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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MERIDIAN INDUSTRIAL TRUST, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 94-3224765
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
455 MARKET STREET, 17TH FLOOR
SAN FRANCISCO, CALIFORNIA 94105
(415) 228-3900
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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ALLEN J. ANDERSON Copies of all communications,
CHAIRMAN AND CHIEF EXECUTIVE OFFICER including all communications to the
455 MARKET STREET, 17TH FLOOR agent for service, should be sent to:
SAN FRANCISCO, CALIFORNIA 94105 MICHAEL D. WORTLEY, ESQ.
(415) 228-3900 MARK EARLY, ESQ.
(Name, address, including zip code, VINSON & ELKINS L.L.P.
and telephone number, including area 3700 TRAMMELL CROW CENTER
code, of agent for service) 2001 ROSS AVENUE
DALLAS, TEXAS 75201
(214) 220-7700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement as determined in
light of market conditions and other factors.
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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
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. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per share........ 16,277,554 $25.0625 $407,956,197 $120,347
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c), using the average of the high and low sales
prices reported on The New York Stock Exchange for the Registrant's Common
Stock on December 9, 1997.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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SUBJECT TO COMPLETION DATED DECEMBER 11, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
MERIDIAN INDUSTRIAL TRUST, INC.
16,277,554 SHARES OF COMMON STOCK, $.001 PAR VALUE
This Prospectus relates to the offering by the selling stockholders named
herein (the "Selling Stockholders") of up to an aggregate of 16,277,554 shares
of Common Stock (the "Offered Securities"), par value $.001 per share ("Common
Stock"), of Meridian Industrial Trust, Inc., a Maryland corporation ("Meridian"
or the "Company"). See "Plan of Distribution" for information relating to
resales of the Offered Securities by the Selling Stockholders.
SEE "RISK FACTORS" ON PAGE FOR CERTAIN FACTORS RELEVANT TO AN INVESTMENT
IN THE COMMON STOCK.
The Offered Securities may be sold from time to time pursuant to this
Prospectus by the Selling Stockholders. The Offered Securities may be sold by
the Selling Stockholders to or through underwriters, in block trades, purchases
and resales by a broker or dealer, exchange and/or secondary distributions,
ordinary brokerage transactions and in transactions in which brokers solicit
purchases, in privately negotiated transactions, or in a combination of such
methods of sale, at market prices prevailing at the time of sale, at prices
relating to such prevailing market prices or at negotiated prices. See "Plan of
Distribution." The Company will receive no part of the proceeds of sales of
Common Stock by the Selling Stockholders. All expenses of registration incurred
in connection with this offering are being borne by the Company, but all selling
and other expenses incurred by the Selling Stockholders will be borne by such
Selling Stockholders.
The Common Stock is quoted on The New York Stock Exchange. The last reported
sale price of the Common Stock on December 9, 1997, was $25.25.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is December , 1997.
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AVAILABLE INFORMATION
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus. If given or made, such representations must not be relied upon
as having been authorized by the Company or any Selling Stockholder. This
Prospectus shall not constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities law of any such State.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material can also be obtained from the Commission's
worldwide web site at http://www.sec.gov. The Company's outstanding shares of
Common Stock are listed on the New York Stock Exchange (the "NYSE") under the
symbol "MDN" and all such reports, proxy statements and other information filed
by the Company with the NYSE may be inspected at the NYSE's offices at 20 Broad
Street, New York, New York 10005. In addition, warrants to purchase shares of
the Company's Common Stock are listed on the American Stock Exchange ("ASE") and
such reports, proxy statements and other information filed by the Company with
the ASE may be inspected at the ASE's offices at 86 Trinity Place, New York, New
York 10006-1881.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933 (the "Securities
Act") with respect to the securities offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which were omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement. Any statements contained herein concerning the
provisions of any document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission are not necessarily complete, and in each
instance reference is made to the copy of such document so filed. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference (File No. 1-14166):
(i) Annual Report on Form 10-K for the fiscal year ended December 31, 1996,
as amended;
(ii) Quarterly Report on Form 10-Q for the quarter ended March 31, 1997;
(iii) Quarterly Report on Form 10-Q for the quarter ended June 30, 1997;
(iv) Quarterly Report on Form 10-Q for the quarter ended September 30, 1997;
(v) Current Report on Form 8-K filed October 9, 1997, as amended;
(vi) Current Report on Form 8-K filed October 15, 1997, as amended;
(vii) Current Report on Form 8-K filed November 6, 1997, as amended; and
(viii) The description of the Company's capital stock contained in of the
Company's Registration Statement on Form 8-A filed on January 4, 1996
for registration of the Common Stock pursuant
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to Section 12(b) of the Exchange Act, including any amendment or report
filed for the purpose of updating such description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the securities offered hereby shall be deemed
to be incorporated by reference into this Prospectus and to be a part hereof
from the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents which are incorporated by reference herein,
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into such documents). Requests should be directed to
General Counsel, Meridian Industrial Trust, Inc., 455 Market Street, 17th Floor,
San Francisco, California 94105.
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UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS TO
"MERIDIAN" AND THE "COMPANY" REFER TO MERIDIAN INDUSTRIAL TRUST, INC. AND ITS
CONSOLIDATED SUBSIDIARIES. CERTAIN ADDITIONAL TERMS CONTAINED HEREIN ARE DEFINED
IN THE GLOSSARY OF THIS PROSPECTUS.
THE COMPANY
Meridian Industrial Trust, Inc. is a self-administered and self-managed real
estate operating company engaged primarily in the business of owning, acquiring,
developing, managing and leasing income-producing warehouse/distribution and
light industrial properties. Based on the total square feet of leasable space
and management's knowledge of the industrial real estate market, the Company
believes it is one of the largest owners and managers of industrial space for
lease in the United States. The Company's strategy is to be a demand-driven,
competitively priced, nationwide provider of warehouse/distribution space.
The Company's fundamental business objective is to maximize total return to
its stockholders by increasing cash flow per share and increasing the long-term
value of the Company's properties. In order to achieve this objective, the
Company will seek to add value to the Company's Properties, build market share,
achieve name recognition and continue to improve its operating efficiency. The
Company places a high priority on disciplined portfolio management and
anticipating customers' needs. The Company intends to achieve its primary
business objective by applying its corporate strategies to achieve growth in its
portfolio of Properties. The Company will seek to grow through (a) acquiring
warehouse/distribution and light industrial properties, (b) developing
warehouse/distribution properties to meet customer demand, (c) selectively
acquiring land parcels in anticipation of development projects, (d)
repositioning the Company's existing portfolio by selling Properties which no
longer meet its investment objectives and reinvesting the proceeds and (e)
maximizing cash flow from its operating Properties by increasing occupancy
levels and releasing space at higher levels.
The Company's executive offices are located at 455 Market Street, 17th
Floor, San Francisco, California 94105, and its telephone number at those
offices is (415) 281-3900.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY BY EACH PROSPECTIVE PURCHASER OF COMMON
STOCK.
RISK OF INABILITY TO SUSTAIN DISTRIBUTION LEVEL
The Company's current intended distribution level is based on a number of
assumptions, including assumptions relating to the future operations of the
Company. These assumptions concern, among other matters, continued property
occupancy and profitability of tenants, capital expenditures and other costs
relating to the Company's properties, the level of leasing activity, the
strength of real estate markets, competition, the cost of environmental
compliance and compliance with other laws, the amount of uninsured losses, and
decisions by the Company to reinvest rather than distribute cash available for
distribution. The Company currently expects to maintain its current distribution
level. However, some of the assumptions described above are beyond the control
of the Company, and a significant change in any such assumptions could cause a
reduction in cash available for distributions, which could affect the Company's
ability to sustain its distribution level.
INFLUENCE OF SIGNIFICANT STOCKHOLDERS
Eight stockholders of the Company (Prudential and certain separate insurance
accounts managed by Prudential, Hunt, USAA and Morgan Stanley which own Common
Stock, Ameritech which owns Common Stock and Series B Preferred Stock that is
convertible into Common Stock and OTR which also owns Series B Preferred Stock)
owned as of September 30, 1997 a total of approximately 67% of the outstanding
Common Stock on a pro forma basis (assuming conversion of the Series B Preferred
Stock). The holders of Series B Preferred Stock (Ameritech and OTR) are entitled
to require that the Board of Directors be expanded by one additional director
and to fill the vacancy created by that expansion until such time as the holders
of the Series B Preferred Stock cease to hold shares of Series B Preferred Stock
representing a total of at least the Minimum Ownership Level (as defined in the
Company's Charter and described together with additional rights under
"Description of Stock--Preferred Stock"). At the next annual meeting following
the election of a director by the holders of the Series B Preferred Stock if
necessary, the number of directors would be reduced to nine directors, including
the director elected by the holders of the Series B Preferred Stock. In
addition, Prudential is entitled to require the Company to expand the size of
the Board of Directors by one director and to designate the individual who will
fill the vacancy created by such expansion. Accordingly, for so long as these
stockholders own a significant percentage of the Company's stock, they will
retain substantial influence over the affairs of the Company which may result in
decisions that do not fully represent the interests of all stockholders of the
Company.
REAL ESTATE INVESTMENT RISKS
EXPIRING LEASES. The Company's inability to renew or release space upon
expiration of its expiring leases could adversely affect the Company's cash
available for distributions. In addition, the Company usually will incur
additional costs in the form of leasing commissions and tenant improvements if
it is unable to renew an expiring lease with an existing tenant. In that regard,
in 1997 and 1998, leases covering approximately 3.75% and 10.65%, respectively,
of the Company's total leased space are scheduled to expire.
GENERAL RISKS. The Company's investments are subject to the risks incident
to ownership and operation of commercial real estate generally. The yields
available from equity investments in real estate depend upon the amount of
income generated and expenses incurred. If the Company's properties do not
generate revenue sufficient to cover operating expenses, including debt service
and capital expenditures, the Company's cash available for distribution and
ability to make distributions to its stockholders will be adversely affected.
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A commercial property's revenues and value may be adversely affected by a
number of factors, including: the national, state and local economic climate and
real estate conditions (such as oversupply of or reduced demand for space and
changes in market rental rates); the perceptions of prospective tenants of the
safety, convenience and attractiveness of the properties; the ability of the
owner to provide adequate management, maintenance and insurance; the ability to
collect on a timely basis all rents from tenants; the expense of periodically
renovating, repairing and reletting space; and increasing operating costs
(including real estate taxes and utilities) which may not be passed through the
tenants. Certain significant expenditures associated with investments in real
estate (such as debt service payments, real estate taxes, insurance and
maintenance costs) are generally not reduced when circumstances cause a
reduction in rental revenues from a property. If a property is mortgaged to
secure the payment of indebtedness and if the Company is unable to meet its
mortgage payments, a loss could be sustained as a result of foreclosure on the
property or the exercise of other remedies by the mortgagee. In addition, real
estate values and income from properties are affected by such factors as
compliance with laws, including tax laws, interest rate levels and the
availability of financing. Also, rentable square feet of commercial property is
often affected by market conditions and may therefore fluctuate over time.
TENANT DEFAULTS. Substantially all the Company's income is derived from
rental income from real property and, consequently, the Company's cash flow and
ability to make expected distributions to stockholders would be adversely
affected if a significant number of tenants of the Properties failed to meet
their lease obligations. In the event of a default by a lessee, the Company may
experience delays in enforcing its rights as lessor and may incur substantial
costs in protecting its investment. At any time, a tenant of the Properties may
also seek protection under the bankruptcy laws, which could result in rejection
and termination of such tenant's lease and thereby cause a reduction in the cash
available for distribution by the Company. If a tenant rejects its lease, the
Company's claim for breach of the lease would be treated (absent collateral
securing the claim) as a general unsecured claim. No assurance can be given that
the Company will not experience significant tenant defaults in the future.
MARKET ILLIQUIDITY. Equity real estate investments are relatively illiquid.
Such illiquidity will tend to limit the ability of the Company to vary its
portfolio promptly in response to changes in economic or other conditions. In
addition, provisions of the Code limit a REIT's ability to sell properties held
for fewer than four years, which may affect the Company's ability to sell
properties at a time when it is otherwise economically advantageous to do so,
thereby adversely affecting returns to holders of Common Stock.
OPERATING RISKS. The Properties are subject to operating risks common to
commercial real estate in general, any and all of which may adversely affect
occupancy or rental rates. The Properties are subject to increases in operating
expenses such as: cleaning, electricity, heating, ventilation and air
conditioning; insurance and administrative costs; and other general costs
associated with security, landscaping, repairs and maintenance. While the
Company's tenants are currently obligated to pay all or a portion of these
escalating costs, there can be no assurance that tenants will agree to pay such
costs upon renewal or that new tenants will agree to pay such costs. If
operating expenses increase, the local rental market may limit the extent to
which rents may be increased to meet increased expenses without decreasing
occupancy rates. While the Company generally implements cost saving incentive
measures at its Properties, if any of the above occurs, the Company's ability to
make distributions to stockholders could be adversely affected.
COMPETITION. There are numerous commercial properties that compete with the
Company in attracting tenants and numerous companies that compete in the
selection of land for development and properties for acquisition.
UNINSURED LOSSES. The Company carries or requires its tenants to carry
comprehensive liability, fire, extended coverage and rental loss insurance with
respect to all of the Properties, with policy specifications, insured limits and
deductibles customarily carried for similar properties. There are, however,
certain types of losses (such as losses arising from acts of war or relating to
pollution) that are not generally insured because they are either uninsurable or
not economically insurable. Should an uninsured loss or a loss in
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excess of insured limits occur, the Company could lose its capital invested in a
Property, as well as the anticipated future revenue from such Property and would
continue to be obligated on any mortgage indebtedness or other obligations
related to the property. Any such loss would adversely affect the business of
the Company and its financial condition and results of operations.
POTENTIAL ENVIRONMENTAL LIABILITY RELATED TO THE PROPERTIES
Under various federal, state and local laws, ordinances and regulations, an
owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. These laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The cost of
any required remediation and the owner's liability therefore as to any property
is generally not limited under such enactments and could exceed the value of the
property and/or the aggregate assets of the owner. The presence of such
substances, or the failure to properly remediate such substances, may adversely
affect the owner's ability to sell or rent such property or to borrow using such
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain environmental
laws govern the removal, encapsulation or disturbance of asbestos-containing
materials ("ACMs") when such materials are in poor condition, or in the event of
renovation or demolition. Such laws impose liability for release of ACMs into
the air and third parties may seek recovery from owners or operators of real
properties for personal injury associated with ACMs. In connection with the
ownership (direct or indirect), operation, management and development of real
properties, the Company may be considered an owner or operator of such
properties or as having arranged for the disposal or treatment of hazardous or
toxic substances and, therefore, potentially liable for removal or remediation
of costs, as well as certain other related costs, including governmental fines
and injuries to persons and property.
All the Properties have been subject to a Phase I or similar environmental
audit undertaken by independent environmental consultants after December 1992
(which involved general inspections without soil sampling, ground water analysis
or radon testing and, for the Properties constructed in 1978 or earlier, survey
inspections to ascertain the existence of ACMs). These environmental audits have
not revealed, and the Company is not aware of, any environmental liability that
would have a material adverse effect on the Company's business.
RISKS OF ACQUISITION, DEVELOPMENT AND CONSTRUCTION ACTIVITIES
The Company intends to acquire existing warehouse/distribution and light
industrial properties to the extent they can be acquired on advantageous terms
and meet the Company's investment criteria. Acquisitions of such properties
entail general investment risk associated with any real estate investment,
including the risk that investments will fail to perform as expected or that
estimates of cost of improvements to bring an acquired property up to standards
established for the intended market condition may prove inaccurate.
The Company also intends to grow through the selective development and
construction of build-to-suit warehouse/distribution and light industrial
properties, in accordance with the Company's policies as opportunities arise in
the future. See Risks associated with the Company's development and construction
activities include the risk that: the Company may abandon development activities
after expending resources to determine feasibility; construction costs of a
project may exceed original estimates; occupancy rates and rents at a newly
completed property may not be sufficient to make the property profitable;
financing may not be available on favorable terms for development of a property;
and the construction and lease-up may not be completed on schedule, resulting in
increased debt service, expense and construction costs. Development activities
are also subject to risk relating to inability to obtain, or delays in
obtaining, all necessary zoning, land-use, building, occupancy and other
required governmental permits and authorizations. If any of the above occur, the
Company's ability to make expected distributions to stockholders
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could be adversely affected. In addition, new development activities, regardless
of whether they are ultimately successful, typically require a substantial
portion of management's time and attention.
RISKS OF ADVERSE EFFECT ON THE COMPANY FROM DEBT FINANCING, INCREASES IN
INTEREST RATES, FINANCIAL COVENANTS AND ABSENCE OF LIMITATIONS ON DEBT
DEBT FINANCING. The Company is subject to risks normally associated with
debt financing, including the risk that the Company's cash flow will be
insufficient to meet required payments of principal and interest, the risk that
existing indebtedness on the Properties will not be able to be refinanced or
that the terms of such refinancings will be as favorable as the terms of the
existing indebtedness. There can be no assurance that the Company will be able
to refinance any indebtedness or otherwise obtain funds by selling assets or
raising equity to make required payments on maturing indebtedness.
REQUIREMENTS OF CREDIT FACILITIES; FORECLOSURES. The Company has entered
into secured and unsecured credit facilities as well as certain other promissory
notes. The terms of certain of this indebtedness require the Company to comply
with a number of customary financial and other covenants (such as maintaining
certain debt coverage and loan-to-value ratios). The Company may not have funds
on hand sufficient to repay such indebtedness at maturity. It may therefore be
necessary for the Company to refinance debt through additional debt financing or
equity offerings. If the Company is unable to refinance its indebtedness on
acceptable terms, the Company may be forced to dispose of properties upon
disadvantageous terms, which could result in losses to the Company and adversely
affect the amount of cash available for distribution to stockholders. In
addition, if the Company is unable to meet its payment obligations under its
secured indebtedness, certain Properties could be foreclosed upon by or
otherwise transferred to the lender with a consequent loss of income and asset
value to the Company.
RISK OF RISING INTEREST RATES. Outstanding advances under the Unsecured
Credit Facility bear interest rates at a variable rate. In addition, the Company
may incur indebtedness in the future that also bears interest at a variable rate
or may be required to refinance its debt at higher rates. Increases in interest
rates could increase the Company's interest expense, which could adversely
affect the Company's ability to pay expected distributions to stockholders.
NO LIMITATION ON DEBT. The Company currently has a policy of incurring debt
only if, upon such incurrence, the Company's debt-to-total market capitalization
would be 50% or less. However, the Organizational Documents of the Company do
not contain any limitation on the amount of indebtedness the Company may incur.
Accordingly, the Board could alter or eliminate this policy and would do so if,
for example, it were necessary in order for the Company to continue to qualify
as an REIT. If this policy were changed, the Company could become more highly
leveraged, resulting in an increase in debt service that could adversely affect
the cash available for distribution to stockholders and could increase the risk
of default on the Company's indebtedness.
POSSIBLE STOCK PRICE VOLATILITY
The market price of Common Stock could be subject to significant
fluctuations in response to various factors and events, including quarterly
variations, operating results, liquidity of the market for Common Stock,
regulatory changes affecting the real estate industry generally, announcements
of business developments by the Company or its competitors, interest rate
fluctuations and other changes in real estate market conditions.
EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK
One of the factors that influences the market price of the shares of Common
Stock in public markets is the annual yield on the price paid for shares of
Common Stock from distributions by the Company. An increase in market interest
rates may lead prospective purchasers of the Common Stock to demand a
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higher annual yield from future distributions. Such an increase in the required
distribution yield may adversely affect the market price of Common Stock.
CONFLICTS OF INTEREST
The Company has adopted certain policies designed to eliminate or minimize
conflicts of interest. These policies include a requirement that all
transactions in which officers, directors and substantial shareholders and their
affiliates have a conflicting interest must be approved by a majority of the
disinterested directors of the Company who are not officers or full time
employees of the Company or members of the immediate family of any such officer
or employee (the "Independent Directors"). However, there can be no assurance
that these policies will be successful in minimizing or eliminating such
conflicts and, if they are not successful, decisions could be made that might
fail fully to reflect the interests of all stockholders.
CHANGES IN POLICIES WITHOUT STOCKHOLDER APPROVAL
The investment, financing, conflicts of interest, borrowing and distribution
policies of the Company and its policies with respect to all other activities,
including qualification as a REIT, growth, debt, capitalization and operations,
will be determined by the Board. Although it has no present intention to do so,
the Board may amend or revise these policies at any time and from time to time
at its discretion without a vote of the stockholders of the Company. A change in
these polices could adversely affect the Company's financial condition, results
of operations or the market price of the Common Stock.
COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT AND SIMILAR LAWS
AMERICANS WITH DISABILITIES ACT. Under the Americans with Disabilities Act
of 1990 (the "ADA"), places of public accommodation and commercial facilities
are required to meet certain federal requirements related to access and use by
disabled persons. These requirements became effective in 1992. Although
management of the Company believes that the Properties are substantially in
compliance with present requirements of the ADA, the Company may incur
additional costs of compliance in the future. A number of additional federal,
state and local laws exist which impose further burdens or restrictions on
owners with respect to access by disabled persons and may require modifications
to the Properties, or restrict certain further renovations thereof, with respect
to access by disabled persons. The ultimate amount of the cost of compliance
with the ADA or other such laws is not currently ascertainable. While such costs
are not expected to have a material effect on the Company, they could be
substantial. If required changes involve greater expense than the Company
currently anticipates, the Company's ability to make expected distributions
could be adversely affected.
OTHER LAWS. The Properties are also subject to various federal, state and
local regulatory requirements, such as state and local fire and life safety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to private
litigants. The Company believes that the Properties are currently in compliance
with all such regulatory requirements. However, there can be no assurance that
these requirements will not be changed or that new requirements will not be
imposed which would require significant unanticipated expenditures by the
Company and could have an adverse effect on the Company's expected
distributions.
RISKS OF FAILURE TO QUALIFY AS A REIT AND OTHER TAX LIABILITIES
CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT. The Company has elected to be
taxed as a REIT under the Code, commencing with its initial taxable year ended
December 31, 1995. To maintain REIT status, the Company must meet a number of
highly technical requirements on a continuing basis. Those requirements seek to
ensure, among other things, that the gross income and investments of a REIT are
largely real estate related, that a REIT distributes substantially all its
ordinary taxable income to stockholders on a
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current basis and that the REIT's ownership is not overly concentrated. Due to
the complex nature of these rules, the limited available guidance concerning
interpretation of the rules, the importance of ongoing factual determinations
and the possibility of adverse changes in the law, administrative
interpretations of the law and developments at the Company, no assurance can be
given that the Company will qualify as a REIT for any particular year.
If the Company fails to qualify as a REIT, it will be taxed as a regular
corporation, and distributions to stockholders will not be deductible in
computing the Company's taxable income. The resulting corporate tax liabilities
could materially reduce the funds available for distribution to the Company's
stockholders or for reinvestment. In the absence of REIT status, distributions
to stockholders would no longer be required. Moreover, the Company might not be
able to elect to be treated as a REIT for the four taxable years after the year
during which the Company ceased to qualify as a RElT. In addition, if the
Company later requalified as a REIT, it might be required to pay a full
corporate-level tax on any unrealized gain in its assets as of the date of
requalification and to make distributions equal to any earnings accumulated
during the period of non-REIT status.
EFFECT OF REIT DISTRIBUTION REQUIREMENTS. To maintain its qualification as
a REIT, the Company must annually distribute to the Company's stockholders at
least 95% of its net ordinary taxable income (not capital gains). This
requirement limits the Company's ability to accumulate capital. Under certain
circumstances, the Company may not have sufficient cash or other liquid assets
to meet the distribution requirement. Difficulties in meeting the distribution
requirements might arise due to competing demands for the Company's funds or to
timing differences between tax reporting and cash receipts and disbursements
(because income may have to be reported before cash is received, or expenses may
have to be paid before a deduction is allowed or deductions may be disallowed or
limited). In those situations, the Company might be required to borrow funds or
sell properties on adverse terms in order to meet the distribution requirements.
Although the Company does not anticipate difficulties in meeting the
distribution requirements, no assurance can be given that the necessary funds
will be available. If the Company fails to make a required distribution, it
would cease to be a REIT. See "Federal Income Tax Considerations--REIT
Qualification."
LIMITS ON OWNERSHIP AND CHANGES IN CONTROL MAY DETER CHANGES IN MANAGEMENT AND
THIRD PARTY ACQUISITION PROPOSALS
In order to maintain its qualification as a REIT, not more than 50% in value
of the outstanding shares of the Company may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year (other than 1995) (the "Five or
Fewer Requirement"). To help the Company meet these requirements and otherwise
maintain its REIT status, the Charter prohibits (a) actual or constructive
ownership by any person (other than persons designated by the Board as "Excepted
Holders") of more than 8.5% of the lesser of the number or value of the
outstanding shares of any class or series of the Company's Common Stock or
Preferred Stock ("Equity Stock"), (b) ownership of stock that would cause the
Company to be "closely held" or otherwise fail to qualify as a REIT and (c)
transfers that would result in outstanding shares being owned by less than 100
persons. See "Federal Income Tax Consequences--REIT Qualification." The Charter
provides that, upon any attempted transfer of shares (including warrants or
options to acquire shares) that would cause any person to be treated as owning
stock in violation of the ownership restrictions (other than the prohibition
against transfers that would result in less than 100 owners), the number of
shares that would cause the violation are automatically transferred to a Trustee
for the benefit of a charitable beneficiary as "Shares-In-Trust." The person who
otherwise would have been considered the owner (the "Prohibited Owner") will
have no rights or economic interest in those shares. For these purposes,
potentially violative "ownership" is evaluated by taking into account the broad
constructive ownership rules of Sections 544 and 318 of the Code, with certain
modifications. In addition, a "transfer" that is subject to these restrictions
includes any issuance, sale, transfer, gift, assignment, devise or other
disposition, as well as any other event that causes
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<PAGE>
any person to have or acquire ownership (applying the constructive ownership
rules) of Equity Stock. See "Description of Stock--Restrictions on Ownership and
Transfer."
These provisions and certain other provisions of the Company's charter and
bylaws and the Maryland General Corporation Law, as amended (the "MGCL") may
have the effect of delaying, deferring or preventing a third party from making
an acquisition proposal for the Company and may thereby inhibit a change in
control of the Company. For example, such provisions may (i) deter tender offers
for Common Stock that may be attractive to stockholders or (ii) deter purchases
of large blocks of Common Stock, thereby limiting the opportunity for
stockholders to receive a premium for their Common Stock over then-prevailing
market prices. See "Certain Provisions of Maryland Law and of the Charter and
Bylaws."
FUTURE ISSUANCES OF COMMON STOCK. The Charter authorizes the Board to issue
additional shares of Common Stock without stockholder approval. Any such
issuance could have the effect of diluting existing stockholders' interest in
the Company.
PREFERRED STOCK. The Charter authorizes the Board to (a) issue up to 25
million shares of preferred stock (the "Preferred Stock"), (b) reclassify
unissued shares of stock, (c) establish the preferences, conversion and other
rights, voting powers, restrictions, limitations and restrictions on ownership,
limitations as to dividends or other distributions and (d) establish terms and
conditions of redemption for each class or series of any Preferred Stock issued.
See "Description of Stock--Preferred Stock."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers. The loss
of their services could have an adverse effect on the operations of the Company.
RISKS ASSOCIATED WITH RELIANCE ON FORWARD LOOKING STATEMENTS
This Prospectus and the documents incorporated herein by reference contain
statements which constitute forward looking statements within the meaning of
Section 27A of the Securities Act, and Section 21E of the Exchange Act. Those
statements appear in a number of places and include statements regarding the
intent, belief or current expectations of the Company, its directors or its
officers with respect to, among other things: (a) potential acquisitions or
property developments by the Company; (b) the Company's financing plans; (c)
trends affecting the Company's financial condition or results of operations; (d)
the Company's growth strategy, operating strategy and financing strategy; (e)
the declaration and payment of dividends; and (f) regulatory matters affecting
the Company. Prospective investors are cautioned that any such forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward looking statements as a result of various factors.
Risks and uncertainties associated with the Company's acquisition activities
include risks that: acquisition opportunities explored by the Company may be
abandoned, investments will fail to perform in accordance with expectations and
that analysis with respect to the cost of improvements to bring an acquired
project up to standards will prove inaccurate, as well as general investment
risks associated with any new real estate investment. The Company disclaims any
obligation to update the forward looking statements contained in this Prospectus
or incorporated herein by reference.
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<PAGE>
DESCRIPTION OF STOCK
The following is a summary of certain features of the Company's stock. This
summary does not purport to be complete and is subject to and is qualified in
its entirety by reference to the Charter and Bylaws, copies of which are
exhibits to the Registration Statement of which this Prospectus is a part. See
"Available Information."
GENERAL
Under the Charter, the Company is authorized to issue a total of 200 million
shares of stock, consisting of 175 million shares of Common Stock, par value
$.001 per share, and 25 million shares of Preferred Stock, par value $.001 per
share. The Company is a Maryland corporation. Under Maryland law, stockholders
generally are not responsible for the corporation's debts or obligations.
COMMON STOCK
All of the Offered Securities are duly authorized, fully paid and
nonassessable. They are also subject to the ownership and transfer restrictions
contained in the Charter (described under "--Restrictions on Ownership and
Transfer").
Subject to the preferential rights of any other shares or series of stock
and the REIT ownership provisions set forth in the charter, holders of shares of
Common Stock are entitled to receive dividends on shares if, as and when
authorized and declared by the Board out of assets legally available for
distribution. Under the MGCL, a dividend or other distribution may not be made
if after giving effect to it (a) the corporation would not be able to pay its
debts as they become due in the usual course of business or (b) the
corporation's total assets would be less than the corporation's total
liabilities plus (unless the corporation's charter provides otherwise, which the
Charter does not) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of stockholders whose preferential rights upon dissolution are
superior to those receiving the distribution. Holders of shares of Common Stock
also are entitled to share ratably in the assets of the Company legally
available for distribution to its stockholders in the event of the Company's
liquidation, dissolution or winding-up after payment of, or adequate provision
for, all known debts and liabilities of the Company.
Subject to the REIT ownership provisions set forth in the Charter, each
outstanding share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors. Except
as otherwise required by law or except as provided with respect to the Series B
Preferred Stock or any other class or series of stock, the holders of shares of
Common Stock possess the exclusive voting power of the Company. There is no
cumulative voting for the election of directors of the Company, which means that
the holders of a majority of the outstanding shares of Common Stock will be able
to elect all the directors for whom such holders vote, and the holders of the
remaining shares of Common Stock will not be able to elect any directors. As
explained under
"--Preferred Stock," the holders of shares of Series B Preferred Stock will have
certain rights to elect directors.
Holders of shares of Common Stock have no conversion, sinking fund or
redemption rights or any preemptive rights to subscribe for any additional
securities of the Company. All shares of Common Stock have equal distribution,
liquidation and other rights, and have no preference or exchange rights.
Under the MGCL, a corporation generally cannot dissolve, amend its charter,
merge, sell all or substantially all of its assets, engage in a share exchange
or engage in similar transactions outside the ordinary course of business unless
approved by the affirmative vote of holders of at least two-thirds of the shares
entitled to vote on the matter or such lesser percentage (but not less than a
majority of all of the votes to be cast on the matter) as is set forth in the
corporation's charter. The Charter provides that,
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<PAGE>
subject to the rights of any series of Preferred Stock then outstanding, such
extraordinary transactions may be approved by the affirmative vote of a majority
of all of the votes entitled to be cast on such matters.
The transfer agent and registrar for the shares of Common Stock is First
Chicago Trust Company of New York.
PREFERRED STOCK
Under the Charter, the Board is authorized, without further stockholder
action, to provide for the issuance of up to 25 million shares of Preferred
Stock in one or more series (of which 2,272,727 shares are currently classified
as Series B Preferred Stock). Shares of Preferred Stock may be issued from time
to time, in one or more series, as authorized by the Board, subject to the
rights of holders of any series of Preferred Stock then outstanding. Prior to
the issuance of shares of each series, the Board is required by the MGCL and the
Charter to fix (subject to the express terms of any class or series of the
Company's stock outstanding at the time and the ownership and transfer
restrictions contained in the Charter, described under "--Restrictions on
Transfer and Ownership") the terms, preferences, conversion, other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms and conditions of redemption for each series. Such
rights, powers, restrictions and limitations could include the right to receive
specified dividend payments and payments on liquidation prior to any such
payments being made to the holders of shares of Common Stock. The Board could
also authorize the issuance of shares of Preferred Stock with terms and
conditions that could have the effect of discouraging a takeover or other
transaction in which holders of shares of Common Stock might receive a premium
for their shares over the then market price of such shares.
The rights, preferences, privileges, and restrictions, including dividend
rights, voting rights, conversion rights, terms of redemption, and liquidation
preferences, of the Preferred Stock of each series will be fixed or designated
by the Board pursuant to the articles supplementary. The specific terms of a
particular series of Preferred Stock will include the following: (a) the maximum
number of shares to constitute the series and the distinctive designation
thereof; (b) the annual dividend rate, if any, on shares of the series (or the
method of calculating such rate), whether such rate is fixed or variable or
both, the date or dates from which dividends will begin to accrue or accumulate,
and whether dividends will be cumulative; (c) whether the shares of the series
will be redeemable and, if so, the price at and the terms and conditions on
which such shares may be redeemed, including the time during which such shares
may be redeemed and any accumulated dividends thereon that the holders of such
shares shall be entitled to receive upon the redemption thereof; (d) the
liquidation preference, if any, applicable to shares of the series; (e) whether
the shares of the series will be subject to operation of a retirement or sinking
fund and, if so, the extent and manner in which any such fund shall be applied
to the purchase or redemption of such shares for retirement or for other
corporate purposes, and the terms and provisions relating to the operation of
such fund; (f) the terms and conditions, if any, on which the shares of the
series will be convertible into, or exchangeable for, shares of any other class
or classes of capital stock of the Company or another corporation or any series
of any other class or classes, or of any other series of the same class,
including the price or rate of conversion or exchange and the method, if any, of
adjusting the same; (g) the voting rights, if any, on the shares of the series;
and (h) any other preferences and relative, participating, optional, or other
special rights or qualifications, limitations, or restrictions thereof.
DESIGNATED PREFERRED STOCK
In connection with the formation and initial capitalization of the Company,
the Company issued a total of one million shares of Series A Preferred to the
Merged Trusts and Trust 83. These shares were canceled or redeemed in connection
with the Merger and no shares of the Series A Preferred Stock are outstanding.
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<PAGE>
The Company issued a total of 2,272,727 shares of Series B Preferred Stock
for a total purchase price of $35 million or $15.40 per share on February 23,
1996. The Board has established the rights, powers, restrictions and limitations
of the Series B Preferred Stock. The holders of shares of Series B Preferred
Stock are entitled to receive cumulative dividends: (a) for the first eight
quarterly dividend periods after issuance, in an amount per share equal to the
greater of (i) $0.31 per quarter or (ii) 103% (as adjusted from time to time by
the Board as the conversion price of the Series B Preferred Stock is adjusted
from time to time) of the quarterly dividend payable per share of Common Stock
during that period (determined as of the date on which the applicable Common
Stock dividend is authorized) and (b) beginning with the ninth quarterly
dividend period after issuance, in an amount per share equal to the greater of
(i) the quarterly dividend payable on the Series B Preferred Stock for the
eighth quarterly dividend period after issuance or (ii) the dividend paid per
share of Common Stock (determined as of the date on which the Common Stock
dividend for the corresponding Common Stock dividend period is authorized and as
adjusted from time to time by the Board as the conversion price of the Series B
Preferred Stock is adjusted from time to time). If the annual dividend rate is
$1.24 per share on the Series B Preferred Stock, the total dividend would equal
approximately $2.8 million per year.
The holders of shares of Series B Preferred Stock also are entitled to a
liquidation preference of $15.40 per share (equivalent to the initial purchase
price) plus accumulated unpaid dividends if the Company is liquidated or sold
prior to the redemption or conversion of those shares. The rights of holders of
Series B Preferred Stock to cumulative dividends and the liquidation preference
are senior to the rights of holders of Common Stock to dividends or any
distributions upon liquidation or sale of the Company.
Each share of Series B Preferred Stock is convertible at the option of its
holder at any time into shares of Common Stock at a conversion price of $15.40
per share of Common Stock (the "Conversion Price") (equivalent to an initial
conversion rate of one share of Common Stock per share of Series B Preferred),
subject to adjustment to reflect stock dividends, splits, combinations and
issuances of stock by reclassification of Common Stock. In addition, if the
Company issues for cash or other consideration shares of Common Stock or any
security convertible into or exchangeable or exercisable for Common Stock (other
than securities issued to directors, officers or employees of the Company and
securities issued in connection with property acquisitions that are approved by
the Investment Committee of the Board and the designee, if any, of the Series B
Preferred Stock then sitting on the Board) at a price, including any additional
consideration payable upon any such conversion, exchange or exercise (before
deduction of any reasonable and customary discounts, commissions, fees and other
expenses of issuance and marketing) that is less than $16.00 as adjusted from
time to time by the Board upon certain other adjustments to the conversion
price, there will be a reduction in the conversion price of the Series B
Preferred Stock equal to the amount by which $16.00 (as adjusted) exceeds the
purchase, exchange or conversion price. If the Company engages in more than one
such issuance, the amount of the adjustment to the Conversion Price will be
equal to the greatest individual reduction. However, such adjustments will not
be cumulative. The number of shares of Common Stock actually issuable upon the
conversion of the Series B Preferred Stock will be determined by dividing the
total liquidation preference of such shares (plus all unpaid accumulated
dividends, except any dividends accumulated on shares of Series B Preferred
Stock presented for conversion after the end of the last-completed quarterly
dividend period) by the conversion price in effect at that time.
At any time on or after January 1, 1999 and on or before December 31, 2004,
the Company, at its option, may convert the outstanding shares of Series B
Preferred Stock, in whole but not in part, into shares of Common Stock at the
then effective conversion price per share (currently equivalent to an initial
conversion rate of one share of Common Stock per share of Series B Preferred
Stock), subject to certain adjustments, so long as: (a) the average closing
price of Common Stock on the NYSE during any 20 trading days in a period of 30
consecutive trading days ending on the trading day immediately preceding the
date the Company provides notice of exercise of its right to convert the Series
B Preferred Stock meets
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<PAGE>
or exceeds the following percentages of the then-applicable Conversion Price
(the "Conversion Price Premium"):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------ -----------
<S> <C>
1999.................................................................... 115.0%
2000.................................................................... 119.0
2001.................................................................... 123.0
2002.................................................................... 127.5
2003 and 2004........................................................... 132.0
</TABLE>
and (b) the closing price of the Common Stock on the trading day immediately
preceding the date the Company provides notice of exercise of this option equals
or exceeds the applicable Conversion Price Premium.
At any time on or after January 1, 1999 and on or before December 31, 2004,
the Company, at its option, may redeem the Series B Preferred Stock, in whole or
in part (but in no event for a total consideration that is less than $1
million), for a per share cash price as follows:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ------------------------------------------------------------- -----------
<S> <C>
1999......................................................... $ 16.95
2000......................................................... 17.35
2001......................................................... 17.80
2002......................................................... 18.25
2003 and 2004................................................ 18.70
</TABLE>
plus, in each case, accumulated unpaid dividends to and including the date fixed
for redemption. If the Company exercises its right to redeem the Series B
Preferred Stock, the holder's conversion right will terminate five days before
the redemption date.
The holders of Series B Preferred Stock vote together with the holders of
the Common Stock on an as-converted basis on all matters submitted to a vote of
the Company's common stockholders. In addition, for so long as Ameritech and OTR
collectively hold shares of Series B Preferred Stock representing on an
as-converted basis more than 15% of the publicly-traded shares of Common Stock
(excluding shares owned by Hunt, USAA, officers and directors of the Company or
Ameritech and OTR and as otherwise defined in the agreement with Ameritech and
OTR), the holders of Series B Preferred Stock will be entitled to require the
Company to increase the size of the Board by one person (there currently are
seven Company directors) and to elect that additional director. That percentage
will be reduced to one-half of the then-effective percentage in the event of a
partial redemption or conversion of the Series B Preferred Stock. (The
applicable percentage is referred to in this Prospectus as the "Minimum
Ownership Level".) At the Company's next annual meeting following any such
election, if necessary, the size of the Board will be reduced to nine persons
and, at that meeting and each succeeding annual meeting for so long as Ameritech
and OTR collectively hold shares of Series B Preferred Stock representing on an
as-converted basis more than the Minimum Ownership Level and the holders of the
Series B Preferred Stock elect to exercise such right, the holders of the Series
B Preferred Stock, voting as a separate class, will be entitled to elect one
director to serve on the Board by majority vote. If dividends on the Series B
Preferred Stock are in arrears for six consecutive quarterly dividend periods,
and Ameritech and OTR collectively hold all the outstanding shares of Series B
Preferred Stock, then the Board will be increased by two (in addition to the
director referred to previously), and Ameritech will have the right to designate
one such director and OTR will have the right to designate the other such
director. If Ameritech and OTR do not then hold all of the outstanding shares of
Series B Preferred Stock, then the holders of a majority of the Series B
Preferred Stock voting separately as a class will have the right to elect one
director to serve on the Board until all
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<PAGE>
such dividend arrearages are eliminated. According to Ameritech's Form 13D dated
October 10, 1997, Ameritech stated that it does not currently intend to exercise
its right to appoint a director. At the next annual meeting of stockholders of
the Company after the election of such director or directors, the size of the
Board will be reduced, if necessary, to: (a) nine persons if one director is so
elected; and (b) ten directors if two directors are so elected. In either case,
that shall be the maximum membership of the Board until such time as all
arrearages in dividends shall have been paid. The Company may not amend the
provisions of the Series B Preferred Stock without the affirmative vote of
holders of at least 75% of the outstanding shares of Series B Preferred Stock.
The holders of the Series B Preferred Stock also have the right to approve
certain extraordinary corporate transactions by a majority vote, including a
merger in which the Company is not the surviving entity and any sale of all or
substantially all of the Company's assets.
The Company has agreed in connection with the Stock Purchase Agreement with
Ameritech and OTR that until such time as Ameritech and OTR cease to hold shares
of Series B Preferred Stock (or Common Stock in the event of a conversion of
Series B Preferred) representing on an as-converted basis in the aggregate at
least the Minimum Ownership Level, the Company is subject to a number of
operating covenants, including: (a) the Company may not repurchase more than $5
million of Common Stock in the aggregate; (b) the Company may not incur debt
that, at the time the debt is incurred, would result in the Company having a
debt-to-total-debt-and-equity-capitalization ratio above 60%; (c) the Company
may engage in transactions with affiliates only with the approval of a majority
of its disinterested directors and upon terms no less favorable than those that
could be obtained in an arms' length transaction and, if the value of any such
transaction exceeds 10% of the fair market value of the Company's assets as
determined by the Board, the Company must obtain a third-party appraisal or
other confirmation that such transaction is on terms no less favorable to the
Company than those that could be obtained in an arm's length transaction; (d)
the Company must continue to qualify as a real estate operating company; and (e)
until such time as the market value of the Company's publicly traded shares
exceeds $250 million for at least 60 consecutive days, the Company may not
engage in any issuances of equity securities in private placements unless, after
the private placement, the market value of the Company's publicly-traded shares
(as defined therein) would equal or exceed 50% of the Company's total equity
capitalization and unless the purchasers in any such private placement agree to
certain restrictions on the transfer of the stock purchased in the private
placement for a period of one year.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
For the Company to qualify as a REIT under the Code, beginning with calendar
year 1996, generally not more than 50% of the value of its outstanding stock may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities), and its outstanding stock must be
beneficially owned by at least 100 persons. See "Federal Income Tax
Considerations--REIT Qualification. To help the Company meet these requirements
and otherwise maintain its REIT status, the Charter includes three basic
protective provisions affecting the ownership and transfer of the Company's
issued and outstanding shares of any class or series of Common Stock or
Preferred Stock ("Equity Stock"): (a) a general prohibition against actual or
constructive ownership by any person (other than persons designated by the Board
as "Excepted Holders", described further below) of more than 8.5% of the lesser
of the number or value of the outstanding shares of any class or series of
Equity Stock; (b) a prohibition against ownership of Equity Stock that would
cause the Company to be "closely held" or to otherwise fail to qualify as a REIT
(such as ownership that would result in the Company being treated as owning an
interest in a tenant if income derived by the Company from that tenant would
cause the Company to fail to satisfy any of the REIT gross income requirements);
and (c) a prohibition against transfers that would result in the Equity Stock
being owned by less than 100 persons. In addition, in January, 1996, the Company
issued shares of Common Stock that, prior to the end of that month, were held by
100 individuals in order to meet the 100-person requirement.
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<PAGE>
These ownership restrictions took effect on February 23, 1996 and may be
terminated if the Board determines that it is no longer in the best interests of
the Company to attempt to, or continue to, qualify as a REIT or that compliance
with the ownership limits and restrictions on transfer is no longer required in
order for the Company to qualify as a REIT.
These restrictions on ownership and transfer may have the effect of
precluding acquisition of control of the Company or otherwise limit the
opportunity for stockholders to receive a premium for their shares of Common
Stock that might otherwise exist if an investor attempted to assemble a block of
shares of Common Stock in excess of the 8.5% ownership limit or the higher
ownership limits set for certain stockholders. See "Risk Factors--Limits on
Ownership and Changes in Control May Deter Changes in Management and Third Party
Acquisition Proposals."
TRANSFERS IN TRUST. The Charter provides that, upon any attempted transfer
of Equity Stock (including warrants or options to acquire Equity Stock) that
would cause any person to be treated as owning Equity Stock in violation of the
ownership restrictions (other than the prohibition against transfers that would
result in less than 100 owners), the number of shares that would cause the
violation are automatically transferred to a trustee for the benefit of a
charitable beneficiary as "Shares-in-Trust." The person who otherwise would have
been considered the owner (the "Prohibited Owner") will have no rights or
economic interest in those shares. For these purposes, potentially violative
"ownership" is evaluated by taking into account the broad constructive ownership
rules of Sections 544 and 318 of the Code, with certain modifications. In
addition, a "transfer" that is subject to these restrictions includes any
issuance, sale, transfer, gift, assignment, devise or other disposition as well
as any other event that causes any person to have or acquire ownership (applying
the constructive ownership rules) of Equity Stock.
The trustee is entitled to vote all Shares-in-Trust and to receive all
distributions on Shares-in-Trust, and will hold such distributions for the
benefit of the charitable beneficiary. If any distributions with respect to
Shares-in-Trust are paid to the Prohibited Owner before the Company discovers
the violation of the ownership limit, the Prohibited Owner must pay that amount
to the trustee. Distributions on Shares-in-Trust will be used by the trustee
first to pay any expenses of the trust, second to pay any expenses of the
Company incurred in connection with the trust and third to pay any excess to the
charitable beneficiary. The Prohibited Owner is not to receive any benefit from
distributions.
The trustee is obligated to sell the Shares-in-Trust promptly to a person
who would not cause a violation of the ownership restrictions (at which time the
shares will cease to be Shares-in-Trust) and to distribute the net sale proceeds
first to pay any expenses of the trust, second to pay any expenses of the
Company incurred in connection with the trust, third to pay the Prohibited Owner
an amount intended to ensure that the Prohibited Owner will not realize any
appreciation in value of the shares and fourth to pay any excess to the
charitable beneficiary. If a Prohibited Owner sells Shares-in-Trust before the
Company discovers the transfer, such shares are deemed to have been sold on
behalf of the trust. To the extent that the Prohibited Owner received more in
that sale than the Prohibited Owner would otherwise be entitled to receive under
these provisions, the excess must immediately be delivered to the trustee.
THE COMPANY PURCHASE RIGHT. The Company also will have the right to
purchase all or any portion of the Shares-in-Trust, and the Shares-in-Trust are
deemed to have been offered to the Company, at the lesser of: (a) the price per
share paid for such shares in the transaction that created the Shares-in-Trust
(or if no price was paid, the market price at the time of that event); and (b)
the market price on the date the Company or its designee accepts the offer. This
purchase right exists for a period of 90 days after the later of: (a) the date
of the purported transfer that created the Shares-in-Trust, if the Company
receives notice of the event; and (b) the date the Company determines in good
faith that a purported transfer creating Shares-in-Trust has occurred, if the
Company does not receive notice of the event. The Company may not, however,
exercise this right after the trustee has sold the Shares-in-Trust to a person
whose ownership will not cause a violation of the ownership restrictions.
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<PAGE>
REPORTING OF TRANSFERS AND OWNERSHIP. To assist in the enforcement of the
ownership restrictions, the Charter requires any person who acquires or attempts
to acquire Equity Stock in violation of the ownership restrictions (or who would
own shares of Equity Stock but for the automatic transfer to the trust) to give
the Company immediate written notice of that event. In the case of a proposed or
attempted violative transfer, the purported transferee must give at least 15
days' prior written notice of the event and provide any other information the
Company requests in order to determine whether such transfer affects the
Company's REIT status.
In addition, the Charter generally requires every person who owns more than
5% (or such lower percentage as is required under the applicable Treasury
Regulations) of the number or value of the outstanding shares of any class or
series of the Equity Stock to give the Company written notice, within 30 days
after the close of each taxable year, stating the owner's name and address, the
number of shares of each class or series of Equity Stock owned and a description
of how the shares are held. These owners must generally provide any additional
information the Company requests in order to determine whether such ownership
affects the Company's REIT status and to ensure compliance with the ownership
restrictions. All remaining owners must generally provide ownership information
upon request. The Charter allows the Board to determine the information that
must be delivered by each owner of Equity Stock.
TRANSFERS VOID. The Charter also provides that if, for any reason, a
transfer to the trust described above would not effectively prevent the
Prohibited Owner from violating the ownership restrictions, then the purported
transfer is void ab initio and the Prohibited Owner does not acquire any rights
in the excess Equity Stock.
EXCEPTED HOLDERS. In order to permit ownership in excess of the specified
8.5% ownership limit for persons who will not jeopardize the Company's REIT
status, the Charter permits the Board to designate certain "Excepted Holders."
Excepted Holders must supply appropriate representations and undertakings
designed to protect the Company's REIT status (such as information establishing
that the Excepted Holder is treated as a "look-through" entity in applying the
REIT stock ownership tests and that the deemed ownership of the Company shares
through the entity will be appropriately dispersed so as not to jeopardize the
Company's REIT status). Each Excepted Holder will be subject to a separate
ownership limit as specified by the Board.
The only current Excepted Holders (and their respective Excepted Holder
Limits for Common Stock) are Ameritech (29%), Prudential (29%), Hunt (23.7%),
USAA (20%), OTR (8.5%), and Morgan Stanley (1,600,000 shares), six of the
principal shareholders of the Company. Ameritech, Prudential, Hunt, USAA, OTR
and Morgan Stanley have entered into separate "Excepted Holder Agreements" with
the Company under which they have given representations and undertakings
designed to protect the Company's REIT status. Prudential has represented and
covenanted to the Company that the shares that it beneficially owns, including
shares held on behalf of certain insurance company separate accounts, will be
treated as held proportionately by its policyholders. USAA has represented and
covenanted to the Company that shares that it owns will be treated as held
proportionately by the shareholders of its ultimate parent corporation and that
no individual will be treated as owning more than the "basic" 8.5% ownership
limit. Hunt's shares are held by a partnership that also has represented and
covenanted to the Company that the shares it owns will be held so that no
individual will be treated as owning more than the basic 8.5% ownership limit,
except that up to 15.3% of the lesser of the number or value of any outstanding
class of Equity Stock may be treated as owned by one individual and such
individual's family as defined in Code Section 544(a)(2). Accordingly, under the
basic 8.5% ownership limit and the existing Excepted Holder Limits, no five or
fewer individuals would be permitted to own more than 49.3% of the outstanding
Equity Stock. One individual, owning through Hunt, may own up to 15.3%.
The Excepted Holder Agreements with Ameritech and OTR permit Ameritech and
OTR to own up to 100% of the outstanding shares of Series B Preferred Stock and
permit Ameritech to own up to 29% of
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<PAGE>
the outstanding shares of Common Stock and OTR to own up to 8.5% of the
outstanding shares of Common Stock. The Excepted Holder Agreement with Morgan
Stanley permits Morgan Stanley acting on its own behalf and on behalf of its
clients accounts over which it has investment discretion to own shares of Common
Stock equal to the greater of 1,600,000 shares or 8.5% of the outstanding shares
of Common Stock. These agreements and the Prudential, Hunt and USAA Excepted
Holder Agreement also provide for certain adjustments to the ownership limits if
the Company engages in certain types of redemptions or repurchases of Common
Stock. Ameritech and OTR have represented and covenanted that they are
"qualified trusts" entitled to "look-through" treatment in applying the REIT
ownership restrictions and that none of their beneficiaries has been treated as
owning a significant portion of the shares it owns.
Under the Excepted Holder Agreements, the Excepted Holders have made
representations with respect to their actual or constructive ownership of
interests in tenants of the Company. These representations are designed to
assist the Company to qualify as a REIT. A breach of any of these
representations, except as determined by the Board with respect a particular
Excepted Holder, may result in certain shares of Equity Stock held by such
Excepted Holder becoming Shares-in-Trust. The Excepted Holder Agreements entered
into with Ameritech and Prudential provides that a tenant ownership issue of
this type will be resolved other than through the creation of Shares-in-Trust.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Company has adopted a dividend reinvestment and stock purchase plan
designed to provide holders of Common Stock with a convenient and economical
means to reinvest all or a portion of their Company cash dividends in shares of
Common Stock and to acquire additional shares of Common Stock through voluntary
purchases. First Chicago Trust Company of New York, which serves as the
Company's transfer agent, administers the dividend reinvestment and stock
purchase plan.
OUTSTANDING WARRANTS
The Company issued 553,000 Merger Warrants on April 8, 1996. Each Merger
Warrant entitles the holder to receive one share of Common Stock upon its
exercise. The Merger Warrants are listed for trading on the American Stock
Exchange. The Merger Warrants are exercisable during the period May 23, 1997
through February 24, 1999. The exercise price of the Merger Warrants is $16.23
(the average of the closing prices of the Common Stock for the first 20 trading
days after the Merger).
The exercise price of the Merger Warrants and the number of shares of Common
Stock issuable upon exercise of the Merger Warrants are subject to adjustment in
the event of stock dividends, stock splits, subdivisions, reclassifications,
reorganizations, consolidations and mergers.
If a holder of Merger Warrants fails to exercise his or her Merger Warrants
before their expiration, those warrants will expire and the holder will have no
further rights with respect to Merger Warrants. A holder of Merger Warrants will
not have any rights, privileges or liabilities of a stockholder of the Company
prior to exercise of the Merger Warrants, including the rights to vote and to
receive distributions.
On February 23, 1996, the Company issued a warrant to purchase shares of
Common Stock to USAA (the "USAA Warrant"). The USAA Warrant was issued as
consideration for the grant by USAA to the Company of the USAA Option. The USAA
Warrant has an exercise price of $14.60 per share and covers 184,900 shares of
Common Stock. On April 3, 1966, USAA sold the USAA Warrant to an affiliate of
Morgan Stanley for $300,000.
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<PAGE>
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE CHARTER AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Charter and Bylaws does not purport to be complete and is subject to and
qualified in its entirety by reference to Maryland law and the Charter and
Bylaws, copies of which are exhibits to the Registration Statement of which this
Prospectus is a part. See "Additional Information."
BOARD OF DIRECTORS
The Company's Organizational Documents specify that the initial number of
directors is nine and allow a majority of the entire Board to increase or
decrease the number of directors within a range of three to 15. The tenure of
office of a sitting director will not be affected by any decrease in the number
of directors. These provisions are in accord with Section 2-402 of the MGCL,
which fixes the minimum number of directors at three and allows a range to be
specified in a corporation's bylaws. As described below (see "--Amendment to
Organizational Documents"), the Bylaws may be amended only by the Board, not by
its stockholders. The Board could, therefore, amend the Bylaws to increase or
decrease the number of directors within the specified range, without stockholder
approval, but could not reduce the number of directors below three. The holders
of shares of Series B Preferred Stock are entitled to require, at least
temporarily, that the Board be expanded and be entitled to fill the additional
position or positions on the Board. See "Description of Stock--Preferred Stock."
As permitted by the MGCL, the Charter provides that, subject to the rights
of the holders of any series of Preferred Stock then outstanding, the Company's
stockholders may remove any director, with or without cause, by the affirmative
vote of a majority of all votes entitled to be cast for the election of
directors. If the stockholders of any class or series are entitled separately to
elect one or more directors, a majority vote of all votes of that class or
series is required in order to remove without cause a director elected by that
class or series.
MERGERS, CONSOLIDATIONS AND SALES OF ASSETS
In general, under the MGCL, any proposed merger or consolidation of the
Company with another company or companies, or any sale of all or substantially
all the assets of the Company, must be approved by the affirmative vote of
two-thirds of all the votes entitled to be cast on the matter or such lesser
percentage (subject to a specified minimum) as is set forth in the corporation's
charter. The Charter provides that such transactions may be approved by the
affirmative vote of a majority of all votes entitled to be cast on such matters.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of ten percent or more of the voting power of the then-outstanding voting
stock of the corporation (an "Interested Stockholder") or an affiliate of such
Interested Stockholder are prohibited for five years after the most recent date
on which the Interested Stockholder becomes an Interested Stockholder.
Thereafter, any such business combination must be recommended by the board of
directors of such corporation and approved by the affirmative vote of at least
(i) 80% of the votes entitled to be cast by holders of outstanding shares of
voting stock of the corporation and (ii) 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, unless, among other conditions, the corporation's
common stockholders receive a minimum price (as defined in the MGCL) for their
shares and the consideration is received in
20
<PAGE>
cash or in the same form as previously paid by the Interested Stockholder for
its shares. These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. Hunt, RLH Corporation (and its affiliates), Ray L. Hunt
(and his affiliates), USAA, United States Automobile Association (and its direct
and indirect subsidiaries). Ameritech and Prudential, beneficially own more than
10% of the Company's voting shares and would, therefore, be Interested
Stockholders under the business combination provisions of the MGCL. However,
pursuant to the statute, the Company has exempted any business combinations
involving these stockholders and affiliates and, consequently, the five-year
prohibition and the super-majority vote requirements will not apply to business
combinations between any of them and the Company. As a result, these
stockholders and affiliates may be able to enter into business combinations with
the Company that may not be in the best interest of its stockholders without
compliance by the Company with the super-majority vote requirements and the
other provisions of the statute.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror, by officers or by directors who
are employees of the corporation. "Control Shares" are voting shares of stock
which, if aggregated with all other such shares of stock previously acquired by
the acquiror or in respect of 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: (a) one-fifth or more but less than
one-third; (b) one-third or more but less than a majority; or (c) 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. A "control share acquisition" means the acquisition of
Control Shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation 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 certain conditions and limitations, the corporation may redeem any or
all of the Control Shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the Control Shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a stockholders meeting 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 such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (b) to acquisitions approved or exempted by the charter or
bylaws of the corporation.
As permitted by the MGCL, the Bylaws exempt any acquisitions of shares of
the Company's stock by Hunt, RLH Corporation (and its affiliates), Ray L. Hunt
(and his affiliates), USAA and United States Automobile Association (and its
direct and indirect subsidiaries), Ameritech and Prudential from the
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<PAGE>
provisions of the control share acquisition statute. There can be no assurance
that such provision will not be amended or eliminated at any time in the future.
RELATED PARTY TRANSACTIONS
Although it is the Company's policy not to engage in transactions with its
directors or officers, the Charter does not place specific restrictions on
related party transactions. The Company is subject to the provisions of the MGCL
concerning "interested director transactions," that is, transactions between the
Company and a member of the Board or between the Company and another
corporation, firm or other entity in which any of its directors is a director or
has a material financial interest. Under the MGCL, a contract or transaction
between a corporation and any of its directors, or between a corporation and any
other corporation, firm or other entity in which any of its directors is a
director or has a material financial interest, is not void or voidable solely
for this reason, or solely because the director is present at or participates in
the meeting of the board or committee that authorizes the contract or
transaction, or solely because his or her votes are counted for such purpose,
if:
1. The fact of the common directorship or interest is disclosed or known to
the board of directors or the committee, and the board or committee authorizes,
approves or ratifies the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even if the disinterested directors
constitute less than a quorum;
2. The fact of the common directorship or interest is disclosed or known to
the stockholders entitled to vote thereon, and the contract or transaction is
authorized, approved or ratified by a majority of the votes cast by the
stockholders entitled to vote, excluding the votes of shares owned by the
interested director or other interested party; or
3. The contract or transaction is fair and reasonable to the corporation.
SPECIAL MEETINGS OF STOCKHOLDERS
The Bylaws provide that special meetings of the Company's stockholders may
be called: (a) by the Chairman of the Board, the President or the Board; or (b)
upon the written request of stockholders holding not less than ten percent of
all the votes entitled to be cast at the meeting. The request must state the
purpose of the meeting and the matters proposed to be acted on at the meeting.
Upon payment by the requesting stockholders of the cost of preparing and mailing
notice of the meeting, the Secretary of the Company must give notice to each
stockholder entitled to notice. Unless requested by stockholders entitled to
cast a majority of the votes entitled to be cast at the meeting, a special
meeting need not be called to consider any matter that is substantially the same
as one voted on at any special meeting during the preceding 12 months. Under the
Bylaws, if the Company calls a special meeting for the purpose of electing one
or more directors, any stockholder of record at the time the notice is given who
is entitled to vote at the meeting may nominate a person or persons for election
by giving notice containing specified information to the Secretary not earlier
than the 90th day before the meeting and not later than the later of the 60th
day before the meeting or the 10th day after the day on which a public
announcement is first made of the date of the meeting and the nominees proposed
by the Board. Only persons nominated in accordance with procedures specified in
the Bylaws are eligible to serve as directors and only the business specified in
the notice of the meeting may be conducted at the meeting.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws establish procedures for nominations or other business brought by
stockholders at annual meetings. Under these procedures, a stockholder entitled
to vote in the election of directors generally may nominate one or more persons
for election to the Board or propose other business at an annual meeting only if
the stockholder gives notice to the Secretary of the Company not less than 60
nor more than 90 days before the first anniversary of the preceding year's
annual meeting. If, however, the date of the annual
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meeting is advanced by more than 30 days or delayed by more than 60 days from
the anniversary date, to be timely, notice by the stockholder must be delivered
not earlier than the 90th day before such annual meeting and not later than the
close of business on the later of the 60th day before such annual meeting or the
tenth day following the day on which public announcement of the date of such
meeting was first made. Such notice must contain specified information. For
example, in the case of a nomination by a stockholder, the notice must include
the information about each nominee that is required to be disclosed pursuant to
the proxy rules under the Exchange Act.
AMENDMENTS TO ORGANIZATIONAL DOCUMENTS
Section 2-604 of the MGCL and Article 7 of the Charter govern amendments to
the Charter. After the Board proposes a charter amendment, the affirmative vote
of the holders of a majority of the outstanding voting stock, voting together as
a single class, is required to amend the Charter. The Bylaws provide that the
Board has the exclusive power to adopt, alter or repeal any provision of the
Bylaws, except for the provision relating to the application of the control
share acquisition provisions of the MGCL, which may not be amended or repealed,
in whole or in part, without the prior written consent of Ray L. Hunt (or any
affiliate of Ray L. Hunt), USAA, Ameritech and Prudential. See "Certain
Provisions of Maryland Law and of the Charter and Bylaws--Control Share
Acquisitions."
LIABILITY AND INDEMNIFICATION OF CERTAIN PERSONS
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liabilities to the maximum extent
permitted by Maryland law.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not), to indemnify a director or officer who has been
successful on the merits or otherwise, in defense of any proceeding to which he
is made a party by reason of his service in that capacity. The MGCL 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 unless it
is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith or (ii) was a result of an active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of a criminal proceeding, the director
or officer had reasonable cause to believe that the act or omission was
unlawful. However, a Maryland corporation may not indemnify for any adverse
judgment in a suit by or in the right of a corporation. In addition, the MGCL
requires the Company, as a condition to advancing expenses, to obtain (a) 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 Company as
authorized by the Bylaws and (b) a written statement by or on his behalf to
repay the amount paid or reimbursed by the Company if it shall ultimately be
determined that the standard of conduct was not met.
The Charter obligates the Company to the maximum extent permitted by
Maryland law to indemnify and to pay or reimburse reasonable expenses in advance
of final disposition of a proceeding to (a) any present or former director or
officer of the Company or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served as a director,
officer, partner or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise. The Charter also permits the
Company to indemnify and advance expenses to any person who served a
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predecessor of the Company in any other capacity as described above and to any
employee or agent of the Company or a predecessor of the Company.
The Company has entered into indemnification agreements with each of its
officers and directors. The indemnification agreements require, among other
matters, that the Company indemnify its executive officers and directors to the
fullest extent permitted by law and advance to the officers all related
expenses, subject to reimbursement, if it is subsequently determined that
indemnification is not permitted. Under these agreements, the Company must also
indemnify and advance all expenses incurred by executive officers and directors
seeking to enforce their rights under the indemnification agreements and may
cover executive officers and directors under the Company's directors' and
officers' liability insurance. Although the indemnification agreement offers
substantially the same scope of coverage afforded by law, it provides greater
assurance to directors and executive officers that indemnification will be
available, because, as a contract, it cannot be modified unilaterally in the
future by the Board of Directors or stockholders to eliminate the rights it
provides. It is the position of the SEC that indemnification of directors and
officers for liability under the Securities Act is against public policy and
unenforceable pursuant to Section 14 of the Securities Act.
COMMON STOCK
Article 4 of the Charter authorizes the Company to issue up to 175 million
shares of Common Stock. The holders of shares of Common Stock have the right to
vote on all matters for which a common stockholder is entitled to vote at all
meetings of the stockholders of the Company, and will be entitled to one vote
for each share of Common Stock entitled to vote at such a meeting. Common Stock
is subject to ownership limits and restrictions on transfer. See "Description of
Stock."
PREFERRED STOCK
Article 4 of the Charter authorizes the Company to issue up to 25 million
shares of Preferred Stock, of which 2,272,727 shares of Series B Preferred Stock
are presently outstanding. Preferred Stock, like Common Stock, is subject to
ownership limits and restrictions on transfer. See "Description of Stock--
Restrictions on Ownership and Transfer."
Subject to any limitations imposed by the NYSE and the rights of the holders
of shares of Series B Preferred Stock, the Company may, without stockholder
approval, issue shares of Preferred Stock in classes and series, and may
establish from time to time the number of shares to be included in each such
class or series, and fix the designation, powers, preferences and the rights of
the shares of each such class or series and the qualifications, limitations and
restrictions of each. Except as otherwise provided by law, the holders of the
Preferred Stock have and will have only such voting rights as are provided for
or expressed in the resolutions of the Board relating to such Preferred Stock.
The Board believes it is desirable for the Company to have Preferred Stock
available for possible future financing and acquisition transactions, stock
dividends or distributions and other general corporate purposes. The
availability of such shares for issuance in the future will give the Company
greater flexibility in obtaining financing or in acquiring Properties by
permitting such shares to be issued without the expense and delay of a special
stockholders' meeting.
The availability of Preferred Stock, however, entails risks. Under certain
circumstances, shares of Preferred Stock could be used to create voting
impediments or to frustrate persons seeking to effect a takeover, engage in
proxy contests, or otherwise gain control of the Company. The Board could
authorize holders of Preferred Stock to vote as a class, either separately or
with the holders of Common Stock, and with voting rights that are the same as or
different from the voting rights of Common Stock, on the election of directors,
or approval of a merger, sale or exchange of assets by the Company or any other
extraordinary corporate transaction. See "Description of Stock--Preferred Stock"
for a description of the voting rights of the Series B Preferred Stock. In
addition, the shares of Preferred Stock could be privately placed with
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purchasers who might side with the Board in opposing a hostile takeover bid.
Such uses could enhance the Board's ability to deal with attempts to gain
control of, or impose transactions upon, the Company that the Board believes are
coercive, unfair or otherwise not in the best interests of the Company and all
of its stockholders, but which certain stockholders may find attractive. It is
also possible that the dividend requirements and sinking fund, conversion or
redemption provisions, if any, which may be fixed by the Board for any class or
series of Preferred Stock at the time of issuance may have an adverse effect on
the availability of earnings for distribution to holders of Common Stock or for
other corporate purposes.
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<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the name of each Selling Stockholder and
relationship, if any, with the Company and (a) the number of shares of Common
Stock owned by each Selling Stockholder as of December 10, 1997, (assuming no
shares have been sold under this Prospectus as of such date), (b) the maximum
number of shares of Common Stock which may be offered for the account of such
Selling Stockholder under the Prospectus, and (c) the amount and percentage of
Common Stock to be owned by each Selling Stockholder after the completion of the
Offering assuming the sale of all the Common Stock which may be offered
hereunder.
<TABLE>
<CAPTION>
MAXIMUM
NUMBER OF
SHARES SHARES AMOUNT AND PERCENTAGE OF COMMON
OWNED WHICH
NAME OF SELLING STOCKHOLDER AND PRIOR TO MAY BE SOLD STOCK OWNED AFTER THE OFFERING(2)
RELATIONSHIP TO COMPANY OFFERING HEREUNDER(1) AMOUNT--%
- ------------------------------------------------------- ---------- ------------ ---------------------------------
<S> <C> <C> <C> <C>
The Prudential Insurance Company of America(3)(4)...... 7,491,650 7,491,650 -- --
The Prudential Variable Contract Real Property 506,894 506,894 --
Partnership(4)....................................... --
Strategic Performance Fund--II, Inc.(4)................ 1,013,788 1,013,788 -- --
State Street Bank and Trust Company, as Trustee for 8,888,598 7,265,222 1,623,376
Ameritech Pension Trust(5)........................... 5.1%
One Enterprise Drive
Solomon Willard Building (W6C)
North Quincy, Massachusetts 02171
</TABLE>
- ------------------------
(1) Pursuant to agreements entered into between the Company and each Selling
Stockholder, each Selling Stockholder is only permitted to sell an amount
equal to 30% of the number of shares of Common Stock listed opposite its
name within any 180-day period provided that such limitation shall not apply
to any shares offered or sold by any such Selling Stockholder pursuant to
one or more underwritten offerings, block trades involving 25,000 shares or
more, or any private sale transactions.
(2) Assumes the sale of all shares of Common Stock registered hereunder,
although none of the Selling Stockholders are under any obligation known to
the Company to sell any shares of Common Stock.
(3) Includes 3,689,947 shares of Common Stock held by The Prudential Insurance
Company of America on behalf of three insurance company separate accounts.
(4) The address for each of these Selling Stockholders is 8 Campus Drive,
Parsippany, New Jersey 07054.
(5) Includes 1,623,376 shares of Common Stock issuable upon the conversion of
Ameritech's 1,623,376 shares of Series B Preferred Stock.
The Company will pay the expenses of registering the shares of Common Stock
being sold hereunder which are estimated to be approximately $176,000.
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<PAGE>
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time by the Selling
Stockholders. The Selling Stockholders may from time to time sell all or a
portion of the Offered Securities in transactions on The New York Stock
Exchange, in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Offered Securities may be sold directly or through underwriters or
broker-dealers. If shares of Common Stock are sold through broker-dealers, the
Selling Stockholders may pay brokerage commissions and charges. The methods by
which the Offered Securities may be sold include: (a) a block trade (which may
involve crosses) in which the broker or dealer so engaged will attempt to sell
the securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its own account pursuant to
this Prospectus; (c) special offerings, exchange distributions and/or secondary
distributions in accordance with the rules of The New York Stock Exchange; (d)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; (e) sales "at the market" to or through a market maker or into an
existing trading market, or on an exchange or otherwise, for such shares; and
(f) sales in not involving market makers or established trading markets,
including direct sales or distributions to institutions or individual
purchasers.
Pursuant to the provisions of various registration rights agreements entered
into by and between the Company and each of the Selling Stockholders, the
Selling Stockholders will pay their costs and expenses of selling the shares of
Common Stock offered hereunder, including commissions and discounts of
underwriters, brokers, dealers, or agents, and the Company has agreed to pay the
costs and expenses incident to its registration and qualification of the Common
Stock offered hereby, including registration and filing fees. In addition, the
Company has agreed to indemnify the Selling Stockholders against certain
liabilities, including liabilities arising under the Securities Act.
If underwriters are used in connection with a sale of Offered Securities,
the Offered Securities will be acquired from the Selling Stockholders by the
underwriters for their own account and may be resold from time to time in one or
more transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. The Offered
Securities may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more
firms acting as underwriters. The underwriter or underwriters with respect to a
particular underwritten offering of Offered Securities will be named in the
Prospectus Supplement relating to such offering, and if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth on
the cover of such Prospectus Supplement. The initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
In connection with the sale of the Offered Securities, underwriters or
agents may receive compensation from the Selling Stockholders or from purchasers
of Offered Securities from whom they may act as agents in the form of discounts,
concessions, or commissions. Underwriters, agents, and dealers participating in
the distribution of the Offered Securities may be deemed to be underwriters, and
any discounts or commissions received by them from the Selling Stockholders and
any profit on the resale of the Offered Securities by them may be deemed to be
underwriting discounts or commissions under the Securities Act.
Upon the Company's being notified by a Selling Stockholder of any change in
the identity of the Selling Stockholder or that any material arrangement has
been entered into with an underwriter, broker or dealer for the sale of any
Offered Securities through a secondary distribution, or a purchase by a broker
or dealer, a Prospectus Supplement will be filed, if required, pursuant to Rule
424(b) under the Securities Act, disclosing (a) the names of such brokers or
dealers; (b) the number of Offered Securities to be sold; (c) the price at which
such Offered Securities are being sold; (d) the commissions paid or the
discounts or concessions allowed to such brokers or dealers; (e) where
applicable, that such broker or dealer did not conduct any investigation to
verify the information set out or incorporated by reference in this Prospectus,
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as supplemented or amended; (f) any change in the identity of the Selling
Stockholder, and (g) other facts material to the transaction.
The Selling Stockholders and any agent or dealer participating in a
distribution of Offered Securities may be deemed to be "underwriters" within the
meaning of the Securities Act. Agents, dealers and underwriters may be entitled
under agreements entered into with the Selling Stockholders to indemnification
by the Company and/or the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments that such agents, dealers or underwriters may be
required to make with respect thereto. Agents, dealers, and underwriters may be
customers of, engage in transactions with, or perform services for the Company
and/or the Selling Stockholders in the ordinary course of business.
There can be no assurances that the Selling Stockholders will sell any or
all of the shares of Common Stock offered by them hereunder.
The Offered Securities may or may not be listed on a national securities
exchange. No assurances can be given that there will be a market for the Offered
Securities.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material federal income tax
considerations affecting the Company and holders of Common Stock. Vinson &
Elkins L.L.P., counsel to the Company, has reviewed the following discussion and
is of the opinion that it fairly summarizes the material federal income tax
considerations to a holder of the Common Stock based on current law. This
discussion is directed principally at stockholders who are individual United
States citizens or residents. No attempt has been made to comment on all federal
income tax consequences of the ownership of Common Stock. The summary does not
address considerations that may be relevant to particular stockholders,
including stockholders who are subject to special treatment under the federal
income tax laws (such as insurance companies, financial institutions or
broker-dealers), nor does it address any tax consequences under the laws of any
state, local or foreign jurisdiction. No rulings will be sought from the IRS or
any other tax authorities concerning the federal, state, local or other tax
considerations relevant to the Company's operations or REIT status, or to the
purchase, ownership or disposition of Common Stock. Because the following is
only a summary, it is qualified in its entirety by the applicable provisions of
the Code and the regulations adopted under the Code, court decisions, and the
rulings and other pronouncements of the IRS, all of which are subject to change,
possibly with retroactive effect.
EACH PROSPECTIVE STOCKHOLDER OF THE COMPANY IS ADVISED TO CONSULT HIS OR HER
OWN TAX ADVISOR ABOUT THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF THE OWNERSHIP OR DISPOSITION OF SHARES OF COMMON STOCK,
PARTICULARLY IN LIGHT OF THAT STOCKHOLDER'S SPECIFIC CIRCUMSTANCES.
FEDERAL INCOME TAXATION OF THE COMPANY
The Company believes that since its formation, it has been organized and
operated in a manner that permits it to satisfy the various requirements for
taxation as a REIT under the applicable provisions of the Code. The rules
governing REIT's are highly technical and require ongoing compliance with a
variety of tests that depend, among other things, on operating results. While
the Company believes it has satisfied these tests since its formation and plans
to use its best efforts to do so on a continuing basis, no assurance can be
given that such requirements will be met or that the Company will qualify as a
REIT for any particular year.
In the opinion of Vinson & Elkins L.L.P., commencing with the Company's
initial taxable year ended December 31, 1995, if the Company is organized and
operated as described in this Prospectus, the Company will be able to qualify as
a REIT. It must be emphasized that this opinion is based and conditioned on
various assumptions and representations of the Company and its officers that are
described
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below. The Company's qualification as a REIT depends upon its ability to meet,
through actual annual operating results, the various qualification tests imposed
under the Code that are discussed below, the results of which will not be
monitored or reviewed by Vinson & Elkins L.L.P. While the Company expects to
satisfy these tests and plans to use its best efforts to do so, no assurance can
be given that actual operations will meet these requirements and that the
Company will qualify as a REIT for any particular year. The opinion of Vinson &
Elkins L.L.P. is not binding on the IRS or any court. The opinion of Vinson &
Elkins L.L.P. is based upon existing law, IRS regulations and currently
published administrative positions of the IRS and judicial decisions, all of
which are subject to change either prospectively or retroactively.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income tax on that portion of its ordinary income
or net capital gain that is currently distributed to stockholders. The REIT
provisions of the Code generally allow a REIT to deduct dividends paid to its
stockholders. This deduction for dividends paid to stockholders substantially
eliminates the Federal "double taxation" on earnings (once at the corporate
level and once again at the stockholder level) that usually results from
investments in a corporation.
Even if the Company qualifies for taxation as a REIT, however, the Company
may be subject to Federal income or excise tax, including the following: First,
the Company will be taxed at regular corporate rates on its undistributed REIT
taxable income, including undistributed net capital gain. Second, under certain
circumstances, the Company may be subject to the "alternative minimum tax."
Third, if the Company has net income from the sale or other disposition of
"foreclosure property" (which is, in general, property acquired by the Company
by foreclosure or otherwise on default on a loan secured by such property) that
is held primarily for sale to customers in the ordinary course of business or
other non-income. Fourth, if the Company has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of
business, other than foreclosure property), such income will be subject to a
100% tax. Fifth, if the Company should fail to satisfy either the 75% or 95%
gross income test (discussed below) but has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on the net income attributable to the greater of
the amount by which the Company fails either of the 75% or 95% test, multiplied
by a fraction intended to reflect the Company's profitability. Sixth, if the
Company fails to distribute during a year at least the sum of (a) 85% of its
REIT ordinary income for such year, (b) 95% of its REIT capital gain net income
for such year and (c) any undistributed taxable income from prior years, the
Company will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, if the Company
should acquire any asset from a C corporation (I.E., a corporation generally
subject to full corporate-level tax) in a carryover-basis transaction and the
Company subsequently recognizes gain on the disposition of such asset during the
ten-year period beginning on the date on which the asset was acquired by the
Company, then, to the extent of the excess of the fair market value of the asset
over its adjusted basis upon its acquisition by the Company, such gain will be
subject to tax at the highest regular corporate rate, pursuant to guidelines
issued by the IRS.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association: (a) that is
managed by one or more directors or trustees, (b) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest, (c) that would be taxable as a domestic corporation but for
the REIT provisions of the Code, (d) that is neither a financial institution nor
an insurance company subject to certain provisions of the Code, (e) the
beneficial ownership of which is held by 100 or more persons, and (f) during the
last half of each taxable year not more than 50% in value of the outstanding
stock of which is owned, directly or indirectly through the application of
certain attribution rules, by five or fewer individuals (as defined in the Code
to include certain entities). The Company expects to meet each
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of these requirements. In addition, certain other tests, described below,
regarding the nature of its income and assets also must be satisfied, which the
Company anticipates. The Code provides that conditions (a) through (d),
inclusive, must be met during the entire taxable year and that conditions (e)
and (f) must be met during at least 335 days of taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months. Conditions
(e) and (f) (the "100-Stockholder Requirement" and "Five-or-Fewer Requirement")
do not apply for the first taxable year for which an election is made to be
taxed as a REIT. For purposes of conditions (e) and (f), pension funds and
certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of conditions (f).
To protect against violations of the stock ownership requirements, the
Charter provides that no person (other than an "Excepted Holder") is permitted
to own, applying certain constructive ownership tests, more than 8.5% of the
lesser of the number or value of the outstanding shares of any class of the
Company's stock (the "Ownership Limit"). An Excepted Holder is a person whom the
Board has determined will be permitted to hold shares in excess of the Ownership
Limit, based upon appropriate representations and undertakings designed to
protect the Company's REIT status (such as information establishing that the
Excepted Holder is treated as a "look-through" entity in applying the REIT stock
ownership tests and that the deemed ownership of the Company shares through it
will be appropriately dispersed so as not to jeopardize the Company's REIT
status). Each Excepted Holder will be subject to a separate ownership limit as
specified by the Board. Attempted transfers of shares of the Company's stock
that would violate the ownership limits (or related restrictions contained in
the Charter or Excepted Holder Agreements) generally will cause the number of
shares in excess of the limit to be transferred automatically to a trust for the
benefit of a charitable beneficiary rather than to the purported transferee.
To monitor the Company's compliance with the share ownership requirements,
the Company is required to maintain records disclosing the actual ownership of
its stock. To do so, the Company must demand written statements each year from
the record holders of 5% or more of its shares. (if the Company were to have
less than 2,000 record stockholders, the demand would have to be made to record
holders of smaller percentages of the shares.) In those statements, the record
holders are to disclose who actually owns the shares (that is, the persons
required to include the Company's dividends in their gross incomes). The Company
must maintain a list of those persons who fail or refuse to comply with this
demand. Such stockholders must submit a statement with their tax returns
disclosing the actual ownership of the shares of stock and certain other
information.
GROSS INCOME TESTS. In order to qualify as a REIT for a particular year,
the Company also must meet three tests governing the sources of its gross income
that are designed to ensure that the Company earns its income principally from
passive real estate investments. In evaluating a REIT's income under the income
test, the REIT will be treated as receiving its proportionate share of the
income produced by any partnership in which the REIT invests, and any such
income will retain the character that it has in the hands of the partnership.
The Company may, from time to time, own and operate a number of its properties
through "qualified REIT subsidiaries." The Code provides that a qualified REIT
subsidiary is not treated as a separate corporation, and all of its assets,
liabilities and items of income, deduction and credit are treated as assets,
liabilities and such items of the REIT.
SEVENTY-FIVE PERCENT GROSS INCOME TEST. At least 75% of a REIT's gross
income for each taxable year must be derived from specified classes of income
that principally are real estate related. The key permitted categories are: (a)
rents from real property; (b) interest on loans secured by real property; (c)
gain from the sale of real property or real property loans (excluding gain from
the sale of property that is held primarily for sale to customers in the
ordinary course of a trade or business, which is referred to below as "dealer
property"); (d) income from the operation and gain from the sale of certain
property acquired in connection with the foreclosure of a mortgage securing that
property or upon a default on a lease of the property ("foreclosure property");
(e) distributions on, or gain from the sale of, shares of other REITs and (vi)
"qualified temporary investment income" (described below).
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In evaluating the Company's compliance with the 75% income test (as well as
the 95% income test described below), gross income does not include gross income
from "prohibited transactions." A prohibited transaction is a sale of dealer
property, not including foreclosure property and certain dealer property held by
the Company for at least four years.
The Company expects that substantially all of its operating gross income
from its properties will be considered rent from real property. Rent from real
property is qualifying income for purposes of the 75% income test only if
certain conditions are satisfied. Rent from real property includes charges for
services customarily rendered to tenants, and rent attributable to personal
property leased together with the real property so long as the personal property
rent is less than 15% of the total rent. The Company does not expect to earn
material amounts of income from services rendered to tenants or from personal
property.
Rent from real property generally does not include rent based on the income
or profits derived from the property, unless the computation is based only on a
fixed percentage of receipts or sales. Also excluded is rent received from a
person or corporation in which the Company (or any of its 10% or greater owners)
owns a 10% or greater interest. The Company does not expect to earn income in
these two excluded categories.
A third exclusion covers amounts received with respect to real property if
the Company furnishes services to the tenants or managers or operates the
property, other than through an "independent contractor" from whom the Company
does not derive any income. The obligation to operate through an independent
contractor generally does not apply, however, if any services provided by the
Company are "usually or customarily rendered" in connection with the rental of
space for occupancy only and are not considered rendered primarily for the
convenience of the tenant (applying standards that govern in evaluating whether
rent from real property would be unrelated business taxable income when received
by a tax-exempt owner of the property). The Company generally will directly
operate and manage its properties without using an "independent contractor,"
although independent contractors may be employed to perform certain day-to-day
property management duties, such as collection of rents and routine maintenance.
The Company believes that the only material services to be provided to tenants
will be those usually or customarily rendered in connection with the rental of
space for occupancy only. The Company does not provide services that might be
considered rendered primarily for the convenience of the tenants. The Company
believes that substantially all its income from the properties will be
qualifying income under the 75% income test.
A portion of the proceeds of the Offering may be invested in
interest-bearing accounts and an investment fund or funds that invest
substantially all their assets in diversified portfolios of U.S. dollar-
denominated "money market" instruments (such as bank certificates of deposit and
bankers acceptances, commercial paper and repurchase agreements) and obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The interest and dividend income earned on those funds should
be includable under the 75% income test as "qualified temporary investment
income" (which includes income earned on stock or debt instruments acquired with
the proceeds of a stock offering, not including amounts received under a
dividend reinvestment plan). Qualified temporary investment income treatment
only applies during the one-year period beginning when a REIT receives the new
capital.
Upon the Company's ultimate sale of its properties, any gains realized are
expected to constitute qualifying income, as gain from the sale of real property
(not involving a prohibited transaction).
NINETY-FIVE PERCENT GROSS INCOME TEST. In addition to earning 75% of its
gross income from the sources listed above, at least an additional 20% of the
Company's gross income for each taxable year must come either from those
sources, or from dividends, other interest or gains from the sale or other
disposition of stock or other securities that do not constitute dealer property.
This test permits a REIT to earn a significant portion of its income from
traditional "passive" investment sources that are not necessarily real estate
related. The term "interest" (under both the 75% and 95% tests) does not include
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amounts that are based on the income or profits of any person, unless the
computation is based only on a fixed percentage of receipts or sales.
THIRTY PERCENT GROSS INCOME TEST. For taxable years ending on or before
December 31, 1997, the Company also must earn less than 30% of its gross income
in each taxable year from the sale or other disposition of: (a) real property
and loans secured by real property held for less than four years (other than
foreclosure property and involuntary conversions); (b) stock or securities held
for less than one year; and (c) property in a prohibited transaction. The 30%
gross income test does not have a reasonable cause exception as do the 75% and
95% income tests. Consequently, a failure to meet the 30% income test would
terminate the Company's status as a REIT automatically. The 30% gross income
test was repealed by the Taxpayer Relief Act of 1997 (the "1997 Act") for tax
years beginning after August 5, 1997.
FAILING THE BASIC GROSS INCOME TESTS. As a result of the 75% and 95% tests,
REITs generally are not permitted to earn more than 5% of their gross income
from active sources (such as brokerage commissions or other fees for services
rendered). While the Company does not anticipate that it will earn substantial
amounts of nonqualifying income, if nonqualifying income exceeds 5% of the
Company's gross income, the Company could lose its status as a REIT. If a REIT
fails to meet either the 75% or 95% income tests during any taxable year, it may
still qualify as a REIT for that year if the failure was due to reasonable cause
and certain relief provisions apply, although a special penalty tax may be owed.
See "--Federal Income Taxation of the Company."
ASSET TESTS. In order to qualify as a REIT for a particular year, on the
last day of each calendar quarter the Company also must meet two tests
concerning the nature of its investments. First, at least 75% of the value of
the Company's total assets generally must consist of real estate assets, cash,
cash items (including receivables) and government securities. For this purpose,
"real estate assets" include interests in real property, interests in loans
secured by mortgages on real property or by interests in real property, shares
in other REITs, certain options, and for the one-year period following receipt
of new capital, stock and debt instruments acquired with that new capital. Real
estate assets do not include mineral, oil or gas royalty interests. Second,
although the balance of the Company's assets generally may be invested without
restriction, except for securities that are considered real estate assets, the
Company will not be permitted to own: (a) securities of any one nongovernmental
issuer that represent more than 5% of the value of the Company's total assets;
or (b) more than 10% of the outstanding voting securities of any single issuer.
A REIT may, however, own 100% of the stock of a qualified REIT subsidiary, in
which case the assets, liabilities and items of income, deduction and credit of
the subsidiary are treated as those of the REIT. The Company may, from time to
time, hold certain properties through qualified REIT subsidiaries. In evaluating
a REIT's assets, if the REIT invests in a partnership, it is deemed to own its
proportionate share of the assets of the partnership.
The Company anticipates that it will comply with these asset tests. As was
described above, for a temporary period, some of the proceeds of the Offering
may be invested principally in interest-bearing accounts and an investment fund
or funds that invest substantially all their assets in diversified portfolios of
U.S. dollar-denominated "money market" instruments (such as bank certificates of
deposit and bankers acceptances, commercial paper and repurchase agreements) and
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, which should constitute qualifying assets, at least during
the initial one-year period following the Offering. Substantially all of the
Company's other investments will be in properties that should represent
qualifying real estate assets.
ANNUAL DISTRIBUTION REQUIREMENT. To maintain REIT status, the Company
generally must distribute to its stockholders in each taxable year at least 95%
of its net ordinary income (capital gain is not required to be distributed).
More precisely, the Company must distribute an amount equal to: (a) 95% of the
sum of (i) its "REIT Taxable Income" before the deduction for dividends paid and
excluding any net capital gain and (ii) any net income from foreclosure property
less the tax on such income, minus (b) certain limited categories of "excess
non-cash income." REIT Taxable Income is defined to be the taxable income of the
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REIT, computed as if it were an ordinary corporation, with certain
modifications. For example, net income from foreclosure property and net income
from prohibited transactions are excluded. In addition, the REIT may carry over,
but not carry back, a net operating loss for 15 years after the year in which it
was incurred.
A REIT may satisfy the 95% distribution test with dividends paid during the
taxable year and with certain dividends paid after the end of the taxable year.
Dividends paid in January that were declared during the last calendar quarter of
that prior year are treated as paid on December 31 of the prior year (both for
the Company and its stockholders). Because dividends that are paid in a
subsequent year and fail to meet this test will be subject to a nondeductible 4%
excise tax, the Company anticipates distributing its fourth quarter dividends
within the taxable year, or by January 31 of the following year. Dividends
declared before the due date of the Company's tax return for the taxable year
(including extensions) also will be treated as paid in the prior year (although
subject to the excise tax) if they are paid: (a) within 12 months of the end of
such taxable year; and (b) no later than the Company's next regular distribution
payment. Dividends that are paid after the close of a taxable year and do not
qualify under the rule governing payments made in January will be taxable to the
stockholders in the year paid, even though they may be taken into account by the
Company for a prior year.
The Company will be taxed at regular corporate rates to the extent that it
retains any portion of its taxable income. For example, if the Company only
distributes the required 95% of its taxable income, it would be taxed on the
retained 5%. The Company currently intends to distribute sufficient income to
satisfy the annual 95% distribution requirement. Under certain circumstances,
however, the Company may not have sufficient cash or other liquid assets to met
the distribution requirement. This could arise because of competing demands for
the Company's funds, or due to timing differences between tax reporting and cash
receipts and disbursements (income may have to be reported before cash is
received, or expenses may have to be paid before a deduction is allowed).
Although the Company does not anticipate difficulties in meeting this
requirement, no assurance can be given that the necessary funds will be
available. If the Company fails to make a required distribution, it would lose
its REIT status.
If the Company fails to meet the 95% distribution requirement because of an
adjustment to the Company's taxable income by the IRS, the Company may be able
to cure the failure retroactively by paying to its stockholders a "deficiency
dividend" (as well as paying applicable interest and penalties to the IRS)
within a specified period.
SPECIAL DISTRIBUTION REQUIREMENT; BUILT-IN GAIN RULES. The Code and
regulations provide that a corporation may be taxed as a REIT only if it has no
earnings and profits accumulated in any non-REIT year (including amounts
attributable to entities merged into the REIT). The Company expects to be
treated as a REIT from inception and does not believe that it inherited any
earnings and profits from any of the Merged Trusts that were accumulated during
any non-REIT years. Pursuant to IRS Notice 88-19, if a REIT acquires the assets
of a C corporation in a tax-free transaction, unless the REIT makes a special
election to recognize any built-in gain over a ten-year period, the C
corporation is treated as having disposed of the assets in a taxable transaction
immediately before the transfer to the REIT. Due to the REIT status of the
Merged Trusts, the Company does not believe that these requirements apply to the
Company or the Merged Trusts. If the IRS were to challenge successfully the REIT
status of one or more of the Merged Trusts during any period prior to the
Merger, depending upon the specific circumstances, the rules applicable to
transfers from C corporations to REITs might adversely affect the Company's
ability to qualify as a REIT.
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FAILURE TO QUALIFY AS A REIT
For any taxable year in which the Company fails to qualify as a REIT, it
would be taxed at the usual corporate rate on all of its taxable income.
Distributions to its stockholders would not be deductible in computing that
taxable income and distributions would no longer be required under the Code. Any
corporate level taxes generally would reduce the amount of cash available to the
Company for distribution to its stockholders or for reinvestment. Because the
stockholders would continue to be taxable on the distributions they receive, the
net after-tax yield to the stockholders from their investment in the Company
likely would be reduced substantially. As a result, the Company's failure to
qualify as a REIT during any taxable year could have a material adverse effect
on the Company and its stockholders. If the Company loses its REIT status,
unless certain relief provisions apply, the Company would not be eligible to
elect REIT status again until the fifth taxable year that begins after the first
year for which the Company's election was terminated.
If, after forfeiting its REIT status, the Company later qualifies and elects
to be taxed as a REIT again, the Company may face additional adverse tax
consequences. Prior to the end of the year in which the Company sought to
qualify again as a REIT, the Company would be required to make distributions
sufficient to eliminate any earnings and profits accumulated during its period
of non-REIT status. Moreover, under IRS Notice 88-19, immediately prior to the
effectiveness of the election to return to REIT status, the Company would be
treated as having disposed of all of its assets in a taxable transaction,
triggering taxable gain with respect to the Company's appreciated assets. In
that event, however, under current law the Company would be permitted to elect
an alternative treatment under which those gains would be taken into account
only as and when they actually were recognized upon sales of the appreciated
property occurring within a ten-year period (certain proposed legislation might
eliminate this alternative treatment, in which case the Company might choose to
remain a C corporation). The Company would be required to distribute at least
95% of any such recognized gains, but it would not receive the benefit of a
dividends-paid deduction to reduce those taxable gains. Thus, any such gains on
appreciated assets would be subject to double taxation (that is, at the
corporate level as well as the stockholder level).
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
Distributions generally will be taxable to stockholders as ordinary income
to the extent of the Company's earnings and profits. Dividends declared during
the last quarter of a calendar year and actually paid during January of the
immediately following calendar year will generally be treated as if received by
the stockholders on December 31 of the calendar year during which they were
declared. Distributions paid to stockholders will not constitute passive
activity income and, as a result, generally cannot be offset by losses from
passive activities of a stockholder who is subject to the passive activity
rules.
Distributions designated by the Company as capital gains dividends generally
will be taxed as long-term capital gains to stockholders to the extent that the
distributions do not exceed the Company's actual net capital gain for the
taxable year. Corporate stockholders may be required to treat up to 20% of any
such capital gains dividends as ordinary income. Distributions by the Company,
whether characterized as ordinary income or as capital gains, are not eligible
for the 70% dividends received deduction for corporations. Stockholders are not
permitted to deduct losses or loss carryforwards of the Company. Future
regulations may require that stockholders take into account, for purposes of
computing their individual alternative minimum tax liability, certain tax
preference items of the Company.
The Company may generate cash in excess of its net earnings. If the Company
distributes cash to stockholders in excess of the Company's current and
accumulated earnings and profits, the excess cash will be deemed to be a
nontaxable return of capital to each stockholder to the extent of the adjusted
tax basis of the stockholder's shares, and the distribution will reduce the
stockholder's basis (but not below zero). Distributions in excess of the
adjusted tax basis will be treated as gain from the sale or exchange of the
shares. A stockholder who has received a distribution in excess of the current
and accumulated earnings
34
<PAGE>
and profits of the Company may, upon the sale of the shares, realize a higher
taxable gain or a smaller loss because the basis of the shares as reduced by
that distribution will be used for purposes of computing the amount of the gain
or loss.
For taxable years beginning after December 31, 1997, the Company may
designate a certain amount as undistributed capital gains upon which the Company
must pay tax within 30 days after the close of such year, and the amount
designated must also be reported by the Company's stockholders as long-term
capital gains for their tax years in which the last day of the Company's tax
year falls. Such designation must be made in a written notice mailed to the
stockholders within 60 days of the close of the Company's taxable year (or
mailed to its stockholders with its annual report for the taxable year). The
stockholders are treated as having paid the capital gains tax imposed on the
Company on the designated amounts and are allowed a credit or refund for the tax
deemed paid. Stockholders can increase the adjusted bases of their shares by the
difference between the designated amounts included in their long-term capital
gains and the tax deemed paid with respect to their shares. The Company's
earnings and profits will be adjusted for any such undistributed capital gains
in accordance with regulations to be prescribed by the IRS.
Generally, gain or loss realized by a stockholder upon the sale of shares
will be reportable as capital gain or loss. If a stockholder receives a capital
gain dividend from the Company and sells the shares before holding them for more
than six months, any loss incurred on the sale or exchange of the shares is
treated as a long-term capital loss to the extent of the corresponding capital
gain dividend received.
In any year in which the Company fails to qualify as a REIT, its
stockholders generally will continue to be treated in the same fashion described
above, except that the Company dividends will not be eligible for treatment as
capital gains dividends, corporate stockholders will qualify for the dividends
received deduction and the stockholders will not be required to report any share
of the Company's tax preference items.
BACKUP WITHHOLDING. The Company will report to its stockholders and the IRS
the amount of dividends paid during each calendar year and the amount of tax
withheld, if any. If a stockholder is subject to backup withholding, the Company
will be required to deduct and withhold from any dividends payable to that
stockholder a tax of 31%. These rules may apply: (i) when a stockholder fails to
supply a correct taxpayer identification number; (ii) when the IRS notifies the
Company that the stockholder is subject to the rules or has furnished an
incorrect taxpayer identification number; or (iii) in the case of corporations
or others within certain exempt categories, when they fail to demonstrate that
fact when required. A stockholder who does not provide a correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount withheld as backup withholding may be creditable against the
stockholder's federal income tax liability. The Company also may be required to
withhold a portion of capital gain distributions made to stockholders who fail
to certify their non-foreign status to the Company.
TAXATION OF DOMESTIC TAX-EXEMPT STOCKHOLDERS
In 1933, the federal income tax laws were changed to facilitate investments
by pension funds in REITs. As described above, a corporation cannot be a REIT if
more than 50% of the value of its stock is owned by five or fewer individuals at
any time during the last half of a taxable year. In applying this test, pension
trusts (and certain other tax-exempt stockholders) formerly were treated as
single individuals. Beginning in 1994, however, a qualified pension trust
generally has not been considered a single individual in evaluating a REIT's
ownership. Instead, beneficiaries of the pension trust are treated as holding
the pension trust's stock investment in the REIT in proportion to their
actuarial interests in the pension trust.
In general, a tax-exempt entity that is a stockholder of the Company will
not be subject to tax on distributions from the Company or gain realized on the
sale of shares. In Revenue Ruling 66-106, the IRS ruled that a REIT's
distributions to a tax-exempt employees' pension trust did not constitute
unrelated business taxable income. However, when the law was changed to relax
the stock ownership restrictions applicable to pension plan investors, a related
change was made for unrelated business income tax
35
<PAGE>
purposes. This provision applies only if a REIT is a "Pension-Held REIT." In
that case, those pension trusts owning more than 10% of the value of the REIT's
stock may be required to report a portion of any dividends they receive from the
REIT as unrelated business taxable income. One aspect of the definition of a
Pension-Held REIT requires that either one pension trust must own more than 25%
of the value of the REIT's stock, or one or more pension trusts (each of which
owns more than 10%) must own in the aggregate more than 50% of the value of the
REIT's stock. The Company intends to operate such that, if it were classified as
a Pension-Held REIT, these provisions would not cause its stockholders that are
pension trusts to receive dividends that would be considered unrelated business
taxable income, however there can be no assurance that the Company will be able
to operate in such a manner. A tax-exempt entity, however, may be subject to the
unrelated business income tax on dividends from or gain on the Company's shares
to the extent that the tax-exempt entity financed the acquisition of its shares
with "acquisition indebtedness" within the meaning of the Code.
For social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans exempt from
federal income taxation under Sections 501(c)(7), (9), (17) and (20) of the
Code, respectively, income from an investment in the Company will constitute
unrelated business taxable income unless the organization is able to deduct
amounts properly set aside or placed in reserve for certain purposes so as to
offset the unrelated business taxable income generated by the investment in the
Company. These investors must consult their own tax advisors concerning the "set
aside" and reserve requirements.
TAXATION OF FOREIGN STOCKHOLDERS
The rules governing United States income, gift and estate taxation of
foreign entities and individuals who are neither citizens nor residents of the
U.S. are complex. They depend not only upon U.S. tax principles, but also upon
the treaties, if any, between the U.S. and the countries of the foreign
investors. The following discussion is only a summary of certain U.S. federal
income tax considerations potentially affecting foreign stockholders of the
Company, who must consult with their own advisors to evaluate all relevant tax
considerations.
The character of distributions on the Company's shares generally will be
determined in the same fashion for foreign stockholders as for domestic
stockholders (that is, a distribution may be categorized as a taxable ordinary
income dividend paid out of the Company's current or accumulated earnings and
profits, a nontaxable return of capital, a distribution in excess of the
stockholder's basis that is taxable as gain from sale of the shares or a capital
gain dividend). See "--Taxation of Taxable Domestic Stockholders."
If income or gain from the shares is effectively connected with a U.S. trade
or business conducted by a foreign stockholder ("effectively connected income"),
it generally will be subject to regular U.S. income taxes at graduated rates
rather than to the withholding tax described below. Foreign stockholders whose
income from the shares is effectively connected income may file an IRS Form 4224
with the Company certifying to that effect. Such income may be subject to the
alternative minimum tax, and a special alternative minimum tax may apply to
nonresident alien individuals. Foreign corporate stockholders receiving
effectively connected income from the shares also may be subject to an
additional 30% branch profits tax, unless certain exemptions apply.
Foreign stockholders whose income from the shares is not effectively
connected income generally will be subject to withholding at a 30% rate on
ordinary income dividends paid by the Company, unless an applicable tax treaty
reduces that rate. For this purpose, however, ordinary income distributions will
be presumed to represent dividends paid out of earnings and profits, rather than
nontaxable returns of capital or capital gains. If such a distribution is later
determined to have exceeded earnings and profits, an affected foreign
stockholder may claim a refund for excess withholdings.
36
<PAGE>
Any distributions that are attributable to gain from the sale of United
States real property interests (whether or not specifically designated as
capital gain dividends) will be subject to the Foreign Investment in real
Property Tax Act ("FIRPTA"). Under FIRPTA, those distributions will be treated
as gains that are effectively connected income and generally will be taxed at
regular U.S. capital gains tax rates. As a means of collecting this tax, the
Treasury Regulations require the Company to withhold 35% of any distributions to
foreign stockholders that the Company could designate as capital gains
dividends. If the amount of the FIRPTA withholding exceeds the applicable tax,
the foreign stockholder may obtain a refund.
Gain from the sale of shares generally will not be subject to U.S. taxation.
The sale of shares generally will not be subject to FIRPTA because the Company
should qualify as a "domestically-controlled REIT" (only a minority, if any, of
the Company's stockholders are expected to be foreign stockholders). If any
capital gain dividends or gains from the sale of shares constitute effectively
connected income, however, regular U.S. taxes may apply as described above. If a
nonresident alien stockholder is present in the U.S. for 183 days or more during
the year for which the gains are reportable and has a "tax home" in the U.S., a
30% tax may apply to the capital gains.
Upon the death of a foreign individual stockholder, the stockholder's shares
will be treated as part of the stockholder's U.S. estate for purposes of the
U.S. estate tax, except as may be otherwise provided in an applicable estate tax
treaty.
POSSIBLE TAX LAW CHANGES
The anticipated income tax treatment described in this Prospectus may be
changed, perhaps retroactively, by legislative, administrative or judicial
action at any time. Congress at any time may consider changes to the tax laws,
and any such legislation may affect the treatment of real estate investments, in
general, or REITs in particular. The 1997 Act made a number of statutory changes
generally designed to make it easier for taxpayers to comply with the
highly-technical REIT rules. The Clinton administration has also proposed
certain legislation that has not been enacted that would require immediate
recognition of built-in gains of certain large C corporations (with a stock
value in excess of $5 million) that elect to be taxed as REITs (potentially
applicable if a REIT loses its REIT status and then seeks to requalify) or of
large C corporations the assets of which are acquired by REITs in tax-free
transactions (effectively repealing the ability to elect under IRS Notice 88-19
to report any such built-in gains only to the extent that they are recognized
when and if the appreciated assets are sold during a ten-year period). No
prediction can be made as to whether these or any other changes to the REIT tax
rules will be implemented, or whether any changes that might take effect would
adversely affect the Company's ability to qualify as a REIT or the treatment of
the Company's stockholders.
STATE AND LOCAL TAXES
The Company will be subject to the taxing jurisdiction of each state in
which it owns properties or otherwise engages in business. Stockholders also may
be subject to state or local taxes in various jurisdictions, including those in
which they reside or transact business. The state or local tax treatment may
differ from the federal income tax treatment described above. As a general
matter, however, stockholders receiving dividends from the Company are likely to
be taxable on those amounts only in their states of residence. Because of the
potential diversity of the state and local rules, this Prospectus does not
include a discussion of state or local taxation of the Company or the
stockholders, nor is any representation made as to the tax status of the Company
or the stockholders in any state or local jurisdiction. all stockholders must
consult their own tax advisors concerning the possible application of any state
or local tax laws.
37
<PAGE>
LEGAL MATTERS
The legality of the Offered Securities will be passed upon for the Company
by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. Certain legal matters
described under "Federal Income Tax Considerations" will be passed upon for the
Company by Vinson & Elkins L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements and related schedules of the Company
included in the Company's annual report on Form 10-K for the year ended December
31, 1996 and the combined statements of revenues and certain expenses for the
Prudential Property Transaction for the year ended December 31, 1996, for the
Ameritech Property Transaction--Group A Properties for the years ended December
31, 1996, 1995 and 1994, for the Ameritech Property Transaction--Group B
Properties for the years ended December 31, 1996 and 1995, for the Ameritech
Property Transaction--Group C Properties for the year ended December 31, 1996,
for the Acquired Properties for the year ended December 31, 1996 and for the
Portfolio Acquisitions for the year ended December 31, 1996 incorporated by
reference herein and in the Registration Statement have been audited by Arthur
Andersen LLP, independent public accountants, to the extent and for the periods
indicated in their reports, and have been incorporated by reference herein and
in the Registration Statement in reliance upon the authority of that firm as
experts in accounting and auditing.
38
<PAGE>
GLOSSARY
"AMERITECH" means State Street Bank and Trust Company, as trustee for the
Ameritech Pension Trust (or any successor trustee).
"ASSET PURCHASE" means the sale by Trust 83 to the Company of all of Trust
83's properties (except the Charleston Business Park property) and certain other
assets, in accordance with the Amended and Restated Asset Purchase Agreement
between the Company and Trust 83 dated as of November 10, 1995.
"BOARD" means the board of directors of the Company.
"BYLAWS" means the Second Amended and Restated Bylaws of the Company.
"CHARTER" means the Third Amended and Restated Articles of Incorporation of
the Company.
"CODE" means the Internal Revenue Code of 1986, as amended, together with
its predecessor.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's common stock, par value $.001 per share.
"COMPANY" means Meridian Industrial Trust, Inc., a Maryland corporation.
"CONSOLIDATION TRANSACTIONS" means the Merger and the Asset Purchase.
"CONTROL SHARE" means voting shares of stock that, if aggregated with all
other such shares of stock previously acquired by the acquiror thereof or in
respect of 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 any of the
following ranges of voting power: (a) one-fifth or more but less than one-third;
(b) one-third or more but less than a majority; or (c) a majority of all voting
power. Control Shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained stockholder approval.
"CONTROL SHARE LAW" means Sections 3-701 through 3-709 of the MGCL.
"CONVERSION PRICE" means the price at which the Series B Preferred Stock may
be converted into Common Stock at the option of the holder.
"EQUITY STOCK" means Common and Preferred Stock of the Company.
"EXCEPTED HOLDERS" means a person whom the Board has determined will be
permitted to hold shares in excess of the Ownership Limit, based upon
appropriate representations and undertakings designed to protect the Company's
REIT status.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"FIRPTA" means the Foreign Investment in Real Property Act.
"FIVE OR FEWER REQUIREMENT" means the requirement under the Code that not
more than 50% in value of the Company's outstanding shares of capital stock may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code) during the last half of a taxable year (other than the first year).
"FUNDS FROM OPERATION" means, in accordance with the resolution adopted by
the Board of Governors of NAREIT, net income (loss) (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustment from unconsolidated partnerships and joint ventures.
"HUNT" means Hunt Acquisitions Partners, Ltd., a Delaware limited
partnership.
"HUNT REALTY" means Hunt Realty Corporation, a Delaware corporation.
39
<PAGE>
"INDEPENDENT DIRECTOR" means a director of the Company who is not an
officer, full-time employee or member of the immediate family of an officer in
full-time employment of the Company.
"INTERESTED STOCKHOLDER LAW" means the provisions of the MGCL (Sections
3-601 through 3-604) that place restrictions on transactions between Maryland
corporations and stockholders who have acquired 10% or more of a corporation's
stock.
"INTERESTED STOCKHOLDERS" means, in accordance with the MGCL, any person who
owns 10% or more the voting power of a corporation's shares.
"IRS" means the Internal Revenue Service.
"LIBOR" means the London Interbank Offered Rate.
"MERGED TRUSTS" means Trust IV, Trust VI and Trust VII all of which were
merged into the Company on February 23, 1996.
"MERGER" means the merger of Trusts IV, VI and VII into the Company in
accordance with the Merger Agreement and applicable law.
"MERGER AGREEMENT" means the Amended and Restated Agreement and Plan of
Merger dated as of November 10, 1995 among the Merged Trusts and the Company.
"MERGER WARRANTS" means the warrants to purchase shares of Common Stock
issued by the Company to the holders of Trust VI common stock and Trust VII
common stock in connection with the Merger.
"MORTGAGE LOAN" means the Loan Administration Agreement between The
Prudential Insurance Company of America and the Company, as amended.
"MGCL" means the Maryland General Corporation Law, as amended from time to
time.
"NYSE" means the New York Stock Exchange.
"ORGANIZATIONAL DOCUMENTS" means the Charter and Bylaws.
"OTR" means OTR, an Ohio general partnership acting on behalf of and as
nominee for The State Teachers Retirement Board of Ohio.
"OWNERSHIP LIMIT" means the restriction contained in the Charter providing
that, subject to certain exceptions, no holder may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 8.5% of the lesser
of the number or value of the outstanding shares of any class of the Company's
stock.
"PREFERRED STOCK" means all series of preferred stock of the Company.
"PREFERRED STOCK PRIVATE PLACEMENT" means the private placement of shares of
the Series B Preferred Stock to Ameritech and OTR.
"PROHIBITED OWNER" means the person who would otherwise be considered the
owner of Shares-in-Trust had such shares not been transferred to a trustee
because such owner violated the Ownership Limit.
"PROPERTIES" means all of the properties owned by the Company.
"PROSPECTUS" means this prospectus.
"PRUDENTIAL" means, collectively, The Prudential Insurance Company of
America, The Prudential Variable Contract Real Property Partnership, Strategic
Performance Fund-II, Inc., and three insurance company separate accounts managed
by The Prudential Insurance Company of America.
"RECAPITALIZATION" means the May 31, 1995 closing of the transactions under
the stock purchase agreements between Hunt and each of the Merged Trusts and the
stock purchase agreements between
40
<PAGE>
USAA and each of the Merged Trusts, and the concurrent restructuring or
retirement of the Trusts' indebtedness.
"REFINANCING" means (i) the retirement of certain Trust indebtedness that
took place when the Consolidation Transactions closed using the net proceeds of
the Preferred Stock Private Placement and (ii) the availability of funds under
the Unsecured Credit Facility.
"REIT" means a real estate investment trust meeting the requirements of
Sections 856 through 860 of the Code.
"REIT TAXABLE INCOME" means taxable income of a REIT, computed as if it were
an ordinary corporation, with certain modifications.
"SECURITIES ACT" means the Securities Act of 1933.
"SERIES A PREFERRED STOCK" means the Series A Preferred Stock, par value
$.001 per share of the Company that was redeemed or canceled in the Merger.
"SERIES B PREFERRED STOCK" means the Series B Preferred Stock, par value
$.001 per share, of the Company issued in the Preferred Stock Private Placement.
"SHARES-IN-TRUST" means shares of Equity Stock (including warrants or
options to acquire Equity Stock) that would be automatically transferred to a
trustee for the benefit of a charitable beneficiary because they would cause a
person to be treated as owning Equity Stock in violation of the Company's
Ownership Limit.
"STOCK PLAN" means the Amended and Restated Employee and Director Incentive
Stock Plan of the Company.
"TRUST 83" means Meridian Point Realty Trust '83, a California business
trust.
"TRUST IV" means Meridian Point Realty Trust IV Co., a Missouri corporation
that merged into the Company on February 23, 1996.
"TRUST VI" means Meridian Point Realty Trust VI Co., a Missouri corporation
that merged into the Company on February 23, 1996.
"TRUST VII" means Meridian Point Realty Trust VII Co., a Missouri
corporation that merged into the Company on February 23, 1996.
"TRUSTS" means Trust IV, Trust VI, Trust VII and Trust 83, collectively.
"USAA" means USAA Real Estate Company, a Delaware corporation which is an
indirect, wholly-owned subsidiary of United Services Automobile Association, a
reciprocal interinsurance exchange formed under the Texas Insurance Code.
"USAA OPTION" means the option USAA granted to the Company to purchase
certain industrial property located in Lakeland, Florida and the right of first
refusal to purchase certain land and improvements located in Chicago, Illinois.
"USAA WARRANT" means the warrant to purchase shares of Common Stock that the
Company issued to USAA as consideration for the USAA Option.
41
<PAGE>
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- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, BY ANY SELLING STOCKHOLDER OR UNDERWRITER. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................... 1
THE COMPANY............................................................... 3
RISK FACTORS.............................................................. 4
DESCRIPTION OF STOCK...................................................... 11
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE CHARTER AND BYLAWS.......... 19
SELLING STOCKHOLDERS...................................................... 25
PLAN OF DISTRIBUTION...................................................... 26
FEDERAL INCOME TAX CONSIDERATIONS......................................... 27
LEGAL MATTERS............................................................. 37
EXPERTS................................................................... 37
GLOSSARY.................................................................. 38
</TABLE>
MERIDIAN INDUSTRIAL
TRUST, INC.
16,277,554 SHARES
OF COMMON STOCK
---------------------
PROSPECTUS
---------------------
DECEMBER , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses that will be borne by
the Company in connection with the registration of Common Stock offered hereby,
other than commissions:
<TABLE>
<S> <C>
SEC registration fee...................................................... $ 120,347
Printing and engraving expenses........................................... 10,000
Legal fees and expenses................................................... 30,000
Accounting fees and expenses.............................................. 5,000
"Blue sky" fees and expenses.............................................. 5,000
Transfer agent and registrar fees......................................... 1,000
Miscellaneous expenses.................................................... 5,000
---------
Total................................................................... $ 176,347
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Maryland General Corporation Law ("MGCL") permits a Maryland corporation
to include in its charter a provision limiting the liability of its directors
and officers to the corporation and its stockholders for money damages except
for liability resulting from (a) actual receipt of improper benefit or profit in
money, property or services or (b) active and deliberate dishonesty established
by a final judgment as being material to the cause of action. The Company's
Charter (the "Charter") contains such a provision which eliminates such
liabilities to the maximum extent permitted by Maryland law.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful on the merits or otherwise, in defense of any proceeding to which he
is made a party by reason of his service in that capacity. The MGCL 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 unless it
is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith or (ii) was the result of an active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of a criminal proceeding, the director
or officer had reasonable cause to believe that the act or omission was
unlawful. However, under the MGCL, a Maryland corporation may not indemnify for
any adverse judgment in a suit by or in the right of a corporation. In addition,
the MGCL requires the Company, as a condition to advancing expenses, to obtain
(a) 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
Company as authorized by the Company's bylaws and (b) a written statement by or
on his behalf to repay the amount paid or reimbursed by the Company if its shall
ultimately be determined that the standard of conduct was not met.
The Charter obligates the Company to the maximum extent permitted by
Maryland law to indemnify and to pay or reimburse reasonable expenses in advance
of final disposition of a proceeding to (a) any present or former director or
officer of the Company or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served as a director,
officer, partner or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise form and against any claim or
liability which such person may become subject or which such person may incur by
reason of his or her status as a current or former director or officer of the
Company. The Charter also permits the Company to indemnify and advance expenses
to any person who served a predecessor of the
II-1
<PAGE>
Company in any of the capacities described above and to any employee or agent of
the Company or a predecessor of the Company.
The Company has entered into indemnification agreements with each of its
officers and directors. The indemnification agreements require, among other
matters, that the Company indemnify its executive officers and directors to the
fullest extent permitted by law and advance to the officers all related
expenses, subject to reimbursement, if it is subsequently determined that
indemnification is not permitted. Under these agreements, the Company must also
indemnify and advance all expenses incurred by executive officers and directors
seeking to enforce their rights under the indemnification agreements and may
cover executive officers and directors under the Company's directors' and
officers' liability insurance. Although the indemnification agreement officers
substantially the same scope of coverage afforded by law, it provides greater
assurance to directors and executive officers that indemnification will be
available, because, as a contract, it cannot be modified unilaterally in the
future by the Board of Directors of the Company or its stockholders to eliminate
the rights it provides.
It is the position of the SEC that indemnification of directors and officers
for liability under the Securities Act is against public policy and
unenforceable pursuant to Section 14 of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- -------------------------------------------------------------------------------------------------
<C> <C> <S>
4.1 -- The Company's Third Amended and Restated Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-11, Registration No. 333-02322)
4.2 -- Second Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1997)
4.3 -- Amendment to Second Amended and Restated Bylaws, adopted January 26, 1996 (incorporated by
reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1997)
4.4 -- Second Amendment to Second Amended and Restated Bylaws, adopted September 17, 1997 (incorporated
by reference to Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1997)
4.5 -- Form of Certificate of Common Stock, par value $.001 per share, of the Company (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement on Form S-11, Registration No.
333-02322)
4.6 -- Registration Rights Agreement dated September 24, 1997, by and among the Company, Prudential,
Strategic Performance Fund-II, Inc. and The Prudential Variable Contract Real Property
Partnership (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1997)
4.7 -- Amended and Restated Registration Rights Agreement dated September 24, 1997, by and between the
Company and Prudential on behalf of certain insurance company separate accounts (incorporated
by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the period
ended September 30, 1997)
4.8 -- Registration Rights Agreement dated September 30, 1997, between the Company and Ameritech
(incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1997)
5.1* -- Opinion of Ballard Spahr Andrews & Ingersoll
8.1* -- Opinion of Vinson & Elkins L.L.P. regarding certain tax matters
23.1* -- Consent of Arthur Andersen LLP
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- -------------------------------------------------------------------------------------------------
<C> <C> <S>
23.2 -- Consent of Ballard Spahr Andrews & Ingersoll (included in the opinion filed as Exhibit 5.1 to
this Registration Statement)
23.3 -- Consent of Vinson & Elkins L.L.P. (included in the opinion filed as Exhibit 8.1 to this
Registration Statement
24.1 -- Power of Attorney of directors and officers (included in the signature pages to this Registration
Statement).
</TABLE>
- ------------------------
* Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) (i) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement;
(ii) To include any prospectus required in Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(iii) 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; and
(iv) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) 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.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to section 13(a) or
section 15(d) of the Exchange Act that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, 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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Dallas, State of Texas, on December 11, 1996.
<TABLE>
<S> <C> <C>
MERIDIAN INDUSTRIAL TRUST, INC.
By: /s/ ALLEN J. ANDERSON
-----------------------------------------
Allen J. Anderson
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each of Meridian Industrial Trust,
Inc., a Maryland corporation, and each of the undersigned directors and officers
of Meridian Industrial Trust, Inc., hereby constitutes and appoints Allen J.
Anderson and Milton K. Reeder and each of them its or his true and lawful
attorneys-in-fact and agents, for it or him and in its or his name, place and
stead, in any and all capacities (unless revoked in writing), with full power to
act alone, to sign any and all amendments to this registration statement
(including post-effective amendments thereto, and other documents in connection
therewith) and any registration statement to register additional securities
pursuant to Rule 462 under the Securities Act, and to file the same, with all
exhibits thereto, with the Securities and Exchange Commission, hereby granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as it or he might or could do in person, hereby ratifying and confirming all the
said attorneys-in-fact and agents, or any of them, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman and Chief
/s/ ALLEN J. ANDERSON Executive Officer
- ------------------------------ (Principal Executive December 11, 1997
Allen J. Anderson Officer)
/s/ MILTON K. REEDER
- ------------------------------ President (Principal December 11, 1997
Milton K. Reeder Financial Officer)
Treasurer and Controller
/s/ JAIME SUAREZ (controller and
- ------------------------------ Principal Accounting December 11, 1997
Jaime Suarez Officer)
C.E. "DOC" CORNUTT
- ------------------------------ Director December 11, 1997
C.E. "Doc" Cornutt
/s/ T. PATRICK DUNCAN
- ------------------------------ Director December 11, 1997
T. Patrick Duncan
II-4
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ PETER O. HANSON
- ------------------------------ Director December 11, 1997
Peter O. Hanson
/s/ JOHN S. MOODY
- ------------------------------ Director December 11, 1997
John S. Moody
/s/ KENNETH N. STENSBY
- ------------------------------ Director December 11, 1997
Kenneth N. Stensby
/s/ LEE W. WILSON
- ------------------------------ Director December 11, 1997
Lee W. Wilson
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- --------------------------------------------------------------------------------------------
<C> <C> <S>
4.1 -- The Company's Third Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form S-11, Registration
No. 333-02322)
4.2 -- Second Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1997)
4.3 -- Amendment to Second Amended and Restated Bylaws, adopted January 26, 1996 (incorporated by
reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the period
ended September 30, 1997)
4.4 -- Second Amendment to Second Amended and Restated Bylaws, adopted September 17, 1997
(incorporated by reference to Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1997)
4.5 -- Form of Certificate of Common Stock, par value $.001 per share, of the Company (incorporated
by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-11,
Registration No. 333-02322)
4.6 -- Registration Rights Agreement dated September 24, 1997, by and among the Company,
Prudential, Strategic Performance Fund-II, Inc. and The Prudential Variable Contract Real
Property Partnership (incorporated by reference to Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 1997)
4.7 -- Amended and Restated Registration Rights Agreement dated September 24, 1997, by and between
the Company and Prudential on behalf of certain insurance company separate accounts
(incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1997)
4.8 -- Registration Rights Agreement dated September 30, 1997, between the Company and Ameritech
(incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1997)
5.1* -- Opinion of Ballard Spahr Andrews & Ingersoll
8.1* -- Opinion of Vinson & Elkins L.L.P. regarding certain tax matters
23.1* -- Consent of Arthur Andersen LLP
23.2 -- Consent of Ballard Spahr Andrews & Ingersoll (included in the opinion filed as Exhibit 5.1
to this Registration Statement)
23.3 -- Consent of Vinson & Elkins L.L.P. (included in the opinion filed as Exhibit 8.1 to this
Registration Statement
24.1 -- Power of Attorney of directors and officers (included in the signature pages to this
Registration Statement).
</TABLE>
- ------------------------
* Filed herewith.
<PAGE>
[LETTERHEAD]
December 11, 1977
Meridian Industrial Trust, Inc.
455 Market Street, 17th Floor
San Francisco, California 94105
Re: REGISTRATION STATEMENT ON FORM S-3, FILED DECEMBER 11, 1997
Ladies and Gentlemen:
We have served as Maryland counsel to Meridian Industrial Trust, Inc., a
Maryland corporation (the "Company"), in connection with certain matters of
Maryland law arising out of the registration of up to 16,277,554 shares (the
"Shares") of Common Stock, $.001 par value per share, of the Company ("Common
Stock"), 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 "1993 Act"). The Shares are to be sold from time
to time by the Selling Stockholders in the manner described in the
Registration Statement. 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"):
<PAGE>
Meridian Industrial Trust, Inc.
December 11, 1997
Page 2
1. The Registration Statement and the related form of prospectus
included therein in the form in which it was transmitted 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 Second Amended and Restated Bylaws of the Company, certified as
of a recent date by its Secretary;
4. Resolutions adopted by the Board of Directors of the Company (the
"Board") relating to the sale, issuance and registration of the Securities,
certified as of a recent date by the Secretary of the Company (the
"Resolutions");
5. The form of certificate representing a share of Common Stock,
certified as of a recent date by the Secretary of the Company;
6. A certificate of the SDAT as to the good standing of the Company,
dated December 11, 1997;
7. A certificate executed by Robert A. Dobbin, Secretary of the Company,
dated December 11, 1997; 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.
<PAGE>
Meridian Industrial Trust, Inc.
December 11, 1997
Page 3
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. All Documents submitted to us as originals are authentic. All
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 are no oral or written modifications or amendments to 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.
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 Shares have been duly authorized and are validly issued, fully
paid and nonassessable.
The foregoing opinion is limited to the laws of the State of Maryland and
we do not express any opinion herein concerning any other law. The opinion
expressed herein is subject to the effect of judicial decisions which may
permit the introduction of parol evidence to modify the terms or the
interpretation of agreements. We express no opinion as to compliance with the
securities (or "blue sky") laws of the State of Maryland.
We assume no obligation to supplement this opinion if any applicable law
changes that the date hereof or if we become
<PAGE>
Meridian Industrial Trust, Inc.
December 11, 1997
Page 4
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 and, accordingly, may not be relied
upon by, quoted in any manner to, or delivered to any other person or entity
without, in each instance, our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein. 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
<PAGE>
[LETTERHEAD]
December 11, 1997
Meridian Industrial Trust, Inc.
455 Market Street, 17th Floor
San Francisco, CA 94105
Gentlemen:
You have requested our opinion concerning: (a) the ability of Meridian
Industrial Trust, Inc. (the "Company") to qualify as a real estate investment
trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the "Code") and (b) the accuracy of the tax discussion in the
Prospectus contained in the Registration Statement on Form S-3 filed by the
Company with the Securities and Exchange Commission on or about December 11,
1997 (the "Registration Statement") relating to the offering of 16,277,554
shares of the Company's common stock, par value, $.001 per share. Capitalized
terms used but not defined herein have the meanings specified in the
Registration Statement.
We have examined the Registration Statement and the Company's Charter, and
such other documents as we considered necessary or appropriate for purposes of
issuing our opinions. We also received certain representations from officers
of the Company. In rendering the opinions set forth below, we have relied upon
these representations, and the information presented in the Registration
Statement and other documents, without undertaking any independent verification
of the accuracy or completeness of those matters.
In our review, we have assumed that each representation and all other
information that we reviewed is true and correct in all material respects and
will remain true and correct, that all obligations imposed by any documents on
the parties have been or will be performed, that the Registration Statement and
the other information fairly describes the past and expected future actions of
the parties, and that the Company has been and will be operated in a fashion
consistent with the expectations described in the Registration Statement and
the representations. We have not made an independent investigation of the
accuracy or completeness of those matters and have assumed that the information
made available to us accurately and completely describes all material facts
relevant to our opinion.
<PAGE>
Meridian Industrial Trust, Inc.
December 11, 1997
Page 2
Based on the facts and representations referred to above, and subject to
the analysis, qualifications and assumptions presented under the heading
"Federal Income Tax Considerations" in the Registration Statement, it is our
opinion that:
(1) The Company has qualified as a REIT for its taxable years
ending December 31, 1995 and December 31, 1996.
(2) The Company is organized in conformity with the
requirements for qualification as a REIT and its method of operation
has and will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code, provided the
Company continues to meet the asset composition, source of income,
shareholder diversification, distribution, record keeping, and other
requirements of the Code necessary for the Company to qualify as a
REIT. No assurance can be given that the Company will qualify as a
REIT for any particular period, however, because that determination
involves factual determinations as to whether the Company actually
complies with the various requirements of the Code necessary for the
Company to qualify as a REIT, and in part may turn upon whether each
of the Merged Trusts previously complied with those requirements.
(3) The discussion in the Registration Statement under the
heading "Federal Income Tax Considerations" fairly summarizes the
material federal income tax considerations to a purchaser of the
Common Stock.
Our opinions are based upon existing provisions of the Code, regulations
promulgated or proposed thereunder and interpretations thereof by the Internal
Revenue Service and the courts, all of which are subject to change with
prospective or retroactive effect, and our opinion could be adversely affected
or rendered obsolete by any such change.
We hereby consent to the filing of this opinion letter as an exhibit to
the Registration Statement and to the references to Vinson & Elkins L.L.P.
under the headings "Certain Federal Income Tax Consequences" and "Legal
Matters" in the Registration Statement. In giving this consent, we do not
thereby admit that we are within the category of the persons whose consent is
required under Section 7 of the 1933 Act and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Very truly yours,
Vinson & Elkins L.L.P.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the reference to our
firm under the caption "Experts" and to the incorporation by reference in the
Registration Statement and the related Prospectus of Meridian Industrial Trust,
Inc. on Form S-3 filed with the Securities and Exchange Commission on or about
December 10, 1997 of our report dated February 5, 1997 included in Meridian
Industrial Trust, Inc.'s Form 10-K for the year ended December 31, 1996, and our
reports dated June 30, 1997 on the Prudential Property Transaction for the year
ended December 31, 1996; on the Ameritech Property Transaction-- Group A
Properties for the years ended December 31, 1996, 1995, and 1994; on the
Ameritech Property Transaction--Group B Properties for the years ended December
31, 1996 and 1995, on the Ameritech Property Transaction--Group C Properties for
the year ended December 31, 1996; on the Acquired Properties for the year ended
December 31, 1996; and our report dated July 16, 1997 on the Portfolio
Acquisitions for the year ended December 31, 1996 all included in Meridian
Industrial Trust, Inc.'s Form 8-K filed October 9, 1997, Form 8-K filed October
15, 1997, and Form 8-K filed November 6, 1997, all as amended.
Arthur Andersen LLP
San Francisco, California
December 10, 1997
