<PAGE>
PROSPECTUS SUPPLEMENT
FILED PURSUANT TO RULE 424(b)(4)
(TO PROSPECTUS DATED DECEMBER 12, 1997) REGISTRATION NO. 333-24579
414,508 SHARES
MERIDIAN INDUSTRIAL TRUST, INC.
COMMON STOCK
------------------
Meridian Industrial Trust, Inc., a Maryland corporation (together with its
subsidiaries, "the Company"), 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. The Company's strategy is to be a demand-driven,
competitively priced, nationwide provider of warehouse/distribution space. As of
September 30, 1997, the Company owned and operated 127 warehouse/distribution
properties and 33 light industrial properties encompassing approximately 19.6
million square feet of leasable space.
All of the 414,508 shares of Common Stock, par value $.001 per share (the
"Common Stock"), of the Company offered hereby are being offered by the Company.
The Common Stock is listed on the New York Stock Exchange (the "NYSE") under the
symbol "MDN." On December 18, 1997, the last reported sale price of the Common
Stock on the NYSE was $24.1250 per share. See "Price Range of Common Stock and
Distribution Policy." To ensure that the Company qualifies as a REIT, beneficial
ownership of the Common Stock by any single stockholder is limited to 8.5% of
the number of shares of Common Stock outstanding. See "Description of Common
Stock" in the accompanying Prospectus.
Prospective investors should carefully consider the matters discussed under
"Risk Factors" beginning on Page S-3 of this Prospectus Supplement.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share.......................................... $24.1250 $1.0856 $23.0394
Total.............................................. $10,000,005.50 $449,989.88 $9,550,015.62
</TABLE>
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
approximately $50,000.
------------------------
The Common Stock offered by this Prospectus Supplement is offered by the
Underwriter, subject to prior sale, when, as and if delivered to and accepted by
the Underwriter and subject to its right to reject orders in whole or in part.
It is expected that delivery of the Common Stock offered hereby will be made at
the offices of Legg Mason Wood Walker, Incorporated, Baltimore, Maryland, on or
about December 23, 1997.
------------------------
LEGG MASON WOOD WALKER
INCORPORATED
---------------------
The date of this Prospectus Supplement is December 19, 1997
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus Supplement may contain statements that may be deemed to be
"forward-looking" within the meaning of Section 27A of the Securities Act of
1933, as amended (the "Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Company's actual
results or experiences could differ materially from those set forth in the
forward-looking statements. Certain of the factors that might cause such a
difference are discussed in the section entitled "Risk Factors" beginning on
page S-3 of this Prospectus Supplement and in such section in the accompanying
Prospectus.
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UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS
SUPPLEMENT TO THE "COMPANY" REFER TO MERIDIAN INDUSTRIAL TRUST, INC. AND ITS
CONSOLIDATED SUBSIDIARIES. CERTAIN ADDITIONAL TERMS CONTAINED HEREIN ARE DEFINED
IN THE GLOSSARY OF THE COMPANY'S ACCOMPANYING PROSPECTUS DATED DECEMBER 12,
1997.
THE COMPANY
The Company 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. The Company's strategy is to be a demand-driven,
competitively priced, nationwide provider of warehouse/distribution space. As of
September 30, 1997, the Company owned and operated 127 warehouse/distribution
properties and 33 light industrial properties encompassing approximately 19.6
million square feet of leasable space.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING 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
Based on information available to the Company, eight stockholders of the
Company (Prudential and certain separate insurance accounts managed by
Prudential, Hunt, USAA and Morgan Stanley which own Common Stock, and 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
December 15, 1997 a total of approximately 66% 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" in the accompanying Prospectus). 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.
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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.
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.
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 to
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 generally 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
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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. If any of the above
occurs, the Company's ability to make distributions to stockholders could be
adversely affected.
COMPETITION. There are numerous owners of 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 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 may
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
S-5
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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. 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 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 and the risk
that existing indebtedness on the Properties will not be able to be refinanced
or that the terms of such refinancings will not 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 under
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 obligation 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 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 of Directors 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.
S-6
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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 in 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 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 stockholders 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 of Directors. Although it has no present
intention to do so, the Board of Directors 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
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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 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. If the Company fails to qualify as a REIT,
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 associated with its assets
as of the date of requalification and to make distributions equal to any C
corporation 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 of income and deductions and actual
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 the
required distributions, it would cease to qualify as a REIT. See "Federal Income
Tax Considerations--REIT Qualification" in the accompanying Prospectus.
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). 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
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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 Considerations-- REIT Qualification" in the
accompanying Prospectus. 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
any person to have or acquire ownership (applying the constructive ownership
rules) of Equity Stock. See "Description of Stock-- Restrictions on Ownership
and Transfer" in the accompanying Prospectus.
The provisions and certain other provisions of the Company's Charter and
bylaws and the Maryland General Corporation Law (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 (a) deter tender offers for Common
Stock that may be attractive to stockholders or (b) 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" in the
accompanying Prospectus.
FUTURE ISSUANCES OF COMMON STOCK. The Company's Charter authorizes the
Board of Directors 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" in the accompanying Prospectus.
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
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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 Supplement or incorporated herein by reference.
RECENT DEVELOPMENTS
On October 31, 1997, the Company commenced a stock repurchase program. The
Company's stock repurchase program provides for the repurchase of up to $10
million in Common Stock from time to time in open market purchases over a
six-month period. The source of funds for the stock repurchase program is the
Company's working capital.
On November 20, 1997, the Company completed a private placement of $160
million in principal amount of unsecured senior notes to a group of
institutional investors. The notes were issued in two tranches, $135.0 million
maturing in 2007, bearing interest at an annual rate of 7.25%, and $25.0 million
maturing in 2009, bearing interest at an annual rate of 7.30%. The proceeds of
the sale of these notes were used to reduce outstanding indebtedness under the
Company's revolving credit facility.
USE OF PROCEEDS
The net cash proceeds to the Company from the sale of the Common Stock
offered hereby are estimated to be approximately $9.6 million, after deducting
the estimated expenses of $50,000 payable by the Company. The Company will use
the net proceeds of the Offering to reduce indebtedness under its unsecured
credit facility. Pending such application, the Company may invest the net
proceeds in short-term investments such as commercial paper, government
securities or money market funds that invest in government securities.
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION POLICY
The Company's Common Stock has been listed on the NYSE since February 26,
1996, under the symbol "MDN." On December 18, 1997, the last reported sales
price per share of Common Stock on the NYSE was $24.1250. There were
approximately 17,250 holders of record of the Company's Common Stock at December
15, 1997. The following table sets forth the high and low last reported closing
sales prices per share of the Common Stock on the NYSE since it has been listed.
<TABLE>
<CAPTION>
HIGH LOW
---------- ----------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
February 26, 1996 through March 30, 1996............................ $ 17.0000 $ 15.1250
Second Quarter...................................................... $ 18.3750 $ 15.6250
Third Quarter....................................................... $ 18.1250 $ 17.1250
Fourth Quarter...................................................... $ 21.7500 $ 17.1250
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
---------- ----------
<S> <C> <C>
YEAR ENDING DECEMBER 31, 1997:
First Quarter....................................................... $ 24.1250 $ 20.8750
Second Quarter...................................................... $ 23.6250 $ 20.5000
Third Quarter....................................................... $ 25.6250 $ 22.2500
Fourth Quarter (through December 18, 1997).......................... $ 24.3125 $ 24.1250
</TABLE>
From February 23, 1996 (the date operations commenced) through September 30,
1997, the Company paid quarterly per share distributions equivalent to $0.29 to
holders of record of the Common Stock. The
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<PAGE>
Company currently expects to continue to declare and pay regular quarterly
distributions of $0.29 per share to holders of its Common Stock, which on an
annualized basis is equivalent to an annual distribution of $1.16 per share of
Common Stock. In addition, the terms of the outstanding shares of Series B
Preferred Stock provide for cumulative dividends at an initial per share rate of
at least $0.31 per quarter or $1.24 per year. From February 23, 1996 (the date
of completion of the Preferred Stock Private Placement) through September 30,
1997, the Company paid quarterly per share distributions to the holders of
record of the Series B Preferred Stock equivalent to $0.31. Future distributions
by the Company will be at the discretion of the Board of Directors, and there
can be no assurance that any such distributions will be made by the Company.
Distributions by the Company to the extent of its current and accumulated
earnings and profits generally will be taxable to stockholders as ordinary
dividend income for federal income tax purposes. Distributions in excess of
current and accumulated earnings and profits will be treated as a non-taxable
reduction of the stockholder's basis in its shares of Common Stock to the extent
thereof, and thereafter as taxable gain. Distributions that are treated as a
reduction in the stockholder's basis in its shares of Common Stock will have the
effect of deferring taxation until the sale of the stockholder's shares.
FEDERAL INCOME TAX CONSIDERATIONS
This discussion supplements the discussion set forth in the accompanying
Prospectus under the heading "Federal Income Tax Considerations." On August 5,
1997, the President signed into law the Taxpayer Relief Act of 1997 (the "Act"),
which contains provisions affecting the qualification and taxation of REITs and
which provisions will apply to the Company beginning with its 1998 taxable year.
The relevant REIT-related provisions of the Act are summarized in this
paragraph. First, the Act repeals the 30% gross income test. Second, under the
Act, the Company may elect to retain and pay income tax on its net long-term
capital gains. If the Company so elects, each shareholder will take into income
his share of the retained capital gain as long-term capital gain and will
receive a credit or refund for his shares of the tax paid by the Company. The
shareholder will increase the basis of his shares of the Company by an amount
equal to the excess of the retained capital gain included in his income over the
tax deemed paid by him. Third, under the Act, the Company may render a minimal
amount of impermissible "noncustomary" services to tenants and still treat the
rent received from that property as "rents from real property," as long as the
amount received for the services, or management or operation, during any taxable
year does not exceed one percent of the Company's total receipts from the
property during that year. For purposes of the foregoing, the amount
attributable to any impermissible service, or management or operation, will be
equal to at least 150% of the Company's direct cost for performing the service,
management, or operation. Fourth, under the Act, the Company will not lose its
REIT status for failing to send out shareholder demand letters in any year.
Instead, the Company will incur a $25,000 penalty ($50,000 for intentional
violations). Fifth, if the Company complies with the requirements for
ascertaining the ownership of its outstanding shares (including by sending out
shareholder demand letters) and does not know or have reason to know that it has
violated the 5/50 rule (i.e., the rule that no more than 50% in value of the
Company's outstanding shares may be owned, directly or indirectly, by five or
fewer individuals during the last half of any taxable year), it will be treated
as satisfying the 5/50 rule. Sixth, the Company may treat any wholly-owned
corporation as a "qualified REIT subsidiary" regardless of whether the Company
always has owned 100% of the stock of the corporation.
The Act also changed the maximum tax rates on capital gains applicable to
noncorporate taxpayers. For sales or exchanges occurring after July 28, 1997,
the maximum tax rate on long-term capital gains applicable to noncorporate
taxpayers is 28% for sales and exchanges of assets held for more than one year,
but not more than 18 months, and 20% for sales and exchanges of assets held for
more than 18 months. The maximum tax rate applicable to noncorporate taxpayers
on long-term capital gain from the sale or exchange of "section 1250 property"
(i.e., depreciable real property) is 25% to the extent that such gain would have
been treated as ordinary income if the property were "section 1250 property."
With respect to
S-11
<PAGE>
distributions designated by the Company as capital gain dividends and any
retained capital gains that the Company is deemed to distribute in taxable years
beginning on and after January 1, 1998, the Company may designate (subject to
certain limits) whether a distribution is taxable to its noncorporate
stockholders at a 20%, 25%, or 28% rate.
In the opinion of Vinson & Elkins L.L.P., tax advisor to the Company (the
"Tax Advisor"), beginning with its taxable year ended December 31, 1985, the
Company was organized in conformity with the requirements for qualification as a
REIT under the Internal Revenue Code of 1986, as amended, for each of its
taxable years and the Company's current method of operation will enable it to
continue to so qualify. Investors should be aware, however, that opinions of
counsel are not binding upon the Internal Revenue Service or any court. It must
be emphasized that the Tax Advisor's opinion is based on various assumptions and
is conditioned upon certain representations made by the Company as to factual
matters, including representations regarding the nature of the Company's
properties and the future conduct of its business. The Tax Advisor will not
review the Company's compliance with those tests on a continuing basis.
Accordingly, no assurance can be given that the actual results of the Company's
operations for any particular taxable year will satisfy such requirements. For a
discussion of the tax consequences of the failure to qualify as a REIT, see
"Federal Income Tax Considerations--Failure to Qualify" in the accompanying
Prospectus.
UNDERWRITING
Subject to the terms and conditions contained in an Underwriting Agreement
dated December 18, 1997, (the "Underwriting Agreement"), between the Company,
and the Underwriter, the Company has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase from the Company, 414,508 shares of Common
Stock at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus Supplement. The
Underwriting Agreement provides that the Underwriter's obligation to purchase
the Common Stock is subject to the satisfaction of certain conditions, including
the receipt of certain legal opinions. The nature of the Underwriter's
obligation is such that it is committed to purchase all of the shares of Common
Stock if any shares are purchased.
The Underwriter intends to deposit the Common Stock offered hereby with the
trustee of Legg Mason REIT Trust, December 1997 Series (the "Trust"), a
registered unit investment trust under the Investment Company Act of 1940, as
amended, in exchange for units of the Trust. If all of the Common Stock so
deposited is valued at the last reported sale price for the Common Stock on the
NYSE on December 18, 1997, the aggregate underwriting commissions would be
$449,989.88. The Underwriter is acting as sponsor and depositor of the Trust and
is therefor considered an affiliate of the Trust.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriter may be required to
make in respect thereof.
In the ordinary course of business, the Underwriter may from time to time
provide investment banking, financial advisory and commercial banking services
to the Company and its affiliates for which customary compensation will be
received.
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
S-12
<PAGE>
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.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland,
and for the Underwriter by Hunton & Williams, Richmond, Virginia. Hunton &
Williams will rely on Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland, as
to certain matters of Maryland law.
S-13
<PAGE>
Filed pursuant to Rule 424(b)(1)
Registration Statement No. 333-24579
PROSPECTUS
- --------------------------------------------------------------------------------
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
WARRANTS
MERIDIAN INDUSTRIAL TRUST, INC.
- ------------------------------------------------------------
Meridian Industrial Trust, Inc. (the "Company") may from time to time offer
in one or more series its (a) debt securities ("Debt Securities"), (b) warrants
to purchase Debt Securities ("Debt Warrants"), (c) Preferred Stock, par value
$0.001 per share ("Preferred Stock"), (d) warrants to purchase Preferred Stock
("Preferred Stock Warrants"), (e) Common Stock, par value $0.001 per share
("Common Stock"), or (f) warrants to purchase Common Stock ("Common Stock
Warrants"), all having an aggregate initial offering price not to exceed
$600,000,000 or the equivalent thereof in one or more foreign currencies,
foreign currency units, or composite currencies, including European Currency
Units. The Debt Warrants, Preferred Stock Warrants and Common Stock Warrants are
collectively referred to herein as the "Warrants." The Debt Securities,
Preferred Stock, Common Stock and Warrants offered by the Company hereby
(collectively referred to herein as the "Offered Securities") may be offered,
separately or together, in separate series, in amounts, at prices and on terms
to be set forth in a supplement to this Prospectus (a "Prospectus Supplement").
Certain holders (the "Selling Stockholders") of the Company's Common Stock and
Series B Preferred Stock may also offer and sell certain shares of Common Stock
held by them or issuable upon the conversion or exchange of shares of Series B
Preferred Stock ("Selling Stockholder Offered Securities" and together with the
Company Offered Securities, the "Offered Securities").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (a) in the case of Debt
Securities, the specific title, aggregate principal amount, currency, form
(which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the Company or
repayment at the option of the Holder, terms for sinking fund payments, and any
initial public offering price, (b) in the case of Preferred Stock, the
designation and stated value, any dividend, liquidation, redemption, conversion,
voting and other rights, and the number of shares and the terms or the offering
and sale thereof, (c) in the case of Common Stock, the number of shares and the
terms of the offering and sale thereof, (d) in the case of Warrants, the number
and terms thereof, the designation and the number of securities issuable upon
exercise, the exercise price, the terms of the offering and sale thereof, and
where applicable, the duration and detachability thereof, and (e) in the case of
all Offered Securities, whether such Offered Securities will be offered
separately or as a unit with other Offered Securities. The Selling Stockholder
Offered Securities may be offered in amounts, at prices and on terms to be
determined at the time of sale and set forth in a Prospectus Supplement. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Offered Securities, in each case
as may be appropriate to preserve the status of the Company as a real estate
investment trust ("REIT") for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
The Company may sell the Offered Securities in or outside the United States
through underwriters, brokers or dealers, directly to one or more purchasers, or
through agents. The Selling Stockholder Offered Securities may be offered to or
through underwriters either separately or in connection with offerings of
Offered Securities by the Company. If any agents or underwriters are involved in
the sale of any of the Offered Securities, their names, and any applicable
purchase price, fee, commission or discount arrangement between or among them,
will be set forth, or will be calculable from the information set forth, in the
applicable Prospectus Supplement. See "Plan of Distribution." No Offered
Securities may be sold without delivery of the applicable Prospectus Supplement
describing the method and terms of the offering of such series of Offered
Securities. The Company will not receive any of the proceeds from the sale of
any of the Selling Stockholder Offered Securities by any of the Selling
Stockholders.
------------------------
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is December 12, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
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.
This Prospectus constitutes part of a registration statement on Form S-3
(together with all amendments and exhibits, the "Registration Statement") filed
by the Company with the Commission under the Securities Act. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information, reference is hereby made to the
Registration Statement.
INCORPORATION BY REFERENCE
There are incorporated herein by reference the following documents
heretofore filed by the Company with the Commission (File No. 1-14166):
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1996 amended;
(b) Quarterly Report on Form 10-Q for the quarter ended March 31, 1997;
(c) Quarterly Report on Form 10-Q for the quarter ended June 30, 1997;
(d) Quarterly Report on Form 10-Q for the quarter ended September 30,
1997;
(e) Current Report on Form 8-K filed October 9, 1997, as amended;
(f) Current Report on Form 8-K filed October 15, 1997, as amended;
(g) Current Report on Form 8-K filed November 6, 1997, as amended; and
(h) The description of the Common Stock contained in the Company's
registration statement on Form 8-A filed on January 4, 1996 for registration
of the Common Stock pursuant to Section 12(b) of the Exchange Act, including
any amendment or report filed for the purpose of updating such description.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering
of the Offered Securities shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained herein or 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 subsequently filed document which is incorporated or
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.
2
<PAGE>
The Company will provide without charge to each person, including any
beneficial owner, 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
incorporated herein by reference, other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into such documents.
Requests should be addressed to General Counsel, Meridian Industrial Trust,
Inc., 455 Market Street, 17th Floor, San Francisco, California 94105.
3
<PAGE>
AS USED HEREIN THE TERM "COMPANY" INCLUDES MERIDIAN INDUSTRIAL TRUST, INC., A
MARYLAND CORPORATION, AND ONE OR MORE OF ITS SUBSIDIARIES, AS APPROPRIATE.
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 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.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the net
proceeds from the sale of the Offered Securities will be used for the
acquisition and development of additional industrial properties, as suitable
opportunities arise, for the repayment of certain outstanding indebtedness at
such time, for capital improvements to properties and for general corporate
purposes. None of the proceeds from the sale of any of the Selling Stockholder
Offered Securities by any of the Selling Stockholders will be received by the
Company.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
For the nine months ended September 30, 1997 and for the year ended December
31, 1996, the Company's ratio of earnings to fixed charges was 2.58:1 and
2.60:1, respectively. For the same periods, the ratio of earnings to combined
fixed charges and preferred dividends was 2.04:1 and 1.91:1, respectively. For
the period from May 18, 1995 (inception) to December 31, 1995, except for
interest earned on its investments and general and administrative expenses
incurred and accrued the Company had no activities. During this period the
Company's fixed charges were in excess of earnings by $1.29 million and combined
fixed charges and preferred stock dividends were in excess of earnings of $1.32
million.
For purposes of computing these ratios, earnings have been calculated by
adding fixed charges (excluding capitalized interest) to income (loss) before
extraordinary items. Fixed charges consist of interest costs, whether expensed
or capitalized, the interest component of rental expense, and amortization of
capitalized loan fees.
4
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement and the extent, if any, to which such
general provisions may apply to the Debt Securities so offered will be described
in the Prospectus Supplement relating to such Debt Securities. Accordingly, for
a description of the terms of a particular issue of Debt Securities, reference
must be made to both the Prospectus Supplement relating thereto and to the
following description.
The Debt Securities will be general obligations of the Company and may be
subordinated to Senior Indebtedness (as defined below) of the Company to the
extent set forth in the Prospectus Supplement relating thereto. See "Description
of Debt Securities--Subordination." Debt Securities will be issued under an
Indenture (the "Indenture") to be entered into between the Company and one or
more commercial banks to be selected as trustees (collectively, the "Trustee").
A copy of the form of Indenture has been filed as an exhibit to the Registration
Statement filed with the SEC. The following discussion of certain provisions of
the Indenture is a summary only and does not purport to be a complete
description of the terms and provisions of the Indenture. Accordingly, the
following discussion is qualified in its entirety by reference to the provisions
of the Indenture, including the definition therein of terms used below with
their initial letters capitalized.
GENERAL
The Indenture does not limit the aggregate principal amount of Debt
Securities that can be issued thereunder. The Debt Securities may be issued in
one or more series as may be authorized from time to time by the Company.
Reference is made to the applicable Prospectus Supplement for the following
terms of the Debt Securities of the series with respect to which such Prospectus
Supplement is being delivered:
(a) The title of the Debt Securities of the series;
(b) Any limit on the aggregate principal amount of the Debt Securities
of the series that may be authenticated and delivered under the Indenture;
(c) The date or dates on which the principal and premium with respect to
the Debt Securities of the series are payable;
(d) The rate or rates (which may be fixed or variable) at which the Debt
Securities of the series shall bear interest (if any) or the method of
determining such rate or rates, the date or dates from which such interest
shall accrue, the interest payment dates on which such interest shall be
payable or the method by which such dates will be determined, the record
dates for the determination of holders thereof to whom such interest is
payable (in the case of Registered Securities), and the basis upon which
interest will be calculated if other than that of a 360-day year of twelve
30-day months;
(e) The place or places, if any, in addition to or instead of the
corporate trust office of the Trustee (in the case of Registered Securities)
or the principal London office of the Trustee (in the case of Bearer
Securities), where the principal, premium and interest with respect to Debt
Securities of the series shall be payable;
(f) The price or prices at which, the period or periods within which,
and the terms and conditions upon which Debt Securities of the series may be
redeemed, in whole or in part, at the option of the Company or otherwise;
(g) Whether Debt Securities of the series are to be issued as Registered
Securities or Bearer Securities or both and, if Bearer Securities are to be
issued, whether coupons will be attached thereto, whether Bearer Securities
of the series may be exchanged for Registered Securities of the series, and
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<PAGE>
the circumstances under which and the places at which any such exchanges, if
permitted, may be made;
(h) If any Debt Securities of the series are to be issued as Bearer
Securities or as one or more Global Securities representing individual
Bearer Securities of the series, whether certain provisions for the payment
of additional interest or tax redemptions shall apply; whether interest with
respect to any portion of a temporary Bearer Security of the series payable
with respect to any interest payment date prior to the exchange of such
temporary Bearer Security for definitive Bearer Securities of the series
shall be paid to any clearing organization with respect to the portion of
such temporary Bearer Security held for its account and, in such event, the
terms and conditions (including any certification requirements) upon which
any such interest payment received by a clearing organization will be
credited to the persons entitled to interest payable on such interest
payment date; and the terms upon which a temporary Bearer Security may be
exchanged for one or more definitive Bearer Securities of the series;
(i) The obligation, if any, of the Company to redeem, purchase, or repay
Debt Securities of the series pursuant to any sinking fund or analogous
provisions or at the option of a holder thereof and the price or prices at
which, the period or periods within which, and the terms and conditions upon
which Debt Securities of the series shall be redeemed, purchased or repaid,
in whole or in part, pursuant to such obligations;
(j) The terms, if any, upon which the Debt Securities of the series may
be convertible into or exchanged for Common Stock, Preferred Stock, other
Debt Securities, or warrants for Common Stock, Preferred Stock or
indebtedness or other securities of any kind of the Company or any other
issuer or obligor and the terms and conditions upon which such conversion or
exchange shall be effected, including the initial conversion or exchange
price or rate, the conversion or exchange period, and any other additional
provisions;
(k) If other than denominations of $1,000 or any integral multiple
thereof, the denominations in which Debt Securities of the series shall be
issuable;
(l) If the amount of principal, premium, or interest with respect to the
Debt Securities of the series may be determined with reference to an index
or pursuant to a formula, the manner in which such amounts will be
determined;
(m) If the principal amount payable at the stated maturity of Debt
Securities of the series will not be determinable as of any one or more
dates prior to such stated maturity, the amount that will be deemed to be
such principal amount as of any such date for any purpose, including the
principal amount thereof which will be due and payable upon any maturity
other than the stated maturity or which will be deemed to be outstanding as
of any such date (or, in any such case, the manner in which such deemed
principal amount is to be determined), and if necessary, the manner of
determining the equivalent thereof in United States currency;
(n) Any changes or additions to the provisions of the Indenture dealing
with defeasance, including the addition of additional covenants that may be
subject to the Company's covenant defeasance option;
(o) If other than such coin or currency of the United States as at the
time of payment is legal tender for payment of public and private debts, the
coin or currency or currencies or units of two or more currencies in which
payment of the principal, premium and interest with respect to Debt
Securities of the series shall be payable;
(p) If other than the principal amount thereof, the portion of the
principal amount of Debt Securities of the series that shall be payable upon
declaration of acceleration of the maturity thereof or provable in
bankruptcy;
6
<PAGE>
(q) The terms, if any, of the transfer, mortgage, pledge or assignment
as security for the Debt Securities of the series of any properties, assets,
moneys, proceeds, securities or other collateral, including whether certain
provisions of the Trust Indenture Act are applicable and any corresponding
changes to provisions of the Indenture as then in effect;
(r) Any addition to or change in the Events of Default with respect to
the Debt Securities of the series and any change in the right of the Trustee
or the holders to declare the principal, premium and interest with respect
to such Debt Securities due and payable;
(s) If the Debt Securities of the series shall be issued in whole or in
part in the form of a Global Security, the terms and conditions, if any,
upon which such Global Security may be exchanged in whole or in part for
other individual Debt Securities in definitive registered form, the
Depositary for such Global Security, and the form of any legend or legends
to be borne by any such Global Security in addition to or in lieu of the
legend referred to in the Indenture;
(t) Any Trustee, authenticating or paying agents, transfer agents or
registrars;
(u) The applicability of, and any addition to or change in, the
covenants and definitions then set forth in the Indenture or in the terms
then set forth in the Indenture relating to permitted consolidations,
mergers, or sales of assets, including conditioning any merger, conveyance,
transfer or lease permitted by the Indenture upon the satisfaction of an
indebtedness coverage standard by the Company and any successor to the
Company;
(v) The terms, if any, of any guarantee of the payment of principal,
premium and interest with respect to Debt Securities of the series and any
corresponding changes to the provisions of the Indenture as then in effect;
(w) The subordination, if any, of the Debt Securities of the series
pursuant to the Indenture and any changes or additions to the provisions of
the Indenture relating to subordination;
(x) With regard to Debt Securities of the series that do not bear
interest, the dates for certain required reports to the Trustee; and
(y) Any other terms of the Debt Securities of the series (which terms
shall not be prohibited by the provisions of the Indenture).
The Prospectus Supplement will also describe any material United States
federal income tax consequences or other special considerations applicable to
the series of Debt Securities to which such Prospectus Supplement relates,
including those applicable to (a) Bearer Securities, (b) Debt Securities with
respect to which payments of principal, premium, or interest are determined with
reference to an index or formula (including changes in prices of particular
securities, currencies, or commodities), (c) Debt Securities with respect to
which principal, premium or interest is payable in a foreign or composite
currency, (d) Debt Securities that are issued at a discount below their stated
principal amount, bearing no interest or interest at a rate that at the time of
issuance is below market rates ("Original Issue Discount Debt Securities"), and
(e) variable rate Debt Securities that are exchangeable for fixed rate Debt
Securities.
Payments of interest on Registered Securities may be made at the option of
the Company by check mailed to the registered holders thereof or, if so provided
in the applicable Prospectus Supplement, at the option of a holder by wire
transfer to an account designated by such holder. Except as otherwise provided
in the applicable Prospectus Supplement, no payment on a Bearer Security will be
made by mail to an address in the United States or by wire transfer to an
account in the United States.
Unless otherwise provided in the applicable Prospectus Supplement,
Registered Securities may be transferred or exchanged at the office of the
Trustee at which its corporate trust business is principally administered in the
United States or at the office of the Trustee or the Trustee's agent in the
Borough of
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Manhattan, the City and State of New York, at which its corporate agency
business is conducted, subject to the limitations provided in the Indenture,
without the payment of any service charge, other than any tax or governmental
charge payable in connection therewith. Bearer Securities will be transferable
only by delivery. Provisions with respect to the exchange of Bearer Securities
will be described in the Prospectus Supplement relating to such Bearer
Securities.
All funds paid by the Company to a paying agent for the payment of
principal, premium or interest with respect to any Debt Securities that remain
unclaimed at the end of two years after such principal, premium or interest
shall have become due and payable will be repaid to the Company, and the holders
of such Debt Securities or any coupons appertaining thereto will thereafter look
only to the Company for payment thereof.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities. A Global Security is a Debt Security that
represents, and is denominated in an amount equal to the aggregate principal
amount of, all outstanding Debt Securities of a series, or any portion thereof,
in either case having the same terms, including the same original issue date,
date or dates on which principal and interest are due, and interest rate or
method of determining interest. A Global Security will be deposited with, or on
behalf of, a Depositary, which will be identified in the Prospectus Supplement
relating to such Debt Securities. Global Securities may be issued in either
registered or bearer form and in either temporary or definitive form. Unless and
until it is exchanged in whole or in part for the individual Debt Securities
represented thereby, a Global Security may not be transferred except as a whole
by the Depositary to a nominee of the Depositary, by a nominee of the Depositary
to the Depositary or another nominee of the Depositary, or by the Depositary or
any nominee of the Depositary to a successor Depositary or any nominee of such
successor.
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the Prospectus Supplement relating to such
Debt Securities. The Company anticipates that the following provisions will
generally apply to depositary arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security will credit, on its book-entry registration and transfer system, the
respective principal amounts of the individual Debt Securities represented by
such Global Security to the accounts of persons that have accounts with the
Depositary ("participants"). Such accounts shall be designated by the dealers or
underwriters with respect to such Debt Securities or, if such Debt Securities
are offered and sold directly by the Company or through one or more agents, by
the Company or such agents. Ownership of beneficial interests in a Global
Security will be limited to participants or persons that hold beneficial
interests through participants. Ownership of beneficial interests in such Global
Security will be shown on, and the transfer of that ownership will be effected
only through, records maintained by the Depositary (with respect to interests of
participants) or records maintained by participants (with respect to interests
of persons other than participants). The laws of some states require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limitations and laws may impair the ability to transfer
beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner or holder of such Global Security, such Depositary or nominee,
as the case may be, will be considered the sole owner or holder of the
individual Debt Securities represented by such Global Security for all purposes
under the Indenture. Except as provided below, owners of beneficial interests in
a Global Security will not be entitled to have any of the individual Debt
Securities represented by such Global Security registered in their names, will
not receive or be entitled to receive physical delivery of any of such Debt
Securities in definitive form, and will not be considered the owners or holders
thereof under the Indenture.
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Subject to the restrictions described under "Description of Debt
Securities--Limitations on Issuance of Bearer Securities," payments of
principal, premium and interest with respect to individual Debt Securities
represented by a Global Security will be made to the Depositary or its nominee,
as the case may be, as the registered owner or holder of such Global Security.
Neither the Company, the Trustee, any paying agent or registrar for such Debt
Securities, or any agent of the Company or the Trustee will have any
responsibility or liability for (a) any aspect of the records relating to or
payments made by the Depositary, its nominee or any participants on account of
beneficial interests in the Global Security or for maintaining, supervising, or
reviewing any records relating to such beneficial interests, (b) the payment to
the owners of beneficial interests in the Global Security of amounts paid to the
Depositary or its nominee, or (c) any other matter relating to the actions and
practices of the Depositary, its nominee or its participants. Neither the
Company, the Trustee, any paying agent or registrar for such Debt Securities, or
any agent of the Company or the Trustee will be liable for any delay by the
Depositary, its nominee or any of its participants in identifying the owners of
beneficial interests in the Global Security, and the Company and the Trustee may
conclusively rely on, and will be protected in relying on, instructions from the
Depositary or its nominee for all purposes.
The Company expects that the Depositary for a series of Debt Securities or
its nominee, upon receipt of any payment of principal, premium or interest with
respect to a definitive Global Security representing any of such Debt
Securities, will immediately credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Global Security, as shown on the records of the Depositary or its
nominee. The Company also expects that payments by participants to owners of
beneficial interests in such Global Security held through such participants will
be governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers and registered in street
name. Such payments will be the responsibility of such participants. Receipt by
owners of beneficial interests in a temporary Global Security of payments of
principal, premium, or interest with respect thereto will be subject to the
restrictions described under "Description of Debt Securities--Limitations on
Issuance of Bearer Securities."
If the Depositary for a series of Debt Securities is at any time unwilling,
unable or ineligible to continue as depositary, the Company shall appoint a
successor depositary. If a successor depositary is not appointed by the Company
within 90 days, the Company will issue individual Debt Securities of such series
in exchange for the Global Security representing such series of Debt Securities.
In addition, the Company may at any time and in its sole discretion, subject to
any limitations described in the Prospectus Supplement relating to such Debt
Securities, determine no longer to have Debt Securities of a series represented
by a Global Security and, in such event, will issue individual Debt Securities
of such series in exchange for the Global Security representing such series of
Debt Securities. Furthermore, if the Company so specifies with respect to the
Debt Securities of a series, an owner of a beneficial interest in a Global
Security representing Debt Securities of such series may, on terms acceptable to
the Company, the Trustee and the Depositary for such Global Security, receive
individual Debt Securities of such series in exchange for such beneficial
interests, subject to any limitations described in the Prospectus Supplement
relating to such Debt Securities. In any such instance, an owner of a beneficial
interest in a Global Security will be entitled to physical delivery of
individual Debt Securities of the series represented by such Global Security
equal in principal amount to such beneficial interest and to have such Debt
Securities registered in its name (if the Debt Securities are issuable as
Registered Securities). Individual Debt Securities of such series so issued will
be issued (a) as Registered Securities in denominations, unless otherwise
specified by the Company, of $1,000 and integral multiples thereof if the Debt
Securities are issuable as Registered Securities, (b) as Bearer Securities in
the denomination or denominations specified by the Company if the Debt
Securities are issuable as Bearer Securities, or (c) as either Registered
Securities or Bearer Securities as described above if the Debt Securities are
issuable in either form. See, however, "Description of Debt
Securities--Limitations on Issuance of Bearer Securities" for a description of
certain restrictions on the issuance of individual Bearer Securities in exchange
for beneficial interests in a bearer Global Security.
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LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
The Debt Securities of a series may be issued as Registered Securities
(which will be registered as to principal and interest in the register
maintained by the registrar for such Debt Securities) or Bearer Securities
(which will be transferable only by delivery). If such Debt Securities are
issuable as Bearer Securities, certain special limitations and considerations
will apply.
In compliance with United States federal income tax laws and regulations,
the Company and any underwriter, agent or dealer participating in an offering of
Bearer Securities will agree that, in connection with the original issuance of
such Bearer Securities and during the period ending 40 days after the issue
date, they will not offer, sell or deliver any such Bearer Security, directly or
indirectly, to a United States Person (as defined below) or to any person within
the United States, except to the extent permitted under United States Treasury
regulations.
Bearer Securities will bear a legend to the following effect: "Any United
States Person who holds this obligation will be subject to limitations under the
United States federal income tax laws, including the limitations provided in
Sections 165(j) and 1287(a) of the Internal Revenue Code." The sections referred
to in the legend provide that, with certain exceptions, a United States taxpayer
who holds Bearer Securities will not be allowed to deduct any loss with respect
to, and will not be eligible for capital gain treatment with respect to any gain
realized on the sale, exchange, redemption, or other disposition of, such Bearer
Securities.
For this purpose, "United States" includes the United States of America and
its possessions, and "United States Person" means a citizen or resident of the
United States, a corporation, partnership, or other entity created or organized
in or under the laws of the United States, or an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source.
Pending the availability of a definitive Global Security or individual
Bearer Securities, as the case may be, Debt Securities that are issuable as
Bearer Securities may initially be represented by a single temporary Global
Security, without interest coupons, to be deposited with a common depositary in
London for Morgan Guaranty Trust Company of New York, Brussels office, as
operator of the Euroclear System ("Euroclear"), or Centrale de Livraison de
Valeurs Mobilieres S.A. ("CEDEL") for credit to the accounts designated by or on
behalf of the purchasers thereof. Following the availability of a definitive
Global Security in bearer form, without coupons attached, or individual Bearer
Securities and subject to any further limitations described in the applicable
Prospectus Supplement, the temporary Global Security will be exchangeable for
interests in such definitive Global Security or for such individual Bearer
Securities, respectively, only upon receipt of a "Certificate of Non-U.S.
Beneficial Ownership," which is a certificate to the effect that a beneficial
interest in a temporary Global Security is owned by a person that is not a
United States Person or is owned by or through a financial institution in
compliance with applicable United States Treasury regulations. No Bearer
Security will be delivered in or to the United States. If so specified in the
applicable Prospectus Supplement, interest on a temporary Global Security will
be paid to each of Euroclear and CEDEL with respect to that portion of such
temporary Global Security held for its account, but only upon receipt as of the
relevant interest payment date of a Certificate of Non-U.S. Beneficial
Ownership.
SUBORDINATION
Debt Securities of a series may be subordinated ("Subordinated Debt
Securities") to Senior Indebtedness (as defined below) to the extent set forth
in the Prospectus Supplement relating thereto. The Company currently conducts
certain of its operations through subsidiaries, and the holders of Debt
Securities (whether or not Subordinated Debt Securities) will be structurally
subordinated to the creditors of the Company's subsidiaries.
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Subordinated Debt Securities of a series and any coupons appertaining
thereto will be subordinate in right of payment, to the extent and in the manner
set forth in the Indenture and the Prospectus Supplement relating to such
Subordinated Debt Securities, to the prior payment of all indebtedness of the
Company that is designated as "Senior Indebtedness" with respect to such series.
"Senior Indebtedness," with respect to any series of Subordinated Debt
Securities, will consist of (a) any and all amounts payable under or with
respect to the Company's "Bank Indebtedness" (defined as the Revolving Credit
Agreement, dated February 26, 1996, among the Company, The First National Bank
of Boston, Texas Commerce Bank and NationsBank of Texas, as amended or modified
from time to time) (b) indebtedness under the Mortgage Loan, and (c) any other
indebtedness of the Company that is designated in a resolution of the Company's
Board of Directors or the supplemental Indenture establishing such series as
Senior Indebtedness with respect to such series.
Upon any payment or distribution of assets of the Company to creditors or
upon a total or partial liquidation or dissolution of the Company or in a
bankruptcy, receivership or similar proceeding relating to the Company or its
property, holders of Senior Indebtedness shall be entitled to receive payment in
full in cash of the Senior Indebtedness before holders of Subordinated Debt
Securities shall be entitled to receive any payment of principal, premium or
interest with respect to the Subordinated Debt Securities, and until the Senior
Indebtedness is paid in full, any distribution to which holders of Subordinated
Debt Securities would otherwise be entitled shall be made to the holders of
Senior Indebtedness (except that such holders may receive shares of stock and
any debt securities that are subordinated to Senior Indebtedness to at least the
same extent as the Subordinated Debt Securities).
The Company may not make any payments of principal, premium or interest with
respect to Subordinated Debt Securities, make any deposit for the purpose of
defeasance of such Subordinated Debt Securities, or repurchase, redeem or
otherwise retire (except, in the case of Subordinated Debt Securities that
provide for a mandatory sinking fund, by the delivery of Subordinated Debt
Securities by the Company to the Trustee in satisfaction of the Company's
sinking fund obligation) any Subordinated Debt Securities if (a) any principal,
premium or interest with respect to Senior Indebtedness is not paid within any
applicable grace period (including at maturity) or (b) any other default on
Senior Indebtedness occurs and the maturity of such Senior Indebtedness is
accelerated in accordance with its terms, unless, in either case, the default
has been cured or waived and such acceleration has been rescinded, such Senior
Indebtedness has been paid in full in cash, or the Company and the Trustee
receive written notice approving such payment from the representatives of each
issue of "Designated Senior Indebtedness" (which will include the Bank
Indebtedness, the Mortgage Loan and any other specified issue of Senior
Indebtedness of at least $100 million). During the continuance of any default
(other than a default described in clause (a) or (b) above) with respect to any
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Company may not pay the Subordinated Debt Securities for a period (the "Payment
Blockage Period") commencing on the receipt by the Company and the Trustee of
written notice of such default from the representative of any Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period (a
"Blockage Notice"). The Payment Blockage Period may be terminated before its
expiration by written notice to the Trustee and the Company from the person who
gave the Blockage Notice, by repayment in full in cash of the Senior
Indebtedness with respect to which the Blockage Notice was given, or because the
default giving rise to the Payment Blockage Period is no longer continuing.
Unless the holders of such Senior Indebtedness shall have accelerated the
maturity thereof, the Company may resume payments on the Subordinated Debt
Securities after the expiration of the Payment Blockage Period. Not more than
one Blockage Notice may be given in any period of 360 consecutive days unless
the first Blockage Notice within such 360-day period is given by or on behalf of
holders of Designated Senior Indebtedness other than the Bank Indebtedness, in
which case, the representative of the Bank Indebtedness may give another
Blockage Notice within such period. In no event, however, may the total number
of days during which any Payment Blockage Period or Periods is in effect exceed
179 days in the aggregate during any period of 360
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consecutive days. After all Senior Indebtedness is paid in full and until the
Subordinated Debt Securities are paid in full, holders of the Subordinated Debt
Securities shall be subrogated to the rights of holders of Senior Indebtedness
to receive distributions applicable to Senior Indebtedness.
By reason of such subordination, in the event of insolvency, creditors of
the Company who are holders of Senior Indebtedness, as well as certain general
creditors of the Company, may recover more, ratably, than the holders of the
Subordinated Debt Securities.
EVENTS OF DEFAULT AND REMEDIES
The following events are defined in the Indenture as "Events of Default"
with respect to a series of Debt Securities:
(a) Default in the payment of any installment of interest on any Debt
Securities of that series or any payment with respect to the related
coupons, if any, as and when the same shall become due and payable (whether
or not, in the case of Subordinated Debt Securities, such payment shall be
prohibited by reason of the subordination provisions described above) and
continuance of such default for a period of 30 days;
(b) Default in the payment of principal or premium with respect to any
Debt Securities of that series as and when the same shall become due and
payable, whether at maturity, upon redemption, by declaration, upon required
repurchase, or otherwise (whether or not, in the case of Subordinated Debt
Securities, such payment shall be prohibited by reason of the subordination
provisions described above);
(c) Default in the payment of any sinking fund payment with respect to
any Debt Securities of that series as and when the same shall become due and
payable;
(d) Failure on the part of the Company to comply with the provisions of
the Indenture relating to consolidations, mergers and sales of assets;
(e) Failure on the part of the Company duly to observe or perform any
other of the covenants or agreements on the part of the Company in the Debt
Securities of that series, in any resolution of the Board authorizing the
issuance of that series of Debt Securities, in the Indenture with respect to
such series, or in any supplemental Indenture with respect to such series
(other than a covenant a default in the performance of which is otherwise
specifically dealt with) continuing for a period of 60 days after the date
on which written notice specifying such failure and requiring the Company to
remedy the same shall have been given to the Company by the Trustee or to
the Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the Debt Securities of that series at the time
outstanding;
(f) Indebtedness of the Company or any subsidiary of the Company is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default, the total amount of
such Indebtedness unpaid or accelerated exceeds $20 million or the United
States dollar equivalent thereof at the time, and such default remains
uncured or such acceleration is not rescinded for 10 days after the date on
which written notice specifying such failure and requiring the Company to
remedy the same shall have been given to the Company by the Trustee or to
the Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the Debt Securities of that series at the time
outstanding;
(g) The Company or any of its "Significant Subsidiaries" (defined as any
subsidiary of the Company that would be a "significant subsidiary" as
defined in Rule 405 under the Securities Act as in effect on the date of the
Indenture) shall (1) voluntarily commence any proceeding or file any
petition seeking relief under the United States Bankruptcy Code or other
federal or state bankruptcy, insolvency or similar law, (2) consent to the
institution of, or fail to controvert within the time and in
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the manner prescribed by law, any such proceeding or the filing of any such
petition, (3) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator or similar official for the Company or any
such Significant Subsidiary or for a substantial part of its property, (4)
file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (5) make a general assignment for the
benefit of creditors, (6) admit in writing its inability or fail generally
to pay its debts as they become due, (7) take corporate action for the
purpose of effecting any of the foregoing, or (8) take any comparable action
under any foreign laws relating to insolvency;
(h) The entry of an order or decree by a court having competent
jurisdiction for (1) relief with respect to the Company or any of its
Significant Subsidiaries or a substantial part of any of their property
under the United States Bankruptcy Code or any other federal or state
bankruptcy, insolvency, or similar law, (2) the appointment of a receiver,
trustee, custodian, sequestrator, or similar official for the Company or any
such Significant Subsidiary or for a substantial part of any of their
property (except any decree or order appointing such official of any
Significant Subsidiary pursuant to a plan under which the assets and
operations of such Significant Subsidiary are transferred to or combined
with another Significant Subsidiary or Subsidiaries of the Company or to the
Company), or (3) the winding-up or liquidation of the Company or any such
Significant Subsidiary (except any decree or order approving or ordering the
winding-up or liquidation of the affairs of a Significant Subsidiary
pursuant to a plan under which the assets and operations of such Significant
Subsidiary are transferred to or combined with another Significant
Subsidiary or Subsidiaries of the Company or to the Company), and such order
or decree shall continue unstayed and in effect for 60 consecutive days, or
any similar relief is granted under any foreign laws and the order or decree
stays in effect for 60 consecutive days;
(i) Any judgment or decree for the payment of money in excess of $20
million or the United States dollar equivalent thereof at the time is
entered against the Company or any Subsidiary of the Company by a court of
competent jurisdiction, which judgment is not covered by insurance, and is
not discharged and either (1) an enforcement proceeding has been commenced
by any creditor upon such judgment or decree or (2) there is a period of 60
days following the entry of such judgment or decree during which such
judgment or decree is not discharged or waived or the execution thereof
stayed and, in either case, such default continues for 10 days after the
date on which written notice specifying such failure and requiring the
Company to remedy the same shall have been given to the Company by the
Trustee or to the Company and the Trustee by the holders of at least 25% in
aggregate principal amount of the Debt Securities of that series at the time
outstanding; and
(j) Any other Event of Default provided with respect to Debt Securities
of that series.
An Event of Default with respect to one series of Debt Securities is not
necessarily an Event of Default for another series.
If an Event of Default described in clause (a), (b), (c), (d), (e), (f), (i)
or (j) above occurs and is continuing with respect to any series of Debt
Securities, unless the principal and interest with respect to all the Debt
Securities of such series shall have already become due and payable, either the
Trustee or the holders of not less than 25% in aggregate principal amount of the
Debt Securities of such series then outstanding may declare the principal amount
(or, if Original Issue Discount Debt Securities, such portion of the principal
amount as may be specified in such series) of and interest on all the Debt
Securities of such series due and payable immediately. If an Event of Default
described in clause (g) or (h) above occurs, unless the principal and interest
with respect to all the Debt Securities of all series shall have become due and
payable, the principal amount (or, if any series are Original Issue Discount
Debt Securities, such portion of the principal amount as may be specified in
such series) of and interest on all Debt Securities of all series then
outstanding shall become and be immediately due and payable without any
declaration or other act an the part of the Trustee or any holder of Debt
Securities.
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If an Event of Default occurs and is continuing, the Trustee shall be
entitled and empowered to institute any action or proceeding for the collection
of the sums so due and unpaid or to enforce the performance of any provision of
the Debt Securities of the affected series or the Indenture, to prosecute any
such action or proceeding to judgment or final decree, and to enforce any such
judgment or final decree against the Company or any other obligor on the Debt
Securities of such series. In addition, if there shall be pending proceedings
for the bankruptcy or reorganization of the Company or any other obligor on the
Debt Securities, or if a receiver, trustee, or similar official shall have been
appointed for its property, the Trustee shall be entitled and empowered to file
and prove a claim for the whole amount of principal, premium, and interest (or,
in the case of Original Issue Discount Debt Securities, such portion of the
principal amount as may be specified in the terms of such series) owing and
unpaid with respect to the Debt Securities. No holder of any Debt Security or
coupon of any series shall have any right to institute any action or proceeding
upon or under or with respect to the Indenture, for the appointment of a
receiver or trustee, or for any other remedy, unless (a) such holder previously
shall have given to the Trustee written notice of an Event of Default with
respect to Debt Securities of that series and of the continuance thereof, (b)
the holders of not less than 25% in aggregate principal amount of the
outstanding Debt Securities of that series shall have made written request to
the Trustee to institute such action or proceeding with respect to such Event of
Default and shall have offered to the Trustee such reasonable indemnity as it
may require against the costs, expenses, and liabilities to be incurred therein
or thereby, and (c) the Trustee, for 60 days after its receipt of such notice,
request, and offer of indemnity shall have failed to institute such action or
proceeding and no direction inconsistent with such written request shall have
been given to the Trustee pursuant to the provisions of the Indenture.
Prior to the acceleration of the maturity of the Debt Securities of any
series, the holders of a majority in aggregate principal amount of the Debt
Securities of that series at the time outstanding may, on behalf of the holders
of all Debt Securities and any related coupons of that series, waive any past
default or Event of Default and its consequences for that series, except (a) a
default in the payment of the principal, premium or interest with respect to
such Debt Securities or (b) a default with respect to a provision of the
Indenture that cannot be amended without the consent of each holder affected
thereby. In case of any such waiver, such default shall cease to exist, any
Event of Default arising therefrom shall be deemed to have been cured for all
purposes, and the Company, the Trustee, and the holders of the Debt Securities
of that series shall be restored to their former positions and rights under the
Indenture.
The Trustee shall, within 90 days after the occurrence of a default known to
it with respect to a series of Debt Securities, give to the holders of the Debt
Securities of such series notice of all uncured defaults with respect to such
series known to it, unless such defaults shall have been cured or waived before
the giving of such notice; provided, however, that except in the case of default
in the payment of principal, premium, or interest with respect to the Debt
Securities of such series or in the making of any sinking fund payment with
respect to the Debt Securities of such series, the Trustee shall be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the interest of the holders of such Debt Securities.
MODIFICATION OF THE INDENTURE
The Company and the Trustee may enter into supplemental Indentures without
the consent of the holders of Debt Securities for one or more of the following
purposes:
(a) To evidence the succession of another person to the Company pursuant
to the provisions of the Indenture relating to consolidations, mergers, and
sales of assets and the assumption by such successor of the covenants,
agreements, and obligations of the Company in the Indenture and in the Debt
Securities;
(b) To surrender any right or power conferred upon the Company by the
Indenture, to add to the covenants of the Company such further covenants,
restrictions, conditions or provisions for the
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protection of the holders of all or any series of Debt Securities as the
Board shall consider to be for the protection of the holders of such Debt
Securities, and to make the occurrence, or the occurrence and continuance,
of a default in any of such additional covenants, restrictions, conditions,
or provisions a default or an Event of Default under the Indenture
(provided, however, that with respect to any such additional covenant,
restriction, condition or provision, such supplemental Indenture may provide
for a period of grace after default, which may be shorter or longer than
that allowed in the case of other defaults, may provide for an immediate
enforcement upon such default, may limit the remedies available to the
Trustee upon such default, or may limit the right of holders of a majority
in aggregate principal amount of any or all series of Debt Securities to
waive such default);
(c) To cure any ambiguity or to correct or supplement any provision
contained in the Indenture, in any supplemental Indenture, or in any Debt
Securities that may be defective or inconsistent with any other provision
contained therein, to convey, transfer, assign, mortgage or pledge any
property to or with the Trustee, or to make such other provisions in regard
to matters or questions arising under the Indenture as shall not adversely
affect the interests of any holders of Debt Securities of any series;
(d) To modify or amend the Indenture in such a manner as to permit the
qualification of the Indenture or any supplemental Indenture under the Trust
Indenture Act as then in effect;
(e) To add to or change any of the provisions of the Indenture to
provide that Bearer Securities may be registerable as to principal, to
change or eliminate any restrictions on the payment of principal or premium
with respect to Registered Securities or of principal, premium or interest
with respect to Bearer Securities, or to permit Registered Securities to be
exchanged for Bearer Securities, so long as any such action does not
adversely affect the interests of the holders of Debt Securities or any
coupons of any series in any material respect or permit or facilitate the
issuance of Debt Securities of any series in uncertificated form;
(f) To comply with the provisions of the Indenture relating to
consolidations, mergers and sales of assets;
(g) In the case of Subordinated Debt Securities, to make any change in
the provisions of the Indenture relating to subordination that would limit
or terminate the benefits available to any holder of Senior Indebtedness
under such provisions (but only if such holder of Senior Indebtedness
consents to such change);
(h) To add guarantees with respect to the Debt Securities or to secure
the Debt Securities;
(i) To make any change that does not adversely affect the rights of any
holder;
(j) To add to, change or eliminate any of the provisions of the
Indenture with respect to one or more series of Debt Securities, so long as
any such addition, change or elimination not otherwise permitted under the
Indenture shall (1) neither apply to any Debt Security of any series created
prior to the execution of such supplemental Indenture and entitled to the
benefit of such provision nor modify the rights of the holders of any such
Debt Security with respect to such provision or (2) become effective only
when there is no such Debt Security outstanding;
(k) To evidence and provide for the acceptance of appointment by a
successor or separate Trustee with respect to the Debt Securities of one or
more series and to add to or change any of the provisions of the Indenture
as shall be necessary to provide for or facilitate the administration of the
Indenture by more than one Trustee; and
(l) To establish the form or terms of Debt Securities and coupons of any
series, as described under "Description of Debt Securities--General" above.
With the consent of the holders of a majority in aggregate principal amount
of the outstanding Debt Securities of each series affected thereby, the Company
and the Trustee may from time to time and at any
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<PAGE>
time enter into a supplemental Indenture for the purpose of adding any
provisions to, changing in any manner, or eliminating any of the provisions of
the Indenture or of any supplemental Indenture or modifying in any manner the
rights of the holder of the Debt Securities of such series; provided, however,
that without the consent of the holders of each Debt Security so affected, no
such supplemental Indenture shall (a) reduce the percentage in principal amount
of Debt Securities of any series whose holders must consent to an amendment, (b)
reduce the rate of or extend the time for payment of interest on any Debt
Security or coupon or reduce the amount of any payment to be made with respect
to any coupon, (c) reduce the principal of or extend the stated maturity of any
Debt Security, (d) reduce the premium payable upon the redemption of any Debt
Security or change the time at which any Debt Security may or shall be redeemed,
(e) make any Debt Security payable in a currency other than that stated in the
Debt Security, (f) in the case of any Subordinated Debt Security or coupons
appertaining thereto, make any change in the provisions of the Indenture
relating to subordination that adversely affects the rights of any holder under
such provisions, (g) release any security that may have been granted with
respect to the Debt Securities, (h) make any change in the provisions of the
Indenture relating to waivers of defaults or amendments that require unanimous
consent, (i) change any obligation of the Company provided for in the Indenture
to pay additional interest with respect to Bearer Securities, or (j) limit the
obligation of the Company to maintain a paying agency outside the United States
for payment on Bearer Securities or limit the obligation of the Company to
redeem certain Bearer Securities.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with or merge with or into any person, or
convey, transfer or lease all or substantially all of its assets, unless the
following conditions have been satisfied:
(a) Either (1) the Company shall be the continuing person in the case of
a merger or (2) the resulting, surviving or transferee person, if other than
the Company (the "Successor Company"), shall be a corporation organized and
existing under the laws of the United States, any State, or the District of
Columbia and shall expressly assume all of the obligations of the Company
under the Debt Securities and coupons and the Indenture;
(b) Immediately after giving effect to such transaction (and treating
any indebtedness that becomes an obligation of the Successor Company or any
subsidiary of the Company as a result of such transaction as having been
incurred by the Successor Company or such subsidiary at the time of such
transaction), no default or Event of Default would occur or be continuing;
(c) The Successor Company waives any right to redeem any Bearer Security
under circumstances in which the Successor Company would be entitled to
redeem such Bearer Security but the Company would not have been so entitled
to redeem if the consolidation, merger, conveyance, transfer, or lease had
not occurred; and
(d) The Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that such consolidation,
merger, or transfer complies with the Indenture.
SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
The Indenture shall generally cease to be of any further effect with respect
to a series of Debt Securities if (a) the Company has delivered to the Trustee
for cancellation all Debt Securities of such series (with certain limited
exceptions) or (b) all Debt Securities and coupons of such series not
theretofore delivered to the Trustee for cancellation shall have become due and
payable, or are by their terms to become due and payable within one year or are
to be called for redemption within one year, and the Company shall have
deposited with the Trustee as trust funds the entire amount sufficient to pay at
maturity or upon redemption all such Debt Securities and coupons (and if, in
either case, the Company shall also pay or cause to be paid all other sums
payable under the Indenture by the Company).
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<PAGE>
In addition, the Company shall have a "legal defeasance option" (pursuant to
which it may terminate, with respect to the Debt Securities of a particular
series, all of its obligations under such Debt Securities and the Indenture with
respect to such Debt Securities) and a "covenant defeasance option" (pursuant to
which it may terminate, with respect to the Debt Securities of a particular
series, its obligations with respect to such Debt Securities under certain
specified covenants contained in the Indenture). If the Company exercises its
legal defeasance option with respect to a series of Debt Securities, payment of
such Debt Securities may not be accelerated because of an Event of Default. If
the Company exercises its covenant defeasance option with respect to a series of
Debt Securities, payment of such Debt Securities may not be accelerated because
of an Event of Default related to the specified covenants.
The Company may exercise its legal defeasance option or its covenant
defeasance option with respect to the Debt Securities of a series only if (a)
the Company irrevocably deposits in trust with the Trustee cash or U.S.
Government Obligations (as defined in the Indenture) for the payment of
principal, premium and interest with respect to such Debt Securities to maturity
or redemption, as the case may be, (b) the Company delivers to the Trustee a
certificate from a nationally recognized firm of independent accountants
expressing their opinion that the payments of principal and interest when due
and without reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in such
amounts as will be sufficient to pay the principal, premium and interest when
due with respect to all the Debt Securities of such series to maturity or
redemption, as the case may be, (c) 123 days pass after the deposit is made and
during the 123-day period no default described in clause (g) or (h) under
"Description of Debt Securities--Events of Default and Remedies" with respect to
the Company occurs that is continuing at the end of such period, (d) no Default
has occurred and is continuing on the date of such deposit and after giving
effect thereto, (e) the deposit does not constitute a default under any other
agreement binding on the Company and, in the case of Subordinated Debt
Securities, is not prohibited by the provisions of the Indenture relating to
subordination, (f) the Company delivers to the Trustee an opinion of counsel to
the effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company Act of
1940, (g) the Company shall have delivered to the Trustee an opinion of counsel
addressing certain federal income tax matters relating to the defeasance, and
(h) the Company delivers to the Trustee an officers' certificate and an opinion
of counsel, each stating that all conditions precedent to the defeasance and
discharge of the Debt Securities of such series as contemplated by the Indenture
have been complied with.
The Trustee shall hold in trust cash or U.S. Government Obligations
deposited with it as described above and shall apply the deposited cash and the
proceeds from deposited U.S. Government Obligations to the payment of principal,
premium, and interest with respect to the Debt Securities and coupons of the
defeased series. In the case of Subordinated Debt Securities and coupons related
thereto, the money and U.S. Government Obligations so held in trust will not be
subject to the subordination provisions of the Indenture.
THE TRUSTEE
The Company may appoint a separate Trustee for any series of Debt
Securities. As used herein in the description of a series of Debt Securities,
the term "Trustee" refers to the Trustee appointed with respect to such series
of Debt Securities.
The Company may maintain banking and other commercial relationships with the
Trustee and its affiliates in the ordinary course of business, and the Trustee
may own Debt Securities.
17
<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 the shares of Common Stock offered by this Prospectus will be duly
authorized, fully paid and nonassessable. They will also be 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 Maryland General Corporation Law (the "MGCL"), a corporation
generally cannot dissolve, amend its charter, merge, sell all or substantially
all of its assets, engage in a share exchange or engage in similar transactions
outside the ordinary course of business unless approved by the affirmative vote
of 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, subject to the rights of any series of Preferred Stock then
outstanding,
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<PAGE>
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
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which a
Prospectus Supplement may relate. Specific terms of any series of Preferred
Stock offered by a Prospectus Supplement will be described in the Prospectus
Supplement relating to such series. The description set forth below is subject
to and qualified in its entirety by reference to the articles supplementary
establishing a particular series of Preferred Stock, which will be filed with
the SEC in connection with the offering of such series.
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 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 offered hereby will be described in a
Prospectus Supplement relating to such series and 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 to 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.
The Preferred Stock will, when issued, be fully paid and nonassessable.
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<PAGE>
The transfer agent, registrar, and dividend disbursement agent for a series
of Preferred Stock will be selected by the Company and will be described in the
applicable Prospectus Supplement. The registrar for shares of Preferred Stock
will send notices to stockholders of any meetings at which holders of the
Preferred Stock have the right to elect directors of the Company or to vote on
any other matter.
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 cancelled or redeemed in
connection with the Merger and no shares of the Series A Preferred Stock are
outstanding.
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
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<PAGE>
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 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
nine 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, 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
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<PAGE>
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 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 if necessary, the size of the Board will
be reduced 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 herein) 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
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<PAGE>
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.
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.
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
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<PAGE>
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.
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 being 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
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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 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 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 to a particular
Excepted Holder, may result in certain shares of Equity Stock held by such
Excepted Holder becoming Shares-in-Trust. The Excepted Holder Agreement entered
into with Prudential and Ameritech provide 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 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.
DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Debt Securities,
Preferred Stock or Common Stock. Warrants may be issued independently or
together with Debt Securities, Preferred Stock, or Common Stock offered by any
Prospectus Supplement and may be attached to or separate from any such Offered
Securities. Each series of Warrants will be issued under a separate warrant
agreement (a "Warrant Agreement") to be entered into between the Company and a
bank or trust company, as warrant agent (the "Warrant Agent"). The Warrant Agent
will act solely as an agent of the Company in connection with the Warrants and
will not assume any obligation or relationship of agency or trust for or with
any holders or beneficial owners of Warrants. The following summary of certain
provisions of the Warrants does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the provisions of the Warrant
Agreement that will be filed with the SEC in connection with the offering of
such Warrants.
DEBT WARRANTS
The Prospectus Supplement relating to a particular issue of Debt Warrants
will describe the terms of such Debt Warrants, including the following: (a) the
title of such Debt Warrants; (b) the offering price of such Debt Warrants, if
any; (c) the aggregate number of such Debt Warrants; (d) the designation and
terms of the Debt Securities purchasable upon exercise of such Debt Warrants;
(e) if applicable, the designation and terms of the Debt Securities with which
such Debt Warrants are issued and the number of such Debt Warrants issued with
each such Debt Security; (f) if applicable, the date from and after which such
Debt Warrants and any Debt Securities issued therewith will be separately
transferable; (g) the principal amount of Debt Securities purchasable upon
exercise of a Debt Warrant and the price at which such principal
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<PAGE>
amount of Debt Securities may be purchased upon exercise (which price may be
payable in cash, securities, or other property); (h) the date on which the right
to exercise such Debt Warrants shall commence and the date on which such right
shall expire; (i) if applicable, the minimum or maximum amount of such Debt
Warrants that may be exercised at any one time; (j) whether the Debt Warrants
represented by the Debt Warrant certificates or Debt Securities that may be
issued upon exercise of the Debt Warrants will be issued in registered or bearer
form; (k) information with respect to book-entry procedures, if any; (l) the
currency or currency units in which the offering price, if any, and the exercise
price are payable; (m) if applicable, a discussion of material United States
federal income tax considerations; (n) the antidilution provisions of such Debt
Warrants, if any; (o) the redemption or call provisions, if any, applicable to
such Debt Warrants; and (p) any additional terms of the Debt Warrants, including
terms, procedures, and limitations relating to the exchange and exercise of such
Debt Warrants.
STOCK WARRANTS
The Prospectus Supplement relating to any particular issue of Preferred
Stock Warrants or Common Stock Warrants will describe the terms of such
Warrants, including the following: (a) the title of such Warrants; (b) the
offering price for such Warrants, if any; (c) the aggregate number of such
Warrants; (d) the designation and terms of the Common Stock or Preferred Stock
purchasable upon exercise of such Warrants; (e) if applicable, the designation
and terms of the Offered Securities with which such Warrants are issued and the
number of such Warrants issued with each such Offered Security; (f) if
applicable, the date from and after which such Warrants and any Offered
Securities issued therewith will be separately transferable; (g) the number of
shares of Common Stock or Preferred Stock purchasable upon exercise of a Warrant
and the price at which such shares may be purchased upon exercise (which price
may be payable in cash, securities, or other property); (h) the date on which
the right to exercise such Warrants shall commence and the date on which such
right shall expire; (i) if applicable, the minimum or maximum amount of such
Warrants that may be exercised at any one time; (j) the currency or currency
units in which the offering price, if any, and the exercise price are payable;
(k) if applicable, a discussion of material United States federal income tax
considerations; (l) the antidilution provisions of such Warrants, if any; (m)
the redemption or call provisions, if any, applicable to such Warrants; and (n)
any additional terms of the Warrants, including terms, procedures, and
limitations relating to the exchange and exercise of such Warrants.
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>
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 beneficially 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 the Selling Stockholder assuming the
sale of all the Common Stock which may be offered hereunder.
<TABLE>
<CAPTION>
AMOUNT AND
PERCENTAGE OF
SHARES OF MAXIMUM COMMON STOCK
COMMON STOCK NUMBER OF SHARES BENEFICIALLY OWNED
BENEFICIALLY OF COMMON STOCK AFTER THE
OWNED PRIOR TO WHICH MAY BE OFFERING(1)
NAME OF SELLING STOCKHOLDER AND RELATIONSHIP TO COMPANY OFFERING SOLD HEREUNDER AMOUNT - %
- ---------------------------------------------------------- -------------- ----------------- -------------------
<S> <C> <C> <C>
Hunt Acquisitions Partners, Ltd.(2) ...................... 1,027,582 1,027,582 --
1445 Ross at Field Dallas, Texas 75202
The Prudential Insurance Company of America(3) . 7,491,650 7,491,650 --
8 Campus Drive Parsippany, New Jersey 07054
The Prudential Variable Contract Real Property 506,894 506,894 --
Partnership ............................................
8 Campus Drive Parsippany, New Jersey 07054
Strategic Performance Fund--II, Inc. ..................... 1,013,788 1,013,788 --
8 Campus Drive Parsippany, New Jersey 07054
Multi-Market Special Investment Fund II .................. 493,642 493,642 --
J.P. Morgan Investment Management, Inc. 522 Fifth Avenue
New York, New York 10036
Commingled Trust Fund Special Situation Investments--Real 493,642 493,642 --
Estate .................................................
J.P. Morgan Investment Management, Inc. 522 Fifth Avenue
New York, New York 10036
USAA Real Estate Company ................................. 1,148,430 1,148,430 --
8000 Robert F. McDermott Freeway
Suite 600 San Antonio, Texas 98230
State Street Bank and Trust Company, as Trustee for 8,888,598 8,888,598 --
Ameritech Pension Trust(4) .............................
One Enterprise Drive
Solomon Willard Building (W6C)
North Quincy, Massachusetts 02171
OTR(5) ................................................... 649,351 649,351 --
275 East Broad Street
Columbus, Ohio 43215
</TABLE>
- ------------------------
(1) 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.
(2) Also reporting beneficial ownership of the same shares are Ray L. Hunt and
RLH Investments, Inc. Their address is the same as that of Hunt.
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<PAGE>
(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) Assumes that Ameritech converts all its shares of Series B Preferred Stock
into shares of Common Stock on a one-share-for-one-share basis (the initial
conversion rate).
(5) Assumes that OTR converts all its shares of Series B Preferred Stock into
shares of Common Stock on a one-share-for-one-share basis (the initial
conversion rate).
The Company and the Selling Stockholders are parties to various agreements
(the "Registration Rights Agreements"), a copies of which are incorporated by
reference as an exhibit to the Registration Statement of which this Prospectus
is a part, pursuant to which the Company agreed, among other things, to register
the offer and sale of the Selling Stockholder Offered Securities under the
Securities Act, and the Selling Stockholders and the Company agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act in connection with the sale of the shares pursuant to a
registered public offering contemplated by the Registration Rights Agreements.
Pursuant to the Registration Rights Agreements, the Selling Stockholders are
required to pay the underwriting discounts and commissions and expenses of their
legal counsel and accountants associated with the offering contemplated hereby,
and the Company is generally required to pay all of the other expenses directly
associated with the offering, including, without limitation, the cost of
registering the shares offered hereby, including applicable registration and
filing fees, printing expenses and applicable expenses for legal counsel and
accountants incurred by the Company. The Company may from time to time grant
registration rights to other stockholders of the Company. The names of and other
information regarding any such stockholders will be set forth in a Prospectus
Supplement pursuant to which any Selling Stockholder Offered Securities of such
stockholders are offered for sale.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities in or outside the United States
through underwriters, brokers or dealers, directly to one or more purchasers, or
through agents. Any of the Selling Stockholders may sell any of the Selling
Stockholder Offered Securities through underwriters, either separately or in
connection with offerings of Offered Securities by the Company or through
brokers or dealers either separately in connection with block trades by the
Selling Stockholders or in connection with offerings of Offered Securities by
the Company. The Prospectus Supplement with respect to the Offered Securities
will set forth the terms of the offering of the Offered Securities, including
the name or names of any underwriters, dealers, or agents, the purchase price of
the Offered Securities and the proceeds to the Company from such sale, any
delayed delivery arrangements, any underwriting discounts and other items
constituting underwriters' compensation, the initial public offering price, any
discounts or concessions allowed or reallowed or paid to dealers, and any
securities exchanges on which the Offered Securities may be listed.
If underwriters are used in the sale, the Offered Securities will be
acquired 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. Unless otherwise set forth
in the Prospectus Supplement relating thereto, the obligations of the
underwriters or agents to purchase the Offered Securities will be subject to
conditions precedent and the underwriters will be obligated to purchase all the
Offered Securities if any are purchased. The initial public offering
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<PAGE>
price and any discounts or concessions allowed or reallowed or paid to dealers
may be changed from time to time.
The Company may also sell the Offered Securities pursuant to one or more
standby agreements with one or more underwriters in connection with the call for
redemption of a specified class or series of any securities of the Company or
any subsidiary of the Company. In such a standby agreement, the underwriter or
underwriters would agree either (a) to purchase from the Company up to the
number of shares of Common Stock that would be issuable upon conversion of all
of the shares of such class or series of securities of the Company or its
subsidiary at an agreed price per share of Common Stock or (b) to purchase from
the Company up to a specified dollar amount of Offered Securities at an agreed
price per Offered Security which price may be fixed or may be established by
formula or other method and which may or may not relate to market prices of the
Common Stock or any other security of the Company then outstanding. The
underwriter or underwriters would also agree, if applicable, to convert into
Common Stock or other security of the Company any securities of such class or
series held or purchased by the underwriter or underwriters. The underwriter or
underwriters may assist in the solicitation of conversions by holders of such
class or series of securities.
If dealers are used in the sale of Offered Securities with respect to which
this Prospectus is delivered, the Company, or with respect to any block trades
the Selling Stockholders, will sell such Offered Securities to the dealers as
principals. The dealers may then resell such Offered Securities to the public at
varying prices to be determined by such dealers at the time of resale. The name
of the dealers and the terms of the transaction will be set forth in the
Prospectus Supplement relating thereto.
Offered Securities may be sold directly by the Company or through agents
designated by the Company from time to time at fixed prices, which may be
changed, or at varying prices determined at the time of sale. Any agent involved
in the offer or sale of the Offered Securities with respect to which this
Prospectus is delivered will be named, and any commissions payable by the
Company to such agent will be set forth, in the Prospectus Supplement relating
thereto. Unless otherwise indicated in the Prospectus Supplement, any such agent
will be acting on a best efforts basis for the period of its appointment.
In connection with the sale of the Offered Securities, underwriters or
agents may receive compensation from the Company or the Selling Stockholders or
from purchasers of Offered Securities for 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 Company or 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 the 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
Selling Stockholder 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 Selling Stockholder Offered
Securities to be sold; (c) the price at which such Selling Stockholder 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, as supplemented or amended;
(f) any change in the identity of the Selling Stockholder, and (g) other facts
material to the transaction.
If so indicated in the Prospectus Supplement, the Company will authorize
agents, underwriters or dealers to solicit offers from certain types of
institutions to purchase Offered Securities from the Company at the public
offering price set forth in the Prospectus Supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date in the
future. Such contracts will be subject only to
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<PAGE>
those conditions set forth in the Prospectus Supplement, and the Prospectus
Supplement will set forth the commission payable for solicitation of such
contracts.
Agents, dealers and underwriters may be entitled under agreements entered
into with the Company 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.
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.
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)
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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
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
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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. 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 10% 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
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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 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. The Company's next stockholders' meeting is expected to take place
in mid-1997.
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 (i) actual receipt of an improper benefit or profit in money,
property or services or (ii) 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
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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 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, of which 13,596,370 shares were outstanding at March 31,
1997. 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
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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
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.
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.
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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 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-qualifying income from foreclosure property, it will be subject to tax
at the highest corporate rate on such income. Fourth, if the Company has net
income from prohibited transactions (which are, in general, certain sales or
other dispositions of property held primarily for sale to customers in the
ordinary course of business, other than foreclosure property), such income will
be subject to a 100% tax. Fifth, if the Company should fail to satisfy 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
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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 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 a 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 who 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
tests, 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
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"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 (f) "qualified temporary investment income" (described
below).
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 manages 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
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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 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%
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 thirty percent 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
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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 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
the prior year and were payable to stockholders of record 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 meet
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 rates 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
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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 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 1993, 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
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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 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
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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.
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.
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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.
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.
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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: (i) one-fifth or more but less than one-third;
(ii) one-third or more but less than a majority; or (iii) a majority of all
voting power. Control Shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained 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, as amended.
"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.
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"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 of 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 to
be 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.
"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 USAA and each of the Merged Trusts, and the
concurrent restructuring or retirement of the Trusts' indebtedness.
47
<PAGE>
"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.
"RULE 144" means Rule 144 adopted by the SEC under the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"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 VI, 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.
48
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER 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 OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS
SUPPLEMENT OR IN THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward Looking Statements................................................ S-2
The Company............................................................... S-3
Risk Factors.............................................................. S-3
Recent Developments....................................................... S-10
Use of Proceeds........................................................... S-10
Price Range of Common Stock and Distribution Policy....................... S-10
Federal Income Tax Considerations......................................... S-11
Underwriting.............................................................. S-12
Experts................................................................... S-12
Legal Matters............................................................. S-13
PROSPECTUS
Available Information..................................................... 2
Incorporation by Reference................................................ 2
The Company............................................................... 4
Use of Proceeds........................................................... 4
Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.......... 4
Description of Debt Securities............................................ 5
Description of Stock...................................................... 18
Description of Warrants................................................... 25
Selling Stockholders...................................................... 27
Plan of Distribution...................................................... 28
Certain Provisions of Maryland Law and of the Charter and Bylaws.......... 30
Federal Income Tax Considerations......................................... 35
Experts................................................................... 45
Legal Matters............................................................. 45
Glossary.................................................................. 46
</TABLE>
414,508 SHARES
[LOGO]
MERIDIAN INDUSTRIAL
TRUST, INC.
COMMON STOCK
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PROSPECTUS SUPPLEMENT
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LEGG MASON WOOD WALKER
INCORPORATED
DECEMBER 19, 1997
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