As filed with the Securities and Exchange Commission on October 25, 2001
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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SIZELER PROPERTY INVESTORS, INC.
(Exact name of registrant as specified in its charter)
Maryland 6798 72-1082589
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification No.)
of incorporation or Classification No.)
organization)
2542 Williams Boulevard
Kenner, Louisiana 70062
(504) 471-6200
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
SIDNEY W. LASSEN, Chairman
Sizeler Property Investors, Inc.
2542 Williams Boulevard
Kenner, Louisiana 70062
(504) 471-6200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
WILLIAM I. SCHAPIRO, Esq.
Jaeckle Fleischmann & Mugel, LLP
800 Fleet Bank Building
Twelve Fountain Plaza
Buffalo, New York 14202-2292
(716) 856-0600
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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Title of each class Amount to Proposed Proposed Amount of
of securities to be be maximum offering maximum aggregate registration
registered registered price per unit offering price fee
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10.0% Series B
Cumulative Redeemable
Preferred Stock........ $61,900,000 100% $61,900,000 (1) $15,475 (2)
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9.0% Convertible
Subordinated Debentures
due July 15, 2009...... (3) (3) (3) (3)
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(1) Pursuant to Rule 457(f)(1) under the Securities Act of 1933, as amended,
this amount is the market value of the maximum amount of 8% convertible
subordinated debentures due 2003 that may be received by the registrant
from tendering holders.
(2) The registration fee has been calculated pursuant to Rule 457(f) under the
Securities Act of 1933, as amended.
(3) Up to $32,327,000 in aggregate principal amount of 9.0% convertible
subordinated debentures due July 15, 2009 may be issued in this exchange
offer. The total of Series B preferred stock and 9.0% convertible
subordinated debentures to be issued upon completion of this exchange
offer will be equal to or less than $61,900,000. Therefore, no additional
registration fee is required pursuant to Rule 457 under the Securities Act
of 1933, as amended.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to said section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus and exchange offer is not complete and may +
+be changed. We may not complete this exchange offer and issue these +
+securities until the registration statement filed with the Securities and +
+Exchange Commission is effective. This prospectus is not an offer to sell +
+these securities and it is not soliciting an offer to buy these securities in +
+any jurisdiction where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
Dated October 25, 2001
Prospectus
$61,900,000
SIZELER PROPERTY INVESTORS, INC.
Offer to Exchange
9.0% Convertible Subordinated Debentures due July 15, 2009
and/or
10.0% Series B Cumulative Redeemable Preferred Stock
for all Outstanding
8% Convertible Subordinated Debentures due July 15, 2003
(CUSIP No. 830137AA3)
Exchange Offer Expiration: December , 2001 at 8:00 a.m.,
New York City time, unless extended.
Material Terms of the Exchange Offer
. We are offering to exchange your 8% convertible subordinated debentures
due July 15, 2003 for either of the following two options:
+ $1,000 in principal amount of 9% convertible subordinated debentures due
July 15, 2009 for each $1,000 in principal amount of the old debentures
that you tender, up to a maximum of $32,327,000 in aggregate principal
amount of new debentures; or
+ 40 shares of 10% Series B cumulative redeemable preferred stock for each
$1,000 in principal amount of the old debentures that you tender.
. You may choose to exchange your old debentures entirely for new
debentures, entirely for Series B preferred stock, or you may choose any
combination thereof.
. You do not have to tender all of your old debentures to participate in
this exchange offer.
. We will exchange all old debentures that are validly tendered, not
withdrawn, and accepted, prior to the expiration of the exchange offer.
. You may withdraw your tender of old debentures or change your choice of
consideration options at any time before the expiration of the exchange
offer.
. We may cancel this exchange offer or change the terms of this exchange
offer at any time prior to expiration. See "This Exchange Offer--Amendment
of this Exchange Offer."
. If holders of old debentures choose to validly tender, in the aggregate,
more than $32,327,000 in principal amount of old debentures in exchange
for new debentures, we will exchange the new debentures for old debentures
on a pro rata basis. Old debentures tendered for new debentures that are
not accepted because of proration may, at the option of the holder, be
exchanged for shares of Series B preferred stock or returned to the
holder. See "This Exchange Offer--Possible Proration of New Debentures."
. We believe that the exchange of old debentures will not be a taxable event
for U.S. federal income tax purposes, but you should see "Material United
States Federal Tax Consequences" on page 62 for more information.
. We intend to apply to list the new debentures and the Series B preferred
stock on the New York Stock Exchange.
. We will not receive any proceeds from the exchange offer. See "Use of
Proceeds."
. If the conditions to this exchange offer are satisfied, or waived by us,
we will accept for exchange any and all old debentures that are validly
tendered and not withdrawn before 8:00 a.m., New York City time, on the
expiration date of this exchange offer. To validly tender your old
debentures please follow the instructions described in this prospectus and
the letter of transmittal. See "This Exchange Offer--Procedures for
Exchanging Old Debentures." If the conditions are not satisfied or waived
or if we otherwise terminate this exchange offer, tendered old debentures
will be returned, without expense to you.
Both acceptance and rejection of this exchange offer involve a high degree of
risk. See "Risk Factors" beginning on page 17 of this prospectus for a
discussion of risk factors that you should consider in connection with this
exchange offer and an investment in the new debentures and shares of Series B
preferred stock.
Neither the Securities and Exchange
Commission nor any state securities
commission has approved or disapproved of
these securities or passed upon the
adequacy or accuracy of this
prospectus. Any representation to the
contrary is a criminal offense.
The date of this prospectus is , 2001.
Each broker-dealer that receives registered new debentures or Series B
preferred stock for its own account in the exchange offer must acknowledge
that it will deliver a prospectus in connection with any resale of those new
debentures or Series B preferred stock. The letter of transmittal accompanying
this prospectus states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act of 1933, as amended. A
participating broker-dealer may use this prospectus in connection with resales
of new debentures or Series B preferred stock received in exchange for the
outstanding old debentures where those old debentures were acquired by the
broker-dealer as a result of market-making activities or other trading
activities. We have agreed that, starting on the date of this prospectus and
ending on the close of business on the day that is 180 days following the date
of this prospectus, we will make this prospectus available to any broker-
dealer for use in connection with any of those resales. See "Plan of
Distribution."
TABLE OF CONTENTS
Page
----
ABOUT THIS PROSPECTUS...................................................... 5
WHERE YOU CAN FIND MORE INFORMATION........................................ 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 6
PROSPECTUS SUMMARY......................................................... 7
Sizeler Property Investors, Inc.......................................... 7
Reason for this Exchange Offer........................................... 7
Background of this Exchange Offer........................................ 7
No Board Recommendation.................................................. 7
Effects of this Exchange Offer on Owners of the Old Debentures........... 8
Summary of the Terms of this Exchange Offer.............................. 8
Summary Description of the New Debentures................................ 12
Summary Description of the Series B Preferred Stock...................... 13
Summary Historical Financial Data........................................ 15
Ratio of Earnings to Fixed Charges....................................... 16
RISK FACTORS............................................................... 17
Risks Relating to the Exchange Offer..................................... 17
Risks Associated with the New Debentures................................. 17
Risks Associated with the Series B Preferred Stock....................... 17
Risks Associated with Retaining the Old Debentures....................... 18
Real Estate Industry Risks............................................... 18
Risks Associated with our Properties..................................... 19
Financing Risks.......................................................... 20
Other Risks.............................................................. 20
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS............................ 21
USE OF PROCEEDS............................................................ 21
RATIO OF EARNINGS TO FIXED CHARGES......................................... 22
CAPITALIZATION............................................................. 23
THIS EXCHANGE OFFER........................................................ 24
About Sizeler Property Investors, Inc.................................... 24
Purpose of this Exchange Offer........................................... 24
Securities Offered in this Exchange Offer................................ 24
Possible Proration of New Debentures..................................... 24
2
Page
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Market and Trading Information Regarding the Old Debentures............ 24
Conditions to this Exchange Offer...................................... 25
Background of this Exchange Offer...................................... 25
No Board Recommendation................................................ 25
Period for Tendering Old Debentures.................................... 26
Procedures for Exchanging Old Debentures............................... 26
Withdrawals of Tenders................................................. 28
Interest on Old and New Debentures and Dividends on Series B Preferred
Stock................................................................. 29
Amendment of this Exchange Offer....................................... 29
Future Transactions Involving Old Debentures........................... 30
"Blue Sky" Compliance.................................................. 30
Exchange Agent......................................................... 30
Financial Advisor...................................................... 31
Information Agent...................................................... 31
Fees and Expenses...................................................... 31
Transfer Taxes......................................................... 32
United States Federal Tax Considerations............................... 32
Appraisal Rights....................................................... 32
SELECTED FINANCIAL DATA.................................................. 33
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.................... 35
COMPARISON OF THE OLD DEBENTURES, THE NEW DEBENTURES AND THE SERIES B
PREFERRED STOCK......................................................... 40
TERMS OF THE DEBENTURES.................................................. 45
TERMS OF THE SERIES B PREFERRED STOCK.................................... 49
Maturity............................................................... 49
Rank................................................................... 49
Dividends.............................................................. 50
Liquidation Preference................................................. 51
Redemption............................................................. 51
Procedures for Redemption.............................................. 51
Voting Rights.......................................................... 53
Conversion............................................................. 54
Restrictions on Ownership and Transfer................................. 54
Transfer and Dividend Paying Agent..................................... 54
BENEFICIAL OWNERSHIP OF OLD DEBENTURES BY DIRECTORS AND EXECUTIVE
OFFICERS................................................................ 54
RECENT TRANSACTIONS IN THE OLD DEBENTURES................................ 54
DESCRIPTION OF CAPITAL STOCK............................................. 55
BOOK-ENTRY; DELIVERY AND FORM............................................ 55
General................................................................ 55
Definitive Registered Debentures....................................... 56
Description of Book-Entry System....................................... 57
Payments on the Global Debentures...................................... 57
Redemption of Global Debentures........................................ 58
Transfers.............................................................. 58
Action by Owners of Book-Entry Interests............................... 58
Reports................................................................ 59
Notices................................................................ 59
3
Page
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Business Day............................................................. 59
Action by Book-Entry Depositary.......................................... 59
Resignation of Book-Entry Depositary..................................... 59
Expenses of Book-Entry Depositary........................................ 60
Amendment and Termination of the Deposit Agreements...................... 60
Information Concerning DTC, Euroclear and Clearstream.................... 60
Global Clearance and Settlement Under Book-Entry System.................. 61
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES............................ 62
Introductory Notes....................................................... 62
Taxation of the Company.................................................. 62
Potential Taxation of Company on the Exchange............................ 67
Taxation of Stockholders................................................. 67
Backup Withholding Tax and Information Reporting......................... 71
Taxation of Domestic Debenture Holders................................... 72
Taxation of Non-U.S. Debenture Holders................................... 75
FEDERAL INCOME TAX CONSIDERATIONS OF THE EXCHANGE TRANSACTION.............. 76
Domestic Debenture Holders............................................... 76
Foreign Debenture Holders................................................ 76
PLAN OF DISTRIBUTION....................................................... 77
LEGAL MATTERS.............................................................. 77
EXPERTS.................................................................... 77
4
ABOUT THIS PROSPECTUS
You should read this prospectus carefully. This prospectus contains
information you should consider when making a decision about the exchange
offer. You should rely only on the information provided or incorporated by
reference in this prospectus. We have not authorized anyone else to provide
you with different information. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy any securities to any
person in any jurisdiction where the offer or sale is not permitted. You
should not assume that the information in this prospectus is accurate as of
any date other than the date on the front of this prospectus.
Information contained on our website does not constitute part of this
prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement under the Securities
Act with respect to the securities offered hereunder. As permitted by the
SEC's rules and regulations, this prospectus does not contain all the
information set forth in the registration statement. For further information
regarding our company and our securities, please refer to the registration
statement and the contracts, agreements and other documents filed as exhibits
to the registration statement. Additionally, we file annual, quarterly and
special reports, proxy statements and other information with the SEC.
You may read and copy all or any portion of the registration statement or
any other materials that we file with the SEC at the SEC's public reference
rooms in Washington, D.C., Chicago, Illinois, and New York, New York. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Our SEC filings, including the registration statement,
are also available to you on the SEC's website (http://www.sec.gov). We also
have a website (through which you may access our SEC filings). Please note
that our website contains various financial data and analyses computed or
prepared by third parties and that we may not have verified and confirmed the
accuracy of all such data. Therefore, we disclaim all responsibility for its
accuracy. In addition, you may look at our SEC filings at the offices of the
New York Stock Exchange, Inc., which is located at 20 Broad Street, New York,
New York 10005. Our SEC filings are available at the NYSE because our common
stock is listed and traded on the NYSE under the symbol "SIZ".
5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information contained
in documents that we file with them: that means we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and
information that we file later with the SEC will automatically update and
supersede this information.
We incorporate by reference the documents listed below and any future
filings we make with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, until the expiration date of
this exchange offer.
. Our Annual Report on Form 10-K for the year ended December 31, 2000.
. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.
. Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.
. Our Current Report on Form 8-K dated June 26, 2001.
You may request a free copy of these filings (other than exhibits, unless
they are specifically incorporated by reference in the documents) by writing
or telephoning either:
Georgeson Shareholder Communications Inc.
17 State Street, 10th Floor
New York, New York 10004
Bankers and brokers call collect: (212) 440-9800
All others call toll-free: (800) 223-2064
or
Sizeler Property Investors, Inc.
Attention: Chief Financial Officer
2542 Williams Boulevard
Kenner, Louisiana 70062
(504) 471-6200
6
PROSPECTUS SUMMARY
The following summary highlights some information from this prospectus. It
may not contain all of the information that may be important to you. To
understand this exchange offer fully and for a more complete description of the
legal terms of this exchange offer, you should read carefully this entire
prospectus and the other documents to which we have referred you, including the
letter of transmittal accompanying this prospectus. See "Where You Can Find
More Information" on page 5.
Sizeler Property Investors, Inc.
We are a self-administered and self-managed equity real estate investment
trust that acquires, develops, owns and operates income-producing retail
shopping centers and apartment properties in the southeastern region of the
United States. We are a self-administered REIT in that we provide our own
investment and administrative services internally through our own employees. We
are also self-managed as we internally provide, through a wholly-owned
subsidiary, the management, leasing and development services that our
properties require through our own employees. Our investment objective is to
acquire and develop high-quality properties at attractive initial yields with
potential for future growth in cash flows. As of June 30, 2001, our existing
portfolio contained 16 retail shopping centers (one of which, Camelot Shopping
Center, was sold in July 2001) with approximately 2.7 million square feet of
gross leasable area and 14 apartment properties containing approximately 3,400
units. During the six month period ended June 30, 2001, our retail and
apartment properties were, on average, approximately 92% and 98% leased,
respectively. Our principal executive offices are located at 2542 Williams
Boulevard, Kenner, Louisiana 70062. Our telephone number is (504) 471-6200.
Reason for this Exchange Offer
We are making this exchange offer to refinance the old debentures.
Background of this Exchange Offer
On May 13, 1993, we issued and sold $65 million in principal amount of the
old debentures in a public offering for cash. Subsequently, $2.1 million in
principal amount of the old debentures were converted into shares of our common
stock and $1 million in principal amount of the old debentures has been
acquired by one of our subsidiaries, leaving $61.9 million in principal amount
of the old debentures outstanding. The old debentures mature on July 15, 2003.
On May 15, 2001, our Board of Directors retained Cohen & Steers Capital
Advisors, LLC as our financial advisor, for the purpose of advising us with
respect to certain matters, including the evaluation of the old debentures and
the possibility of refinancing the old debentures. In considering the
refinancing of the old debentures, the Board recognized that these debentures
mature in approximately two years. On August 9, 2001, Cohen & Steers presented
the Board of Directors with a proposal to refinance the old debentures through
an exchange offer. Pursuant to the proposed exchange offer, holders of old
debentures would be offered, in exchange for their old debentures, the choice
of new debentures with substantially the same terms as the old debentures
except for an extended maturity date, a reduced conversion price and a higher
interest rate, and/or shares of preferred stock. The Board concluded that the
proposed exchange offer was a more preferable strategy than other means of
discharging the old debentures, such as selling company properties or incurring
additional indebtedness to raise sufficient proceeds to pay the old debentures.
After discussion the Board approved the proposed exchange offer on the terms
described in this prospectus. See "This Exchange Offer."
No Board Recommendation
Our Board of Directors expresses no opinion and is remaining neutral
regarding any recommendation to you whether or not to tender any or all of your
old debentures under this exchange offer because the risks and
7
benefits to you will depend on your particular situation or status. The Board
of Directors has not obtained a fairness opinion from any financial advisor
about the fairness of the exchange to you or to us. In addition, we have not
authorized anyone to make a recommendation regarding this exchange offer. You
must make your own decision whether to tender any or all of your old debentures
and the likely value of the new debentures, the shares of Series B preferred
stock, your liquidity needs and your investment objectives.
Effects of this Exchange Offer on Owners of the Old Debentures
If this exchange offer is 100% successful, none of the old debentures will
remain outstanding and we intend to remove them from listing on the New York
Stock Exchange. If fewer than 100% of the old debentures are exchanged, the
remaining old debentures will continue to be subordinated to our senior
indebtedness, now existing or incurred in the future, and the old debentures
will have equal rank with the new debentures and be senior to the Series B
preferred stock. All old debentures surrendered in exchange for new debentures
and/or shares of Series B preferred stock will be retired and cancelled and
cannot be reissued.
If you choose not to accept this exchange offer, your old debentures will
remain outstanding and convertible at your option into shares of common stock.
The old debentures are convertible into shares of our common stock at a price
of $13.00 per share. As of the close of business on October 22, 2001, the
closing price for a share of our common stock on the New York Stock Exchange
was $9.06.
A summary of the terms of the new debentures and the Series B preferred
stock is contained in "--Summary Description of the New Debentures" and "--
Summary Description of the Series B Preferred Stock." The terms of the old
debentures, the new debentures and the Series B preferred stock, and the
principal differences between the old debentures, the new debentures and the
Series B preferred stock are described in more detail under the headings
"Comparison of the Old Debentures, the New Debentures and the Series B
Preferred Stock," "Terms of the Debentures," and "Terms of the Series B
Preferred Stock."
See "Unaudited Pro Forma Consolidated Financial Statements" for pro forma
financial information which reflects the effect of this exchange offer on our
business.
Summary of the Terms of this Exchange Offer
We summarize below the terms of this exchange offer. You should read the
detailed description of the offer in the section entitled "This Exchange
Offer." In addition, you should read the section entitled "Risk Factors" for a
discussion of certain risk factors that you should consider in connection with
this exchange offer.
Purpose of this exchange We are making this exchange offer to refinance
offer...................... the old debentures.
Securities for which we are
making this exchange
offer......................
$61.9 million in aggregate principal amount of
8.0% convertible subordinated debentures due July
15, 2003.
Securities offered under
this exchange offer........
Up to $32.327 million in aggregate principal
amount of 9.0% convertible subordinated
debentures due July 15, 2009 (if the maximum
aggregate principal amount of new debentures are
issued) and up to 2,476,000 shares of 10.0%
Series B cumulative redeemable preferred stock
(if all of the old debentures are exchanged for
Series B preferred stock). You may exchange your
old debentures entirely for new debentures or
entirely for Series B preferred stock, or you may
choose any combination thereof. Additionally, you
do not have to tender all of your old debentures
to participate in this exchange offer.
8
Proration................... If holders of old debentures choose to validly
tender, in the aggregate, more than $32.327
million in aggregate principal amount of old
debentures in exchange for new debentures, then
we will exchange the new debentures for old
debentures on a pro rata basis. See "This
Exchange Offer--Possible Proration of New
Debentures." Old debentures tendered for new
debentures that are not accepted because of
proration may, at the option of the holder, be
exchanged for shares of Series B preferred stock
or returned to the holder.
Conditions to this This exchange offer is subject to the following
exchange................... conditions:
. this exchange offer complies with applicable
laws and interpretations of the staff of the
SEC;
. this exchange offer complies with all
applicable state securities or "blue sky"
laws;
. no litigation has been instituted or
threatened or law enacted that could prohibit
this exchange offer, materially adversely
affect our business, or limit the tax
deductibility of interest on the new
debentures or materially impair the benefits
to us of this exchange offer;
. no event has occurred affecting our business
that would reasonably be expected to
prohibit, prevent or significantly delay this
exchange offer or materially impair the
benefits of this exchange offer; and
. after the date of this Prospectus, no tender
or exchange offer for our equity securities
or any business combination involving us has
been proposed or announced or has occurred.
Subject to the satisfaction or waiver of the
conditions, we will accept for exchange any and
all old debentures that are validly tendered and
not withdrawn before 8:00 a.m., New York City
time, on December , 2001, the expiration date
of this exchange offer. However, we reserve the
right to:
. delay the acceptance of the old debentures
for exchange;
. terminate this exchange offer and return all
old debentures tendered to us;
. extend the expiration date and retain all old
debentures that have been tendered, subject
to the right of owners of old debentures to
withdraw their tendered old debentures;
. refuse to accept the old debentures and
return all old debentures that have been
tendered to us; or
. waive any condition or otherwise amend the
terms of this exchange offer in any respect.
We will not waive or amend any condition after
the expiration date of this exchange offer.
9
Accrued interest............ The last payment of interest on the old
debentures was made on July 15, 2001 and all
payments of interest on the old debentures have
been made when due since the old debentures were
issued. This payment covered accrued interest at
the rate of 8.0% from January 16, 2001 through
July 15, 2001. The first payment of interest on
the new debentures will be made on January 15,
2002 in arrears to registered holders as of
January 1, 2002. This payment will cover accrued
interest at a rate of 8.0% from July 16, 2001
until the expiration date of the exchange offer
and then at the rate of 9.0% effective from the
expiration date of the exchange offer until
January 15, 2002. The first dividend payment on
the shares of Series B preferred stock will be
paid quarterly in arrears beginning February 15,
2002 at a rate of 8.0% from July 16, 2001 until
the expiration date of the exchange offer and at
the rate of 10.0% from the expiration date of the
exchange offer until February 15, 2002.
Subsequent quarterly dividend payments will be
$0.625 (equivalent to $2.50 per share annually or
10% of the liquidation preference of $25.00 per
share) per share of Series B preferred stock. We
anticipate that dividend payments on the Series B
preferred stock will be payable to stockholders
of record as determined approximately two weeks
prior to the payment date.
Procedures for tendering
old debentures.............
Certificates for old debentures along with
letters of transmittal and any other required
documentation should be sent to the exchange
agent. See "This Exchange Offer--Procedures for
Exchanging Old Debentures." Letters of
transmittal and other documentation relating to
the old debentures and this exchange offer should
not be sent to us.
We anticipate that tenders will be effected by
book entry transfers. If you hold your old
debentures through a broker, dealer, commercial
bank, trust company or other nominee, you must
contact them regarding the procedures to follow
in tendering your old debentures. Questions
regarding how to tender your old debentures and
requests for information should be directed to
the exchange agent. See "This Exchange Offer--
Procedures for Exchanging Old Debentures."
Acceptance of old
debentures and delivery of
new debentures/Series B
preferred stock............
We will accept all old debentures validly
tendered, and not withdrawn, on or prior to 8:00
a.m., New York City time, on the expiration date.
See "This Exchange Offer--Procedures for
Exchanging Old Debentures." The exchange agent
will deliver the appropriate credit for new
debentures issued in this exchange offer to the
accounts of the owners of the new debentures at
the Depository Trust Company, Euroclear or
Clearstream and deliver the appropriate
certificates for shares of Series B preferred
stock as soon as practicable after the expiration
date.
10
Expiration date............. The expiration date is 8:00 a.m., New York City
time on December , 2001 unless extended. See
"This Exchange Offer--Amendment of this Exchange
Offer."
Withdrawal rights........... The tender of old debentures may be withdrawn at
any time prior to our acceptance of the tendered
old debentures for payment.
Old debentures not tendered
or accepted for exchange...
If you do not tender your old debentures in this
exchange offer, or if your old debentures are not
accepted for exchange, you will continue to hold
your old debentures and will be entitled to all
the rights and will be subject to all the
limitations applicable to the old debentures. Any
old debentures not accepted for exchange for any
reason will be returned without expense to you as
promptly as practicable after the expiration or
termination of this exchange offer.
Use of proceeds............. We will not receive any proceeds from this
exchange offer.
Appraisal rights............ You will not have any dissenters' rights or
appraisal rights in connection with this exchange
offer.
United States tax
consequences of this
exchange offer............. Please see the discussion of the United States
federal income tax consequences of this exchange
offer in the section entitled "Material United
States Federal Tax Consequences." The tax
consequences to you will depend on the facts of
your own situation. You should consult your own
tax advisor for a full understanding of the tax
consequences to you of this exchange offer.
Listing of old debentures... If this exchange offer is 100% successful, none
of the old debentures will remain outstanding
and, in such event, we intend to remove the old
debentures from listing with the New York Stock
Exchange.
No established markets...... Although we intend to apply to list the new
debentures and the Series B preferred stock on
the New York Stock Exchange, we cannot assure you
that any active trading markets in the new
debentures or the Series B preferred stock will
develop.
Exchange agent.............. Chase Manhattan Trust Company, National
Association is the exchange agent for this
exchange offer. Its address and telephone numbers
are located in the section "This Exchange Offer--
Exchange Agent."
Information agent........... Georgeson Shareholder Communications, Inc. is the
information agent for this exchange offer. Its
address and telephone numbers are located in the
section "This Exchange Offer--Information Agent."
11
Summary Description of the New Debentures
9.0% Convertible Subordinated Debentures due July 15, 2009.
New debentures offered...... Up to $32.327 million in aggregate principal
amount available in exchange for the old
debentures.
Maturity.................... July 15, 2009.
Exchange ratio.............. $1,000 of new debentures up to the maximum
aggregate principal amount will be issued for
each $1,000 of old debentures tendered.
Proration................... If holders of old debentures choose to validly
tender, in the aggregate, more than $32.327
million in principal amount of old debentures in
exchange for new debentures, then we will
exchange the new debentures for old debentures on
a pro rata basis. See "This Exchange Offer--
Possible Proration of New Debentures." Old
debentures tendered for new debentures that are
not accepted because of proration may, at the
option of the holder, be exchanged for shares of
Series B preferred stock or returned to the
holder.
Ranking..................... The new debentures will rank in right of payment
behind our senior indebtedness and all of our
other existing and future senior debt, but equal
with the old debentures and any future
subordinated debentures issued by us. The new
debentures will be unsecured. The new debentures
will rank senior to the Series B preferred stock.
Interest payments........... Interest payments will be made on the new
debentures semi-annually on the same payment
dates as the old debentures--July 15th and
January 15th of each year. The first interest
payment will include the accrued interest from
July 16, 2001 until the expiration date of the
exchange offer due on old debentures exchanged
into new debentures plus the accrued interest
from the expiration date of the exchange offer
until January 15, 2002 due on the new debentures.
Conversion.................. The new debentures are convertible at any time
prior to maturity, unless previously redeemed,
into our common stock at a price of $11.00 per
share, subject to adjustments.
Optional redemption......... We may redeem the new debentures at any time
after the third anniversary of the expiration
date of the exchange offer, in whole or in part,
for 100% of their principal amount plus accrued
and unpaid interest, if any, up to the date of
redemption, on at least 30 days' prior written
notice by mail.
Covenants................... The new debentures will include limitations on
our ability, and certain of our subsidiaries'
ability, to:
. pay dividends on stock or repurchase stock
after an event of default has occurred and is
continuing or would exist immediately after;
12
. merge, consolidate or transfer all or
substantially all of our assets unless the
successor entity expressly assumes all
obligations under the indenture governing the
new debentures.
Events of default........... The following are events of default under the
indenture governing the new debentures:
. our failure to pay principal at maturity when
such failure continues for five business
days;
. our failure to pay interest when due and such
failure continues for 30 days;
. our failure to comply with any other covenant
for 60 days after written notice; or
. certain events of bankruptcy, insolvency or
reorganization.
Listing..................... We intend to apply to list the new debentures on
the New York Stock Exchange.
Summary Description of the Series B Preferred Stock
10.0% Series B Cumulative Redeemable Preferred Stock.
Preferred stock offered..... Up to 2,476,000 shares of 10.0% Series B
cumulative redeemable preferred stock, par value
$0.0001 per share.
Exchange ratio.............. 40 shares of Series B preferred stock will be
issued for each $1,000 of old debentures
tendered.
Ranking..................... The Series B preferred stock, with respect to
dividend rights and rights upon liquidation, will
rank: (i) senior to our common stock and our
Series A preferred stock, (ii) equal with all
other classes of our preferred stock, and (iii)
junior to the new debentures, the old debentures,
any other indebtedness of ours or our
subsidiaries and any other shares of our stock
ranking senior.
From time to time we may issue additional shares
of Series B preferred stock for any corporate
purpose. The additional shares may be sold for
cash, exchanged for our outstanding securities,
or for real property or other assets that we
desire to acquire. All such additional shares of
Series B preferred stock will rank equally with
the shares of Series B preferred stock issued in
this exchange offer.
Liquidation preference...... Upon any voluntary or involuntary liquidation,
dissolution or winding up of us, before any
payment to the holders of common stock, the
holders of the preferred stock shall be entitled
to receive a liquidation preference of $25.00 per
share, plus an amount equal to all accrued and
unpaid dividends (whether or not earned or
declared) to the date of final distribution to
such holders.
Dividends................... $0.625 per share paid quarterly in arrears in
cash on the 15th day of February, May, August and
November of each year (equivalent to
13
$2.50 per share annually or 10% of the
liquidation preference of $25.00 per share). The
first quarterly dividend payment will include an
amount equal to the accrued portion of interest
due on any old debentures exchanged into shares
of Series B preferred stock. Such dividends will
be cumulative from the issue date (i.e., the
expiration date of the exchange offer), whether
or not the dividends are declared or paid in any
period. The dividend record date will be not less
than 10 days prior to the payment date nor more
than 60 days prior to the payment date each
quarter and will be publicly announced each
quarter by us. We anticipate that the record date
will be approximately two weeks prior to the
payment date. So long as the shares of Series B
preferred stock are outstanding, no dividends
will be declared and paid on our common stock
unless all dividends accrued and unpaid on the
shares of Series B preferred stock have been paid
in full.
Optional redemption......... We may redeem the shares of Series B preferred
stock at a price equal to the liquidation
preference at any time following the fifth
anniversary of the issue date. In addition, we
will pay accrued and unpaid dividends, if any, up
to the date of the redemption.
Mandatory redemption........ None.
Covenants................... The shares of Series B preferred stock will
include limitations on our ability to:
. authorize, create or increase the authorized
or issued amount of any class of capital
stock ranking senior to the Series B
preferred stock; and
. amend, alter or repeal the provisions of our
Charter, including the Articles Supplementary
establishing the Series B preferred stock, so
as to materially and adversely affect any
right, preference or privilege of the shares
of Series B preferred stock.
Conversion.................. The shares of Series B preferred stock will not
be convertible into our common stock or any of
our other securities.
Voting for directors........ If six quarterly dividends (whether or not
consecutive) on the shares of Series B preferred
stock are in arrears, whether or not declared,
the number of directors constituting our Board of
Directors will be increased by two and the
holders of the shares of Series B preferred stock
(including any other classes or series of
preferred stock holding similar voting rights)
will be entitled to elect the two additional
directors to serve on the Board of Directors.
Listing..................... We intend to apply to list the Series B preferred
stock on the New York Stock Exchange.
14
Summary Historical Financial Data
We have derived the summary historical financial data as of and for each of
the five years ended December 31, 2000, 1999, 1998, 1997 and 1996 from our
audited consolidated financial statements. The summary historical financial
data as of and for the six months ended June 30, 2000 and 2001 have been
derived from our unaudited consolidated financial statements. The summary
historical data below should be read in conjunction with "Selected Financial
Data," and our consolidated financial statements and related notes incorporated
by reference in this prospectus.
Six Months Ended Years Ended December 31,
------------------ ------------------------------------------------
June 30, June 30,
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
In thousands except per share, units and percentages
Operating Data:
Total revenue.......... $ 26,232 $ 25,197 $ 51,441 $ 49,969 $ 47,791 $ 46,443 $ 44,456
Property operating
expenses.............. 10,130 9,314 19,442 18,971 17,905 17,139 16,317
-------- -------- -------- -------- -------- -------- --------
Net operating income
(NOI) (2)............. 16,102 15,883 31,999 30,998 29,886 29,304 28,139
Depreciation and
amortization.......... 5,665 5,547 11,173 10,845 10,145 9,621 9,119
Interest expense....... 7,839 7,806 15,850 15,018 14,554 14,608 14,542
General and
administrative
expense............... 1,239 1,413 2,648 2,788 2,431 2,520 2,194
-------- -------- -------- -------- -------- -------- --------
Earnings from
operations before
extraordinary
items................. 1,359 1,117 2,328 2,347 2,756 2,555 2,284
Extraordinary item--
early extinguishment
of debt (4)........... -- -- -- -- -- -- (449)
-------- -------- -------- -------- -------- -------- --------
Net earnings
attributable to shares
of common stock--basic
and diluted (1)....... $ 1,359 $ 1,117 $ 2,328 $ 2,347 $ 2,756 $ 2,555 $ 1,835
======== ======== ======== ======== ======== ======== ========
Common stock cash
distributions paid.... $ 3,757 $ 3,558 $ 7,234 $ 6,938 $ 7,330 $ 7,413 $ 7,425
Balance Sheet Data:
Real estate owned, at
cost.................. $351,957 $344,518 $348,759 $338,389 $328,477 $310,312 $303,476
Total assets........... 282,181 285,475 285,417 284,943 284,935 275,485 277,604
Mortgage notes
payable............... 112,080 110,130 113,163 84,712 89,869 90,615 68,080
Unsecured notes payable
to banks.............. 34,061 39,411 35,716 59,988 49,178 32,342 52,639
Unsecured convertible
subordinated
debentures............ 61,878 61,878 61,878 61,878 62,878 62,878 62,878
Shareholders' equity... $ 66,393 $ 68,694 $ 67,119 $ 70,953 $ 76,217 $ 84,527 $ 89,367
Other Data:
Funds from operations
attributable to shares
of common stock (1)... $ 6,702 $ 6,374 $ 12,907 $ 12,603 $ 12,284 $ 11,509 $ 10,771
Net operating income
(2)................... $ 16,102 $ 15,883 $ 31,999 $ 30,998 $ 29,886 $ 29,304 $ 28,139
Weighted average shares
of common stock
outstanding........... 8,155 7,905 7,950 7,888 8,331 8,423 8,433
Cash Flows:
Net cash provided by
operating activities.. $ 6,335 $ 4,586 $ 14,010 $ 13,193 $ 12,456 $ 12,945 $ 13,504
Net cash used in
investing activities.. (3,208) (6,248) (10,496) (9,925) (16,966) (6,757) (7,476)
Net cash provided by
(used in) financing
activities............ (4,374) 995 (2,955) (3,081) 4,532 (5,528) (6,834)
Multi-family segment:
Gross investment....... $137,950 $135,605 $136,870 $134,092 $129,510 $113,446 $109,236
Total units............ 3,398 3,398 3,398 3,397 3,341 3,157 3,157
Percent leased......... 98% 97% 97% 96% 96% 97% 98%
Operating revenue...... $ 11,879 $ 11,349 $ 22,944 $ 21,902 $ 20,341 $ 19,872 $ 19,070
Operating expenses..... $ 4,748 $ 4,567 $ 9,397 $ 8,943 $ 8,140 $ 7,751 $ 7,488
Net operating income
(2)................... $ 7,131 $ 6,782 $ 13,547 $ 12,959 $ 12,201 $ 12,121 $ 11,582
Percent of total NOI... 44% 43% 42% 42% 41% 41% 41%
Retail segment:
Gross investment (3)... $214,920 $209,829 $212,805 $205,214 $199,880 $197,770 $195,188
Total square footage... 2,662 2,729 2,680 2,720 2,668 2,668 2,667
Percent leased......... 92% 92% 92% 95% 95% 95% 92%
Operating revenue...... $ 14,273 $ 13,784 $ 28,353 $ 27,831 $ 27,308 $ 26,432 $ 25,255
Operating expenses..... $ 5,350 $ 4,695 $ 9,958 $ 9,815 $ 9,629 $ 9,105 $ 8,703
Net operating income
(2)................... $ 8,923 $ 9,089 $ 18,395 $ 18,016 $ 17,679 $ 17,327 $ 16,552
Percent of total NOI... 56% 57% 58% 58% 59% 59% 59%
15
--------
(1) Funds from operations has been an industry-wide standard used to measure
operating performance of a REIT since its adoption by the National
Association of Real Estate Investment Trusts in 1991. In October 1999
NAREIT revised the definition of funds from operations. The revision had no
effect on our calculation of funds from operations. We calculate funds from
operations as net income, excluding gains or losses from sales of property
and those items defined as extraordinary under accounting principles
generally accepted in the United States of America (GAAP), plus
depreciation on real estate assets, and after adjustments for
unconsolidated partnerships to reflect funds from operations on the same
basis. Funds from operations should not be considered as an alternative to
net earnings or any other GAAP measurement of performance or as an
alternative to cash flow from operating, investing or financing activities
as a measure of liquidity. The funds from operations measure presented by
us, while consistent with NAREIT's definition, will not be comparable to
similarly titled measure of other REITs that do not compute funds from
operations in a manner consistent with ours.
(2) Net operating income is based on the operating revenues and expenses
directly associated with the operations of the real estate properties
(excluding corporate general and administrative expenses, depreciation and
interest expense).
(3) Includes our investment in an unconsolidated real estate entity.
(4) In 1996, we recorded an extraordinary charge related to the early
extinguishment of debt.
Ratio of Earnings to Fixed Charges
Our ratio of earnings to fixed charges for the years ended December 31,
2000, 1999, 1998, 1997 and 1996 was 1.11, 1.14, 1.16, 1.17 and 1.15,
respectively. For each of the six months ended June 30, 2001 and 2000, our
ratio of earnings to fixed charges was 1.15 and 1.12, respectively. For
purposes of computing these ratios, earnings have been calculated by adding
fixed charges, excluding capitalized interest, to pre-tax income from
continuing operations. Fixed charges consist of interest costs, whether
expensed or capitalized, the estimated interest component of rental expenses
and amortization of debt issuance costs. There were no shares of preferred
stock outstanding for any of the periods shown above. Accordingly, the ratio of
earnings to combined fixed charges and preferred stock dividends are identical
to the ratio of earnings to fixed charges. See "Ratio of Earnings to Fixed
Charges."
Ratio of EBITDA to Fixed Charges. Our ratio of EBITDA to fixed charges for
the years ended December 31, 2000, 1999, 1998, 1997 and 1996 was 1.78, 1.84,
1.83, 1.82 and 1.73, respectively. For each of the six months ended June 30,
2001 and 2000, our ratio of EBITDA to fixed charges was 1.84 and 1.80,
respectively. See "Ratio of Earnings to Fixed Charges." "EBITDA," as used here,
is earnings before interest expense, income taxes, depreciation and
amortization. We have included information concerning EBITDA because we believe
that EBITDA is generally accepted as providing useful information regarding a
company's ability to service and/or incur debt. EBITDA should not be considered
in isolation as a substitute for net income, cash flows or other consolidated
or cash flow data prepared in accordance with accounting principles generally
accepted in the United States or as a measure of a company's profitability or
liquidity. While EBITDA is frequently used as a measure of operations and
ability to meet debt service requirements, it is not necessarily comparable to
similarly titled captions of other companies due to differences in methods of
calculation.
16
RISK FACTORS
Before you decide to participate in the exchange offer, you should consider
carefully the risks described below, together with the information provided in
the other parts of this prospectus. From time to time, we may make forward-
looking statements (within the meaning of Section 27A of the Securities Act
and Section 21F of the Exchange Act) in documents filed under the Securities
Act, the Exchange Act, press releases or other public statements. If we make
forward-looking statements, we assume no obligation to update forward-looking
statements. Stockholders should not place undue reliance on forward-looking
statements as they involve numerous risks and uncertainties that could cause
actual results to differ materially from the results stated or implied in the
forward-looking statements. In addition to specific factors that may be
disclosed simultaneously with any forward-looking statement, some of the
factors related to us and our businesses that could cause actual results to
differ materially from a forward-looking statement are set forth below.
Risks Relating to the Exchange Offer
The exchange offer is subject to certain contingencies. The exchange offer
may require certain approvals or consents from governmental regulatory
agencies and other third parties. There can be no assurance that all required
conditions, consents or regulatory approvals will be obtained or achieved in a
timely manner. Moreover, the exchange offer may be modified or withdrawn in
certain circumstances subject to the discretion of our Board of Directors. See
"This Exchange Offer--Conditions to this Exchange Offer."
Our Board of Directors expresses no opinion and is not making any
recommendation regarding this exchange offer. Our Board of Directors expresses
no opinion and is remaining neutral regarding any recommendation to you
whether or not to tender any or all of your old debentures under this exchange
offer because the risks and benefits to you will depend on your particular
situation or status. The Board of Directors has not obtained a fairness
opinion from any financial advisor about the fairness of the exchange to you
or to us. In addition, we have not authorized anyone to make a recommendation
regarding this exchange offer. We cannot assure you that if you tender your
old debentures you will receive more value than if you choose to keep them.
Risks Associated with the New Debentures
The new debentures will rank in right of payment behind our senior debt,
both existing and incurred in the future. If we default on our senior debt, we
may not be able to fulfill our obligations under the new debentures. We may
not pay any principal, or any other amounts owing on, or purchase, redeem or
otherwise retire the new debentures, if principal or interest on our senior
debt is not paid when due. In addition, the owners of our senior debt will be
entitled to receive payment of all amounts due to them before the owners of
the new debentures upon any payment or distribution of our assets to our
creditors upon our bankruptcy or liquidation or other insolvency or
reorganization proceedings. The terms of the new debentures, our Charter and
our Bylaws do not limit the amount of senior indebtedness that we may incur.
We may not be able to repay or refinance the new debentures when they
become due for payment. We can give no assurance that we will have the cash
resources required to meet our obligations to repay the new debentures when
they are due. Our ability to service our indebtedness following this exchange
offer, including our payment obligations under the new debentures and other
financial obligations, will depend upon our future operating performance,
which in turn is subject to market conditions and other factors, including
factors beyond our control.
Risks Associated with the Series B Preferred Stock
The market value of the Series B preferred stock could be substantially
affected by general market conditions, including changes in interest rates,
government regulatory action and changes in tax laws. An increase in market
interest rates may lead purchasers of the Series B preferred stock to require
a higher annual dividend yield on the Series B preferred stock as a percentage
of the purchase price, which could adversely affect
17
the market price of the Series B preferred stock. Moreover, numerous other
factors, such as government regulatory action and changes in tax laws could
have a significant impact on the future market price of the Series B preferred
stock or other securities.
Risks Associated with Retaining the Old Debentures
The old debentures will continue to rank in right of payment behind all of
our existing and future senior debt, including our senior bank debt, and equal
with the new debentures. We may not pay any principal or interest on, or any
amounts owing on, or purchase, redeem or otherwise retire the old debentures
if our senior debt is not paid when due. In addition, if we are in default on
any of our obligations under our senior debt, we may be prohibited from making
payments to the owners of the old debentures for specified periods of time.
Also, the terms of the old debentures, our Charter and our Bylaws do not limit
the amount of senior indebtedness that we may incur.
After the completion of the exchange offer, future transactions involving
the old debentures are uncertain. We may make offers and purchase any old
debentures that remain outstanding after the expiration of the exchange offer.
Such transactions are solely within our discretion and may be made in the open
market, through private negotiations, or in additional exchange offers. It is
possible that future purchases, if any, of old debentures may be on less or
more favorable terms than the terms of this exchange offer. Furthermore, we
anticipate that the liquidity of the market for any old debentures remaining
outstanding after this exchange offer will be limited.
Real Estate Industry Risks
We face risks associated with local real estate conditions in areas where
we own properties. We may be affected adversely by general economic conditions
and local real estate conditions. For example, an oversupply of retail space
or apartments in a local area or a decline in the attractiveness of our
properties to shoppers, residents or tenants would have a negative effect on
us.
Other factors that may affect general economic conditions or local real
estate conditions include:
. population and demographic trends;
. employment and personal income trends;
. income tax laws;
. availability and costs of financing;
. construction costs; and
. weather conditions that may increase or decrease energy costs.
We may be unable to compete with our larger competitors and other
alternatives available to tenants or potential tenants of our properties. The
real estate business is highly competitive. We compete for interests in
properties with other real estate investors and purchasers, many of whom have
greater financial resources, revenues, and geographical diversity than we
have. Furthermore, we compete for tenants with other property owners. All of
our shopping center and apartment properties are subject to significant local
competition. We also compete with a wide variety of institutions and other
investors for capital funds necessary to support our investment activities and
asset growth. In addition, our portfolio of retail properties faces
competition from other properties within each submarket where they are
located. Our apartment portfolio competes with providers of other forms of
housing, such as single family housing. Competition from single family housing
increases when low interest rates make mortgages more affordable.
We are subject to significant regulation that inhibits our activities.
Local zoning and use laws, environmental statutes and other governmental
requirements restrict our expansion, rehabilitation and reconstruction
activities. These regulations may prevent us from taking advantage of economic
opportunities. Legislation such as the
18
Americans with Disabilities Act may require us to modify our properties.
Future legislation may impose additional requirements. We cannot predict what
requirements may be enacted or what changes may be implemented to existing
legislation.
Risks Associated with our Properties
We may be unable to renew leases or relet space as leases expire. When a
lease expires, a tenant may refuse to renew it. We may not be able to relet
the property on similar terms, if we are able to relet the property at all. We
have established an annual budget for renovation and reletting expenses that
we believe is reasonable in light of each property's operating history and
local market characteristics. This budget, however, may not be sufficient to
cover these expenses.
We have been and may continue to be affected negatively by tenant
bankruptcies and leasing delays. At any time, a shopping center tenant may
experience a downturn in its business that may weaken its financial condition.
Similarly, a general decline in the economy may result in a decline in the
demand for apartments. As a result, our commercial and residential tenants may
delay lease commencement, fail to make rental payments when due, or declare
bankruptcy. Any such event could result in the termination of that tenant's
lease and losses to us.
We receive a substantial portion of our shopping center income as rents
under long-term leases. If retail tenants are unable to comply with the terms
of their leases because of rising costs or falling sales, we may deem it
advisable to modify lease terms to allow tenants to pay a lower rental or a
smaller share of operating costs, taxes and insurance.
Coverage under our existing insurance policies may be inadequate to cover
losses. We generally maintain insurance policies related to our business,
including casualty, general liability and other policies covering our business
operations, employees and assets. However, we would be required to bear all
losses that are not adequately covered by insurance. Although we believe that
our insurance programs are adequate, we cannot assure you that we will not
incur losses in excess of our insurance coverage, or that we will be able to
obtain insurance in the future at acceptable levels and reasonable cost.
We face risks due to lack of geographic diversity. All of our properties
are located in Louisiana, Florida and Alabama. General economic conditions and
local real estate conditions in these geographic regions have a particularly
strong effect on us.
We face possible environmental liabilities. Current and former real estate
owners and operators may be required by law to investigate and clean up
hazardous substances released at the properties they own or operate. They may
also be liable to the government or to third parties for substantial property
damage, investigation costs and cleanup costs. In addition, some environmental
laws create a lien on the contaminated site in favor of the government for
damages and costs the government incurs in connection with the contamination.
Contamination may affect adversely the owner's ability to sell or lease real
estate or to borrow using the real estate as collateral.
We have no way of determining at this time the magnitude of any potential
liability to which we may be subject arising out of unknown environmental
conditions or violations with respect to the properties we formerly owned.
Environmental laws today can impose liability on a previous owner or operator
of a property that owned or operated the property at a time when hazardous or
toxic substances were disposed of, or released from, the property. A
conveyance of the property, therefore, does not relieve the owner or operator
from liability.
We are not currently aware of any environmental liabilities relating to our
investment properties which would have a material adverse effect on the our
business, assets, or results of operations. However, we cannot assure you that
environmental liabilities will not arise in the future.
19
Financing Risks
We face risks generally associated with our debt. We finance a portion of
our investments in real estate through debt. Although we have never missed a
required payment of principal or interest or otherwise defaulted on a required
payment related to our indebtedness, this debt creates risks, including:
. rising interest rates on our floating rate debt;
. failure to repay or refinance existing debt as it matures, including
our outstanding convertible debentures, which may result in forced
disposition of properties on disadvantageous terms;
. refinancing terms less favorable than the terms of existing debt; and
. failure to meet required payments of principal and/or interest.
We may issue shares of preferred stock with greater rights than shares of
our common stock which may affect holders of the debentures if holders convert
the debentures into common stock. Our Board of Directors may issue shares of
preferred stock without stockholder approval. Our Board of Directors may
determine the relative rights, preferences and privileges of each class or
series of shares of preferred stock. Because our Board of Directors has the
power to establish the preferences and rights of the shares of preferred
stock, preferred shares may have preferences, distributions, powers and rights
senior to the rights of a common stockholder.
We may amend our business policies without your approval. Our Board of
Directors determines our growth, investment, financing, capitalization,
borrowing, REIT status, operating and distribution policies. Although the
Board of Directors has no present intention to amend or revise any of these
policies, these policies may be amended or revised without notice to
stockholders. Accordingly, stockholders may not have control over changes in
our policies. We cannot assure you that changes in our policies will serve
fully the interests of all stockholders.
Other Risks
We are subject to restrictions that may impede our ability to effect a
change in control. Certain provisions contained in our Charter and Bylaws, our
Shareholder Rights Agreement and certain provisions of Maryland law may have
the effect of discouraging a third party from making an acquisition proposal
for us and thereby inhibit a change in control. These provisions include the
following:
. Our Charter provides for three classes of directors with the term of
office of one class expiring each year, commonly referred to as a
"staggered board." By preventing stockholders from voting on the
election of more than one class of directors at any annual meeting of
stockholders, this provision may have the effect of keeping the current
members of our Board of Directors in control for a longer period of
time than stockholders may desire.
. Our Charter generally limits any holder from acquiring more than 9.9%
or more (in value or in number, whichever is more restrictive) of our
outstanding equity stock (defined as all of our classes of capital
stock, except our excess stock). While this provision is intended to
assure our ability to remain a qualified REIT for income tax purposes,
the ownership limit may also limit the opportunity for stockholders to
receive a premium for their shares of common stock that might otherwise
exist if an investor were attempting to assemble a block of shares in
excess of 9.9% of the outstanding shares of equity stock or otherwise
effect a change in control.
. In August 1998, our Board of Directors adopted a shareholder rights
plan. Under the terms of the plan, we declared a dividend of rights on
our common stock. The rights issued under the plan will be triggered,
with certain exceptions, if and when any person or group acquires, or
commences a tender offer to acquire, 15% or more of our shares. The
rights plan is intended to prevent abusive hostile takeover attempts by
requiring a potential acquiror to negotiate the terms with our Board of
Directors. However, it could have the effect of deterring or preventing
our acquisition, even if a majority of our stockholders were in favor
of such acquisition, and could have the effect of making it more
difficult for a person or group to gain control of us or to change
existing management.
20
We may fail to qualify as a REIT. If we fail to qualify as a REIT, we will
be subject to Federal income tax at regular corporate rates. In addition, we
might be barred from qualification as a REIT for the four years following
disqualification. The additional tax incurred at regular corporate rates would
reduce significantly the cash flow available for distribution to stockholders
and for debt service.
To qualify as a REIT, we must comply with certain highly technical and
complex requirements. We cannot be certain we have complied with these
requirements because there are few judicial and administrative interpretations
of these provisions. In addition, facts and circumstances that may be beyond
our control may affect our ability to qualify as a REIT. We cannot assure you
that new legislation, regulations, administrative interpretations or court
decisions will not change the tax laws significantly with respect to our
qualification as a REIT or with respect to the federal income tax consequences
of qualification. We believe that we have qualified as a REIT since our
inception and intend to continue to qualify as a REIT. However, we cannot
assure you that we are qualified or will remain qualified.
We may be unable to comply with the strict income distribution requirements
applicable to REITs. To obtain the favorable tax treatment associated with
qualifying as a REIT, we are required each year to distribute to our
stockholders at least 90% of our net taxable income. We could be required to
borrow funds on a short-term basis to meet the distribution requirements that
are necessary to achieve the tax benefits associated with qualifying as a
REIT, even if conditions were not favorable for borrowing. As of this date, we
have not needed to incur such borrowings.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements with respect to our financial
condition, results of operations and business and on the expected impact of
this exchange offer on our financial performance. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions as they relate to us or our management, are intended to identify
forward-looking statements. These forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties,
including those described under "Risk Factors" in this prospectus, that could
cause actual results to differ materially from the results contemplated by the
forward-looking statements. The safe harbor for forward-looking statements
provided for in the Private Securities Litigation Reform Act of 1995 does not
apply to statements made in connection with this exchange offer.
In evaluating this exchange offer, you should carefully consider the
discussion of risks and uncertainties in the section entitled "Risk Factors"
on pages 17 to 21 of this prospectus.
USE OF PROCEEDS
We will not receive any proceeds from the issuance of the new debentures
and shares of Series B preferred stock offered in this exchange offer. We will
receive the old debentures in consideration for issuing the new debentures and
shares of Series B preferred stock. The old debentures surrendered in exchange
for the new debentures and shares of Series B preferred stock will be retired
and cancelled and cannot be reissued.
21
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for the years ended December 31,
2000, 1999, 1998, 1997 and 1996 was 1.11, 1.14, 1.16, 1.17 and 1.15,
respectively. For each of the six months ended June 30, 2001 and 2000, our
ratio of earnings to fixed charges was 1.15 and 1.12, respectively. For
purposes of computing these ratios, earnings have been calculated by adding
fixed charges, excluding capitalized interest, to pre-tax income from
continuing operations. Fixed charges consist of interest costs, whether
expensed or capitalized, the estimated interest component of rental expenses
and amortization of debt issuance costs. There were no shares of preferred
stock outstanding for any of the periods shown above. Accordingly, the ratio
of earnings to combined fixed charges and preferred stock dividends are
identical to the ratio of earnings to fixed charges.
Ratio of EBITDA to Fixed Charges. Our ratio of EBITDA to fixed charges for
the years ended December 31, 2000, 1999, 1998, 1997 and 1996 was 1.78, 1.84,
1.83, 1.82 and 1.73, respectively. For each of the six months ended June 30,
2001 and 2000, our ratio of EBITDA to fixed charges was 1.84 and 1.80,
respectively. "EBITDA," as used here, is earnings before interest expense,
income taxes, depreciation and amortization. We have included information
concerning EBITDA because we believe that EBITDA is generally accepted as
providing useful information regarding a company's ability to service and/or
incur debt. EBITDA should not be considered in isolation as a substitute for
net income, cash flows or other consolidated or cash flow data prepared in
accordance with accounting principles generally accepted in the United States
or as a measure of a company's profitability or liquidity. While EBITDA is
frequently used as a measure of operations and ability to meet debt service
requirements, it is not necessarily comparable to similarly titled captions of
other companies due to differences in methods of calculation.
22
CAPITALIZATION
The exchange offer described in this prospectus is a part of our plan to
refinance the old debentures. To the extent that not all of the old debentures
are tendered pursuant to the exchange offer or the principal amount of old
debentures that we are able to accept in the exchange offer is limited by
proration, we are concurrently engaged in a public offering for cash of new
debentures and Series B preferred stock, the net proceeds of which we will use
to redeem or purchase any old debentures that remain outstanding after the
completion of the exchange offer. The result of these transactions will be
that the old debentures will be refinanced by the issuance of all new
debentures, all Series B preferred stock or a combination of new debentures
and Series B preferred stock, but the exact amount of new debentures, if any,
and Series B preferred stock, if any, issued will depend upon a number of
factors, including the principal amount of old debentures tendered in the
exchange offer, the election of holders of old debentures who participate in
the exchange offer, and whether all new debentures and all shares of Series B
preferred stock or a combination of new debentures and Series B preferred
stock are sold in the public offering. Accordingly, we are unable to predict
whether the old debentures will be refinanced by the issuance of all new
debentures, all Series B preferred stock, or a combination of new debentures
and Series B preferred stock. Moreover, depending on market conditions and our
need for capital, we may issue new debentures, Series B preferred stock, or a
combination that exceeds the principal amount of the old debentures. The
following table sets forth our capitalization as of June 30, 2001 (i) on a
historical basis and (ii) on a pro forma basis assuming that $32,327,000
principal amount of the old debentures are refinanced by the issuance of
$32,327,000 principal amount of new debentures. You should read this
information in conjunction with our consolidated financial information and
accompanying notes, which are incorporated by reference into this prospectus.
As of June 30, 2001
(unaudited)
--------------------
Historical Pro Forma
---------- ---------
(in thousands)
Indebtedness
Notes payable........................................... $ 34,061 $ 34,061
Mortgage indebtedness................................... 112,080 112,080
Convertible subordinated debentures..................... 61,878 61,878
Shareholders' Equity
Series A preferred stock, 40,000 shares authorized, none
issued................................................. -- --
Series B preferred stock, liquidation preference $25 per
share, 2,476,000 shares authorized, none issued........ -- --
Common stock, par value $0.0001 per share, 51,484,000
shares authorized, 8,262,000 shares issued and
outstanding............................................ 1 1
Excess stock, par value $0.0001 per share, 16,000,000
shares authorized, none issued......................... -- --
Additional paid-in capital.............................. 120,980 120,980
Cumulative net income................................... 41,076 41,076
Cumulative distributions paid........................... (95,664) (95,664)
-------- --------
Total Shareholders' Equity............................ 66,393 66,393
-------- --------
Total capitalization.................................. $274,412 $274,412
======== ========
23
THIS EXCHANGE OFFER
This section of the prospectus describes our proposed exchange offer. While
we believe that the description covers the material terms of this exchange
offer, this summary may not contain all the information that is important to
you. You should read the entire prospectus and the other documents we refer to
or incorporate by reference carefully for a more complete understanding of
this exchange offer.
About Sizeler Property Investors, Inc.
We are a self-administered and self-managed equity real estate investment
trust that acquires, develops, owns and operates income-producing retail
shopping centers and apartment properties in the southeastern region of the
United States. Our investment objective is to acquire and develop high-quality
properties at attractive initial yields with potential for future growth in
cash flows. As of June 30, 2001, our existing portfolio contained 16 retail
shopping centers (one of which, Camelot Shopping Center, was sold in July
2001) with approximately 2.7 million square feet of gross leasable area and 14
apartment properties containing approximately 3,400 units. During the six
month period ended June 30, 2001, our retail and apartment properties were, on
average, approximately 92% and 98% leased, respectively. Our principal
executive offices are located at 2542 Williams Boulevard, Kenner, Louisiana
70062. Our telephone number is (504) 471-6200.
Purpose of this Exchange Offer
We are making this exchange offer to refinance the old debentures.
Securities Offered in this Exchange Offer
You can select the form of consideration that you will receive for your old
debentures from the following two options:
. 9.0% convertible subordinated debentures due July 15, 2009; or
. 10.0% Series B cumulative redeemable preferred stock.
You may exchange your old debentures entirely for new debentures or
entirely for Series B preferred stock, or you may choose any combination
thereof. You do not have to tender all of your old debentures to participate
in this exchange offer. You may withdraw your tender of old debentures or
change your choice of consideration options at any time before the expiration
of this exchange offer.
Possible Proration of New Debentures
If, at the expiration date, holders of old debentures have validly tendered
and not withdrawn more than $32.327 million in aggregate principal amount of
old debentures for new debentures, then the exchange agent will allot the new
debentures to be issued among the tendering holders of old debentures on a pro
rata basis, based on the principal amount of old debentures tendered for
exchange for new debentures. Holders of old debentures tendered for new
debentures that are not accepted may, at the holder's option, have such old
debentures exchanged for shares of Series B preferred stock or returned to the
holder.
Market and Trading Information Regarding the Old Debentures
The old debentures currently are listed on the New York Stock Exchange. As
of October 22, 2001, the last reported trading day for the old debentures, the
closing price was $98.125. We believe that opportunities to trade old
debentures that remain outstanding after this exchange offer will be limited.
The following table indicates the high and low sales prices for the old
debentures for each quarter during the past two years and for the first three
quarters of 2001.
2001 2000 1999
------------- ------------- -------------
High Low High Low High Low
------ ------ ------ ------ ------ ------
First quarter...................... $96.00 $88.50 $90.88 $90.00 $96.00 $92.00
Second quarter..................... 99.00 91.50 92.00 88.50 94.50 92.50
Third quarter...................... 98.50 97.50 92.50 89.00 94.00 92.00
Fourth quarter..................... -- -- 91.00 89.00 92.00 90.50
24
Conditions to this Exchange Offer
This exchange offer is subject to the following conditions:
. this exchange offer complies with applicable laws and applicable
interpretations of the staff of the SEC;
. this exchange offer complies with all applicable state securities or
"blue sky" laws;
. no action or proceeding has been instituted or threatened in any court
or before any governmental agency and no law, rule, regulation,
judgment, order or injunction has been proposed, including any proposal
which is in existence as of the date of this prospectus, enacted,
entered or enforced by any court or government agency that would
reasonably be expected to:
. prohibit, prevent or materially impair our ability to proceed with
this exchange offer;
. materially adversely affect our business;
. limit the tax deductibility of interest on or indebtedness on the
new debentures or that would materially increase the after-tax cost
to us of this exchange offer; or
. materially impair the benefits to us of this exchange offer;
. no event has occurred or is reasonably likely to occur affecting our
business that would reasonably be expected to prohibit, prevent or
significantly delay consummation of this exchange offer or materially
impair our contemplated benefits of this exchange offer; and
. after the date of this prospectus, no tender or exchange offer for any
class of our equity securities and no merger, acquisition, business
continuation or similar transaction involving us has occurred, been
proposed or announced.
All conditions to this exchange offer must be satisfied or waived on or
before the expiration date for this exchange offer. Subject to the
satisfaction or waiver of the conditions, we will accept for exchange any and
all old debentures that are validly tendered and not withdrawn at any time
prior to acceptance for payment. Failure by us to enforce any conditions will
not be considered a waiver of that condition.
Background of this Exchange Offer
On May 13, 1993, we issued and sold $65 million in aggregate principal
amount of the old debentures in a public offering for cash. Subsequently, $2.1
million in principal amount of the old debentures were converted into shares
of our common stock and $1.0 million in principal amount of the old debentures
have been acquired by us, leaving $61.9 million in aggregate principal amount
of the old debentures outstanding. The old debentures mature on July 15, 2003.
On May 15, 2001, our Board of Directors retained Cohen & Steers as our
financial advisor, for the purpose of advising us with respect to certain
matters, including the evaluation of the old debentures and the possibility of
refinancing the old debentures. In considering the refinancing of the old
debentures, the Board recognized that these debentures mature in approximately
two years. On August 9, 2001, Cohen & Steers presented the Board of Directors
with a proposal to refinance the old debentures through an exchange offer.
Pursuant to the proposed exchange offer, holders of old debentures would be
offered, in exchange for their old debentures, the choice of new debentures
with substantially the same terms as the old debentures except for an extended
maturity date, a reduced conversion rate and a higher interest rate, and/or
shares of preferred stock. The Board concluded that the proposed exchange
offer was a more preferable strategy than other means of discharging the old
debentures, such as selling company properties or incurring additional
indebtedness to raise sufficient proceeds to pay the old debentures. After
consideration the Board approved the proposed exchange offer on the terms
described in this prospectus. See "This Exchange Offer."
No Board Recommendation
Our Board of Directors expresses no opinion and is remaining neutral
regarding any recommendation to you whether or not to tender any or all of
your old debentures under this exchange offer because the risks and
25
benefits to you will depend on your particular situation or status. The Board
of Directors has not obtained a fairness opinion from any financial advisor
about the fairness of the exchange to you or to us. In addition, we have not
authorized anyone to make a recommendation regarding this exchange offer. You
must make your own decision whether to tender any or all of your old
debentures and the likely value of the new debentures, the shares of Series B
preferred stock, your liquidity needs and your investment objectives.
Period for Tendering Old Debentures
As set forth in this exchange offer and prospectus and in the accompanying
letter of transmittal, we will accept for exchange any and all old debentures
that are properly tendered on or prior to the expiration date and not
withdrawn as permitted below. The term "expiration date" means 8:00 a.m., New
York City time on December , 2001. However, if we extend the period of time
for which this exchange offer is open, the term "expiration date" means the
latest time and date to which this exchange offer is extended.
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which this exchange offer is open, and thereby delay
acceptance for exchange of any old debentures, by announcing an extension of
this exchange offer as described below. During any extension, all old
debentures previously tendered will remain subject to this exchange offer and
may be accepted for exchange by us. Any old debentures not accepted for
exchange for any reason will be returned without expense to the tendering
owner as promptly as practicable after the expiration or termination of this
exchange offer.
We also expressly reserve the right, at any time or from time to time,
regardless of whether or not the conditions to this exchange offer have been
satisfied, subject to applicable law, to:
. extend the expiration date for this exchange offer;
. to amend this exchange offer and solicitation in any respect;
. to terminate this exchange offer prior to the expiration date and
return the old debentures tendered pursuant thereto; or
. to delay the acceptance of the old debentures under this exchange
offer;
with respect to each of the above, by giving written notice of such extension,
amendment or termination to the exchange agent. Any extension, amendment or
termination will be followed as promptly as practicable by public announcement
thereof, with the announcement in the case of an extension to be issued no
later than 9:00 a.m., New York City time, on the first business day after the
previously scheduled expiration date. Without limiting the manner in which we
may choose to make any public announcement, we will have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a release to the Dow Jones News Service or PR Newswire.
In our sole discretion, we will decide whether to exercise our right to
extend the expiration date for this exchange offer. Tendered old debentures
may be withdrawn at any time on or prior to the expiration date.
Procedures for Exchanging Old Debentures
We contemplate that the new debentures will be delivered in book-entry form
through DTC, Euroclear and Clearstream. See "Book Entry; Delivery and Form"
below. Certificates for shares of Series B preferred stock will be sent to you
by the exchange agent. If you have any questions or need assistance in
tendering your old debentures, please call Chase Manhattan Trust Company,
National Association, the exchange agent, whose address and contact details
appear in the section entitled "--Exchange Agent" below.
Only holders of record are authorized to tender their old debentures for
exchange. If you wish to tender old debentures in this exchange offer and you
hold your old debentures through a broker, dealer, commercial bank, trust
company or other nominee you should contact them promptly regarding the
procedures to follow to tender your old debentures. If you wish to exchange
old debentures in this exchange offer on your own behalf, you
26
must, before completing and signing the letter of transmittal and delivering
the old debentures, make appropriate arrangements to register the ownership of
the old debentures in your name.
Tender of old debentures held through a custodian. If your old debentures
are held of record by a broker, dealer, commercial bank, trust company or
other nominee, you must contact the holder of record promptly and instruct the
holder of record to tender your old debentures on your behalf. Any beneficial
owner of old debentures held of record by DTC, Euroclear or Clearstream or
their nominee, through authority granted by DTC, Euroclear or Clearstream, may
direct the holder of record to tender on the beneficial owner's behalf.
Tender of old debentures held through DTC, Euroclear or Clearstream. To
tender old debentures that are held through DTC, the holder should transmit
its acceptance through the Automated Tender Offer Program, and DTC will then
edit and verify the acceptance and send an Agent's Message to the exchange
agent for its acceptance. To tender old debentures held through Euroclear or
Clearstream, the holder should transmit its acceptance to Euroclear or
Clearstream, as appropriate, and Euroclear or Clearstream will then edit or
verify the acceptance and send an Agent's Message to the exchange agent for
its acceptance. Delivery of tendered old debentures must be made to the
exchange agent pursuant to the book-entry delivery procedures set forth below.
Delivery of letters of transmittal, old debentures and other documents. You
should send the certificate(s) for old debentures for cancellation and
exchange, letters of transmittal and other required documentation only to the
exchange agent and not to us or the information agent. The delivery of the
certificate(s) for old debentures, the letter of transmittal, any required
signature guarantees and all other required documents, including delivery
through DTC, Euroclear or Clearstream, and any acceptance of an Agent's
Message transmitted through the Automated Tender Offer Program, is at the
election and risk of the person tendering old debentures and delivering the
certificate(s), the letter of transmittal and other documents. Except as
otherwise provided in the letter of transmittal, delivery will be deemed made
only when actually received by the exchange agent and therefore risk of loss
and title to the old debentures will pass only upon delivery of the
certificate(s) for the old debentures to the exchange agent. If delivery is by
mail, we recommend that the holder use properly insured, registered mail with
return receipt requested, and that the mailing be made sufficiently in advance
of the expiration date to assure timely delivery to the exchange agent.
Except as provided below, unless the old debentures being tendered for
exchange are deposited with the exchange agent on or before the expiration
date, accompanied by a properly completed and duly executed letter of
transmittal or a properly transmitted Agent's Message, we may, at our option,
treat the tender of the old debentures as defective for purposes of the right
to exchange pursuant to this exchange offer. Exchange of the old debentures
will be made only against deposit of the tendered old debentures and delivery
of all other required documents.
Book-entry delivery procedures. Any financial institution that is a
participant in DTC, Euroclear and Clearstream may make book-entry delivery of
the old debentures by causing DTC, Euroclear or Clearstream, as appropriate,
to transfer such old debentures into the exchange agent's account in
accordance with the DTC's, Euroclear's or Clearstream's procedures for such
transfer.
Although delivery of old debentures may be effected through book-entry into
the exchange agent's account at DTC, Euroclear or Clearstream, the letter of
transmittal, or facsimile of it, with any required signature guarantees, or an
Agent's Message in connection with a book-entry transfer, and any other
required documents, must, in any case, be transmitted to and received by the
exchange agent on or before the expiration date, as applicable. Delivery of
documents to DTC, Euroclear or Clearstream does not constitute delivery to the
exchange agent.
The confirmation of a book-entry transfer into the exchange agent's account
at DTC, Euroclear or Clearstream as described above is referred to as a "Book-
Entry Confirmation."
"Agent's Message" means a message transmitted by DTC, Euroclear or
Clearstream, received by the exchange agent, and made a part of a Book-Entry
Confirmation. The message states that DTC, Euroclear or
27
Clearstream has received an express acknowledgment from the person tendering
the old debentures that the person has received and agrees to be bound by the
terms of the letter of transmittal and that we may enforce such agreement
against the holder.
Upon delivery of the certificate(s) representing the old debentures for
cancellation and exchange to the exchange agent together with the letter of
transmittal duly executed and completed in accordance with its instructions,
the holder of such old debentures will be entitled to receive in exchange
therefor a credit for the new debentures issued on this exchange offer to the
accounts of the owners of the new debentures at the DTC, Euroclear or
Clearstream and a certificate or certificates representing the number of
shares of Series B preferred stock for which the holder has elected to receive
in exchange for the old debentures. The certificate(s) for old debentures so
surrendered will be cancelled. Holders of old debentures should send in their
certificate(s) representing old debentures only with a letter of transmittal.
In the event that any certificate for old debentures has been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such certificate to be lost, stolen or destroyed and, if we require,
the posting by such person of a bond in such reasonable amount as we may
direct as indemnity against any claim that may be made against us with respect
to such certificate, the exchange agent will issue in exchange for such lost,
stolen or destroyed certificate, certificates representing the amount of new
debentures and/or number of shares of Series B preferred stock for which the
holder has elected in exchange for the old debentures.
Signature guarantees. Signatures on all letters of transmittal must be
guaranteed by a recognized participant in the Securities Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Program or
the Stock Exchange Medallion Program, unless the relevant old debentures are
tendered:
. by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
. for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers,
Inc. or a commercial bank or trust company having an office or
correspondent in the United States, which entities we refer to as
"eligible institutions."
Determination of validity. We will determine in our sole discretion all
questions as to the validity, form, eligibility, including time or receipt,
and acceptance and withdrawal of tendered old debentures. We reserve the
absolute right to reject any and all old debentures not properly tendered or
any old debentures whose acceptance by us would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to any particular old debentures
either before or after the expiration date. Our interpretation of the terms
and conditions of this exchange offer, including the instructions in the
letter of transmittal, will be final and binding, on all parties. Unless
waived, any defects or irregularities in connection with tenders of old
debentures must be cured within a time period that we will determine. Neither
we, the exchange agent nor any other person will have any duty or will incur
any liability for failure to give such notification. Tenders of old debentures
will not be considered to have been made until any defects or irregularities
have been cured or waived. Any old debentures received by the exchange agent
that are not properly tendered and as to which the defects or irregularities
have not been cured or waived will be returned by the exchange agent to the
tendering owners, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date.
Backup United States federal income tax withholding. To prevent backup
federal income tax withholding, you must provide the exchange agent with your
current taxpayer identification number and certify that you are not subject to
backup federal income tax withholding by completing the applicable Form W-8 or
Form W-9 included in the letter of transmittal.
Withdrawals of Tenders
You may withdraw tenders of old debentures at any time on or prior to the
expiration of this exchange offer, but the exchange consideration will not be
payable in respect of old debentures that are withdrawn.
28
Except as otherwise provided in this prospectus, tenders of old debentures
may be withdrawn at any time prior to 8:00 a.m., New York City time on the
expiration date.
For a withdrawal of tendered old debentures to be effective, a written
notice of withdrawal must be received by the exchange agent on or prior to the
expiration of this exchange offer at the address set forth below under "--
Exchange Agent." Any notice of withdrawal must:
. specify the name of the person who tendered the old debentures to be
withdrawn;
. identify the old debentures to be withdrawn, including the name and
number of the account at the applicable book-entry transfer facility to
be credited; and
. be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the old debentures were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee or other
applicable person register transfer of the old debentures into the name
of the person withdrawing the tender.
If you have tendered your old debentures through a custodian but wish to
withdraw them, you must withdraw your tender through the custodian prior to
the expiration of this exchange offer.
All questions as to the validity, form and eligibility, including time or
receipt, of notices of withdrawal will be determined by us. Our determination
will be final and binding on all parties. Any old debentures withdrawn will be
deemed not to have been validly tendered for purposes of this exchange offer
and no new debentures or shares of Series B preferred stock will be issued in
exchange unless the old debentures so withdrawn are validly tendered again.
Any old debentures which have been tendered but which are effectively
withdrawn will be returned by the exchange agent to the appropriate party,
without expense to the withdrawing person as soon as practicable after
withdrawal. Properly withdrawn old debentures may be retendered by following
one of the procedures described above under "--Procedures for Exchanging Old
Debentures" at any time prior to the expiration date.
Interest on Old and New Debentures and Dividends on Series B Preferred Stock
The last payment of interest on the old debentures was made on July 15,
2001. This payment covered accrued interest at the rate of 8% from January 16,
2001 through July 15, 2001. The first payment of interest on the new
debentures will be made on January 15, 2002 in arrears to registered holders
as of January 1, 2002. This payment will cover accrued interest at the rate of
8.0% effective from July 16, 2001 until the expiration date of the exchange
offer and at the rate of 9.0% effective from the expiration date of the
exchange offer until January 15, 2001.
The first dividend payment on the Series B preferred stock will be paid in
quarterly arrears beginning February 15, 2002 at a rate of 8.0% from July 16,
2001 until the expiration date of the exchange offer and at the rate of 10.0%
from the expiration date of the exchange offer until February 15, 2002.
Subsequent dividend payments will be $0.625 quarterly (equivalent to $2.50 per
share annually or 10% of the liquidation preference of $25.00 per share) per
share of Series B preferred stock. We anticipate that the record date for
dividends on the Series B preferred stock will be approximately two weeks
prior to the payment date.
Amendment of this Exchange Offer
We reserve the right to amend this exchange offer, in our sole discretion,
to:
. delay the acceptance of your old debentures for exchange;
. terminate this exchange offer;
. extend the expiration date and retain all old debentures that have been
tendered, subject to the rights of owners of the old debentures to
withdraw their old debentures;
. refuse to accept the old debentures and return all old debentures that
have been tendered to us; or
29
. waive any condition to, or otherwise amend the terms of, this exchange
offer in any respect and accept all properly tendered old debentures
that have not been withdrawn.
We reserve the right, in our sole discretion, to reduce the amount of old
debentures that we will exchange under this exchange offer. We may also change
the consideration that we are offering. If we change the consideration that we
are offering, or decrease the amount of old debentures being sought, we will
give at least 10 business days' notice of the change. If that is less than the
time remaining before the expiration date, the expiration date will be
extended until a date that is no earlier than the 10th business day after the
announcement.
Following any delay in acceptance, extension, termination or amendment, we
will notify the exchange agent and make a public announcement. In the case of
an extension, we will make the announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date. We will communicate any public announcement by issuing a release to the
Dow Jones News Service or PR Newswire.
Future Transactions Involving Old Debentures
We reserve the right, in our sole discretion and if we are so permitted by
the terms of our indebtedness, to purchase or make offers for any old
debentures that remain outstanding after the expiration date of this exchange
offer. To the extent permitted by applicable law and regulation, we may make
these purchases, if any, in the open market, in privately negotiated
transactions, or in additional exchange offers. The terms of these purchases,
if any, could differ from the terms of this exchange offer. It is possible
that future purchases, if any, of old debentures may be on less or more
favorable terms than the terms offered in this exchange offer. We make no
promises that we will purchase or make offers for any old debentures that
remain outstanding after the expiration date of this exchange offer.
"Blue Sky" Compliance
We are making this exchange offer to all holders of old debentures. We are
not aware of any jurisdiction in which the making of this exchange offer is
not in compliance with applicable law. If we become aware of any jurisdiction
in which the making of this exchange offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
If, after such good faith effort, we cannot comply with any such law, this
exchange offer will not be made to, nor will tenders of old debentures be
accepted from or on behalf of, the holders of old debentures residing in such
jurisdiction.
Exchange Agent
Chase Manhattan Trust Company, National Association has been appointed as
the exchange agent for this exchange offer of the old debentures. We have
agreed to pay the exchange agent reasonable and customary fees for its
services and will reimburse the exchange agent for its reasonable out-of-
pocket expenses. All executed letters of transmittal and any other required
documents should be sent or delivered to the exchange agent at the address set
forth below. Questions and requests for assistance in completing documentation
should be directed to the exchange agent, addressed as follows:
Courier Address: Mail Address:
Chase Manhattan Trust Company, Chase Manhattan Trust Company,
National Association National Association
Institutional Trust Services Institutional Trust Services
2001 Bryan Street P.O. Box 2330
9th Floor Dallas, Texas 75221-2320
Dallas, Texas 75201 Attention: Frank Ivins
Attention: Frank Ivins
Telephone: (214) 468-6464
By Facsimile: (214) 468-6494
Confirm Facsimile by Telephone: (214) 468-6464
30
Delivery of a letter of transmittal to an address other than that for the
exchange agent as set forth above or transmission of instructions via
facsimile other than as set forth above does not constitute a valid delivery
of a letter of transmittal.
Financial Advisor
On May 15, 2001, we retained Cohen & Steers Capital Advisors, LLC as our
financial advisor with respect to certain matters, including this exchange
offer of the old debentures. We will pay Cohen & Steers Capital Advisors, LLC
customary fees. We have also agreed to reimburse Cohen & Steers Capital
Advisors, LLC for its expenses and to indemnify it against certain expenses
and liabilities, including liabilities under federal securities laws. Pursuant
to an engagement letter entered into by us and Cohen & Steers Capital
Advisors, LLC, Cohen & Steers may provide other investment banking and
financial advisory services to us and our subsidiaries for which it may
receive additional customary fees and expense reimbursement.
Information Agent
Georgeson Shareholder Communications, Inc. has been appointed the
information agent for this exchange offer of the old debentures. We have
agreed to pay the information agent reasonable and customary fees for its
services and will reimburse the information agent for its reasonable out-of-
pocket expenses. Any questions concerning the procedures of this exchange
offer or requests for assistance or additional copies of this prospectus or
the letters of transmittal may be directed to the information agent at:
Georgeson Shareholder Communications Inc.
17 State Street
10th Floor
New York, New York 10004
Bank and brokers, call collect:
(212) 440-9800
Others, call toll free:
(800) 223-2064
Fees and Expenses
We will bear the expenses of soliciting tenders for this exchange offer. We
are making the principal solicitation by mail. However, where permitted by
applicable law, we may make additional solicitations by telegraph, telephone
or in person by officers and regular employees of ours and those of our
affiliates and our information agent.
We may make payments to brokers, dealers or others soliciting acceptance of
this exchange offer. We will also pay the exchange agent reasonable and
customary fees for its services and will reimburse it for its reasonable out-
of-pocket expenses.
We will pay the cash expenses to be incurred in connection with this
exchange offer that are estimated in the aggregate to be approximately
$950,000. Such expenses include, among others, fees and expenses of the
trustee, accounting and legal fees and printing costs.
31
Transfer Taxes
Owners who tender their old debentures for exchange will not be obligated
to pay any transfer taxes. If, however:
. new debentures or shares of Series B preferred stock are to be
delivered to, or issued in the name of, any person other than the
registered owner of the old debentures; or
. old debentures are registered in the name of any person other than the
person signing the letter of transmittal; or
. a transfer tax is imposed for any reason other than the exchange of new
debentures or shares of Series B preferred stock for old debentures in
connection with this exchange offer;
then the amount of any transfer taxes, whether imposed on the registered owner
or any other persons, will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption from them is not submitted with
the letter of transmittal, the amount of such transfer taxes will be billed
directly to the tendering holder.
United States Federal Tax Considerations
See "Material United States Federal Tax Consequences" for a discussion of
the United States federal tax consequences to holders of old debentures
acquiring, owning, and disposing of the new debentures or shares of Series B
preferred stock.
Appraisal Rights
You will not have any right to dissent and receive appraisal of your old
debentures in connection with this exchange offer.
32
SELECTED FINANCIAL DATA
The following table sets forth our selected historical consolidated
financial and operating data as of and for each of the periods indicated. The
consolidated financial data as of and for each of the five years ended
December 31, 2000 was derived from our audited financial statements. The
consolidated financial data as of and for the six months ended June 30, 2001
and 2000 was derived from our unaudited financial statements. The selected
financial data should be read in conjunction with our consolidated financial
statements and related notes incorporated by reference in this prospectus.
Six Months Ended Years Ended December 31,
----------------- --------------------------------------------
June 30, June 30,
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
In thousands except per share, units and percentages
Operations Summary:
Total revenue.......... $ 26,232 $ 25,197 $ 51,441 $ 49,969 $ 47,791 $ 46,443 $ 44,456
Property operating
expenses.............. 10,130 9,314 19,442 18,971 17,905 17,139 16,317
-------- -------- -------- -------- -------- -------- --------
Net operating income
(NOI) (4)............. 16,102 15,883 31,999 30,998 29,886 29,304 28,139
Depreciation and
amortization.......... 5,665 5,547 11,173 10,845 10,145 9,621 9,119
Interest expense....... 7,839 7,806 15,850 15,018 14,554 14,608 14,542
General and
administrative
expense............... 1,239 1,413 2,648 2,788 2,431 2,520 2,194
-------- -------- -------- -------- -------- -------- --------
Earnings from
operations before
extraordinary
items................. 1,359 1,117 2,328 2,347 2,756 2,555 2,284
Extraordinary item--
early extinguishment
of debt (6)........... -- -- -- -- -- -- (449)
-------- -------- -------- -------- -------- -------- --------
Net earnings
attributable to shares
of common stock--basic
and diluted (1)....... $ 1,359 $ 1,117 $ 2,328 $ 2,347 $ 2,756 $ 2,555 $ 1,835
======== ======== ======== ======== ======== ======== ========
Common stock cash
distributions paid.... $ 3,757 $ 3,558 $ 7,234 $ 6,938 $ 7,330 $ 7,413 $ 7,425
Per Share Data:
Net earnings
attributable to shares
of common stock--basic
and diluted (1)....... $ 0.17 $ 0.14 $ 0.29 $ 0.30 $ 0.33 $ 0.30 $ 0.22
Common stock cash
distributions paid.... $ 0.46 $ 0.45 $ 0.91 $ 0.88 $ 0.88 $ 0.88 $ 0.88
Weighted average shares
of common stock
outstanding--basic and
diluted (1)........... 8,155 7,905 7,950 7,888 8,331 8,423 8,433
Financial Position:
Real estate owned, at
cost.................. $351,957 $344,518 $348,759 $338,389 $328,477 $310,312 $303,476
Investment in
unconsolidated real
estate entity......... 914 916 916 917 913 904 948
Total assets........... 282,181 285,475 285,417 284,943 284,935 275,485 277,604
Mortgage notes
payable............... 112,080 110,130 113,163 84,712 89,869 90,615 68,080
Unsecured notes payable
to banks.............. 34,061 39,411 35,716 59,988 49,178 32,342 52,639
Unsecured convertible
subordinated
debentures............ 61,878 61,878 61,878 61,878 62,878 62,878 62,878
Total liabilities...... 215,788 216,781 218,298 213,990 208,718 190,958 188,237
Shareholders' equity... $ 66,393 $ 68,694 $ 67,119 $ 70,953 $ 76,217 $ 84,527 $ 89,367
Number of shares of
common stock
outstanding........... 8,262 7,942 8,063 7,909 7,990 8,425 8,422
Other Data:
Computation of Funds
from Operations: (2)
Net earnings
attributable to shares
of common stock--
basic................. $ 1,359 $ 1,117 $ 2,328 $ 2,347 $ 2,756 $ 2,555 $ 1,835
Adjustments:
Depreciation on real
estate investments.... 5,343 5,257 10,579 10,256 9,528 8,954 8,487
Extraordinary item--
early extinguishment
of debt............... -- -- -- -- -- -- 449
-------- -------- -------- -------- -------- -------- --------
Funds from operations
attributable to shares
of common stock--
basic................. 6,702 6,374 12,907 12,603 12,284 11,509 10,771
Interest on convertible
subordinated
debentures............ 2,475 2,475 4,950 5,017 5,030 5,030 5,030
Amortization of debt
issuance cost......... 122 122 244 248 248 248 248
-------- -------- -------- -------- -------- -------- --------
Funds from operations
attributable to shares
of common stock--
diluted............... $ 9,299 $ 8,971 $ 18,101 $ 17,868 $ 17,562 $ 16,787 $ 16,049
======== ======== ======== ======== ======== ======== ========
Weighted average shares
of common stock
outstanding--diluted.. 12,992 12,742 12,787 12,725 13,168 13,260 13,269
33
Six Months Ended Years Ended December 31,
------------------ ------------------------------------------------
June 30, June 30,
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
In thousands except per share, units and percentages
Cash Flows:
Net cash provided by
operating activities.. $ 6,335 $ 4,586 $ 14,010 $ 13,193 $ 12,456 $ 12,945 $ 13,504
Net cash used in
investing activities.. (3,208) (6,248) (10,496) (9,925) (16,966) (6,757) (7,476)
Net cash provided by
(used in) financing
activities............ (4,374) 995 (2,955) (3,081) 4,532 (5,528) (6,834)
Multi-family segment:
Gross investment....... $137,950 $135,605 $136,870 $134,092 $129,510 $113,446 $109,236
Total units............ 3,398 3,398 3,398 3,397 3,341 3,157 3,157
Percent leased (3)..... 98% 97% 97% 96% 96% 97% 98%
Operating revenue...... $ 11,879 $ 11,349 $ 22,944 $ 21,902 $ 20,341 $ 19,872 $ 19,070
Operating expenses..... $ 4,748 $ 4,567 $ 9,397 $ 8,943 $ 8,140 $ 7,751 $ 7,488
Net operating income
(4)................... $ 7,131 $ 6,782 $ 13,547 $ 12,959 $ 12,201 $ 12,121 $ 11,582
Percent of total NOI... 44% 43% 42% 42% 41% 41% 41%
Retail segment:
Gross investment (5)... $214,920 $209,829 $212,805 $205,214 $199,880 $197,770 $195,188
Total square footage... 2,662 2,729 2,680 2,720 2,668 2,668 2,667
Percent leased (3)..... 92% 92% 92% 95% 95% 95% 92%
Operating revenue...... $ 14,273 $ 13,784 $ 28,353 $ 27,831 $ 27,308 $ 26,432 $ 25,255
Operating expenses..... $ 5,350 $ 4,695 $ 9,958 $ 9,815 $ 9,629 $ 9,105 $ 8,703
Net operating income
(4)................... $ 8,923 $ 9,089 $ 18,395 $ 18,016 $ 17,679 $ 17,327 $ 16,552
Percent of total NOI... 56% 57% 58% 58% 59% 59% 59%
--------
(1) Basic EPS is computed by dividing income available to common stockholders
by the weighted average number of shares of common stock outstanding for
the period. Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock
that then shared in our earnings. For the six month period ended June 30,
2001 there were options to purchase shares of common stock with exercise
prices less than the average market price, however, the effect of the
inclusion in the calculation of EPS is immaterial. For all other periods
presented, the options to purchase shares of common stock were excluded in
the computation of diluted EPS because the options' exercise prices were
greater than the average market prices of common stock. Our outstanding
debentures are also excluded from the computation for all periods
presented due to their anti-dilutive effect. Accordingly, there is no
effect on net income in the calculation of diluted EPS for the periods
presented.
(2) Funds from operations has been an industry-wide standard used to measure
operating performance of a REIT since its adoption by the National
Association of Real Estate Investment Trusts in 1991. In October 1999
NAREIT revised the definition of funds from operations. The revision had
no effect on our calculation of funds from operations. We calculate funds
from operations as net income, excluding gains or losses from sales of
property and those items defined as extraordinary under accounting
principles generally accepted in the United States of America (GAAP), plus
depreciation on real estate assets, and after adjustments for
unconsolidated partnerships to reflect funds from operations on the same
basis. Funds from operations should not be considered as an alternative to
net earnings or any other GAAP measurement of performance or as an
alternative to cash flow from operating, investing or financing activities
as a measure of liquidity. The funds from operations measure presented by
us, while consistent with NAREIT's definition, will not be comparable to
similarly titled measure of other REITs that do not compute funds from
operations in a manner consistent with ours.
(3) Represents the average percent leased for the respective period.
(4) Includes the operating revenues and operating expenses directly related to
the operations of the real estate properties, exclusive of corporate
general and administrative expenses, depreciation and interest.
(5) Includes our investment in an unconsolidated real estate entity.
(6) In 1996, we recorded an extraordinary charge related to the early
extinguishment of debt.
34
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
We have set out our unaudited pro forma consolidated financial statements
on the following pages.
The unaudited pro forma consolidated balance sheet as of June 30, 2001 was
prepared on the basis that the exchange offer as described below, had occurred
on June 30, 2001. The unaudited pro forma combined consolidated statements of
operations for the six months ended June 30, 2001 and for the year ended
December 31, 2000 have been prepared on the basis that this exchange offer as
described below had occurred on January 1, 2000.
You should read this information in conjunction with our consolidated
financial information and the accompanying notes and Management's Discussion
and Analysis of Financial Condition and Results of Operations, which are
included in our Annual Report on Form 10-K for the year ended December 31,
2000 incorporated by reference into this prospectus. The unaudited pro forma
consolidated financial data does not purport to represent what our results of
operations would actually have been if the exchange offer occurred on the
dates specified, or purport to project our results of operations for any
future period or date. The pro forma adjustments are based on available
information and certain adjustments that our management believes are
reasonable. In the opinion of our management, all adjustments have been made
that are necessary to present fairly the unaudited pro forma consolidated
data. We can give you no assurances that the transactions referred to in the
assumptions will take place or, if they do take place, that they will take
place on the terms specified in the assumptions.
The exchange offer described in this prospectus is a part of our plan to
refinance the old debentures. To the extent that not all of the old debentures
are tendered pursuant to the exchange offer or the principal amount of old
debentures that we are able to accept in the exchange offer is limited by
proration, we are concurrently engaged in a public offering for cash of new
debentures and Series B preferred stock, the net proceeds of which we will use
to redeem or purchase any old debentures that remain outstanding after the
completion of the exchange offer. The result of these transactions will be
that the old debentures will be refinanced by the issuance of all new
debentures, all Series B preferred stock or a combination of new debentures
and Series B preferred stock, but the exact amount of new debentures, if any,
and Series B preferred stock, if any, issued will depend upon a number of
factors, including the principal amount of old debentures tendered in the
exchange offer, the election of holders of old debentures who participate in
the exchange offer, and whether all new debentures and all shares of Series B
preferred stock or a combination of new debentures and Series B preferred
stock are sold in the public offering. Accordingly, we are unable to predict
whether the old debentures will be refinanced by the issuance of all new
debentures, all Series B preferred stock, or a combination of new debentures
and Series B preferred stock. Moreover, depending on market conditions and our
need for capital, we may issue new debentures, Series B preferred stock, or a
combination that exceeds the principal amount of the old debentures. For
purposes of the preparation of the following pro forma financial statements,
we have made the following assumptions:
. $32,327,000 principal amount of the old debentures are refinanced by
the issuance of $32,327,000 principal amount of new debentures (the
maximum principal amount of new debentures that may be issued in the
exchange offer);
. interest eliminated on the retirement of the old debentures will be
$2,586,000 per annum;
. interest expense on the new debentures will be approximately $2,909,000
per annum; and
. reduction in amortization of deferred issuance costs of $22,000 per
annum.
35
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
Adjustments
June 30, for the
2001 Transaction Pro Forma
------------ ----------- ------------
ASSETS
Real estate investments:
Land................................ $ 53,471,000 $ 53,471,000
Buildings and improvements.......... 217,339,000 217,339,000
------------ ------------
270,810,000 270,810,000
Cash, cash equivalents and receivables
and other assets (A)................. 11,371,000 11,371,000
------------ ------------
Total Assets...................... $282,181,000 $282,181,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable................ $112,080,000 $112,080,000
Notes payable, accounts payable and
other liabilities.................... 41,830,000 41,830,000
------------ ------------
153,910,000 153,910,000
Convertible subordinated debentures
(A).................................. 61,878,000 61,878,000
------------ ------------
Total Liabilities................. 215,788,000 215,788,000
SHAREHOLDERS' EQUITY
Series A preferred stock, 40,000
shares authorized, none issued....... -- --
Series B preferred stock, liquidation
preference $25 per share, 2,476,000
shares authorized, none issued (A)... -- --
Common stock, par value $0.0001 per
share, 51,484,000 shares authorized,
8,262,000 shares issued and
outstanding.......................... 1,000 1,000
Excess stock, par value $0.0001 per
share, 16,000,000 shares authorized,
none issued.......................... -- --
Additional paid-in capital............ 120,980,000 120,980,000
Cumulative net income (A)............. 41,076,000 41,076,000
Cumulative distributions paid......... (95,664,000) (95,664,000)
------------ ------------
Total Shareholders' Equity........ 66,393,000 66,393,000
------------ ------------
Total Liabilities and
Shareholders' Equity............. $282,181,000 $282,181,000
============ ============
36
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Six Months Adjustments
Ended for the
June 30, 2001 Transaction Pro Forma
------------- ------------ -----------
OPERATING REVENUE
Rents and other income............... $26,232,000 $26,232,000
OPERATING EXPENSES
Management & leasing fees............ 1,361,000 1,361,000
Utilities............................ 1,169,000 1,169,000
Real estate taxes.................... 1,976,000 1,976,000
Administrative expenses.............. 1,239,000 1,239,000
Operations & maintenance............. 3,865,000 3,865,000
Other operating expenses............. 1,759,000 1,759,000
Depreciation and amortization........ 5,665,000 5,665,000
----------- -----------
Total Operating Expenses............... 17,034,000 17,034,000
----------- -----------
INCOME FROM OPERATIONS................. 9,198,000 9,198,000
Interest expense....................... 7,839,000 $151,000 (B) 7,990,000
=========== ===========
NET INCOME............................. $ 1,359,000 $ 1,208,000
=========== ===========
BASIC AND DILUTED EARNINGS PER SHARE... $ 0.17 $ 0.15
=========== ===========
Weighted average shares of common stock
outstanding........................... 8,155,000 8,155,000
=========== ===========
37
SIZELER PROPERTY INVESTORS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Adjustments
Year Ended for the
December 31, 2000 Transaction Pro Forma
----------------- ------------ -----------
OPERATING REVENUE
Rents and other income........... $51,441,000 $51,441,000
OPERATING EXPENSES
Management & leasing fees........ 2,613,000 2,613,000
Utilities........................ 2,246,000 2,246,000
Real estate taxes................ 3,933,000 3,933,000
Administrative expenses.......... 2,648,000 2,648,000
Operations & maintenance......... 7,689,000 7,689,000
Other operating expenses......... 2,961,000 2,961,000
Depreciation and amortization.... 11,173,000 11,173,000
----------- -----------
Total Operating Expenses........... 33,263,000 33,263,000
----------- -----------
INCOME FROM OPERATIONS............. 18,178,000 18,178,000
Interest expense................... 15,850,000 $301,000 (B) 16,151,000
=========== ===========
NET INCOME......................... 2,328,000 2,027,000
=========== ===========
BASIC AND DILUTED EARNINGS PER
SHARE............................. 0.29 0.25
=========== ===========
Weighted average shares of common
stock outstanding................. 7,950,000 7,950,000
=========== ===========
38
Notes to Unaudited Pro Forma Financial Data
(A) At June 30, 2001, the Company had approximately $500,000 of unamortized
deferred financing costs remaining on its balance sheet associated with
the old debentures. If the Company issues $32,327,000 of new debentures
and at least 340,000 shares of Series B preferred stock in the exchange
offer, the Company would record $500,000 as an extraordinary item for the
write-off of unamortized debt costs. This charge is a non-cash item, is
non-recurring, and will not affect reported funds from operations.
(B) Represents the net increase of interest expense resulting from the
exchange of the old debentures for new debentures.
(C) We and real estate industry analysts utilize the concept of funds from
operations ("FFO") as an important analytical measure of a real estate
investment trust's financial performance, with FFO being defined by us
and the National Association of Real Estate Investment Trusts ("NAREIT")
as net income, excluding gains or losses from sales of property and those
items defined as extraordinary under accounting principles generally
accepted in the United States of America ("GAAP"), plus depreciation on
real estate assets, and after adjustments for unconsolidated partnerships
to reflect funds from operations on the same basis. Our management
believes the following additional adjustments are relevant to evaluating
our future operating performance. The following additional adjustments
that eliminate the impact of certain items, are based on estimates and
assumptions made and believed by us to be reasonable and are inherently
uncertain and subject to change. The supplemental adjustments do not
comply with the regulations published by the Securities and Exchange
Commission relating to the presentation of pro forma financial data. The
following calculations should not be viewed as indicative of actual or
future results. Pro forma FFO was calculated as follows:
Year Ended Weighted
December 31, Average
2000 Shares
------------ ---------
Basic FFO as reported............................... $12,907,000 7,950,000
Additional interest expense......................... (301,000) --
----------- ---------
Pro forma FFO available to shares of common stock... $12,606,000 7,950,000
=========== =========
(D) If we issue $32,327,000 of new debentures in the exchange offer, any
additional exchanges of old debentures would be for Series B preferred
stock. For each $5,000,000 of preferred stock we exchange for old
debentures, the effect on our June 30, 2001 balance sheet will be that
convertible subordinated debentures will be decreased by $5,000,000,
total liabilities will be decreased by $5,000,000, Series B preferred
stock will be increased by $5,000,000, and total shareholders equity will
be increased by $5,000,000. Similarly, the effect of the assumed issuance
of $5,000,000 of Series B preferred stock on our pro forma results of
operations for the six months ended June 30, 2001 would be to decrease
interest expense by $200,000, to increase pro forma net income by
$200,000, to decrease net income available to common stockholders by
$50,000 or less than $0.01 per share; and the effect of the assumed
issuance of $5,000,000 of Series B preferred stock on the Company's pro
forma results of operations for the year ended December 31, 2000 would be
to decrease interest expense by $400,000, to increase pro forma net
income by $400,000, to decrease net income available to common
stockholders by $100,000 or $0.01 per share.
(E) The pro forma financial statements above assume the issuance of
$32,327,000 of new debentures. If the exchange offer results in a lesser
amount of new debentures being issued, there will be no effect on our pro
forma balance sheet, except for a greater amount of old debentures
remaining outstanding. Similarly, the effect of the assumed issuance of
$5,000,000 less of new debentures on our pro forma results of operations
for the six months ended June 30, 2001 would be to decrease interest
expense by $25,000, to increase pro forma net income by $25,000, to
increase net income available to common stockholders by $25,000 or less
than $0.01 per share; and the effect of the assumed issuance of
$5,000,000 less of new debentures on the Company's pro forma results of
operations for the year ended December 31, 2000 would be to decrease
interest expense by $50,000, to increase pro forma net income by $50,000,
to increase net income available to common stockholders by $50,000 or
less than $0.01 per share.
39
COMPARISON OF THE OLD DEBENTURES, THE NEW DEBENTURES
AND THE SERIES B PREFERRED STOCK
On May 13, 1993, we issued and sold $65 million of 8% convertible
subordinated debentures due 2003, of which $61.9 million are outstanding as of
the date hereof. We are offering up to an aggregate maximum of $32.327 million
9.0% convertible subordinated debentures due 2009 and up to 2,476,000 shares
of 10.0% Series B cumulative redeemable preferred stock such that the total of
Series B preferred stock and the new debentures to be issued upon completion
of this exchange offer will be equal to the amount of old debentures tendered.
Generally, the old debentures and the new debentures carry with them the same
rights, terms and liabilities with the exception of interest rates, maturity
dates and conversion prices. The following chart sets forth the material terms
of the old debentures, new debentures and the Series B preferred stock:
Series B Preferred
Old Debentures New Debentures Stock
------------------- ------------------- -------------------
Aggregate principal
amount outstanding on $65 million ($61.9 Up to $32.327 Up to 2,476,000
initial issuance....... million presently million shares
outstanding)
Maturity date........... July 15, 2003 July 15, 2009 The Series B
preferred stock has
no stated maturity
and will not be
subject to any
sinking fund or
mandatory
redemption.
Interest or dividend 8% annual rate, 9% annual rate, $0.625 per share
rate................... payable in cash on payable in cash on paid quarterly in
January 15 and July January 15 and July arrears in cash on
15 of each year. 15 of each year. or about the
The first payment fifteenth day of
of interest on the February, May,
new debentures will August and November
be made on January of each year
15, 2002 in arrears (equivalent to
to registered $2.50 per share
holders as of annually or 10% of
January 1, 2002. the liquidation
This payment will preference of
cover accrued $25.00 per share).
interest at a rate The first dividend
of 8.0% from July payment on the
16, 2001 until the shares of Series B
expiration of the preferred stock
exchange offer and will be paid in
at a rate of 9.0% arrears beginning
effective from the February 15, 2002
expiration date of at a rate of 8.0%
the exchange offer ( per share)
until January 15, from July 16, 2001
2002. until the
expiration date of
the exchange offer
and at a rate of
10.0% ( per
share) from the
expiration of the
exchange offer
until February 15,
2002. We anticipate
that the record
date for dividends
on the Series B
preferred stock
will be
approximately two
weeks prior to the
payment date.
Liquidation............. A liquidation under A liquidation under The liquidation
bankruptcy law bankruptcy law preference for each
provisions will provisions will share of Series B
result in an event result in an event preferred stock is
of default. See "-- of default. See "-- $25.00 per share,
Events of default" Events of default" plus an amount
and "--Remedies and "--Remedies equal to all
upon default." upon default." accrued and unpaid
dividends (whether
or not declared) to
the date of final
distribution to the
holders of our
Series B preferred
stock.
40
Series B Preferred
Old Debentures New Debentures Stock
------------------- ------------------- -------------------
Redemption......... At our option, we At our option, we The Series B
can redeem the old can redeem the new preferred stock is
debentures at any debentures at any not redeemable
time or from time time after the prior to the fifth
to time, in whole third anniversary anniversary date of
or in part on at of the expiration the issue date. On
least 30 days' date of the and after such
prior notice by exchange offer, in date, the Series B
mail at a whole or in part on preferred stock may
redemption price at least 30 days' be redeemed for
equal to 100% of prior notice by cash at our option,
the principal mail at a in whole or in
amount plus accrued redemption price part, at a
and unpaid equal to 100% of redemption price of
interest, if any, the principal $25.00 per share,
to the date of amount plus accrued plus all accrued
redemption. and unpaid and unpaid
interest, if any, dividends thereon,
to the date of if any, to the date
redemption. fixed for
redemption.
We may redeem the We may redeem the In order to ensure
old debentures in new debentures in that we continue to
whole or in part at whole or in part, meet the
any time for at any time for requirements for
certain reasons certain reasons qualification as a
intended to protect intended to protect REIT for federal
our status as a our status as a income tax
REIT, at our option REIT, at our option purposes, a holder
on at least 30 on at least 30 of shares of Series
days' prior notice days' prior notice B preferred stock
by mail at a by mail at a will be deemed to
redemption price redemption price violate the
equal to 100% of equal to 100% of ownership limit in
the principal the principal our Charter, if
amount, plus amount, plus such holder owns
interest accrued to interest accrued to 9.9% or more (in
the date of the date of value or in number,
redemption. redemption. whichever is more
restrictive) of our
outstanding equity
stock. Shares held
in violation of the
ownership limit
will be converted
into excess stock.
Conversion......... The old debentures The new debentures The Series B
are convertible at are convertible at preferred stock is
any time prior to any time prior to not convertible
maturity and unless maturity and unless into or
otherwise redeemed otherwise redeemed exchangeable for
into our common into our common any of our other
stock. The stock. The property or
conversion price is conversion price is securities, except
$13.00 per share $11.00 per share that we may
(subject to (subject to exchange the shares
adjustment). adjustment). of Series B
preferred stock for
If the old If the new shares of excess
debentures are debentures are stock in order to
called for called for ensure that we
redemption, redemption, remain a qualified
conversion rights conversion rights REIT for federal
will expire at the will expire at the income tax
close of business close of business purposes.
on the redemption on the redemption
date, unless we date, unless we
default in payment default in payment
due upon such due upon such
redemption. redemption.
To protect our To protect our
status as a REIT, a status as a REIT, a
holder may not holder may not
convert any old convert any new
debenture, and such debenture, and such
old debenture will new debenture will
not be convertible not be convertible
by any holder, if by any holder, if
as a result of such as a result of such
conversion any conversion any
person would then person would then
be deemed to be deemed to
beneficially own, beneficially own,
directly or directly or
indirectly, 9.9% or indirectly, 9.9% or
more (in value or more (in value or
in number, in number,
whichever is more whichever is more
restrictive) of our restrictive) of our
outstanding equity outstanding equity
stock. stock.
41
Series B Preferred
Old Debentures New Debentures Stock
------------------- ------------------- -------------------
If we combine or If we combine or
merge with, or sell merge with, or sell
or transfer or transfer
substantially all substantially all
of our assets to, of our assets to,
another corporation another corporation
or trust, the or trust, the
holders of the old holders of the new
debentures then debentures then
outstanding will be outstanding will be
entitled thereafter entitled thereafter
to convert such old to convert such new
debentures into the debentures into the
kind and amount of kind and amount of
shares of capital shares of capital
stock, other stock, other
securities, cash or securities, cash or
other assets that other assets that
they would have they would have
owned immediately owned immediately
after such event after such event
had such old had such new
debentures been debentures been
converted before converted before
the effective date the effective date
of the transaction. of the transaction.
Ranking........... The old debentures The new debentures With respect to
rank in right of will rank in right dividend rights and
payment behind our of payment behind rights upon
senior indebtedness our senior liquidation, shares
and all of our indebtedness and of Series B
other existing and all of our other preferred stock
future senior debt. existing and future will rank: (i)
The old debentures senior debt. The senior to our
will rank in right new debentures will common stock and
of payment equal rank equal with any our Series A
with the new remaining old preferred stock,
debentures and any debentures and any and (ii) junior to
future subordinated future subordinated the new debentures,
debentures we debentures we the old debentures
issue. The old issue. The new and any other
debentures are debentures will be indebtedness of
unsecured. unsecured. ours or our
subsidiaries.
Voting rights..... None. None. Holders of shares
of Series B
preferred stock
generally will have
no voting rights
except as required
by law. However,
whenever dividends
on any shares of
Series B preferred
stock are in
arrears for six or
more quarterly
periods (whether
consecutive or not),
the holders of such
shares (voting
separately as a
class with all
other series of
preferred stock
upon which like
voting rights have
been conferred and
are exercisable)
will be entitled to
vote for the
election of a total
of two of our
directors until all
dividends
accumulated on such
shares of Series B
preferred stock
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 B preferred
stock that would be
materially adverse
to the rights of
holders of the
42
Series B Preferred
Old Debentures New Debentures Stock
------------------- ------------------- -------------------
Series B preferred
stock cannot be
made without the
affirmative vote of
the holders of at
least two-thirds of
the outstanding
shares of Series B
preferred stock.
Holders of shares
of Series B
preferred stock
will have certain
other voting rights
under Maryland law.
Affirmative covenants... The indenture The indenture None.
governing the old governing the new
debentures include debentures include
the following the following
required actions: required actions:
. a compliance . a compliance
certificate certificate
delivered by an delivered by an
officer at least officer at least
once yearly; once yearly;
. timely payment of . timely payment of
principal and principal and
interest on the interest on the
old debentures; new debentures;
and and
. filing of public . filing of public
reports. reports.
Negative covenants...... The old debentures The new debentures The Series B
include limitations include limitations preferred stock
on our and our on our and our includes
subsidiaries' subsidiaries' limitations on our
ability to, among ability to, among ability to, among
other things: other things: other things:
. merge, . merge, . authorize, create
consolidate or consolidate, or or increase the
transfer all or transfer all or authorized or
substantially all substantially all issued amount of
of our assets; of our assets; any class or
series of capital
stock ranking
senior to the
Series B
preferred stock;
and
. declare or pay . declare or pay . amend, alter or
any dividends or any dividends or repeal the
make any make any provisions of our
distributions to distributions to Charter,
holders of our holders of our including the
capital stock capital stock Articles
(other than (other than Supplementary
dividends or dividends or establishing the
distributions distributions Series B
necessary to necessary to preferred stock,
maintain our REIT maintain our REIT so as to
status), or status), or materially and
purchase, redeem purchase, redeem adversely affect
or otherwise or otherwise any right,
acquire or retire acquire or retire preference,
any of our any of our privilege or
capital stock if capital stock if voting power of
at the time of at the time of the shares of
such action an such action an Series B
event of default event of default preferred stock.
has occurred and has occurred and
is continuing or is continuing or
would exist would exist
immediately after immediately after
giving effect to giving effect to
such action. such action.
Events of default....... The following are The following are None.
events of default events of default
under the terms of under the terms of
the old debentures: the new debentures:
. our failure to . our failure to
pay principal pay principal
when due when due
continued for continued for
five business five business
days; days;
43
Series B Preferred
Old Debentures New Debentures Stock
------------------- ------------------- -------------------
. our failure to . our failure to
pay interest when pay interest when
due continued for due continued for
30 days; 30 days;
. our failure to . our failure to
comply with any comply with any
other covenant other covenant
for 60 days after for 60 days after
written notice; written notice;
. some events of . some events of
bankruptcy, bankruptcy,
insolvency or insolvency or
reorganization; reorganization;
or or
. if we default . if we default
under any other under any other
indebtedness. indebtedness.
Remedies upon default... If an event of If an event of None.
default occurs, default occurs,
either the trustee either the trustee
or holders of a or holders of a
majority in majority in
principal amount of principal amount of
the outstanding old the outstanding new
debentures may debentures may
accelerate the accelerate the
maturity of all of maturity of all of
the old debentures. the new debentures.
44
TERMS OF THE DEBENTURES
The following is a summary of the terms of the old debentures that we are
offering to exchange under this exchange offer, as well as the new debentures
that we propose to issue in this exchange offer. The old debentures were
issued under an Indenture (the "Old Indenture") dated as of May 13, 1993, as
amended as of June 26, 2001 between us and Chase Manhattan Trust Company,
National Association as Trustee (the "Trustee"). The old debentures were
issued in the original principal amount of $65,000,000. Under the terms of
this exchange offer, the new debentures may be issued under an Indenture (the
"New Indenture") between us and the Trustee. Collectively, the Old Indenture
and the New Indenture are referred to as the "Indentures." Similarly, the old
debentures and the new debentures are collectively referred to in this section
as "Debentures." Generally, the old debentures and the new debentures carry
with them the same rights, terms and liabilities with the exception of
interest rates, maturity dates and conversion prices. The following chart sets
forth the material differences between the old debentures and the new
debentures.
Old Debentures New Debentures
-------------- --------------
Maturity date....... July 15, 2003 July 15, 2009
Interest rate....... 8% annual rate payable in 9% annual rate payable in
cash on January 15 and July cash on January 15 and July
15 of each year. 15 of each year.
Conversion.......... Convertible at any time into Convertible at any time into
our common stock at a price our common stock at a price
of $13.00 per share, subject of $11.00 per share, subject
to adjustment in limited to adjustment in limited
circumstances. circumstances.
The terms of the Debentures include those stated in the Debentures and
those made part of the Indentures by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). Copies of the forms of the
Indentures are filed as exhibits to the Registration Statement of which this
prospectus is a part and are incorporated herein by reference. The following
is a summary of certain provisions of the Indentures and does not purport to
be complete and is qualified in its entirety by reference to the detailed
provisions of the Indentures, including the definitions of certain terms
therein to which reference is hereby made for a complete statement of such
provisions. Wherever particular articles, sections of the Indentures or terms
defined therein are referred to herein, such provisions or definitions are
incorporated herein by reference. All section references are to the Indentures
unless otherwise indicated. We urge you to read the Indentures in their
entirety. You may obtain copies of the Indentures from us. See "Where You Can
Find More Information."
General. The Debentures are unsecured general obligations of ours, subject
to the rights of holders of our Senior Indebtedness. The old debentures mature
on July 15, 2003 and the new debentures mature on July 15, 2009. The old
debentures are limited to $65,000,000 aggregate principal amount. The new
debentures are limited to $32,327,000 aggregate principal amount. The
Debentures bear interest semiannually on January 15 and July 15 of each year
at the rate of 8% per annum for the old debentures and at the rate of 9% per
annum for the new debentures. We will pay interest on the Debentures to the
persons who are registered holders of Debentures at the close of business on
the January 1 or July 1 preceding the interest payment date (Paragraphs 1 and
2 of the Debentures). We may pay principal and interest by check and may mail
an interest check to a holder's registered address. Holders must surrender
Debentures to a Paying Agent to collect final principal payments (Section
2.04). The first payment of interest on the new debentures will be made on
January 15, 2002 in arrears to registered holders as of January 1, 2002. This
payment will cover accrued interest at a rate of 8.0% from July 16, 2001 until
the expiration of the exchange offer and at a rate of 9.0% effective from the
expiration date of the exchange offer until January 15, 2002.
The Debentures will be in registered form without coupons in denominations
of $1,000 and multiples of $1,000 (Section 2.02). A holder may transfer or
exchange Debentures in accordance with the Indentures. No service charge will
be made for any registration of transfer, exchange or conversion of
Debentures, except for
45
any tax or other governmental charges that may be imposed in connection
therewith. The Registrar need not transfer or exchange any Debentures selected
for redemption. Also, in the event of a partial redemption, it need not
transfer or exchange any Debentures for a period of 15 days before selecting
Debentures to be redeemed (Section 2.06). The Indentures do not contain any
provisions requiring us to repurchase the Debentures at the option of the
holders thereof in the event of a leveraged buyout, recapitalization or
similar restructuring of the Company, even though our credit worthiness and
the market value of the Debentures may decline significantly as a result of
such transaction. The Indentures do not protect holders of the Debentures
against any decline in credit quality, whether resulting from any such
transaction or from any other cause. The registered holder of a Debenture may
be treated as its owner for all purposes.
Chase Manhattan Trust Company, National Association acts as Paying Agent,
Registrar and Conversion Agent for the old debentures and the new debentures.
We may change any Paying Agent, Registrar, Conversion Agent or co-registrar
without notice and may act in any such capacity ourselves (Section 2.03).
Conversion. The holders of the Debentures are entitled at any time prior to
maturity, subject to prior redemption, to convert the Debentures or portions
thereof (which are $1,000 or multiples thereof) into shares of common stock at
the conversion price of $11.00 per share for the new debentures and $13.00 per
share for the old debentures (subject to adjustments described below) (Section
11.01). No payment or adjustment will be made for accrued interest on a
converted Debenture subsequent to conversion. If any Debenture not called for
redemption is converted between a record date for the payment of interest and
the next succeeding interest payment date, such Debenture must be accompanied
by funds equal to the interest payable to the registered holder on such
interest payment date on the principal amount so converted (Section 11.03). We
will not issue fractional interests in shares of common stock upon conversion
of Debentures and, instead will deliver a check for the fractional share based
upon the market value of the common stock on the last trading day prior to the
conversion date (Section 11.08). If the Debentures are called for redemption,
conversion rights will expire at the close of business on the redemption date,
unless we default in payment due upon such redemption (Section 11.01).
To protect our status as a REIT, a holder may not convert any Debenture,
and such Debenture will not be convertible by any holder, if as a result of
such conversion any Person would then be deemed to beneficially own, directly
or indirectly, 9.9% or more (in value or in number, whichever is more
restrictive) of our shares of equity stock.
The conversion price is subject to adjustments, as set forth in the
Indentures, in certain events, including the payment of dividends or
distributions on our Capital Stock (Section 1.01) in shares of common stock;
subdivisions or combinations of the common stock into a greater or smaller
number of shares; reclassification of the shares of common stock resulting in
an issuance of any shares of Capital Stock; distribution of rights or warrants
to substantially all holders of common stock entitling them to purchase common
stock at less than the then current price at that time; and the distribution
to substantially all holders of common stock of our assets or evidences of our
indebtedness, excluding certain cash dividends and distributions. No
adjustment in the conversion price need be made unless such adjustment would
require a change of at least 1% in the conversion price; however, any
adjustment that would otherwise be required to be made will be carried forward
and taken into account in any subsequent adjustment. A conversion price
adjustment made according to the provisions of the Debentures (or the absence
of provision for such an adjustment) might result in a constructive
distribution to the holders of Debentures or holders of shares that would be
subject to taxation as a dividend. We may, at our option, make such reductions
in the conversion price, in addition to those set forth above, as our Board of
Directors deems advisable to avoid or diminish any income tax to holders of
shares of common stock resulting from any dividend or distribution of equity
securities (or rights to acquire equity securities) or from any event treated
as such for income tax purposes or for any other reason. The Board of
Directors will also have the power to resolve any ambiguity or correct any
error in the provisions relating to the adjustment of the conversion price of
the Debentures and its actions in so doing will be final and conclusive
(Section 11.04).
46
If we combine or merge with, or sell or transfer substantially all of our
assets to, another unaffiliated corporation or trust, the holders of the
Debentures then outstanding will be entitled thereafter to convert such
Debentures into the kind and amount of shares of capital stock, other
securities, cash or other assets that they would have owned immediately after
such event had such Debentures been converted before the effective date of the
transaction (Section 11.10).
Subordination of Debentures. The indebtedness evidenced by the Debentures
will be subordinated and junior in right of payment to the extent set forth in
the Indentures to the prior payment in full of amounts then due on all Senior
Indebtedness (as defined). No payment will be made by us on account of
principal of (or premium, if any) or interest on the Debentures or on account
of the purchase or other acquisition of Debentures, if there has occurred and
is continuing a default with respect to any Senior Indebtedness permitting the
holders to accelerate the maturity thereof, or with respect to the payment of
any Senior Indebtedness and such default will be the subject of a judicial
proceeding or we have received notice of such default from any holder of
Senior Indebtedness, unless and until such default or event of default has
been cured or waived or has ceased to exist. By reason of these provisions, in
the event of default on any Senior Indebtedness, whether now outstanding or
hereafter issued, payments of principal of (and premium, if any) and interest
on the Debentures may not be permitted to be made until such Senior
Indebtedness is paid in full, or the event of default on such Senior
Indebtedness is cured or waived (Section 10.02).
Upon any acceleration of the principal of the Debentures or any
distribution of our assets upon any receivership, dissolution, winding-up,
liquidation, reorganization, or similar proceedings, whether voluntary or
involuntary, or in bankruptcy or insolvency, all amounts due or to become due
upon all Senior Indebtedness must be paid in full before the holders of the
Debentures or the Trustees are entitled to receive or retain any assets so
distributed in respect of the Debentures (Section 10.02). By reason of this
provision, in the event of insolvency, holders of the Debentures may recover
less, ratably, than holders of Senior Indebtedness.
"Senior Indebtedness" is defined to mean the principal, premium, if any,
unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to us whether or not a
claim for post-filing interest is allowed in such proceeding), fees, charges,
expenses, reimbursement and indemnification obligations, and all other amounts
payable under or in respect of Indebtedness (as defined) of us for money
borrowed, whether any such Indebtedness exists as of the date of the
Indentures or is created, incurred, assumed or guaranteed after such date. The
terms of the old and the new debentures do not limit the amount of Senior
Indebtedness that we may incur (Section 1.01).
"Indebtedness" with respect to any Person is defined to mean:
(i) any debt (a) for money borrowed, or (b) evidenced by a bond, note,
debenture, or similar instrument (including purchase money obligations)
given in connection with the acquisition of any business, property or
assets, whether by purchase, merger, consolidation or otherwise, but shall
not include any account payable or other obligation created or assumed by a
Person in the ordinary course of business in connection with the obtaining
of materials or services, or (c) which is a direct or indirect obligation
which arises as a result of banker's acceptances or bank letters of credit
issued to secure obligations of such Person, or to secure the payment of
revenue bonds issued for the benefit of such Person, whether contingent or
otherwise;
(ii) any debt of others described in the preceding clause (i) which such
Person has guaranteed or for which it is otherwise liable;
(iii) the obligation of such Person as lessee under any lease of
property which is reflected on such Person's balance sheet as a capitalized
lease; and
(iv) any deferral, amendment, renewal, extension, supplement or
refunding of any liability of the kind described in any of the preceding
clauses (i), (ii) and (iii);
provided, however, that, in computing the "Indebtedness" of any Person, there
will be excluded any particular indebtedness if, upon or prior to the maturity
thereof, there has been deposited with a depository in trust money
47
(or evidence of indebtedness if permitted by the instrument creating such
indebtedness) in the necessary amount to pay, redeem or satisfy such
indebtedness as it becomes due, and the amount so deposited will not be
included in any computation of the assets of such Person (Section 1.01).
Optional Redemption. The Debentures are subject to redemption, as a whole
or in part, at any time or from time to time commencing July 15, 1996 for the
old debentures and , 2004 for the new debentures, at our option on at
least 30 days' prior notice by mail at a redemption price equal to 100% of the
principal amount thereof, plus interest accrued to the date of redemption. The
Debentures will not be redeemable prior to the above indicated dates;
provided, however, the Debentures will be subject to redemption, in whole or
in part, at any time for certain reasons intended to protect our status as a
REIT, at our option on at least 30 days' prior notice by mail at a redemption
price equal to 100% of the principal amount, plus interest accrued to the date
of redemption (Section 3.01). We may exercise our redemption powers solely
with respect to the securities of the security holder or holders which pose a
threat to our REIT status and only to the extent deemed necessary by our Board
of Directors to preserve such status. We may at any time buy new debentures on
the open market or through negotiated transactions at prices which may be
greater or less than the optional redemption price listed above (Paragraph 5
of the Debentures).
Dividends, Distributions, and Acquisitions of Common Stock. We will not (i)
declare or pay any dividend, or make any distribution on our common stock to
our stockholders (other than dividends or distributions payable in our common
stock) or (ii) purchase, redeem, or otherwise acquire or retire for value any
of our common stock, or any warrants, rights, or options to purchase or
acquire any shares of our common stock (other than the Debentures or any other
convertible indebtedness of ours that is neither secured nor subordinated to
the Debentures), if at the time of such action an Event of Default has
occurred and is continuing or would exist immediately after such action. The
foregoing, however, will not prevent (i) the payment of any dividend within 60
days after the date of declaration when the payment would have complied with
the foregoing provision on the date of declaration; or (ii) the retirement of
any of our shares of common stock by exchange for, or out of the proceeds of
the substantially concurrent sale of, other shares of our common stock
(Section 4.06).
Merger or Consolidation. We may not consolidate with, or merge into, or
transfer or lease all or substantially all of our assets to another Person
unless such Person is a company or trust; such Person assumes by supplemental
indenture all our obligations under the Debentures and the Indentures; and,
immediately after the transaction no Default or Event of Default exists.
Defaults and Remedies. An Event of Default is (i) default in the payment of
interest on the Debentures when due and payable, which continues for 30 days;
(ii) default in the payment of principal of (and premium, if any) on the
Debentures when due, at maturity, upon redemption or otherwise, which
continues for five business days; (iii) failure to perform any other covenant
of ours contained in the Indentures or the Debentures which continues for 90
days after written notice to us as provided in the Indentures; (iv) default
under any bond, debenture, note or other Indebtedness of ours or any of our
subsidiaries under the old debentures and of only ours under the new
debentures, or under any mortgage, indenture or other instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of ours, whether any such Indebtedness exists as of the date of
the Indentures or is thereafter created, if (a) either (x) such event of
default results from the failure to pay any such Indebtedness at maturity or
(y) as a result of such event of default, the maturity of such Indebtedness
has been accelerated prior to its expressed maturity and such acceleration
shall not be rescinded or annulled or the accelerated amount paid within ten
days after notice to us of such acceleration, or such Indebtedness having been
discharged, and (b) the principal amount of such Indebtedness, together with
the principal amount of any other such Indebtedness in default for failure to
pay principal or interest thereon, or the maturity of which has been so
accelerated, aggregates $1,000,000 or more; and (v) certain events of
bankruptcy, insolvency or reorganization relating to us (Section 6.01). If an
Event of Default occurs and is continuing, the Trustee or the holders of a
majority in aggregate principal amount of the outstanding Debentures may
declare the Debentures immediately due and payable (Section 6.02).
Within 90 days after the occurrence of any Default or Event of Default, the
Trustee will give to the holders of Debentures notice of all Defaults or
Events of Default known to it, but the Trustee will be protected in
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withholding such notice if it in good faith determines that the withholding of
such notice is in the interest of such holders, except in the case of a
default in the payment of the principal of (or premium, if any) or interest on
any of the Debentures (Section 7.05). Holders of a majority in aggregate
principal amount of the outstanding Debentures may direct the time, method and
place of conducting any proceedings for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee (Section 6.05). The
right of a holder to institute a proceeding with respect to the Indentures is
subject to certain conditions precedent including notice and indemnity to the
Trustee, but the holder has an absolute right to receipt of principal of (and
premium, if any) and interest on such holder's Debenture on or after the
respective due dates expressed in the Debentures, and to institute suit for
the enforcement of any such payments (Section 6.06).
The holders of a majority in aggregate principal amount of the outstanding
Debentures may on behalf of the holders of all Debentures waive certain past
defaults, except a default in payment of the principal of (or premium, if any)
or interest on any Debentures or in respect of certain provisions to the
Indentures which cannot be modified or amended without the consent of the
holder of each outstanding Debenture affected thereby (Section 9.02). We will
be required to furnish to the Trustees annually a statement of certain
officers of ours stating whether or not they know of any Default or Events of
Default and, if they have knowledge of a Default or Event of Default, a
description of the efforts to remedy the same (Section 4.05).
Modification of the Indentures. We and the Trustee may amend the Indentures
or the Debentures with the written consent of the holders of 66 2/3% in
principal amount of the outstanding Debentures. However, without the consent
of each holder of Debentures affected, an amendment may not: (i) reduce the
amount of Debentures whose holders must consent to an amendment; (ii) reduce
the rate or change the time of payment of interest on any Debenture; (iii)
reduce the principal of or change the fixed maturity of any Debenture; (iv)
make any Debenture payable in money other than that stated in the Debenture;
(v) change the provisions of the Indentures regarding the right of a majority
of the holders of Debentures to waive defaults under the Indentures or impair
the right of any holder of Debentures to institute suit for the enforcement of
any payment of principal and interest on the Debentures on and after their
respective due dates; or (vi) make any change that adversely affects the right
to convert any Debenture (Section 9.02).
TERMS OF THE SERIES B PREFERRED STOCK
The following summary of the terms and provisions of the Series B preferred
stock does not purport to be complete and is qualified in its entirety by
reference to the pertinent sections of the Charter, including the Articles
Supplementary to the Charter creating the Series B preferred stock (the
"Articles Supplementary"), each of which is available from us.
Maturity
The Series B preferred stock has no stated maturity and will not be subject
to any sinking fund or mandatory redemption.
Rank
The Series B preferred stock will, with respect to dividend rights and
rights upon our liquidation, dissolution or winding up, rank (i) senior to all
classes or series of our common stock, our Series A preferred stock and to all
equity securities ranking junior to the Series B preferred stock with respect
to dividend rights or rights upon our liquidation, dissolution or winding up;
(ii) on a parity with all equity securities issued by us the terms of which
specifically provide that such equity securities rank on a parity with the
Series B preferred stock with respect to dividend rights or rights upon our
liquidation, dissolution or winding up; and (iii) junior to all equity
securities issued by us the terms of which specifically provide that such
equity securities rank prior or senior to the Series B preferred stock as to
the payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, as well as all our existing and future
indebtedness. The term "equity securities" does not include convertible debt
securities, which will rank senior to the Series B preferred stock prior to
conversion.
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Dividends
Holders of shares of the Series B preferred stock are entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available for the payment of dividends, preferential cumulative preferential
cash dividends at the rate of 10% per annum of the liquidation preference per
share (equivalent to a fixed annual amount of $2.50 per share).
Dividends on the Series B preferred stock will be cumulative from the date
of original issue and will be payable quarterly in arrears on the fifteenth
day of February, May, August and November of each year, or, if not a business
day, the next succeeding business day (each, a "Dividend Payment Date").
Dividends will be payable to holders of record as they appear in our stock
records at the close of business on the applicable record date, which shall be
the last business day of January, April, July and October, respectively, or on
such other date designated by the Board of Directors for the payment of
dividends that is not more than 30 nor less than 10 days prior to the
applicable Dividend Payment Date (each, a "Dividend Record Date"). The first
Dividend Record Date for determination of stockholders entitled to receive
dividends on the Series B preferred stock is expected to be on or about
January 31, 2002. The first dividend payment on the Series B preferred stock
will be paid beginning February 15, 2002 at a rate of 8.0% from July 16, 2001
until the expiration date of the exchange offer and at a rate of 10.0% from
the expiration date of the exchange offer until February 15, 2002 for the
first dividend payment.
No dividends on shares of Series B preferred stock will be declared by the
Board of Directors or paid or set apart for payment by us at such time as the
terms and provisions of any agreement of ours, including any agreement
relating to our indebtedness, prohibits such declaration, payment or setting
apart for payment or provides that such declaration, payment or setting apart
for payment would constitute a breach thereof or a default thereunder, or if
such declaration or payment shall be restricted or prohibited by law.
Notwithstanding the foregoing, dividends on the Series B preferred stock
will accrue whether or not we have earnings, whether or not there are funds
legally available for the payment of such dividends and whether or not such
dividends are declared. Accrued but unpaid dividends on the Series B preferred
stock will not bear interest and holders of the shares of Series B preferred
stock will not be entitled to any distributions in excess of full cumulative
distributions described above.
If for any taxable year, we elect to designate as "capital gain dividends"
(as defined in Section 857 of the Internal Revenue Code of 1986, as amended
(the "Code"), with respect to any transaction that occurred while any shares
of Series B preferred stock are outstanding, any portion (the "Capital Gains
Amount") of the dividends (as determined for federal income tax purposes) paid
or made available for the year to holders of all classes of stock (the "Total
Dividends"), then the portion of the Capital Gains Amount that will be
allocable to the holders of shares of Series B preferred stock will be the
amount that the total dividends (as determined for federal income tax
purposes) paid or made available to the holders of shares of the Series B
preferred stock for the year bears to the Total Dividends.
Except as set forth in the next sentence, no dividends will be declared or
paid or set apart for payment on any capital stock of ours (including Series A
preferred stock, if any) or any other series of preferred stock ranking, as to
dividends, on a parity with or junior to the Series B preferred stock (other
than a dividend in shares of our common stock or in shares of any other class
of stock ranking junior to the Series B preferred stock as to dividends and
upon liquidation) for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Series B preferred
stock for all past dividend periods and the then current dividend period. When
dividends are not paid in full (or a sum sufficient for such full payment is
not so set apart) upon the Series B preferred stock and the shares of any
other series of preferred stock ranking on a parity as to dividends with the
Series B preferred stock, all dividends declared upon the Series B preferred
stock and any other series of preferred stock ranking on a parity as to
dividends with the Series B preferred stock will be declared pro rata so that
the amount of dividends declared per share of Series B preferred stock and
such other series of preferred stock will in all cases bear to each other the
same ratio that accrued dividends per share on the Series B preferred stock
and such
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other series of preferred stock (which will not include any accrual in respect
of unpaid dividends for prior dividend periods if such preferred stock does
not have a cumulative dividend) bear to each other.
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Series B preferred stock have been or
contemporaneously are declared 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 dividends (other than in shares of common
stock or other shares of capital stock ranking junior to the Series B
preferred stock as to dividends and upon liquidation) will be declared or paid
or set aside for payment nor will any other distribution be declared or made
upon the common stock or any other capital stock of ours, such as the Series A
preferred stock ranking junior to or on a parity with the Series B preferred
stock as to dividends or upon liquidation, nor will any shares of common
stock, or any other shares of capital stock of ours ranking junior to or on a
parity with the Series B preferred stock 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 us (except by conversion into or exchange for other
capital stock of ours ranking junior to the Series B preferred stock as to
dividends and upon liquidation or redemptions for the purpose of preserving
our qualification as a REIT). Holders of shares of the Series B preferred
stock will not be entitled to any dividend, whether payable in cash, property
or stock, in excess of full cumulative dividends on the Series B preferred
stock as provided above. Any dividend payment made on shares of the Series B
preferred stock will first be credited against the earliest accrued but unpaid
dividend due with respect to such shares which remains payable.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, the holders of shares of Series B preferred stock
are entitled to be paid out of our assets legally available for distribution
to our stockholders the liquidation preference of $25.00 per share, plus an
amount equal to any accrued and unpaid dividends to the date of payment, but
without interest, before any distribution of assets is made to holders of
shares of common stock or any other class or series of capital stock of ours
that ranks junior to the Series B preferred stock as to liquidation rights.
Holders of Series B preferred stock will be entitled to written notice of any
event triggering the right to receive such liquidation preference. After
payment of the full amount of the liquidation preference, plus any accrued and
unpaid dividends to which they are entitled, the holders of Series B preferred
stock will have no right or claim to any of our remaining assets. Our
consolidation or merger with or into any other trust or entity or the
consolidation or merger of any other corporation with or into us, or the sale,
lease or consolidation, conveyance of all or substantially all of our property
or business, will not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
Redemption
Other than in the event a stockholder acquires shares in excess of the
ownership limitation as described under " --Restrictions on Ownership and
Transfer", the Series B preferred stock is not redeemable prior to the fifth
anniversary of the issue date. However, in order to ensure that we will
continue to meet the stock ownership requirements for qualification as a REIT,
the Series B preferred stock will be subject to provisions in the Charter
pursuant to which any class of our equity stock owned by a stockholder in
excess of the ownership limitation will be transferred to a trust and the
stockholder will have the right to receive certain compensation for such
shares of stock. See "--Restrictions on Ownership and Transfer." On and after
the fifth anniversary of the issue date, we, at our option upon not less than
30 nor more than 60 days' written notice, may redeem shares of the Series B
preferred stock, 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, without interest.
Procedures for Redemption
Holders of shares Series B preferred stock to be redeemed will surrender
such shares of Series B preferred stock at the place designated in such notice
and will 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 shares
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of Series B preferred stock has been given and if the funds necessary for such
redemption have been set aside by us in trust for the benefit of the holders
of any shares of Series B preferred stock so called for redemption, then from
and after the redemption date dividends will cease to accrue on such shares of
Series B preferred stock, such shares of Series B preferred stock 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. If less than all
of the outstanding shares of Series B preferred stock are to be redeemed, the
shares of Series B preferred stock to be redeemed will be selected pro rata
(as nearly as may be practicable without creating fractional shares) or by any
other equitable method determined by the us. Our ability to redeem the shares
of Series B preferred stock is subject to the limitations on distributions in
the Maryland General Corporation Law.
Unless full cumulative dividends on all shares of Series B preferred stock
will have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, no shares of Series B
preferred stock will be redeemed unless all outstanding shares of Series B
preferred stock are simultaneously redeemed and we will not purchase or
otherwise acquire directly or indirectly any shares of Series B preferred
stock (except by exchange for our capital stock ranking junior to the shares
of Series B preferred stock as to dividends and upon liquidation); provided,
however, that the foregoing will not prevent our redemption of shares of stock
in order to ensure that we continue to meet the requirements for qualification
as a REIT, or the purchase or acquisition of shares of Series B preferred
stock pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding shares of Series B preferred stock. So long as no
dividends are in arrears, we will be entitled at any time and from time to
time to repurchase shares of Series B preferred stock in open market
transactions duly authorized by the Board of Directors and effected in
compliance with applicable laws or private negotiations.
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. We will mail a similar notice, 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 shares of Series B preferred stock
to be redeemed at their respective addresses as they appear on our stock
transfer records. No failure to give such notice or any defect therein or in
the mailing thereof will affect the validity of the proceedings for the
redemption of any shares of Series B preferred stock except as to the 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 shares of
Series B preferred stock to be redeemed; (iv) the place or places where shares
of the Series B preferred stock are to be surrendered for payment of the
redemption price; and (v) that dividends on the shares to be redeemed will
cease to accrue on such redemption date. If less than all of the shares of
Series B preferred stock held by any holder is to be redeemed, the notice
mailed to such holder will also specify the number of shares of Series B
preferred stock held by such holder to be redeemed.
Immediately prior to any redemption of shares of Series B preferred stock,
we will 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 shares of Series B preferred stock at the close of business on such
Dividend Record Date will 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.
The shares of Series B preferred stock have no stated maturity and will not
be subject to any sinking fund or mandatory redemption. However, in order to
ensure that we continue to meet the requirements for qualification as a REIT,
Series B preferred stock acquired by a stockholder in excess of the ownership
limitation will automatically be transferred to a trust and the stockholder
will have the right to receive certain compensation for such stock from us.
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Voting Rights
Holders of the shares of Series B preferred stock will not have any voting
rights, except as set forth below or as otherwise from time to time required
by law.
Whenever dividends on any shares of Series B preferred stock or Parity
Preferred stock (as defined below) are in arrears for six or more quarters
(whether consecutive or not) (a "Preferred Dividend Default"), the holders of
such shares of Series B preferred stock (voting separately as a voting group
with all other series of preferred stock ranking on a parity with the Series B
preferred stock as to dividends or upon liquidation upon which like voting
rights have been conferred and are exercisable ("Parity Preferred stock"))
will be entitled to vote separately as a voting group for the election of a
total of two additional directors to serve on our Board of Directors (the
"Preferred Stock Directors") at a special meeting called on the written
request of the holders entitled to cast at least a majority of all the votes
entitled to be cast at the meeting (unless such request is received less than
90 days before the date fixed for the next annual or special meeting of
stockholders) or at the next annual meeting of stockholders, and at each
subsequent annual meeting until all dividends accumulated on such shares of
Series B preferred stock for the past dividend periods and the dividend for
the then current dividend period have been fully paid or declared and a sum
sufficient for the payment thereof set aside for payment. A quorum for any
such meeting will exist if at least a majority of the outstanding shares are
represented in person or by proxy at such meeting. Such Preferred Stock
Directors will be elected upon the affirmative vote of a plurality of the
shares of Series B preferred stock and such Parity Preferred stock present and
voting in person or by proxy at a duly called and held meeting at which a
quorum is present. If and when all accumulated dividends and the dividend for
the then current dividend period on the shares of Series B preferred stock
have been paid in full or set aside for payment in full, the holders thereof
will be divested of the foregoing voting rights (subject to revesting whenever
dividends on any shares of Series B preferred stock are in arrears for six or
more quarters (whether consecutive or not)) and, if all accumulated dividends
and the dividend for the then current dividend period have been paid in full
or declared and set aside for payment in full on all series of Parity
Preferred stock, the term of office of each Preferred Stock Director so
elected will terminate. In the event the term of a Preferred Director
terminates, the right of the holders of Series B preferred stock to elect
Preferred Stock Directors until another Preferred Dividend Default will exist.
The Preferred Stock Directors will each be entitled to one vote per director
on any matter.
So long as any shares of Series B preferred stock remain outstanding, we
will not without the affirmative vote or consent of the holders of at least
two-thirds of the shares of the Series B preferred stock outstanding at the
time, given in person or by proxy, either in writing or at a meeting (voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking senior to the
shares of Series B preferred stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or
reclassify any of our authorized capital stock 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 our Charter, including the Articles Supplementary, whether by
merger, consolidation or otherwise (an "Event"), so as to materially and
adversely affect any right, preference, privilege or voting power of the
shares of Series B preferred stock or the holders thereof provided, however,
with respect to the occurrence of any Event set forth in (ii) above, so long
as the shares of Series B preferred stock remain outstanding with the terms
thereof materially unchanged, taking into account that upon the occurrence of
an Event we 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 the shares of Series B
preferred stock and provided further that (a) any increase in the amount of
the authorized preferred stock or the creation or issuance of any other series
of preferred stock; or (b) any increase in the amount of authorized shares of
such series, in each case ranking on a parity with or junior to the shares of
Series B preferred stock 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.
In addition to the above, under Maryland law and the Articles
Supplementary, the holders of shares of Series B preferred stock will be
entitled to vote as a separate voting group to approve a dividend payable in
53
shares of Series B preferred stock to the holders of another class of our
stock or to approve a dividend payable in shares of our stock other than
shares of Series B preferred stock to the holders of shares of Series B
preferred stock.
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 will
be effected, all outstanding shares of Series B preferred stock have been
redeemed or called for redemption upon proper notice and sufficient funds have
been deposited in trust to effect such redemption.
Conversion
The shares of Series B preferred stock are not convertible into or
exchangeable for any other property or securities of ours, except that the
shares of Series B preferred stock may be exchanged for shares of excess stock
in order to ensure that we remain qualified as a REIT for federal income tax
purposes. See "--Restrictions on Ownership and Transfer" below.
Restrictions on Ownership and Transfer
For us to qualify as a REIT under the Code, certain restrictions apply to
the ownership of our capital stock. Because the Board of Directors believes it
is essential for us to continue to qualify as a REIT, the Charter restricts
the ownership, acquisition and transfer of our capital stock, including shares
of Series B preferred stock.
Our Charter provides that if, at any time when we are qualified as a REIT,
a transfer of any of our capital stock (including common stock or Series B
preferred stock), would result in (i) any person acquiring directly or
indirectly beneficial ownership of 9.9% or more of the total outstanding
equity stock of all classes (in value or in number, whichever is more
restrictive); (ii) our outstanding capital stock being constructively or
beneficially owned by fewer than 100 persons; or (iii) our being "closely
held" within the meaning of Section 856 of the Code, then at our sole option:
(A) any proposed transfer will be void from the beginning and will not be
recognized by us; (B) we will have the right to redeem the shares proposed to
be transferred; and (C) the shares proposed to be transferred will be
automatically converted into and exchanged for shares of a separate class of
stock, excess stock, having no dividend or voting rights. Holders of excess
stock do have certain rights in the event of our liquidation, dissolution or
winding up. The Charter further provides that the excess stock will be held by
us as trustee for the person or persons to whom the shares are ultimately
transferred, until such time as the shares are re-transferred to a person or
persons in whose hands the shares would not be excess stock and certain price-
related restrictions are satisfied.
Transfer and Dividend Paying Agent
The Bank of New York will act as the transfer and dividend payment agent in
respect of the shares of Series B preferred stock.
BENEFICIAL OWNERSHIP OF OLD DEBENTURES BY DIRECTORS AND EXECUTIVE OFFICERS
As of the date of this prospectus, no old debentures are beneficially owned
by us, by our directors and executive officers or by an associate or majority-
owned subsidiary of us.
RECENT TRANSACTIONS IN THE OLD DEBENTURES
There have been no transactions involving the old debentures that have
occurred during the sixty day period immediately preceding the date of this
prospectus by us, our directors, our executive officers or any affiliate or
subsidiary of us.
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DESCRIPTION OF CAPITAL STOCK
The following description is only a summary of certain terms and provisions
of our capital stock. You should refer to our Charter and Bylaws for the
complete provisions thereof.
The total number of shares of capital stock of all classes that we are
authorized to issue is 70,000,000. Currently, the Charter authorizes the
issuance of 51,484,000 shares of common stock, par value $.0001 per share,
40,000 shares of Series A preferred stock, par value $.0001 per share,
2,476,000 shares of Series B preferred stock, par value $.0001 per share, and
16,000,000 shares of excess stock, par value $.0001 per share. Only shares of
common stock are now outstanding. The common stock is currently listed on the
New York Stock Exchange under the symbol "SIZ".
Our Shareholder Rights Agreement provides that the rights issued under the
agreement will be triggered, with certain exceptions, if and when any person
or group acquires, or commences a tender offer to acquire, 15% or more of our
shares. Shares of Series A preferred stock are issuable on the exercise of
rights that may become exercisable under the Shareholder Rights Agreement.
Our Board of Directors is authorized by the Charter, to classify and
reclassify any of our unissued shares of capital stock, by, among other
alternatives, setting, altering or eliminating the designation, preferences,
conversion or other rights, voting powers, qualifications and terms and
conditions of redemption of, limitations as to dividends and any other
restrictions on, our capital stock. The power of the Board of Directors to
classify and reclassify any of the shares of capital stock includes the
authority to classify or reclassify such shares into a class or classes of
preferred stock or other stock.
Pursuant to the provisions of the Charter, if a transfer of stock occurs
such that any person would own, beneficially or constructively, 9.9% or more
(in value or in number, whichever is more restrictive) of our outstanding
equity stock (excluding shares of excess stock), then the amount in excess of
the 9.9% limit will automatically be converted into shares of excess stock and
any such transfer will be void from the beginning. However, such restrictions
will not prevent the settlement of a transaction entered into through the
facilities of any interdealer quotation system or national securities exchange
upon which shares of our capital stock are traded. Notwithstanding the prior
sentence, certain transactions may be settled by providing shares of excess
stock.
The holders of common stock are entitled to one vote on all matters to be
voted upon by the stockholders. The holders of common stock have no cumulative
voting rights. Additionally, subject to the rights of holders of preferred
stock, holders of common stock are entitled to receive such dividends as may
be declared from time to time by the directors out of funds legally available
therefore. The holders of shares of excess stock have no voting rights or
dividend rights and shares of excess stock are not transferrable.
The registrar for shares of our common stock is The Bank of New York.
BOOK-ENTRY; DELIVERY AND FORM
General
The new debentures will be represented initially by one or more global
debentures in bearer form without interest coupons. We will issue the global
debentures in denominations equal to the outstanding principal amount of the
debentures that they represent.
On the closing date of this exchange offer, we will deposit the global
debentures with DTC as the book-entry depositary. We will make this deposit
pursuant to the terms of the debenture deposit agreement, to be dated the
closing date of this exchange offer, between the book-entry depositary and us,
for the limited purposes set forth in the deposit agreement.
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The book-entry depositary will issue a certificateless interest for each
global debenture to DTC. The certificateless interest for each global
debenture will represent a 100% interest in the underlying global debenture.
The book-entry depositary will record the interest in its books and records in
the name of Cede & Co., as a nominee of DTC. The records that DTC, with
respect to its participants, and its participants maintain in book-entry form
will show the beneficial interests in the global debentures. Any transfer of
the global debentures will only be effected through these records. In this
prospectus, we refer to the beneficial interests in the global debentures as
"book-entry interests."
All interests in the global debentures will be subject to the procedures
and requirements of DTC.
Definitive Registered Debentures
Under the terms of the deposit agreement and the New Indenture, you, as an
owner of book-entry interests in the global debentures, will receive
definitive registered debentures only if any of the three following events
occurs:
. DTC notifies us or the book-entry depositary in writing that it, or its
respective nominee, is unwilling or unable to continue to act as a
depositary registered under the Securities Exchange Act of 1934 and we
do not appoint a successor depositary registered as a clearing agency
under the Securities Exchange Act of 1934 within 90 days.
. At any time if we determine that the global debentures, in whole but
not in part, should be exchanged for definitive registered debentures,
but only if, such exchange is required by any applicable law, any event
beyond our control, or payments of interest on any global debenture,
depositary interest or book-entry interest are, or would become,
subject to any deduction or withholding for taxes.
. The book-entry depositary is at any time unwilling or unable to
continue as book-entry depositary and we do not appoint a successor
book-entry depositary within 90 days.
In addition to those circumstances, during the continuance of an event of
default, you, as a holder of book entry interests, will be entitled to request
and receive definitive registered debentures. We will issue the definitive
registered debentures to you, and register them in your name, or as you
direct, only if we receive a request in writing by the book-entry depositary,
based upon the instructions of DTC.
In the event that definitive registered debentures are issued, and if
required by applicable law, we will appoint Chase Manhattan Trust Company,
National Association, or another suitable person, as an independent transfer
agent for the new debentures.
In no event will we issue definitive securities in bearer form. Any
definitive registered debentures we issue will be fully registered in
denominations of $1,000 in principal amount, and integral multiples of $1,000.
The trustee will register the definitive registered debentures in the name or
names that DTC will instruct the trustee to use, through the book-entry
depositary. We expect that DTC will base its instructions on directions it
receives from participants, including Euroclear and Clearstream, reflecting
the beneficial ownership of book-entry interests. To the extent permitted by
law, we, the trustee and any paying agent will be entitled to treat the person
in whose name any definitive registered debenture is registered as the
absolute owner of the debenture.
While any global debenture for the new debentures is outstanding, you may
exchange any definitive registered debenture you may have for a corresponding
book-entry interest in the global debenture by surrendering your definitive
registered debentures to the book-entry depositary and providing the
certificates and opinions that the New Indenture requires. The book-entry
depositary will make the appropriate adjustments to the global debenture
underlying that book-entry interest to reflect any issue or surrender of
definitive registered debentures. The New Indenture contains provisions
relating to the maintenance by a registrar of registers reflecting ownership
of definitive registered debentures, if any, and other provisions customary
for a registered debt security. We will pay principal and interest on each
definitive registered debenture to the holder appearing on the applicable
register at his or her address at the close of business on the record date.
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If a mutilated definitive registered debenture is surrendered to the
registrar or if the holder of a debenture claims that such debenture has been
lost, destroyed or wrongfully taken, we will issue and the trustee will
authenticate a replacement debenture if the holder satisfies any reasonable
requirements of the trustees, the registrar or us. If required by the trustee,
the registrar or us such holder must provide an indemnity bond or other
indemnity, sufficient in the judgment of us, the registrar and the trustee, to
protect us, the trustee and any agent from any loss which any of them may
suffer if the debenture is replaced. We may charge such holder for reasonable,
out-of-pocket expenses in replacing a debenture, including reasonable fees and
expenses of counsel.
Description of Book-Entry System
When the book-entry depositary receives the global debentures, it will
issue the certificateless interest for each of the global debentures to DTC
representing a 100% interest in the respective underlying global debenture.
The book-entry depositary will issue the certificateless interest by recording
the interest in its books and records in the name of Cede & Co., as a nominee
of DTC. Ownership of book-entry interests will be limited to persons who have
accounts with DTC, including Euroclear and Clearstream, or persons who have
accounts through organizations that are participants. When the book-entry
depositary issues such interests in the global debentures to DTC, DTC will
credit, on its internal book-entry registration and transfer system, its
participants' accounts with the respective interests owned by each
participant. Ownership of book-entry interests will be shown on, and the
transfer of such ownership will be effected only through, records maintained
by DTC or its nominee with respect to interests of participants and the
records of participants with respect to interests of indirect participants. No
beneficial owner of an interest in the global debentures will be able to
transfer that interest except in accordance with DTC's procedures, in addition
to those provided for under the New Indenture with respect to the global
debentures.
The laws of some countries and some states in the United States may require
that some purchasers of securities take physical delivery of the securities in
definitive form. These limits and laws may impair the ability to own, transfer
or pledge the book-entry interests in the global debentures.
So long as DTC, or its nominee, is the holder of the global debentures, the
book-entry depositary or its nominee, as the case may be, will be considered
the sole holder of the global debentures for all purposes under the New
Indenture and the new debentures. Except as we mentioned earlier in this
section, participants or indirect participants will not:
. Be entitled to have debentures or book-entry interests registered in
their names;
. Receive or be entitled to receive physical delivery, of debentures or
book-entry interests in definitive bearer or registered form; or
. Be considered the owners or holders of the debentures or book-entry
interests under the New Indenture.
Accordingly, each person owning a book-entry interest must rely on the
procedures of the book-entry depositary and DTC to exercise any rights and
remedies of a holder under the New Indenture. If a person is an indirect
participant in DTC, it must also rely on the procedures of the participant in
DTC, through which that person owns its interest. If we issue any definitive
debentures to participants or indirect participants, we will issue them in
registered form, as described above. Unless and until book-entry interests are
exchanged for definitive registered debentures, the certificateless interest
that DTC holds may not be transferred except as a whole between DTC or
nominees of DTC, between nominees of DTC by DTC, or any such nominee to a
successor of DTC or a successor of such nominee.
Payments on the Global Debentures
We will make any payments we owe in respect of the global debentures
through one or more paying agents to the book-entry depositary as the holder
of the global debentures. The paying agent will be appointed under the New
Indenture, and initially the paying agent will be the trustee for the new
debentures. Payment by us to
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the holder of the relevant debentures will validly discharge the relevant
payment obligation in respect of those debentures for all purposes. All
amounts payable under the debentures will be payable in United States dollars.
Upon receipt of any payment amounts in respect of the global debentures, the
book-entry depositary will pay those amounts to DTC or its nominee in
proportion to their interests, as shown on the book-entry depositary's
records.
We expect that when DTC or its nominee receives any payment made in respect
of the global debentures, it will credit its participants' accounts with those
payments in amounts proportionate to the participants' respective interest in
the principal amount of that global debenture as shown on the records of DTC
or its nominee. We expect that payments by participants to owners of book-
entry interests held through those participants will be governed by standing
customer instructions and customary practices, as is now the case with the
securities held for the account of customers in bearer form or registered in
street name, and will be the responsibility of such participants.
Neither we, the trustee, the book-entry depositary, nor any paying agent
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of book-entry interests or for
maintaining, supervising or reviewing all records relating to such book-entry
interests or beneficial ownership interests.
Investors may be subject to foreign exchange risks as to payments of
principal and interest that may have important economic and tax consequences
to them.
Redemption of Global Debentures
In the event that we redeem any global debenture, or any portion of it, the
book-entry depositary will, through DTC, redeem, from the amount it receives
in respect of the redemption of that global debenture, an equal amount of the
book-entry interests in that global debenture. The redemption price payable in
connection with the redemption of the book-entry interest will be equal to the
amount the book-entry depositary receives in connection with the redemption of
the global debenture, or any portion of it. We understand that under existing
DTC practices, if fewer than all of the global debentures are to be redeemed
at any time, DTC will credit new debenture participants' accounts on a
proportionate basis or by lot or on such other basis as DTC deems fair and
appropriate. However, no beneficial interests of less than $1,000 in principal
amount at maturity may be redeemed in part.
Transfers
Chase Manhattan Trust Company, National Association has agreed, pursuant to
the deposit agreement, that the global debentures will not be transferred
except to the successor to the book-entry depositary.
All transfers of book-entry interests between participants in DTC will be
effected by DTC pursuant to customary procedures established by DTC and its
participants.
Action by Owners of Book-Entry Interests
As soon as practicable after the book-entry depositary receives notice of
any solicitation of consents or request for a waiver of other action by the
holders of new debentures, or of any offer to purchase the new debentures upon
a change of control, the book-entry depositary will mail to DTC a notice
containing:
. the information contained in the notice the book-entry depositary
received;
. a statement that at the close of business on a specified record date
DTC will be entitled to instruct the book-entry depositary as to the
consent, waiver or other action, if any, pertaining to those new
debentures; and
. a statement as to the manner in which those instructions may be given.
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In addition, the book-entry depositary will forward to DTC all materials
pertaining to any such solicitation, request, offer or other action. Upon the
written request of DTC, the book-entry depositary will take all reasonable
steps regarding the requested consent, waiver, offer or other action in
respect of the new debentures in accordance with any instructions set forth in
the request. DTC may grant proxies or otherwise authorize DTC participants or
indirect participants to provide such instructions to the book-entry
depositary so that it may exercise any rights of a holder or take any other
actions which a holder is entitled to take under the New Indenture.
Under its usual procedures, DTC would mail an omnibus proxy to us and the
book-entry depositary assigning Euroclear's and Clearstream's consenting or
voting rights to those DTC participants to whose accounts such book-entry
interests are credited on a record date. It would mail the omnibus proxy as
soon as possible after that record date. The book-entry depositary will not
exercise any discretion in granting consents or waivers or taking any other
action relating to the New Indenture.
We understand that DTC will take any action that a holder of new debentures
is permitted to take, including the presentation of debentures for exchange as
described above, only:
. At the direction of one or more participants to whose account the DTC
interests in the global debentures are credited; and
. In respect of the portion of the aggregate principal amount of
debentures as to which the participant or participants has or have
given direction.
Reports
The book-entry depositary will immediately send to DTC a copy of any
notices, reports and other communications received relating to us, the
debentures or the book-entry interests.
Notices
So long as the new debentures are listed on the New York Stock Exchange or
other national exchange, all notices to holders of the new debentures,
including any notices with respect to the redemption of all or a portion of
the new debentures by us or notices with respect to the redemption of all or a
portion of the new debentures by us or notices with respect to this exchange
offer, will be given by publication in a daily newspaper in New York City or
appropriate city.
Business Day
If the day for any payment of principal, premium, if any, or interest is
not a business day in the location of each payment agent, that payment will be
made on the next following day that is a business day in each location.
Action by Book-Entry Depositary
If a default occurs with respect to the debentures, or in connection with
any other right of the holder of a global debenture under the New Indenture,
and if the DTC so requests in writing, the book-entry depositary will take any
action as will be requested in that notice. The book-entry depositary must be
offered reasonable security or indemnity, against the costs, expenses and
liabilities that might be incurred by it in compliance with such request by
the owners of book-entry interests.
Resignation of Book-Entry Depositary
The book-entry depositary may resign at any time as book-entry depositary
by written notice to us and DTC. This resignation would become effective upon
the appointment of a successor book-entry depositary, in which case the global
debentures will be delivered to that successor. If we have not appointed a
successor within 90 days, the book-entry depositary may request that we issue
definitive registered debentures as described earlier in this section.
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If at any time DTC is unwilling or unable to continue as a depositary for
the book-entry interests and we do not appoint a successor depositary within
90 days, DTC may request that we issue definitive registered debentures in
exchange for the book-entry interests.
Expenses of Book-Entry Depositary
We have agreed to indemnify the book-entry depositary against certain
liabilities incurred by it and pay the charges of the book-entry depositary as
agreed between us and the book-entry depositary.
Amendment and Termination of the Deposit Agreement
We and the book-entry depositary may amend the deposit agreement without
notice to or consent of DTC or any owner of a book-entry interest to:
. cure any ambiguity, defect or inconsistency, so long as such amendment
or supplement does not adversely affect the rights of DTC or any holder
of book-entry interests;
. evidence the succession of another person to us, when a similar
amendment with respect to the New Indenture is being executed, and the
assumption by any such successor of our covenants in the New Indenture;
. evidence or provide for a successor book-entry depositary;
. make any amendment, change or supplement that does not adversely affect
DTC or any owner of book-entry interests;
. add to our covenants or the covenants of the book-entry depositary;
. add a guarantor when a guarantor is made a party, to the New Indenture
pursuant to the New Indenture; or
. comply with the United States federal securities laws.
Except as provided in the relevant deposit agreement, no amendment that
adversely affects DTC, and no amendment that adversely affects the holders of
book-entry interests may be made without the consent of a majority of the
aggregate principal amount of book-entry interests outstanding in respect of
the new debentures. Upon the issuance of definitive registered debentures in
exchange for book-entry interests constituting the entire principal amount of
new debentures, the deposit agreement will terminate. The deposit agreement
may be terminated upon the resignation of the book-entry depositary if we do
not appoint a successor within 90 days as described earlier in this section.
Information Concerning DTC, Euroclear and Clearstream
We understand as follows with respect to DTC, Euroclear and Clearstream:
DTC is:
. a limited purpose trust company organized under the New York Banking
Law;
. a banking organization within the meaning of the New York Banking Law;
. a member of the Federal Reserve System;
. a clearing corporation within the meaning of the New York Uniform
Commercial Code; and
. a clearing agency registered pursuant to the provisions of Section 17A
of the Securities Exchange Act of 1934.
DTC was created to hold securities of its participants and to facilitate
the clearance and settlement of transactions among its participants in those
securities through electronic book-entry changes in accounts of the
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participants, thereby eliminating the need for physical movement of securities
certificates. DTC participants include securities brokers and dealers,
including the initial purchasers, banks, trust companies, clearing
corporations and certain other organizations, some of whom own DTC. Access to
the DTC book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of an owner of
a book-entry interest to pledge its interest to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of its
interest, may be limited by the lack of a definitive certificate for such
interest. The laws of some states require that some persons take physical
delivery of securities in definitive form. Consequently, the ability to
transfer book-entry interests to those persons may be limited. In addition,
beneficial owners of book-entry interests through the DTC system will receive
distributions attributable to the global debentures only through DTC
participants.
Euroclear and Clearstream hold securities for participating organizations
and facilitate the clearance and settlement of securities transactions between
their respective participants through electronic book-entry changes in
accounts of such participants. Euroclear and Clearstream provide to their
participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. As participants in DTC, Euroclear and Clearstream
provide an interface between non-U.S. investors and the United States
securities markets. Euroclear and Clearstream participants are financial
institutions such as underwriters, securities brokers and dealers, banks,
trust companies and certain other organizations. Indirect access to Euroclear
or Clearstream is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodian relationship with a
Euroclear or Clearstream participant, either directly or indirectly.
Global Clearance and Settlement Under Book-Entry System
Initial settlement. Initial settlement for the new debentures will be made
in United States dollars.
Book-entry interests owned through DTC, other than through accounts at
Euroclear or Clearstream, will follow the settlement applicable to United
States corporate debt obligations. The securities custody accounts of
investors will be credited with their holdings against payment in same-day
funds on the settlement date.
Book-entry interests owned through Euroclear or Clearstream accounts will
follow the settlement procedures applicable to conventional eurobonds in
registered form. Book-entry interests will be credited to the securities
custody accounts of Euroclear and Clearstream holders on the business day
following the settlement date against payment for value on the settlement
date.
Secondary market trading. The book-entry interests will trade in DTC's
Same-Day Funds Settlement System, and secondary market trading activity in
such book-entry interests will therefore settle in same-day funds.
Since the purchaser determines the place of delivery, it is important to
establish at the time of trading of any book-entry interests where both the
purchaser's and seller's accounts are located to ensure that settlement can be
made on the desired value date.
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MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
Introductory Notes
The following discussion summarizes the material Federal income tax
considerations of the exchange offer and the ownership and disposition of the
new debentures, Series B preferred stock and common stock. This discussion is
based on current law. The discussion is not exhaustive of all possible tax
considerations and does not give a detailed discussion of any state, local, or
foreign tax considerations. It also does not discuss all of the aspects of
Federal income taxation that may be relevant to a prospective debenture holder
or stockholder in light of his or her particular circumstances or to certain
types of stockholders or debenture holders (including insurance companies,
tax-exempt entities, financial institutions or broker dealers, foreign
corporations and persons who are not citizens or residents of the United
States) who are subject to special treatment under the Federal income tax
laws.
EACH PERSON CONSIDERING TENDERING AN OLD DEBENTURE FOR EITHER NEW
DEBENTURES OR SERIES B PREFERRED STOCK IS ADVISED TO CONSULT WITH HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
ACQUISITION, OWNERSHIP AND SALE OF SECURITIES IN AN ENTITY ELECTING TO BE
TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP, SALE, AND
ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Taxation of the Company
General. We have elected to be taxed as a REIT under Code Sections 856
through 859. Our qualification and taxation as a REIT depends upon our ability
to meet on a continuing basis, through actual annual operating results,
distribution levels and diversity of stock ownership, the various
qualification tests and organizational requirements imposed under the Code, as
discussed below. We believe that we are organized and have operated in such a
manner as to qualify under the Code for taxation as a REIT since our
inception, and we intend to continue to operate in such a manner. No
assurances, however, can be given that we will operate in a manner so as to
qualify or remain qualified as a REIT. See "--Failure to Qualify" below.
The following is a general summary of the material Code provisions that
govern the Federal income tax treatment of a REIT and its stockholders. These
provisions of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, the regulations
promulgated thereunder ("Treasury Regulations"), and administrative and
judicial interpretations thereof.
If we qualify for taxation as a REIT, we generally will not be subject to
Federal corporate income taxes on net income that we currently distribute to
stockholders. This treatment substantially eliminates the "double taxation"
(at the corporate and stockholder levels) that generally results from
investment in a corporation.
Notwithstanding our REIT election, however, we will be subject to Federal
income tax in the following circumstances. First, we will be taxed at regular
corporate rates on any undistributed taxable income, including undistributed
net capital gains. Second, under certain circumstances, we may be subject to
the "alternative minimum tax" on its items of tax preference. Third, if we
have (i) net income from the sale or other disposition of "foreclosure
property" (which is, in general, property acquired by foreclosure or otherwise
on default of a loan secured by the property) that is held primarily for sale
to customers in the ordinary course of business or (ii) other nonqualifying
income from foreclosure property, we will be subject to tax at the highest
corporate rate on such income. Fourth, if we have net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property (other than foreclosure property) held primarily for sale to
customers in the ordinary course of business), such income will be subject to
a 100% tax on prohibited transactions. Fifth, if we should fail to satisfy the
75% gross income test or the 95% gross income test (as discussed below), and
have nonetheless maintained our qualification as a REIT because certain other
requirements have been met, we will be subject to a 100% tax equal to the
gross income attributable to the greater of either (i) the amount by which
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75% of our gross income exceeds the amount qualifying under the 75% test for
the taxable year or (ii) the amount by which 90% of our gross income exceeds
the amount of our income qualifying under the 95% test for the taxable year,
multiplied in either case by a fraction intended to reflect our profitability.
Sixth, if we should fail to distribute during each calendar year at least the
sum of (i) 85% of our REIT ordinary income for such year; (ii) 95% of our REIT
capital gain net income for such year (for this purpose such term includes
capital gains which we elect to retain but which we report as distributed to
our stockholders. See "--Annual Distribution Requirements" below); and (iii)
any undistributed taxable income from prior years, we would be subject to a 4%
excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if we acquire any asset from a C corporation
(i.e., a corporation generally subject to full corporate level tax) in a
transaction in which the basis of the asset in our hands is determined by
reference to the basis of the asset (or any other property) in the hands of
the C corporation, and we recognize gain on the disposition of such asset
during the 10-year period beginning on the date on which such asset was
acquired by us, then, to the extent of such property's built-in gain (the
excess of the fair market value of such property at the time of acquisition by
us over the adjusted basis of such property at such time), such gain will be
subject to tax at the highest regular corporate rate applicable (as provided
in Service regulations that have not yet been promulgated). Eighth, we will be
subject to a 100% penalty tax on amounts received (or on certain expenses
deducted by a taxable REIT subsidiary) if arrangements among us, our tenants
and a taxable REIT subsidiary are not comparable to similar arrangements among
unrelated parties.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or
directors; (ii) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest; (iii) which
would be taxable as a domestic corporation but for Code Sections 856 through
859; (iv) which is neither a financial institution nor an insurance company
subject to certain provisions of the Code; (v) the beneficial ownership of
which is held by 100 or more persons; (vi) of which not more than 50% in value
of the outstanding capital stock is owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of each taxable year after applying certain attribution rules;
and (vii) which meets certain other tests, described below, regarding the
nature of its income and assets. The Code provides that conditions (i) through
(iv), inclusive, must be met during the entire taxable year and that condition
(v) must be met during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months.
Conditions (v) and (vi) do not apply until after the first taxable year for
which an election is made to be taxed as a REIT. We have issued sufficient
common stock with sufficient diversity of ownership to allow it to satisfy
requirements (v) and (vi). In addition, our Charter contains restrictions
regarding the transfer of its shares and the issuance of excess stock intended
to assist in continuing to satisfy the share ownership requirements described
in (v) and (vi) above. See "Capital Stock of the Company--Restrictions on
Transfer." These restrictions, however, may not ensure that we will be able to
satisfy these share ownership requirements. If we fail to satisfy these share
ownership requirements, we will fail to qualify as a REIT.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. Our taxable year is the calendar year.
To qualify as a REIT, we cannot have at the end of any taxable year any
undistributed earnings and profits that are attributable to a non-REIT taxable
year. We believe that we have complied with this requirement.
For our tax years beginning prior to January 1, 1998, pursuant to
applicable Treasury Regulations, to be taxed as a REIT, we were required to
maintain certain records and request on an annual basis certain information
from our stockholders designed to disclose the actual ownership of our
outstanding shares. We have complied with such requirements. For our tax years
beginning January 1, 1998 and after, these records and informational
requirements are no longer a condition to REIT election. Instead, a monetary
penalty will be imposed for failure to comply with these requirements. If we
comply with these regulatory rules, and we do not know, or exercising
reasonable diligence would not have known, whether we failed to meet
requirement (vi) above, we will be treated as having met the requirement.
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Qualified REIT Subsidiaries. If a REIT owns a corporate subsidiary that is
a "qualified REIT subsidiary," the separate existence of that subsidiary will
be disregarded for federal income tax purposes. Generally, a qualified REIT
subsidiary is a corporation, other than a taxable REIT subsidiary, all of the
capital stock of which is owned by the REIT. All assets, liabilities and items
of income, deduction and credit of the qualified REIT subsidiary will be
treated as assets, liabilities and items of income, deduction and credit of
the REIT itself. A qualified REIT subsidiary of ours will not be subject to
federal corporate income taxation, although it may be subject to state and
local taxation in some states.
Taxable REIT Subsidiaries. A "taxable REIT subsidiary" is a corporation in
which we directly or indirectly own stock and that elects with us to be
treated as a taxable REIT subsidiary under Section 856(l) of the Internal
Revenue Code. In addition, if one of our taxable REIT subsidiaries owns,
directly or indirectly, securities representing 35% or more of the vote or
value of a subsidiary corporation, that subsidiary will also be treated as a
taxable REIT subsidiary of ours. A taxable REIT subsidiary is a corporation
subject to federal income tax, and state and local income tax where
applicable, as a regular "C" corporation.
Generally, a taxable REIT subsidiary can perform impermissible tenant
services without causing us to receive impermissible tenant services income
under the REIT income tests. However, several provisions regarding the
arrangements between a REIT and its taxable REIT subsidiaries ensure that a
taxable REIT subsidiary will be subject to an appropriate level of federal
income taxation. For example, a taxable REIT subsidiary is limited in its
ability to deduct interest payments made to us. In addition, we will be
obligated to pay a 100% penalty tax on some payments that we receive or on
certain expenses deducted by the taxable REIT subsidiary if the economic
arrangements among us, our tenants and the taxable REIT subsidiary are not
comparable to similar arrangements among unrelated parties. We currently do
not have any taxable REIT subsidiaries.
Income Tests. In order for us to maintain qualification as a REIT, three
separate percentage tests relating to the source of its gross income must be
satisfied annually. First, at least 75% of the REIT's gross income (excluding
gross income from prohibited transactions) for each taxable year must be
derived directly or indirectly from investments relating to real property or
mortgages on real property (including "rents from real property" and, in
certain circumstances, interest) or from certain types of temporary
investments. Second, at least 95% of the REIT's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived
from such real property investments described above, dividends, interest and
gain from the sale or disposition of stock or securities, some payments under
hedging instruments, or from any combination of the foregoing. Third, for tax
years beginning prior to January 1, 1998, gain from the sale or other
disposition of (i) stock or securities held for less than one year; (ii)
prohibited transactions; and (iii) certain real property held for less than
four years (apart from involuntary conversions and sales of foreclosure
property) must represent less than 30% of the REIT's gross income (including
gross income from prohibited transactions) for each taxable year.
Rents received by us will qualify as "rents from real property" in
satisfying the above gross income tests only if several conditions are met.
First, the amount of rent must not be based in whole or in part on the income
or profits of any person. However, amounts received or accrued generally will
not be excluded from "rents from real property" solely by reason of being
based on a fixed percentage or percentages of receipts or sales.
Second, rents received from a tenant will not qualify as "rents from real
property" if we, or a direct or indirect owner of 10% or more of our stock,
actually or constructively owns 10% or more of such tenant (a "Related Party
Tenant"). We may, however, lease our properties to a taxable REIT subsidiary
and rents received from that subsidiary will not be disqualified from being
"rents from real property" by reason of our ownership interest in the
subsidiary if at least 90% of the property in question is leased to unrelated
tenants and the rent paid by the taxable REIT subsidiary is substantially
comparable to the rent paid by the unrelated tenants for comparable space.
Third, if rent attributable to personal property that is leased in
connection with a lease of real property is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such
personal property will not qualify as "rents from real property." Under prior
law, this 15% test was based on relative
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adjusted tax basis of both the real and personal property. For taxable years
beginning after December 31, 2000, the test is based on relative fair market
value of the real and personal property.
Generally, for rents to qualify as "rents from real property" for the
purposes of the gross income tests, we are only allowed to provide services
that are both "usually or customarily rendered" in connection with the rental
of real property and not otherwise considered "rendered to the occupant."
Income received from any other service will be treated as "impermissible
tenant service income" unless the service is provided through an independent
contractor that bears the expenses of providing the services and from whom we
derive no revenue or through a taxable REIT subsidiary, subject to specified
limitations. The amount of impermissible tenant service income we receive is
deemed to be the greater of the amount actually received by us or 150% of our
direct cost of providing the service. If the impermissible tenant service
income exceeds 1% of our total income from a property, then all of the income
from that property will fail to qualify as rents from real property. If the
total amount of impermissible tenant service income from a property does not
exceed 1% of our total income from that property, the income will not cause
the rent paid by tenants of that property to fail to qualify as rents from
real property, but the impermissible tenant service income itself will not
qualify as rents from real property.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for such year if we
are entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if our failure to meet such tests was
due to reasonable cause and not due to willful neglect, if we attach a
schedule of the sources of its income to its federal income tax return for
such years, and if any incorrect information on the schedules was not due to
fraud with intent to evade tax. It is not possible, however, to state whether
in all circumstances we would be entitled to the benefit of these relief
provisions. As discussed above in "--General," even if these relief provisions
were to apply, a tax would be imposed with respect to the excess net income.
Asset Tests. At the close of each quarter of our taxable year, we must
satisfy six tests relating to the nature of our assets.
1. At least 75% of the value of our total assets must be represented by
"real estate assets," cash, cash items and government securities. Our real
estate assets include, for this purpose, our allocable share of real estate
assets held by the partnerships in which we own an interest, and the non-
corporate subsidiaries of these partnerships, as well as stock or debt
instruments held for less than one year purchased with the proceeds of an
offering of shares or long term debt.
2. Not more than 25% of our total assets may be represented by securities,
other than those in the 75% asset class.
3. Except for investments in REITs, qualified REIT subsidiaries, and
taxable REIT subsidiaries, the value of any one issuer's securities owned by
us may not exceed 5% of the value of our total assets.
4. Except for investments in REITs, qualified REIT subsidiaries and taxable
REIT subsidiaries, we may not own more than 10% of any one issuer's
outstanding voting securities.
5. Except for investments in REITs, qualified REIT subsidiaries and taxable
REIT subsidiaries, we may not own more than 10% of the total value of the
outstanding securities of any one issuer, other than securities that qualify
as "straight debt" under the Internal Revenue Code.
6. Not more than 20% of our total assets may be represented by the
securities of one or more taxable REIT subsidiaries.
For purposes of these asset tests, any shares of qualified REIT
subsidiaries are not taken into account, and any assets owned by the qualified
REIT subsidiary are treated as owned directly by the REIT.
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Annual Distribution Requirements. We, in order to qualify as a REIT, are
required to distribute dividends (other than capital gain dividends) to our
stockholders in an amount at least equal to (i) the sum of (a) 90% of our
"REIT taxable income" (computed without regard to the dividends paid deduction
and our net capital gain) and (b) 90% of the net income (after tax), if any,
from foreclosure property, minus (ii) the sum of certain items of noncash
income. Such distributions generally must be paid in the taxable year to which
they relate. Dividends may be paid in the following year in two circumstances.
First, dividends may be declared in the following year if the dividends are
declared before we timely file our tax return for the year and if made before
the first regular dividend payment made after such declaration. Second, if we
declare a dividend in October, November or December of any year with a record
date in one of these months and pay the dividend on or before January 31 of
the following year, we will be treated as having paid the dividend on December
31 of the year in which the dividend was declared. To the extent that we do
not distribute all of our net capital gain or distribute at least 90%, but
less than 100%, of our "REIT taxable income," as adjusted, we will be subject
to tax on the nondistributed amount at regular capital gains and ordinary
corporate tax rates. Furthermore, if we should fail to distribute during each
calendar year at least the sum of (i) 85% of our REIT ordinary income for such
year; (ii) 95% of our REIT capital gain income for such year; and (iii) any
undistributed taxable income from prior periods, we will be subject to a 4%
excise tax on the excess of such required distribution over the amounts
actually distributed.
We may elect to retain and pay tax on net long-term capital gains and
require our stockholders to include their proportionate share of such
undistributed net capital gains in their income. If we make such election,
stockholders would receive a tax credit attributable to their share of the
capital gains tax paid by us, and would receive an increase in the basis of
their shares in us in an amount equal to the stockholder's share of the
undistributed net long-term capital gain reduced by the amount of the credit.
Further, any undistributed net long-term capital gains that are included in
the income of our stockholders pursuant to this rule will be treated as
distributed for purposes of the 4% excise tax.
We have made and intend to continue to make timely distributions sufficient
to satisfy the annual distribution requirements. It is possible, however, that
we, from time to time, may not have sufficient cash or liquid assets to meet
the distribution requirements due to timing differences between the actual
receipt of income and actual payment of deductible expenses and the inclusion
of such income and deduction of such expenses in arriving at our taxable
income, or if the amount of nondeductible expenses such as principal
amortization or capital expenditures exceeds the amount of noncash deductions.
In the event that such timing differences occur, in order to meet the
distribution requirements, we may arrange for short-term, or possibly
long term, borrowing to permit the payment of required dividends. If the
amount of nondeductible expenses exceeds noncash deductions, we may refinance
our indebtedness to reduce principal payments and may borrow funds for capital
expenditures.
Under certain circumstances, we may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year that may be included in our deduction for
dividends paid for the earlier year. Thus, we may avoid being taxed on amounts
distributed as deficiency dividends; however, we will be required to pay
interest to the Internal Revenue Service based upon the amount of any
deduction taken for deficiency dividends.
Failure to Qualify. If we fail to qualify for taxation as a REIT in any
taxable year and no relief provisions apply, we will be subject to tax
(including any applicable alternative minimum tax) on our taxable income at
regular corporate rates. Distributions to stockholders in any year in which we
fail to qualify will not be deductible by us, nor will such distributions be
required to be made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to stockholders will be taxable as
ordinary income, and, subject to certain limitations in the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, we will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether
in all circumstances we would be entitled to such statutory relief.
66
Potential Taxation of Company on the Exchange
Although the Exchange will be treated as a recapitalization for federal
income tax purposes, it is still possible that the Company will recognize
income on the transaction. The general rule is that a taxpayer realizes income
by the payment or purchase of its obligations at less than their face value.
With respect to the exchange of old debentures for preferred stock, that
transaction is treated as if the Company satisfied its debt with an amount of
money equal to the fair market value of the stock transferred. Although the
aggregate face amount of the preferred stock issued in connection with this
exchange will equal the face amount of the old debentures exchanged therefor,
there can be no assurances that the fair market value of the preferred stock
will equal its face amount. In the event the fair market value on the date of
exchange is less than the face amount of preferred stock, the Company will
recognize taxable income to the extent of such difference.
With respect to the exchange of old debentures for new debentures, that
transaction is treated as if the Company satisfied its debt with an amount of
money equal to the issue price of the new debentures. See "--Taxation of
Domestic Debentureholders--Original Issue Discount" above for a discussion of
the issue price of the new debentures. Although the aggregate face amount of
the new debentures issued in connection with this exchange will equal the face
amount of the old debentures exchanged therefor, there can be no assurance
that the issue price will equal their face value. In the event the fair market
value is less than the face amount of the new debentures, the Company will
recognize taxable income to the extent of such difference.
Inclusion of this debt discharge income in calculating the REIT taxable
income of the Company will result in an increase in the Company's REIT taxable
income. This will cause an increase in the Company's current earnings and
profits, and an increase in the portion of distributions characterized as
ordinary income dividends.
Taxation of Stockholders
Taxation of Taxable Domestic Stockholders. As long as we qualify as a REIT,
distributions made to our taxable domestic stockholders 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, and
corporate stockholders will not be eligible for the dividends received
deduction as to such amounts. Distributions that are designated as capital
gain dividends will be taxed as long term capital gains (to the extent they do
not exceed our actual net capital gain for the taxable year) without regard to
the period for which the stockholder has held his or her shares. Distributions
in excess of current and accumulated earnings and profits will not be taxable
to a stockholder to the extent that they do not exceed the adjusted basis of
such stockholder's stock, but rather will reduce the adjusted basis of such
shares as a return of capital. To the extent that such distributions exceed
the adjusted basis of a stockholder's stock, they will be included in income
as long term capital gain (or short term capital gain if the shares have been
held for one year or less), assuming the shares are a capital asset in the
hands of the stockholder. In addition, any dividend declared by us in October,
November or December of any year payable to a stockholder of record on a
specific date in any such month shall be treated as both paid by us and
received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by us during January of the following calendar year.
For purposes of determining what portion of a distribution is attributable to
current or accumulated earnings and profits, earnings and profits will first
be allocated to distributions made to holders of the Series B preferred stock.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of ours.
In general, any gain or loss realized upon a taxable disposition of shares
by a stockholder who is not a dealer in securities will be treated as a long-
term capital gain or loss if the shares have been held for more than one year,
otherwise as short-term capital gain or loss. However, any loss upon a sale or
exchange of stock by a stockholder who has held such shares for six months or
less (after applying certain holding period rules) will be treated as long-
term capital loss to the extent of distributions from us required to be
treated by such stockholder as long-term capital gain.
Distributions that we properly designates as capital gain dividends will be
taxable to stockholders as gains (to the extent that they do not exceed our
actual net capital gain for the taxable year) from the sale or disposition
67
of a capital asset held for greater than one year. If we designate any portion
of a dividend as a capital gain dividend, a U.S. stockholder will receive an
Internal Revenue Service Form 1099-DIV indicating the amount that will be
taxable to the stockholder as capital gain. However, stockholders that are
corporations may be required to treat up to 20% of certain capital gain
dividends as ordinary income. A portion of capital gain dividends received by
noncorporate taxpayers may be subject to tax at a 25% rate to the extent
attributable to certain gains realized on the sale of real property. In
addition, noncorporate taxpayers are generally taxed at a maximum rate of 20%
on net long-term capital gain (generally, the excess of net long-term capital
gain over net short-term capital loss) attributable to gains realized on the
sale of property held for greater that one year.
Distributions we make and gain arising from the sale or exchange by a
stockholder of shares of our stock will not be treated as passive activity
income, and, as a result, stockholders generally will not be able to apply any
"passive losses" against such income or gain. Distributions we make (to the
extent they do not constitute a return of capital) generally will be treated
as investment income for purposes of computing the investment interest
limitation. Gain arising from the sale or other disposition of our stock (or
distributions treated as such) will not be treated as investment income under
certain circumstances.
Upon any taxable sale or other disposition of our stock, a U.S. stockholder
will recognize gain or loss for federal income tax purposes on the disposition
of the stock in an amount equal to the difference between
. the amount of cash and the fair market value of any property received
on such disposition; and
. the U.S. stockholder's adjusted basis in such stock for tax purposes.
Gain or loss will be capital gain or loss if the stock has been held by the
U.S. stockholder as a capital asset. The applicable tax rate will depend on
the stockholder's holding period in the asset (generally, if an asset has been
held for more than one year it will produce long-term capital gain) and the
stockholder's tax bracket. A U.S. stockholder who is an individual or an
estate or trust and who has long-term capital gain or loss will be subject to
a maximum capital gain rate of 20%. U.S. stockholders that acquire, or are
deemed to acquire, our stock after December 31, 2000 and who hold the stock
for more than five years and certain low income taxpayers may be eligible for
a lower long-term capital gains rate. The Internal Revenue Service has the
authority to prescribe, but has not yet prescribed, regulations that would
apply a capital gain tax rate of 25% (which is generally higher than the long-
term capital gain tax rates for non-corporate stockholders) to a portion of
capital gain realized by a non-corporate stockholder on the sale of REIT stock
that would correspond to the REIT's "unrecaptured Section 1250 gain."
Stockholders are advised to consult with their own tax advisors with respect
to their capital gain tax liability.
In general, any loss upon a sale or exchange of securities by a U.S.
stockholder who has held such securities for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, but only to the extent of distributions from us received by such U.S.
stockholder that are required to be treated by such U.S. stockholder as long-
term capital gains.
Economic Accrual of Redemption Premium on Preferred Stock. For federal
income tax purposes, if a corporation issues preferred stock that may be
redeemed at a price that is more than a de minimis amount higher than its
issue price, the difference is treated as a "redemption premium" that is
taxable to the holder on an annual economic accrual basis. The issue price of
the preferred stock received by a U.S. stockholder in the exchange transaction
is generally the fair market value of the preferred stock as of the issue
date. If a U.S. stockholder recognizes income as a result of redemption
premium on the preferred stock, the holder's tax basis in the preferred stock
will increase by the amount included in the holder's gross income.
Taxation of Tax-Exempt Stockholders. Provided that a tax-exempt stockholder
has not held its stock as "debt financed property" within the meaning of the
Internal Revenue Code, the dividend income from us will not be unrelated
business taxable income, referred to as UBTI, to a tax-exempt stockholder.
Similarly, income from the sale of our stock will not constitute UBTI unless
the tax-exempt stockholder has held its stock as debt financed
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property within the meaning of the Internal Revenue Code or has used the stock
in a trade or business. However, for a tax-exempt stockholder that is a social
club, voluntary employee benefit association, supplemental unemployment
benefit trust, or qualified group legal services plan exempt from federal
income taxation under Internal Revenue Code Sections 501(c)(7), (c)(9),
(c)(17) and (c)(20), respectively, or a single parent title-holding
corporation exempt under Section 501(c)(2) the income of which is payable to
any of the aforementioned tax-exempt organizations, income from an investment
in us will constitute UBTI unless the organization properly sets aside or
reserves such amounts for purposes specified in the Internal Revenue Code.
These tax exempt stockholders should consult their own tax advisors concerning
these "set aside" and reserve requirements.
A "qualified trust" (defined to be any trust described in Code Section
401(a) and exempt from tax under Code Section 501(a)) that holds more than 10%
of the value of the shares of a REIT may be required, under certain
circumstances, to treat a portion of distributions from the REIT as UBTI. This
requirement will apply for a taxable year only if (i) the REIT satisfies the
requirement that not more than 50% of the value of its shares be held by five
or fewer individuals (the "five or fewer requirement") only by relying on a
special "look-through" rule under which shares held by qualified trust
stockholders are treated as held by the beneficiaries of such trusts in
proportion to their actuarial interests therein; and (ii) the REIT is
"predominantly held" by qualified trusts. A REIT is "predominantly held" by
qualified trusts if either (i) a single qualified trust holds more than 25% of
the value of the REIT shares, or (ii) one or more qualified trusts, each
owning more than 10% of the value of the REIT shares, hold in the aggregate
more than 50% of the value of the REIT shares. If the foregoing requirements
are met, the percentage of any REIT dividend treated as UBTI to a qualified
trust that owns more than 10% of the value of the REIT shares is equal to the
ratio of (i) the UBTI earned by the REIT (computed as if the REIT were a
qualified trust and therefore subject to tax on its UBTI) to (ii) the total
gross income (less certain associated expenses) of the REIT for the year in
which the dividends are paid. A de minimis exception applies where the ratio
set forth in the preceding sentence is less than 5% for any year.
The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the five
or fewer requirement without relying on the "look-through" rule. The
restrictions on ownership of stock in our Charter should prevent application
of the foregoing provisions to qualified trusts purchasing our stock, absent a
waiver of the restrictions by the Board of Directors.
Taxation of Non-U.S. Stockholders. The rules governing U.S. Federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. The discussion does not consider any
specific facts or circumstances that may apply to a particular Non-U.S.
Stockholder. Prospective Non-U.S. Stockholders should consult with their own
tax advisors to determine the impact of U.S. Federal, state and local income
tax laws with regard to an investment in common stock, including any reporting
requirements.
Distributions that are not attributable to gain from sales or exchanges by
us of U.S. real property interests and not designated by us as capital gain
dividends will be treated as dividends of ordinary income to the extent that
they are made out of our current or accumulated earnings and profits. 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
such rate. However, if income from the investment in our stock is treated as
effectively connected with the Non-U.S. Stockholder's conduct of a U.S. trade
or business, the Non-U.S. Stockholder generally will be subject to a tax at
graduated rates in the same manner as U.S. stockholders are taxed with respect
to such dividends (and may also be subject to a branch profits tax of up to
30% if the stockholder is a foreign corporation). We expect to withhold U.S.
income tax at the rate of 30% on the gross amount of any dividends paid to a
Non-U.S. Stockholder that are not designated as capital gain dividends, unless
(i) a lower treaty rate applies and the Non-U.S. Stockholder files an IRS Form
W-8BEN evidencing eligibility for that reduced rate is filed with us or (ii)
the Non-U.S. Stockholder files an IRS Form W-8ECI with us claiming that the
distribution is income treated as effectively connected to a U.S. trade or
business.
69
Distributions in excess of our current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's stock, but rather will reduce the adjusted
basis of such shares. To the extent that such distributions exceed the
adjusted basis of a Non-U.S. Stockholder's shares, they will give rise to tax
liability if the Non-U.S. Stockholder would otherwise be subject to tax on any
gain from the sale or disposition of his or her stock as described below. We
may be required to withhold U.S. income tax at the rate of at least 10% on
distributions to Non-U.S. Stockholders that are not paid out of current or
accumulated earnings and profits unless the Non-U.S. Stockholders provide us
with withholding certificates evidencing their exemption from withholding tax.
If it cannot be determined at the time that such a distribution is made
whether or not such distribution will be in excess of current and accumulated
earnings and profits, the distribution will be subject to withholding at the
rate applicable to dividends. However, the Non-U.S. Stockholder may seek a
refund of such amounts from the Service if it is subsequently determined that
such distribution was, in fact, in excess of our current and accumulated
earnings and profits.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges by us of U.S. real property
interests will be taxed to a Non-U.S. Stockholder 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. Stockholder as if such gain were
effectively connected with a U.S. business. Thus, Non-U.S. Stockholders will
be taxed on such distributions at the normal capital gain rates applicable to
U.S. stockholders (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 corporate Non U.S. Stockholder not entitled to treaty relief or
exemption. We are required by applicable Treasury Regulations to withhold 35%
of any distribution that could be designated by us as a capital gain dividend.
This amount is creditable against the Non-U.S. Stockholder's FIRPTA tax
liability.
Gain recognized by a Non-U.S. Stockholder upon the sale or exchange of our
stock generally would not be subject to United States taxation unless:
. the investment in our stock is effectively connected with the Non-U.S.
Stockholder's U.S. trade or business, in which case the Non-U.S.
Stockholder will be subject to the same treatment as domestic
stockholders with respect to any gain;
. the Non-U.S. Stockholder is a non-resident alien individual who is
present in the United States for 183 days or more during the taxable
year and has a tax home in the United States, in which case the non-
resident alien individual will be subject to a 30% tax on the
individual's net capital gains for the taxable year; or
. our stock constitutes a U.S. real property interest within the meaning
of FIRPTA, as described below.
Our stock will not constitute a United States real property interest if we
are a domestically-controlled REIT. We will be a domestically-controlled REIT
if, at all times during a specified testing period, less than 50% in value of
our stock is held directly or indirectly by Non-U.S. Stockholders.
We believe that, currently, we are a domestically controlled REIT and,
therefore, that the sale of our stock would not be subject to taxation under
FIRPTA. Because our stock is publicly traded, however, we cannot guarantee
that we are or will continue to be a domestically-controlled REIT.
Even if we do not qualify as a domestically-controlled REIT at the time a
Non-U.S. Stockholder sells our stock, gain arising from the sale still would
not be subject to FIRPTA tax if:
. the class or series of shares sold is considered regularly traded under
applicable Treasury regulations on an established securities market,
such as the NYSE; and
. the selling Non-U.S. Stockholder owned, actually or constructively, 5%
or less in value of the outstanding class or series of stock being sold
throughout the five-year period ending on the date of the sale or
exchange.
70
If gain on the sale or exchange of our stock were subject to taxation under
FIRPTA, the Non-U.S. Stockholder would be subject to regular U.S. income tax
with respect to any gain in the same manner as a taxable U.S. stockholder,
subject to any applicable alternative minimum tax and special alternative
minimum tax in the case of non-resident alien individuals.
Backup Withholding Tax and Information Reporting
U.S. Holders. In general, information-reporting requirements will apply to
certain U.S. holders to payments of dividends on our stock, OID, interest, and
payments of the proceeds of the sale of our stock and debentures, unless an
exception applies.
The payor will be required to withhold tax on such payments at the rate of
30.5% (scheduled to be reduced incrementally to 28% by 2006) if (i) the payee
fails to furnish a taxpayer identification number, or TIN, to the payor or to
establish an exemption from backup withholding, or (ii) the Internal Revenue
Service notifies the payor that the TIN furnished by the payor is incorrect.
In addition, a payor of interest on the debentures or dividends on our
stock will be required to withhold tax at a rate of 30.5% (scheduled to be
reduced incrementally to 28% by 2006) if (i) there has been a notified payee
under-reporting with respect to interest, dividends or original issue discount
described in Section 3406(c) of the Internal Revenue Code, or (ii) there has
been a failure of the payee to certify under the penalty of perjury that the
payee is not subject to backup withholding under the Internal Revenue Code.
Some stockholders, including corporations, may be exempt from backup
withholding. Any amounts withheld under the backup withholding rules from a
payment to a stockholder will be allowed as a credit against the stockholder's
United States federal income tax and may entitle the stockholder to a refund,
provided that the required information is furnished to the Internal Revenue
Service.
Non-U.S. Stockholders. Generally, information reporting will apply to
payments of dividends on our stock, interest, including OID, and backup
withholding described above for a U.S. stockholder will apply, unless the
payee certifies that it is not a U.S. person or otherwise establishes an
exemption.
The payment of the proceeds from the disposition of stock or debentures to
or through the U.S. office of a U.S. or foreign broker will be subject to
information reporting and backup withholding as described above for U.S.
stockholders unless the Non-U.S. Stockholder satisfies the requirements
necessary to be an exempt Non-U.S. Stockholder or otherwise qualifies for an
exemption. The proceeds of a disposition by a Non-U.S. Stockholder of stock or
debentures to or through a foreign office of a broker generally will not be
subject to information reporting or backup withholding. However, if the broker
is a U.S. person, a controlled foreign corporation for U.S. tax purposes, a
foreign person 50% or more of whose gross income from all sources for
specified periods is from activities that are effectively connected with a
U.S. trade or business, a foreign partnership if partners who hold more than
50% of the interest in the partnership are U.S. persons, or a foreign
partnership that is engaged in the conduct of a trade or business in the U.S.,
then information reporting generally will apply as though the payment was made
through a U.S. office of a U.S. or foreign broker.
Applicable Treasury regulations provide presumptions regarding the status
of stockholders when payments to the stockholders cannot be reliably
associated with appropriate documentation provided to the payor. Under these
Treasury regulations, some stockholders are required to provide new
certifications with respect to payments made after December 31, 2000. Because
the application of these Treasury regulations varies depending on the
stockholder's particular circumstances, you are advised to consult your tax
advisor regarding the information reporting requirements applicable to you.
State and Local Taxes. We and our stockholders may be subject to state or
local taxation in various state or local jurisdictions, including those in
which it or they transact business or reside (although stockholders who are
individuals generally should not be required to file state income tax returns
outside of their state of residence
71
with respect to our operations and distributions). The state and local tax
treatment of us and our stockholders may not conform to the Federal income tax
consequences discussed above. Consequently, prospective stockholders should
consult their own tax advisors regarding the effect of state and local tax
laws on an investment in the securities.
Taxation of Domestic Debenture Holders
Stated Interest. This discussion assumes that the new debentures will be
treated as debt, not equity, for federal income tax purposes. Each U.S. holder
of a new debenture and the Company must report the new debenture as debt for
such purposes. The stated interest on a new debenture therefore will be
taxable to a U.S. holder as ordinary interest income at the time it either
accrues or is received, depending on such U.S. holder's method of accounting
for federal income tax purposes.
Original Issue Discount. Generally, a new debenture will bear original
issue discount ("OID") if and to the extent of any excess of the new
debenture's "stated redemption price at maturity" over its "issue price." The
"stated redemption price at maturity" of a debt instrument is the sum of its
principal amount plus all other payments required thereunder, other than
payments of "qualified stated interest" (defined generally as stated interest
that is unconditionally payable in cash or in property (other than debt
instruments of the issuer) at least annually at a single fixed rate). The
"issue price" of a new debenture will be the fair market value of the new
debenture on the date of the Exchange if the new debentures are deemed to be
"traded on an established securities market" under the Code and as provided in
Treasury regulations. If the new debentures are not so traded but the old
debentures are, under Treasury regulations the "issue price" of a new
debenture will be the fair market value of the old debenture, on the issue
date. If neither the old debentures nor the new debentures so trade, the
"issue price" of a new debenture will be its "stated redemption price at
maturity." Holders should consult their tax advisor regarding whether the new
debentures will be considered "traded on an established market" under the
applicable regulations.
OID would not be includible in a U.S. holder's income, however, if the U.S.
holder is treated as having acquired the new debenture at a "premium."
A U.S. holder will be treated as having acquired the new debenture at a
"premium" if the adjusted basis of the new debenture in the hands of the U.S.
holder immediately after the exchange exceeds the sum of all amounts payable
on the new debenture other than payments of qualified stated interest.
Generally, in the absence of any adjustments to a U.S. holder's basis in an
old debenture, a U.S. holder will be treated as having acquired a new
debenture at a premium if the U.S. holder originally paid more for the old
debenture than the principal amount of the new debenture.
For any U.S. holder who originally purchased an old debenture for less than
or equal to the principal amount of the new debenture, the results will vary.
If the U.S. holder's adjusted basis in the new debenture immediately after the
exchange is less than or equal to the sum of all amounts payable on the new
debenture after the exchange excluding qualified stated interest, but greater
than the new debenture's "adjusted issue price," the U.S. holder must include
OID in income, but would reduce the daily portion of OID by an amount equal to
the amount which would otherwise be the daily portion for such day multiplied
by a fraction the numerator of which is, generally, the excess (if any) of the
U.S. holder's basis in the new debenture over the issue price of the new
debenture, and the denominator of which is the total OID for such new
debenture.
If a U.S. holder's adjusted basis in a new debenture immediately after the
exchange is less than or equal to the new debenture's adjusted issue price,
the U.S. holder must include OID in income as it accrues (and may be subject
to the market discount rules discussed below). The amount of accrued OID
includible in income by such a U.S. holder would be the sum of the "daily
portions" of OID with respect to the new debenture for each day during the
taxable year or portion of the taxable year in which such U.S. holder held
such new debenture ("accrued OID"). The daily portion is determined by
allocating to each day in any "accrual period" a pro rata portion of the OID
allocable to that accrual period. The "accrual period" for a new debenture may
be of any
72
length and may vary in length over the term of the new debenture, provided
that each accrual period is no longer than one year and each scheduled payment
of principal or interest occurs on the first day or the final day of an
accrual period. The amount of OID allocable to any accrual period is an amount
equal to the excess, if any, of (i) the product of the new debenture's
adjusted issue price at the beginning of such accrual period and its yield to
maturity (determined on the basis of compounding at the close of each accrual
period and properly adjusted for the length of the accrual period) over (ii)
the amount of any qualified stated interest allocable to the accrual period.
OID allocable to a final accrual period is the difference between the amount
payable at maturity (other than a payment of qualified stated interest) and
the adjusted issue price at the beginning of the final accrual period. The
"adjusted issue price" of a new debenture at the beginning of any accrual
period is equal to its issue price increased by the accrued OID for each prior
accrual period (determined without regard to the amortization of any
acquisition or bond premium) and reduced by any payments made on such new
debenture (other than qualified stated interest) on or before the first day of
the accrual period. Special rules will apply for calculating OID for an
initial short accrual period. As OID accrues and is included in a U.S.
holder's income, it is added to the U.S. holder's tax basis in the new
debentures.
Market Discount. Generally, the market discount rules discussed below will
apply to any new debenture if the old debenture bore accrued market discount
that was not recognized upon the exchange, or if the U.S. holder's tax basis
in the new debenture is less than the new debenture's "adjusted issue price."
If the new debentures do not have OID, the market discount rules generally
will apply if the stated redemption price at maturity exceeds the Holder's
initial tax basis in the new debentures.
Gain recognized on the disposition (including a redemption) of a new
debenture that has accrued market discount will be treated as ordinary income,
not capital gain, to the extent of the accrued market discount, provided that
the amount of market discount exceeds a statutory de minimis amount. "Market
discount" is defined as the excess, if any, of (i) the stated redemption price
at maturity (or, in the case of a debt obligation with OID, the adjusted issue
price) over (ii) the tax basis of the debt obligation in the hands of the U.S.
holder immediately after its acquisition. In addition, any accrued market
discount on an old debenture that is not taken into account in connection with
the exchange transaction will carry over to the new debenture received in
exchange therefor.
Unless a U.S. holder elects otherwise, the accrued market discount would be
the amount calculated by multiplying the market discount by a fraction, the
numerator of which is the number of days the obligation has been held by the
U.S. holder and the denominator of which is the number of days after the U.S.
holder's acquisition of the obligation up to and including its maturity date.
A U.S. holder of a new debenture acquired at market discount may also be
required to defer the deduction of all or a portion of the interest on any
indebtedness incurred or maintained to carry the new debenture until it is
disposed of in a taxable transaction.
If a U.S. holder of a new debenture acquired at market discount disposes of
such new debenture in any transaction other than a sale, exchange or
involuntary conversion, even though otherwise nontaxable (e.g., a gift), such
U.S. holder will be deemed to have realized an amount equal to the fair market
value of the new debenture and would be required to recognize as ordinary
income any accrued market discount to the extent of the deemed gain.
A U.S. holder of a new debenture acquired at market discount may elect to
include the market discount in income as it accrues, either on a straight-line
basis or, if elected, on a constant interest rate basis. The current income
inclusion election would apply to all market discount obligations acquired by
the electing U.S. holder on or after the first day of the first taxable year
to which the election applies. The election may be revoked only with the
consent of the IRS. If a U.S. holder of a new debenture so elects to include
market discount in income currently, the rules discussed above with respect to
ordinary income recognition resulting from sales and certain other disposition
transactions and to deferral of interest deductions would not apply.
Amortizable Bond Premium. Generally, a U.S. holder who acquires a new
debenture in the exchange of old debentures for new debentures will have
amortizable bond premium to the extent of the excess, if any, of its
73
basis in the new debenture over the amount payable on maturity of the new
debenture (or on an earlier call date if use of the earlier call date results
in a smaller amortizable bond premium). For this purpose, the U.S. holder's
basis in the new debenture is generally the same as the U.S. holder's basis in
the old debenture less any amount attributable to the value of any conversion
features of the new debenture. If the new debenture were determined not to
have been acquired in a reorganization as described above, the U.S. holder's
basis in the bond may not exceed its fair market value immediately after the
exchange.
A U.S. holder may elect to amortize any bond premium under Section 171 of
the Code on a constant yield basis over the period from the acquisition date
to the maturity date of the new debenture (or, in certain circumstances, until
an earlier call date) and, except as future Treasury regulations may otherwise
provide, reduce the amount of interest included in income in respect of the
new debenture by such amount. A U.S. holder who elects to amortize bond
premium must reduce its adjusted basis in the new debenture by the amount of
such allowable amortization. An election to amortize the bond premium would
apply to all amortizable bond premium on all taxable bonds held at or acquired
after the beginning of the U.S. holder's taxable year as to which the election
is made, and may be revoked only with the consent of the IRS.
The amount of amortizable bond premium does not include any amount
attributable to the conversion feature of the new debenture. The value of the
conversion feature for purposes of the amortization of bond premium may be
determined under any reasonable method.
The amortized bond premium deduction is treated as an offset to interest
income on the related security for federal income tax purposes and is limited
to the purchaser's investment income from the debt instrument for the year. No
deduction of unamortized bond premium will be allowed on conversion of a new
debenture into Common Stock. Each U.S. holder is urged to consult its tax
advisors as to the consequences of the treatment of such premium as an offset
to interest income for federal income tax purposes. If an election to amortize
the bond premium is not made, a U.S. holder must include the full amount of
each interest payment in income in accordance with its regular method of
accounting and will generally receive a tax benefit from the bond premium only
upon computing its gain or loss upon the sale or other disposition or payment
of the principal amount of the new debenture.
Election to Treat All Interest as Original Issue Discount. A U.S. holder
may elect to include in gross income all interest that accrues on a new
debenture using the constant-yield method with the modifications described
below. For this purpose, interest includes stated interest, OID, market
discount and de minimis market discount, as adjusted by an acquisition premium
or amortizable bond premium. In applying the constant-yield method, the issue
price of the new debenture will equal the electing U.S. holder's adjusted
basis in the new debenture immediately after its acquisition, the issue date
of the new debenture will be the date of its acquisition by the electing U.S.
holder and no payments on the new debenture will be treated as payments of
qualified stated interest.
Sale or Redemption. Unless a nonrecognition provision applies, the sale,
exchange, redemption (including pursuant to an offer by the Company) or other
disposition of a new debenture will be a taxable event for federal income tax
purposes. In such event, a U.S. holder will recognize gain or loss equal to
the difference between (i) the amount of cash plus the fair market value of
any property received upon such sale, exchange, redemption or other taxable
disposition (other than in respect of accrued and unpaid interest thereon,
which will be taxable as ordinary income) and (ii) the U.S. holder's adjusted
tax basis therein (as increased by any market discount previously included in
income by the U.S. holder and decreased by any amortizable bond premium
deducted over the term of the Note by the U.S. holder). Subject to the
discussion under "--Market Discount," such gain or loss should be capital gain
or loss and will be long-term capital gain or loss if the new debenture had
been held by the U.S. holder for more than one year at the time of such sale,
exchange, redemption or other disposition.
Conversion of New Debentures Into Common Stock. No gain or loss will be
recognized for federal income tax purposes on conversion of new debentures
solely into shares of common stock except with respect to any
74
cash received in lieu of a fractional share or, in the case of both cash and
accrual basis taxpayers, any accrued interest not previously included in
income. To the extent the conversion is not treated as resulting in the
payment of interest, the tax basis for the shares of common stock received
upon conversion will be equal to the tax basis of the new debentures converted
into common stock, and the holding period of the shares of common stock will
include the holding period of the new debentures converted. Any accrued market
discount not previously included in income as of the date of the conversion of
the new debentures and not recognized upon the conversion (e.g., as a result
of the receipt of cash in lieu of a fractional interest in a new debenture)
should carry over to the common stock received on conversion and be treated as
ordinary income to the extent of any gain upon the subsequent disposition of
such common stock. If the new debentures are not considered securities for
federal income tax purposes, however, a U.S. holder could be required to
include accrued market discount on the new debentures as ordinary income upon
conversion, to the extent the fair market value of the new debentures exceeds
the U.S. holder's tax basis therein. A U.S. holder will recognize taxable gain
or loss on cash received in lieu of fractional shares of common stock in an
amount equal to the difference between the amount of cash received and the
U.S. holder's tax basis in such fractional shares. Subject to the market
discount rules discussed above, such gain or loss should be capital gain or
loss if the fractional shares are capital assets in the hands of the U.S.
holder and long-term capital gain or loss if the fractional shares have been
deemed held for more than one year.
Constructive Dividends on New Debentures. If at any time (i) the Company
makes a distribution of cash or property to its stockholders or purchases
common stock and such distribution or purchase would be taxable to such
stockholders as a dividend for U.S. federal income tax purposes (e.g.,
distributions of evidences of indebtedness or assets of the Company, but
generally not stock dividends or rights to subscribe for common stock, and,
pursuant to the antidilution provisions, the conversion price of the new
debentures is increased, or (ii) the conversion price of the new debentures is
increased at the discretion of the Company, such increase in conversion price
may be deemed to be the payment of a taxable dividend (to the extent of the
Company's current or accumulated earnings and profits) to U.S. holders of new
debentures (pursuant to Section 305 of the Code). Such U.S. holders of new
debentures could therefore have taxable income as a result of an event
pursuant to which they received no cash or property.
Taxation of Non-U.S. Debenture Holders
Interest and OID on New Debentures. Neither interest paid by the Company to
a Non U.S. Holder nor any original issue discount will be subject to U.S.
federal income or withholding tax if (i) such interest is not effectively
connected with the conduct of a trade or business within the United States by
such Non-U.S. Holder, (ii) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, (iii) the Non-U.S. Holder is
not a controlled foreign corporation with respect to which the Company is a
"related person" within the meaning of the Code, and (iv) either (a) the Non-
U.S. Holder certifies to the Company, under penalties of perjury, that the
Non-U.S. Holder is not a U.S. person and provides the beneficial owner's name
and address on a U.S. Treasury Form W-8 (or suitable substitute form) or (b) a
securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business
and holds the new debenture certifies, under penalties of perjury, that such
Form W-8 (or suitable substitute form) has been received from the Non-U.S.
Holder by it or by such a financial institution between it and the Non-U.S.
Holder and furnishes the payor with a copy thereof. If the foregoing
exceptions do not apply, payments on the new debentures may be subject to U.S.
withholding tax at a rate of 30% (or such lower rate as may be applied under
an applicable tax treaty).
75
FEDERAL INCOME TAX CONSIDERATIONS
OF THE EXCHANGE TRANSACTION
Domestic Debenture Holders
Treatment of Loss or Gain Upon Exchange. The receipt of new debentures,
preferred stock, or a combination of the two, in exchange for old debentures
will be considered a recapitalization that qualifies as a reorganization for
federal income tax purposes if the old debentures, new debentures and
preferred stock are "securities" for U.S. federal income tax purposes.
Although the determination of the status of the new debentures as "securities"
is not entirely certain because the term of the new debentures is less than
ten (10) years, the new debentures should be treated as "securities" for U.S.
federal income tax purposes. Accordingly, the receipt of the new debentures
should be treated as the receipt of "securities," and the exchange transaction
should constitute a recapitalization and a reorganization for federal income
tax purposes and, as a result, exchanging U.S. holders should not recognize
any loss or gain (except to the extent that new debentures and preferred stock
received are attributable to accrued but unpaid interest on the old
debentures, in which event the U.S. holders would generally be required to
treat such amounts as payment of interest includible in income in accordance
with the U.S. holder's method of accounting for tax purposes). Under such
treatment, a U.S. holder's adjusted tax basis in the new debentures and
preferred stock acquired in the exchange will equal the U.S. holder's adjusted
tax basis in the old debentures allocated among the new securities received
based on the respective fair market values of such securities. A U.S. holder's
holding period in the new debentures or preferred stock acquired in the
exchange will include such Holder's holding period in the old debentures.
If the exchange were determined not to constitute a recapitalization for
U.S. federal income tax purposes, then an exchanging U.S. holder would
recognize loss or gain equal to the difference between (i) the "issue price"
as defined herein under "--Taxation of Domestic Debentureholders--Original
Issue Discount" of the new debentures and (ii) the U.S. holder's adjusted tax
basis in the old debentures exchanged therefor. Any such loss or gain would
generally be long-term capital loss or gain if the old debentures had been
held for more than one year, subject to characterization of any accrued market
discount income as ordinary income.
The remainder of this discussion assumes that the exchange transaction will
constitute a recapitalization and a reorganization for federal income tax
purposes.
Foreign Debenture Holders
General. The following is a summary of the material U.S. federal income tax
consequences of the exchange of the old debentures for the new debentures and
the disposition of the new debentures by a Non-U.S. holder and certain estate
tax consequences of the ownership of the new debentures. This discussion does
not address tax consequences arising under the laws of any foreign, state or
local jurisdiction. The tax treatment of Non-U.S. Holders of the new
debentures may vary depending on their particular situations. Certain Non-U.S.
Holders (including insurance companies, tax-exempt organizations, financial
institutions and broker-dealers) may be subject to special rules not discussed
below. Prospective investors who are Non-U.S. Holders are urged to consult
their tax advisors regarding the U.S. federal tax consequences of acquiring,
holding and disposing of the new debentures, as well as any tax consequences
that may arise under the laws of any foreign, state, local or other taxing
jurisdiction.
Treatment of Loss or Gain Upon Exchange. A Non-U.S. Holder generally will
not recognize loss or gain upon the exchange of the new debentures for the old
debentures if the exchange constitutes a recapitalization for US. federal
income tax purposes. A U.S. holder's adjusted tax basis in a new debenture in
that case will equal the U.S. holder's adjusted tax basis in the old debenture
for which such new debenture was exchanged. If the exchange were not to
qualify as a recapitalization, gain or loss may be recognized if such gain or
loss is effectively connected with the conduct of a trade or business in the
United States by the Non-U.S. Holder, or in the case of an individual Non-U.S.
Holder, such holder is present in the United States for 183 days or more in
the year of the exchange, or for certain more than 5% shareholders. See "--
Gain on Disposition of New Debentures."
76
Conversion of New Debentures. A Non-U.S. Holder generally will not
recognize gain or loss upon any conversion of a new debenture solely into
common stock.
Gain on Disposition of New Debentures. A Non-U.S. Holder generally will not
be subject to U.S. federal income tax on any gain recognized on a disposition
of a new debenture provided the Company is classified as a domestically
controlled REIT, except where such gain or loss is effectively connected with
the conduct of a U.S. trade or business by the Non-U.S. Holder or in the case
of an individual, such holder is present in the United States for 183 days or
more in the year of disposition. See the discussion under "--Taxation of Non-
U.S. Stock Holders."
Federal Estate Taxes. If interest on the new debentures is exempt from
withholding of U.S. federal income tax under the rules described above, the
new debentures will not be included in the estate of a deceased Non-U.S.
Holder for U.S. federal estate tax purposes. Common stock owned, or treated as
owned, by a Non-U.S. Holder (as specifically determined for U.S. federal
estate tax purposes) at the time of death will be included in such Non-U.S.
Holder's gross estate for U.S. federal income tax liability. Non-U.S. Holders
are urged to consult their tax advisors concerning the potential applicability
of these provisions.
PLAN OF DISTRIBUTION
We will not receive any proceeds in connection with this exchange offer.
We will distribute the new debentures and/or the shares of Series B
preferred stock in the manner described in "This Exchange Offer" above.
Each broker-dealer that receives registered new debentures or Series B
preferred stock for its own account in the exchange offer must acknowledge
that it will deliver a prospectus in connection with any resale of those new
debentures or Series B preferred stock. The letter of transmittal accompanying
this prospectus states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act of 1933, as amended. A
participating broker-dealer may use this prospectus in connection with resales
of new debentures and Series B preferred stock received in exchange for the
outstanding old debentures where those old debentures were acquired by the
broker-dealer as a result of market-making activities or other trading
activities. We have agreed that, starting on the date of this prospectus and
ending on the close of business on the day that is 180 days following the date
of this prospectus, we will make this prospectus available to any broker-
dealer for use in connection with any of those resales.
LEGAL MATTERS
The legality of the securities and certain other legal matters have been
passed upon for us by Jaeckle Fleischmann & Mugel, LLP, Buffalo, New York.
EXPERTS
The consolidated financial statements and schedules of Sizeler Property
Investors, Inc. and subsidiaries as of December 31, 2000 and 1999, and for
each of the years in the three-year period ended December 31, 2000, have been
incorporated by reference herein in reliance upon the report of KPMG LLP,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
77
$61,900,000
SIZELER PROPERTY INVESTORS, INC.
Offer to Exchange 9.0% Convertible Subordinated Debentures due July 15, 2009
and/or 10.0% Series B Cumulative Redeemable Preferred Stock
for all Outstanding 8% Convertible Subordinated Debentures Due July 15, 2003
----------------
PROSPECTUS
----------------
, 2001
In order to tender, a holder must send or deliver a properly completed and
signed letter of transmittal and any other required documents to the exchange
agent at its address set forth below or tender pursuant to DTC's Automated
Tender Offer Program.
The exchange agent for this exchange offer is:
Chase Manhattan Trust Company, National Association
By facsimile (for eligible For information or confirmation by:
institutions only):
(214) 468-6464
(214) 468-6494
Any questions or requests for assistance or for additional copies of this
prospectus, the letter of transmittal or related documents may be directed to
the information agent at its telephone number set forth below. A holder may
also contact his or her broker, dealer, commercial bank, trust company or
other nominee for assistance concerning this exchange offer.
The information agent for this exchange offer is:
Georgeson Shareholder Communications Inc.
Bankers and brokers call collect: (212) 440-9800.
All others call toll-free: (800) 223-2064.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Sizeler Property Investors, Inc. (the "Company") is organized in the State
of Maryland. The Maryland General Corporation Law ("MGCL") permits a
corporation to include in its charter a provision limiting the liability of
its directors and officers to the corporation and its stockholders for money
damages except for liability resulting from (i) actual receipt of an improper
personal benefit or profit in money, property or services or (ii) active and
deliberate dishonesty established by a final judgment as being material to the
cause of action.
The MGCL permits a corporation to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding
to which the person is made a party by reason of his or her service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, in connection with any proceeding to
which they may be made a party by reason of their service in those or other
capacities unless it is established that (i) the act or omission of the
indemnified party was material to the matter giving rise to the proceeding and
(a) was committed in bad faith or (b) was the result of active and deliberate
dishonesty, (ii) the indemnified party actually received an improper personal
benefit in money, property or services or (iii) in the case of any criminal
proceeding, the indemnified party had reasonable cause to believe that the act
or omission was unlawful.
The indemnity may include judgments, penalties, fines, settlements and
reasonable expenses actually incurred by the director or officer in connection
with the proceeding; provided, however, that if the proceeding is one by or in
the right of the Maryland corporation, indemnification is not permitted with
respect to any proceeding in which the director or officer has been adjudged
to be liable to the corporation.
In addition, a director or officer of a Maryland corporation may not be
indemnified with respect to any proceeding charging improper personal benefit
to the director or officer in which the director or officer was adjudged to be
liable on the basis that personal benefit was improperly received. The
termination of any proceeding by conviction or upon a plea of nolo contendere
or its equivalent or an entry of an order of probation prior to judgment
creates a rebuttal presumption that the director or officer did not meet the
requisite standard of conduct required for permitted indemnification. The
termination of any proceeding by judgment, order or settlement, however, does
not create a presumption that the director or officer did not meet the
requisite standard of conduct for permitted indemnification.
As a condition to advancing expenses to a director who is a party to a
proceeding, the MGCL requires the Company to obtain (a) a written affirmation
by the director or officer of his or her good faith belief that he or she has
met the standard of conduct necessary for indemnification by is and (b) a
written statement by or on his or her behalf to repay the amount paid or
reimbursed by the Company if it shall ultimately be determined that the
standard of conduct was not met.
The Company's Charter provides that the Company will indemnify its
directors and officers, whether serving the Corporation or at its request any
other entity, to the full extent required or permitted by Maryland law,
including the advance of expenses under the procedures and to the full extent
permitted by law. The Company's Charter contains a provision which limits a
director's or officer's personal liability for monetary damages to the Company
or its stockholders. The Company's Charter also provides that the Company will
indemnify other employees and agents to the extent authorized by the Company's
board of directors or the Company's Bylaws. The Bylaws of the Company do not
authorize any such indemnification for non-director, non-officer employees or
agents.
The Company has entered into an indemnification agreement (the
"Indemnification Agreement") with each of its directors and officers, and the
Board of Directors has authorized the Company to enter into an Indemnification
Agreement with each of the future directors and officers of the Company. The
MGCL permits a corporation to indemnify its directors and officers. However,
the protection that is specifically afforded by the
II-1
MGCL authorizes other arrangements for indemnification of directors and
officers, including insurance. The Indemnification Agreement is intended to
provide indemnification to the maximum extent allowable by, or not in
violation of, or offensive to, any law of the State of Maryland.
The Indemnification Agreement provides that the Company shall indemnify a
director or officer who is a party to the agreement (the "Indemnitee"), if he
or she was or is a party to or otherwise involved in any proceeding by reason
of the fact that he or she was or is a director or officer of the Company, or
was or is serving at its request in a certain capacity of another entity,
against losses incurred in connection with the defense or settlement of such
proceeding. This indemnification shall be provided to the fullest extent
permitted by the Indemnification Agreement. This is similar to the
indemnification provided by the MGCL except that indemnification is not
available under the Indemnification Agreement to the Indemnitee who pays any
amount in settlement of a proceeding without the Company's written consent.
Item 21. Exhibits.
The following exhibits are filed herewith (or incorporated by reference):
3.1 Articles of Incorporation of the Registrant (incorporated by
reference to exhibit 3(i) of the Registrant's Form 8-K filed with
the SEC on June 26, 2001).
3.2 By-Laws, as amended, of the Registrant (filed herewith).
4.1 Form of Articles Supplementary creating Registrant's 10.0% Series B
Cumulative Redeemable Preferred Stock (filed herewith).
4.2A Indenture for the Registrant's 8% Convertible Subordinated
Debentures due 2003 (incorporated by reference to the Registrant's
Form 8-K dated May 26, 1993).
4.2B First Supplemental Indenture for the Registrant's 8% Convertible
Subordinated due 2003 (incorporated by reference to exhibit (4) of
the Registrant's Form 8-K filed with the SEC on June 26, 2001).
4.3 Form of Indenture for the Registrant's 9.0% Convertible
Subordinated Debentures due July 15, 2009 (filed herewith).
5 Opinion of Jaeckle Fleischmann & Mugel, LLP regarding the legality
of securities being registered (to be filed by amendment).
8 Opinion of Jaeckle Fleischmann & Mugel, LLP regarding certain tax
matters (to be filed by amendment).
12 Statement of ratio of earnings to fixed charges (filed herewith).
23.1 Consent of KPMG LLP (filed herewith).
23.2 Consent of Jaeckle Fleischmann & Mugel, LLP (incorporated by
reference to Exhibit 5).
24 Powers of Attorney (filed herewith).
25 Statement of eligibility of Trustee (to be filed by amendment).
99.1 Form of Letter of Transmittal (to be filed by amendment).
99.2 Form of Notice to Brokers, Dealers, Commercial Banks, Trust
Companies and other Nominees (to be filed by amendment).
99.3 Form of Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and other Nominees (to be filed by
amendment).
Item 22. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
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(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(f) The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with
the rules and regulations prescribed by the Commission under Section 305(b)(2)
of the Act.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kenner, State of
Louisiana as of the 23rd day of October 2001.
Sizeler Property Investors, Inc.
/s/ Sidney W. Lassen
By: _________________________________
Sidney W. Lassen
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints each of Sidney W. Lassen or Thomas A.
Masilla, Jr., his true and lawful attorney-in-fact and agent, each with full
power of substitution and revocation, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto each attorney-in-
fact and agent, full power and authority to do and perform each such and every
act and thing requisite and necessary to be done, as fully to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and the foregoing Powers of Attorney have been signed
by the following persons in the capacities indicated and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Sidney W. Lassen Chairman of the Board and October 23, 2001
______________________________________ Chief Executive Officer
Sidney W. Lassen (Principal Executive
Officer)
/s/ Thomas A. Masilla, Jr. Vice Chairman, President October 23, 2001
______________________________________ and Director (Principal
Thomas A. Masilla, Jr. Operating Officer)
/s/ Robert A. Whelan Chief Financial Officer October 23, 2001
______________________________________ (Chief Financial and
Robert A. Whelan Principal Accounting
Officer)
/s/ J. Terrell Brown Director October 23, 2001
______________________________________
J. Terrell Brown
/s/ Francis L Fraenkel Director October 23, 2001
______________________________________
Francis L. Fraenkel
/s/ Harold B. Judell Director October 23, 2001
______________________________________
Harold B. Judell
/s/ James W. MacFarland Director October 23, 2001
______________________________________
James W. MacFarland
/s/ Richard L. Pearlstone Director October 23, 2001
______________________________________
Richard L. Pearlstone
/s/ Theodore H. Strauss Director October 23, 2001
______________________________________
Theodore H. Strauss
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