Filed Pursuant to Rule 424(b)(5)
Under the Securities Act of 1933,
As Amended.
Commission File No. 333-18235
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 23, 1997)
3,000,000 SHARES
[LOGO]
8.48% SERIES A CUMULATIVE REDEEMABLE
PREFERRED SHARES OF BENEFICIAL INTEREST
LIQUIDATION PREFERENCE $25.00 PER SHARE
------------------
CenterPoint Properties Trust (the "Company") is a self administered and self
managed real estate investment trust ("REIT") focused on the acquisition,
development, redevelopment, management and ownership of warehouse/industrial
property located in the Greater Chicago area, which is the largest
warehouse/industrial market in the United States.
This Prospectus Supplement relates to the offering by the Company of its
8.48% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest,
par value $.001 per share (the "Series A Preferred Shares"). Dividends on the
Series A Preferred Shares are cumulative from the date of original issue and are
payable quarterly on or about the 30th day of January, April, July and October
of each year, commencing on January 30, 1998 at the rate of 8.48% per annum of
the $25.00 liquidation preference (equivalent to $2.12 per share). See
"Description of Series A Preferred Shares -- Dividends." To help ensure that the
Company qualifies as a REIT, transfer of Series A Preferred Shares is restricted
and ownership by any person is limited to 9.8% of the outstanding shares of
beneficial interest, subject to certain exceptions. See "Description of Shares
of Beneficial Interest -- Restrictions on Transfer" in the accompanying
Prospectus.
Except in certain circumstances relating to the Company's qualification as a
real estate investment trust, the Series A Preferred Shares are not redeemable
prior to October 30, 2002. On and after October 30, 2002, the Series A Preferred
Shares may be redeemed for cash at the option of the Company, in whole or in
part, at a redemption price of $25.00 per share, plus accrued and unpaid
dividends, if any, thereon to the redemption date. The redemption price (other
than the portion thereof consisting of accrued and unpaid dividends) shall be
payable solely from amounts derived from the sale proceeds of other shares of
beneficial interest of the Company, which may include other series of the
Company's preferred shares of beneficial interest, par value $.001 per share
(the "Preferred Shares"). The Series A Preferred Shares have no stated maturity
and will not be subject to any sinking fund or mandatory redemption and will not
be convertible into any other securities of the Company. See "Description of
Series A Preferred Shares -- Redemption."
The Company intends to file an application to list the Series A Preferred
Shares on the New York Stock Exchange (the "NYSE"). If so approved, trading of
the Series A Preferred Shares on the NYSE is expected to commence within a
30-day period after the initial delivery of the Series A Preferred Shares. While
the Underwriters have advised the Company that they intend to make a market in
the Series A Preferred Shares prior to the commencement of trading on the NYSE,
they are under no obligation to do so and no assurance can be given that a
market for the Series A Preferred Shares will exist prior to commencement of
trading. See "Underwriting."
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE SERIES A PREFERRED SHARES OFFERED HEREBY.
---------------------
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 SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
Per Share............................................. $25.00 $.75875 $24.24125
Total................................................. $75,000,000 $2,276,250 $72,723,750
(1) Plus accrued dividends, if any, from the date of original issue.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting estimated expenses of $250,000 payable by the Company.
------------------------------
The Series A Preferred Shares are offered by the Underwriters subject to
prior sale, to withdrawal, cancellation or modification of the offer without
notice, to delivery and acceptance by the Underwriters and to certain further
conditions. It is expected that delivery of certificates for the Series A
Preferred Shares will be made at the offices of Lehman Brothers Inc., New York,
New York on or about November 10, 1997.
------------------------------
LEHMAN BROTHERS
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
THE ROBINSON-HUMPHREY COMPANY
SMITH BARNEY INC.
WHEAT FIRST BUTCHER SINGER
November 4, 1997
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES A PREFERRED
SHARES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN
THE SERIES A PREFERRED SHARES, AND MAY BID FOR AND PURCHASE THE SERIES A
PREFERRED SHARES IN THE OPEN MARKET, IN CONNECTION WITH THIS OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
SUMMARY
THE FOLLOWING INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS
QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING ELSEWHERE IN
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS OR INCORPORATED
THEREIN BY REFERENCE. CERTAIN TERMS USED BUT NOT DEFINED HEREIN ARE DEFINED IN
THE ACCOMPANYING PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES
HEREIN TO THE "COMPANY" ARE TO CENTERPOINT PROPERTIES TRUST, A MARYLAND REAL
ESTATE INVESTMENT TRUST, AND ITS SUBSIDIARIES AND, PRIOR TO OCTOBER 15, 1997, TO
CENTERPOINT PROPERTIES CORPORATION, A MARYLAND CORPORATION (THE "CORPORATION"),
WHICH, PURSUANT TO A REORGANIZATION OF THE CORPORATION FROM A MARYLAND
CORPORATION TO A MARYLAND REAL ESTATE INVESTMENT TRUST, WAS MERGED WITH AND INTO
CENTERPOINT PROPERTIES TRUST ON OCTOBER 15, 1997 WITH CENTERPOINT PROPERTIES
TRUST AS THE SURVIVING ENTITY. SEE "RECENT DEVELOPMENTS -- REORGANIZATION."
THIS PROSPECTUS SUPPLEMENT CONTAINS AND THE ACCOMPANYING PROSPECTUS CONTAINS OR
INCORPORATES BY REFERENCE FORWARD-LOOKING STATEMENTS 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 COULD DIFFER MATERIALLY FROM
THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS. SEE "RISK FACTORS" ON PAGE 4
OF THE ACCOMPANYING PROSPECTUS FOR A DISCUSSION OF CERTAIN MATTERS THAT MIGHT
CAUSE SUCH A DIFFERENCE.
THE COMPANY
The Company is a self administered and self managed real estate investment
trust ("REIT") focused on the acquisition, development, redevelopment,
management and ownership of warehouse/industrial property located in the Greater
Chicago area, which is the largest warehouse/industrial market in the United
States. As of September 30, 1997, the Company owned and managed a portfolio of
81 warehouse/industrial properties, containing approximately 17.3 million square
feet of space. The Company believes it is the largest owner and operator of
warehouse/industrial property in Greater Chicago. See "The Company."
This Prospectus Supplement relates to the offering by the Company of
3,000,000 Series A Preferred Shares (the "Offering"). The Company's common
shares of beneficial interest, $.001 par value per share (the "Common Shares"),
are currently listed on the NYSE under the symbol "CNT."
THE OFFERING
Securities Offered . . . . . 3,000,000 shares of 8.48% Series A Cumulative
Redeemable Preferred Shares of Beneficial
Interest (the "Series A Preferred Shares").
The Company intends to file an application to
list the Series A Preferred Shares on the
NYSE, and, if so approved for listing,
trading is expected to commence within a
30-day period after the initial delivery of
the Series A Preferred Shares. See
"Underwriting."
Ranking. . . . . . . . . . . With respect to the payment of dividends and
amounts upon liquidation, the Series A
Preferred Shares will rank senior to the
Common Shares and the Class B Common Shares
of Beneficial Interest in the Company, which
are the only shares of beneficial interest of
the Company currently outstanding. See
"Description of Series A Preferred
Shares--Dividends" and "--Liquidation
Preference."
Use of Proceeds. . . . . . . The Company intends to use the net proceeds
of the Offering to reduce amounts outstanding
under its $135 million unsecured credit
facility co-led by The First National Bank of
Chicago and Lehman Brothers Holdings Inc.,
which is an affiliate of one of the
Underwriters under this Prospectus
Supplement. See "Use of Proceeds."
S-3
Dividends. . . . . . . . . . Dividends on the Series A Preferred Shares
are cumulative from the date of original
issue and are payable quarterly on or about
the 30th day of January, April, July and
October of each year, commencing on January
30, 1998 at the rate of 8.48% per annum of
the $25.00 liquidation preference (equivalent
to $2.12 per share). See "Description of
Series A Preferred Shares -- Dividends."
Liquidation Rights . . . . . Equivalent to $25.00 per Series A Preferred
Share, plus an amount equal to accrued and
unpaid dividends (whether or not declared).
See "Description of Series A Preferred Shares
-- Liquidation Preference."
Redemption . . . . . . . . . Except in certain circumstances relating to
the preservation of the Company's
qualification as a REIT (see "Federal Income
Tax Considerations Relating to the Company's
REIT Status" in the accompanying Prospectus),
the Series A Preferred Shares are not
redeemable prior to October 30, 2002. On and
after October 30, 2002, the Series A
Preferred Shares will be redeemable for cash
at the option of the Company, in whole or in
part, at a redemption price of $25.00 per
share, plus dividends accrued and unpaid to
the redemption date. The redemption price
(other than the portion thereof consisting of
accrued and unpaid dividends) shall be
payable solely out of the sale proceeds of
other shares of beneficial interest of the
Company, which may include other series of
Preferred Shares, and from no other source.
See "Description of Series A Preferred Shares
-- Redemption."
Voting Rights. . . . . . . . Holders of Series A Preferred Shares will
generally have no voting rights, except as
required by law. However, whenever dividends
on any Series A Preferred Shares are in
arrears for six or more quarterly periods,
the holders of such shares (voting separately
as a class with all other series of parity
preferred shares of beneficial interest upon
which like voting rights have been conferred
and are exercisable) will be entitled to vote
for the election of two additional trustees
of the Company until all dividends
accumulated on such Series A Preferred Shares
have been fully paid or declared and a sum
sufficient for the payment thereof set aside
for payment. In addition, certain changes to
the terms of the Series A Preferred Shares
that would be materially adverse to the
rights of holders of the Series A Preferred
Shares cannot be made without the affirmative
vote of holders of two-thirds of the
outstanding Series A Preferred Shares. See
"Description of Series A Preferred Shares --
Voting Rights."
Conversion . . . . . . . . . The Series A Preferred Shares are not
convertible into or exchangeable for any
other property or securities of the Company.
Ownership Limits . . . . . . The Series A Preferred Shares will be subject
to certain restrictions on ownership intended
to preserve the Company's status as a REIT
for federal income tax purposes. See
"Description of Shares of Beneficial Interest
--Restrictions on Transfer" in the
accompanying Prospectus.
S-4
SUMMARY SELECTED FINANCIAL DATA
The following table sets forth certain summary operating, balance sheet and
other data of the Company and should be read in conjunction with "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the financial statements of the Company and
related notes thereto incorporated by reference in the accompanying Prospectus.
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------- -----------------------
1997 1996 1996 1995
---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
OPERATING DATA
Revenues $ 61,419 $ 44,067 $ 63,330 $ 46,952
Expenses:
Operating expenses excluding
depreciation and amortization (1) (20,848) (13,968) (20,751) (14,773)
Depreciation and other
amortization (10,767) (7,572) (10,648) (8,456)
General and administrative (2,225) (1,655) (2,567) (2,150)
Interest expense:
Interest incurred, net (7,559) (7,204) (9,865) (11,563)
Amortization of deferred
financing costs (589) (892) (1,127) (1,150)
-------- -------- -------- --------
Operating income 19,431 12,776 18,372 8,860
Other income (expense) (2) 126 (177) (100) (16)
-------- -------- -------- --------
Income before extraordinary item 19,557 12,599 18,272 8,844
Extraordinary item, early
extinguishment of debt 0 (1,430) (3,331) (632)
-------- -------- -------- --------
Net income 19,557 11,169 14,941 8,212
Net income per share 1.04 0.78 1.00 .82
BALANCE SHEET DATA
Investment in real estate
(before accumulated depreciation) $538,713 $382,269 $429,034 $317,460
Net investment in real estate 498,307 354,978 398,828 295,884
Total assets 629,322 418,676 451,206 334,866
Total debt 281,905 151,228 177,349 145,271
Shareholders' equity 314,652 250,873 248,114 168,320
OTHER DATA
Funds from Operations (3) $ 30,994 $ 21,414 $ 30,445 $ 20,492
EBITDA (4) 38,472 28,267 39,912 30,013
Net Cash Flow:
Operating activities 23,521 17,716 29,551 16,473
Investing activities (162,157) (69,833) (111,554) (82,557)
Financing activities 151,432 61,252 80,194 68,542
Distributions 23,071 17,320 24,065 15,953
Return of capital portion
of distribution 3,690 8,835 12,280 8,554
Number of properties included
in operating results (5) 87 70 75 69
------------------
(1) Operating expenses include real estate taxes, repairs and maintenance,
insurance and utilities and exclude interest, depreciation and amortization
and general and administrative expenses.
(2) Other expense includes gains and losses on property dispositions in 1996,
and other miscellaneous operating and non-operating items.
S-5
(3) Funds from Operations represents net income (loss), excluding extraordinary
items, sales of (or adjustments to basis of) properties plus depreciation
and amortization, convertible subordinated debenture interest and
amortization of deferred financing costs on convertible subordinated
debentures. Funds from operations is computed as follows:
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------- -----------------------
1997 1996 1996 1995
---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
Net income $19,557 $11,169 $14,941 $ 8,212
Extraordinary item -- 1,430 3,331 632
Depreciation and amortization 10,767 7,572 10,648 8,456
Amortization of deferred financing
costs, debentures 37 53 67 135
Convertible subordinated debenture
interest 757 1,088 1,385 3,057
(Gain) loss on disposition of
properties (124) 102 73 --
------- ------- ------- -------
Funds from Operations $30,994 $21,414 $30,445 $20,492
------- ------- ------- -------
------- ------- ------- -------
------------------
Management of the Company believes that Funds from Operations is helpful to
investors as a measure of the performance of equity REIT shares because,
along with cash flows from operating activities, financing activities and
investing activities, it provides investors an understanding of the ability
of the Company to incur and service debt and to make capital expenditures.
Funds from Operations does not represent cash flow from operations as
defined by generally accepted accounting principles ("GAAP"), should not be
considered by the reader as an alternative to net income as an indicator of
the Company's operating performance or to cash flows as a measure of
liquidity, and is not indicative of cash available to fund all cash flow
needs. Investors are cautioned that Funds from Operations, as calculated
by the Company, may not be comparable to similarly titled but differently
calculated measures for other REITs. The National Association of Real
Estate Investment Trusts (NAREIT) defines funds from operations as net
income before extraordinary items plus depreciation and amortization less
the amortization of deferred financing costs.
(4) Earnings before interest, income taxes, depreciation and amortization.
Management believes that EBITDA is helpful to investors as an indication of
property operations, because it excludes costs of financing and non-cash
depreciation and amortization amounts. EBITDA does not represent cash
flows from operations as defined by GAAP, should not be considered by the
reader as an alternative to net income as an indicator of the Company's
operating performance, and is not indicative of cash available to fund all
cash flow needs.
(5) The increase in the number of properties in 1996 reflects the acquisition
of 14 properties and the disposition of 8 properties throughout 1996; and
the increase in the number of properties in 1997 reflects the acquisition
of 11 properties, the completion of 3 build-to-suits, and the disposition
of 2 properties through September 30, 1997. See "Additional Information
Regarding Properties."
S-6
CAPITALIZATION
The following table sets forth the capitalization of the Company on an
historical basis as of September 30, 1997 and as adjusted to give effect to the
issuance of the Series A Preferred Shares in the Offering and the application of
the net proceeds from the Offering (assuming net proceeds of $72.7 million).
See "Use of Proceeds." The information set forth in the table should be read in
conjunction with the summary selected financial information presented elsewhere
in this Prospectus Supplement and the financial statements of the Company and
related notes thereto incorporated by reference in the accompanying Prospectus.
HISTORICAL AS ADJUSTED (1)
(IN THOUSANDS)
DEBT:
Line of credit . . . . . . . . . . . . . . . . . . . . . $103,250 $ 30,594
Mortgage notes payable . . . . . . . . . . . . . . . . . 166,865 166,865
Convertible subordinated debentures payable. . . . . . . 11,790 11,790
. . . . . . . . . . . . . . . . . . . . . . . . . . . . -------- --------
Total Debt . . . . . . . . . . . . . . . . . . . . . . . 281,905 209,249
SHAREHOLDERS' EQUITY:
Preferred shares of beneficial interest, $.001 par value;
10,000,000 shares authorized; 3,000,000 Series A
Preferred Shares, with an aggregate liquidation
preference of $75 million, issued and outstanding on
an as adjusted basis. . . . . . . . . . . . . . . . . . 3
Common shares of beneficial interest, $.001 par value,
47,727,273 shares authorized; 16,762,713 issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . 17 17
Class B common shares of beneficial interest, $.001 par
value, 2,272,727 shares authorized; 2,272,727 issued
and outstanding . . . . . . . . . . . . . . . . . . . . 2 2
Additional paid-in capital . . . . . . . . . . . . . . . 346,377 419,030
Retained earnings (deficit). . . . . . . . . . . . . . . (31,241) (31,241)
Unearned compensation - restricted stock . . . . . . . . (503) (503)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . -------- --------
Total shareholders' equity . . . . . . . . . . . . . . . 314,652 387,308
. . . . . . . . . . . . . . . . . . . . . . . . . . . . -------- --------
Total capitalization . . . . . . . . . . . . . . . . . . 596,557 596,557
. . . . . . . . . . . . . . . . . . . . . . . . . . . . -------- --------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . -------- --------
(1) Excludes (i) 2,272,727 Common Shares reserved for issuance upon conversion
of the Class B Common Shares, (ii) 646,027 Common Shares reserved for
issuance upon conversion of the Company's 8.22% Convertible Subordinated
Debentures, (iii) 998,144 Common Shares reserved for issuance under the
Company's Dividend Reinvestment and Stock Purchase Plan and (iv) 1,636,363
Common Shares reserved for issuance under the Company's 1993 Stock Option
Plan, as amended, 1995 Restricted Stock Incentive Plan and 1995 Director
Stock Plan.
S-7
THE COMPANY
The Company is a self administered and self managed real estate investment
trust focused on the acquisition, development, redevelopment, management and
ownership of warehouse/industrial property located in Greater Chicago (defined
as the area within a 150-mile radius of Chicago, including Milwaukee, Wisconsin
and South Bend, Indiana), which, according to a ranking of markets published by
CB Commercial/Torto Wheaton Research, is the largest warehouse/industrial market
in the United States. The Company's election of REIT status, filed with its
1994 federal income tax return, was effective as of January 1, 1994.
The Company, a Maryland real estate investment trust, was founded in 1984
and completed its initial public offering of securities in December 1993 (the
"IPO"). Between completion of the IPO and September 30, 1997, the Company has
increased the size of its warehouse/industrial portfolio by 12 million square
feet or 227% by acquiring (net of dispositions) 46 fully-leased
warehouse/industrial properties. On October 15, 1997, the Company completed a
corporate reorganization pursuant to which the Company was converted from a
Maryland corporation to a Maryland real estate investment trust. See "Recent
Developments -- Reorganization."
As of September 30, 1997, the Company owned and managed a portfolio of 81
warehouse/industrial properties, containing approximately 17.3 million square
feet of space. Based on published statistics regarding square feet of space
owned and managed by other firms and publicly available information filed with
the Commission, as well as its knowledge and experience in the market, the
Company believes it is the largest owner and operator of warehouse/industrial
property in Greater Chicago. The Company also owns and manages three retail
properties, one office property and one apartment property. The Company's
properties are currently 89% leased, with the warehouse/industrial properties
occupied by 160 tenants in diverse industries with no tenant accounting for the
lease of more than 9% of the total square footage of the Company's
warehouse/industrial portfolio. Substantially all of the Company's properties
have been constructed or renovated during the past ten years. See "Additional
Information Regarding Properties."
The Company's principal executive office is located at 401 North Michigan
Avenue, 30th Floor, Chicago, Illinois 60611, and its telephone number is (312)
346-5600.
RECENT DEVELOPMENTS
REORGANIZATION
On October 15, 1997, the Company completed a reorganization pursuant to
which it converted from a Maryland corporation to a Maryland real estate
investment trust by means of a merger of CenterPoint Properties Corporation (the
"Corporation") with and into the Company, which prior to the merger was a
wholly-owned subsidiary of the Corporation, with the Company as the surviving
entity. The reorganization was effected to eliminate the obligation to pay
substantial franchise taxes each year in the State of Illinois. Pursuant to a
Plan of Reorganization, which was approved by the stockholders of the
Corporation at a Special Meeting of Stockholders held on October 1, 1997, each
issued and outstanding share of common stock of the Corporation, par value $.001
per share (the "Common Stock"), was converted into one Common Share of the
Company; each outstanding share of Class B common stock of the Corporation was
converted into one Class B common share of beneficial interest in the Company;
and the outstanding principal amount of the Corporation's 8.22% Convertible
Subordinated Debentures due 2004 was assumed by the Company and converted into
the same principal amount of 8.22% Convertible Subordinated Debentures due 2004
of the Company (the "Company Debentures"). The Common Shares and the Company
Debentures currently trade on the NYSE in the same manner as the Common Stock
and debentures of the Corporation, respectively, traded on the NYSE prior to
consummation of the merger.
RECENT ACQUISITIONS
- On August 28, 1997, an 888,335 square foot warehouse/industrial
building located in Elk Grove Village, Illinois, was purchased from
Sears Development Co. The purchase price of approximately $18.0
million was funded with a $16.0 million advance on the Company's line
of credit co-led by The First National Bank of Chicago and Lehman
Brothers Holdings Inc. and the balance was funded from working
capital.
S-8
- Two industrial/warehouse properties, totaling 254,796 square feet,
were purchased during September 1997. On September 3, 1997, a fully
leased 80,076 square foot facility in Chicago, Illinois, was purchased
from Specialty Steel Products, Inc. for approximately $1.7 million,
which amount was funded with working capital. On September 11, 1997,
a 174,720 square foot facility in Bedford Park, Illinois was purchased
in a sale/leaseback transaction for approximately $3.7 million from
Petrie Retail, Inc. The acquisition was funded with a $3.0 million
advance on the Company's line of credit co-led by The First National
Bank of Chicago and Lehman Brothers Holdings Inc. and the balance was
funded from working capital.
- To date, four warehouse/industrial properties have been purchased in
October 1997. A 1,750,000 square foot facility, located in McCook,
Illinois, was purchased from General Motors Corporation on October 2,
1997 in a sale/leaseback transaction. The purchase price of
approximately $5.9 million was funded with an advance on the Company's
line of credit co-led by The First National Bank of Chicago and Lehman
Brothers Holdings Inc. On October 9, 1997, a 242,690 square foot
fully leased building, located in Bedford Park, Illinois, was
purchased for approximately $5.4 million from Sterling Logistics Real
Estate Corporation. The acquisition was funded with an advance on the
Company's line of credit co-led by The First National Bank of Chicago
and Lehman Brothers Holdings Inc. A fully leased 41,976 square foot
property was purchased on October 15, 1997 for approximately $1.4
million. The property, located in Elk Grove Village, Illinois, was
purchased from NBD Trust Company, as trustee, and was funded with
working capital. On October 23, 1997, the Company acquired an
industrial property for $2.9 million located in Romeoville, Illinois
which was funded with working capital.
RECENT FINANCINGS
- On September 18, 1997, the Company completed a $55 million tax-exempt
bond financing for the development of the Company's O'Hare Express air
freight center. CenterPoint O'Hare, L.L.C. ("CenterPoint O'Hare"), a
subsidiary of the Company, is the lessee of approximately 50 acres of
land at O'Hare International Airport and is constructing the O'Hare
Express Center, a 825,000 square foot air freight forwarding and
warehouse complex, anticipated to be constructed in three phases over
a three-year period. The first building, a 138,000 square foot
facility constructed for Burlington Air Express, was completed in
October, 1996. The Company arranged for the tax-exempt financing to
complete the remainder of the O'Hare Express Center through the
issuance of City of Chicago Variable/Fixed Rate Demand Special
Facilities Airport Revenue Bonds (CenterPoint O'Hare L.L.C. Project)
Series 1997 in the principal amount of $55 million with an initial
term of 35 years which may be extended under certain circumstances.
The tax-exempt bonds were issued at par with an initial variable
interest rate of 4% and were credit enhanced by an initial letter of
credit issued by The First National Bank of Chicago for an initial
term of 5 years. The Company guaranteed CenterPoint O'Hare's
obligations under the reimbursement agreement pursuant to which the
initial letter of credit was issued. In order to maintain the
tax-exempt status of the bonds, the term of the Ground Lease, under
which CenterPoint O'Hare leases the approximately 50 acres at O'Hare
International Airport from the City of Chicago, was shortened from 60
years to approximately 45 years but provides CenterPoint O'Hare with
an option to extend the term for an additional 13 years.
S-9
ADDITIONAL INFORMATION REGARDING PROPERTIES
The following table sets forth certain information regarding the
warehouse/industrial properties owned by the Company as of September 30,
1997. The table does not include buildings under development aggregating
2,457,984 square feet, buildings in which the Company holds investments in
the form of mortgages aggregating 521,000 square feet and
non-warehouse/industrial properties aggregating 664,301 square feet.
Yr. Built/ Pct. of
Last GLA(2) No. of GLA Major Investment
Rehab(1) (Sq. Ft.) Tenants Leased (3) Tenants Type
-------- --------- ------- ---------- ------- ----
1997 Investments
- ----------------
7400 S. Narrangansett Ave., Bedford Park, IL 1976 174,720 1 100% Petrie Retail, Inc. Acquisition
3133 E. 106th, Chicago, IL 1971 80,076 1 100% Ryder Logistics Acquisition
2525 Busse Road, Elk Grove Village, IL 1975 888,335 5 64% U.S. Postal Service Acquisition
1 Allsteel Drive, Montgomery, IL 1960 1,008,000 4 78% DSC Logistics, Inc. Acquisition
6464 W. 51st Street, Forest View, IL 1973 208,713 4 100% TruVu /National Wood Acquisition
6500 W. 51st Street, Forest View, IL 1975 185,295 1 100% Berkshire Furnitur Acquisition
7447 S. Central Avenue, Bedford Park, IL 1975 118,218 1 100% Farrington Acquisition
7525 S. Sayre Avenue, Bedford Park, IL 1981 123,178 2 100% Transportation Acquisition
Federal Express
2901 Centre Circle, Downers Grove, IL 1979 21,056 1 100% DHL Airways Acq/Redev.
2003-2201 S. 114th Street, West Allis, WI 1965 243,350 2 100% TransAm Warehouse Acquisition
3145 Central Avenue, Waukegan, IL 1958/1996 300,000 2 100% OMC/Stone Container Acquisition
------- ----
3,350,941 24 84%
Previously Owned Properties
- ---------------------------
O'Hare Express Phase A-2 1996/1997 120,971 2 100% DHL/Air Canada Build-to-Suit
O'Hare Express Phase B-1 1996/1997 171,685 1 100% Alliance Airlines Build-to-Suit
2801-2881 Busse Road, Elk Grove Village, IL 1996/1997 251,076 2 100% Madden Communications/ Build-to-Suit
Learning Curve
1500 W. Dundee Road, Arlington Heights, IL 1969/1997 500,000 2 30% Honeywell, Inc. Acquisition
425 South 37th Avenue, St. Charles, IL 1975/1996 103,106 1 100% Power Packaging, Inc. Acquisition
16400 West 103rd Street, Lemont, IL 1983/1995 63,612 1 100% Royal Scott Floor Acquisition
Covering
911 Commerce, Buffalo Grove, IL 1993 118,009 2 100% VWR Scientific Acquisition
10740 West Grand Ave., Franklin Park, IL 1965/1971 66,000 1 100% American Logistics Acquisition
Services
400 North Wolf Road, Northlake, IL 1956/1997 1,527,543 5 100% Select Beverage Acq./Redev.
7501 North 81st Street, Milwaukee, WI 1987 183,958 1 100% Roundy's Acquisition
1800 Bruning Drive, Itasca, IL 1975/1978 202,000 1 100% Oco Bruning Acquisition
1501 Pratt Ave., Elk Grove Village, IL 1973/1996 151,900 2 100% Magnetek/Time Definite Acquisition
875 Fargo Ave., Elk Grove Village, IL 1980 82,368 1 100% Cam Fran Tool Co. Acquisition
1100 Chase Ave., Elk Grove Village, IL 1980/1996 41,651 1 100% Swingles Acquisition
2553 N. Edgington, Franklin Park, IL 1967/1995 274,303 4 100% General Motors Acquisition
6600 River Road, Hodgkins, IL 1968/1997 630,410 1 100% GATX Logistics Acquisition
4400 South Kolmar Ave., Chicago, IL 1966 92,000 1 100% Home Depot Acquisition
10601 Seymour Ave., Franklin Park, IL 1963/1970 677,000 0 0% Vacant Acq./Redev.
11601 S. Central Ave., Alsip, IL 1970 259,000 1 100% Masco Corporation Acquisition
11701 S. Central Ave., Alsip, IL 1970 300,000 1 100% Dart Warehouse Acquisition
850 Arthur Ave., Elk Grove Village, IL 1971/1973 42,490 1 100% Arcon Fasteners Acquisition
1827 North Bendix, South Bend, IN 1964/1990 199,730 1 100% Solvay Automotive Acquisition
1810 Industrial Drive, Libertyville , IL 1977 85,000 1 100% Uline Inc. Acquisition
1700 Butterfield Road, Mundelein, IL 1976 60,000 1 100% Bowater PLC Acquisition
1733 Downs Drive, West Chicago, IL 1975 145,528 1 100% Crown Cork & Seal Acquisition
1645 Downs Drive, West Chicago, IL 1975 129,390 1 100% CP&P Management Acquisition
825 Hawthorne Lane, West Chicago, IL 1974 158,772 4 83% Georgia Paper Tube Acquisition
800-1000 Chase Ave., Elk Grove Village, IL 1972 341,848 1 100% General Tire Acquisition
750 East 110th Street, Chicago, IL 1966 71,510 1 100% Federated Metals Acq./Redev.
2600 Elmhurst Road, Elk Grove Village, IL 1995 105,000 1 100% B & K Industries Build-to-Suit
1700 West Hawthorne, West Chicago, IL 1959/1969 735,196 1 100% LaGrou Distribution Acquisition
8901 102nd St., Pleasant Prairie, WI 1990 105,637 1 100% Wrought Washer Mfg. Acquisition
S-10
Yr. Built/ Pct. of
Last GLA(2) No. of GLA Major Investment
Rehab(1) (Sq. Ft.) Tenants Leased(3) Tenants Type
-------- --------- ------- --------- ------- ----
8200 100th St., Pleasant Prairie, WI 1990 148,472 1 100% Orion Corp. Acquisition
1015 East State Pkwy, Schaumburg, IL 1980 19,576 0 0% Vacant Acquisition
1300 Northpoint Rd., Waukegan, IL 1994 65,000 1 100% Coamed Sterilization Acquisition
900 W. University Drive, Arlington Heights, 1974 86,254 1 100% Hudson Respiratory Care Acquisition
IL
7001 Adams St., Willowbrook, IL 1994 25,324 1 100% Baldwin Technology, Inc. Build-to-Suit
745 Birginal Road, Bensenville, IL 1974 113,266 1 100% Factory Card Outlet Acquisition
1 Wildlife Way, Long Grove, IL 1994 54,100 1 100% Sysmex Corporation Redevelop.
21399 Torrence Avenue, Sauk Village, IL 1987 372,835 1 100% Dependable Storage, Inc. Acquisition
2764 Golfview, Naperville, IL 1985 20,022 1 100% Parraday Acquisition
1020 Frontenac, Naperville, IL 1980 99,684 1 93% Ekco Acquisition
820 Frontenac, Naperville, IL 1988 153,604 1 86% Sterling Logistics Acquisition
1800 Industrial Drive, Libertyville, IL 1992/1994 175,196 1 100% Contempo Design Acquisition
1120 Frontenac, Naperville, IL 1980/1994 153,902 1 100% Solar Press Acquisition
800 Enterprise, Naperville, IL 1985 34,984 1 100% GNB Industrial Battery Acquisition
920 Frontenac, Naperville, IL 1987 121,200 1 100% Lucent Technologies Acquisition
1651 Frontenac, Naperville, IL 1978 30,414 1 100% Odermath U.S.A. Acquisition
720 Frontenac, Naperville, IL 1991 171,935 2 100% Jackson Storage Acquisition
1500 Shore Road, Naperville, IL 1985 43,230 2 100% Spring Ram Acquisition
1560 Frontenac, Naperville, IL 1987 85,608 2 100% Sanco Supplies Acquisition
1510 Frontenac, Naperville, IL 1986 104,886 1 100% Echlin Acquisition
1150 Shore Road, Naperville, IL 1985 30,184 1 100% Embossed Graphics Acquisition
1250 Carolina Drive, West Chicago, IL 1988 150,000 2 100% WinCup Build-to-Suit
1400 Busse Road, Elk Grove Village, IL 1975 148,436 10 47% R.D. Niven Acquisition
5619-25 W. 115th Street, Alsip, IL 1974 396,979 5 100% Tribune Corporation Redev.
825 Tollgate Road, Elgin, IL 1989 83,122 2 100% Hydrox Chemical Co. Acquisition
5990 Touhy Avenue, Niles, IL 1960/1993 295,964 3 100% HaLo Advertising Redev.
620-630 Butterfield Road, Mundelein, IL 1990/1993 24,237 1 100% Allstate Build-to-Suit
2339-41 Ernie Krueger Court, Waukegan, IL 1990/1993 54,450 1 100% Whalen Moving & Storage Build-to-Suit
1319 Marquette Drive, Romeoville, IL 1990 36,349 1 100% Heritage Environmental Build-to-Suit
1850 Greenleaf, Elk Grove Village, IL 1965 58,627 1 100% R.D. Niven & Assoc. Acquisition
900 East 103rd Street, Chicago, IL 1910/1990 575,462 3 100% Ryerson Steel/Amerail Redev.
Corp.
4501 Augusta Boulevard, Chicago, IL 1942/1989 432,661 5 62% Astron Corporation Redev.
2743 Armstrong Court, Des Plaines, IL 1989 53,325 1 100% Alliance Airlines Build-to-Suit
245 Beinoris Drive, Wood Dale, IL 1988/1993 11,989 1 100% Romano's Tile Co. Build-to-Suit
1520 Pratt Avenue, Elk Grove Village, IL 1968 62,546 1 100% Schiffmayer Plastics Acquisition
425 W. 151st Street, East Chicago, IN 1913/1991 349,236 10 90% Inland Steel Redev.
201 Mississippi Street, Gary, IN 1945/1988 1,052,173 16 95% Wheeling Pittsburgh Redev.
Steel
950-970 Tower Road, Mundelein , IL 1979/1990 38,359 3 100% Amerikal Paper Co. Build-to-Suit
1201 Lunt Avenue, Elk Grove Village, IL 1971 7,380 1 100% Pullmax Inc. Acquisition
--------
Subtotal 13,937,714 136 90%
---------- ---
Total Portfolio 17,288,655 160 89%
---------- ---
----------------------
(1) First date is the date of original construction; second date is year of
last redevelopment and/or expansion. If only one date appears, it is the
acquisition date, and the property has not been redeveloped or expanded.
(2) "GLA" means gross leasable area.
(3) Percentage of GLA Leased includes square footage for properties under
redevelopment which square footage is not currently leasable. Excluding
square footage for such properties under redevelopment, the total portfolio
Percentage of GLA Leased is 97%.
S-11
LEASE EXPIRATIONS
The following table shows as of September 30, 1997 scheduled lease
expirations for the Company's warehouse/industrial properties for the next
twelve years, assuming that no tenants exercise renewal options:
AVERAGE % OF TOTAL
BASE RENT PROPERTIES % OF 1997
GLA OF ANNUALIZED PER SQ.FT. GLA BASE RENT
NO. OF EXPIRING BASE RENT UNDER REPRESENTED REPRESENTED
LEASES LEASES EXPIRING EXPIRING BY EXPIRING BY EXPIRING
EXPIRING (SQ. FT.) LEASES LEASES LEASES LEASES
YEAR ENDING DECEMBER 31
1997 . . . . . . . . . . . . . . . . . . 12 492,739 $2,307,060 $4.68 2.90% 4.10%
1998 . . . . . . . . . . . . . . . . . . 28 2,254,852 8,565,220 3.80 13.10% 15.30%
1999 . . . . . . . . . . . . . . . . . . 24 2,136,544 6,747,015 3.16 12.40% 12.00%
2000 . . . . . . . . . . . . . . . . . . 30 2,220,391 8,462,820 3.81 12.90% 15.10%
2001 . . . . . . . . . . . . . . . . . . 14 992,732 3,908,412 3.94 5.70% 7.00%
2002 . . . . . . . . . . . . . . . . . . 16 2,128,965 7,005,564 3.29 12.30% 12.50%
2003 . . . . . . . . . . . . . . . . . . 8 709,285 2,929,428 4.13 4.10% 5.20%
2004 . . . . . . . . . . . . . . . . . . 7 1,233,710 4,247,628 3.44 7.10% 7.60%
2005 . . . . . . . . . . . . . . . . . . 5 905,941 2,489,666 2.75 5.20% 4.40%
2006 . . . . . . . . . . . . . . . . . . 7 1,560,437 5,347,908 3.43 9.00% 9.50%
2007 . . . . . . . . . . . . . . . . . . 4 367,537 2,759,028 7.51 2.10% 4.90%
2008 . . . . . . . . . . . . . . . . . . 2 90,000 542,304 6.03 0.50% 1.00%
thereafter . . . . . . . . . . . . . . . 3 235,661 795,544 3.38 1.40% 1.40%
-- --------- --------- ---- ------ -------
160 15,328,794 $56,107,598 $3.66 88.70% 100.00%
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Prospectus Supplement, the
accompanying Prospectus and other materials filed or to be filed by the Company
with the Commission and incorporated by reference into the accompanying
Prospectus contain or will contain forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act. Such
statements include information relating to property acquisitions and other
business development activities, future capital expenditures, financing sources
and availability and the effects of regulations (including environmental
regulation) and competition. Such forward-looking information involves
important risks and uncertainties that could significantly affect anticipated
results in the future and, accordingly, such results may differ from those
expressed in any forward-looking statements contained in this Prospectus
Supplement or the accompanying Prospectus or incorporated by reference in such
Prospectus. These risks and uncertainties include, but are not limited to,
uncertainties affecting real estate businesses generally (such as entry into new
leases, renewals of leases and dependence on tenants' business operations),
risks relating to acquisition, construction and development activities, possible
environmental liabilities, risks relating to leverage, debt service and
obligations with respect to the payment of dividends (including availability of
financing terms acceptable to the Company and sensitivity of the Company's
operations to fluctuations in interest rates), the potential for the need to use
borrowings to make distributions necessary for the Company to qualify as a REIT
or to fund the payment of dividends on the Series A Preferred Shares, dependence
on the primary market in which the Company's properties are located, the
existence of complex regulations relating to the Company's status as a REIT and
the potential adverse impact of market interest rates on the cost of borrowings
by the Company and on the market price for the Company's securities.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Series A Preferred
Shares offered hereby, before deducting expenses payable by the Company, are
estimated to be $72.7 million. The Company intends to use all of the net
proceeds to reduce amounts outstanding under its $135 million unsecured credit
facility co-led by The First National Bank of Chicago and Lehman Brothers
Holdings Inc., which is an affiliate of one of the Underwriters under this
Prospectus Supplement. The $135 million unsecured line of credit currently
bears interest at LIBOR plus 1.15% for LIBOR borrowings and First Chicago's
corporate base rate plus .15% for other borrowings and matures on October 24,
1999.
S-12
DESCRIPTION OF SERIES A PREFERRED SHARES
This description of the particular terms of the Series A Preferred Shares
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Preferred Shares set forth in the
accompanying Prospectus, to which description reference is hereby made.
GENERAL
The Company is authorized to issue Preferred Shares in one or more series,
with such terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption, in each case, if any, as are permitted by
Maryland law and as the Board of Trustees of the Company may determine by
adoption of articles supplementary to the Company's Declaration of Trust (the
"Declaration of Trust"), without any further vote or action by the Company's
shareholders. The Series A Preferred Shares are a series of the Company's
Preferred Shares.
The following summary of the terms and provisions of the Series A Preferred
Shares does not purport to be complete and is qualified in its entirety by
reference to the pertinent sections of the Declaration of Trust and the articles
supplementary creating the Series A Preferred Shares (the "Designating
Amendment"), each of which is available from the Company.
The Company intends to file an application to list the Series A Preferred
Shares on the NYSE. If so approved for listing, trading of the Series A
Preferred Shares on the NYSE is expected to commence within a 30-day period
after the initial delivery of the Series A Preferred Shares.
Title 8 of the Corporations and Associations Article of the Annotated Code
of Maryland, the statute governing Maryland real estate investment trusts, and
the Declaration of Trust provide that no shareholder shall be personally liable
for any obligation of the Company.
RANK
The Series A Preferred Shares will, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of the Company, rank (a)
senior to all classes or series of Common Shares and to all equity securities
ranking junior to such Series A Preferred Shares; (b) on a parity with all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank on a parity with the Series A Preferred Shares;
and (c) junior to all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank senior to the Series A
Preferred Shares. The term "equity securities" does not include convertible
debt securities for this purpose.
DIVIDENDS
Holders of Series A Preferred Shares shall be entitled to receive, when and
as authorized by the Board of Trustees, out of funds legally available for the
payment of dividends, cumulative preferential cash dividends at the rate of
8.48% per annum of the $25.00 liquidation preference (equivalent to $2.12 per
share). Such dividends shall be cumulative from the date of original issue and
shall be payable quarterly in arrears on or before the 30th day of each January,
April, July and October of each year or, if not a business day, the next
succeeding business day (each, a "Dividend Payment Date"). The first dividend
will be paid on January 30, 1998. Such dividend and any dividend payable on the
Series A Preferred Shares for any partial dividend period will be computed on
the basis of a 360-day year consisting of twelve 30-day months. Dividends will
be payable to holders of record as they appear in the shareholder records of the
Company at the close of business on the applicable record date, which shall be
the 15th day of the calendar month in which the applicable Dividend Payment Date
falls or on such other date designated by the Board of Trustees of the Company
for the payment of dividends that is not more than 30 nor less than 10 days
prior to such Dividend Payment Date (each, a "Dividend Record Date").
No dividends on the Series A Preferred Shares shall be authorized by the
Board of Trustees of the Company or paid or set apart for payment by the Company
at such time as the terms and provisions of any agreement of the Company,
including any agreement relating to its indebtedness, prohibits such
authorization,
S-13
payment or setting apart for payment or provides that such authorization,
payment or setting apart for payment would constitute a breach thereof or a
default thereunder, or if such authorization or payment shall be restricted or
prohibited by law.
Notwithstanding the foregoing, dividends on the Series A Preferred Shares
will accrue whether or not the Company has earnings, whether or not there are
funds legally available for the payment of such dividends, whether or not any
agreement of the Company prohibits payment of such dividends, and whether or not
such dividends are authorized. Accrued but unpaid dividends on the Series A
Preferred Shares will accumulate as of the Dividend Payment Date on which they
first become payable. Except as set forth in the next sentence, no dividends
will be authorized or paid or set apart for payment on any shares of beneficial
interest of the Company or any other series of Preferred Shares ranking, as to
dividends, on a parity with or junior to the Series A Preferred Shares (other
than a dividend paid in the Common Shares or in shares of any other class of
shares of beneficial interest ranking junior to the Series A Preferred Shares as
to dividends and upon liquidation) for any period unless full cumulative
dividends for all past dividend periods and the then current dividend period
have been or contemporaneously are (i) authorized and paid or (ii) authorized
and a sum sufficient for the payment thereof is set apart for such payment on
the Series A Preferred Shares. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon the Series A
Preferred Shares and the shares of any other series of Preferred Shares ranking
on a parity as to dividends with the Series A Preferred Shares, all dividends
authorized upon the Series A Preferred Shares and any other series of Preferred
Shares ranking on a parity as to dividends with the Series A Preferred Shares
shall be authorized pro rata so that the amount of dividends authorized per
share of Series A Preferred Shares and such other series of Preferred Shares
shall in all cases bear to each other the same ratio that accrued dividends per
share on the Series A Preferred Shares and such other series of Preferred Shares
(which shall not include any accrual in respect of unpaid dividends on such
other series of Preferred Shares for prior dividend periods if such other series
of Preferred Shares does not have a cumulative dividend) bear to each other. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on the Series A Preferred Shares which may be
in arrears.
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Series A Preferred Shares have been or
contemporaneously are authorized and paid or declared and a sum sufficient for
the payment thereof is set apart for payment for all past dividend periods and
the then current dividend period, no Common Shares, or any other shares of
beneficial interest of the Company ranking junior to or on a parity with the
Series A Preferred Shares as to dividends or upon liquidation, shall be
redeemed, purchased or otherwise acquired for any consideration (or any moneys
be paid to or made available for a sinking fund for the redemption of any such
shares) by the Company (except by conversion into or exchange for other shares
of beneficial interest of the Company ranking junior to the Series A Preferred
Shares as to dividends and upon liquidation and except for the acquisition of
Excess Shares (as defined in the accompanying Prospectus)). See "Description of
Shares of Beneficial Interest -- Restrictions on Transfer" in the accompanying
Prospectus. Holders of Series A Preferred Shares shall not be entitled to any
dividend, whether payable in cash, property or shares of beneficial interest, in
excess of full cumulative dividends on the Series A Preferred Shares as provided
above. Any dividend payment made on the Series A Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
such shares which remains payable.
If, for any taxable year, the Company elects to designate as "capital gain
dividends" (as defined in Section 857 of the Code) any portion (the "Capital
Gains Amount") of the dividends (within the meaning of the Code) paid or made
available for the year to holders of all classes of shares of beneficial
interest in the Company (the "Total Dividends"), then the portion of the Capital
Gains Amount that will be allocable to the holders of the Series A Preferred
Shares will be the Capital Gains Amount multiplied by a fraction, the numerator
of which will be the total dividends (within the meaning of the Code) paid or
made available to the holders of the Series A Preferred Shares for the year and
the denominator of which shall be the Total Dividends.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, the holders of Series A Preferred Shares are
entitled to be paid out of the assets of the Company legally available for
distribution to its shareholders a liquidation preference of $25.00 per share,
plus an amount equal to any accrued and unpaid dividends to the date of payment
(whether or not declared), before any distribution of assets is made to holders
of Common Shares or any other class or series of shares of beneficial interest
of the Company that ranks junior to the Series A Preferred Shares as to
liquidation rights. In the event that, upon any such voluntary or
S-14
involuntary liquidation, dissolution or winding up, the available assets of the
Company are insufficient to pay the amount of the liquidating distributions on
all outstanding Series A Preferred Shares and the corresponding amounts payable
on all shares of other classes or series of shares of beneficial interest of the
Company ranking on a parity with the Series A Preferred Shares in the
distribution of assets, then the holders of the Series A Preferred Shares and
all other such classes or series of shares of beneficial interest shall share
ratably in any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled. Holders
of Series A Preferred Shares will be entitled to written notice of any such
liquidation. After payment of the full amount of the liquidating distributions
to which they are entitled, the holders of Series A Preferred Shares will have
no right or claim to any of the remaining assets of the Company. The
consolidation or merger of the Company with or into any other corporation, trust
or entity or of any other corporation, trust or other entity with or into the
Company, or the sale, lease or conveyance of all or substantially all of the
property or business of the Company shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
REDEMPTION
The Series A Preferred Shares are not redeemable prior to October 30, 2002.
However, in order to ensure that the Company remains a qualified REIT for
federal income tax purposes, Series A Preferred Shares will be subject to
provisions of the Declaration of Trust, pursuant to which Series A Preferred
Shares owned by a shareholder in excess of the Ownership Limit (as defined in
the accompanying Prospectus) will constitute Excess Shares, and the Company will
have the right to purchase Excess Shares from the holder. See "Description of
Shares of Beneficial Interest--Restrictions on Transfer" in the accompanying
Prospectus. On and after October 30, 2002, the Company, at its option and upon
not less than 30 nor more than 60 days' written notice, may redeem the Series A
Preferred Shares, in whole or in part, at any time or from time to time, for
cash at a redemption price of $25.00 per share, plus all accrued and unpaid
dividends thereon to the date fixed for redemption (except as provided below),
without interest. If less than all of the outstanding Series A Preferred Shares
are to be redeemed, the Series A Preferred Shares to be redeemed shall be
redeemed pro rata (as nearly as may be practicable without creating fractional
shares) or by any other equitable method determined by the Company. The
redemption price of the Series A Preferred Shares (other than the portion
thereof consisting of accrued and unpaid dividends) shall be payable solely out
of the sale proceeds of other shares of beneficial interest of the Company,
which may include other series of Preferred Shares, and from no other source.
For purposes of the preceding sentence, "shares of beneficial interest" means
any equity securities (including Common Shares and Preferred Shares), shares,
participations or other ownership interests (however designated) and any rights
(other than debt securities convertible into or exchangeable for equity
securities) or options to purchase any of the foregoing. Holders of Series A
Preferred Shares to be redeemed shall surrender such Series A Preferred Shares
at the place designated in such notice and shall be entitled to the redemption
price and any accrued and unpaid dividends payable upon such redemption
following such surrender. If notice of redemption of any Series A Preferred
Shares has been given and if the funds necessary for such redemption have been
set aside by the Company in trust for the benefit of the holders of any Series A
Preferred Shares so called for redemption, then from and after the redemption
date dividends will cease to accrue on such Series A Preferred Shares, such
shares of Series A Preferred Shares shall no longer be deemed outstanding and
all rights of the holders of such shares will terminate, except the right to
receive the redemption price plus any accrued and unpaid dividends payable upon
such redemption.
Unless full cumulative dividends on all Series A Preferred Shares shall
have been or contemporaneously are authorized and paid or authorized and a sum
sufficient for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period, no Series A Preferred Shares shall
be redeemed unless all outstanding Series A Preferred Shares are simultaneously
redeemed and the Company shall not purchase or otherwise acquire directly or
indirectly any Series A Preferred Shares (except by exchange for shares of
beneficial interest of the Company ranking junior to the Series A Preferred
Shares as to dividends and upon liquidation); provided, however, that the
foregoing shall not prevent the purchase by the Company of Excess Shares in
order to ensure that the Company remains qualified as a REIT for federal income
tax purposes, as described under "Description of Shares of Beneficial Interest
- -- Restrictions on Transfer" in the accompanying Prospectus, or the purchase or
acquisition of Series A Preferred Shares pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Series A Preferred
Shares.
Notice of redemption will be given by publication in a newspaper of general
circulation in the City of New York, such publication to be made once a week for
two successive weeks commencing not less than 30 nor more than 60 days prior to
the redemption date. A similar notice will be mailed by the Company, postage
prepaid, not less than 30 nor more than 60 days prior to the redemption date,
addressed to the respective holders of record of the
S-15
Series A Preferred Shares to be redeemed at their respective addresses as they
appear on the share transfer records of the Company. No failure to give such
notice or any defect thereto or in the mailing thereof shall affect the validity
of the proceedings for the redemption of any Series A Preferred Shares except as
to a holder to whom notice was defective or not given. Each notice shall state:
(i) the redemption date; (ii) the redemption price; (iii) the number of Series A
Preferred Shares to be redeemed; (iv) the place or places where the Series A
Preferred Shares are to be surrendered for payment of the redemption price; and
(v) that dividends on the Series A Preferred Shares to be redeemed will cease to
accrue on such redemption date. If less than all of the Series A Preferred
Shares held by any holder is to be redeemed, the notice mailed to such holder
shall also specify the number of Series A Preferred Shares held by such holder
to be redeemed.
Immediately prior to any redemption of Series A Preferred Shares, the
Company shall pay, in cash, any accumulated and unpaid dividends through the
redemption date, unless a redemption date falls after a Dividend Record Date and
prior to the corresponding Dividend Payment Date, in which case each holder of
Series A Preferred Shares at the close of business on such Dividend Record Date
shall be entitled to the dividend payable on such shares on the corresponding
Dividend Payment Date notwithstanding the redemption of such shares before such
Dividend Payment Date. Except as provided above, the Company will make no
payment or allowance for unpaid dividends, whether or not in arrears, on Series
A Preferred Shares for which a notice of redemption has been given.
The Series A Preferred Shares will have no stated maturity and will not be
subject to any sinking fund or mandatory redemption. However, in order to
ensure that the Company remains a qualified REIT for federal income tax
purposes, Series A Preferred Shares owned by a shareholder in excess of the
Ownership Limit will constitute Excess Shares, and the Company will have the
right to purchase Excess Shares from the holder. Excess Shares may be redeemed,
in whole or in part, and, if in part, pro rata from the holders of record of
such shares in proportion to the number of such shares held by such holders
(with adjustments to avoid redemption of fractional shares) or by any other
equitable method determined by the Company. See "Description of Shares of
Beneficial Interest -- Restrictions on Transfer" in the accompanying Prospectus.
VOTING RIGHTS
Holders of the Series A Preferred Shares will not have any voting rights,
except as set forth below.
Whenever dividends on any Series A Preferred Shares shall be in arrears for
six or more consecutive or non-consecutive quarterly periods (a "Preferred
Dividend Default"), the holders of such Series A Preferred Shares (voting
separately as a class with all other series of Preferred Shares ranking on a
parity with the Series A Preferred Shares as to dividends or upon liquidation
("Parity Preferred") upon which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of a total of two
additional trustees of the Company (the "Preferred Shares Trustees") at a
special meeting called by the holders of record of at least 20% of the
outstanding Series A Preferred Shares or the holders of shares of any series of
Parity Preferred so in arrears (unless such request is received less than 90
days before the date fixed for the next annual or special meeting of the
shareholders) or at the next annual meeting of shareholders, and at each
subsequent annual meeting until all dividends accumulated on such Series A
Preferred Shares for the past dividend periods and the accrued dividend for the
then current dividend period shall have been fully paid or a sum sufficient for
the payment thereof set aside for payment in full. If and when all accumulated
dividends and the accrued dividend for the then current dividend period on the
Series A Preferred Shares shall have been paid in full or set aside for payment
in full, the holders thereof shall be divested of the foregoing voting rights
(subject to revesting in the event of each and every subsequent Preferred
Dividend Default) and, if all accumulated dividends and the accrued dividend for
the current dividend period have been paid on all series of Parity Preferred
upon which like voting rights have been conferred and are exercisable, the term
of office of each Preferred Shares Trustee so elected shall terminate. Any
Preferred Shares Trustee may be removed at any time with or without cause by,
and shall not be removed otherwise than by the vote of, the holders of record of
a majority of the outstanding Series A Preferred Shares (voting separately as a
class with all series of Parity Preferred upon which like voting rights have
been conferred and are exercisable). So long as a Preferred Dividend Default
shall continue, any vacancy in the office of a Preferred Shares Trustee may be
filled by written consent of the Preferred Shares Trustee remaining in office,
or if none remains in office, by a vote of the holders of record of a majority
of the outstanding Series A Preferred Shares when they have the voting rights
described above (voting separately as a class with all series of Parity
Preferred upon which like voting rights have been conferred and are
exercisable). Each of the Preferred Shares Trustees shall be entitled to one
vote on any matter.
S-16
So long as any Series A Preferred Shares remain outstanding, the Company
shall not, without the affirmative vote or consent of the holders of at least
two-thirds of the Series A Preferred Shares outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class): (a) authorize or create, or increase the authorized or
issued amount of, any class or series of shares of beneficial interest ranking
prior to the Series A Preferred Shares with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized shares of beneficial interest of the Company into such
shares, or create, authorize or issue any obligation or security convertible
into or evidencing the right to purchase any such shares; (b) amend, alter or
repeal the provisions of the Designating Amendment, whether by merger,
consolidation or otherwise, so as to materially and adversely affect any right,
preference, privilege or voting power of the Series A Preferred Shares or the
holders thereof; or (c) enter into a consolidation or merger in which another
entity is the surviving entity, unless the holders of the Series A Preferred
Shares receive a preference security the rights, preferences, privileges and
voting power of which do not differ from those of the Series A Preferred Shares
in any manner which is material and adverse to the holder of the Series A
Preferred Shares; provided, however, that with respect to the occurrence of any
event set forth in (b) or (c) above, so long as the Series A Preferred Shares
remain outstanding with the terms thereof materially unchanged, or the terms of
the securities issued in exchange for the Series A Preferred Shares in the
consolidation or merger are not materially different from those of the Series A
Preferred Shares, the occurrence of any such event shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers of the holders of the Series A Preferred Shares and provided further that
any increase in the amount of the authorized Preferred Shares or the creation or
issuance of any other series of Preferred Shares, or any increase in the amount
of authorized shares of such series, in each case ranking on a parity with or
junior to the Series A Preferred Shares with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up, shall
not be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding Series A Preferred Shares shall have been redeemed
or called for redemption upon proper notice and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION
The Series A Preferred Shares are not convertible into or exchangeable for
any other property or securities of the Company, except that the Series A
Preferred Shares are exchangeable for Excess Shares, in accordance with the
Declaration of Trust. See "Description of Shares of Beneficial Interest --
Restrictions on Transfer" in the accompanying Prospectus.
RESTRICTIONS ON TRANSFER
To help ensure that the Company qualifies as a REIT, transfer of the Series
A Preferred Shares is restricted and ownership by any person is limited to 9.8%
of the outstanding shares of beneficial interest, subject to certain
restrictions. See "Description of Shares of Beneficial Interest--Restrictions
on Transfer" in the accompanying Prospectus.
TRANSFER AGENT
The transfer agent, registrar and dividend disbursing agent for the Series
A Preferred Shares will be First Chicago Trust Company of New York, Jersey City,
New Jersey.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations to the
shareholders is for general information only and cannot deal with all aspects of
taxation that may be relevant to the specific investment or tax circumstances of
particular investors. Except to the extent discussed under the headings
"Taxation of Tax-Exempt Shareholders" and "Taxation of Foreign Shareholders,"
the discussion does not address tax consequences to certain types of investors
(such as insurance companies, financial institutions and broker-dealers) who are
subject to special treatment under the federal income tax laws. Moreover, those
laws are subject to change without notice, and any such change may have
retroactive effect. This discussion is based on federal income tax laws as they
exist at the time of this offering, including the Taxpayer Relief Act of 1997
(the "1997 Act").
S-17
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE SERIES A PREFERRED SHARES OFFERED HEREBY, INCLUDING THE FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND
SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
For a summary of the material federal income tax considerations to the
Company or the impact on the Company of its election to be taxed as a REIT, see
"Federal Income Tax Considerations Relating to the Company's REIT Status" in the
accompanying Prospectus. The following discussion assumes that the Company
continues to qualify as a REIT during all relevant periods.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
DISTRIBUTIONS. Distributions made to the Company's taxable U.S.
shareholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income. Shareholders that are corporations will not be entitled to a
dividends received deduction with respect to such dividends. Any dividend
declared by the Company in October, November or December of any year payable to
a shareholder of record on a specified date in any such month will be treated as
both paid by the Company and received by the shareholder on December 31 of such
year, provided that the dividend is actually paid by the Company during January
of the following calendar year.
If the Company's distributions exceed its current and retained earnings and
profits, the earnings and profits of the Company will first be applied to the
distributions with respect to the Series A Preferred Shares and thereafter to
distributions on the Common Shares. To the extent of the shareholder's tax
basis in its Series A Preferred Shares, distributions in excess of the Company's
current and accumulated earnings and profits are treated as a tax-free return of
capital and reduce such basis (but not below zero). To the extent such
distributions exceed the shareholder's basis in its shares, the distribution is
taxable as capital gain, assuming the shareholder holds its Series A Preferred
Shares as a capital asset.
For any taxable year, the Company may elect to designate as "capital gain
dividends" (as defined in section 857 of the Internal Revenue Code of 1986, as
amended (the "Code")) any portion (the "Capital Gains Amount") of the total
dividends (as determined for federal income tax purposes) paid or made available
for the year to holders of all classes of capital stock (the "Total Dividends").
In such event, the portion of the Capital Gains Amount that is allocable to
holders of Series A Preferred Shares will be in the same proportion that the
total dividends paid or made available to the holders of the Series A Preferred
Shares for the year bears to the Total Dividends. In general, capital gain
dividends that do not exceed the Company's actual net capital gain for the
taxable year will be taxed to shareholders as gain from the sale of assets held
more than one year, without regard to the period for which the shareholders have
held their shares. However, corporate shareholders may be required to treat up
to 20% of certain capital gain dividends as ordinary income.
The 1997 Act created several new categories of capital gains applicable to
non-corporate taxpayers. Under prior law, non-corporate taxpayers were
generally taxed at a maximum rate of 28% on net capital gain (generally, the
excess of net long-term capital gain over net short-term capital loss).
Non-corporate taxpayers are now generally taxed at a maximum rate of 20% on net
capital gain attributable to gains realized on the sale of property held for
more than 18 months, and a maximum rate of 28% on net capital gain attributable
to gain realized on the sale of property held for more than one year but not
more than 18 months. In addition, a 25% rate now applies to non-corporate
taxpayers on certain gains realized on the sale of real property held for more
than 18 months. The 1997 Act retains the prior law treatment of short-term
capital gain and did not affect the taxation of capital gain recognized by
corporate taxpayers. The Treasury is authorized to issue regulations for
application of the reduced capital gains tax rates enacted in the 1997 Act to
"pass-thru entities," including REITs, but has not yet done so. As a result, it
is not clear at this time whether or to what extent a non-corporate shareholder
of the Company may qualify for a reduced rate of tax on capital gain dividends
paid by the Company.
Beginning in 1998, a REIT that retains and pays taxes on capital gains may
make an election under which its shareholders will be deemed to have received
such capital gains and paid the tax. If the Company makes this election, a
shareholder will be deemed to have received a pro rata share of the Company's
capital gains and may claim a credit against its federal income tax liability
for its share of taxes paid by the Company on such gains. In
S-18
addition, the shareholder will increase its basis in its shares by an amount
equal to the excess of the deemed distribution over the amount of tax credited
to the shareholder.
Shareholders may not include in their individual federal income tax returns
any net operating losses or capital losses of the Company.
SALE OR EXCHANGE OF SERIES A PREFERRED SHARES. Upon the sale or exchange
of Series A Preferred Shares to or with a person other than the Company, a
shareholder generally will recognize gain or loss equal to the difference
between (i) the amount of cash and the fair market value of any property
received and (ii) the shareholder's adjusted tax basis in such shares. Such
gain or loss will be capital gain or loss if the Series A Preferred Shares have
been held as a capital asset, and will be long-term gain or loss if such shares
have been held for more than one year. As noted earlier (see "Distributions"),
the 1997 Act created several new categories of capital gains applicable to
non-corporate taxpayers. The Treasury is authorized to issue regulations
concerning application of these rates in connection with sales and exchanges of
interests in "pass-thru entities," including REITs, but has not yet done so. As
a result, it is not clear at this time whether or to what extent a non-corporate
shareholder may qualify for a reduced rate of tax on a sale or exchange of
Series A Preferred Shares.
Any loss upon a sale or exchange of Series A Preferred Shares by a
shareholder who held such Series A Preferred Shares for six months or less
(after applying certain holding period rules) generally will be treated as a
long-term capital loss to the extent such shareholder previously received
capital gain distributions with respect to such Series A Preferred Shares.
REDEMPTION OF SERIES A PREFERRED SHARES. A redemption of Series A
Preferred Shares generally will be treated as a sale or exchange (see "Sale or
Exchange of Series A Preferred Shares" above) if the holder of such redeemed
shares does not own, actually or constructively within the meaning of section
318 of the Code, any shares of beneficial interest of the Company other than the
redeemed shares. If a holder does own, actually or constructively, such other
shares of beneficial interest (including Series A Preferred Shares not
redeemed), a redemption of Series A Preferred Shares may be treated as a
dividend to the extent of the Company's current and accumulated earnings and
profits. Such dividend treatment will not apply if the redemption is "not
essentially equivalent to a dividend" with respect to the shareholder under
section 302(b) of the Code. The determination as to whether this test will be
satisfied with respect to any particular holder of Series A Preferred Shares
depends upon facts and circumstances at the time of the determination.
Therefore, prospective shareholders are advised to consult their own tax
advisors to determine such tax treatment.
If a redemption of Series A Preferred Shares is treated as a distribution
taxable as a dividend, the amount of the distribution will be measured by the
amount of cash and the fair market value of any property received by such
shareholders. The shareholder's adjusted basis in the redeemed Series A
Preferred Shares for tax purposes will be transferred to such shareholder's
remaining shares of the Company. If the shareholder owns no other shares of the
Company, such basis may be lost entirely.
BACKUP WITHHOLDING
The Company will report to its U.S. shareholders and the Internal Revenue
Service (the "IRS") the amount of distributions paid during each calendar year,
and the amount of tax withheld, if any. Under the backup withholding rules, a
shareholder may be subject to backup withholding at the rate of 31% with respect
to distributions paid unless such shareholder (a) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact or (b) provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A shareholder that does not
provide the Company with its correct taxpayer identification number may also be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
will be creditable against the shareholder's income tax liability. In addition,
the Company may be required to withhold a portion of capital gain distributions
to any shareholders who fail to certify their non-foreign status to the Company.
See "Taxation of Foreign Shareholders."
S-19
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Generally, distributions to a tax-exempt entity from a REIT do not
constitute unrelated business taxable income, as defined in Section 512(a) of
the Code ("UBTI"), provided that the tax-exempt entity has not financed its
acquisition of its shares with "acquisition indebtedness" within the meaning of
the Code and the shares are not otherwise used in an unrelated trade or business
of the tax-exempt entity. Thus, distributions by the Company to shareholders
that are tax-exempt should not be taxable as UBTI, provided that no acquisition
indebtedness was incurred with respect to such shares.
Some or all of the distributions by a REIT to a tax-exempt employee's
pension fund that owns more than 10% in value of the REIT are treated as UBTI if
the REIT constitutes a "pension-held REIT" and if other conditions are met. In
order to constitute a "pension-held REIT" the REIT must meet the test for
classification as a REIT only because tax-exempt pension funds are not treated
as a single individual for purposes of determining whether the REIT is "closely
held" and either (A) one pension fund owns more than 25% in value of the REIT or
(B) one or more pension funds (each owning more than 10% in value of the REIT)
own, in the aggregate, more than 50% of the value of the REIT. In addition, the
gross income of the REIT derived from activities that would constitute unrelated
trades or businesses, computed as if the REIT were a "qualified trust," must be
at least 5% of the gross income of the REIT in the taxable year in which the
distributions are made. The ownership limitations in the Company's Declaration
of Trust (assuming no waiver by the Board of Trustees) should prevent the
Company from being classified as a "pension-held REIT."
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex, and no attempt
will be made herein to provide more than a summary of the rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of United States federal, state and local income tax laws with regard
to an investment in the Series A Preferred Shares offered hereby, including any
reporting requirements. If income from an investment in the Series A Preferred
Shares offered hereby is treated as "effectively connected" with the Non-U.S.
Shareholder's conduct of a United States trade or business, the Non-U.S.
Shareholder generally will be subject to a tax at graduated rates, in the same
manner as U.S. shareholders are taxed with respect to the dividends (and may
also be subject to the 30% "branch profits" tax in the case of a shareholder
that is a foreign corporation). The remainder of this discussion assumes that
the distributions do not constitute "effectively connected" income.
Distributions by the Company that are not attributable to gain from sales
or exchanges by the Company of United States real property interests and not
designated by the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions,
ordinarily, will be subject to a withholding tax equal to 30% of the gross
amount of the distribution unless an applicable tax treaty reduces or eliminates
that tax. Distributions in excess of current and accumulated earnings and
profits of the Company will not be taxable to a Non-U.S. Shareholder to the
extent that such distributions do not exceed the adjusted basis of such Non-U.S.
Shareholder's shares, but rather will reduce the adjusted basis of such shares.
To the extent that distributions in excess of current and accumulated earnings
and profits exceed the adjusted basis of a Non-U.S. Shareholder's shares, such
distributions will give rise to tax liability if the Non-U.S. Shareholder would
otherwise be subject to tax on any gain from the sale or disposition of his
shares in the Company, as described below. The Company expects to withhold
United States income tax at the rate of 30% on the gross amount of any
distributions made to a Non-U.S. Shareholder unless (i) a lower treaty rate
applies and the Non-U.S. Shareholder files all necessary forms required to
establish eligibility for the lower rate and provides certification as to such
eligibility, if necessary, or (ii) the Non-U.S. Shareholder files an IRS Form
4224 with the Company certifying that the investment to which the distribution
relates is "effectively connected" to a United States trade or business of such
Non-U.S. Shareholder. Lower treaty rates generally applicable to dividend
income may not necessarily apply to distributions from a REIT, such as the
Company. If it cannot be determined at the time a distribution is made whether
or not such distribution will be in excess of current and accumulated earnings
and profits, the distributions will be subject to withholding at the same rate
as dividends. Pursuant to recently enacted legislation, effective for
distributions made after August 20, 1996, the Company is obligated to withhold
10% of the amount of any distribution in excess of the Company's current and
accumulated earnings and profits. However, amounts withheld are refundable if
it is subsequently determined that the
S-20
distribution was in excess of current and accumulated earnings and profits of
the Company and the amount withheld exceeded the Non-U.S. Shareholders' United
States tax liability, if any.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of United States
real property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Shareholder as if the gain were "effectively connected" with a United States
business. Non-U.S. Shareholders would be taxed at the normal capital gain rates
applicable to U.S. shareholders (subject to applicable alternative minimum tax
and a special alternative minimum tax in the case of nonresident alien
individuals). Also, distributions subject to FIRPTA may be subject to a 30%
"branch profits" tax in the hands of a foreign corporate shareholder not
entitled to treaty exemption. The Company is required by applicable Treasury
Regulations to withhold 35% of any distribution to a Non-U.S. Shareholder that
could be designated by the Company as a capital gains dividend. This amount is
creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of shares generally
will not be taxed under FIRPTA if the Company is a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the shares was held directly or
indirectly by foreign persons. The Company currently is a "domestically
controlled REIT," and anticipates continuing to be so classified, and therefore
the sale of the Preferred Shares offered hereby should not be subject to
taxation under FIRPTA. However, gain not subject to FIRPTA will be taxable to a
Non-U.S. Shareholder if (i) investment in the shares is effectively connected
with the Non-U.S. Shareholder's United States trade or business, in which case
the Non-U.S. Shareholder will be subject to the same treatment as U.S.
shareholders with respect to the gain (a Non-U.S. Shareholder that is a foreign
corporation may also be subject to the 30% "branch profits" tax), or (ii) the
Non-U.S. Shareholder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year, in which case the
nonresident alien individual may be subject to a 30% tax on the individual's
capital gains. If the gain on the sale of shares were to be subject to taxation
under FIRPTA, the Non-U.S. Shareholder will be subject to the same treatment as
U.S. shareholders with respect to the gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals and, in the case of foreign corporations, subject to the
possible application of the 30% "branch profits" tax).
If the proceeds of a disposition of Series A Preferred Shares are paid by
or through a United States office of a broker, the payment is subject to
information reporting requirements and to backup withholding unless the
disposing Non-U.S. Shareholder certifies as to his name, address, and non-United
States status or otherwise establishes an exemption. Generally, United States
information reporting and backup withholding will not apply to the payment of
disposition proceeds if the payment is made outside the United States through a
non-United States broker. United States information reporting (but not backup
withholding) will apply, however, to a payment of disposition proceeds outside
the United States if (i) the payment is made through an office outside the
United States that is either (a) a United States person, (b) a foreign person
that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States or (c) a "controlled foreign
corporation" for United States federal income tax purposes, and (ii) the broker
fails to obtain documentary evidence that the shareholder is a Non-U.S.
Shareholder and that certain conditions are met or that the Non-U.S. Shareholder
is otherwise entitled to an exemption. In 1997, the Treasury issued regulations
changing certain rules applicable to payments to foreign persons. Generally,
these changes are to be effective for payments made after December 31, 1998.
Among the changes in the regulations are new intermediary certification
procedures designed to simplify compliance by withholding agents.
OTHER TAX CONSEQUENCES
The Company's shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which they transact
business or reside. The state and local tax treatment of the Company's
shareholders may not conform to the federal income tax consequences discussed
above. Consequently, prospective shareholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
the Company.
S-21
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratios of earnings to fixed charges for the years ended
December 31, 1995 and 1996 were 1.63 and 2.25, respectively, and the Company's
ratios of earnings to fixed charges for the nine months ended September 30, 1996
and 1997 were 2.27 and 2.99, respectively. See "Ratio of Earnings to Fixed
Charges" in the accompanying Prospectus.
The ratio of earnings to fixed charges means the ratio of pretax income
from continuing operations (with certain adjustments) to the total of: (i)
interest, (ii) amortization of debt expense and (iii) such portion of rental
expense as can be demonstrated to be representative of the interest factor in
the particular case.
The Company issued Series A Preferred Stock in September, 1995, which was
converted into Class B Common Stock in May, 1996. The Company's ratios of
earnings to combined fixed charges and Preferred Stock dividends for the years
ended December 31, 1995 and 1996 were 1.51 and 2.08, respectively, and the
Company's ratios of earnings to combined fixed charges and Preferred Stock
dividends for the nine months ended September 30, 1995 and September 30, 1996
were 1.48 and 2.05, respectively. The Company has not, as of the date of this
Prospectus Supplement, issued any Preferred Stock prior to 1995 nor after May,
1996; therefore, the ratios of earnings to combined fixed charges and Preferred
Stock dividends for years prior to 1995 and for periods after May, 1996 are
unchanged from the ratios of earnings to fixed charges for such years as set
forth above.
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
underwriters named below (the "Underwriters") for whom Lehman Brothers Inc., A.
G. Edwards & Sons, Inc., PaineWebber Incorporated, The Robinson-Humphrey
Company, LLC, Smith Barney Inc. and Wheat, First Securities, Inc. are acting as
representatives (the "Representatives"), and each of the Underwriters has
severally agreed to purchase from the Company, the number of Series A Preferred
Shares set forth below opposite its respective name.
UNDERWRITER NUMBER OF PREFERRED SHARES
----------- ---------------------------
Lehman Brothers Inc. . . . . . . . . . . . . . . . . . 410,000
A.G. Edwards & Sons, Inc.. . . . . . . . . . . . . . . 408,000
PaineWebber Incorporated . . . . . . . . . . . . . . . 408,000
The Robinson-Humphrey Company, LLC . . . . . . . . . . 408,000
Smith Barney Inc.. . . . . . . . . . . . . . . . . . . 408,000
Wheat, First Securities, Inc.. . . . . . . . . . . . . 408,000
Robert W. Baird & Co. Incorporated . . . . . . . . . . 40,000
J.C. Bradford & Co.. . . . . . . . . . . . . . . . . . 40,000
Everen Securities, Inc.. . . . . . . . . . . . . . . . 40,000
Legg Mason Wood Walker, Incorporated . . . . . . . . . 40,000
McDonald & Company Securities, Inc.. . . . . . . . . . 40,000
Piper Jaffray Inc. . . . . . . . . . . . . . . . . . . 40,000
SBC Warburg Dillon Read Inc. . . . . . . . . . . . . . 40,000
Advest, Inc. . . . . . . . . . . . . . . . . . . . . . 15,000
Cowen & Company. . . . . . . . . . . . . . . . . . . . 15,000
Craigie Incorporated . . . . . . . . . . . . . . . . . 15,000
Dain Bosworth Incorporated . . . . . . . . . . . . . . 15,000
Davenport & Co. of Virginia, Inc.. . . . . . . . . . . 15,000
Fahnestock & Co. Inc.. . . . . . . . . . . . . . . . . 15,000
First Albany Corporation . . . . . . . . . . . . . . . 15,000
First Southwest Company. . . . . . . . . . . . . . . . 15,000
Gruntal & Co., L.L.C.. . . . . . . . . . . . . . . . . 15,000
Interstate/Johnson Lane Corporation. . . . . . . . . . 15,000
Janney Montgomery Scott Inc. . . . . . . . . . . . . . 15,000
Mesirow Financial, Inc.. . . . . . . . . . . . . . . . 15,000
Morgan Keegan & Company, Inc.. . . . . . . . . . . . . 15,000
The Ohio Company . . . . . . . . . . . . . . . . . . . 15,000
S-22
UNDERWRITER NUMBER OF PREFERRED SHARES
----------- ---------------------------
Parker/Hunter Incorporated . . . . . . . . . . . . . . 15,000
Principal Financial Securities, Inc. . . . . . . . . . 15,000
Raymond James & Associates, Inc. . . . . . . . . . . . 15,000
U.S. Clearing Corp.. . . . . . . . . . . . . . . . . . 15,000
Total. . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000
---------
---------
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase the Series A Preferred Shares are subject to the
conditions contained therein, and that if any of the Series A Preferred Shares
are purchased by the Underwriters pursuant to the Underwriting Agreement, all
the Series A Preferred Shares agreed to be purchased by the Underwriters must be
so purchased.
The Company has been advised by the Underwriters that they propose to offer
the Series A Preferred Shares directly to the public at the initial offering
price set forth on the cover page of this Prospectus Supplement and to certain
dealers at such public offering price less a concession not in excess of $.50
per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $.40 per share to certain other underwriters or to
certain other brokers or dealers. After the initial public offering, the public
offering price, the concession to selected dealers and the reallowance to the
other dealers may be changed by the Representatives.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Company intends to file an application to list the Series A Preferred
Shares on the NYSE. If so approved for listing, trading of the Series A
Preferred Shares is expected to commence within the 30-day period after the
initial delivery of the Series A Preferred Shares. The Company has been advised
by the Underwriters that they presently intend to make a market in the Series A
Preferred Shares prior to the commencement of trading on the NYSE, as permitted
by applicable law and regulations. The Underwriters are not obligated, however,
to make a market in the Series A Preferred Shares and any such market making may
be discontinued at any time at the sole discretion of the Underwriters.
Accordingly, no assurance can be given as to the liquidity of, or the existence
of trading markets for, the Series A Preferred Shares.
Until the distribution of the Series A Preferred Shares is completed, rules
of the Commission may limit the ability of the Underwriters and certain selling
group members, if any, to bid for and purchase the Series A Preferred Shares.
As an exception to these rules, the Representatives of the Underwriters are
permitted to engage in certain transactions that stabilize the price of the
Series A Preferred Shares. Such transactions may consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the Series A
Preferred Shares.
If the Underwriters create a short position in the Series A Preferred
Shares in connection with the offering thereof (i.e., if they sell more Series A
Preferred Shares than are set forth on the cover page of this Prospectus
Supplement), the Representatives may reduce that short position by purchasing
Series A Preferred Shares in the open market. The Representatives also may
elect to reduce any short position by exercising all or part of the
over-allotment option described in this Prospectus Supplement.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Series A Preferred Shares. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
S-23
Certain of the Underwriters and their affiliates have from time to time
performed, and may continue to perform in the future, investment banking
services for the Company, for which customary compensation has been received.
The Company has a $135 million unsecured credit facility under which Lehman
Brothers Holdings Inc., an affiliate of Lehman Brothers Inc. (one of the
Underwriters under this Prospectus Supplement), is one of the lenders. The
Company intends to use all of the net proceeds to the Company from the sale of
the Series A Preferred Shares offered hereby to reduce amounts outstanding under
this unsecured credit facility. In the event that a default occurs under the
unsecured credit facility, Lehman Brothers Holdings Inc. and the other lenders
thereunder have the right to pursue various remedies which may be to the
disadvantage of the holders of the Series A Preferred Shares.
LEGAL MATTERS
The legality of the Series A Preferred Shares offered hereby will be passed
upon for the Company by Ungaretti & Harris, Chicago, Illinois and certain legal
matters will be passed upon for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom LLP. Ungaretti & Harris and Skadden, Arps, Slate, Meagher & Flom
LLP will rely on Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC,
Baltimore, Maryland as to certain matters of Maryland law. In addition,
Ungaretti & Harris will provide an opinion as to the qualification of the
Company as a REIT under the Code.
EXPERTS
The financial statements and financial statement schedules included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996, the statements of revenue and certain expenses included in the Company's
Form 8-K/A filed with the Commission on November 27, 1996 and the statements of
(combined) revenues and certain expenses included in the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997, all incorporated
by reference in this Prospectus Supplement, to the extent and for the periods
indicated in their reports, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, and are included herein in reliance upon the authority
of those experts in giving their reports.
S-24
PROSPECTUS
$200,000,000
[LOGO]
DEBT SECURITIES, COMMON SHARES, PREFERRED SHARES, SECURITIES WARRANTS
--------------------
CenterPoint Properties Trust (the "Trust") may from time to time offer in
one or more series its (i) senior debt securities ("Senior Debt Securities"),
(ii) subordinated debt securities ("Subordinated Debt Securities") (Senior Debt
Securities and Subordinated Debt Securities being collectively referred to
herein as "Debt Securities"), (iii) common shares of beneficial interest, $.001
par value per share ("Common Shares"), (iv) preferred shares of beneficial
interest, par value $.001 per share ("Preferred Shares"), and (v) warrants
exercisable for Debt Securities, Common Shares or Preferred Shares ("Securities
Warrants"), in amounts, at prices and on terms to be determined at the time of
offering. The Senior Debt Securities, Subordinated Debt Securities, Common
Shares, Preferred Shares and Securities Warrants (collectively referred to
herein as the "Securities") may be offered separately or together, in separate
series, in amounts, at prices and on terms to be described in one or more
supplements to this Prospectus (a "Prospectus Supplement").
The aggregate public offering price for Securities offered by the Company
will be up to $200,000,000 (or the equivalent based on the applicable exchange
rate at the time of the offering).
The specific terms of the Securities with respect to which this Prospectus
is being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) 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, any terms for
redemption at the option of the Company or repayment at the option of the
holder, any terms for any sinking fund payment, covenants and any initial public
offering price; (ii) in the case of Common Shares, any initial public offering
price; (iii) in the case of Preferred Shares, the specific title and stated
value, any dividend, liquidation, redemption, conversion, voting and other
rights, and any initial public offering price; and (iv) in the case of
Securities Warrants, the specific title and aggregate number, the issue price
and the exercise price. In addition, such specific terms may include limitations
on direct or beneficial ownership and restrictions on transfer of the
Securities, in each case as may be appropriate to preserve the status of the
Company as a real estate investment trust ("REIT") for U.S. federal income tax
purposes.
The applicable Prospectus Supplement also will contain information, where
applicable, about certain U.S. federal income tax considerations relating to,
and any listing on a securities exchange of, the Securities covered by such
Prospectus Supplement.
The Securities may be offered directly by the Company, through agents
designated from time to time by the Company, or through underwriters or dealers.
If any agents or underwriters are involved in the sale of any of the Securities,
their names, and any applicable purchase price, fee, commission or discount
arrangement with, between or among them, will be set forth, or will be
calculable from the information set forth, in an accompanying Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such Securities.
--------------------------
SEE "RISK FACTORS" ON PAGE 4 OF THIS PROSPECTUS FOR CERTAIN FACTORS AND MATERIAL
RISKS
IN CONNECTION WITH THE PURCHASE OF THE SECURITIES.
---------------------
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 ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
October 23, 1997
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and other applicable
legal or New York Stock Exchange, Inc. ("NYSE") requirements, pursuant to which
the Company files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company under the Exchange Act may
be examined without charge at, or copies obtained upon payment of prescribed
fees from, the Public Reference Section of the Commission at Judiciary Plaza
Office Building, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be
available for inspection and copying at the regional offices of the Commission
located at 13th Floor, 7 World Trade Center, New York, New York 10048 and at
Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661, and at the NYSE, 20 Broad Street, New York, New York 10005.
Electronic filings made through the Electronic Data Gathering, Analysis and
Retrieval System are publicly available through the Commission's Web Site
(http://www.sec.gov).
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement"), of which this Prospectus is a part, under the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, with respect to the Securities offered pursuant to this
Prospectus. 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 with
respect to the Company and the Securities, reference is made to the Registration
Statement, which may be inspected and copied in the manner and at the sources
described above.
Statements contained in this Prospectus as to the contents of any contract
or other document that is filed as an exhibit to the Registration Statement are
not necessarily complete, and each such statement is qualified in its entirety
by reference to the full text of such contract or document.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1995;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996;
3. The Company's Current Report on Form 8-K filed with the Commission on
July 1, 1996;
4. The Company's Current Report on Form 8-K filed with the Commission on
October 3, 1996, as amended by Form 8-K/A filed with the Commission on
November 27, 1996; and
5. The description of the Company's Common Stock set forth in the
Company's Post-Effective Amendment No. 1 to Form S-3 registration
statement filed with the Commission on March 22, 1995 (File No.
33-89630).
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of all Securities offered hereby 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 herein or in any document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for the purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part of this Prospectus except as so modified or
superseded.
2
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 and all of the documents
that have been or may be incorporated herein by reference (excluding exhibits to
such information unless such exhibits are specifically incorporated by reference
into the information that this Prospectus incorporates). Requests for such
information should be directed to CenterPoint Properties Trust, 401 North
Michigan, 30th Floor, Chicago, Illinois 60611; Attention: Paul S. Fisher,
Secretary; telephone (312) 346-5600.
THE COMPANY
The Company is a fully integrated real estate investment trust focused on
the acquisition, development, redevelopment, management and ownership of
warehouse/industrial property located in Greater Chicago (defined as the area
within a 150-mile radius of Chicago, including Milwaukee, Wisconsin and South
Bend, Indiana). The Company has elected and qualified for REIT status since
January 1, 1994. See "Federal Income Tax Considerations Relating to the
Company's REIT status -- Qualification as a REIT; Opinion of Counsel."
The Company, a Maryland real estate investment trust, was founded in 1984
and completed its initial public offering of securities in December 1993. As of
September 30, 1996, the Company owned and managed a portfolio of 73
warehouse/industrial properties, containing approximately 13.8 million square
feet of space, and believes it is the largest owner and operator of
warehouse/industrial property in Greater Chicago. The Company also owns and
manages three retail properties and one apartment property. As of September 30,
1996, the Company's properties were 98% leased, with the warehouse/industrial
properties occupied by 129 tenants in diverse industries and no tenant
accounting for the lease of more than 10% of the total square footage of the
Company's warehouse/industrial portfolio. Substantially all of the Company's
properties have been constructed or renovated during the past ten years.
The Company believes that Greater Chicago offers significant opportunities
for investment in and ownership of warehouse/industrial property. Greater
Chicago, due to its central location and extensive air, roadway, rail, and water
transportation infrastructure, supports a diverse industrial and service
industry base. Based on published statistics regarding square feet of space
owned and managed by other firms and publicly available information filed with
the Commission, as well as its knowledge and experience in the market, the
Company believes it is the largest owner and operator of warehouse/industrial
property in Greater Chicago.
The Company believes that investment in warehouse/industrial property
offers attractive returns and stable cash flow. Published statistics indicate
that total returns from warehouse/industrial properties have been among the
highest of any commercial property type in each of the past 15 years. The
Company believes that cash flow from warehouse/industrial property investments
is generally more predictable than cash flow from other property types because:
(i) relatively short construction periods discourage speculative building; (ii)
lower capital expenditures are required to sustain rental income due to the
adaptable character of warehouse/industrial property; and (iii) tenant renewal
rates are higher due to the significant cost and disruption to tenant operations
resulting from relocations. Moreover, leases for warehouse/industrial
properties provide generally for rent growth through contractual rent increases
or rents tied to certain indices such as the Consumer Price Index and are
generally structured as net leases, providing for the pass through to tenants of
all operating and real estate tax expenses.
The Company's objective is to maximize shareholder value by pursuing a
growth strategy consisting of (i) intensive management of the Company's existing
properties, and (ii) the acquisition of existing leased properties,
build-to-suit projects and properties suitable for redevelopment.
The Company's principal executive office is located at 401 North Michigan
Avenue, 30th Floor, Chicago, Illinois 60611, and its telephone number is (312)
346-5600.
3
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below.
LIMITED GEOGRAPHICAL AND PROPERTY-TYPE DIVERSIFICATION
All of the Company's properties are located in Greater Chicago, and
substantially all of the Company's properties are warehouse/industrial
properties. While the Company believes that its focus on this geographical area
and property type is an advantage, the Company's performance and its ability to
make distributions to shareholders could be adversely affected by unfavorable
economic and/or warehouse/industrial real estate conditions in Greater Chicago.
RISKS OF DEBT FINANCING
The Company is subject to the risks normally associated with the incurrence
of debt financing, including the risks that (i) the Company will be unable to
meet required payments of principal and interest, (ii) existing indebtedness
will not be able to be refinanced or, if refinanced, the terms of such
refinancing will not be as favorable as the original terms of such indebtedness
and (iii) necessary capital expenditures for such purposes as renovations and
other improvements will not be able to be financed or, if financed, will not be
able to be financed on terms favorable to the Company. If a property is
mortgaged to secure payment of indebtedness and the Company is unable to meet
mortgage payments, the property could be foreclosed upon by the mortgagee with a
consequent loss of income and asset value to the Company.
The Company intends to continue its policy of maintaining a ratio of debt
(excluding the Company's 8.22% Convertible Subordinated Debentures due 2004 (the
"Debentures")) to total market capitalization of the Company of less than 50%.
However, the Company's Declaration of Trust does not contain any limitations on
the ratio of debt to total market capitalization. Accordingly, the Board of
Trustees could alter or eliminate the current limitation on borrowing without
the approval of the Company's shareholders. If this policy were changed, the
Company could become more highly leveraged, resulting in an increase in debt
service that could adversely affect the Company's Funds from Operations and its
ability to make expected distributions to shareholders, as well as increase the
risk of default on the Company's other indebtedness and any borrowings incurred
under the Company's lines of credit.
Certain of the Company's debt now provides, and may in the future provide,
for variable interest rates. To the extent that the Company has variable
interest rate debt, the Company is exposed to the risk of interest rate
fluctuations and, consequently, an increase in interest expense. An increase in
interest expense could have a material adverse impact on the Company's
operations.
LIMITATION ON OWNERSHIP OF SHARES
In order for the Company to qualify as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"), not more than 50% in value of the
Company's outstanding shares of beneficial interest may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities). Due to these limitations on the concentration of ownership
of shares of beneficial interest in a REIT, ownership of more than 9.8% of the
value of the outstanding shares of beneficial interest by any single shareholder
has been restricted in the Declaration of Trust, with the exception of the
ownership of the Common Shares by the Company's former parent company,
CRP-London.
Recent tax legislation relaxed the rules concerning ownership of shares of
beneficial interest in a REIT by certain domestic pension trusts. The
Declaration of Trust does not implement this change in the tax law. Under the
Declaration of Trust, domestic pension funds are subject to the restriction on
ownership of more than 9.8% of the value of the outstanding shares of beneficial
interest.
4
These ownership limits, as well as the ability of the Company to issue
additional Common Shares and Preferred Shares, may discourage a change of
control of the Company and may also (i) deter tender offers for the Common
Shares, which offers may be advantageous to shareholders, and (ii) limit the
opportunity for shareholders to receive a premium over then prevailing market
prices for their Common Shares that might otherwise exist if an investor were
attempting to assemble a block of Common Shares or otherwise effect a change of
control of the Company. See "Description of Shares of Beneficial Interest --
Restrictions on Transfer."
CHANGES IN INVESTMENT AND FINANCING OBJECTIVES
The investment and financing objectives of the Company, and its objectives
with respect to certain other activities, including without limitation, the
objective that the Company continue to qualify as a REIT, will be determined by
the Board of Trustees. Although the Board of Trustees has no present intention
to do so, the Board may revise current objectives of the Company at any time and
from time to time in its sole discretion. Accordingly, shareholders will have
no direct control over changes in the objectives of the Company.
REAL ESTATE INVESTMENT CONSIDERATIONS
GENERAL. The business of owning and investing in real estate is highly
competitive and is subject to numerous inherent risks, including adverse changes
in general or local economic conditions and/or specific industry segments, real
estate values, rental rates, interest rates, real estate tax rates and other
operating expenses, the possibility of competitive overbuilding and of the
Company's inability to obtain or maintain high levels of occupancy in the
Company's properties, tenant defaults, unfavorable changes in governmental rules
and fiscal policies (including rent control legislation), acts of God and other
factors which are beyond the control of the Company. In addition to affecting
the profitability of operations, these and other factors could impact the
marketability of the Company's properties.
In addition to the general risks of ownership and investment in real
property, the Company will be subject to other risks in connection with the
leasing, redevelopment and improvement of properties, such as the risk that the
properties may operate at a cash deficit during the redevelopment and/or
lease-up period, and the risk of a contractor's inability to control costs and
to conform to plans, specifications and timetables, which may in turn be
affected by strikes, weather, government regulations and other conditions beyond
the contractor's control. The benefits anticipated from such transactions,
therefore, may be reduced or may not materialize. The Company may in the future
acquire properties in need of additional leasing activity, rehabilitation or
improvement.
COMPETITION. All of the Company's existing properties are, and all of the
properties that it may acquire in the future are expected to be, located in
areas that include numerous other warehouse/industrial, retail or apartment
properties, many of which may be deemed to be more suitable to any potential
tenant. The resulting competition could have a material adverse effect on the
Company's ability to lease its properties and to increase the rentals charged on
existing leases.
ENVIRONMENTAL MATTERS. All of the Company's existing properties have been,
and all properties the Company may acquire in the future will be, subjected to a
Phase I or similar environmental assessment. The purpose of a Phase I
environmental assessment is to determine if past and present uses of a property
indicate the potential for soil or groundwater contamination or if other
environmental conditions might affect the value of or future uses of the
property. Phase I environmental assessments generally include the following:
visual inspection of environmental conditions at and around the property; review
of available land use records; interviews with the property representatives;
examination of information from environmental agencies; and a walk through
survey for suspected asbestos containing or other toxic materials. These
environmental assessments have not revealed any environmental condition with
respect to any of the Company's existing properties that the Company believes
could have a material adverse effect upon the business or assets of the Company.
However, no assurance can be given that environmental assessments have revealed
or will reveal all potentially negative environmental conditions that may exist.
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is potentially liable to governmental entities
or third parties for property damage and the costs of investigation, removal or
remediation of contamination caused by certain hazardous or toxic substances on
or in such property. Such laws often impose liability without regard to whether
the owner knew of, or was responsible for, the presence
5
of such hazardous or toxic substances. The presence of such substances, or the
failure to properly remove such substances or remediate any contamination caused
thereby, 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 of hazardous substances at a treatment, storage or disposal facility
may be liable for the cost of removal or remediation of such substances at such
treatment, storage or disposal facility, whether or not such facility is owned
or operated by such person. Certain environmental laws impose liability for
release of asbestos-containing materials into the air, and third parties may
seek recovery from owners or operators of real properties for personal injury
associated with such materials. In connection with the ownership, operation,
management and development of properties, the Company may be considered the
owner or operator of such properties or as having arranged for the disposal of
hazardous or toxic substances and, therefore, may be potentially liable for
removal or remediation costs, as well as certain other related costs, including
governmental fines and damages for injuries to persons and properties.
UNINSURED LOSS. The Company maintains comprehensive liability, fire, flood
(where appropriate), extended coverage and rental loss insurance with respect to
its properties, with limits and deductibles customary in the industry. Certain
types of losses, however, may be either uninsurable or not economically
insurable, such as those due to earthquakes, riots or acts of war. Should an
uninsured loss occur, the Company could lose both its investment in and
anticipated profits and cash flow from a property and would continue to be
obligated on any mortgage indebtedness or other obligations related to the
property. Any such loss could adversely affect the Company.
COST OF COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all public accommodations
are required to meet certain federal requirements related to access and use by
disabled persons. Existing warehouse/industrial properties generally are exempt
from the provisions of ADA but may be subject to provisions requiring that
buildings be made accessible to people with disabilities. Compliance with the
ADA could require removal of access barriers, and non-compliance could result in
the imposition of fines by the federal government or an award of damages to
private litigants. While the amounts of such compliance costs, if any, are not
currently ascertainable, they are not expected to have an adverse effect on the
Company.
CERTAIN RISKS RELATED TO REIT STATUS AND STRUCTURE
TAXATION AS A CORPORATION. The Company has elected and qualified for REIT
status since January 1, 1994. Although the Company believes that it has
operated in such a manner as to qualify as a REIT, no assurance can be given
that the Company will remain so qualified. Qualification as a REIT involves the
satisfaction of numerous requirements (some on an annual and quarterly basis)
established under highly technical and complex Code provisions for which there
are only limited judicial or administrative interpretations, and involves the
determination of various factual matters and circumstances not entirely within
the Company's control.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at corporate rates. Moreover,
unless entitled to relief under certain statutory provisions, the Company would
also be disqualified from treatment as a REIT for the four taxable years
following the year during which disqualification occurred. This treatment would
reduce the net earnings of the Company available for investment or distribution
to shareholders because of the additional tax liability to the Company for the
years involved. In addition, distributions to shareholders would no longer be
required to be made.
LACK OF CONTROL OF CERTAIN SUBSIDIARY CORPORATIONS. The Company expects to
derive income from certain activities (such as management of properties owned by
third parties) in excess of amounts the Company could earn directly or through
an entity controlled by the Company without jeopardizing its REIT status.
Accordingly, the Company owns a small percentage of the voting stock of
corporations carrying on such activities, and the Company has limited ability to
influence the day-to-day management of such corporations, even though the
Company owns stock representing most of the economic interest in such
corporations.
OTHER TAX LIABILITIES. Even as a REIT, the Company will be subject to
certain federal, state and local taxes on its income and property.
6
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the
Company intends to invest the net proceeds of any sale of Securities for general
business purposes, including the development, redevelopment and acquisition of
additional properties and repayment of outstanding debt.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratios of earnings to fixed charges for the years ended
December 31, 1994 and 1995 were 1.19 and 1.63, respectively, and the Company's
ratios of earnings to fixed charges for the nine months ended September 30, 1995
and 1996 were 1.49 and 2.27, respectively. The ratios of earnings to fixed
charges for the years ended December 31, 1991 through December 31, 1993 were
less than one-to-one.
The ratio of earnings to fixed charges means the ratio of pretax income
from continuing operations (with certain adjustments) to the total of: (i)
interest, (ii) amortization of debt expense and (iii) such portion of rental
expense as can be demonstrated to be representative of the interest factor in
the particular case.
The Company issued Series A Preferred Stock in September, 1995, which was
converted into Class B Common Stock in May, 1996. The Company's ratios of
earnings to combined fixed charges and Preferred Stock dividends for the year
ended December 31, 1995 was 1.51 and the Company's ratio of earnings to combined
fixed charges and Preferred Stock dividends for the nine months ended September
30, 1995 and September 30, 1996 was 1.48 and 2.05, respectively. The Company
had not issued any Preferred Stock prior to 1995; therefore, the ratios of
earnings to combined fixed charges and Preferred Stock dividends for years prior
to 1995 are unchanged from the ratios of earnings to fixed charges for such
years as set forth above.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions
of the Debt Securities to which this Prospectus and any applicable Prospectus
Supplement may relate. The particular terms of the Debt Securities being
offered and the extent to which such general provisions may apply will be set
forth in the applicable Indenture or in one or more indentures supplemental
thereto and described in a Prospectus Supplement relating to such Debt
Securities.
The Senior Debt Securities will be issued under an Indenture, as amended or
supplemented from time to time (the "Senior Indenture"), between the Company and
a trustee to be selected by the Company (the "Senior Trustee"), and the
Subordinated Debt Securities will be issued under an Indenture, as amended and
supplemented from time to time (the "Subordinated Indenture"), between the
Company and a trustee to be selected by the Company (the "Subordinated
Trustee"). The Senior Indenture and the Subordinated Indenture are each
referred to herein individually as an "Indenture," and they are together
referred to herein as the "Indentures;" the Senior Trustee and the Subordinated
Trustee are each referred to herein individually as a "Trustee," and they are
together referred to herein as the "Trustees." Forms of the Senior Indenture
and of the Subordinated Indenture have been filed as exhibits to the
Registration Statement of which this Prospectus is a part and will be available
for inspection at the corporate office of the Senior Trustee and Subordinated
Trustee, respectively, or as described above under "Available Information." The
Indentures will be subject to, and governed by, the Trust Indenture Act of 1939,
as amended. The Company will execute the applicable Indenture when and if the
Company issues Debt Securities. The statements made hereunder relating to the
Indentures and the Debt Securities to be issued thereunder are summaries of
certain provisions thereof and do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all provisions of the
Indentures and such Debt Securities. Unless otherwise indicated, all Section
references appearing herein are to Sections of the Indentures and capitalized
terms used but not otherwise defined herein will have the meanings set forth in
the Indentures.
PROVISIONS APPLICABLE TO SENIOR DEBT SECURITIES AND SUBORDINATED DEBT SECURITIES
GENERAL. The Debt Securities will be direct, unsecured obligations of the
Company and may be either Senior Debt Securities or Subordinated Debt
Securities.
7
The indebtedness represented by the Senior Debt Securities will rank pari
passu with other Senior Debt (as defined under "Provisions Applicable Solely to
Subordinated Debt Securities -- General") of the Company that may be outstanding
from time to time. The payment of principal of (and premium, if any) and
interest on indebtedness represented by Subordinated Debt Securities will be
subordinated, to the extent and in the manner provided in the Subordinated
Indenture, in right of payment to the prior payment in full of the Senior Debt
of the Company, including the Senior Debt Securities, as described under the
heading "Provisions Applicable Solely to Subordinated Debt Securities --
Subordination."
Each Indenture will provide that the Debt Securities may be issued without
limit as to aggregate principal amount, in one or more series, in each case as
established from time to time in or pursuant to authority granted by a
resolution of the Board of Trustees of the Company or as established in the
applicable Indenture or as may be established in one or more indentures
supplemental thereto. All Debt Securities of one series need not be issued at
the same time and, unless otherwise provided, a series may be reopened, without
the consent of the Holders of the Debt Securities of such series, for issuances
of additional Debt Securities of such series (Section 301).
Each Indenture will provide that there may be more than one Trustee
thereunder, each with respect to one or more series of Debt Securities. Any
Trustee under an Indenture may resign or be removed with respect to one or more
series of Debt Securities, and a successor Trustee may be appointed to act with
respect to such series (Section 608). In the event that two or more persons are
acting as Trustee with respect to different series of Debt Securities, each such
Trustee will be a trustee of a trust under the applicable Indenture separate and
apart from the trust administered by any other Trustee thereunder, and, except
as otherwise indicated herein, any action described herein to be taken by each
Trustee may be taken by each such Trustee with respect to, and only with respect
to, the one or more series of Debt Securities for which it is Trustee under the
applicable Indenture.
The Prospectus Supplement relating to any series of Debt Securities being
offered will contain the specific terms thereof, including, without limitation:
(1) the title of such Debt Securities;
(2) the classification of such Debt Securities as Senior Debt Securities
or Subordinated Debt Securities;
(3) The aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(4) The percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
(5) If convertible in whole or in part into Common Shares or Preferred
Shares, the terms on which such Debt Securities are convertible,
including the initial conversion price or rate (or method for
determining the same), the portion that is convertible and the
conversion period, and any applicable limitations on the ownership or
transferability of the Common Shares or Preferred Shares receivable on
conversion;
(6) The date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(7) The rate or rates (which may be fixed or variable), or the method by
which such rate or rates will be determined, at which such Debt
Securities will bear interest, if any;
(8) The date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the dates on which any such
interest will be payable, the Regular Record Dates for such Interest
Payment Dates, or the method by which such dates will be determined,
the person to whom such interest will be payable, and the basis upon
which interest will be calculated if other than that of a 360-day year
of twelve 30-day months;
8
(9) The place or places where the principal of (and premium or
Make-Whole Amount, if any) and interest and Additional Amounts, if
any, on such Debt Securities will be payable, where such Debt
Securities may be surrendered for conversion or registration of
transfer or exchange and where notices or demands to or upon the
Company in respect of such Debt Securities and the applicable
Indenture may be served;
(10) The period or periods within which, the price or prices at which and
the other terms and conditions upon which such Debt Securities may
be redeemed, in whole or in part, at the option of the Company, if
the Company is to have such an option;
(11) The obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a Holder thereof, and the period or
periods within which or the date and dates on which, the price or
prices at which and the other terms and conditions upon which such
Debt Securities will be redeemed, repaid or purchased, in whole or
in part, pursuant to such obligation;
(12) If other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating
thereto;
(13) Whether the amount of payments of principal of (and premium or
Make-Whole Amount, if any) or interest and Additional Amounts, if
any, on such Debt Securities may be determined with reference to an
index, formula or other method (which index, formula or method may,
but need not be, based on a currency, currencies, currency unit or
units or composite currency or currencies) and the manner in which
such amounts will be determined;
(14) Any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to Events of Default or covenants
set forth in the applicable Indenture;
(15) Whether such Debt Securities will be issued in certificated or
book-entry form;
(16) Whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than
$1,000 and any integral multiple thereof and, if in bearer form, the
denominations thereof and terms and conditions relating thereto;
(17) The applicability, if any, of the defeasance and covenant defeasance
provisions of Article Fourteen of the applicable Indenture;
(18) If such Debt Securities are to be issued upon the exercise of
Warrants, the time, manner and place for such Debt Securities to be
authenticated and delivered;
(19) Whether and under what circumstances the Company will pay any
Additional Amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company
will have the option to redeem such Debt Securities in lieu of
making such payment; and
(20) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special federal income tax, accounting
and other considerations applicable to Original Issue Discount Securities will
be described in the applicable Prospectus Supplement.
The Indentures will not contain any provisions that would limit the ability
of the Company to incur indebtedness or that would afford Holders of Debt
Securities protection in the event of a highly leveraged or similar transaction
involving the Company or in the event of a change of control. Restrictions on
ownership and transfers
9
of the Company's Common Shares and Preferred Shares are designed to preserve its
status as a REIT and, therefore, may act to prevent or hinder a change of
control. See "Description of Shares of Beneficial Interest -- Restrictions on
Transfer" and "Risk Factors -- Limitation on Ownership of Shares." Reference is
made to the applicable Prospectus Supplement for information with respect to any
deletions from, modifications of or additions to the Events of Default or
covenants of the Company that are described below, including any addition of a
covenant or other provision providing event risk or similar protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER. Unless otherwise
described in the applicable Prospectus Supplement, the Debt Securities of any
series will be issuable in denominations of $1,000 and integral multiples
thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium or Make-Whole Amount, if any) and interest
and Additional Amounts, if any, on any series of Debt Securities will be payable
at the corporate trust office of the applicable Trustee, the address of which
will be stated in the applicable Prospectus Supplement; provided that, at the
option of the Company, payment of interest may be made by check mailed to the
address of the person entitled thereto as it appears in the applicable register
for such Debt Securities or by wire transfer of funds to such person at an
account maintained within the United States (Sections 301, 305, 306, 307 and
1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
applicable Trustee, notice whereof will be given to the Holder of such Debt
Security not less than ten days prior to such Special Record Date, or may be
paid at any time in any other lawful manner, all as more completely described in
the applicable Indenture (Section 307).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the applicable Trustee. In
addition, subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series may be surrendered for
conversion or registration of transfer or exchange thereof at the corporate
trust office of the applicable Trustee. Every Debt Security surrendered for
conversion, registration of transfer or exchange must be duly endorsed or
accompanied by a written instrument of transfer. No service charge will be made
for any registration of transfer or exchange of any Debt Securities, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith (Section 305). If the
applicable Prospectus Supplement refers to any transfer agent (in addition to
the applicable Trustee) initially designated by the Company with respect to any
series of Debt Securities, the Company may at any time rescind the designation
of any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that the Company will be required to maintain a
transfer agent in each place of payment for such series. The Company may at any
time designate additional transfer agents with respect to any series of Debt
Securities (Section 1002).
Neither the Company nor any Trustee will be required to (i) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; (iii) exchange any Bearer Security so selected for redemption, except to
exchange such Bearer Security for a Registered Security of that series of like
tenor when immediately surrendered for redemption; or (iv) issue, register the
transfer of or exchange any Debt Security which has been surrendered for
repayment at the option of the Holder, except the portion, if any, of such Debt
Security not to be so repaid (Section 305).
MERGER, CONSOLIDATION OR SALE. The Company will be permitted to
consolidate with, or sell, lease or convey all or substantially all of its
assets to, or merge with or into, any other entity, provided that (a) either the
Company will be the continuing entity, or the successor entity (if other than
the Company) formed by or resulting from any such consolidation or merger or
which has received the transfer of such assets will expressly assume
10
payment of the principal of (and premium or Make-Whole Amount, if any) and
interest and Additional Amounts, if any, on all of the Debt Securities and the
due and punctual performance and observance of all of the covenants and
conditions contained in each Indenture; (b) immediately after giving effect to
such transaction and treating any indebtedness that becomes an obligation of the
Company or any Subsidiary as a result thereof as having been incurred by the
Company or such Subsidiary at the time of such transaction, no Event of Default
under the Indentures, and no event which, after notice or the lapse of time, or
both, would become such an Event of Default, has occurred and be continuing; and
(c) an officer's certificate and legal opinion covering such conditions will be
delivered to each Trustee (Sections 801 and 803).
CERTAIN COVENANTS.
EXISTENCE. Except as described above under "Merger, Consolidation or
Sale," the Company will be required to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
and franchises; provided, however, that the Company will not be required to
preserve any right or franchise if it determines that the preservation thereof
is no longer desirable in the conduct of its business and that the loss thereof
is not disadvantageous in any material respect to the Holders of the Debt
Securities (Section 1006).
MAINTENANCE OF PROPERTIES. The Company will be required to cause all of
its material properties used or useful in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, the Company and its Subsidiaries will
not be prevented from selling or otherwise disposing for value its properties in
the ordinary course of business (Section 1007).
INSURANCE. The Company will be required to, and will be required to cause
each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
financially sound and reputable insurers and, if described in the applicable
Prospectus Supplement, having a specified rating from a recognized insurance
rating service (Section 1008).
PAYMENT OF TAXES AND OTHER CLAIMS. The Company will be required to pay or
discharge or cause to be paid or discharged, before the same becomes delinquent,
(i) all taxes, assessments and governmental charges levied or imposed upon it or
any Subsidiary or upon the income, profits or property of the Company or any
Subsidiary, and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Company or any
Subsidiary; provided, however, that the Company will not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim (i) whose amount, applicability or validity is being contested in good
faith by appropriate proceedings or (ii) for which the Company has set apart and
maintains an adequate reserve (Section 1009).
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents (the "Financial Information") which the
Company would have been required to file with the Commission pursuant to such
Sections 13 or 15(d) if the Company were so subject, such documents to be filed
with the Commission on or prior to the respective dates (the "Required Filing
Dates") by which the Company would have been required so to file such documents
if the Company were so subject. The Company will also in any event (x) within
15 days of each Required Filing Date (i) transmit by mail to all Holders of Debt
Securities, as their names and addresses appear in the Security Register,
without cost to such Holders, copies of the annual reports and quarterly reports
and (ii) file with the Trustees copies of the Financial Information, and (y) if
filing such documents by the Company with the Commission is not permitted under
the Exchange Act, promptly upon written request and payment of the reasonable
cost of duplication and delivery, supply copies of such documents to any
prospective Holder (Section 1010).
11
ADDITIONAL COVENANTS AND/OR MODIFICATIONS TO THE COVENANTS DESCRIBED ABOVE.
Any additional covenants of the Company and/or modifications to the covenants
described above with respect to any Debt Securities or series thereof, including
any covenants relating to limitations on incurrence of indebtedness or other
financial covenants, will be set forth in the applicable Indenture or an
indenture supplemental thereto and described in the Prospectus Supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER. Each Indenture will provide that the
following events are "Events of Default" with respect to any series of Debt
Securities issued thereunder: (i) default for 30 days in the payment of any
installment of interest on any Debt Security of such series; (ii) default in the
payment of principal of (or premium or Make-Whole Amount, if any, on) any Debt
Security of such series at its Maturity; (iii) default in making any sinking
fund payment as required for any Debt Security of such series; (iv) default in
the performance or breach of any other covenant or warranty of the Company
contained in the applicable Indenture (other than a covenant added to the
Indenture solely for the benefit of a series of Debt Securities issued
thereunder other than such series), that continues for 60 days after written
notice as provided in the applicable Indenture; (v) default in the payment of an
aggregate principal amount exceeding $10,000,000 of any indebtedness of the
Company or any mortgage, indenture or other instrument under which such
indebtedness is issued or by which such indebtedness is secured, such default
having occurred after the expiration of any applicable grace period and having
resulted in the acceleration of the maturity of such indebtedness, but only if
such indebtedness is not discharged or such acceleration is not rescinded or
annulled within a specified period of time; (vi) certain events of bankruptcy,
insolvency or reorganization, or court appointment of a receiver, liquidator or
trustee of the Company or any Significant Subsidiary or either of its property;
and (vii) any other Event of Default provided with respect to a particular
series of Debt Securities (Section 501). The term "Significant Subsidiary" will
mean each significant subsidiary (as defined in Regulation S-X promulgated under
the Securities Act) of the Company.
If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the Holders of not less than 25% of the
principal amount of the Outstanding Debt Securities of that series will have the
right to declare the principal amount (or, if the Debt Securities of that series
are Original Issue Discount Securities or indexed securities, such portion of
the principal amount as may be specified in the terms thereof) of all the Debt
Securities of that series to be due and payable immediately by written notice
thereof to the Company (and to the applicable Trustee if given by the Holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then Outstanding under
any Indenture, as the case may be) has been made, but before a judgment or
decree for payment of the money due has been obtained by the applicable Trustee,
the Holders of not less than a majority in principal amount of Outstanding Debt
Securities of such series (or of all Debt Securities then Outstanding under the
applicable Indenture, as the case may be) may rescind and annul such declaration
and its consequences if (a) the Company has deposited with the applicable
Trustee all required payments of the principal of (and premium, if any) and
interest on the Debt Securities of such series (or of all Debt Securities then
Outstanding under the applicable Indenture, as the case may be), plus certain
fees, expenses, disbursements and advances of the applicable Trustee and (b) all
events of default, other than the non-payment of accelerated principal (or
specified portion thereof), with respect to Debt Securities of such series (or
of all Debt Securities then Outstanding under the applicable Indenture, as the
case may be) have been cured or waived as provided in such Indenture (Section
502). Each Indenture also will provide that the Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of any series
(or of all Debt Securities then Outstanding under the applicable Indenture, as
the case may be) may waive any past default with respect to such series and its
consequences, except a default (x) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or (y) in
respect of a covenant or provision contained in the applicable Indenture that
cannot be modified or amended without the consent of the Holder of each
Outstanding Debt Security affected thereby (Section 513).
Each Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default has been cured or waived; provided, however, that such Trustee may
withhold notice to the Holders of any series of Debt Securities of any default
with respect to such series (except a default in the payment of the principal of
(or premium, if any) or interest on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of such
series) if Responsible Officers of such Trustee consider such withholding to be
in the interest of such Holders (Section 601).
12
Each Indenture will provide that no Holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to
such Indenture or for any remedy thereunder, except in the cases of failure of
the applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it (Section 507). This provision will not prevent, however, any
Holder of Debt Securities from instituting suit for the enforcement of payment
of the principal of (and premium or Make-Whole Amount, if any) and interest on,
and any Additional Amounts in respect of such Debt Securities at the respective
due dates thereof (Section 508).
Subject to provisions in each Indenture relating to its duties in case of
default, no Trustee will be under any obligation to exercise any of its rights
or powers under an Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under such Indenture, unless such
Holders have offered to the Trustee thereunder reasonable security or indemnity
(Section 602). The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series (or of all Debt Securities then
Outstanding under an Indenture, as the case may be) will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the applicable Trustee, or of exercising any trust or power
conferred upon such Trustee. However, a Trustee may refuse to follow any
direction which is in conflict with any law or the applicable Indenture, which
may involve such Trustee in personal liability or which may be unduly
prejudicial to the Holders of Debt Securities of such series not joining therein
(Section 512).
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the applicable Indenture and, if so, specifying each such default
and the nature and status thereof (Section 1011).
MODIFICATION OF THE INDENTURES. Modifications and amendments of an
Indenture will be permitted to be made only with the consent of the Holders of
not less than a majority in principal amount of all Outstanding Debt Securities
issued under such Indenture which are affected by such modification or
amendment; provided, however, that no such modification or amendment may,
without the consent of the Holder of each such Debt Security affected thereby,
(a) change the stated maturity of the principal of, or any installment of
interest (or premium or Make-Whole Amount, if any) on, any such Debt Security;
(b) reduce the principal amount of, or the rate or amount of interest on or any
Additional Amounts payable in respect thereof, or any premium payable on
redemption of, any such Debt Security, or reduce the amount of principal of an
Original Issue Discount Security that would be due and payable upon declaration
of acceleration of the maturity thereof or would be provable in bankruptcy, or
adversely affect any right of repayment of the Holder of any such Debt Security;
(c) change the place of payment, or the coin or currency, for payment of
principal or premium, if any, or interest on any such Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any such Debt Security; (e) reduce the above-stated percentage of
Outstanding Debt Securities of any series necessary to modify or amend the
applicable Indenture, to waive compliance with certain provisions thereof or
certain defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the applicable Indenture; (f) if Subordinated Debt
Securities, modify any of the provisions of the Subordinated Indenture relating
to the subordination of such Subordinated Debt Securities in a manner adverse to
the Holders thereof; or (g) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect such action or to provide
that certain other provisions may not be modified or waived without the consent
of the Holder of such Debt Security (Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of each series affected thereby will have the right to waive
compliance by the Company with certain covenants in such Indenture (Section
1013).
Modifications and amendments of each Indenture will be permitted to be made
by the Company and the respective Trustee thereunder without the consent of any
Holder of Debt Securities for any of the following purposes: (i) to evidence
the succession of another person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Company in an Indenture; (iii) to add Events of Default for
the benefit of the Holders of all or any series of Debt Securities; (iv) to add
or change any provisions of an Indenture to facilitate the issuance of, or to
liberalize certain terms of, Debt Securities in bearer form, or to permit or
facilitate the
13
issuance of Debt Securities in uncertificated form, provided that such action
will not adversely affect the interests of the Holders of the Debt Securities of
any series in any material respect; (v) to change or eliminate any provisions of
an Indenture, provided that any such change or elimination will become effective
only when there are no Debt Securities Outstanding of any series created prior
thereto which are entitled to the benefit of such provision; (vi) to secure the
Debt Securities; (vii) to establish the form or terms of Debt Securities of any
series, including the provisions and procedures, if applicable, for the
conversion of such Debt Securities into Common Shares or Preferred Shares of the
Company; (viii) to provide for the acceptance of appointment by a successor
Trustee or facilitate the administration of the trusts under an Indenture by
more than one Trustee; (ix) to cure any ambiguity, defect or inconsistency in an
Indenture, provided that such action will not adversely affect the interests of
Holders of Debt Securities of any series issued under such Indenture in any
material respect; (x) to close either Indenture with respect to the
authentication and delivery of additional sums of Debt Securities or to qualify,
or maintain qualification of either Indenture under the Trust Indenture Act; or
(xi) to supplement any of the provisions of an Indenture to the extent necessary
to permit or facilitate defeasance and discharge of any series of such Debt
Securities, provided that such action will not adversely affect the interests of
the Holders of the Debt Securities of any series in any material respect
(Section 901).
Each Indenture will provide that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
will be deemed to be Outstanding will be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of any Debt Security denominated in a foreign currency that will be deemed
Outstanding will be the U.S. dollar equivalent, determined on the issue date for
such Debt Security, of the principal amount (or, in the case of Original Issue
Discount Security, the U.S. dollar equivalent on the issue date of such Debt
Security of the amount determined as provided in (i) above), (iii) the principal
amount of an indexed security that will be deemed Outstanding will be the
principal face amount of such indexed security at original issuance, unless
otherwise provided with respect to such indexed security pursuant to Section 301
of the applicable Indenture, and (iv) Debt Securities owned by the Company or
any other obligor upon the Debt Securities or any affiliate of the Company or of
such other obligor will be disregarded (Section 101).
Each Indenture will contain provisions for convening meetings of the
Holders of Debt Securities of a series (Section 1501). A meeting may be called
at any time by the applicable Trustee, and also, upon request, by the Company or
the Holders of at least 10% in principal amount of the Outstanding Debt
Securities of such series, in any such case upon notice given as provided in the
Indenture (Section 1502). Except for any consent that must be given by the
Holder of each Debt Security affected by certain modifications and amendments of
an Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the Holders of a majority in principal amount of the Outstanding Debt
Securities of that series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specified percentage, which is less than a majority, in principal
amount of the Outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting or adjourned meeting duly reconvened at which a
quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of Holders of
Debt Securities of any series duly held in accordance with an Indenture will be
binding on all Holders of Debt Securities of that series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
persons holding or representing a majority in principal amount of the
Outstanding Debt Securities of a series; provided, however, that if any action
is to be taken at such meeting with respect to a consent or waiver which may be
given by the Holders of not less than a specified percentage in principal amount
of the Outstanding Debt Securities of a series, the persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, each Indenture will provide that
if any action is to be taken at a meeting of Holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the Holders of a specified percentage in principal
amount of all Outstanding Debt Securities affected thereby, or the Holders of
such series and one or more additional series: (i) there will be no minimum
quorum requirement for such meeting, and (ii) the principal amount of the
Outstanding Debt Securities of such series that vote in favor of
14
such request, demand, authorization, direction, notice, consent, waiver or other
action will be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture (Section 1504).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE. The Company may be
permitted under the applicable Indenture to discharge certain obligations to
Holders of any series of Debt Securities issued thereunder that have not already
been delivered to the applicable Trustee for cancellation and that either have
become due and payable or will become due and payable within one year (or
scheduled for redemption within one year) by irrevocably depositing with the
applicable Trustee, in trust, funds in such currency or currencies, currency
unit or units or composite currency or currencies in which such Debt Securities
are payable in an amount sufficient to pay the entire indebtedness on such Debt
Securities in respect of principal (and premium, if any) and interest and any
Additional Amounts to the date of such deposit (if such Debt Securities have
become due and payable) or to the stated maturity or redemption date, as the
case may be (Section 401).
Each Indenture will provide that, if the provisions of Article Fourteen are
made applicable to the Debt Securities of or within any series pursuant to
Section 301 of such Indenture, the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay Additional Amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities, and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 1402) or (b) to be released from its obligations with
respect to such Debt Securities under certain specified sections of Article Ten
of such Indenture as specified in the applicable Prospectus Supplement,
whereupon any omission to comply with such obligations will not constitute an
Event of Default with respect to such Debt Securities ("covenant defeasance")
(Section 1403), in either case upon the irrevocable deposit by the Company with
the applicable Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at stated maturity, or Government Obligations (as defined
below), or both, applicable to such Debt Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient without reinvestment to pay the principal of (and
premium, if any) and interest on such Debt Securities, and any mandatory sinking
fund or analogous payments thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Trustee an opinion of
counsel (as specified in the applicable Indenture) to the effect that the
Holders of such Debt Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
or covenant defeasance had not occurred, and such opinion of counsel, in the
case of defeasance, will be required to refer to and be based upon a ruling of
the Internal Revenue Service or a change in applicable U.S. federal income tax
law occurring after the date of the Indenture (Section 1404).
"Government Obligations" will be defined in the Indentures to mean
securities which are (i) direct obligations of the United States of America or
the government which issued the foreign currency in which the Debt Securities of
a particular series are payable, for the payment of which its full faith and
credit is pledged or (ii) obligations of a person controlled or supervised by
and acting as an agency or instrumentality of the United States of America or
such government which issued the foreign currency in which the Debt Securities
of such series are payable, the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation of the United States of America
or such government, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and will also include a depository receipt issued
by a bank or trust company as custodian with respect to any such Government
Obligation or a specific payment of interest on or principal of any such
Government Obligation held by such custodian for the account of the Holder of a
depository receipt, provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the Holder of
such depository receipt from any amount received by the custodian in respect of
the Government Obligation or the specific payment of interest on or principal of
the Government Obligation evidenced by such depository receipt (Section 101).
15
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to Section 301 of the applicable Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite currency
other than that in which such deposit has been made in respect of such Debt
Security, or (b) a Conversion Event (as defined below) occurs in respect of the
currency, currency unit or composite currency in which such deposit has been
made, the indebtedness represented by such Debt Security will be deemed to have
been, and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest on such Debt Security as they
become due out of the proceeds yielded by converting the amount so deposited in
respect of such Debt Security into the currency, currency unit or composite
currency in which such Debt Security becomes payable as a result of such
election or such cessation of usage based on the applicable market exchange
rate. "Conversion Event" means the cessation of use of (i) a currency, currency
unit or composite currency both by the government of the country which issued
such currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community, (ii) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Communities or
(iii) any currency unit or composite currency other than the ECU for the
purposes for which it was established. Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium, if
any) and interest on any Debt Security that is payable in a foreign currency
that ceases to be used by its government of issuance will be made in U.S.
dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default described
in clause (iv) under "Events of Default, Notice and Waiver" with respect to
certain specified sections of Article Ten of each Indenture (which sections
would no longer be applicable to such Debt Securities as a result of such
covenant defeasance) or described in clause (vii) under "Events of Default,
Notice and Waiver" with respect to any other covenant as to which there has been
covenant defeasance, the amount in such currency, currency unit or composite
currency in which such Debt Securities are payable, and Government Obligations
on deposit with the applicable Trustee, will be sufficient to pay amounts due on
such Debt Securities at the time of their stated maturity but may not be
sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Event of Default. However, the Company would
remain liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS. The terms and conditions, if any, upon which the Debt
Securities are convertible into Common Shares or Preferred Shares will be set
forth in the applicable Prospectus Supplement relating thereto. Such terms will
include whether such Debt Securities are convertible into Common Shares or
Preferred Shares, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the Holders or the Company, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of such
Debt Securities and any restrictions on conversion, including restrictions
directed at maintaining the Company's REIT status.
REDEMPTION OF SECURITIES. Each Indenture will provide that the Debt
Securities may be redeemed at any time at the option of the Company, in whole or
in part, at the Redemption Price, except as may otherwise be provided in
connection with any Debt Securities or series thereof (Section 1102).
From and after notice has been given as provided in the Indentures, if
funds for the redemption of any Debt Securities called for redemption have been
made available on such redemption date, such Debt Securities will cease to bear
interest on the date fixed for such redemption specified in such notice (Section
1105), and the only right of the Holders of the Debt Securities will be to
receive payment of the Redemption Price (Section 1106).
Notice of any optional redemption of any Debt Securities will be given to
Holders at their addresses, as shown in the Security Register, not more than 60
nor less than 30 days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the Redemption Price and the
principal amount of the Debt Securities held by such Holder to be redeemed
(Section 1104). With respect to Bearer Securities, notice will be
16
sufficiently given if published in an Authorized Newspaper in the City of New
York and in such other city or cities as may be specified in the Debt Securities
(Section 106).
If the Company elects to redeem Debt Securities, it will notify the
applicable Trustee at least 45 days prior to the redemption date (or such
shorter period as satisfactory to such Trustee) of the aggregate principal
amount of Debt Securities to be redeemed and the redemption date (Section 1102).
If less than all the Debt Securities are to be redeemed, the applicable Trustee
will select the Debt Securities to be redeemed PRO RATA, by lot or in such
manner as it deems fair and appropriate (Section 1103).
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 (the "Global
Securities") that will be deposited with, or on behalf of, a depository
identified in the applicable Prospectus Supplement relating to such series
(Section 201). Global Securities, if any, issued in the United States are
expected to be deposited with the Depository Trust Company, as Depository.
Global Securities may be issued in fully registered form and may be issued in
either temporary or permanent form. Unless and until a Global Security is
exchanged in whole or in part for the individual Securities represented thereby,
it may not be transferred except as a whole by the Depository for such Global
Security to a nominee of such Depository or by a nominee of such Depository to
such Depository or another nominee of such Depository or by such Depository or
any nominee of such Depository to a successor Depository or any nominee of such
successor.
The specific terms of the depository arrangement with respect to particular
Securities will be described in the Prospectus Supplement relating to such
Securities. The Company expects that unless otherwise indicated in the
applicable Prospectus Supplement, the following provisions will apply to
depository arrangements.
Upon the issuance of a Global Security, the Depository for such Global
Security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual Securities represented
by such Global Security to the accounts of persons that have accounts with such
Depository ("Participants"). Such accounts will be designated by the
underwriters, dealers or agents with respect to such Securities or by the
Company if such Securities are offered directly by the Company. Ownership of
beneficial interests in such Global Security will be limited to Participants or
person that may hold 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 Depository
for such Global Security or its nominee (with respect to beneficial interests of
participants) and records of Participants (with respect to beneficial interests
of persons who hold through Participants). The laws of some states require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to own, pledge or
transfer beneficial interest in a Global Security.
So long as the Depository for a Global Security or its nominee is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Securities
represented by such Global Security for all purposes. Except as described below
or in the applicable Prospectus Supplement, owners of beneficial interest in a
Global Security will not be entitled to have any of the individual Securities
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of any such Securities in definitive
form and will not be considered the Owners or Holders thereof.
Payment with respect to Securities represented by a Global Security
registered in the name of a Depository or its nominee (including dividends, with
respect to Common Shares, dividends and any redemption payments on Preferred
Shares and principal of, any premium or Make-Whole Amount and any interest on,
or any Additional Amounts payable with respect to, individual Debt Securities)
will be made to the Depository or its nominee, as the case may be, as the
registered owner of the Global Security. None of the Company, any Trustee, any
Paying Agent, the Security Registrar or any transfer agent for Securities
represented by a Global Security will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Security for such Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Company expects that the Depository for any Securities or its nominee,
upon receipt of any payment with respect to Securities represented by a Global
Security will immediately credit Participants' accounts with payments in amounts
proportionate to their respective beneficial interests in such Global Security
as shown on the
17
records of such Depository 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 the case with securities held for
the account of customers in bearer form or registered in street name. Such
payments will be the responsibility of such Participants.
If a Depository for any Securities is at any time unwilling, unable or
ineligible to continue as depository and a successor depository is not appointed
by the Company within 90 days, the Company will issue individual Securities in
exchange for the Global Security representing such discretion, subject to any
limitations described in the Prospectus Supplement relating to such Securities,
determine not to have any of such Securities represented by one or more Global
Securities and in such event will issue individual Securities in exchange for
the Global Security or Securities representing such Securities. Individual Debt
Securities so issued will be issued in denominations of $1,000 and integral
multiples thereof.
PROVISIONS APPLICABLE SOLELY TO SUBORDINATED DEBT SECURITIES
GENERAL. Subordinated Debt Securities will be issued under the
Subordinated Indenture and will rank pari passu with certain other subordinated
debt of the Company that may be outstanding from time to time and will rank
junior to all Senior Debt of the Company, including the Senior Debt Securities,
that may be outstanding from time to time. All Section references appearing
below are to Sections of the Subordinated Indenture.
If Subordinated Debt Securities are issued under the Subordinated
Indenture, the aggregate principal amount of Senior Debt outstanding as of a
recent date will be set forth in the Prospectus Supplement. The Subordinated
Indenture will not restrict the amount of Senior Debt that the Company may
incur.
The term "Senior Debt" will be defined in the Subordinated Indenture to
mean: (i) the principal of and premium, if any, and interest on indebtedness
for borrowed money; (ii) purchase money and similar obligations; (iii)
obligations under capital leases; (iv) guarantees, assumptions or purchase
commitments relating to, or other transactions as a result of which the Company
is responsible for payment of, such indebtedness of others; (v) renewals,
extensions and refunding of any such indebtedness; (vi) interest or obligations
in respect of any such indebtedness accruing after the commencement of any
insolvency or bankruptcy proceedings; and (vii) obligations associated with
derivative products such as interest rate and currency exchange contracts,
foreign exchange contracts, commodity contracts, and similar arrangements,
unless, in each case, the instrument by which the Company incurred, assumed or
guaranteed the indebtedness or obligations described in clauses (i) through
(vii) expressly provides that such indebtedness or obligation is subordinate or
junior in right of payment to any other indebtedness or obligations of the
Company. As used in the preceding sentence, the term "purchase-money
obligations" means indebtedness or obligations evidenced by a note, debenture,
bond or other instrument (whether or not secured by any lien or other security
interest but excluding indebtedness or obligations for which recourse is limited
to the property purchased) issued or assumed as all or a part of the
consideration for the acquisition of property, whether by purchase, merger,
consolidation or otherwise, but will not include any trade accounts payable
(Section 101).
SUBORDINATION. The payment of the principal of (and premium, if any) and
interest on the Subordinated Debt Securities is expressly subordinated, to the
extent and in the manner set forth in the Subordinated Indenture, in right of
payment to the prior payment in full of all Senior Debt of the Company (Section
1601).
No Payment or Distribution will be made by the Company, the Trustee or the
Paying Agent on account of principal of (or premium, if any) or interest on the
Subordinated Debt Securities, whether upon stated maturity, upon redemption or
acceleration, or otherwise, or on account of the purchase or other acquisition
of Subordinated Debt Securities, whether upon stated maturity, upon redemption
or acceleration, or otherwise, if there has occurred and be continuing a default
with respect to any Senior Debt permitting the acceleration thereof or with
respect to the payment of any Senior Debt and (a) such default is the subject of
a judicial proceeding or (b) notice of such default in writing or by telegram
has been given to the Company by any holder or holders of any Senior Debt,
unless and until the Company has received written notice from such holder or
holders that such default or event of default has been cured or waived or has
ceased to exist (Section 1602).
18
Upon any acceleration of the principal of the Subordinated Debt Securities
or any payment by the Company or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to creditors upon
any dissolution or winding up or liquidation or reorganization of the Company,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or
other proceedings, all amounts due or to become due upon all Senior Debt will
first be paid in full in cash, or payment thereof provided for to the
satisfaction of the holders thereof, before any Payment or Distribution is made
on account of the redemption price or principal of (and premium, if any) or
interest on the Subordinated Debt Securities; and (subject to the power of a
court of competent jurisdiction to make other equitable provision, which has
been determined by such court to give effect to the rights conferred in Article
16 of the Subordinated Indenture upon the Senior Debt and the holders thereof
with respect to the Subordinated Debt Securities or the Holders thereof or the
Trustee, by a lawful plan of reorganization or readjustment under applicable
law) upon any such dissolution or winding up or liquidation or reorganization,
any Payment or Distribution by the Company or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
which the Holders of the Subordinated Debt Securities or the Trustee would be
entitled except for the provisions of Article 16 of the Subordinated Indenture,
will be paid by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such Payment or Distribution
directly to the holders of Senior Debt of the Company or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any Senior Debt may have been issued, as their
respective interests may appear, to the extent necessary to pay all Senior Debt
in full in cash, after giving effect to any concurrent payment or distribution
to or for the holders of Senior Debt, before any Payment or Distribution is made
to the Holders of the Subordinated Debt Securities or to the Trustee, except
that the Trustee will have a lien for the payment of its fees and expenses
(Section 1602).
In the event that, notwithstanding the foregoing, any Payment or
Distribution by the Company of any kind or character, whether in cash, property
or securities, prohibited by the foregoing, will be received by the Trustee or
the Holders of the Subordinated Debt Securities before all Senior Debt is paid
in full in cash, or provision is made for such payment to the satisfaction of
the holders thereof, and if such fact has then been or thereafter is made known
to a Responsible Officer of the Trustee or, as the case may be, such Holder,
then and in such event such Payment or Distribution will be paid over or
delivered to the holders of Senior Debt or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of all Senior
Debt remaining unpaid to the extent necessary to pay all Senior Debt in full in
cash, after giving effect to any concurrent Payment or Distribution to or for
the holders of such Senior Debt, and, until so delivered, the same will be held
in trust by any Holder of a Security as the property of the holders of Senior
Debt (Section 1602).
The holders of Senior Debt may, at any time and from time to time, without
the consent of or notice to the Holders of the Subordinated Debt Securities,
without incurring responsibility to the Holders of the Subordinated Debt
Securities and without impairing or releasing the obligations of the Holders of
the Subordinated Debt Securities hereunder to the holders of Senior Debt: (i)
change the manner, place or terms of payment or change or extend the time of
payment of, or renew or alter, Senior Debt, or otherwise amend in any manner
Senior Debt or any instrument evidencing the same or any agreement under which
Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Debt; (iii) release
any Person liable in any manner for the collection of Senior Debt; and/or (iv)
exercise or refrain from exercising any rights against the Company and any other
Person (Section 1602).
SUBROGATION. Subject to the payment in full in cash of all amounts then
due (whether by acceleration of the maturity thereof or otherwise) on account of
all Senior Debt at the time outstanding, the Holders of the Subordinated Debt
Securities will be subrogated to the rights of the holders of Senior Debt to
receive Payments or Distributions of cash, property or securities of the Company
applicable to the Senior Debt until the principal of (and premium, if any) and
interest on the Subordinated Debt Securities is paid in full; and, for the
purposes of such subrogation, no Payments or Distributions to the holders of
Senior Debt to which the Holders of the Subordinated Debt Securities or the
Trustee would be entitled except for the provisions of Article 16 of the
Subordinated Indenture, and no payments other than pursuant to the provisions of
Article 16 of the Subordinated Indenture to the holders of Senior Debt by
Holders of the Subordinated Debt Securities or the Trustee, will, as between the
Company, the Company's creditors other than holders of Senior Debt, and the
Holders of the Subordinated Debt Securities, be deemed to be a payment by the
Company to or on account of the Senior Debt. It is understood that the
provisions of Article 16 of the Subordinated Indenture are and are intended
solely for the purpose of defining
19
the relative rights of the Holders of the Subordinated Debt Securities, on the
one hand, and the holders of Senior Debt, on the other hand (Section 1603).
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The following is a summary of the terms of the shares of beneficial
interest in the Company. This summary does not purport to be complete and is
subject to and qualified in its entirety by reference to the Company's
Declaration of Trust and the By-laws. See "Available Information."
GENERAL
The Declaration of Trust authorizes the issuance of up to 60,000,000 shares
of beneficial interest in the Company, of which 47,727,273 are common shares,
par value $.001 per share ("Common Shares"), 2,272,727 are Class B Common
Shares, par value $.001 per share ("Class B Common Shares"), and 10,000,000 are
shares of Series Preferred Shares, par value $.001 per share ("Preferred
Shares"). As of October 31, 1996, there were 14,312,195 shares of Common Stock
issued and outstanding and 2,272,727 shares of Class B Common Stock issued and
outstanding, all of which are fully-paid and non-assessable. The Class B Common
Stock was issued in May 1996 upon conversion of the Company Series A Preferred
Stock. As a consequence of such conversion, no shares of Preferred Stock are as
of October 31, 1996 issued and outstanding, and the Series A Preferred Stock
reverted to the status of authorized and unissued Preferred Stock.
COMMON SHARES
Holders of Common Shares are entitled to receive dividends when and as
declared by the Board of Trustees out of funds legally available therefor after
payment of any preferential dividends to the holders of any series of Preferred
Shares that may then be issued and outstanding. Upon any liquidation,
dissolution or winding up of the Company, holders of Common Shares are entitled
to receive ratably any assets remaining after payment in full of all liabilities
of the Company and any preferential payments to the holders of Preferred Shares.
The holders of Common Shares are entitled to one vote per share on all matters
voted on by shareholders, including elections of trustees, and, except as
otherwise required by law with respect to class voting rights, or as granted to
the holders of Class B Common Shares, or provided in any resolution adopted by
the Board of Trustees with respect to any series of Preferred Shares
establishing the powers, designations, preferences and relative, participating,
optional or other special rights of such series, the holders of Common Shares
possess all voting powers. Holders of Common Shares do not possess preemptive
rights to subscribe for additional securities of the Company or the right to
cumulate their shares in the election of trustees or in any other matter. All
Common Shares offered by the Company will be, and all issued and outstanding
Common Shares are, fully paid and non-assessable.
The transfer agent and registrar for the Common Shares is First Chicago
Trust Company of New York, Jersey City, New Jersey.
CLASS B COMMON SHARES
DIVIDENDS
Holders of Class B Common Shares are entitled to receive, when and as
declared by the Board of Trustees, out of funds legally available therefor,
dividends PARI PASSU with any dividends paid on the Common Shares, in an amount
per share equal to the Class B Common Shares Common Dividend Amount as in effect
from time to time. Each calendar quarter is referred to as a "Dividend Period."
The amount of dividends payable with respect to each full Dividend Period is
computed by dividing the Class B Common Shares Common Dividend Amount by four.
The amount of dividends on the Class B Common Shares with respect to any
Dividend Period shorter or longer than a full Dividend Period is computed
ratably on the basis of the actual number of days in such Dividend Period. The
initial Class B Common Shares Dividend Amount is $1.7268. Upon a change in the
quarterly cash dividend per share applicable to the Common Shares, the quarterly
cash dividend per share of the Class B Common Shares is adjusted for the same
Dividend Period by an amount computed by multiplying the amount of the change in
the Common Shares dividend by the Conversion Ratio (as defined below).
20
In the event that the Company declares a distribution payable in
(i) securities of other persons, (ii) evidences of indebtedness issued by the
Company or other persons, (iii) assets (excluding cash dividends) or
(iv) options or rights to purchase shares of beneficial interest or evidences of
indebtedness in the Company or other persons, then the holders of Class B Common
Shares will be entitled to a proportionate share of any such distribution as
though they were the holders of the number of Common Shares into which their
Class B Common Shares are or would be convertible (assuming such Class B Common
Shares were then convertible) as of the record date fixed for determination of
the holders of Common Shares entitled to receive such distribution.
LIQUIDATION RIGHTS
Subject to any prior rights of any other class or series of shares of
beneficial interest in the Company, the holders of the Class B Common Shares
will be entitled to receive the remaining assets of the Company available for
distribution pro rata with the holders of Common Shares as though they were the
holders of the number of Common Shares into which their Class B Common Shares
are or would be convertible (assuming such Class B Common Shares were then
convertible) as of the record date applicable to such distribution.
Neither a consolidation or merger of the Company with or into any other
entity, nor a merger of any other entity into the Company, nor the purchase or
redemption of all or part of the outstanding shares of any class or classes of
shares of beneficial interest in the Company, nor a sale or transfer of all or
any part of the Company's assets, will be considered a liquidation, dissolution
or winding up of the Company.
VOTING RIGHTS
The holders of Class B Common Shares are not entitled to vote on any matter
on which the holders of Common Shares are entitled to vote, except that the
holders of a majority of the Class B Common Shares, voting as a separate class,
must approve (i) any material adverse change in the rights, preferences or
privileges of the Class B Common Shares and (ii) any creation of a new class of
shares of beneficial interest having rights, preferences or privileges senior to
or on a parity with the preferences or privileges of the Class B Common Shares.
CONVERSION RIGHTS
Beginning on September 30, 1998, and at the end of each calendar quarter
thereafter, the number of Class B Common Shares will mandatorily convert into
such number of Common Shares as will result in the holders of the Class B Common
Shares owning, in the aggregate, 4.9% of the then outstanding Common Shares; and
if on any such date the total number of outstanding Class B Common Shares would
not, upon conversion, result in the holders thereof owning, in the aggregate,
4.9% of the then outstanding Common Shares, then all such outstanding Class B
Common Shares will mandatorily convert into Common Shares.
On May 22, 2006, each remaining Class B Common Share which has not been
converted to Common Shares will mandatorily convert to that number of
non-assessable Common Shares equal to the Conversion Ratio, as adjusted,
regardless of the 4.9% limitation.
Beginning on September 21, 1998, the holders of Class B Common Shares will
have the right, at their option, to convert each such Class B Common Share, at
any time and from time to time, into one fully paid and non-assessable Common
Share (the "Conversion Ratio," which is subject to adjustment as provided
below); PROVIDED, HOWEVER, that no holder of Class B Common Shares will be
entitled to convert such Class B Common Shares into Common Shares pursuant to
the foregoing provision if, as a result of such conversion, such person would
become the Beneficial Owner of more than 4.9% of the outstanding Common Shares.
"Beneficial Owner" has the meaning set forth in Rule 13d-3 under the Exchange
Act (or any successor provision thereto). Notwithstanding the foregoing, the
conversion right described above may be exercised at any time and irrespective
of the 4.9% limitation (and no such limit will apply) if any of the following
circumstances occurs:
(i) For any two consecutive fiscal quarters, the aggregate
amount outstanding as of the end of the quarter under (A) all mortgage
indebtedness of the Company and its consolidated entities and (B) unsecured
indebtedness of the Company and its consolidated entities for money
borrowed that has not been made generally subordinate to the other
indebtedness for borrowed money of the Company or any consolidated entity
exceeds 55% of the Company's total market capitalization, defined as the
market value
21
of all of the Company's outstanding shares of beneficial interest, assuming
the conversion of all outstanding convertible securities, including the
Class B Common Shares, plus the amount of the Company's total
non-convertible indebtedness; or
(ii) Fewer than three of John S. Gates, Jr., Robert M. Stovall,
Michael M. Mullen and Paul S. Fisher are continuing as Key Managers of the
Company. (For purposes of this subparagraph (ii), a "Key Manager" means a
person who (A) is employed by the Company and (B) actively participates as
a senior executive officer in the management of the Company); or
(iii) If (A) the Company is party to, or has announced or entered
into an agreement for, any transaction (including, without limitation, a
merger, consolidation, statutory share exchange or sale of all or
substantially all of its assets (each of the foregoing a "Transaction")),
in each case as a result of which Common Shares have been or will be
converted into the right to receive shares of beneficial interest,
securities or other property (including cash or any combination thereof) or
which has resulted or will result in the holders of Common Shares
immediately prior to the Transaction owning less than 50% of the Common
Shares after the Transaction, or (B) a "Change of Control" as defined in
the next sentence occurs with respect to the Company. "Change of Control"
means the acquisition (including by virtue of a merger, share exchange or
other business combination) by one shareholder or a group of shareholders
acting in concert of the power to elect a majority of the Company's Board
of Trustees.
No fractional shares will be issued upon conversion of the Class B Common
Shares into Common Shares, and the number of Common Shares to be issued will be
rounded to the nearest whole share.
The Conversion Ratio is subject to adjustment as follows:
(i) In the event that the Company at any time (A) pays a
dividend or makes a distribution to holders of Common Shares in Common
Shares, (B) subdivides its outstanding Common Shares into a larger number
of shares, (C) combines its outstanding Common Shares into a smaller number
of shares, or (D) issues by reclassification of its Common Shares any
shares of beneficial interest in the Company, the Conversion Ratio in
effect immediately prior thereto will be adjusted as provided below so that
the holder of any Class B Common Shares thereafter surrendered for
conversion will be entitled to receive the number of Common Shares which
such holder would have owned or have been entitled to receive after the
happening of any of the events described above, had such Class B Common
Shares been converted immediately prior to the happening of such event.
Any adjustment made pursuant to this subparagraph (i) will become effective
retroactively immediately after the record date in the case of a dividend
and will become effective immediately after the effective date in the case
of a subdivision, combination or reclassification.
(ii) In case the Company issues rights or warrants to all holders
of Common Shares entitling them to subscribe for or purchase Common Shares
at a price per share less than the current market price (as hereinafter
defined) per share of Common Shares at the record date mentioned below, the
number of Common Shares into which each Class B Common Share will
thereafter be convertible will be determined by multiplying the number of
Common Shares into which such Class B Common Share was theretofore
convertible by a fraction, of which the numerator will be the number of
Common Shares outstanding on the date of issuance of such rights or
warrants plus the number of additional Common Shares offered for
subscription or purchase, and of which the denominator will be the number
of Common Shares outstanding on the date of issuance of such rights or
warrants plus the number of Shares which the aggregate offering price of
the total number of Shares so offered would purchase at such current market
price. Such adjustment will be made whenever such rights or warrants are
issued, and will become effective retroactively immediately after the
record date for the determination of shareholders entitled to receive such
rights or warrants.
(iii) In case the Company distributes to all holders of Common
Shares evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase securities issued by the Company or property of
the Company (excluding those referred to in subparagraph (ii) above), then
in each such case the number of Common Shares into which each Class B
Common Share will thereafter be convertible will be determined by
multiplying the number of Common Shares into which such Class B Common
Share was
22
theretofore convertible by a fraction, of which the numerator will be the
current market price per share of the Common Shares, and of which the
denominator will be such current market price per share of Common Shares,
less the then fair market value (as determined by the Board of Trustees of
the Company, whose determination will be conclusive) of the portion of the
assets or evidence of indebtedness so distributed or of such rights or
warrants applicable to one of the Common Shares. Such adjustment will be
made whenever any such distribution is made, and will become effective
retroactively immediately after the record date for the determination of
shareholders entitled to receive such distribution.
(iv) If any such rights or warrants referred to above expires
without having been exercised, the Conversion Ratio as theretofore adjusted
because of the issuance of such rights or warrants will forthwith be
readjusted to the Conversion Ratio which would have been in effect had an
adjustment been made on the basis that only the rights or warrants issued
or sold were those rights or warrants actually exercised and that with
respect to any such rights or warrants to subscribe for or purchase
securities issued by the Company, other than Common Shares or property of
the Company, the fair market value thereof will be the fair market value of
the rights or warrants actually exercised or warrants actually exercised.
For the purpose of any computation under these paragraphs (i)-(iv), the
current market price per Common Share at any date will be deemed to be the
average of the daily closing prices for the 15 consecutive business days
commencing 30 business days before the day in question. The closing price for
each day will be the last reported sale price regular way or, in the case no
such reported sale takes place on such day, the average of the reported closing
bid and asked prices regular way, in either case on the NYSE, or, if the Common
Shares are not listed or admitted to trading on the NYSE, on any national
securities exchange, designated by the Board of Trustees, on which the Common
Shares are listed or admitted to trading, or if not listed or admitted to
trading on any national securities exchange, the average of the closing bid and
asked prices as furnished by any NYSE firm selected from time to time by the
Company for such purpose.
No adjustment of the Conversion Ratio will be made as a result of or in
connection with the issuance of Common Shares pursuant to options or share
purchase agreements now or hereafter granted or entered into with trustees,
officers or employees of the Company or its subsidiaries in connection with
their employment, whether entered into at the beginning of the employment or at
any time thereafter.
In case of:
(i) any capital reorganization of the Company, or
(ii) the consolidation or merger of the Company with or into
another entity, or
(iii) a statutory share exchange whereby the Common Shares are
converted into property other than cash, or
(iv) the sale, transfer or other disposition of all or
substantially all of the property, assets or business of the Company as a
result of which sale, transfer or other disposition property other than
cash will be payable or distributable to the holders of the Common Shares,
then, in each such case, each Class B Common Share will thereafter be
convertible into the number and class of shares or other securities or property
of the Company, or of the entity resulting from such consolidation or merger or
with or to which such statutory share exchange, sale, transfer or other
disposition has been made, to which the Common Shares otherwise issuable upon
conversion of such Class B Common Share would have been entitled upon such
reorganization, consolidation, merger, statutory share exchange, or sale,
transfer or other disposition if outstanding at the time thereof; and in any
such case appropriate adjustment, as determined by the Board of Trustees, will
be made in the application of the provisions set forth in the foregoing
paragraph with respect to the conversion rights thereafter of the holders of the
Class B Common Shares, to the end that such provisions will thereafter be
applicable, as nearly as reasonably may be, in relation to any shares or
securities or other property thereafter issuable or deliverable upon the
conversion of Class B Common Shares. Proper provision will be made as a part of
the terms of any such reorganization, consolidation, merger, statutory share
exchange or sale, transfer or other disposition whereby the conversion rights of
the holders of Class B Common Shares will be protected and preserved in
accordance with the provisions of this paragraph. The provisions of this
paragraph will similarly apply
23
to successive capital reorganizations, consolidations, mergers, statutory share
exchanges, sales, transfers or other dispositions of property as aforesaid.
Upon conversion of any Class B Common Shares, no payment or adjustment will
be made on account of dividends accrued, whether or not in arrears, on such
shares or on account of dividends declared and payable to holders of Common
Shares of record on a date prior to the date of conversion.
If the Company is party to any Transaction in each case as a result of
which Common Shares will be converted into the right to receive securities or
other property (including cash or any combination thereof), the holder of each
Class B Common Share will have the right after such Transaction to convert such
share, pursuant to the optional conversion provisions hereof, into the number
and kind of shares of beneficial interest or other securities and the amount and
kind of property receivable upon such Transaction by a holder of the number of
Common Shares issuable upon conversion of such Class B Common Share immediately
prior to such Transaction. The Company will not be party to any Transaction
unless the terms of such Transaction are consistent with the provisions of this
paragraph, and it will not consent to or agree to the occurrence of any
Transaction until the Company has entered into an agreement with the successor
or purchasing entity, as the case may be, for the benefit of the holders of the
Class B Common Shares, thereby enabling the holders of the Class B Common Shares
to receive the benefits of this paragraph and the other provisions of the
Company's Declaration of Trust applicable to the Class B Common Shares.
PREFERRED SHARES
GENERAL. Preferred Shares may be issued from time to time, in one or more
series, as authorized by the Board of Trustees. Prior to issuance of shares of
each series, the Board is required to fix for each such series, subject to the
provisions of Maryland law and the Declaration of Trust, the powers,
designations, preferences and relative, participating, optional or other special
rights of such series and qualifications, limitations or restrictions thereof,
including such provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets, conversion or exchange,
and such other matters as may be fixed by resolution of the Board of Trustees or
a duly authorized committee thereof. The Board could authorize the issuance of
Preferred Shares with terms and conditions which could have the effect of
discouraging a takeover or other transaction which holders of some, or a
majority of, Common Shares might believe to be in their best interests, or in
which holders of some, or a majority of, Common Shares might receive a premium
for their Common Shares over the then market price of such shares. The
Preferred Shares will, when issued, be fully-paid and non-assessable and will
have no preemptive rights.
The Prospectus Supplement relating to any Preferred Shares offered thereby
will contain the specific terms, including:
(1) The title and stated value of such Preferred Shares;
(2) The number of such Preferred Shares offered, the liquidation
preference per share and the offering price of such Preferred
Shares;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Shares;
(4) The date from which dividends on such Preferred Shares will
accumulate, if applicable.
(5) The procedures for any auction and remarketing, if any, for such
Preferred Shares;
(6) The provision for a sinking fund, if any, for such Preferred Shares;
(7) The provisions for redemption, if applicable, of such Preferred
Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
24
(9) The terms and conditions, if applicable, upon which such Preferred
Shares will be convertible into Common Shares of the Company,
including the conversion price (or manner of calculation thereof);
(10) A discussion of federal income tax considerations applicable to such
Preferred Shares;
(11) The relative ranking and preferences of such Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding
up of the affairs of the Company;
(12) Any limitations on issuance of any series of Preferred Shares
ranking senior to or on a parity with such series of Preferred
Shares as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company;
(13) Any limitations on direct or beneficial ownership and restrictions
on transfer of such Preferred Shares, in each case as may be
appropriate to preserve the status of the Company as a REIT; and
(14) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares.
The Registrar and Transfer Agent for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
RANK. Unless otherwise specified in the Prospectus Supplement, the
Preferred Shares will, with respect to dividend rights and/or rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to all
classes or series of Common Shares of the Company, and to all Equity Shares
(defined below) ranking junior to such Preferred Shares; (ii) on a parity with
all Equity Shares issued by the Company the terms of which specifically provide
that such Equity Shares rank on a parity with the Preferred Shares; and (iii)
junior to all Equity Shares issued by the Company the terms of which
specifically provide that such Equity Shares rank senior to the Preferred
Shares. The term "Equity Shares" includes Common Shares and Preferred Shares
and does not include convertible debt securities.
DIVIDENDS. Holders of the Preferred Shares of each series will be entitled
to receive, when, as and if declared by the Board of Trustees of the Company,
out of assets of the Company legally available for payment, cash dividends at
such rates (or method of calculation thereof) and on such dates as will be set
forth in the applicable Prospectus Supplement. Each such dividend will be
payable to holders of record as they appear on the stock transfer books of the
Company on such record dates as are fixed by the Board of Trustees of the
Company.
Dividends on any series of Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Trustees of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Shares for which dividends are non-cumulative, then the holders of
such series of the Preferred Shares will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If any Preferred Shares of any series are outstanding, no full dividends
will be declared or paid or set apart for payment on any Preferred Shares of the
Company of any other series ranking, as to dividends, on a parity with or junior
to the Preferred Shares of such
25
series for any period unless (i) if such series of Preferred Shares has a
cumulative dividend, full cumulative dividends have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Shares of such series for all past
dividend periods and the then current dividend period or (ii) if such series of
Preferred Shares does not have a cumulative dividend, full dividends for the
then current dividend period have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for such
payment on the Preferred Shares of such series. When dividends are not paid in
full (or a sum sufficient for such full payment is not so set apart) upon the
Preferred Shares of any series and the shares of any other series of Preferred
Shares ranking on a parity as to dividends with the Preferred Shares of such
series, all dividends declared upon the Preferred Shares of such series and any
other series of Preferred Shares ranking on a parity as to dividends with such
Preferred Shares will be declared pro rata so that the amount of dividends
declared per share on Preferred Shares of such series and such other series of
Preferred Shares will in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Shares of such series (which will
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Shares do not have a cumulative dividend) and such
other series of Preferred Shares bear to each other. No interest, or sum of
money in lieu of interest, will be payable in respect of any dividend payment or
payments on Preferred Shares of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred Shares of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in Common Shares or other shares of beneficial
interest ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation) will be declared or paid or set aside for payment or other
distribution upon the Common Shares, or any other shares of beneficial interest
in the Company ranking junior to or on a parity with the Preferred Shares of
such series as to dividends or upon liquidation, nor will any Common Shares, or
any other shares of beneficial interest of the Company ranking junior to or on a
parity with the Preferred Shares of such series as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid to or made available for a sinking fund for the
redemption of any such shares) by the Company (except by conversion into or
exchange for other shares of beneficial interest of the Company ranking junior
to the Preferred Shares of such series as to dividends and upon liquidation).
Any dividend payment made on a series of Preferred Shares will first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series which remains payable.
REDEMPTION. If so provided in the applicable Prospectus Supplement, the
Preferred Shares will be subject to mandatory redemption or redemption at the
option of the Company, in whole or in part, in each case upon the terms, at the
times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of Preferred Shares, if
any, that will be redeemed by the Company in each year commencing after a date
to be specified, at a redemption price per share to be specified, together with
an amount equal to all accrued and unpaid dividends thereon (which will not, if
such Preferred Shares do not have a cumulative dividend, include any
accumulation in respect of unpaid dividends for prior dividend periods) to the
date of redemption. The redemption price may be payable in cash or other
property as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Shares of any series is payable only from the net
proceeds of the issuance of shares of beneficial interest in the Company, the
terms of such Preferred Shares may provide that if no such shares of beneficial
interest have been issued or to the extent the net proceeds from any issuance
are insufficient to pay in full the aggregate redemption price then due, such
Preferred Shares will automatically and mandatorily be converted into the
applicable shares of beneficial interest in the Company pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Shares has a cumulative dividend, full cumulative dividends on all Preferred
Shares of any series have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the current dividend period and (ii) if such
series of Preferred Shares does not have a cumulative dividend, full dividends
on all shares of such series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no Preferred Shares of such series
will be redeemed unless all outstanding Preferred Shares of such series are
simultaneously redeemed; provided, however, that the foregoing will not prevent
the purchase or acquisition of Preferred Shares of such series to preserve the
REIT status of the Company or pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding Preferred Shares of such series.
In addition, unless (i) if such series of Preferred Shares has a cumulative
dividend, full cumulative dividends on all outstanding Preferred Shares of any
series have been or
26
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past dividend periods and the then
current dividend period, and (ii) if such series of Preferred Shares does not
have a cumulative dividend, full dividends on all shares of such series of
Preferred Shares have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
the then current dividend period, the Company will not purchase or otherwise
acquire directly or indirectly any Preferred Shares of such series (except by
conversion into or exchange for shares of beneficial interest of the Company
ranking junior to the Preferred Shares of such series as to dividends and upon
liquidation); provided, however, that the foregoing will not prevent the
purchase or acquisition of Preferred Shares of such series to preserve the REIT
status of the Company or pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding Preferred Shares of such series.
If fewer than all of the outstanding Preferred Shares of any series are to
be redeemed, the number of shares to be redeemed will be determined by the
Company and such shares may be redeemed pro rata from the holders of record of
such shares in proportion to the number of such shares held or for which
redemption is requested by such holders (with adjustments to avoid redemption of
fractional shares) or in any other manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice will state: (i) the redemption date; (ii) the number
of shares and series of Preferred Shares to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Shares are
to be surrendered for payment of the redemption prices; (v) that dividends on
the shares to be redeemed will cease to accrue on such redemption date; and (vi)
the date upon which the holder's conversion rights, if any, as to such shares
will terminate. If fewer than all of the Preferred Shares of any series are to
be redeemed, the notice mailed to each such holder thereof will also specify the
number of Preferred Shares to be redeemed from each such holder. If notice of
redemption of any Preferred Shares has been given and if the funds necessary for
such redemption have been irrevocably set aside by the Company in trust for the
benefit of the holders of any Preferred Shares so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Shares, such Preferred Shares will no longer be deemed outstanding and
all rights of the holders of such shares will terminate, except the right to
receive the redemption price.
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, then, before any
distribution or payment will be made to the holders of any Common Shares or any
other class or series of shares of beneficial interest in the Company ranking
junior to the Preferred Shares in the distribution of assets upon any
liquidation, dissolution or winding up of the Company, the holders of each
series of Preferred Shares will be entitled to receive out of assets of the
Company legally available for distribution to shareholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which will not include any accumulation in respect
of unpaid dividends for prior dividend periods if such Preferred Shares do not
have a cumulative dividend). After payment of the full amount for the
liquidating distributions to which they are entitled, the holders of Preferred
Shares will have no right or claim to any of the remaining assets of the
Company. In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up, the legally available assets of the Company are
insufficient to pay the amount of the liquidating distributions on all
outstanding Preferred Shares and the corresponding amounts payable on all shares
of other classes or series of shares of beneficial interest in the Company
ranking on a parity with the Preferred Shares in the distribution of assets,
then the holders of the Preferred Shares and all other such classes or series of
shares of beneficial interest will share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
If liquidating distributions have been made in full to all holders of a
series of Preferred Shares, the remaining assets of the Company will be
distributed among the holders of any other classes or series of shares of
beneficial interest ranking junior to the Preferred Shares upon liquidation,
dissolution or winding up, according to their respective rights and preferences
and in each case according to their respective number of shares. For such
purposes, the consolidation or merger of the Company with or into any other
trust, corporation or entity, or the sale, lease or conveyance of all or
substantially all of the property or business of the Company, will not be deemed
to constitute a liquidation, dissolution or winding up of the Company.
VOTING RIGHTS. Holders of Preferred Shares will not have any voting
rights, except as set forth below or as otherwise from time to time required by
law or as indicated in the applicable Prospectus Supplement.
27
Unless provided otherwise for any series of Preferred Shares, so long as
any Preferred Shares remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of each series
of Preferred Shares outstanding at the time, given in person or by proxy, either
in writing or at a meeting (such series voting separately as a class), (i)
authorize, create or increase the authorized or issued amount of, any class or
series of shares of beneficial interest ranking prior to such series of
Preferred Shares with respect to the payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up or reclassify any authorized
shares of beneficial interest in the Company into such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares; or (ii) amend, alter or repeal the provisions
of the Company's Declaration of Trust, whether by merger, consolidation or
otherwise (an "Event"), so as to materially adversely affect any right,
preference, privilege or voting power of such series of Preferred Shares or the
holders thereof; provided, however, with respect to the occurrence of any of the
Events set forth in (ii) above, so long as the Preferred Shares remains
outstanding with the terms thereof materially unchanged, taking into account
that upon the occurrence of an Event, the Company may not be the surviving
entity, the occurrence of any such Event will not be deemed to materially and
adversely affect such rights, preferences, privileges or voting power of holders
of Preferred Shares and provided further that (x) any increase in the amount of
the authorized Preferred Shares or the creation or issuance of any other series
of Preferred Shares, or (y) any increase in the amount of authorized shares of
such series or any other series of Preferred Shares, in each case ranking on a
parity with or junior to the Preferred Shares of such series with respect to
payment of dividends or the distribution of assets upon liquidation, dissolution
or winding up, will not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required is
effected, all outstanding Preferred Shares of such series have been redeemed or
called for redemption and sufficient funds have been deposited in trust to
effect such redemption.
CONVERSION RIGHTS. The terms and conditions, if any, upon which any series
of Preferred Shares is convertible into Common Shares will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of Common Shares into which the Preferred Shares are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Shares or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such series of Preferred Shares.
NO SHAREHOLDER LIABILITY
Applicable Maryland law provides that no holder of Common or Preferred
Shares will be personally liable for the acts and obligations of the Company and
that the funds and property of the Company will be the only recourse for such
acts or obligations.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, Common Shares must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months (other than the first year for which REIT status is elected)
or during a proportionate part of a shorter taxable year. Also, not more than
50% of the value of the issued and outstanding shares of beneficial interest may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entitles) during the last half of a taxable year
(other than the first year for which REIT status is elected) or during a
proportionate part of a shorter taxable year. To ensure compliance with these
requirements, the Declaration of Trust contains provisions restricting the
ownership and acquisition of shares of beneficial interest in the Company,
including any Preferred Shares of the Company.
The Declaration of Trust, subject to an exception in favor of Capital and
Regional Properties, plc ("CRP-London"), provides that no holder may own, or be
deemed to own by virtue of the attribution provisions of the Code, more than
9.8% in value (the "Ownership Limit") of the issued and outstanding Common
Shares or Preferred Shares (collectively, "Equity Shares"). The constructive
ownership rules are complex and may cause Equity Shares owned directly or
constructively by a group of related individuals and/or entities to be deemed to
be constructively owned by one individual or entity. As a result, the
acquisition of less than 9.8% of the Equity Shares (or the acquisition of an
interest in an entity which owns Equity Shares) by an individual or entity could
cause that individual or entity (or another individual or entity) to own
constructively in excess of 9.8% of the Equity Shares,
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and thus subject such Equity Shares to the Ownership Limit. In addition, for
these purposes, Common Shares that may be acquired upon conversion or exchange
of convertible Debt Securities directly or constructively held by an investor,
but not necessarily Common Shares issuable with respect to convertible Debt
Securities held by others, will be deemed to be outstanding prior to conversion
or exchange, for purposes of determining the percentage of ownership of Equity
Shares held by that investor. The Board of Trustees may, upon the receipt of a
ruling from the IRS or an opinion of counsel satisfactory to it, waive the
Ownership Limit with respect to a given holder if such holder's ownership will
not then or in the future jeopardize the Company's status as a REIT.
Recent tax legislation relaxed the rules concerning ownership of stock in a
REIT by certain domestic pension trusts. The Declaration of Trust does not
implement this change in the tax law. Under the Declaration of Trust, domestic
pension funds are subject to the restriction on ownership of more than 9.8% of
the value of the outstanding shares of beneficial interest.
The Declaration of Trust contains a provision which limits the right of any
shareholder to transfer or otherwise dispose of his Equity Shares in a manner
which is contrary to the Ownership Limit. If any shareholder purports to
transfer his shares to another person and either the transfer would result in
the Company failing to qualify as a REIT or such transfer would cause the
transferee to hold more than the Ownership Limit, the purported transfer will be
null and void and the shareholder will be deemed not to have transferred his
shares. Moreover, if any person holds shares in excess of the Ownership Limit
("Excess Shares"), such person will be deemed to hold such Excess Shares that
cause such limit to be exceeded solely in trust for the benefit of the Company,
and will not receive distributions with respect to such Excess Shares or be
entitled to vote such shares. In such event, such person will be deemed to have
offered to sell such Excess Shares to the Company for the lesser of the amount
paid for such shares or the market price of such shares, which offer the Company
can accept for a period of 90 days after the later of (i) the date of the
transfer resulting in such excess shares and (ii) the date the Company's Board
of Trustees determines that such Excess Shares exist. In its sole discretion,
the Company may repurchase such shares for cash.
Federal income tax regulations require that the Company demand within 30
days after the end of each of its taxable years written statements from
shareholders of record holding more than a specified percentage of the Company's
shares of beneficial interest, in which the shareholders set out information
with respect to their actual and constructive ownership of the Equity Shares and
the Debentures. In addition, each shareholder must on demand disclose to the
Company in writing such additional information as the Company may request in
order to determine the effect of such shareholder's direct, indirect and
constructive ownership of such shares on the Company's status as a REIT.
All certificates representing Common Shares and/or Preferred Shares will
bear a legend referring to the restrictions on transfer described above.
These ownership limitations could have the effect of discouraging a
takeover or other transactions in which holders of some, or a majority, of
Equity Shares might receive a premium for their shares over the prevailing
market price or which such holders might believe to be otherwise in their best
interest.
DESCRIPTION OF SECURITIES WARRANTS
The Company may issue Securities Warrants for the purchase of Debt
Securities, Preferred Shares or Common Shares. Securities Warrants may be
issued independently or together with any other Securities offered by any
Prospectus Supplement and may be attached to or separate from such Securities.
Each series of Securities Warrants will be issued under a separate warrant
agreement (each a "Securities Warrant Agreement") to be entered into between the
Company and a warrant agent specified in the applicable Prospectus Supplement
(the "Warrant Agent"). The Warrant Agent will act solely as an agent of the
Company in connection with the Securities Warrants of such series and will not
assume any obligation or relationship of agency or trust for or with any holders
or beneficial owners of Securities Warrants. The following summaries of certain
provisions of the Securities Warrant Agreement and the Securities Warrants do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all the provisions of the Securities Warrant Agreement
and the Securities Warrant certificates relating to each series of Securities
Warrants which will be filed with the Commission and incorporated by reference
as an exhibit to the Registration Statement of which this Prospectus is a part
at or prior to the time of the issuance of such series of Securities Warrants.
29
If Securities Warrants are offered, the applicable Prospectus Supplement
will describe the terms of such Securities Warrants, including, in the case of
Securities Warrants for the purchase of Debt Securities, the following where
applicable: (i) the offering price; (ii) the denominations and terms of the
series of Debt Securities purchasable upon exercise of such Securities Warrants;
(iii) the designation and terms of any series of Debt Securities with which such
Securities Warrants are being offered and the number of such Securities Warrants
being offered with such Debt Securities; (iv) the date, if any, on and after
which such Securities Warrants and the related series of Debt Securities will be
transferable separately; (v) the principal amount of the series of Debt
Securities purchasable upon exercise of each such Securities Warrant and the
price at which such principal amount of Debt Securities of such series may be
purchased upon such exercise; (vi) the date on which the right to exercise such
Securities Warrants shall commence and the date on which such right shall expire
(the "Expiration Date"); (vii) whether the Securities Warrants will be issued in
registered or bearer form; (viii) any special United States federal income tax
consequences; (ix) the terms, if any, on which the Company may accelerate the
date by which the Securities Warrants must be exercised; and (x) any other
material terms of such Securities Warrants.
In the case of Securities Warrants for the purchase of Preferred Shares or
Common Shares, the applicable Prospectus Supplement will describe the terms of
such Securities Warrants, including the following where applicable: (i) the
offering price; (ii) the aggregate number of shares purchasable upon exercise of
such Securities Warrants, the exercise price, and in the case of Securities
Warrants for Preferred Shares, the designation, aggregate number and terms of
the series of Preferred Shares with which such Securities Warrants are being
offered and the number of such Securities Warrants being offered with such
Preferred Shares; (iii) the date, if any, on and after which such Securities
Warrants and the related series of Preferred Shares or Common Shares will be
transferable separately; (iv) the date on which the right to exercise such
Securities Warrants shall commence and the Expiration Date; (v) any special
United States federal income tax consequences; and (vi) any other material terms
of such Securities Warrants.
Securities Warrant certificates may be exchanged for new Securities Warrant
certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Warrant Agent or any other office indicated in the
applicable Prospectus Supplement. Prior to the exercise of any Securities
Warrant to purchase Debt Securities, holders of such Securities Warrants will
not have any of the rights of holders of the Debt Securities purchasable upon
such exercise, including the right to receive payments of principal, premium, if
any, or interest, if any, on such Debt Securities or to enforce covenants in the
applicable Indenture. Prior to the exercise of any Securities Warrants to
purchase Preferred Shares or Common Shares, holders of such Securities Warrants
will not have any rights of holders of such Preferred Shares or Common Shares,
including the right to receive payments of dividends, if any, on such Preferred
Shares or Common Shares, or to exercise any applicable right to vote.
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase such
principal amount of Debt Securities or number of Preferred Shares or Common
Shares, as the case may be, at such exercise price as shall in each case be set
forth in, or calculable from, the Prospectus Supplement relating to the offered
Securities Warrants. After the close of business on the Expiration Date (or
such later date to which such Expiration Date may be extended by the Company),
unexercised Securities Warrants will become void.
Securities Warrants may be exercised by delivering to the Warrant Agent
payment as provided in the applicable Prospectus Supplement of the amount
required to purchase the Common Shares purchasable upon such exercise, together
with certain information set forth on the reverse side of the Securities Warrant
certificate. Securities Warrants will be deemed to have been exercised upon
receipt of payment of the exercise price, subject to the receipt within five (5)
business days, of the Securities Warrant certificate evidencing such Securities
Warrants. Upon receipt of such payment and the Securities Warrant certificate
properly completed and duly executed at the corporate trust office of the
Securities Warrant agent or any other office indicated in the applicable
Prospectus Supplement, the Company will, as soon as practicable, issue and
deliver the Common Shares purchasable upon such exercise. If fewer than all of
the Securities Warrants represented by such Securities Warrant certificate are
exercised, a new Securities Warrant certificate will be issued for the remaining
amount of Securities Warrants.
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AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
The Warrant Agreements may be amended or supplemented without the consent
of the holders of the Securities Warrants issued thereunder to effect changes
that are not inconsistent with the provisions of the Securities Warrants and
that do not adversely affect the interests of the holders of the Securities
Warrants.
COMMON SHARES WARRANT ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of Common Shares covered by, a Common Shares
Warrant are subject to adjustment in certain events, including (i) payment of a
dividend on the Common Shares payable in shares of beneficial interest and stock
splits, combinations or reclassification of the Common Shares; (ii) issuance to
all holders of Common Shares of rights or warrants to subscribe for or purchase
Common Shares at less than their current market price (as defined in the Warrant
Agreement for such series of Common Shares Warrants); and (iii) certain
distributions of evidences of indebtedness or assets (including securities but
excluding cash dividends or distributions paid out of consolidated earnings or
retained earnings or dividends payable in Common Shares) or of subscription
rights and warrants (excluding those referred to above).
No adjustment in the exercise price of, and the number of Common Shares
covered by, a Common Shares Warrant will be made for regular quarterly or other
periodic or recurring cash dividends or distributions or for cash dividends or
distributions to the extent paid from consolidated earnings or retained
earnings. No adjustment will be required unless such adjustment would require a
change of at least 1% in the exercise price then in effect. Except as stated
above, the exercise price of, and the number of Common Shares covered by, a
Common Shares Warrant will not be adjusted for the issuance of Common Shares or
any securities convertible into or exchangeable for Common Shares, or carrying
the right or option to purchase or otherwise acquire the foregoing, in exchange
for cash, other property or services.
In the event of any (i) consolidation or merger of the Company with or into
any entity (other than a consolidation or a merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding Common
Shares); (ii) sale, transfer, lease or conveyance of all or substantially all of
the assets of the Company; or (iii) reclassification, capital reorganization or
exchange of the Common Shares (other than solely a change in par value or from
par value to no par value), then any holder of a Common Shares Warrant will be
entitled, on or after the occurrence of any such event, to receive on exercise
of such Common Shares Warrant the kind and amount of shares of beneficial
interest or other securities, cash or other property (or any combination
thereof) that the holder would have received had such holder exercised such
holder's Common Shares Warrant immediately prior to the occurrence of such
event. If the consideration to be received upon exercise of the Common Shares
Warrant following any such event consists of common stock of the surviving
entity, then from and after the occurrence of such event, the exercise price of
such Common Shares Warrant will be subject to the same anti-dilution and other
adjustments described in the second preceding paragraph, applied as if such
common stock were Common Shares.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S DECLARATION OF TRUST AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and
the Company's Declaration of Trust and Bylaws. The summary does not purport to
be complete and is subject to and qualified in its entirety by reference to
Maryland law and the Declaration of Trust and Bylaws. See "Available
Information."
THE BOARD OF TRUSTEES
The Company's Bylaws provide that the number of trustees of the Company may
be established by the Board but may not be fewer than three nor more than ten, a
majority of which must be independent. Any vacancy will be filled at any
regular meeting or at any special meeting of shareholders called for that
purpose or by a majority of the remaining directors, except that a vacancy
resulting from an increase in the number of directors will be filled by a
majority of the entire Board. Pursuant to the terms of the Declaration of
Trust, each director will hold office for a one-year term expiring at the annual
meeting of shareholders to be held the following year and until his
31
successor is duly elected and qualified. Holders of shares will have no right
to cumulative voting in the election of trustees.
BUSINESS COMBINATIONS
As a Maryland real estate investment trust, the Company is subject to
certain restrictions concerning certain "business combinations" (including a
merger, consolidation, share exchange, or, in certain circumstances, an asset
transfer or issuance or reclassification of equity securities) between the
Company and an Interested Shareholder (defined as any person who beneficially
owns 10% or more of the voting power of the Company's shares or an affiliate of
the Company who, at any time within the two-year period prior to the date in
question, was the beneficial owner of 10% or more of the voting power of the
then-outstanding voting shares of beneficial interest in the Company) or an
affiliate thereof. Such business combinations are prohibited for five years
after the most recent date on which the Interested Shareholder became an
Interested Shareholder. Thereafter, any such business combination must be
recommended by the Board of Trustees of the Company and approved by the
affirmative vote of at least 80% of the votes entitled to be cast by holders of
outstanding voting shares of the Company voting together as a single group and
of at least two-thirds of the votes entitled to be cast by holders of voting
shares other than voting shares with whom the business combination is to be
effected, unless, among other things, the Company's shareholders receive a
"minimum price" (as determined under Maryland law) for their shares and the
consideration is received in cash or in the same form as previously paid by the
Interested Shareholder for its shares. These provisions of Maryland law do not
apply, however, to business combination that are approved or exempted by the
Board of Trustees of the Company prior to the time that the Interested
Shareholder becomes an Interested Shareholder.
CONTROL SHARE ACQUISITIONS
Maryland law provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquirer or by officers or
trustees who are employees of the Company. "Control Shares" are voting shares
which, if aggregated with all other such shares previously acquired by such
person, or in respect of which such person is able to exercise or direct the
exercise of voting power, except solely by virtue of a revocable proxy, would
entitle the acquirer, directly or indirectly, to exercise voting power in
electing directors within any one 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 shareholder 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 Trustees to call a special meeting of shareholders to be
held within 50 days of the demand to consider the voting rights of the shares.
If no request for a meeting is made, the Company may itself present the question
at any shareholders' 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 Maryland law,
then, subject to certain conditions and limitations, the Company 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 control shares, as of the date of the last control
share acquisition or of any meeting of shareholders at which the voting rights
of such shares are considered and not approved. If voting rights for control
shares are approved at a shareholders' meeting and the acquirer becomes entitled
to vote a majority of the shares entitled to vote, all other shareholders may
exercise appraisal rights. The fair value of the shares determined for purposes
of such appraisal rights may not be less than the highest price per share paid
in the control share acquisition, and certain limitations and restrictions
otherwise applicable to the exercise of dissenter's rights do not apply in the
context of a control share acquisition.
The control share acquisition provisions of Maryland law do not apply to
shares acquired in a merger, consolidation or share exchange if the Company is a
party to the transaction, or to acquisitions which may be approved of or
exempted by the Declaration of Trust or Bylaws of the Company. No such
provisions are currently
32
contained in the Company's Declaration of Trust or Bylaws. There can be no
assurance, however, that such provisions will not be provided for in the future.
AMENDMENT TO THE DECLARATION OF TRUST
The Company's Declaration of Trust may be amended only by the affirmative
vote of the holders of not less than two-thirds of all of the votes entitled to
be cast on the matter.
DISSOLUTION OF THE COMPANY
The dissolution of the Company must be approved by the affirmative vote of
the holders of not less than two-thirds of all of the votes entitled to be cast
on the matter or the written consent of all holders of shares entitled to vote
on this matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Company's Declaration of Trust establishes an advance notice procedure
for shareholders to make nominations of candidates for election as trustees or
bring other business before an annual meeting of shareholders ("Shareholder
Notice Procedures").
The Shareholder Notice Procedures provide that (1) only persons who are
nominated by or at the direction of the Board of Trustees, or by a shareholder
who has given timely written notice containing specified information to the
Secretary of the Company prior to the meeting at which directors are to be
elected, will be eligible for election as trustees and (2) at an annual meeting
only such business may be conducted as has been brought before the meeting by or
at the direction of the Chairman of the Board of Trustees or by a shareholder
who has given timely written notice to the Secretary of such shareholder's
intention to bring such business before the meeting. In general, to be
considered timely, notice of shareholder nominations to be made or business to
be conducted at an annual meeting must be received not less than 60 days nor
more than 90 days prior to the first anniversary of the previous year's annual
meeting.
The purpose of requiring such advance notice by shareholders is to provide
the Board of Trustees a meaningful opportunity to consider the qualifications of
the proposed nominees or the advisability of the other proposed business and, to
the extent deemed necessary or advisable by the Board of Trustees, to inform
shareholders and make recommendations about such qualifications or business, as
well as to provide a more orderly procedure for conducting meetings of
shareholders. Although the Company's Declaration of Trust do not give the Board
of Trustees any power to disapprove of shareholder nominations or proposals for
action, they may have the effect of precluding a contest for the election of
trustees or the consideration of shareholder proposals if the proper procedures
are not followed. In addition, the Declaration of Trust may discourage or deter
a third party from conducting a solicitation of proxies to elect its own slate
of trustees or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or in the best
interests of the Company and its shareholders. The provisions in the Company's
Declaration of Trust regarding advance notice provisions could have the effect
of discouraging a takeover or other transaction in which holders of some, or a
majority, of the Common Shares might receive a premium for their shares over the
then prevailing market price or which such holders might believe to be otherwise
in their best interests.
FEDERAL INCOME TAX CONSIDERATIONS RELATING TO
THE COMPANY'S REIT STATUS
The following is a summary of certain federal income tax considerations
regarding the Company's REIT election. The tax treatment of a holder of any of
the Securities will vary depending on the terms of the specific Securities
acquired by such holder, as well as his particular situation, and this
discussion does not attempt to address any aspects of federal income taxation
relating to holders of Securities. A description of certain federal income tax
considerations pertaining to holders of the Securities will be provided in the
relevant Prospectus Supplement.
The following summary is based on federal income tax law in effect as of
the date hereof. Such law is subject to change without notice, and may be
changed with retroactive effect. The summary is for general information only,
and does not constitute tax advice.
33
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS
SUPPLEMENT, AS WELL AS HIS OWN TAX ADVISOR, REGARDING THE SPECIFIC FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES, IN LIGHT OF HIS INDIVIDUAL
CIRCUMSTANCES, OF THE ACQUISITION, OWNERSHIP AND SALE OF THE SECURITIES, AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
QUALIFICATION AS A REIT; OPINION OF COUNSEL
The Company's REIT election was effective as of January 1, 1994. The tax
consequences described herein and in any Prospectus Supplement are largely
contingent on the qualification of the Company as a REIT for federal income tax
purposes. Failure of the Company to maintain its REIT status would materially
alter the tax and economic consequences to a purchaser. See "Failure to Qualify
as a REIT" below. Ungaretti & Harris, Chicago, Illinois ("Counsel"), has
provided its opinion that the Company's method of operation as described herein
and as represented by the Company will permit it to continue to qualify as a
REIT for the current and subsequent taxable years. Such opinion is based upon
the Code, as amended, applicable Treasury Regulations adopted thereunder,
reported judicial decisions, and IRS rulings, all as of the date hereof, and
certain representations of the Company and factual assumptions related to the
ownership and operation of the Company. It should be noted that whether the
Company will maintain its status as a REIT under the Code will depend upon
whether the Company meets the various qualification tests imposed under the Code
through actual annual operating results. No assurance can be given that the
actual results of the Company's operations will satisfy such requirements. The
principal requirements the Company must meet to maintain its status as a REIT
are described below.
SHARE OWNERSHIP
FREE TRANSFERABILITY. In general, shares representing ownership of a REIT
must be freely transferable. The Company's shares will be subject to certain
restrictions designed to assure compliance with the rule prohibiting
closely-held status, described below. A REIT will not fail the requirement of
free transferability by reason of such restrictions.
100 SHAREHOLDERS REQUIRED. The beneficial ownership of an entity seeking
to qualify as a REIT must be held by 100 or more persons. This requirement must
be met for at least 335 days of a 12-month year, or a proportionate part of a
shorter tax year. For purposes of this rule, the word "person" generally
includes individuals and entities, with pension and profit-sharing trusts,
rather than their beneficiaries, being treated as persons. The Company
anticipates that this requirement will continue to be met.
CLOSELY-HELD STATUS NOT PERMITTED. An entity does not qualify as a REIT if
a group of five or fewer individuals own, directly or indirectly, more than 50%
of the value of the outstanding shares of the entity at any time during the last
half of the taxable year. For this purpose, certain entities are treated as
individuals, but stock owned, directly or indirectly, by a corporation,
partnership, estate or trust is generally considered as being owned
proportionately by such entity's shareholders, partners or beneficiaries.
Accordingly, shares held by CRP-London will be considered as being owned
proportionately by the individual shareholders of CRP-London. The Declaration
of Trust provides certain restrictions on ownership of shares designed to assure
compliance with this requirement.
REVENUE RECONCILIATION ACT OF 1993. Under the 1993 Act, pension funds
generally will not be treated as a single person for purposes of this rule.
Instead, the beneficiaries of the fund are treated as holding stock in the REIT
in proportion to their actuarial interests in the fund. In the event the
Company relies on this rule to maintain its status as a REIT, however, it is
possible that pension funds holding more than 10% of the interests in the
Company will be subject to unrelated business income tax on a portion of the
dividends they receive from the Company. Under the Company's Declaration of
Trust, pension funds are subject to the same ownership restrictions as other
persons, without regard to this recent law.
SHAREHOLDER INFORMATION. Federal income tax regulations require that the
Company demand within 30 days after the end of each of its taxable years written
statements from shareholders of record holding more than a specified percentage
of the Company's shares of beneficial interest, in which the shareholders set
out information with respect to their actual and constructive ownership of the
Common Shares and the Debentures. In addition, each shareholder must on demand
disclose to the Company in writing such additional information as the Company
34
requests in order to determine the effect of such shareholder's direct, indirect
and constructive ownership of such shares on the Company's status as a REIT.
ASSET TESTS
An entity seeking to maintain its qualification as a REIT must meet certain
tests with regard to its assets. Assets held by a qualified REIT subsidiary are
treated as if they were owned directly by the REIT. A corporation is a
qualified REIT subsidiary if 100% of its stock is owned by a REIT during the
entire period of its existence.
75% ASSET TEST. On the last day of each calendar quarter, at least 75% of
a REIT's assets must consist of real estate assets, cash and cash items, and
government securities. Real estate assets include interests in real property,
interests in mortgages on real property, and shares in other qualified REITs.
In addition, real estate assets include any property attributable to the
temporary investment of new capital if the property is stock or a debt
instrument, and the investment is only for the one-year period beginning on the
date the REIT receives the capital (a "Qualified Temporary Investment"). Cash
and cash items include receivables that arise in the ordinary course of the
REIT's business, but not receivables purchased from another person. It is
anticipated that substantially all of the Company's assets will qualify under
this test.
5% ASSET TEST. A REIT must not own securities of any one non-governmental
issuer (other than another qualified REIT, or a qualified REIT subsidiary) in an
amount greater in value than 5% of the value of the REIT's total assets. The
Company intends to comply with this requirement.
10% ASSET TEST. A REIT must not own securities of any one non-governmental
issuer (other than another qualified REIT or a qualified REIT subsidiary)
representing more than 10% of the outstanding voting securities of such issuer.
The Company intends to comply with this requirement.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient non-qualifying assets within 30 days after the close
of the quarter. The Company intends to maintain adequate records of the value
of its assets to ensure compliance with the asset tests, and to take such other
actions within 30 days after the close of any quarter as may be required to cure
any noncompliance.
INTEREST IN MANAGEMENT CORPORATION. The Company expects to derive some of
its income from activities (such as management of properties owned by third
parties) which, if carried on directly by the Company or by an entity controlled
by the Company, would jeopardize its REIT status. The Company will own
non-voting stock representing more than 90 percent of the value of corporations
carrying on such activities, but intends to own less than 10% of the voting
stock of such corporations in order to comply with the 10% asset test described
above, and to hold stock in such corporations representing less than 5% of the
value of its overall assets in order to comply with the 5% assets test described
above. There can be no assurance, however, that the IRS will not contend that
the non-voting stock held by the Company should be considered voting stock for
purposes of these rules, or that the value of the stock held by the Company
exceeds the 5% limitation.
INCOME TESTS
An entity will not maintain its qualification as a REIT unless its income
meets certain tests. In connection with these tests, income received from a
qualified REIT subsidiary is treated as having the same character as it had when
received by the subsidiary.
75% INCOME TEST. At least 75% of the REIT's gross income (excluding gross
income from "prohibited transactions," as described below) for each taxable year
must be derived from (i) rents from real property, (ii) interest on obligations
collateralized by mortgages on, or interests in, real property; (iii) gain from
the sale or other disposition of interests in real property and real estate
mortgages, other than gain from property held primarily for sale to customers in
the ordinary course of the Company's trade or business ("dealer property"); (iv)
dividends or other distributions on shares in other REITs as well as the gain
from the sale of such shares; (v) abatements and refunds of real property taxes;
(vi) income from the operation, and gain from the sale, of property acquired at
or in
35
lieu of foreclosure of the mortgage collateralized by such property
("foreclosure property"); (vii) commitment fees received for agreeing to make
loans collateralized by mortgages on real property or to purchase or lease real
property; and (viii) certain qualified temporary investment income.
95% INCOME TEST. At least 95% of the REIT's gross income (excluding gross
income from "prohibited transactions") for each taxable year must be derived
from sources qualifying for the 75% test, plus dividend or interest income or
capital gain on the sale or other disposition of stocks or securities.
RENTS FROM REAL PROPERTY. Rents received by the Company will constitute
"rents from real property," qualifying for the 75% and 95% income tests, if the
following requirements are met:
- The amount of rent received generally must not be based in whole or
in part on the income or profits of any person.
- Rents will not qualify as "rents from real property" if the REIT, or
a 10% owner of the REIT, owns directly or indirectly a 10% or
greater interest in any tenant or in the assets or net profits of a
tenant.
- The term "rents from real property" does not include rents with
respect to any property with respect to which the REIT furnishes or
renders "disqualifying services" to tenants other than through an
independent contractor (as specially defined for this purpose) from
whom the REIT itself does not derive or receive any income. For
this purpose, "disqualifying services" are services which, if
provided by certain tax-exempt entities, would cause rents received
by such entities to be treated as unrelated business taxable income.
Generally, services other than services usually or customarily
rendered in connection with the rental of rooms or other space for
occupancy only are disqualifying services. Charges for services of
a type customarily furnished or rendered to tenants in connection
with the rental of real property of a similar class in the
geographic market in which the property is located qualify as "rents
from real property." The Company represents that it will not
furnish or render services with respect to any of the Properties
that would cause rental income from such Properties to fail to
qualify as "rents from real property."
- Rent attributable to personal property will not qualify as "rents
from real property" unless the personal property is leased in
connection with a lease of real property and such rent is no more
than 15% of the total rent received under the lease. Rent
attributable to personal property is that amount which bears the
same ratio to total rent as the average of the adjusted bases of the
personal property at the beginning and end of the taxable year bears
to the average of the aggregate adjusted bases of both the real
property and personal property at the beginning and end of such
taxable year.
PROHIBITED TRANSACTIONS. The 75% and 95% income tests described above are
measured by reference to gross income of the Company. For this purpose,
however, gross income does not include income from "prohibited transactions."
Moreover, income from prohibited transactions is subject to a 100% tax.
The Company will be considered to have engaged in a prohibited transaction
if it sells stock in trade or other property of a kind which would properly be
included in inventory if on hand at the close of the taxable year, or property
held primarily for sale to customers in the ordinary course of business. The
Code provides a safe harbor under which certain sales of real estate assets will
not be considered to be a prohibited transaction. The safe harbor applies if
(a) the Company has held the property for at least four years; (b) the total
expenditures made by the Company, or any partner of the Company, and capitalized
as part of the basis of the property during the four-year period preceding the
sale, do not exceed 30% of the net sales price; and (c) the Company meets the
limitation on sales of such property. The Company will meet the limitation on
sales if (d) it makes no more than seven sales of property during the year, or
(e) the aggregate of the adjusted bases of the properties sold does not exceed
10% of the aggregate adjusted bases of all the Company's properties during the
year. If the property consists of land or improvements not acquired through
foreclosure, the Company must have held the property for production of rental
income for at least four years to be eligible for the safe harbor. Also, if the
Company sold more than seven properties during the year, substantially all of
the marketing and development expenditures with respect to the property must
have been made through an independent contractor from whom the Company itself
does not derive or receive any income.
36
FAILURE TO MEET INCOME TESTS. If certain requirements are met, the Company
may retain its status as a REIT even in a year in which it fails either the 75%
or the 95% income test. In such event, however, the Company will be subject to
an excise tax based on the greater of the amount by which it failed the 75% or
95% gross income test for that year, less expenses. The Company will qualify
for this relief if (a) it reports the amount and nature of each item of its
gross income in its federal income tax return for such year; (b) the inclusion
of any incorrect information in its return is not due to fraud with intent to
evade tax; and (c) the failure to meet such tests is due to reasonable cause and
not willful neglect.
30% INCOME TEST. Less than 30% of a REIT's gross income must be derived
from the sale or other disposition of: (a) stock or securities held for less
than one year; (b) property in a prohibited transaction; or (c) real property
(including interests in real property and interests in mortgages on real
property) held for less than four years, other than property involuntarily
converted within the meaning of Section 1033 of the Code or foreclosure property
(as defined below).
DISTRIBUTIONS TO SHAREHOLDERS
95% DISTRIBUTION REQUIREMENT. In order to maintain its qualification as a
REIT, the Company is required to distribute dividends (other than capital gains
dividends) to its shareholders in an amount equal to 95% of the sum of (a) its
"REIT taxable income" before deduction of dividends paid and excluding any net
capital gain, plus (b) any net income from foreclosure property less the tax on
such income, minus (c) any "excess noncash income." The deduction for dividends
paid is discussed below. See "Federal Income Tax Considerations -- Taxation of
the Company."
"REIT taxable income" for purposes of this requirement is the taxable
income of a REIT, computed as if it were an ordinary corporation, adjusted by
certain items, including an exclusion for net income from foreclosure property,
a deduction for the excise tax on the failure of the 75% or 95% income tests,
and an exclusion for an amount equal to any net income derived from prohibited
transactions.
"Foreclosure property" is any real property, interest in real property, or
personal property incident to the real property, acquired by the REIT in a
foreclosure or by a deed in lieu of foreclosure following a default of a debt
obligation or after termination of a defaulted lease, provided the REIT elects
to treat the property as foreclosure property. The property ceases to be
foreclosure property two years after the REIT acquires it, unless the IRS
consents to an extension of this time period.
"Excess noncash income" means the excess of certain amounts that the REIT
is required to recognize as income in advance of receiving cash, such as
original issue discount on purchase money debt, over 5% of REIT taxable income
before deduction for dividends paid and excluding any net capital gain.
The Company intends to make distributions to the shareholders on a
quarterly basis sufficient to meet the 95% distribution requirement. However,
because of the possible receipt of income without corresponding cash receipts
under the Code's rent allocation and original issue discount rules, timing
differences that may rise between the realization of taxable income and net cash
flow, and the possible disallowance by the IRS of deductions claimed by the
Company, it is possible that the Company may not have sufficient cash or liquid
assets at a particular time to meet the 95% distribution requirement. To assure
compliance with the 95% distribution requirement, the Company will closely
monitor the relationship between its REIT taxable income and cash flow and, if
necessary, will borrow funds in order to satisfy the distribution requirement.
If the Company fails to meet the 95% distribution requirements as a result of an
adjustment to the Company's tax return by the Service, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
NON-REIT ACCUMULATED EARNINGS AND PROFITS. The Company will not qualify as
a REIT if, as of the close of its taxable year, it has earnings and profits
accumulated in any non-REIT year. For purposes of this rule, positive earnings
and profits of a corporation that is liquidated or merged into another
corporation may not be netted against the other corporation's deficit in
earnings and profits. The Company believes that it and each of its subsidiaries
had negative earnings and profits as of the effective date of its REIT election.
37
FAILURE TO QUALIFY AS A REIT
For any taxable year the Company fails to qualify as a REIT, it would be
taxed as a corporation. It would not be entitled to a deduction for dividends
paid to its shareholders in computing its taxable income. Assets of the Company
and distributions to shareholders would be reduced to the extent necessary to
pay any resulting tax liability of the Company. Distributions from the Company
at such time would be taxable to shareholders as dividends to the extent of the
current and accumulated earnings and profits of the Company and would be
eligible for the 70% dividend-received deduction for shareholders which are
corporations.
If the Company's election to be treated as a REIT is terminated
automatically, the Company will not be eligible to elect REIT status until the
fifth taxable year which begins after the year for which the Company's election
was terminated, unless (a) the Company did not willfully fail to file a timely
return with respect to the termination taxable year, (b) the incorrect
information in such return was not due to fraud with intent to evade tax, and
(c) the Company establishes that failure to meet the requirements was due to
reasonable cause and not to willful neglect.
TAXATION OF THE COMPANY
GENERAL. In general, corporations are subject to federal income tax on
their net income regardless of whether such income is currently distributed to
shareholders. Distributions to shareholders constitute taxable dividends to the
extent of current and accumulated earnings and profits of the corporation.
Under this general rule, double taxation of corporate profits -- that is,
taxation at the corporate level and the shareholder level -- is the norm.
However, the rules pertaining to REITs provide an exception to this general
rule. Except as otherwise discussed below, for any taxable year in which the
Company qualifies as a REIT, it will generally be able to deduct for federal
income tax purposes the portion of its ordinary income or capital gain which is
timely distributed to shareholders.
Even if the Company is treated as a REIT for federal income tax purposes,
however, it is subject to tax on any REIT taxable income and net capital gain
not distributed to shareholders. The Company may reinvest income or gain
recognized upon the sale of property or repayment of an investment, although it
does not intend to do so unless it has satisfied the 95% income distribution
test. Capital gain income which is not distributed will be taxable to the
Company. The Company will not be required to distribute capital gain income to
maintain its status as a REIT. In addition, the Company will be taxed at
regular corporate tax rates on net income from foreclosure property which is not
otherwise REIT qualifying income. Any tax incurred by the Company for these
reasons, or for any of the reasons discussed below, would reduce the amount of
cash available for distribution to shareholders, and ultimately reduce the
return on an investment in shares of the Company.
DIVIDENDS PAID DEDUCTION. For any taxable year it qualifies as a REIT, the
Company can claim the dividends paid deduction for dividends actually and
constructively paid during that tax year. The Company can also claim a
dividends paid deduction for dividends paid in the following year if it declares
the dividends before the time prescribed by law for filing its return for the
year, including extensions, and distributes the amount of the dividend during
the 12-month period following the close of the year but not later than the date
of the first regular dividend payment made after the declaration. In this
event, the Company will be required to specify the dollar amount of the
dividend, and send any notices required with respect to the dividend not later
than 30 days after the close of the tax year or by mail with its annual report
for the tax year. Certain so-called consent dividends declared in subsequent
years are also eligible for the dividends paid deduction.
TAX ON BUILT-IN GAIN. The Internal Revenue Service has announced its
intention to issue regulations dealing with "built-in gain" of REITs. A REIT
has built-in gain to the extent it has, at the time its status as a REIT
commences, any asset with a fair market value in excess of its adjusted tax
basis. The regulations would provide that a corporation that becomes a REIT
recognizes net built-in gain, and pays corporate level tax, as if it had been
liquidated at the end of the last taxable year before it qualified as a REIT
unless it makes an election under which it will recognize such gain only upon
disposition of such assets within the first ten years after it became a REIT.
If the election is made, the portion of any gain on such dispositions that is
built-in gain is taxable to the REIT without regard to whether the gain is
distributed to shareholders.
Some or all of the assets held by the Company on January 1, 1994, the
effective date of its REIT election, had built-in gain. The Company made the
election described above. The Company will therefore recognize built-in
38
gain only upon disposition of those assets prior to January 1, 2004. If such a
disposition occurs, the corporate level tax paid by the Company will reduce the
amount available for distribution to shareholders.
EXCISE TAX ON FAILURE TO MEET 75% OR 95% INCOME TESTS. Regardless of
distributions to shareholders, if the Company fails either or both of the 75%
and 95% income tests, but still maintains its qualification as a REIT, it will
be subject to an excise tax on an amount equal to the greater of the amount by
which it failed the 75% test or the 95% test multiplied by a fraction the
numerator of which is REIT taxable income (determined without deductions for
dividends paid or net operating losses and excluding capital gains) and the
denominator of which is the gross income of the REIT (determined, generally, by
excluding income from prohibited transactions, certain gross income from
foreclosure property, long-term capital gain, and short-term capital gain to the
extent of any short-term capital loss).
100% TAX ON PROHIBITED TRANSACTIONS. To the extent the Company derives any
net income from a prohibited transaction, the Company will be subject to a 100%
tax on such net income.
ALTERNATIVE MINIMUM TAX. The Company will also be subject to the
alternative minimum tax on items of tax preference allocable to it. The Code
authorizes the Treasury Department to issue regulations allocating items of tax
preference between a REIT and its shareholders. Such regulations have not been
issued. The Company does not expect to have any significant items of tax
preference.
4% EXCISE TAX. A 4% excise tax applies if a REIT's "distributed amount"
for any year is less than its "required distribution." For this purpose, the
required distribution is specially defined, and does not correspond to the
amount the REIT must distribute in order to maintain its status as a REIT. The
required distribution is (a) 85% of the REIT's ordinary income for the year,
plus (b) 95% of the REIT's capital gain net income reduced by any net ordinary
loss. This amount must be "grossed up" for certain amounts of undistributed
income from prior years. For purposes of this rule, the REIT's ordinary income
is determined without regard to the dividends paid deduction. The distributed
amount includes dividends paid during the calendar year, plus any tax imposed on
REIT taxable income or capital gains, plus any excess of the distributed amount
for the preceding calendar year over the grossed up required distribution for
the preceding year.
TAX ELECTIONS. The Company's taxable year ends December 31. The Company
uses the accrual method of accounting. The effective date of the Company's
election to be taxed as a REIT is January 1, 1994.
STATE AND LOCAL TAXES
The Company may be subject to state and local taxes in various
jurisdictions such as those in which the Company owns property or may be deemed
to be engaged in activities. The tax treatment of the Company in states having
taxing jurisdiction over it may differ from the federal income tax treatment
described in this summary. No discussion of state taxation of the Company, the
shares or the shareholders is provided herein.
PLAN OF DISTRIBUTION
The Company may sell Securities to one or more underwriters for public
offer and sale by them or may sell Securities offered hereby to investors
directly or through agents. Any underwriter or agent involved in the offer and
sale of the Securities will be named in the applicable Prospectus Supplement.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at prices
related to the prevailing market prices at the time of sale or at negotiated
prices (any of which may represent a discount from the prevailing market
prices). The Company also may, from time to time, authorize underwriters acting
as the Company's agents to offer and sell the Securities upon the terms and
conditions as are set forth in the applicable Prospectus Supplement. In
connection with the sale of Securities, underwriters may be deemed to have
received compensation from the Company in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of Securities for
whom they may act as agent. Underwriters may sell Securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agent.
39
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Securities and any discounts, concessions or
commissions allowed by underwriters to participating dealers, will be set forth
in the applicable Prospectus Supplement. Underwriters, dealers and agents
participating in the distribution of the Securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the Securities may be deemed to be underwriting
discounts and commissions, under the Securities Act. Underwriters, dealers and
agents may be entitled, under agreements entered into with the Company, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize the underwriters, dealers or other persons acting as the Company's
agents to solicit offers by certain institutions to purchase Securities from the
Company at the public offering price set forth in such Prospectus Supplement
pursuant to Delayed Delivery Contracts ("Contracts") providing for payment and
delivery on the date or dates stated in such Prospectus Supplement. Each
Contract will be for an amount not less than, and the aggregate principal amount
of Securities sold pursuant to Contracts will not be less than nor greater than,
the respective amounts stated in the applicable Prospectus Supplement.
Institutions with whom Contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions but
will in all cases be subject to the approval of the Company. Contracts will not
be subject to any conditions except that (i) the purchase by an institution of
the Securities covered by its Contract will not at the time of delivery be
prohibited under the laws of any jurisdiction in the United States to which such
institution is subject; and (ii) if the Securities are being sold to
underwriters, the Company has sold to such underwriters the total principal
amount of the Securities less the principal amount thereof covered by the
Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and its
subsidiaries in the ordinary course of business.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Ungaretti &
Harris, Chicago, Illinois. Ungaretti & Harris will rely on the opinion of
Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC, Baltimore, Maryland, as
to certain matters of Maryland law.
EXPERTS
The financial statements and financial statement schedules included in the
Company's Annual Report on Form 10-K and the statements of revenue and certain
expenses included in the Company's Form 8-K/A filed with the Commission on
November 27, 1996, incorporated by reference in this Prospectus, to the extent
and for the periods indicated in their reports, have been audited by Coopers &
Lybrand L.L.P., independent accountants, and are included herein in reliance
upon the authority of those experts in giving their report.
40
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY, THE SERIES A PREFERRED SHARES IN ANY JURISDICTION WHERE, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
Prospectus Supplement
Page
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Summary.......................................... S-3
The Company...................................... S-8
Recent Developments.............................. S-8
Additional Information Regarding Properties...... S-10
Forward Looking Statements....................... S-12
Use of Proceeds.................................. S-12
Description of Series A Preferred Shares......... S-13
Federal Income Tax Considerations................ S-17
Ratio of Earnings to Fixed Charges............... S-22
Underwriting..................................... S-22
Legal Matters.................................... S-24
Experts.......................................... S-24
Prospectus
Available Information............................ 2
Incorporation of Certain Documents by
Reference...................................... 2
The Company...................................... 3
Risk Factors..................................... 4
Use of Proceeds.................................. 7
Ratio of Earnings to Fixed Charges............... 7
Description of Debt Securities................... 7
Description of Shares of Beneficial Interest..... 20
Description of Securities Warrants............... 29
Certain Provisions of Maryland Law and of the
Company's Declaration of Trust and Bylaws...... 31
Federal Income Tax Considerations Relating to the
Company's REIT Election........................ 33
Plan of Distribution............................. 39
Legal Matters.................................... 40
Experts.......................................... 40
3,000,000 SHARES
[LOGO]
8.48% SERIES A
CUMULATIVE REDEEMABLE PREFERRED SHARES
OF
BENEFICIAL INTEREST
LIQUIDATION PREFERENCE
$25 PER SHARE
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PROSPECTUS SUPPLEMENT
NOVEMBER 4, 1997
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LEHMAN BROTHERS
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
THE ROBINSON-HUMPHREY COMPANY
SMITH BARNEY INC.
WHEAT FIRST BUTCHER SINGER
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