership."
Operations
The partnership agreement requires that First Washington Limited
Partnership be operated in a manner that will enable us to satisfy the
requirements for classification as a REIT. The partnership agreement provides
that distributions of cash will be distributed from time to time as determined
by us. Distributions will be pro rata in accordance with the distribution rights
of the holders of the preferred units and the common units. Under the
partnership agreement, subject to some exceptions, First Washington Limited
Partnership will also assume and pay when due, or reimburse us for payment of,
all costs and expenses relating to the ownership of interests in and operation
of First Washington Limited Partnership.
Duties and Conflicts
The partnership agreement provides generally that all of our business
activities must be conducted through First Washington Limited Partnership.
Term
The term of First Washington Limited Partnership continues until December
31, 2094, or until sooner dissolved upon the occurrence of other specified
events.
Indemnification
The partnership agreement provides that First Washington Limited
Partnership will indemnify First Washington and the officers and directors of
First Washington or First Washington Management against any and all claims,
demands, actions, suits or proceedings, civil, criminal, administrative or
investigative, that relate to the operations of First Washington Limited
Partnership. First Washington's liability to First Washington Limited
Partnership and its partners for losses sustained, liabilities incurred or
benefits not derived as a result of good faith errors, mistakes of fact or law,
or acts or omissions is limited. See "Limitation of Liability and
Indemnification."
EXCHANGE OF THE UNITS
Terms of the Exchange of Common Units
We have issued 1,043,109 common units of First Washington Limited
Partnership to the prior owners of or to the partners of entities that owned
properties as consideration for the contribution of these properties to First
Washington Limited Partnership. Information about the properties, date of
contribution, number of units and the date the units become exchangeable is set
forth below:
Property Contribution Date Date Exchangeable No. of Units
- ------------- ------------------- ------------------- ------------
Mitchellville 10/01/97 10/31/98 79,773
Mitchellville 10/01/97 10/31/98 62,250
Mitchellville 10/01/97 10/31/98 42,842
Shopping Centers
Located in the
Chicago Area 9/01/97 10/31/98 750,829
Shopping Centers
Located in the
Chicago Area 9/01/97 10/31/98 60,362
Shopping Centers
Located in the
Chicago Area 9/01/97 10/31/98 44,708
Shopping Centers
Located in the
Chicago Area 9/01/97 10/31/98 469
Shopping Centers
Located in the
Chicago Area 9/01/97 10/31/98 469
Shopping Centers
Located in the
Chicago Area 9/01/97 10/31/98 469
Shopping Centers
Located in the
Chicago Area 9/01/97 10/31/98 469
Shopping Centers
Located in the
Chicago Area 9/01/97 10/31/98 469
- ---------------- ---------------------- ---------------- ------------------
Holders of these common units may exchange their common units for cash, or
at our discretion, for a like number of shares of common stock. These shares of
common stock may be resold at any time. The number of shares of stock for which
the holders of units may exchange their units may be adjusted in the event of
stock splits, stock dividends, issuance of rights, extraordinary distributions
and similar events.
A holder of common units effecting an exchange must deliver to us a notice
of exchange. The tendering holder shall have the right to receive an amount of
cash from First Washington Limited Partnership equal to the cash amount, as
defined in the partnership agreement, on the valuation date, as defined in the
partnership agreement. We may elect to acquire these tendered common units in
exchange for a like number of shares of common stock. If we do so, the tendering
holder shall have no right to cause First Washington Limited Partnership to
redeem the common units in exchange for the cash amount.
The shares of common stock exchanged for tendered units shall be delivered
as duly authorized, validly issued, fully paid and nonassessable shares, free of
any pledge, lien, encumbrance or restriction, other than those provided in our
charter and bylaws, relevant state and federal securities laws, and any
applicable registration rights agreement entered into by the tendering holder.
Even if delivery is delayed, the tendering holder shall be deemed the owner of
the shares and rights for all purposes, as of the date of the exchange notice.
Each tendering holder shall continue to own all units subject to any
exchange, and be treated as a limited partner with respect to the units for all
purposes, until the units are transferred to us and paid for on the date of the
exchange notice. Until the date of the exchange notice, the tendering holder
shall have no rights as one of our stockholders.
Conditions to the Exchange
We will issue shares of stock in exchange for units to a tendering holder
promptly upon receipt of a notice of exchange unless:
* an exchange would cause the tendering holder or any other person to violate
the Restrictions on Ownership and Transfer provisions of the charter;
* the exchange is for less than 100 units, or if the tendering holder holds
less than 100 units, the exchange is for less than all of the units held by
the tendering holder; or
* the tendering holder wishes to effect an exchange during the period between
the record date established by us for a distribution from First Washington
Limited Partnership to the partners in First Washington Limited Partnership
and the record date established by us for a distribution to our
stockholders of some or all of our portion of the distribution.
Any attempted exchange in violation of any of the foregoing conditions
shall be void and the tendering holder shall not acquire any rights or economic
interest in the shares of stock otherwise issuable upon the exchange.
Comparison of First Washington and First Washington Limited Partnership
Generally the nature of an investment in common stock is similar in several
respects to an investment in the units of First Washington Limited Partnership.
Holders of common stock and holders of common units receive similar
distributions. Shareholders and holders of units generally share in the risks
and rewards of ownership in the enterprise being conducted by us through First
Washington Limited Partnership. However, there are also differences between
ownership of units and ownership of stock, some of which may be material to
investors.
The information below highlights a number of the significant differences
between First Washington and First Washington Limited Partnership including form
of organization, management control, voting rights, liquidity and federal income
tax considerations. These comparisons are intended to assist holders of units in
understanding how their investment will be changed if they exchange their units
for common stock. This discussion is only a summary and does not constitute a
complete discussion of these matters. Holders of units should carefully review
the balance of this prospectus and the registration statement of which this
prospectus is a part for additional important information.
Form of Organization and Assets Owned
First Washington Limited Partnership is organized as a Maryland limited
partnership. First Washington Limited Partnership owns interests in properties
and other partnerships. First Washington Limited Partnership's purpose is to
conduct any business that may be lawfully conducted by a limited partnership
organized under the Maryland Revised Uniform Limited Partnership Act. However,
its business must be conducted in a manner that permits First Washington to
qualify as a REIT unless it otherwise ceases to qualify as a REIT.
First Washington is a Maryland corporation. It has elected to be taxed as a REIT
under the Internal Revenue Code, commencing with our taxable year ended December
31, 1994. It intends to maintain its qualification as a REIT. Its primary asset
is its interest in First Washington Limited Partnership, which gives it an
indirect investment in the properties owned by First Washington Limited
Partnership. Under its charter, First Washington may engage in any lawful
activity permitted under Maryland law. However, under the partnership agreement,
First Washington, as general partner, may not conduct any business other than
the business of First Washington Limited Partnership.
Additional Equity
First Washington Limited Partnership may issue common units, exchangeable
preferred units and other partnership interests in exchange for additional
capital contributions as determined by First Washington, in its sole discretion.
These partnership interests may include partnership interests of different
series or classes that may be senior to common units. In exchange for capital
contributions, First Washington Limited Partnership may issue common units and
other partnership interests to First Washington, may issue additional common
units to existing limited partners, and may admit third parties as additional
limited partners.
The board of directors may, in its discretion, authorize the issuance of
additional common stock or shares of convertible preferred stock. However, the
total number of shares issued cannot exceed the authorized number of shares of
stock set forth in the charter. As long as First Washington Limited Partnership
is in existence, the proceeds of all equity capital raised by First Washington
will be contributed to First Washington Limited Partnership in exchange for
units in First Washington Limited Partnership.
Management Control
All management powers over the business and affairs of First Washington Limited
Partnership are vested in First Washington as the general partner. No limited
partner of First Washington Limited Partnership has any right to participate in
or exercise control or management power over the business and affairs of First
Washington Limited Partnership except:
* First Washington may not dispose of all or substantially all of First
Washington Limited Partnership's assets without the consent of the holders
of two-thirds of the outstanding common units; and
* First Washington is limited in its ability to cause or permit First
Washington Limited Partnership to dissolve. See "Vote Required to Dissolve
First Washington Limited Partnership or First Washington" below.
<PAGE>
First Washington may not be removed as general partner by the holders of common
units with or without cause.
First Washington's business and affairs are managed under the direction of its
board of directors, subject to restrictions in the charter and bylaws. The Board
is classified into three classes of directors. At each annual meeting of the
stockholders, the successors of the class of directors whose terms expire at
that meeting will be elected. The board of directors may alter or eliminate its
policies without a vote of the stockholders. Accordingly, except for their vote
in the elections of directors, stockholders have no control over First
Washington's ordinary business policies. However, the board of directors cannot
change the policy of maintaining status as a REIT without the approval of
holders of a majority of the outstanding common stock.
Duties of General Partners and Directors
Under Maryland law, First Washington, as general partner, is accountable to
First Washington Limited Partnership as a fiduciary. Consequently, First
Washington is required to exercise good faith and integrity in all of its
dealings with respect to partnership affairs. However, under the partnership
agreement, First Washington is not liable for monetary damages for losses
sustained or liabilities incurred by partners as a result of good faith errors
of judgment, acts or omissions.
Under Maryland law, the directors must perform their duties in good faith, in a
manner that they reasonably believe to be in First Washington's best interests
and with the care of an ordinarily prudent person in a like position under
similar circumstances. Directors who act in such a manner generally will not be
liable by reason of being a director.
Management Liability and Indemnification
As a matter of Maryland law, First Washington, as the general partner, has
liability for the payment of the obligations and debts of First Washington
Limited Partnership unless limitations upon such liability are stated in the
document or instrument evidencing the obligations. Under the partnership
agreement, First Washington Limited Partnership has agreed to indemnify First
Washington and any of its directors or officers from and against all losses,
claims, damages, liabilities, joint or several, expenses including legal fees
and expenses, judgments, fines, settlements and other amounts incurred in
connection with any actions relating to the operations of First Washington
Limited Partnership. However, First Washington Limited Partnership will not be
required to indemnify First Washington or its officers and directors if:
* a bad faith act was material to the action;
* First Washington or its officers or directors received an improper personal
benefit; or
* in the case of any criminal proceeding, First Washington or its officers or
directors had reasonable cause to believe the act was unlawful.
The reasonable expenses incurred by an indemnitee may be reimbursed by First
Washington Limited Partnership before the final disposition of the proceeding.
First, however, the indemnitee must deliver to First Washington Limited
Partnership an affirmation of his, her or its good faith belief that the
<PAGE>
standard of conduct necessary for indemnification has been met and an
undertaking that the indemnitee shall repay the amount if it is determined that
such standard was not met.
The charter contains a provision which eliminates the liability of directors and
officers to First Washington and its stockholders to the fullest extent
permitted by Maryland law. The bylaws provide for indemnification to directors
and officers to the same extent that the directors and officers, as officers and
directors of the general partner of First Washington Limited Partnership, have
indemnification rights under the partnership agreement.
<PAGE>
Antitakeover Provisions
Except in limited circumstances (See "Voting Rights" below), First
Washington has exclusive management power over the business and affairs of First
Washington Limited Partnership. First Washington may not be removed as general
partner by the limited partners with or without cause. A limited partner may
generally transfer its limited partnership interest without restriction.
However, both First Washington and First Washington Limited Partnership have a
right of first refusal for any proposed transfer.
First Washington's charter and bylaws contain a number of provisions that
may delay or discourage an unsolicited proposal for acquisition or the removal
of incumbent management. These provisions include:
* a staggered board of directors;
* authorized stock that may be issued as preferred stock in the discretion of
the board of directors, with voting or other rights superior to the common
stock;
* a requirement that directors may be removed only for cause and only by the
affirmative vote of two-thirds of the aggregate number of votes then
entitled to be cast generally in the election of directors;
* provisions designed to avoid concentration of share ownership in a manner
that would jeopardize the status as a REIT under the Internal Revenue Code;
and
* a stockholder rights plan.
See "Description of Capital Stock-Restrictions on Ownership, Transfer and
Conversion." Maryland law also contains provisions which could delay, defer or
prevent a change of control or other transaction. See "Provisions of Maryland
Law and First Washington's Charter and Bylaws."
Voting Rights
Under the partnership agreement, the limited partners have voting rights only as
to the dissolution of First Washington Limited Partnership, the sale of all or
substantially all of the assets or merger of First Washington Limited
Partnership, and specified amendments to the partnership agreement, as described
more fully below. Otherwise, First Washington makes all decisions relating to
the operation and management of First Washington Limited Partnership. As holders
of common units exchange their common units, First Washington's percentage
ownership of the common units will increase. If additional units are issued to
third parties, First Washington's percentage ownership of the units will
decrease.
The board of directors consists of three classes having staggered three-year
terms of office. Stockholders elect one class at each annual meeting of
stockholders. Maryland law requires that major corporate transactions, including
most amendments to the charter, must have stockholder approval as set forth
below. All shares of common stock have one vote per share. The charter permits
the board of directors to classify and authorize the issuance of preferred stock
in one or more series having voting power which may differ from that of the
common stock. "See Description of Capital Stock."
<PAGE>
The following is a comparison of the voting rights of the holders of units
of First Washington Limited Partnership and First Washington's stockholders as
they relate to major transactions:
A. Amendment of the Partnership Agreement or the Charter
The partnership agreement may be amended through a proposal by First Washington
as the general partner or any limited partner. Such proposal, in order to be
effective, must be approved by First Washington and by the written vote of
holders of at least a majority of the outstanding common units and exchangeable
preferred units. Each affected limited partner must approve amendments that
affect the fundamental rights of a holder of common units. In addition, First
Washington may, without the consent of the holders of common units, amend the
partnership agreement as to ministerial matters.
Under Maryland law and the charter, the board of directors and holders of shares
entitled to cast at least a majority of the votes entitled to be cast on the
matter generally must approve amendments to the charter.
B. Vote Required to Dissolve First Washington Limited Partnership
or First Washington
First Washington may not elect to dissolve First Washington Limited Partnership
without the prior written consent of the holders of at least a majority of the
outstanding common units and exchangeable preferred units.
Under Maryland law and the charter, the board of directors and holders of at
least a majority of the shares entitled to vote on the matter must approve
dissolution of First Washington.
C. Vote Required to Sell Assets or Merge
Under the partnership agreement, the disposition of all or substantially all of
First Washington Limited Partnership's assets or merger or consolidation of
First Washington Limited Partnership requires First Washington's consent and
that of holders of at least a majority of the outstanding common units and
exchangeable preferred units.
Under Maryland law and the charter, the sale of all or substantially all of
First Washington's assets or a merger or a consolidation of First Washington
requires the approval of the board of directors and holders of at least a
majority of the votes entitled to be cast on the matter. The sale of less than
all or substantially all of First Washington's assets does not require approval
of the stockholders.
<PAGE>
Compensation, Fees and Distributions
First Washington does not receive any compensation for its services as general
partner of First Washington Limited Partnership. As a partner in First
Washington Limited Partnership, however, First Washington has the same right to
receive pro rata allocations and distributions as other partners of First
Washington Limited Partnership. In addition, First Washington Limited
Partnership will reimburse First Washington for all expenses incurred relating
to its ongoing operation and any other offering of additional partnership
interests in First Washington Limited Partnership.
First Washington's officers and outside directors may receive compensation for
their services.
Liability of Investors
Under the partnership agreement and applicable Maryland law, the liability of
the holders of common units and exchangeable preferred units for First
Washington Limited Partnership's debts and obligations is generally limited to
the amount of their investment in First Washington Limited Partnership.
Under Maryland law, First Washington's stockholders are not personally liable
for First Washington's debts or obligations.
Liquidity
First Washington may not transfer its units except to a successor general
partner with the consent of a majority in interest of the limited partners.
Limited partners may generally transfer their units without restriction,
provided that both First Washington Limited Partnership and First Washington
have a right of first refusal for any proposed transfer.
The shares of stock will be freely transferable as registered securities under
the Securities Act, subject to prospectus delivery and other requirements for
registered securities.
Taxes
First Washington Limited Partnership itself is not subject to Federal income
taxes. Instead, each holder of units includes its allocable share of First
Washington Limited Partnership's taxable income or loss in determining its
individual federal income tax liability. Depending on facts that are particular
to each holder, a unit holder's allocable share of income and loss from First
Washington Limited Partnership may be subject to the "passive activity"
limitations. Under the "passive activity" rules, a unit holder's allocable share
of income and loss from First Washington Limited Partnership that is considered
"passive" generally can be offset only against a holder's income and loss from
other investments that constitute "passive activities." Cash distributions from
First Washington Limited Partnership are generally not taxable to a holder of
units. However, to the extent cash distributions exceed a holder's basis in its
interest in First Washington Limited Partnership, they
<PAGE>
are taxable to the holder of the units. A holder's basis in its interest in
First Washington Limited Partnership will include the holder's allocable share
of First Washington Limited Partnership's nonrecourse debt. Holders of common
units may be required to file state income tax returns and/or pay state income
taxes in the states in which First Washington Limited Partnership owns property,
even if they are not residents of those states.
Dividends paid by First Washington will be treated as "portfolio" income and
cannot be offset with losses from "passive activities." Distributions made by
First Washington to its taxable domestic stockholders out of current or
accumulated earnings and profits will be taken into account by domestic
stockholders as ordinary income. Distributions that are designated as capital
gain dividends generally will be taxed as capital gain at a rate of 20% or 25%.
Distributions in excess of current or accumulated earnings and profits will be
treated as a non-taxable return of basis to the extent of a stockholder's
adjusted basis in its stock, with the excess taxed as capital gain. See "Federal
Income Tax Consequences -- Taxation of Taxable U.S. Stockholders." First
Washington may be required to pay state income taxes in certain states.
<PAGE>
PROVISIONS OF MARYLAND
LAW AND FIRST WASHINGTON'S CHARTER AND BYLAWS
The following paragraphs summarize provisions of Maryland law and describe
First Washington's charter and bylaws. This is a summary, and does not
completely describe Maryland law, our charter or our bylaws. For a complete
description, we refer you to the Maryland General Corporation Law, our charter
and our bylaws.
Classification of the Board of Directors
Under the bylaws, the number of our directors may be established by the
board of directors. However, this number may not be fewer than the minimum
number required under Maryland law nor more than fifteen. Maryland law requires
a minimum of three directors under current circumstances. A vacancy resulting
from an increase in the number of directors may be filled by a majority vote of
the entire board of directors. Other vacancies will be filled, at any regular
meeting or at any special meeting called for that purpose, by a majority of the
remaining directors. Pursuant to the charter, the directors are divided into
three classes. Currently there are seven directors. Two directors hold office
for a term which expires at the annual meeting of stockholders to be held in May
1999. Three directors hold office for a term which expires at the annual meeting
of stockholders to be held in May 2000. Two directors hold office for a term
which expires at the annual meeting of stockholders to be held in May 2001. As
the term of each class expires, directors in that class will be elected for a
term of three years and until their successors are duly elected and qualify. We
believe that classification of the board of directors helps to assure the
continuity and stability of our business strategies and policies.
The classification of the Board may make the replacement of incumbent
directors more time-consuming and difficult. This could discourage a third party
from making a tender offer or otherwise attempting to obtain control of us, even
though such an attempt might be beneficial to us and our stockholders. A change
in a majority of the board of directors will generally require at least two
annual meetings of stockholders, instead of one. Thus, the classified board
provision could increase the likelihood that incumbent directors will retain
their positions. Holders of common stock have no right to cumulative voting for
the election of directors. Consequently, at each annual meeting of stockholders,
the holders of a majority of shares of common stock can elect all of the
successors of the class of directors whose term expires at that meeting and the
holders of the remaining shares of common stock cannot elect any directors.
Removal of Directors
The charter provides that a director may be removed only for cause, as
defined in the charter, and only by the affirmative vote of at least two-thirds
of the votes entitled to be cast generally in the election of directors.
Therefore, because the board of directors is authorized to fill vacant
directorships, stockholders may not both remove incumbent directors and fill the
vacancies created by such removal with their own nominees.
Business Combinations
Under Maryland law, "business combinations" between a Maryland corporation
and an interested stockholder or an affiliate of an interested stockholder are
prohibited for five years after the most recent date on which the interested
stockholder becomes an interested stockholder. These business combinations
include a merger, consolidation, share exchange, or, in circumstances specified
in the statute, an asset transfer or issuance or reclassification of equity
securities. An interested stockholder is defined as:
* any person who beneficially owns ten percent or more of the voting power of
the corporation's shares; or
* an affiliate of the corporation who, at any time within the two-year period
prior to the date in question, was the beneficial owner of ten percent or
more of the voting power of the then outstanding voting stock of the
corporation.
After the five-year prohibition, any business combination between the
Maryland corporation and an interested stockholder generally must be recommended
by the board of directors of the corporation and approved by the affirmative
vote of at least:
* 80% of the votes entitled to be cast by holders of outstanding shares of
voting stock of the corporation; and
* two-thirds of the votes entitled to be cast by holders of voting stock of
the corporation other than shares held by the interested stockholder with
whom or with whose affiliate the business combination is to be effected.
These super-majority vote requirements do not apply if the corporation's common
stockholders receive a minimum price, as defined under Maryland law, for their
shares in the form of cash or other consideration in the same form as previously
paid by the interested stockholder for its shares. None of these provisions of
the Maryland law will apply, however, to business combinations that are approved
or exempted by the board of directors of the corporation prior to the time that
the interested stockholder becomes an interested stockholder. Our board of
directors has exempted from these provisions of Maryland law any business
combination involving Messrs. Halpert and Wolfe and any of their affiliates or
associates or any person acting in concert with any of such persons. As a
result, these persons may be able to enter into business combinations with us
that may not be in the best interest of our stockholders, without compliance
with the super-majority vote requirements and the other provisions of the
statute.
The business combination statute may discourage others from trying to
acquire control of us and increase the difficulty of consummating any offer.
Control Share Acquisitions
Maryland law provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter. Shares of stock owned by the acquiror, by officers or by directors who
are employees of the corporation are excluded from shares entitled to vote on
the matter. "Control shares" are voting shares of stock which, if aggregated
with all other shares of stock owned by the acquiror or shares of stock for
which the acquiror is able to exercise or direct the exercise of voting power
except solely by virtue of a revocable proxy, would entitle the acquiror to
exercise voting power in electing directors within one of the following ranges
of voting power:
* one-fifth or more but less than one-third;
* one-third or more but less than a majority; or
* a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled
to vote as a result of having previously obtained stockholder approval. Except
as otherwise specified in the statute, a "control share acquisition" means the
acquisition of control shares.
Once a person who has made or proposes to make a control share acquisition
has undertaken to pay expenses and satisfied other conditions, the person may
compel the board of directors to call a special meeting of stockholders to be
held within 50 days of demand to consider the voting rights of the shares. If no
request for a meeting is made, the corporation may itself present the question
at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to the conditions and limitations in the statute, the corporation may
redeem any or all of the control shares for fair value, except for control
shares for which voting rights previously have been approved. Fair value is
determined without regard to the absence of voting rights for control shares, as
of the date of the last control share acquisition or of any meeting of
stockholders at which the voting rights of control shares are considered and not
approved. If voting rights for control shares are approved at a stockholders
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The fair
value of the shares as determined for purposes of these appraisal rights may not
be less than the highest price per share paid in the control share acquisition.
Some of the limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction or to acquisitions approved or exempted by the charter or bylaws of
the corporation.
Our bylaws contain a provision exempting from the control share acquisition
statute any and all acquisitions by any person of our shares of stock. Our board
of directors may amend or eliminate this provision at any time in the future.
Amendment to the Charter
Provisions of our charter on classification of the board of directors,
removal of directors, voting rights of common stock and voting requirements for
charter amendments may be amended only by the affirmative vote of the holders of
not less than two-thirds of all of the votes entitled to be cast on the matter.
Other amendments to our charter require the affirmative vote of holders of
shares entitled to cast a majority of all the votes entitled to be cast on the
matter.
Amendment to the Bylaws
Our board of directors has the exclusive power to adopt, alter or repeal
any provision of our bylaws and to make new bylaws.
Dissolution of the Company
Our dissolution must be approved by the affirmative vote of the holders of
not less than a majority of all of the votes entitled to be cast on the matter.
Advance Notice of Director Nominations and New Business;
Procedures of Special Meetings Requested by Stockholders
Our bylaws provide that nominations of persons for election to the board of
directors and the proposal of business to be considered by stockholders at the
annual meeting of stockholders may be made only:
* pursuant to our notice of the meeting;
* by or at the direction of the board of directors; and
* by a stockholder who is entitled to vote at the meeting and has complied
with the advance notice procedures, including the minimum time period, set
forth in the bylaws.
Our bylaws also provide that only the business specified in our notice of
meeting may be brought before a special meeting of stockholders. Nominations of
persons for election to the board of directors at a special meeting of
stockholders may be made only:
* pursuant to our notice of the meeting;
* by or at the direction of the board of directors; or
* provided that the board of directors has determined that directors shall be
elected to such meeting, by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice provisions, including the
minimum time period, set forth in the bylaws.
Our bylaws contain special procedures applicable to a special meeting of
stockholders that is called at the request of stockholders entitled to cast not
less than a majority of all the votes entitled to be cast at the meeting.
Stockholder Rights Plan
Our board of directors has adopted a stockholder rights plan as set forth
in a Rights Agreement dated October 10, 1998, as amended from time to time,
between First Washington and American Stock Transfer & Trust Company, as rights
agent. The Rights Agreement assigns one right to purchase a fraction of our
newly created series of preferred stock for each share of our common stock owned
on or after October 26, 1998. Initially, the rights will not be exercisable and
will not trade separately from the common stock. Stockholders will be able to
exercise their rights if a person or group initiates an unsolicited takeover by
acquiring at least 15% of our common stock or by making a tender offer to
acquire 15% or more of our common stock. Ultimately, if an unsolicited acquiror
gains control of us, stockholders, other than the acquiror, would be able to
purchase our common stock or the acquiror's stock at a 50% discount. The rights
plan will expire on October 26, 2008.
Anti-Takeover Effect of Provisions of Maryland Law
and of the Charter and Bylaws
The provisions in the charter on classification of the board of directors
and removal of directors, the business combination and, if the applicable
provision in our bylaws is rescinded, the control share acquisition provisions
of Maryland law, the advance notice provisions of our bylaws, the provisions of
our bylaws relating to stockholder-requested special meetings and our
stockholder rights plan may delay, defer or prevent a change of control or other
transaction in which holders of some, or a majority, of the common stock might
receive a premium for their common stock over the then prevailing market price
or which such holders might believe to be otherwise in their best interests.
Limitation of Liability and Indemnification
Maryland law permits a Maryland corporation to include in its charter a
provision eliminating the liability of its directors and officers to the
corporation and its stockholders for money damages. However, a Maryland
corporation may not eliminate liability resulting from actual receipt of an
improper benefit or profit in money, property or services. Also, liability
resulting from active and deliberate dishonesty may not be eliminated if a final
judgment establishes that the dishonesty is material to the cause of action.
Our charter contains a provision which eliminates liability of directors and
officers to the maximum extent permitted by Maryland law. This provision does
not limit our right or that of our stockholders to obtain equitable relief, such
as an injunction or rescission.
Our charter authorizes us:
* to the maximum extent permitted by Maryland law, to indemnify any present
or former director or officer from and against any claim or liability
incurred by reason of his status as one of our present or former directors
or officers;
* to the maximum extent permitted by Maryland law, to pay or reimburse
reasonable expenses before final disposition of a proceeding to any present
or former director or officer incurred by reason of his status as one of
our present or former directors or officers; and
* to indemnify any other persons permitted but not required to be indemnified
by Maryland law.
The bylaws obligate us, to the maximum extent permitted by Maryland law, to
indemnify and to pay or reimburse reasonable expenses before final disposition
of a proceeding to:
* any present or former director or officer who is made a party to the
proceeding by reason of his service in that capacity; or
* any individual who, while one of our directors and at our request, serves
or has served another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity.
The bylaws also permit us to indemnify and advance expenses to any person
who served one of our predecessors in any of the capacities described above and
to any of our or our predecessors' employees or agents.
Unless a corporation's charter provides otherwise, Maryland law requires a
corporation to indemnify a director or officer who has been successful, on the
merits or otherwise, in the defense of any proceeding to which he is made a
party by reason of his service in that capacity. Our charter does not alter this
requirement.
Maryland law permits a corporation to indemnify its present and former
directors and officers, among others, against:
* judgments;
* penalties;
* fines;
* settlements; and
* reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made a party by reason of their service in
those or other capacities.
Maryland law does not permit a corporation to indemnify its present and
former directors and officers if it is established that:
* the act or omission of the director or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty;
* the director or officer actually received an improper personal benefit in
money, property or services; or
* in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
Under Maryland law, a Maryland corporation generally may not indemnify for
an adverse judgment in a suit by or in the right of the corporation. Also, a
Maryland corporation generally may not indemnify for a judgment of liability on
the basis that personal benefit was improperly received. In either of these
cases, a Maryland corporation may indemnify for expenses only if a court so
orders.
Maryland law permits a corporation to advance reasonable expenses to a
director or officer. First, however, the corporation must receive a written
affirmation by the director or officer of his good faith belief that he has met
the standard of conduct necessary for indemnification by the corporation. The
corporation must also receive a written undertaking, either by the director or
officer or on his behalf, to repay the amount paid or reimbursed by the
corporation if it shall ultimately be determined that the standard of conduct
was not met. The termination of any proceeding by conviction, or upon a plea of
nolo contendere or its equivalent, or an entry of any order of probation prior
to judgment, creates a rebuttable presumption that the director or officer did
not meet the requisite standard of conduct required for indemnification to be
permitted.
The partnership agreement also provides for indemnification of First
Washington, as general partner, and its officers and directors generally to the
same extent as permitted by Maryland law for a corporation's officers and
directors. The partnership agreement also limits the liability of First
Washington to First Washington Limited Partnership and its partners in the case
of losses sustained, liabilities incurred or benefits not derived as a result of
errors in judgment or mistakes of fact or law or any act or omission made in
good faith. It is the position of the Commission that indemnification of
directors and officers for liabilities arising under the Securities Act is
against public policy and is unenforceable pursuant to Section 14 of the
Securities Act.
FEDERAL INCOME TAX CONSEQUENCES
The following summary of material federal income tax consequences regarding
First Washington and the common stock we are registering is based on current
law, is for general information only and is not tax advice. The information in
this section is based on the Internal Revenue Code as currently in effect,
current, temporary and proposed Treasury Regulations promulgated under the
Internal Revenue Code, the legislative history of the Internal Revenue Code,
current administrative interpretations and practices of the IRS, including its
practices and policies as expressed in private letter rulings which are not
binding on the IRS except with respect to the particular taxpayers who requested
and received such rulings, and court decisions, all as of the date of this
prospectus. There is no assurance that future legislation, Treasury Regulations,
administrative interpretations and practices or court decisions will not
adversely affect existing interpretations. Any change could apply retroactively
to transactions preceding the date of the change.
We have not requested, and do not plan to request, any rulings from the IRS
concerning our tax treatment and the statements in this prospectus are not
binding on the IRS or a court. Thus, we can provide no assurance that these
statements will not be challenged by the IRS or sustained by a court if
challenged by the IRS.
The tax treatment to holders of common stock will vary depending on a
holder's particular situation and this discussion does not purport to deal with
all aspects of taxation that may be relevant to a holder of common stock in
light of his or her personal investments or tax circumstances, or to
stockholders subject to special treatment under the federal income tax laws
except to the extent discussed under the headings "Taxation of Tax-Exempt
Stockholders" and "Taxation of Non-U.S. Stockholders." Stockholders subject to
special treatment include, without limitation, insurance companies, financial
institutions or broker-dealers, tax-exempt organizations, stockholders holding
securities as part of a conversion transaction, or a hedge or hedging
transaction or as a position in a straddle for tax purposes, foreign
corporations and persons who are not citizens or residents of the United States.
In addition, the summary below does not consider the effect of any foreign,
state, local or other tax laws that may be applicable to holders of the common
stock.
If we meet the detailed requirements in the Internal Revenue Code for
qualification as a REIT which are summarized below, we will be treated as a REIT
for federal income tax purposes. In this case, we generally will not be subject
to federal corporate income taxes on our net income that is currently
distributed to our stockholders. This treatment substantially eliminates the
"double taxation" that generally results from investments in a corporation.
Double taxation refers to the imposition of corporate level tax on income
earned by a corporation and taxation at the shareholder level on funds
distributed to a corporation's shareholders. If we fail to qualify as a REIT in
any taxable year, we would not be allowed a deduction for dividends paid to our
stockholders in computing taxable income and would be subject to federal income
tax at regular corporate rates. Unless entitled to relief under specific
statutory provisions, we would be ineligible to be taxed as a REIT for the
four succeeding tax years. As a result the funds available for distribution to
our stockholders would be reduced.
Each prospective purchaser should consult his or her own tax advisor
regarding the specific tax consequences of the purchase, ownership and sale of
common stock, including the federal, state, local, foreign and other tax
consequences of such purchase, ownership and sale and of potential changes in
applicable tax laws.
Tax Consequences of Redemption or Exchange of Units
If you redeem or exchange units for cash or shares of stock, you will
recognize gain or loss because the redemption and exchange are each taxable
transactions. Depending upon your particular situation, it is possible that the
amount of gain you recognize or even your tax liability resulting from the gain
could exceed the amount of cash and the value of the shares of stock you receive
upon the redemption or exchange. You are advised to consult your own tax
advisors regarding the specific tax consequences of the redemption or exchange
of units, including the federal, state, local, foreign or other tax consequences
of this transaction.
Taxation of First Washington
General. We elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code, commencing with our taxable year ended December 31,
1994. We believe we have been organized and have operated in a manner which
qualifies for taxation as a REIT under the Internal Revenue Code commencing with
our taxable year ended December 31, 1994. We intend to continue to operate in
this manner. However, our qualification and taxation as a REIT depends upon our
ability to meet, through actual annual operating results, asset diversification,
distribution levels and diversity of stock ownership, the various qualification
tests imposed under the Internal Revenue Code. Accordingly, there is no
assurance that we have operated or will continue to operate in a manner so as to
qualify or remain qualified as a REIT. Further, legislative, administrative or
judicial action may change, perhaps retroactively, the anticipated income tax
treatment described in this prospectus. See "--Failure to Qualify."
The sections of the Internal Revenue Code that relate to the qualification
and operation as a REIT are highly technical and complex. The following sets
forth the material aspects of the sections of the Internal Revenue Code that
govern the federal income tax treatment of a REIT and its stockholders. This
summary is qualified in its entirety by the applicable Internal Revenue Code
provisions, relevant rules and regulations promulgated under the Internal
Revenue Code, and administrative and judicial interpretations of the Internal
Revenue Code, and these rules and these regulations.
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on our net income that is currently distributed
to our stockholders. This treatment substantially eliminates the "double
taxation" that generally results from investment in a corporation. However,
First Washington will be subject to federal income tax as follows:
First, we will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains.
Second, we may be subject to the "alternative minimum tax" on our items of
tax preference under some circumstances.
Third, if we have (a) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in the
ordinary course of business or (b) other nonqualifying income from foreclosure
property, we will be subject to tax at the highest corporate rate on this
income. Foreclosure property is defined generally as property we acquired
through foreclosure or after a default on a loan secured by the property or a
lease of the property.
Fourth, we will be subject to a 100% tax on any net income from prohibited
transactions. Prohibited transactions generally include sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business, other than the sale or disposition of foreclosure property.
Fifth, we will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which we fail the 75% or 95%
test multiplied by (b) a fraction intended to reflect our profitability, if we
fail to satisfy the 75% gross income test or the 95% gross income test but have
maintained our qualification as a REIT because we satisfied other requirements.
The gross income tests are discussed below.
Sixth, we would be subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed if we fail to distribute
during each calendar year at least the sum of:
* 85% of our REIT ordinary income for the year,
* 95% of our REIT capital gain net income for the year, and
* any undistributed taxable income from prior periods.
Seventh, if we acquire any asset from a corporation which is or has been a
C corporation in a transaction in which the basis of the acquired asset in our
hands is determined by reference to the basis of the asset in the hands of the C
corporation, and we subsequently recognize gain on the disposition of the asset
during the ten-year period beginning on the date on which we acquired the asset,
then we will be subject to tax at the highest regular corporate tax rate on this
gain to the extent of the "built-in-gain" of the asset. The built-in-gain of
an asset equals the excess of (a) the fair market value of the asset over (b)
our adjusted basis in the asset, determined as of the date we acquired the asset
from the C corporation. A C corporation is generally a corporation subject to
full corporate-level tax. The results described in this paragraph with respect
to the recognition of built-in gain assume that we will make an election
pursuant to IRS Notice 88-19 and that the availability or nature of such
election is not modified as proposed in the Clinton Administration's fiscal year
2000 budget proposal.
Requirements for Qualification as a REIT. The Internal Revenue Code defines
a REIT as a corporation, trust or association that:
(1) is managed by one or more trustees or directors;
(2) uses transferable shares or transferable certificates to evidence
beneficial ownership;
(3) would be taxable as a domestic corporation, but for Sections 856 through
860 of the Internal Revenue Code;
(4) is not a financial institution referred to in Section 582(c) of the
Internal Revenue Code or an insurance company to which subchapter L of the
Internal Revenue Code applies;
(5) is beneficially owned by 100 or more persons;
(6) during the last half of each taxable year not more than 50% in value of its
outstanding stock is owned, actually or constructively, by five or fewer
individuals, as defined in the Internal Revenue Code to include the
entities set forth in Section 542(a)(2) of the Internal Revenue Code; and
(7) meets other tests, described below, regarding the nature of its income and
assets and the amount of its distributions.
The Internal Revenue Code provides that conditions (1) to (4), inclusive,
must be met during the entire taxable year and that condition (5) must be met
during at least 335 days of a taxable year of twelve months, or during a
proportionate part of a taxable year of less than twelve months. Conditions (5)
and (6) do not apply until after the first taxable year for which an election is
made to be taxed as a REIT. For purposes of condition (6), pension funds and
some other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of pension funds.
We believe we have satisfied each of these conditions. In addition, our
charter provides for restrictions regarding ownership and transfer of shares.
These restrictions are intended to assist us in continuing to satisfy the share
ownership requirements described in (5) and (6) above. These ownership and
transfer restrictions are described in "Description of Capital
Stock--Restrictions on Ownership, Transfer and Conversion." Primarily, though
not exclusively, as a result of fluctuations in value among the different
classes of our stock, these restrictions may not ensure that we will, in all
cases, be able to satisfy the share ownership requirements described (5) and (6)
above. If we fail to satisfy these share ownership requirements, our status as a
REIT will terminate. However, if we comply with the rules contained in
applicable Treasury Regulations that require us to ascertain the actual
ownership of our shares and we do not know, or would not have known through the
exercise of reasonable diligence, that we failed to meet the requirement
described in condition (6) above, we will be treated as having met this
requirement. See "--Failure to Qualify."
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. We have and will continue to have a calendar
taxable year.
Ownership of Subsidiaries. We own interests in partnerships and limited
liability companies through subsidiaries. Internal Revenue Code Section 856(i)
provides that a corporation which is a "qualified REIT subsidiary" shall not be
treated as a separate corporation, and all assets, liabilities, and items of
income, deduction and credit of a "qualified REIT subsidiary" shall be treated
as assets, liabilities and items of income of the REIT for all purposes of the
Internal Revenue Code, including the REIT qualification tests. A "qualified REIT
subsidiary" is defined for taxable years beginning on or before August 5, 1997,
as any corporation if 100 percent of the stock of the corporation is held by the
REIT at all times during the period the corporation was in existence. A
"qualified REIT subsidiary" is defined for taxable years beginning after August
5, 1997, as any corporation 100 percent of the stock of which is owned by the
REIT, without regard to prior ownership. Each of our wholly-owned subsidiaries
qualifies as a "qualified REIT subsidiary." Thus, in applying the requirements
described herein, our wholly-owned subsidiaries are ignored, and all of our
wholly-owned subsidiaries' assets, liabilities and items of income, deduction
and credit are treated as our assets, liabilities and items of income,
deduction, and credit for all purposes of the Internal Revenue Code, including
the REIT qualification tests. For this reason, references under "Federal Income
Tax Consequences" to our income and assets include the income and assets of our
wholly-owned subsidiaries. Because our wholly-owned subsidiaries are treated as
"qualified REIT subsidiaries" they will not be subject to federal income tax. In
addition, our ownership of the voting securities of these subsidiaries will not
violate the restrictions against ownership of securities of any one issuer which
constitutes more than 10% of such issuer's voting securities or more than 5%
in value of our assets, described below under "-- Asset Tests."
Ownership of a Partnership Interest. In the case of a REIT which is a
partner in a partnership, IRS regulations provide that the REIT will be deemed
to own its proportionate share of the assets of the partnership. Also, a partner
in a partnership will be deemed to be entitled to the income of the partnership
attributable to its proportionate share. The character of the assets and gross
income of the partnership retains the same character in the hands of First
Washington for purposes of Section 856 of the Internal Revenue Code, including
satisfying the gross income tests and the asset tests. Thus, our proportionate
share of the assets, liabilities and items of income of First Washington Limited
Partnership, including First Washington Limited Partnership's share of these
items for any partnership or limited liability company, are treated as our
assets, liabilities and items of income for purposes of applying the
requirements described in this prospectus. We have included a summary of the
rules governing the Federal income taxation of partnerships and their partners
below in "--Tax Aspects of First Washington Limited Partnership." We have direct
control of First Washington Limited Partnership and will continue to operate it
consistent with the requirements for qualification as a REIT.
Income Tests. We must satisfy two gross income requirements annually to
maintain our qualification as a REIT.
First, each taxable year we must derive directly or indirectly at least 75%
of our gross income from investments relating to real property or mortgages on
real property, including "rents from real property" and, in specific
circumstances, interest, or from particular types of temporary investments.
Gross income from prohibited transactions is excluded for purposes of
determining if we satisfy this test. Second, each taxable year we must derive at
least 95% of our gross income from these real property investments, dividends,
interest and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing. Gross income from prohibited transactions is
excluded for purposes of determining if we satisfy these tests. The term
"interest" generally does not include any amount received or accrued, directly
or indirectly, if the determination of the amount depends in whole or in part on
the income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "interest" solely by reason of
being based on a fixed percentage or percentages of receipts or sales.
Rents we receive will qualify as "rents from real property" in satisfying
the gross income requirements for a REIT described above only if several
conditions are met.
First, the amount of rent must not be based in whole or in part on the
income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "rents from real property" solely
by reason of being based on a fixed percentage or percentages of receipts or
sales.
Second, the Internal Revenue Code provides that rents received from a
"related party tenant" will not qualify as "rents from real property" in
satisfying the gross income tests. A related party tenant is a tenant of First
Washington that First Washington, or one or more actual or constructive owners
of 10% or more of First Washington, actually or constructively own in the
aggregate 10% or more of such tenant.
Third, if rent attributable to personal property, leased in connection with
a lease of real property, is greater than 15% of the total rent received under
the lease, then the portion of rent attributable to personal property will not
qualify as "rents from real property."
Finally, for rents received to qualify as "rents from real property," First
Washington generally must not operate or manage the property or furnish or
render services to the tenants of the property, other than through an
independent contractor from whom First Washington derives no revenue. First
Washington may, however, directly perform services that are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant" of the property.
We generally do not and do not intend to:
* charge rent for any property that is based in whole or in part on the
income or profits of any person, except by reason of being based on a
percentage of receipts or sales, as described above;
* rent any property to a related party tenant;
* derive rental income attributable to personal property, other than personal
property leased in connection with the lease of real property, the amount
of which is less than 15% of the total rent received under the lease; or
* perform services considered to be rendered to the occupant of the property,
other than through an independent contractor from whom we derive no
revenue.
Notwithstanding the foregoing, we may have taken and may continue to take
the actions set forth above to the extent these actions will not, based on the
advice of our tax counsel, jeopardize our status as a REIT.
First Washington Management receives fees in exchange for the performance
of management services. These fees will not accrue to us, but we will derive
dividends from First Washington Management which qualify under the 95% gross
income test, but not the 75% gross income test. We believe that the aggregate
amount of any non-qualifying income in any taxable year has not exceeded and
will not exceed the limit on non-qualifying income under the gross income tests.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for the year if we are
entitled to relief under specific provisions of the Internal Revenue Code.
Generally, we may avail ourselves of the relief provisions if:
* our failure to meet these tests was due to reasonable cause and not due to
willful neglect;
* we attach a schedule of the sources of our income to our federal income tax
return; and
* any incorrect information on the schedule was not due to fraud with intent
to evade tax.
It is not possible, however, to state whether in all circumstances we would
be entitled to the benefit of these relief provisions. For example, if we fail
to satisfy the gross income tests because nonqualifying income that we
intentionally incur exceeds the limits on nonqualifying income, the IRS could
conclude that our failure to satisfy the tests was not due to reasonable cause.
If these relief provisions do not apply to a particular set of circumstances, we
will not qualify as a REIT. As discussed above in "--Taxation of First
Washington Realty Trust, Inc.--General," even if these relief provisions apply,
and we retain our status as a REIT, a tax would be imposed with respect to our
excess net income. We may not always be able to maintain compliance with the
gross income tests for REIT qualification despite our periodic monitoring of our
income.
Prohibited Transaction Income. Any gain realized by us on the sale of any
property held as inventory or other property held primarily for sale to
customers in the ordinary course of business, including our share of any such
gain realized by First Washington Limited Partnership, will be treated as income
from a prohibited transaction that is subject to a 100% penalty tax. This
prohibited transaction income may also adversely effect our ability to satisfy
the income tests for qualification as a REIT. Under existing law, whether
property is held as inventory or primarily for sale to customers in the ordinary
course of a trade or business is a question of fact that depends on all the
facts and circumstances surrounding the particular transaction. First Washington
Limited Partnership intends to hold the properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing,
owning, and operating its properties and to make occasional sales of the
properties as are consistent with First Washington Limited Partnership's
investment objectives. However, the IRS may contend that one or more of these
sales is subject to the 100% penalty tax.
Asset Tests. At the close of each quarter of our taxable year, we also must
satisfy three tests relating to the nature and diversification of our assets.
First, at least 75% of the value of our total assets must be represented by
real estate assets, cash, cash items and government securities. For purposes of
this test, real estate assets include stock or debt instruments held for one
year or less that are purchased with the proceeds of a stock offering or a
long-term (at least five years) debt offering.
Second, not more than 25% of our total assets may be represented by
securities, other than those securities includable in the 75% asset test.
Third, of the investments included in the 25% asset class, the value of any
one issuer's securities may not exceed 5% of the value of our total assets and
we may not own more than 10% of any one issuer's outstanding voting securities.
First Washington Limited Partnership owns 100% of the nonvoting preferred
stock of First Washington Management and a note of First Washington Management.
First Washington Limited Partnership does not and will not own any of the voting
securities of First Washington Management. Therefore we will not be considered
to own more than 10% of the voting securities of First Washington Management. In
addition, we believe that the value of our pro rata share of the securities of
First Washington Management held by First Washington Limited Partnership did not
exceed at any time up to and including the date of this prospectus 5% of the
total value of our assets and will not exceed this amount in the future.
After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If we fail
to satisfy the asset tests because we acquire additional securities of First
Washington Management or other securities or other property during a quarter,
including an increase in our interests in First Washington Limited Partnership,
we can cure this failure by disposing of sufficient nonqualifying assets within
30 days after the close of that quarter. We have maintained and will continue to
maintain adequate records of the value of our assets to ensure compliance with
the asset tests and to take such other actions within the 30 days after the
close of any quarter as may be required to cure any noncompliance. If we fail to
cure noncompliance with the asset tests within this time period, we would cease
to qualify as a REIT.
Annual Distribution Requirements. To maintain our qualification as a REIT,
we are required to distribute dividends, other than capital gain dividends, to
our stockholders in an amount at least equal to:
the sum of:
* 95% of our "REIT taxable income," computed without regard to the dividends
paid deduction and our net capital gain, and
* 95% of the after tax net income, if any, from foreclosure property,
minus:
* the excess of the sum of particular items of noncash income over 5% of
"REIT taxable income" as described above.
These distributions must be paid in the taxable year to which they relate,
or in the following taxable year if they are declared before we timely file our
tax return for such year and if paid on or before the first regular dividend
payment after such declaration. These distributions are taxable to holders of
common stock and convertible preferred stock, other than tax-exempt entities, as
discussed below, in the year in which paid. This is so even though these
distributions relate to the prior year for purposes of our 95% distribution
requirement. The amount distributed must not be preferential -- e.g., every
shareholder of the class of stock to which a distribution is made must be
treated the same as every other shareholder of that class, and no class of stock
may be treated otherwise than in accordance with its dividend rights as a class.
To the extent that we do not distribute all of our net capital gain or
distribute at least 95%, but less than 100%, of our "REIT taxable income," as
adjusted, we will be subject to tax thereon at regular ordinary and capital gain
corporate tax rates. We have made and intend to make timely distributions
sufficient to satisfy these annual distribution requirements.
We expect that our REIT taxable income will be less than our cash flow due
to the allowance of depreciation and other non-cash charges in computing REIT
taxable income. Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy the distribution
requirements described above. However, from time to time, we may not have
sufficient cash or other liquid assets to meet these distribution requirements
due to timing differences between the actual receipt of income and actual
payment of deductible expenses, and the inclusion of income and deduction of
expenses in arriving at our taxable income. If these timing differences occur,
in order to meet the distribution requirements, we may need to arrange for
short-term, or possibly long-term, borrowings or need to pay dividends in the
form of taxable stock dividends.
Under specific circumstances identified in the Internal Revenue Code, we
may be able to rectify a failure to meet the distribution requirement for a year
by paying "deficiency dividends" to stockholders in a later year, which may be
included in our deduction for dividends paid for the earlier year. Thus, we may
be able to avoid being taxed on amounts distributed as deficiency dividends.
However, we will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
Furthermore, we would be subject to a 4% excise tax on the excess of the
required distribution over the amounts actually distributed if we should fail to
distribute during each calendar year, or in the case of distributions with
declaration and record dates falling in the last three months of the calendar
year, by the end of January immediately following such year, at least the sum
of:
* 85% of our REIT ordinary income for such year,
* 95% of our REIT capital gain income for the year,
* and any undistributed taxable income from prior periods.
Any REIT taxable income and net capital gain on which this excise tax is imposed
for any year is treated as an amount distributed during that year for purposes
of calculating such tax.
Failure To Qualify
If we fail to qualify for taxation as a REIT in any taxable year, and
the relief provisions do not apply, we will be subject to tax, including
any applicable alternative minimum tax, on our taxable income at regular
corporate rates. Distributions to stockholders in any year in which we fail
to qualify will not be deductible by us and we will not be required to
distribute any amounts to our stockholders. As a result, our failure to
qualify as a REIT would reduce the cash available for distribution by us to
our stockholders. In addition, if we fail to qualify as a REIT, all
distributions to stockholders will be taxable as ordinary income to the
extent of our current and accumulated earnings and profits, and subject to
limitations identified in the Internal Revenue Code, corporate distributees
may be eligible for the dividends received deduction. Unless entitled to
relief under specific statutory provisions, we will also be ineligible to
be taxed as a REIT for the four tax years following the year during which
we lost our qualification. It is not possible to state whether in all
circumstances we would be entitled to this statutory relief. In addition,
the Clinton Administration's fiscal year 2000 budget proposal contains a
provision which, if enacted in its present form, would result in immediate
taxation of all gain inherent in a C corporation's assets upon an election
by the corporation to become a REIT in taxable years beginning after
January 1, 2000. If enacted, this provision could effectively preclude us
from re-electing to be taxed as a REIT following a loss of our status as a
REIT.
Proposed Legislation
The Clinton Administration's fiscal year 2000 budget proposal, announced
February 1, 1999, includes a proposal that would limit a REITs ability to own
more than 10% by vote or value of the stock of another corporation. As discussed
above under the heading "Taxation of First Washington-- Asset Tests," a REIT
cannot currently own more than 10% of the outstanding voting securities of any
one issuer. The budget proposal would allow a REIT to own all or a portion of
the voting stock and value of a "taxable REIT subsidiary" provided all of a
REIT's taxable subsidiaries do not represent more than 15% of the REIT's total
assets. In addition under the budget proposal, a "taxable REIT subsidiary" would
not be entitled to deduct any interest on debt funded directly or indirectly by
the REIT. The budget proposal, if enacted in its current form, may require that
we restructure our interest in First Washington Management because we currently
own more than 10% of the value of First Washington Management and because we
have loaned funds to First Washington Management. The budget proposal, if
enacted in its current form, would be effective after the date of its enactment
and would provide transition rules to allow corporations, like First Washington
Management to convert into "taxable REIT subsidiaries" tax-free. It is presently
uncertain whether any proposal regarding REIT subsidiaries, including the budget
proposal, will be enacted, or if enacted, what the terms of such proposal,
including its effective date, will be.
Taxation Of Taxable U.S. Stockholders
As used below, the term "U.S. stockholder" means a holder of shares of
common stock who, for United States federal income tax purposes,:
* is a citizen or resident of the United States;
* is a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of any state thereof or in the
District of Columbia, unless, in the case of a partnership, Treasury
Regulations provide otherwise;
* is an estate the income of which is subject to United States federal income
taxation regardless of its source; or
* is a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who
have the authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in Treasury
Regulations, some trusts in existence on August 20, 1996, and treated as United
States persons prior to this date that elect to continue to be treated as United
States persons, are also considered U.S. stockholders.
Distributions Generally. As long as we qualify as a REIT, distributions out
of our current or accumulated earnings and profits, other than capital gain
dividends discussed below, will constitute dividends taxable to our taxable U.S.
stockholders as ordinary income. These distributions will not be eligible for
the dividends-received deduction in the case of U.S. stockholders that are
corporations. For purposes of determining whether distributions to holders of
common stock are out of current or accumulated earnings and profits, our
earnings and profits will be allocated:
* first to the convertible preferred stock, to the extent of the preferred
distribution on this stock;
* second to the common stock, to the extent of distributions equal to $0.4875
per quarter per share; and
* third, pro-rata between both the convertible preferred stock and the common
stock for any distributions in which the convertible preferred stock is
entitled to participate.
To the extent that we make distributions, other than capital gain dividends
discussed below, in excess of our current and accumulated earnings and profits,
these distributions will be treated first as a tax-free return of capital to
each U.S. stockholder. This treatment will reduce the adjusted basis which each
U.S. stockholder has in his shares of stock for tax purposes by the amount of
the distribution. This reduction will not, however, reduce a holder's adjusted
basis below zero. Distributions in excess of a U.S. stockholder's adjusted basis
in his shares will be taxable as capital gain, provided that the shares have
been held as a capital asset. In addition, these distributions will be taxable
as long-term capital gain if the shares have been held for more than one year.
Dividends that we declare in October, November, or December of any year and that
are payable to a stockholder of record on a specified date in any of these
months shall be treated as both paid by us and received by the stockholder on
December 31 of that year, provided we actually pay the dividend on or before
January 31 of the following calendar year. Stockholders may not include in their
own income tax returns any of our net operating losses or capital losses.
Capital Gain Distributions. Distributions that we properly designate as
capital gain dividends will be taxable to taxable U.S. stockholders as gains, to
the extent that they do not exceed our actual net capital gain for the taxable
year, from the sale or disposition of a capital asset. Depending on the
characteristics of the assets which produced these gains, and on designations
which we may make, these gains may be taxable to non-corporate U.S. stockholders
at a 20% or 25% rate. U.S. stockholders that are corporations may, however, be
required to treat up to 20% of some capital gain dividends as ordinary income.
Passive Activity Losses and Investment Interest Limitations. Distributions
we make and gain arising from the sale or exchange by a U.S. stockholder of our
shares will not be treated as passive activity income. As a result, U.S.
stockholders generally will not be able to apply any "passive losses" against
this income or gain. Distributions we make, to the extent they do not constitute
a return of capital, generally will be treated as investment income for purposes
of computing the investment income limitation. Gain arising from the sale or
other disposition of our shares, however, will not be treated as investment
income under some circumstances.
Retention of Net Long-Term Capital Gains. We may elect to retain,
rather than distribute as a capital gain dividend, our net long-term
capital gains. If we make this election, we would pay tax on our retained
net long-term capital gains. In addition, to the extent we designate, a
U.S. stockholder generally would:
* include its proportionate share of our undistributed long-term capital
gains in computing its long-term capital gains in its return for its
taxable year in which the last day of our taxable year falls subject to
limitations as to the amount that is includable;
* be deemed to have paid the capital gains tax imposed on us on the
designated amounts included in the U.S. stockholder's long-term capital
gains;
* receive a credit or refund for the amount of tax deemed paid by it;
* increase the adjusted basis of its common stock by the difference between
the amount of includable gains and the tax deemed to have been paid by it;
and
* in the case of a U.S. stockholder that is a corporation, appropriately
adjust its earnings and profits for the retained capital gains in
accordance with Treasury Regulations to be prescribed by the IRS.
Dispositions of Common Stock
If you are a U.S. stockholder and you sell or dispose of your shares
of common stock, you will recognize gain or loss for federal income tax
purposes in an amount equal to the difference between the amount of cash
and the fair market value of any property you receive on the sale or other
disposition and your adjusted basis in the shares for tax purposes. This
gain or loss will be capital if you have held the common stock as a capital
asset and will be long-term capital gain or loss if you have held the
common stock for more than one year. In general, if you are a U.S.
stockholder and you recognize loss upon the sale or other disposition of
common stock that you have held for six months or less, after applying
holding period rules set forth in the Internal Revenue Code, the loss you
recognize will be treated as a long-term capital loss, to the extent you
received distributions from us which were required to be treated as
long-term capital gains.
Backup Withholding
We report to our U.S. stockholders and the IRS the amount of dividends
paid during each calendar year, and the amount of any tax withheld. Under
the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless the
holder is a corporation or comes within other exempt categories and, when
required, demonstrates this fact, or provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding
rules. A U.S. stockholder that does not provide us with his correct
taxpayer identification number may also be subject to penalties imposed by
the IRS. Any amount paid as backup withholding will be creditable against
the stockholder's income tax liability. In addition, we may be required to
withhold a portion of capital gain distributions to any stockholders who
fail to certify their non-foreign status. See "--Taxation of Non-U.S.
Stockholders."
Taxation of Tax-Exempt Stockholders
The IRS has ruled that amounts distributed as dividends by a qualified
REIT do not constitute unrelated business taxable income when received by a
tax-exempt entity. Based on that ruling, provided that a tax-exempt
shareholder, except tax-exempt shareholders described below, has not held
its shares as "debt financed property" within the meaning of the Internal
Revenue Code and the shares are not otherwise used in a trade or business,
dividend income from us will not be unrelated business taxable income to a
tax-exempt shareholder. Similarly, income from the sale of shares will not
constitute unrelated business taxable income unless a tax-exempt
shareholder has held its shares as "debt financed property" within the
meaning of the Internal Revenue Code or has used the shares in its trade or
business.
For tax-exempt shareholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and
qualified group legal services plans exempt from federal income taxation
under Internal Revenue Code Section 501(c)(7), (c)(9), (c)(17) and (c)(20),
respectively, income from an investment in our shares will constitute
unrelated business taxable income unless the organization is able to
properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in our shares. These
prospective investors should consult their own tax advisors concerning
these "set aside" and reserve requirements.
Notwithstanding the above, however, the Omnibus Budget Reconciliation
Act of 1993 provides that, effective for taxable years beginning in 1994, a
portion of the dividends paid by a "pension held REIT" shall be treated as
unrelated business taxable income as to any trust which
* is described in Section 401(a) of the Internal Revenue Code;
* is tax-exempt under Section 501(a) of the Internal Revenue Code; and
* holds more than 10%, by value, of the interests in a REIT.
Tax-exempt pension funds that are described in Section 401(a) of the
Internal Revenue Code are referred to below as "qualified trusts."
A REIT is a "pension held REIT" if
* it would not have qualified as a REIT but for the fact that Section
856(h)(3) of the Internal Revenue Code provides that stock owned by
qualified trusts shall be treated, for purposes of the "not closely held"
requirement, as owned by the beneficiaries of the trust, rather than by the
trust itself; and
* either at least one such qualified trust holds more than 25%, by value, of
the interests in a REIT, or one or more such qualified trusts, each of
which owns more than 10%, by value, of the interests in a REIT, holds in
the aggregate more than 50%, by value, of the interests in the REIT.
The percentage of any REIT dividend treated as unrelated business
taxable income is equal to the ratio of:
* the unrelated business taxable income earned by First Washington, treating
First Washington as if it were a qualified trust and therefore subject to
tax on unrelated business taxable income, to
* the total gross income of First Washington.
A de minimis exception applies where the percentage is less than 5% for any
year. The provisions requiring qualified trusts to treat a portion of REIT
distributions as unrelated business taxable income will not apply if First
Washington is able to satisfy the "not closely held" requirement without relying
upon the "look-through" exception with respect to qualified trusts. As a result
of the limitations on the transfer and ownership of stock contained in our
charter, we are not and do not expect to be classified as a "pension held REIT."
Taxation of Non-U.S. Stockholders
When we use the term "non-U.S. stockholders," we mean holders of
shares of common stock that are nonresident alien individuals, foreign
corporations, foreign partnerships or foreign estates or trusts. The rules
governing United States federal income taxation of the ownership and
disposition of stock by persons that are non-U.S. stockholders are complex.
No attempt is made in this prospectus to provide more than a brief summary
of these rules. Accordingly, this discussion does not address all aspects
of United States federal income tax and does not address state, local or
foreign tax consequences that may be relevant to a non-U.S. stockholder in
light of its particular circumstances. In addition, this discussion is
based on current law, which is subject to change, and assumes that we
qualify for taxation as a REIT. Prospective non-U.S. stockholders should
consult with their own tax advisers to determine the impact of federal,
state, local and foreign income tax laws with regard to an investment in
stock, including any reporting requirements.
Distributions. If we make a distribution that is not attributable to
gain from the sale or exchange of United States real property interests and
is not designated as capital gains dividends, then the distribution will be
treated as dividends of ordinary income to the extent it is made out made
out of current or accumulated earnings and profits. These distributions
ordinarily will be subject to withholding of United States federal income
tax on a gross basis at a l 30% rate or such lower rate as may be specified
by an applicable income tax treaty.
However, if the dividends are treated as effectively connected with
the conduct by the non-U.S. stockholder of a United States trade or
business, or if an income tax treaty applies, as attributable to a United
States permanent establishment of the Non- U.S. stockholder, the dividends
will be subject to tax on a net basis at graduated rates, in the same
manner as domestic stockholders are taxed with respect to such dividends
and are generally not subject to l withholding. Any such dividends received
by a non-U.S. stockholder that is a corporation may also be subject to an
additional branch profits tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
Under current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of the country for purposes of determining the applicability of
the withholding rules discussed above and the applicability of a tax treaty
rate. Under some treaties, lower withholding rates generally applicable to
dividends do not apply to dividends from a REIT. Certification and
disclosure requirements must be l satisfied to be exempt from withholding
under the effectively connected income and permanent establishment
exemptions discussed above.
Distributions we make in excess of our current or accumulated earnings
and profits will not be taxable to a non-U.S. stockholder to the extent
that they do not exceed the adjusted basis of the stockholder's stock, but
rather will reduce the adjusted basis of such stock. To the extent that
these distributions exceed the adjusted basis of a non-U.S. stockholder's
stock, they will give rise to gain from the sale or exchange of his stock.
The tax treatment of this gain is described below. If it cannot be
determined at the time a distribution is made whether or not a distribution
will be in excess of current or accumulated earnings and profits, the
distribution will generally be treated as a dividend for withholding
purposes. However, the IRS will generally refund amounts that are withheld
if it is subsequently determined that the distribution was, in fact, in
excess of our current or accumulated earnings and profits.
Distributions to a non-U.S. stockholder that we designate at the time
of distribution as capital gains dividends, other than those arising from
the disposition of a United States real property interest, generally will
not be subject to United States federal income taxation, unless:
* investment in the stock is effectively connected with the non-U.S.
stockholder's United States trade or business, in which case the non-U.S.
stockholder will be subject to the same treatment as domestic stockholders
with respect to such gain, except that a stockholder that is a foreign
corporation may also be subject to the 30% branch profits tax, as discussed
above; or
* the non-U.S. stockholder is a nonresident alien individual who is present
in the United States for 183 days or more during the taxable year and has a
"tax home" in the United States, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains.
Distributions to a non-U.S. stockholder that are attributable to gain
from our sale or exchange of United States real property interests will
cause the non-U.S. stockholder to be treated as recognizing this gain as
income effectively connected with a United States trade or business.
non-U.S. stockholders would thus generally be taxed at the same rates
applicable to domestic stockholders, subject to a special alternative
minimum tax in the case of nonresident alien individuals. Also, this gain
may be subject to a 30% branch profits tax in the hands of a non-U.S.
stockholder that is a corporation, as discussed above. We are required to
withhold 35% of any such distribution. That amount is creditable against
the non-U.S. stockholder's United States federal income tax liability.
We or any nominee (e.g., a broker holding shares in street name) may
rely on a certificate of non-foreign status on Form W-8 or Form W-9 to
determine whether withholding is required on gains realized from the
disposition of United States real property interests. A domestic person who
holds shares of common stock on behalf of a non-U.S. stockholder will bear
the burden of withholding, provided that we have properly designated the
appropriate portion of a distribution as a capital gain dividend.
Sale of Stock. If you are a non-U.S. stockholder and you recognize
gain upon the sale or exchange of shares of stock, the gain generally will
not be subject to United States taxation unless the stock constitutes a
"United States real property interest" within the meaning of FIRPTA. If we
are a "domestically controlled REIT", then the stock will not constitute a
"United States real property interest." A "domestically controlled REIT" is
a REIT in which at all times during a specified testing period less than
50% in value of its stock is held directly or indirectly by non-U.S.
stockholders. Because our shares of stock are publicly traded, there is no
assurance that we are or will continue to be a "domestically- controlled
REIT." Notwithstanding the foregoing, if you are a non-U.S. stockholder and
you recognize gain upon the sale or exchange of shares of stock and the
gain is not subject to FIRPTA, the gain will be subject to United States
taxation if:
* your investment in the stock is effectively connected with a United States
trade or business, or, if an income treaty applies, is attributable to a
United States permanent establishment; or
* you are a nonresident alien individual who is present in the United States
for 183 days or more during the taxable year and you have a "tax home" in
the United States. In this case, a nonresident alien individual will be
subject to a 30% United States withholding tax on the amount of such
individual's gain.
If we are not or cease to be a "domestically-controlled REIT," whether
gain arising from the sale or exchange by a non-U.S. stockholder of shares
of stock would be subject to United States taxation under FIRPTA as a sale
of a "United States real property interest" will depend on whether the
shares are "regularly traded", as defined by applicable Treasury
Regulations, on an established securities market and on the size of the
selling non-U.S. stockholder's interest our shares. If gain on the sale
or exchange of shares of stock were subject to taxation under FIRPTA, the
non-U.S. stockholder would be subject to regular United States income tax
on this gain in the same manner as a U.S. stockholder, and the purchaser of
the stock would be required to withhold and remit to the IRS 10% of the
purchase price. In addition in this case, non-U.S. stockholder would be
subject to any applicable alternative minimum tax, nonresident alien
individuals may be subject to a special alternative minimum tax and foreign
corporations may be subject to the 30% branch profits tax.
Backup Withholding Tax and Information Reporting. Back up withholding
tax generally is a withholding tax imposed at the rate of 31% on reportable
payments, as defined in section 3406 of the Internal Revenue Code, to
persons that fail to furnish the required information under the United
States information reporting requirements. Backup withholding tax and
information reporting will generally not apply to distributions paid to
non-U.S. stockholders outside the United States that are treated as:
* dividends subject to the 30%, or lower treaty rate, withholding tax
discussed above;
* capital gains dividends; or
* distributions attributable to gain from our sale or exchange of United
States real property interests.
As a general matter, backup withholding and information reporting will
not apply to a payment of the proceeds of a sale of stock by or through a
foreign office of a foreign broker. Information reporting, but not backup
withholding, will apply, however, to a payment of the proceeds of a sale of
stock by a foreign office of a broker that:
* is a United States person;
* derives 50% or more of its gross income for specific periods from the
conduct of a trade or business in the United States; or
* is a "controlled foreign corporation" for United States tax purposes.
Information Reporting will not apply if the broker has documentary evidence in
its records that the holder is a non-U.S. stockholder and other conditions are
met, or the stockholder otherwise establishes an exemption.
Payment to or through a United States office of a broker of the
proceeds of sale of stocks is subject to both backup withholding and
information reporting unless the stockholder certifies under penalties of
perjury that the stockholder is a non-U.S. stockholder, or otherwise
establishes an exemption.
A non-U.S. stockholder may obtain a refund of any amounts withheld
under the backup withholding rules by filing the appropriate claim for
refund with the IRS.
New Withholding Regulations. Final regulations dealing with
withholding tax on income paid to foreign persons and related matters were
recently promulgated. In general, these new withholding regulations do not
significantly alter the substantive withholding and information reporting
requirements, but unify current certification procedures and forms and
clarify reliance standards. For example, these new withholding regulations
adopt a certification rule under which a foreign stockholder who wishes to
claim the benefit of an applicable treaty rate with respect to dividends
received from a United Stated corporation will be required to satisfy
certification and other requirements. In addition, these new withholding
regulations require a corporation that is a REIT to treat as a dividend the
portion of a distribution that is not designated as a capital gain dividend
or return of basis and apply the 30% withholding tax, subject to any
applicable deduction or exemption, to such portion, and to apply the FIRPTA
withholding rules, discussed above, with respect to the portion of the
distribution designated by First Washington as capital gain dividend. These
new withholding regulations will generally be effective for payments made
after December 31, 1999, subject to transition rules. The discussion set
forth above in "Taxation of Non-U.S. Stockholders" does not take these new
withholding regulations into account. Prospective non-U.S. stockholders are
strongly urged to consult their own tax advisors with respect to these new
withholding regulations.
Tax Aspects Of First Washington Limited Partnership
General. Substantially all of our investments will be held indirectly
through First Washington Limited Partnership. In general, partnerships are
"pass-through" entities which are not subject to federal income tax.
Rather, partners are allocated their proportionate shares of the items of
income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. We will include in our
income our proportionate share of the foregoing partnership items for
purposes of the various REIT income tests and in the computation of our
REIT taxable income. Moreover, for purposes of the REIT asset tests, we
will include our proportionate share of assets held by First Washington
Limited Partnership. See "--Taxation of First Washington Realty Trust,
Inc."
Entity Classification. Our interests in First Washington Limited
Partnership and the Lower-Tier Partnerships involve special tax
considerations, including the possibility of a challenge by the IRS of the
status of First Washington Limited Partnership or a Lower-Tier Partnership
as a partnership, as opposed to an association taxable as a corporation,
for federal income tax purposes. If First Washington Limited Partnership or
a Lower-Tier Partnership were treated as an association, it would be
taxable as a corporation and therefore be subject to an entity-level tax on
its income. In such a situation, the character of our assets and items of
gross income would change and preclude us from satisfying the asset tests
and possibly the income tests (see "--Taxation of First Washington Realty
Trust, Inc. --Asset Tests" and "--Income Tests"). This, in turn, would
prevent us from qualifying as a REIT. See "--Taxation of First Washington
Realty Trust, Inc.-- Failure to Qualify" above for a discussion of the
effect of our failure to meet these tests for a taxable year. In addition,
a change in First Washington Limited Partnership's or a Lower-Tier
Partnership's status for tax purposes might be treated as a taxable event.
If so, we might incur a tax liability without any related cash
distributions.
Treasury Regulations that apply for tax period beginning on or after
January 1, 1997 provide that an "eligible entity" may elect to be taxed as
a partnership for federal income tax purposes. An eligible entity is a
domestic business entity not otherwise classified as a corporation and
which has at least two members. Unless it elects otherwise, an eligible
entity in existence prior to January 1, 1997 will have the same
classification for federal income tax purposes -that it claimed under the
entity classification Treasury Regulations in effect prior to this date. In
addition, an eligible entity which did not exist, or did not claim a
classification, prior to January 1, 1997, will be classified as a
partnership for federal income tax purposes unless it elects otherwise.
First Washington Limited Partnership and each of the Lower-Tier
Partnerships have claimed and intend to continue to claim classification as
a partnership under these regulations.
Partnership Allocations. A partnership agreement will generally
determine the allocation of income and losses among partners. However,
these allocations will be disregarded for tax purposes if they do not
comply with the provisions of Section 704(b) of the Internal Revenue Code
and the Treasury Regulations promulgated under this section of the Internal
Revenue Code. Generally, Section 704(b) and the Treasury Regulations
promulgated under this section of the Internal Revenue Code require that
partnership allocations respect the economic arrangement of the partners.
If an allocation is not recognized for federal income tax purposes,
the item subject to the allocation will be reallocated in accordance with
the partners' interests in the partnership. This reallocation will be
determined by taking into account all of the facts and circumstances
relating to the economic arrangement of the partners with respect to such
item. First Washington Limited Partnership's allocations of taxable income
and loss are intended to comply with the requirements of Section 704(b) of
the Internal Revenue Code and the Treasury Regulations promulgated under
this section of the Internal Revenue Code.
Tax Allocations with Respect to the Properties. Under Section 704(c)
of the Internal Revenue Code, income, gain, loss and deduction attributable
to appreciated or depreciated property that is contributed to a partnership
in exchange for an interest in the partnership, must be allocated in a
manner so that the contributing partner is charged with the "book-tax
difference" associated with the property at the time of the contribution.
The book-tax difference with respect to property that is contributed to a
partnership is generally equal to the difference between the fair market
value of contributed property at the time of contribution and the adjusted
tax basis of the property at the time of contribution. These allocations
are solely for federal income tax purposes and do not affect the book
capital accounts or other economic or legal arrangements among the
partners. First Washington Limited Partnership was formed by way of
contributions of appreciated property, including some of the properties.
Moreover, subsequent to the formation of First Washington Limited
Partnership, additional persons have contributed appreciated property to
First Washington Limited Partnership in exchange for interests in First
Washington Limited Partnership. The partnership agreement requires that
these allocations be made in a manner consistent with Section 704(c) of the
Internal Revenue Code.
In general, limited partners of First Washington Limited Partnership
who acquired their limited partnership interests through a contribution of
appreciated property will be allocated depreciation deductions for tax
purposes which are lower than these deductions would be if determined on a
pro rata basis. In addition, in the event of the disposition of any of the
contributed assets which have a book-tax difference, all income
attributable to the book-tax difference will generally be allocated to
the limited partners who contributed the property, and we will generally be
allocated only our share of capital gains attributable to appreciation, if
any, occurring after the time of contribution to First Washington Limited
Partnership. This will tend to eliminate the book-tax difference over the
life of First Washington Limited Partnership. However, the special
allocation rules of Section 704(c) do not always entirely eliminate the
book-tax difference on an annual basis or with respect to a specific
taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands First Washington Limited Partnership may
cause us to be allocated lower depreciation and other deductions. Possibly
we could be allocated an amount of taxable income in the event of a sale of
these contributed assets in excess of the economic or book income allocated
to us as a result of the sale. This may cause us to recognize taxable
income in excess of cash proceeds, which might adversely affect our ability
to comply with the REIT distribution requirements. See "--Taxation of First
Washington Realty Trust, Inc.--Annual Distribution Requirements."
Treasury Regulations issued under Section 704(c) of the Internal
Revenue Code provide partnerships with a choice of several methods of
accounting for book-tax differences, including retention of the
"traditional method" or the election of other methods which would permit
any distortions caused by a book-tax difference to be entirely rectified on
an annual basis or with respect to a specific taxable transaction such as a
sale. We and First Washington Limited to Partnership have determined to use
the "traditional method" for accounting for book-tax differences for the
properties initially contributed to First Washington Limited Partnership
and for some assets acquired subsequently. We and First Washington Limited
Partnerships have not yet decided what method will be used to account for
book-tax differences for properties acquired by First Washington Limited
Partnership in the future.
Any property acquired by First Washington Limited Partnership in a
taxable transaction will initially have a tax basis equal to its fair
market value, and Section 704(c) of the Internal Revenue Code will not
apply.
Basis in First Washington Limited Partnership Interest. The adjusted
tax basis in our interest in First Washington Limited Partnership generally
will be equal to:
* the amount of cash and the basis of any other property we contribute to
First Washington Limited Partnership,
* increased by our allocable share of First Washington Limited Partnership's
income and our allocable share of indebtedness of First Washington Limited
Partnership, and
* reduced, but not below zero, by our allocable share of losses suffered by
First Washington Limited Partnership, the amount of cash distributed to us
and constructive distributions resulting from a reduction in our share of
indebtedness of First Washington Limited Partnership.
If the allocation of our distributive share of First Washington
Limited Partnership's loss exceeds the adjusted tax basis of our
partnership interest in First Washington Limited Partnership, the
recognition of this excess loss will be deferred until such time and to the
extent that we have adjusted tax basis in our interest in First Washington
Limited Partnership.
We will recognize taxable income to the extent that First Washington
Limited Partnership's distributions, or any decrease in our share of the
indebtedness of First Washington Limited Partnership, exceeds our adjusted
tax basis in First Washington Limited Partnership. A decrease in our share
of the indebtedness of First Washington Limited Partnership is considered a
cash distribution.
Other Tax Consequences
We may be subject to state or local taxation in various state or local
jurisdictions, including those in which we transact business and our
stockholders may be subject to state or location taxation in various state
or local jurisdiction, including those in which they reside. Our state and
local tax treatment may not conform to the federal income tax consequences
discussed above. In addition, your state and locate tax treatment may not
conform to the federal income tax consequences discussed above.
Consequently, you should consult your own tax advisors regarding the effect
of state and local tax laws on an investment in our shares.
A portion of the cash to be used by First Washington Limited
Partnership to fund distributions to partners is expected to come from
First Washington Management, through interest payments and dividends on
non-voting preferred stock to be held by First Washington Limited
Partnership. First Washington Management will pay federal and state tax on
its net income at full corporate rates, which will reduce the cash
available for distribution to stockholders.
EXPERTS
The financial statements incorporated in this prospectus by reference
to the Annual Report on Form 10-K of First Washington Realty Trust, Inc.
for the year ended December 31, 1997 and the combined statement of revenues
and certain expenses of the Acquired Properties, as defined in footnote 1
of that statement, for the year ended December 31, 1997 included in First
Washington's Form 8-K/A filed on June 26, 1998 and the combined statement
of revenues and certain expenses of the Acquired Properties, as defined in
footnote No. 1 of that statement, for the year ended December 31, 1997,
included in First Washington's Form 8-K filed on March 10, 1999, have been
so incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
auditing and accounting.
LEGAL MATTERS
Latham & Watkins, Washington, D.C. will issue an opinion to us
regarding certain legal matters. Latham & Watkins will rely as to certain
matters of Maryland law, including the legality of the Common Stock, on the
opinion of Ballard Spahr Andrews & Ingersoll, LLP, Baltimore, Maryland.
PLAN OF DISTRIBUTION
This prospectus relates to the possible issuance by us of up to
1,043,109 shares of common stock if, and to the extent that, holders of up
to 1,043,109 common units tender their units for exchange. We are
registering the common stock to provide the holders with freely tradeable
securities, but the registration of these shares does not necessarily mean
that any of these shares will be offered or sold by the holders. We have
paid for all expenses in connection with the registration statement. No
commissions or selling expenses will be paid by us in connection with the
issuance of these shares. Except for our expenses in preparing this
registration statement, we do not expect to incur other expenses in
connection with the distribution of these shares.
We will not receive any proceeds from the issuance of the common stock
offered by this prospectus, but we will acquire the common units previously
owned by the persons to whom we issue stock.
We have not authorized any person to make a statement that differs
from what is in this prospectus. If any person does make a statement that
differs from what is in this prospectus, you should not rely on that
statement. This prospectus is not an offer to sell, nor is it seeking an
offer to buy, these securities in any state where the offer or sale is not
permitted. The information in this prospectus is complete and accurate as
of its date, but the information may change after that date.
FIRST WASHINGTON
REALTY TRUST, INC.
1,043,109 Shares
Common Stock
($0.01 Par Value Per Share)
PROSPECTUS
March 24, 1999
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the amount of fees and expenses to
be incurred in connection with the issuance and distribution of the common
stock registered under this prospectus:
SEC Registration Fee $ 6,751
Printing and Mailing Costs 1,000
Legal Fees and Expenses 20,000
Accounting Fees and Expenses 4,000
Miscellaneous 1,000
-----
Total $32,751
ITEM 15. LIMITATION OF LIABILITY AND INDEMNIFICATION
Maryland law permits a Maryland corporation to include in its charter
a provision eliminating the liability of its directors and officers to the
corporation and its stockholders for money damages. However, a Maryland
corporation may not eliminate liability resulting from actual receipt of an
improper benefit or profit in money, property or services. Also, liability
resulting from active and deliberate dishonesty may not be eliminated if a
final judgment establishes that the dishonesty is material to the cause of
action. Our charter contains a provision which eliminates liability of
directors and officers to the maximum extent permitted by Maryland law.
This provision does not limit our right or that of our stockholders to
obtain equitable relief, such as an injunction or rescission.
Our charter authorizes us:
* to the maximum extent permitted by Maryland law, to indemnify any present
or former director or officer from and against any claim or liability
incurred by reason of his status as one of our present or former directors
or officers;
* to the maximum extent permitted by Maryland law, to pay or reimburse
reasonable expenses before final disposition of a proceeding to any present
or former director or officer incurred by reason of his status as one of
our present or former directors or officers; and
* to indemnify any other persons permitted but not required to be indemnified
by Maryland law.
The bylaws obligate us, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses before final
disposition of a proceeding to:
* any present or former director or officer who is made a party to the
proceeding by reason of his service in that capacity; or
* any individual who, while one of our directors and at our request, serves
or has served another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity.
The bylaws also permit us to indemnify and advance expenses to any
person who served one of our predecessors in any of the capacities
described above and to any of our or our predecessors' employees or agents.
Unless a corporation's charter provides otherwise, Maryland law
requires a corporation to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. Our
charter does not alter this requirement.
Maryland law permits a corporation to indemnify its present and former
directors and officers, among others, against:
* judgments;
* penalties;
* fines;
* settlements; and
* reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made a party by reason of their service in
those or other capacities.
Maryland law does not permit a corporation to indemnify its present
and former directors and officers if it is established that:
* the act or omission of the director or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty;
* the director or officer actually received an improper personal benefit in
money, property or services; or
* in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
Under Maryland law, a Maryland corporation generally may not indemnify
for an adverse judgment in a suit by or in the right of the corporation.
Also, a Maryland corporation generally may not indemnify for a judgment of
liability on the basis that personal benefit was improperly received. In
either of these cases, a Maryland corporation may indemnify for expenses
only if a court so orders.
Maryland law permits a corporation to advance reasonable expenses to a
director or officer. First, however, the corporation must receive a written
affirmation by the director or officer of his good faith belief that he has
met the standard of conduct necessary for indemnification by the
corporation. The corporation must also receive a written undertaking,
either by the director or officer or on his behalf, to repay the amount
paid or reimbursed by the corporation if it shall ultimately be determined
that the standard of conduct was not met. The termination of any proceeding
by conviction, or upon a plea of nolo contendere or its equivalent, or an
entry of any order of probation prior to judgment, creates a rebuttable
presumption that the director or officer did not meet the requisite
standard of conduct required for indemnification to be permitted.
The partnership agreement also provides for indemnification of First
Washington, as general partner, and its officers and directors generally to
the same extent as permitted by Maryland law for a corporation's officers
and directors. The partnership agreement also limits the liability of First
Washington to First Washington Limited Partnership and its partners in the
case of losses sustained, liabilities incurred or benefits not derived as a
result of errors in judgment or mistakes of fact or law or any act or
omission made in good faith. It is the position of the Commission that
indemnification of directors and officers for liabilities arising under the
Securities Act is against public policy and is unenforceable pursuant to
Section 14 of the Securities Act.
ITEM 16. EXHIBITS
Exhibits
4(a) Articles of Restatement*
4.1(b) Articles Supplementary **
4.2 Amended and Restated Bylaws***
5 Opinion of Ballard Spahr Andrews & Ingersoll, LLP
8 Opinion of Latham & Watkins regarding tax matters
23(a) Consent of Latham & Watkins (included in Exhibit 8)
23(b) Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5)
23(c) Consent of PricewaterhouseCoopers LLP
* Included as an exhibit to the Company's Form 10-K for the fiscal year ended
December 31, 1997, and incorporated herein by reference.
** Included in the Company's Form 8-K filed October 23, 1998, and incorporated
herein by reference.
*** Included as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
* To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. However, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii)To include any material information about the plan of distribution not
previously disclosed in this registration statement or any material change
to this information in this registration statement.
However, subparagraphs (i) and (ii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs
is contained in the periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
* That for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the Securities offered herein, and the
offering of such Securities at that time shall be deemed to be the initial
bona fide offering thereof.
* To remove from registration by means of a post-effective amendment any of
the Securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby further undertakes that, for the
purposes of determining any liability under the Securities Act of 1933,
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 that is incorporated
by reference in this registration statement shall be deemed to be a new
registration statement relating to the Securities offered herein, and the
offering of such Securities at that time shall be deemed to be the initial
bona fide offering thereof.
As far as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant under the provisions of this registration statement, or
otherwise (other than insurance), the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in such Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
Securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in such Act and
will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3, and has duly caused this Amendment
No. 2 to this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Bethesda, State of
Maryland on March 24, 1999.
FIRST WASHINGTON REALTY TRUST, INC.
By: /s/William J. Wolfe
----------------------------------------
William J. Wolfe
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the
registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
- ---------------------- ------------------------- -----------------
/s/ Stuart D. Halpert Chairman of the March 24, 1999
Stuart D. Halpert Board of Directors
/s/ William J. Wolfe President, Chief Executive March 24, 1999
William J. Wolfe Officer, Director
/s/ Lester Zimmerman Executive Vice President, March 24, 1999
Lester Zimmerman Director
/s/ James G. Blumenthal Executive Vice President March 24, 1999
James G. Blumenthal and Chief Financial Officer
(Chief Accounting Officer)
/s/ Stanley T. Burns Director March 24, 1999
Stanley T. Burns
/s/ Matthew J. Hart Director March 24, 1999
Matthew J. Hart
/s/ William M. Russell Director March 24, 1999
William M. Russell
/s/ Heywood Wilansky Director March 24, 1999
Heywood Wilansky
By: /s/
------------------------------------------
William J. Wolfe
Attorney-in-Fact
<PAGE>
EXHIBIT 5
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL, LLP]
March 24, 1999
First Washington Realty Trust, Inc.
Suite 400
4350 East-West Highway
Bethesda, Maryland 20814
Re: Registration Statement on Form S-3
(Registration No. 333-66355)
Ladies and Gentlemen:
We have served as Maryland counsel to First Washington Realty Trust,
Inc., a Maryland corporation (the "Company"), in connection with certain matters
of Maryland law arising out of the registration of 1,043,109 shares of common
stock (the "Shares"), par value $.01 per share, of the Company ("Common Stock")
issuable if, and to the extent that, holders of up to 1,043,109 common units of
limited partnership interest ("Units") in First Washington Realty Limited
Partnership, a Maryland limited partnership (the "Operating Partnership"),
tender such Units for exchange, covered by the above-referenced Registration
Statement, and all amendments thereto (the "Registration Statement"), filed by
the Company with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "1933 Act"). Unless otherwise
defined herein, capitalized terms used herein shall have the meanings assigned
to them in the Registration Statement.
In connection with our representation of the Company, and as a basis
for the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (collectively, the "Documents"):
1. The Registration Statement and the related form of prospectus included
therein in the form in which it was transmitted by the Company to the Commission
under the 1933 Act;
2. The charter of the Company (the "Charter"), certified as of a recent
date by the State Department of Assessments and Taxation of Maryland (the
"SDAT");
3. The Bylaws of the Company, certified as of the date hereof by its
Secretary;
4. Resolutions adopted by the Board of Directors of the Company (the
"Board") authorizing the issuance and registration of the Shares (the
"Resolutions"), certified as of the date hereof by the Secretary of the Company;
1
<PAGE>
5. The form of certificate representing a share of Common Stock, certified
as of the date hereof by the Secretary of the Company;
6. A certificate as of a recent date of the SDAT as to the good standing of
the Company;
7. A certificate executed by the Secretary of the Company, dated the date
hereof; and
8. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed, and so far
as is known to us there are no facts inconsistent with, the following:
1. Each individual executing any of the Documents, whether on behalf of
such individual or another person, is legally competent to do so.
2. Each individual executing any of the Documents on behalf of a party
(other than the Company) is duly authorized to do so.
3. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding.
4. Any Documents submitted to us as originals are authentic. Any Documents
submitted to us as certified or photostatic copies conform to the original
documents. All signatures on all such Documents are genuine. All public records
reviewed or relied upon by us or on our behalf are true and complete. All
statements and information contained in the Documents are true and complete.
There has been no oral or written modification of or amendment to any of the
Documents, and there has been no waiver of any provision of any of the
Documents, by action or omission of the parties or otherwise.
5. The outstanding shares of stock of the Company have not been and will
not be transferred in violation of any restriction or limitation contained in
the Charter. The Shares will not be transferred in violation of any restriction
or limitation contained in the Charter.
2
<PAGE>
The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions, limitations
and qualifications stated herein, it is our opinion that:
1. The Company is a corporation duly incorporated and existing under
and by virtue of the laws of the State of Maryland and is in good standing with
the SDAT.
2. The issuance of the Shares has been duly authorized and, when and to
the extent issued in accordance with the Resolutions and in the manner described
in the Registration Statement, the Shares will be (assuming that, upon issuance,
the total number of shares of Common Stock issued and outstanding will not
exceed the total number of shares of Common Stock that the Company is then
authorized to issue under the Charter) validly issued, fully paid and
nonassessable.
The foregoing opinion is limited to the substantive laws of the State
of Maryland and we do not express any opinion herein concerning any other law.
We express no opinion as to the applicability or effect of any federal or state
securities laws, including the securities laws of the State of Maryland, or as
to federal or state laws regarding fraudulent transfers. To the extent that any
matter as to which our opinion is expressed herein would be governed by the laws
of any jurisdiction other than the State of Maryland, we do not express any
opinion on such matter.
We assume no obligation to supplement this opinion if any applicable
law changes after the date hereof or if we become aware of any fact that might
change the opinion expressed herein after the date hereof.
This opinion is being furnished to you for submission to the Commission
as an exhibit to the Registration Statement. We consent to the filing of this
opinion as an exhibit to the Registration Statement and to the use of the name
of our firm in the section entitled "Legal Matters" in the Registration
Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required by Section 7 of the 1933 Act.
Very truly yours,
BALLARD SPAHR ANDREWS & INGERSOLL
3
<PAGE>
[ON LATHAM & WATKINS LETTERHEAD]
March 24, 1999
First Washington Realty Trust, Inc.
4350 East/West Highway, Suite 400
Bethesda, MD 20814
Re: Federal Income Tax Consequences
Ladies and Gentlemen:
We have acted as tax counsel to First Washington Realty Trust,
Inc., a Maryland corporation (the "Company"), in connection with its issuance of
up to 1,043,109 shares of common stock of the Company pursuant to a registration
statement on Form S-3 under the Securities Act of 1933, as amended, filed with
the Securities and Exchange Commission on October 30, 1998 (and as so amended as
of the time it becomes effective) (the "Registration Statement").
You have requested our opinion concerning certain of the
federal income tax consequences to the Company in connection with the issuance
described above. This opinion is based on various facts and assumptions,
including the facts set forth in the Registration Statement concerning the
business, properties and governing documents of the Company and First Washington
Realty Limited Partnership (the "Operating Partnership"). We have also been
furnished with, and with your consent have relied upon, certain representations
made by the Company and the Operating Partnership with respect to certain
factual matters through a certificate of an officer of the Company (the
"Officer's Certificate").
In our capacity as tax counsel to the Company, we have made
such legal and factual examinations and inquiries, including an examination of
originals or copies certified or otherwise identified to our satisfaction of
such documents, corporate records and other instruments as we have deemed
necessary or appropriate for purposes of this opinion. For the purposes of our
opinion, we have not made an independent investigation, or audit of the facts
set forth in the above referenced documents or in the Officer's Certificate.
In our examination, we have assumed the authenticity of all
documents submitted to us as originals, the genuineness of all signatures
thereon, the legal capacity of natural persons executing such documents and the
conformity to authentic original documents of all documents submitted to us as
copies.
We are opining herein as to the effect on the subject
transaction only of the federal income tax laws of the United States and we
express no opinion with respect to the applicability thereto, or the effect
thereon, of other federal laws, the laws of any state or other jurisdiction or
as to any matters of municipal law or the laws of any other local agencies
within any state.
<PAGE>
Based on such facts, assumptions and representations and
subject to the limitations set forth in the Registration Statement, it is our
opinion that the statements in the Registration Statement set forth under the
caption "Federal Income Tax Consequences" are the material federal income tax
consequences relevant to purchasers of the Company's common stock. No opinion is
expressed as to any matter not discussed herein.
This opinion is rendered to you as of the date of this letter,
and we undertake no obligation to update this opinion subsequent to the date
hereof. This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the Registration Statement or
the Officer's Certificate may affect the conclusions stated herein. Moreover,
the Company's qualification and taxation as a real estate investment trust
depends upon the Company's ability to meet, through actual annual operating
results, asset diversification, distribution levels and diversity of stock
ownership, the various qualification tests imposed under the Code, the results
of which have not been and will not be reviewed by Latham & Watkins.
Accordingly, no assurance can be given that the actual results of the Company's
operation for any one taxable year will satisfy such requirements.
<PAGE>
Except as provided below, this opinion is rendered only to
you, and is for your use in connection with the issuance of common stock by the
Company pursuant to the Registration Statement. This opinion may not be relied
upon by you for any other purpose, or furnished to, quoted to, or relied upon by
any other person, firm or corporation, for any purpose, without our prior
written consent, except that this opinion may be relied upon by the investors
who purchase common stock of the Company pursuant to the Registration Statement.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement.
Very truly yours,
LATHAM & WATKINS
<PAGE>
EXHIBIT 23(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of First Washington
Realty Trust, Inc. (the "Company") of (1) our report dated January 31, 1998,
except for Note 16, as to which the date is March 26, 1998, appearing on page
F-2 of the Company's Annual Report on Form 10-K for the year ended December 31,
1997 and (2) our report on the combined statement of revenues and certain
expenses of the Acquired Properties (as defined in footnote 1 of that statement)
for the year ended December 31, 1997, which report is included in the Company's
Form 8-K/A filed on June 26, 1998. We also consent to the reference to us under
the caption "Experts" in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
Washington, D.C.
October 27, 1998
