Registration Statement for Securities Offered Pursuant to a Transaction — Form S-3
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-3 Registration Statement for Securities Offered 45 272K
Pursuant to a Transaction
2: EX-3.1 Restated Articles of Incorporation 22 102K
3: EX-5.1 Opinion of David Goldberg 2± 9K
4: EX-8.1 Opinion of Hogan & Hartson 5 27K
5: EX-23.1 Consent of Ernst & Young 1 6K
S-3 — Registration Statement for Securities Offered Pursuant to a Transaction
Document Table of Contents
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PS BUSINESS PARKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 95-4300881
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
701 WESTERN AVENUE
GLENDALE, CALIFORNIA 91201-2397
(818) 244-8080
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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HARVEY LENKIN
PS BUSINESS PARKS, INC.
701 WESTERN AVENUE
GLENDALE, CALIFORNIA 91201-2397
(818) 244-8080
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
DAVID GOLDBERG, ESQ.
PS BUSINESS PARKS, INC.
701 WESTERN AVENUE
GLENDALE, CALIFORNIA 91201-2397
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
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Proposed
Maximum Proposed
Amount Offering Price Maximum Amount of
Title of Each Class of to be per Share or Aggregate Registration
Securities to be Registered Registered Unit Offering Price Fee
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Common Stock, $.01 par value
per share...................... (1)(3) (2) (1)(2)(3) N/A
Preferred Stock, $.01 par value
per share...................... (1)(4) (2) (1)(2)(4) N/A
Depositary Shares Representing
Interests in Preferred Stock... (1)(4) (2) (1)(2)(4) N/A
Equity Stock, $.01 par value per
share.......................... (1)(5) (2) (1)(2)(5) N/A
Depositary Shares Representing
Interests in Equity Stock...... (1)(5) (2) (1)(2)(5) N/A
Warrants........................ (1)(6) (2) (1)(2)(6) N/A
Total.......................... $279,509,083(7) (2) $279,509,083(7) $77,703.53(8)
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(1) In no event will the aggregate maximum offering price of all securities
issued pursuant to this Registration Statement exceed $279,509,083. Any
securities registered hereunder may be sold separately or as units with
other securities registered hereunder. 6,139,356 shares of Common Stock at
a proposed maximum aggregate offering price of $160,774,386 (pursuant to
Rule 457(c), based on the average of the high and low prices of the Common
Stock on the American Stock Exchange on May 12, 1999) being registered are
being allocated to registered resales in secondary offerings (includes any
securities issuable upon stock splits and similar transactions pursuant to
Rule 416).
(2) The proposed maximum offering price per unit will be determined, from time
to time, by the Registrant in connection with the issuance by the
Registrant of the securities registered hereunder. No separate
consideration will be received for any Depositary Shares representing
shares of Preferred Stock of the Registrant.
(3) Subject to Footnote 1, there is being registered hereunder an
indeterminate number of shares of Common Stock as may be sold, from time
to time, by the Registrant. There is also being registered hereunder an
indeterminate number of shares of Common Stock as shall be issuable upon
conversion of the Preferred Stock or the Equity Stock or exercise of
Warrants registered hereby.
(4) Subject to Footnote 1, there is being registered hereunder an
indeterminate number of shares of Preferred Stock, and Depositary Shares
representing a fractional interest in a share of Preferred Stock, as may
be sold, from time to time, by the Registrant. In the event Registrant
elects to offer to the public fractional interests in shares of the
Preferred Stock registered hereunder, Depositary Receipts will be
distributed to those persons acquiring such fractional interests and the
shares of Preferred Stock will be issued to a Depositary under a Deposit
Agreement. There is also being registered hereunder an indeterminate
number of shares of Preferred Stock as shall be issuable upon exercise of
Warrants registered hereby.
(5) Subject to Footnote 1, there is being registered hereunder an indeterminate
number of shares of Equity Stock, and Depositary Shares representing a
fractional interest in a share of Equity Stock, as may be sold, from time to
time, by the Registrant. In the event Registrant elects to offer to the
public fractional interests in shares of the Equity Stock registered
hereunder, Depositary Receipts will be distributed to those persons
acquiring such fractional interests and the shares of Equity Stock will be
issued to a Depository under a Deposit Agreement. There is also being
registered hereunder an indeterminate number of shares of Equity Stock as
shall be issuable upon exercise of Warrants registered hereby.
(6) Subject to Footnote 1, there is being registered hereunder an indeterminate
number of Warrants representing rights to purchase Common Stock, Preferred
Stock or Equity Stock, as the case may be, registered pursuant to this
Registration Statement.
(7) An additional $320,490,917 of securities were registered by Registrant under
Registration Statement No. 333-50463 (including $110,959,257 allocated to
registered resales in secondary offerings) and remain unissued or unsold.
(8) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended. $44,695.28 of the registration fee has
been allocated to the registration of the securities described in Footnote 1
for registered resales in secondary offerings. An additional $94,545
registration fee was paid by Registrant in connection with Registration
Statement No. 333-50463 (including $32,733 allocated to registered resales
in secondary offerings) with respect to securities registered thereunder
that remain unissued or unsold.
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PURSUANT TO RULE 429 OF THE RULES AND REGULATIONS UNDER THE SECURITIES ACT OF
1933, THE PROSPECTUS WHICH IS A PART OF THIS REGISTRATION STATEMENT WILL ALSO BE
USED IN CONNECTION WITH SECURITIES REGISTERED BY REGISTRANT'S REGISTRATION
STATEMENT NO. 333-50463. IN THE EVENT ANY OF SUCH PREVIOUSLY REGISTERED
SECURITIES ARE OFFERED PRIOR TO THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT THEY WILL NOT BE INCLUDED IN SUCH PROSPECTUS.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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PS Business Parks, Inc.
By this prospectus, we may offer-
Common Stock
Preferred Stock
Equity Stock
Depositary Shares
Warrants
We will provide the
specific terms of these
securities in
supplements to this
prospectus. You should
read this prospectus and
the supplements
carefully before you
invest.
This prospectus may also
be used in registered
resales of common stock
as described under "Plan
of Distribution."
Please read "Risk Factors" beginning on page 1 for a discussion of material
risks you should consider before you invest.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved the securities to be issued under this
prospectus or determined if this prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
May , 1999
You should rely only on the information contained in or incorporated by
reference in this prospectus supplement or the accompanying prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information contained in or
incorporated by reference in this prospectus supplement or the accompanying
prospectus is accurate as of any date other than the date on the front of this
prospectus supplement.
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TABLE OF CONTENTS
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Risk Factors
We are controlled by Public Storage..................................... 1
Provisions in our organizational documents may prevent changes in
control................................................................ 1
Our operating partnership poses additional risks to us.................. 1
We cannot sell certain properties without Public Storage's approval..... 2
Certain institutional investors have special rights..................... 2
We would incur adverse tax consequences if we fail to qualify as a
REIT................................................................... 2
Since we buy and operate real estate, we are subject to the general real
estate investment and operating risks.................................. 2
Our ability to control our properties may be adversely affected by
ownership through partnerships and joint ventures...................... 4
We can change our business policies and increase our level of debt
without shareholder approval........................................... 4
We can issue additional securities without shareholder approval......... 4
Increases in interest rates may adversely affect the market price of our
common stock........................................................... 4
Shares that become available for future sale may adversely affect the
market price of our common stock....................................... 5
We depend on key personnel.............................................. 5
About This Prospectus..................................................... 5
Where You Can Find More Information....................................... 6
Forward Looking Statements................................................ 7
The Company............................................................... 7
Use of Proceeds........................................................... 8
Ratio of Earnings to Fixed Charges........................................ 8
Description of Common Stock............................................... 8
Common Stock............................................................ 8
Ownership Limitations................................................... 9
Description of Preferred Stock............................................ 10
Outstanding Preferred Stock............................................. 10
Ownership Limitations................................................... 11
Future Series of Preferred Stock........................................ 11
Description of Equity Stock............................................... 14
Ownership Limitations................................................... 15
Terms of Equity Stock................................................... 15
Description of the Depositary Shares...................................... 17
Dividends............................................................... 17
Liquidation Rights...................................................... 17
Redemption.............................................................. 18
Conversion.............................................................. 18
Voting.................................................................. 18
Withdrawal of Preferred Stock........................................... 18
Amendment and Termination of Deposit Agreement.......................... 18
TABLE OF CONTENTS--(Continued)
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Charges of Depositary................................................... 19
Miscellaneous........................................................... 19
Resignation and Removal of Depositary................................... 19
Federal Income Tax Considerations....................................... 19
Description of Warrants................................................... 20
Certain Federal Income Tax Considerations................................. 20
Taxation of the Company................................................. 21
Taxation of U.S. Shareholders Holding Common Stock...................... 26
Taxation of Non-U.S. Shareholders....................................... 28
Administration's Proposed Changes to REIT Qualification Requirements.... 30
Tax Aspects of the Company's Ownership of Interests in the Operating
Partnership............................................................ 31
Taxation of Holders of Preferred Stock, Equity Stock, Depositary Shares
and Warrants........................................................... 33
State and Local Taxes................................................... 33
Plan of Distribution...................................................... 33
Legal Opinions............................................................ 36
Experts................................................................... 36
RISK FACTORS
Before investing in our securities, you should consider the following risks
and detriments:
We are controlled by Public Storage.
Public Storage owns a substantial number of our shares. At April 30, 1999,
Public Storage owned 22% of the outstanding shares of our common stock (41%
upon conversion of its interest in our operating partnership). Consequently,
Public Storage has the ability to effectively control all matters submitted to
a vote of our shareholders, including electing directors, changing our
articles of incorporation, dissolving and approving other extraordinary
transactions. In addition, Public Storage's ownership may make it more
difficult for another party to take over our company without Public Storage's
approval.
Public Storage has a voting agreement with another large shareholder. Public
Storage and an institutional shareholder owning 26% of our common stock as of
April 30, 1999 have both agreed to vote their shares to support specified
nominees to our board of directors until the voting agreement expires, which
is not before December 2001. This voting agreement further strengthens Public
Storage's control of our company.
Provisions in our organizational documents may prevent changes in control.
Our articles generally prohibit owning more than 7% of our shares. Our
articles of incorporation restrict the number of shares that may be owned by
any other person, and the partnership agreement of our operating partnership
contains an anti-takeover provision. No shareholder (other than Public Storage
and certain other specified shareholders) may own more than 7% of the
outstanding shares of our common stock, unless our board of directors waives
this limitation. We imposed this limitation to avoid, to the extent possible,
a concentration of ownership that might jeopardize our ability to qualify as a
real estate investment trust, or REIT. This limitation, however, also makes a
change of control much more difficult (if not impossible) even if it may be
favorable to our public shareholders. These provisions will prevent future
takeover attempts not approved by Public Storage even if a majority of our
public shareholders consider it to be in their best interests because they
would receive a premium for their shares over the shares' then market value or
for other reasons.
Our board can set the terms of certain securities without shareholder
approval. Our board of directors is authorized, without shareholder approval,
to issue up to 50,000,000 shares of preferred stock and up to 100,000,000
shares of equity stock, in each case in one or more series. Our board has the
right to set the terms of each of these series of stock. Consequently, the
board could set the terms of a series of stock that could make it difficult
(if not impossible) for another party to take over our company even if it
might be favorable to our public shareholders. Our articles of incorporation
also contain other provisions that could have the same effect. We can also
cause our operating partnership to issue additional interests for cash or in
exchange for property.
The partnership agreement of our operating partnership restricts
mergers. The partnership agreement of our operating partnership provides that
generally we may not merge or engage in a similar transaction unless limited
partners of our operating partnership are entitled to receive the same
proportionate payments as our shareholders. Also we have agreed not to merge
unless the merger would have been approved had the limited partners been able
to vote together with our shareholders. These provisions may also make it more
difficult for us to merge.
Our operating partnership poses additional risks to us.
Limited partners of our operating partnership, including Public Storage,
have the right to vote on certain changes to the partnership agreement. They
may vote in a way that is against the interests of our shareholders. Also, as
general partner of our operating partnership, we are required to protect the
interests of the limited partners of our operating partnership. The interests
of the limited partners and of our shareholders may differ.
We cannot sell certain properties without Public Storage's approval.
Before 2007, we may not sell 13 specified properties without Public
Storage's approval. Since Public Storage would be taxed on a sale of these
properties, the interests of Public Storage and our shareholders may differ as
to the best time to sell.
Certain institutional investors have special rights.
Certain institutional investors have rights, such as the right to approve
nominees to our board of directors, the right to purchase our securities in
certain circumstances and the right to require registration of their shares,
not available to our public shareholders.
We would incur adverse tax consequences if we fail to qualify as a REIT.
Our cash flow is reduced if we fail to qualify as a REIT. While we believe
that we have qualified since 1990 to be taxed as a REIT, and will continue to
be qualified, we cannot be certain. To continue to qualify as a REIT, we need
to satisfy certain requirements under the federal income tax laws relating to
our income, assets, distributions to shareholders and shareholder base. In
this regard, the share ownership limits in our articles of incorporation do
not necessarily ensure that our shareholder base is sufficiently diverse for
us to qualify as a REIT. For any year we fail to qualify as a REIT, we would
be taxed at regular corporate tax rates on our taxable income unless certain
relief provisions apply. Taxes would reduce our cash available for
distributions to shareholders or for reinvestment, which could adversely
affect us and our shareholders. Also we would not be allowed to elect REIT
status for five years after we fail to qualify unless certain relief
provisions apply.
Our cash flow is reduced if our predecessor failed to qualify as a REIT. For
us to qualify to be taxed as a REIT, our predecessor, American Office Park
Properties, also needed to qualify to be taxed as a REIT. We believe American
Office Park Properties qualified as a REIT beginning in 1997 until its March
1998 merger with us. If it is determined that it did not qualify as a REIT, we
could also lose our REIT qualification. Before 1997, our predecessor was a
taxable corporation and, to qualify as a REIT, was required to distribute all
of its profits before the end of 1996. While we believe American Office Park
Properties qualified as a REIT since 1997, we did not obtain an opinion of an
outside expert at the time of its merger with us.
We may need to borrow funds to meet our REIT distribution requirements. To
qualify as a REIT, we must generally distribute to our shareholders 95% of our
taxable income. Our income consists primarily of our share of our operating
partnership's income. We intend to make sufficient distributions to qualify as
a REIT and otherwise avoid corporate tax. However, differences in timing
between income and expenses and the need to make nondeductible expenditures
such as capital improvements and principal payments on debt could force us to
borrow funds to make necessary shareholder distributions.
Since we buy and operate real estate, we are subject to the general real
estate investment and operating risks.
Summary of real estate risks. We own and operate commercial properties and
are subject to the risks of owning real estate generally and commercial
properties in particular. These risks include:
. the national, state and local economic climate and real estate
conditions, such as oversupply of or reduced demand for space and
changes in market rental rates;
. how prospective tenants perceive the attractiveness, convenience and
safety of our properties;
. our ability to provide adequate management, maintenance and insurance;
. our ability to collect rent from tenants on a timely basis;
. the expense of periodically renovating, repairing and reletting spaces;
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. increasing operating costs, including real estate taxes and utilities,
if these increased costs cannot be passed through to tenants; and
. changes in tax, real estate and zoning laws.
Certain significant costs, such as mortgage payments, real estate taxes,
insurance and maintenance costs, generally are not reduced even when a
property's rental income is reduced. In addition, environmental and tax laws,
interest rate levels, the availability of financing and other factors may
affect real estate values and property income. Furthermore, the supply of
commercial space fluctuates with market conditions.
If our properties do not generate sufficient income to meet operating
expenses, including any debt service, tenant improvements, leasing commissions
and other capital expenditures, we may have to borrow additional amounts to
cover fixed costs, and we may have to reduce our distributions to
shareholders.
We only recently acquired many of our properties. We have recently acquired
many of our properties and intend to continue to acquire additional
properties. As of March 31, 1999, approximately 36% of our properties' square
footage was not managed by us before January 1, 1998. We may not be aware of
problems with newly acquired properties that could affect their value, and
their operating performance may be less than we anticipate. Also, we may have
difficulty integrating new acquisitions into our existing portfolio.
We may encounter significant delays in reletting vacant space, resulting in
losses of income. When leases expire, we will incur expenses and we may not be
able to release the space on the same terms. Certain leases provide tenants
with the right to terminate early if they pay a fee. While we have estimated
our cost of renewing leases that expire in 1999, our estimates could be wrong.
If we are unable to release space promptly, if the terms are significantly
less favorable than anticipated or if the costs are higher, we may have to
reduce our distributions to shareholders.
Tenant defaults and bankruptcies may reduce our cash flow and
distributions. We may have difficulty in collecting from tenants in default,
particularly if they declare bankruptcies. This could affect our cash flow and
distributions to shareholders.
We may be adversely affected by significant competition among commercial
properties. Many other commercial properties compete with our properties for
tenants and we expect that new properties will be built in our markets. Also,
we compete with other buyers, many of whom are larger than us, for attractive
commercial properties. Therefore, we may not be able to grow as rapidly as we
would like.
We may be adversely affected if losses on our properties are not covered by
insurance. We carry insurance on our properties that we believe is comparable
to the insurance carried by other operators for similar properties. However,
we could suffer uninsured losses that adversely affect us or even result in
loss of the property. We might still remain liable on any mortgage debt
related to that property.
The illiquidity of our real estate investments may prevent us from adjusting
our portfolio to respond to market changes. There may be delays and
difficulties in selling real estate. Therefore, we cannot easily change our
portfolio when economic conditions change. Also, tax laws limit a REIT's
ability to sell properties held for less than four years.
We may be adversely affected by changes in laws. Increases in income and
service taxes may reduce our cash flow and ability to make expected
distributions to our shareholders. Our properties are also subject to various
federal, state and local regulatory requirements, such as state and local fire
and safety codes. If we fail to comply with these requirements, governmental
authorities could fine us or courts could award damages against us. We believe
our properties comply with all significant legal requirements. However, these
requirements could change in a way that would reduce our cash flow and ability
to make distributions to shareholders.
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We may incur significant environmental remediation costs. Under various
federal, state and local environmental laws an owner or operator of real
estate interests may have to clean spills or other releases of hazardous or
toxic substances on or from a property. Certain environmental laws impose
liability whether or not the owner knew of, or was responsible for, the
presence of the hazardous or toxic substances. In some cases, liability may
exceed the value of the property. The presence of toxic substances, or the
failure to properly remedy any resulting contamination, may make it more
difficult for the owner or operator to sell, lease or operate its property or
to borrow money using its property as collateral. Future environmental laws
may impose additional material liabilities on us.
In May 1998, we bought a property in Beaverton, Oregon known as Creekside
Corporate Park. Under a consent order issued by the Oregon environmental
agency, the current and past owners of the property are conducting an
environmental remedial investigation of a property next to Creekside Corporate
Park, which is owned by Mattel Corporation. We are not a party to the consent
order. As part of the consent order, the Oregon environmental agency ordered
the property owners to sample soil and groundwater on our property to
determine the nature and extent of contamination resulting from past
industrial operations at the Mattel property. We executed access agreements
with the current and former property owners to allow access to our property to
conduct the required sampling and testing. The sampling and testing is
ongoing, and preliminary results from one area indicate that the contamination
from the Mattel property may have migrated onto a portion of the Creekside
Corporate Park that we own.
We believe that we bear no responsibility or liability for the
contamination. If we are held responsible for any costs related to this
matter, we believe that the party from whom the property was purchased will be
responsible for any expenses or liabilities that we may incur as a result of
this contamination.
We may be affected by the Americans with Disabilities Act. The Americans
with Disabilities Act of 1990 requires that access and use by disabled persons
of all public accommodations and commercial properties be facilitated.
Existing commercial properties must be made accessible to disabled persons.
While we have not estimated the cost of complying with this act, we do not
believe the cost will be significant.
Our ability to control our properties may be adversely affected by ownership
through partnerships and joint ventures.
We own most of our properties through our operating partnership. Our
organizational documents do not limit our investment of funds with others in
partnerships or joint ventures. This type of investment may present additional
risks. For example, our partners may have interests that differ from ours or
that conflict with ours, or our partners may become bankrupt.
We can change our business policies and increase our level of debt without
shareholder approval.
Our board of directors establishes our investment, financing, distribution
and our other business policies and may change these policies without
shareholder approval. Our organizational documents do not limit our level of
debt. A change in our policies or an increase in our level of debt could
adversely affect our operations or the price of our common stock.
We can issue additional securities without shareholder approval.
We can issue preferred and common stock without shareholder approval.
Holders of preferred stock have priority over holders of common stock, and the
issuance of additional shares of common stock reduces the interest of existing
holders in our company.
Increases in interest rates may adversely affect the market price of our
common stock.
One of the factors that influences the market price of our common stock is
the annual rate of distributions that we pay on our common stock, as compared
with interest rates. An increase in interest rates may lead
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purchasers of REIT shares to demand higher annual distribution rates, which
could adversely affect the market price of our common stock.
Shares that become available for future sale may adversely affect the market
price of our common stock.
Substantial sales of our common stock, or the perception that substantial
sales may occur, could adversely affect the market price of our common stock.
Certain of our shareholders hold significant numbers of shares of our common
stock and, subject to compliance with applicable securities laws, could sell
their shares.
We depend on key personnel.
We depend on our executive officers, including Ronald L. Havner, Jr., our
chief executive officer and president, and Mary Jayne Howard, our chief
operating officer and executive vice president. The loss of either of these
executive officers could adversely affect our operations. We maintain no key
person insurance on either of them.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission using a "shelf" registration process. Under
this shelf process, we may sell from time to time up to $600,000,000 of our
common stock, preferred stock, equity stock, depositary shares and warrants,
in any combination. This prospectus provides a general description of the
securities that we may offer. Each time we offer any of the types of
securities described in this prospectus, we will prepare and distribute a
prospectus supplement that will contain a description of the specific terms of
the securities being offered and of the offering. The prospectus supplement
may also supplement the information contained in this prospectus. You should
read both this prospectus and the applicable prospectus supplement, together
with the additional information described under the heading "Where You Can
Find More Information," before purchasing any securities.
This prospectus may also be used in registered resales of common stock as
described under "Plan of Distribution."
Unless otherwise indicated or unless the context requires otherwise, all
references in this prospectus to "the Company," "we," "us," "our" and similar
references mean PS Business Parks, Inc. and its subsidiaries, including PS
Business Parks, L.P. All references in this prospectus to "our operating
partnership" mean PS Business Parks, L.P.
5
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act
of 1934, and are required to file annual, quarterly and special reports with
the Securities and Exchange Commission. You may read and copy any of these
documents at the Commission's public reference rooms at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices at Seven World Trade Center, 13th Floor, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. You may telephone the Commission at 1-800-SEC-0330 for
further information on the Commission's public reference facilities. The
Commission also maintains a computer site on the World Wide Web
(http://www.sec.gov) that contains the reports, proxy and information
statements and other information that we and other registrants file
electronically with the Commission. You can also inspect reports and other
information we file at the offices of the American Stock Exchange, Inc., 86
Trinity Place, New York, New York 10006.
We have filed a registration statement on Form S-3, of which this prospectus
is a part, with the Commission to register offers and sales of the securities
described in this prospectus under the Securities Act of 1933. The
registration statement contains additional information about us and the
securities. You may read the registration statement and its exhibits without
charge at the office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, or on the Commission's World Wide Web site, and you may obtain
copies of it from the Commission at prescribed rates.
The Commission allows us to provide information about our business and other
important information to you by "incorporating by reference" the information
we file with the Commission, which means that we can disclose that information
to you by referring in this prospectus to the documents we file with the
Commission. Under the Commission's regulations, any statement contained in a
document incorporated by reference in this prospectus is automatically updated
and superseded by any information contained in this prospectus, or in any
subsequently filed document of the types described below.
We incorporate into this prospectus by reference the following documents
filed by us with the Commission, each of which should be considered an
important part of this prospectus:
[Download Table]
SEC Filing (File No. 1-10709) Period Covered or Date of Filing
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Annual Report on Form 10-K...................... Year ended December 31, 1998
Quarterly Report on Form 10-Q................... Quarter ended March 31, 1999
Current Report on Form 8-K...................... Dated April 28, 1999
Description of our common stock contained in
Registration Statement on Form 8-A, as
supplemented by the description of our common
stock contained in this prospectus............. Effective March 15, 1991
All subsequent documents filed by us under
Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act of 1934........................... After the date of this prospectus
and before the termination of the
offering
You may request a copy of each of our filings at no cost, by writing or
telephoning us at the following address, telephone or facsimile number:
Investor Services Department
PS Business Parks, Inc.
701 Western Avenue
Glendale, California 91201-2397
Telephone: (800) 807-3055
(800) 421-2856
(818) 244-8080
Facsimile: (818) 241-0627
Exhibits to a document will not be provided unless they are specifically
incorporated by reference in that document.
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FORWARD-LOOKING STATEMENTS
Some of the information included or incorporated by reference in this
prospectus contains forward-looking statements, such as those pertaining to
our portfolio performance and future results of operations, market conditions
and prospects. The pro forma financial statements and other pro forma
information incorporated by reference in this prospectus also contain forward-
looking statements. You can identify forward-looking statements by their use
of forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "intends," "plans," "pro forma," "estimates" or
"anticipates" or the negative of these words and phrases or similar words or
phrases. Discussion of strategy, plans or intentions also include forward-
looking statements.
Forward-looking statements inherently involve risks and uncertainties and
you should not rely on them as predictions of future events. The factors
described above under the heading "Risk Factors," as well as changes in the
commercial real estate market and the general economy, could cause future
events and actual results to differ materially from those set forth or
contemplated in the forward-looking statements.
THE COMPANY
We are a self-advised and self-managed real estate investment trust or REIT
that acquires, develops, owns and operates commercial properties. We are the
sole general partner of our operating partnership, PS Business Parks, L.P.,
through which we conduct most of our activities. At March 31, 1999, we owned
approximately 73% of our operating partnership with substantially all of the
balance owned by Public Storage, Inc.
In a March 1998 merger with American Office Park Properties, Inc., we
acquired the commercial property business previously operated by Public
Storage and were renamed "PS Business Parks, Inc." At March 31, 1999, we owned
114 commercial properties in 11 states containing approximately 11.3 million
square feet of space.
We elected to be taxed as a REIT beginning with our 1990 taxable year. To
the extent that we continue to qualify as a REIT, we will not be taxed, with
certain limited exceptions, on the net income that we distribute currently to
our shareholders. We were incorporated in California in 1990. Our principal
executive offices are located at 701 Western Avenue, Glendale, California
91201-2397. Our telephone number is (818) 244-8080.
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USE OF PROCEEDS
We intend to use the net proceeds from the sale of the securities described
in this prospectus for the acquisition of commercial properties, repayment of
our outstanding debt and for general business purposes. Pending their use, we
may invest the net proceeds in short-term, interest bearing securities.
RATIO OF EARNINGS TO FIXED CHARGES
We compute our ratio of earnings to combined fixed charges and preferred
stock dividends by dividing our earnings by our fixed charges. Earnings
consists of net income before minority interest in income, loss on early
extinguishment of debt and gain on disposition of real estate plus fixed
charges less the portion of minority interest in income which does not
contribute to fixed charges. In computing our ratio for periods prior to
March 17, 1998, we used the operations and fixed charges of American Office
Park Properties, Inc., our predecessor for accounting and financial reporting
purposes.
[Download Table]
For the Three
Months Ended
March 31, For the Year Ended December 31,
------------- ------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ----- --------- ---- ---- ----
Ratio of earnings to combined
fixed charges and preferred
stock dividends.............. 12.17 29.92 16.34 12,403.00 N/A N/A N/A
N/A--not applicable as we did not have any fixed charges in this period.
DESCRIPTION OF COMMON STOCK
We are authorized to issue 100,000,000 shares of common stock. At April 30,
1999, we had outstanding 23,637,410 shares of common stock (exclusive of a
total of 7,903,666 shares issuable upon exchange of interests in our operating
partnership and shares subject to options).
Common Stock
The following description of our common stock sets forth certain general
terms and provisions of the common stock to which any prospectus supplement
may relate, including a prospectus supplement providing that common stock will
be issuable upon conversion of preferred stock or upon the exercise of
warrants. The statements below describing our common stock are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of our articles of incorporation and bylaws.
Holders of our common stock will be entitled to receive dividends when, as
and if declared by our board of directors, out of funds legally available
therefor. Payment and declaration of dividends on our common stock and
purchases of shares of common stock by us will be subject to certain
restrictions if we fail to pay dividends on outstanding preferred stock. See
"Description of Preferred Stock." Upon any liquidation, dissolution or winding
up of the Company, holders of common stock will be entitled to share equally
and ratably in any assets available for distribution to them, after payment or
provision for payment of the debts and our other liabilities and the
preferential amounts owing with respect to any of our outstanding preferred
stock. Holders of our common stock have no preemptive rights, except such as
have been provided to certain of our shareholders by contract, which means
public shareholders have no right to acquire any additional shares of common
stock that we may issue at a later date.
Each outstanding share of our common stock entitles the holder to one vote
on all matters presented to our holders for a vote, with the exception that
they have cumulative voting rights with respect to the election of our board
of directors, in accordance with California law. Cumulative voting means that
each holder of our common stock is entitled to cast as many votes as there are
directors to be elected multiplied by the number of shares
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registered in his or her name. A holder of our common stock may cumulate the
votes for directors by casting all of the votes for one candidate or by
distributing the votes among as many candidates as he or she chooses. The
outstanding shares of our common stock are, and additional shares of common
stock will be, when issued, fully paid and nonassessable.
The rights, preferences and privileges of holders of our common stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of our preferred stock or our equity stock which we may
designate and issue in the future. See "Description of Preferred Stock" and
"Description of Equity Stock."
Ownership Limitations
For us to qualify as a REIT under the Code, no more than 50% in value of our
outstanding shares of capital stock may be owned, directly or constructively
under the applicable attribution rules of the Code, by five or fewer
individuals (as defined in the Code to include certain entities) during the
last half of a taxable year. In order to maintain our qualification as a REIT,
our articles of incorporation provide certain restrictions on the shares of
capital stock that any shareholder may own.
Our articles of incorporation provide that, subject to certain exceptions,
no holder may own, or be deemed to own by virtue of the attribution provisions
of the Code, more than (A) 7.0% of the outstanding shares of our common stock
and (B) 9.9% of the outstanding shares of each class or series of shares of
our preferred stock or equity stock and that all shares of stock be imprinted
with a legend setting forth that restriction. Our articles of incorporation
provide, however, that no person shall be deemed to exceed the ownership limit
solely by reason of the beneficial ownership of shares of any class of stock
to the extent that such shares of stock were beneficially owned by such person
(including Public Storage) upon completion of, and after giving effect to, the
merger with American Office Park Properties. Thus, this limitation does not
affect the ownership of common stock held by Public Storage and certain other
shareholders at the time of the merger. Furthermore, the limitation does not
apply with respect to shares of stock deemed to be owned by a person as a
result of such person's ownership of shares of Public Storage (however, such
ownership will be taken into account in determining whether a subsequent
acquisition or transfer of our shares (but not Public Storage) violates the
ownership limit). The ownership limitation is intended to assist in preserving
our REIT status in view of Public Storage's substantial ownership interest in
us and the Hughes family's substantial ownership interest in Public Storage.
There can be no assurance, however, that such ownership limit will enable us
to satisfy the requirement that a REIT not be "closely held" within the
meaning of Section 856(h) of the Code for any given taxable year, in part as a
result of the provision described above providing that the ownership
limitation generally does not apply to our shares deemed to be owned as a
result of a person's ownership of shares of Public Storage.
Our articles of incorporation provide that our board of directors, in its
sole and absolute discretion, may grant exceptions to the ownership limits, so
long as (A) our board has determined that we would not be "closely held"
within the meaning of Section 856(h) of the Code (without regard to whether
the event in question takes place during the second half of a taxable year)
and would not otherwise fail to qualify as a REIT, after giving effect to an
acquisition by an excepted person of beneficial ownership of the maximum
amount of capital stock permitted as a result of the exception to be granted,
and taking into account the existing and permitted ownership by other persons
of stock (taking into account any other exceptions granted) and (B) the
excepted persons provide to our board such representations and undertakings as
our board may require. In any case, no holder may own or acquire, either
directly, indirectly or constructively under the applicable attribution rules
of the Code, any shares of any class of capital stock if such ownership or
acquisition (i) would cause more than 50% in value of outstanding capital
stock to be owned, either directly or constructively, under the applicable
attribution rules of the Code, by five or fewer individuals (as defined in the
Code to include certain tax-exempt entities, other than, in general, qualified
domestic pension funds), (ii) would result in the Company's stock being
beneficially owned by less than 100 persons (determined without reference to
any rules of attribution), or (iii) would otherwise result in our failing to
qualify as a REIT.
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Our articles of incorporation generally provide that if any holder of
capital stock purports to transfer shares to a person or there is a change in
our capital structure, and either the transfer or the change in capital
structure would result in our failing to qualify as a REIT, or such transfer
or the change in capital structure would cause the transferee to hold shares
in excess of the applicable ownership limit, then the shares causing the
violation will be automatically transferred to a trust for the benefit of a
designated charitable beneficiary. The purported transferee of those shares
will have no right to receive dividends or other distributions with respect to
them and will have no right to vote the shares. Any dividends or other
distributions paid to such purported transferee prior to the discovery by us
that the shares have been transferred to a trust will be paid to the trustee
of the trust for the benefit of the charitable beneficiary upon demand. The
trustee will designate a transferee of those shares so long as the shares
would not violate the restrictions on ownership or transfer in the articles of
incorporation in the hands of the designated transferee. Upon the sale of such
shares, the purported transferee will receive out of any proceeds remaining
after payment of expenses of the charitable trust and us the lesser of (A)(i)
the price per share such purported transferee paid for the stock in the
purported transfer that resulted in the transfer of the shares to the trust,
or (ii) if the transfer or other event that resulted in the transfer of the
shares to the trust was not a transaction in which the purported transferee
gave full value for such shares, a price per share equal to the market price
on the date of the purported transfer or other event that resulted in the
transfer of the shares to the trust and (B) the price per share received by
the trustee from the sale or other disposition of the shares held in the
trust. Each purported transferee shall be deemed to have waived any claims
such purported transferee may have against the trustee and us arising from the
disposition of the shares, except for claims arising from the trustee's or our
gross negligence, willful misconduct, or failure to make payments when
required by the articles of incorporation.
DESCRIPTION OF PREFERRED STOCK
We are authorized to issue 50,000,000 shares of preferred stock. At April
30, 1999, we had 2,200 outstanding shares of preferred stock (represented by
2,200,000 depositary shares) and 510,000 shares reserved for issuance. Our
articles of incorporation provide that the preferred stock may be issued from
time to time in one or more series and give our board of directors broad
authority to fix the dividend and distribution rights, conversion and voting
rights, if any, redemption provisions and liquidation preferences of each
series of preferred stock. Holders of preferred stock have no preemptive
rights. The preferred stock will be, when issued, fully paid and
nonassessable.
Although the issuance of preferred stock with special voting rights (or
common stock) could be used to deter attempts to obtain control of us in
transactions not approved by our board of directors, we have no present
intention to issue stock for that purpose.
Outstanding Preferred Stock
At April 30, 1999, we had outstanding a series of preferred stock. It
(1) has a stated value of $25 per depositary share, (2) in preference to the
holders of shares of our common stock and any other capital stock ranking
junior to the preferred stock as to payment of dividends, provides for
cumulative quarterly dividends of 9 1/4% of the stated value and (3) is
subject to redemption, in whole or in part, at our option at a cash redemption
price of $25 per depositary share, plus accrued and unpaid dividends, on and
after April 30, 2004.
In the event of our voluntary or involuntary liquidation, dissolution or
winding up, the holders of the preferred stock will be entitled to receive out
of our assets available for distribution to shareholders, before any
distribution of assets is made to holders of our common stock or any other
shares of capital stock ranking as to such distributions junior to the
preferred stock, liquidating distributions in the amount of $25 per depositary
share, plus all accrued and unpaid dividends.
Except as expressly required by law and in certain other limited
circumstances, holders of the preferred stock are not entitled to vote. The
consent of holders of at least 66 2/3% of the outstanding shares of the
preferred stock (and any other series of preferred stock ranking on a parity
therewith), voting as a single class, is required to authorize another class
of shares senior to the preferred stock.
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Ownership Limitations
For a discussion of the ownership limitations that apply to preferred stock,
see "Description of Common Stock--Ownership Limitations."
Future Series of Preferred Stock
The following description of preferred stock sets forth certain general
terms and provisions of the preferred stock to which any prospectus supplement
may relate. The statements below describing the preferred stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of our articles of incorporation (including the
applicable form of certificate of determination) and bylaws.
Reference is made to the prospectus supplement relating to the preferred
stock offered thereby for specific terms, including, where applicable, the
following: (1) the title and stated value of such preferred stock; (2) the
number of shares of such preferred stock offered, the liquidation preference
per share and the offering price of such preferred stock; (3) the dividend
rate(s), period(s) and/or payment date(s) or method(s) of calculation
applicable to such preferred stock; (4) the date from which dividends on such
preferred stock shall accumulate, if applicable; (5) the provision for a
sinking fund, if any, for such preferred stock; (6) the provision for
redemption, if applicable, of such preferred stock; (7) any listing of such
preferred stock on any securities exchange; (8) the terms and conditions, if
applicable, upon which such preferred stock will be convertible into common
stock, including the conversion price (or manner of calculation); (9) the
voting rights, if any, of such preferred stock; (10) any other specific terms,
preferences, rights, limitations or restrictions of such preferred stock; (11)
the relative ranking and preferences of such preferred stock as to dividend
rights and rights upon liquidation, dissolution or winding up of our affairs;
and (12) any limitations on issuance of any series of preferred stock ranking
senior to or on a parity with such series of preferred stock as to dividend
rights and rights upon liquidation, dissolution or winding up of our affairs.
Ranking. The ranking of the preferred stock is set forth in the applicable
prospectus supplement. Unless otherwise specified in the applicable prospectus
supplement, such preferred stock will, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of our affairs, rank (i)
senior to the common stock, any additional class of common stock and any
series of preferred stock expressly made junior to such preferred stock; (ii)
on a parity with all preferred stock previously issued by us the terms of
which specifically provide that such preferred stock rank on a parity with the
preferred stock offered hereby; and (iii) junior to all preferred stock
previously issued by us the terms of which specifically provide that such
preferred stock rank senior to the preferred stock offered hereby.
Dividends. Holders of shares of the preferred stock of each series offered
hereby will be entitled to receive, when, as and if declared by our board of
directors, out of our assets legally available for payment, cash dividends at
such rates and on such dates as will be set forth in the applicable prospectus
supplement. Each such dividend shall be payable to holders of record as they
appear on the stock transfer books of the Company on such record dates as
shall be fixed by our board of directors.
Dividends on any series of the preferred stock offered hereby may be
cumulative or non-cumulative, as provided in the applicable prospectus
supplement. Dividends, if cumulative, will be cumulative from and after the
date set forth in the applicable prospectus supplement. If our board of
directors fails to declare a dividend payable on a dividend payment date on
any series of the preferred stock for which dividends are noncumulative, then
the holders of such series of the preferred stock will have no right to
receive a dividend in respect of the dividend period ending on such dividend
payment date, and we will have no obligation to pay the dividend accrued for
such period, whether or not dividends on such series are declared payable on
any future dividend payment date.
No dividends (other than in common stock or other capital stock ranking
junior to the preferred stock of any series 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 us ranking junior to
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or on a parity with the preferred stock of such series as to dividends or upon
liquidation), nor will any common stock or any other of our capital stock
ranking junior to or on a parity with the preferred stock of such series as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking
fund for the redemption of any shares of any such stock) by us (except by
conversion into or exchange for other capital stock of us ranking junior to
the preferred stock of such series as to dividends and upon liquidation)
unless (i) if such series of preferred stock has a cumulative dividend, full
cumulative dividends on the preferred stock of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and
the then current dividend period, and (ii) if such series of preferred stock
does not have a cumulative dividend, full dividends on the preferred stock of
such series have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for the
then current dividend period.
Any dividend payment made on shares of a series of cumulative preferred
stock offered hereby will first be credited against the earliest accrued but
unpaid dividend due with respect to shares of such series which remains
payable.
Redemption. If so provided in the applicable prospectus supplement, the
shares of preferred stock will be subject to mandatory redemption or
redemption at our option, in whole or in part, in each case upon the terms, at
the times and at the redemption prices set forth in such prospectus
supplement.
The prospectus supplement relating to a series of preferred stock offered
hereby that is subject to mandatory redemption will specify the number of
shares of such preferred stock that will be redeemed by us in each year
commencing after a date to be specified, at a redemption price per share to be
specified, together with an amount equal to all accrued and unpaid dividends
thereon (which will not, if such preferred stock does not have a cumulative
dividend, include any accumulation in respect of unpaid dividends for prior
dividend periods) to the date of redemption. The redemption price may be
payable in cash, securities or other property, as specified in the applicable
prospectus supplement.
Notwithstanding the foregoing, no shares of any series of preferred stock
offered hereby will be redeemed and we will not purchase or otherwise acquire
directly or indirectly any shares of preferred stock of such series (except by
conversion into or exchange for capital stock of us ranking junior to the
preferred stock of such series as to dividends and upon liquidation) unless
all outstanding shares of preferred stock of such series are simultaneously
redeemed unless, in each case, (i) if such series of preferred stock has a
cumulative dividend, full cumulative dividends on the preferred stock of such
series 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 and (ii) if such
series of preferred stock does not have a cumulative dividend, full dividends
on the preferred stock of such series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period; provided, however,
that the foregoing shall not prevent the purchase or acquisition of shares of
preferred stock of such series pursuant to a purchase or exchange offer made
on the same terms to holders of all outstanding shares of preferred stock of
such series.
If fewer than all of the outstanding shares of preferred stock of any series
offered hereby are to be redeemed, the number of shares to be redeemed will be
determined by us and such shares may be redeemed pro rata from the holders of
record of such shares in proportion to the number of such shares held by such
holders (with adjustments to avoid redemption of fractional shares) or any
other equitable method determined by us.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of preferred stock of
any series to be redeemed at the address shown on our stock transfer books.
Each notice will state: (i) the redemption date; (ii) the number of shares and
series of the preferred stock to be redeemed; (iii) the redemption price; (iv)
the place or places where certificates for such preferred stock are to be
surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed
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will cease to accrue on such redemption date; and (vi) the date upon which the
holder's conversion rights, if any, as to such shares shall terminate. If
fewer than all the shares of preferred stock of any series are to be redeemed,
the notice mailed to each such holder thereof shall also specify the number of
shares of preferred stock to be redeemed from each such holder and, upon
redemption, a new certificate shall be issued representing the unredeemed
shares without cost to the holder thereof. In order to facilitate the
redemption of shares of preferred stock, our board of directors may fix a
record date for the determination of shares of preferred stock to be redeemed,
such record date to be not less than 30 or more than 60 days prior to the date
fixed for such redemption.
Notice having been given as provided above, from and after the date
specified therein as the date of redemption, unless we default in providing
funds for the payment of the redemption price on such date, all dividends on
the preferred stock called for redemption will cease. From and after the
redemption date, unless we so default, all rights of the holders of the
preferred stock as our shareholders, except the right to receive the
redemption price (but without interest), will cease.
Subject to applicable law and the limitation on purchases when dividends on
preferred stock are in arrears, we may, at any time and from time to time,
purchase any shares of preferred stock in the open market, by tender or by
private agreement.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding up of our affairs, then, before any distribution or
payment shall be made to the holders of any common stock or any other class or
series of our capital stock ranking junior to any series of the preferred
stock in the distribution of assets upon our liquidation, dissolution or
winding up, the holders of such series of preferred stock will be entitled to
receive out of our assets legally available for distribution to shareholders
liquidating distributions in the amount of the liquidation preference per
share (set forth in the applicable prospectus supplement), plus an amount
equal to all dividends accrued and unpaid thereon (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if such
preferred stock does not have a cumulative dividend). After payment of the
full amount of the liquidating distributions to which they are entitled, the
holders of preferred stock will have no right or claim to any of our remaining
assets. In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up, our legally available assets are insufficient to
pay the amount of the liquidating distributions on all outstanding shares of
any series of preferred stock and the corresponding amounts payable on all
shares of other classes or series of our capital stock ranking on a parity
with the preferred stock in the distribution of assets upon liquidation,
dissolution or winding up, then the holders of such series of preferred stock
and all other such classes or series of capital stock shall share ratably in
any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
preferred stock, our remaining assets will be distributed among the holders of
any other classes or series of capital stock ranking junior to such series of
preferred stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, our consolidation or merger
with or into any other corporation, or the sale, lease, transfer or conveyance
of all or substantially all of our property or business will not be deemed to
constitute a liquidation, dissolution or winding up.
Voting Rights. Holders of the preferred stock offered hereby will not have
any voting rights, except as set forth below or as otherwise expressly
required by law or as indicated in the applicable prospectus supplement.
If the equivalent of six quarterly dividends payable on any series of
preferred stock are in default (whether or not declared or consecutive), the
holders of all such series of preferred stock, voting as a single class with
all other series of preferred stock upon which similar voting rights have been
conferred and are exercisable, will be entitled to elect two additional
directors until all dividends in default have been paid or declared and set
apart for payment.
Such right to vote separately to elect directors shall, when vested, be
subject, always, to the same provisions for vesting of such right to elect
directors separately in the case of future dividend defaults. At any time when
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such right to elect directors separately shall have so vested, we may, and
upon the written request of the holders of record of not less than 20% of our
total number of preferred shares then outstanding shall, call a special
meeting of shareholders for the election of directors. In the case of such a
written request, such special meeting shall be held within 90 days after the
delivery of such request and, in either case, at the place and upon the notice
provided by law and in the bylaws, provided that we will not be required to
call such a special meeting if such request is received less than 120 days
before the date fixed for the next ensuing annual meeting of shareholders, and
the holders of all classes of outstanding preferred stock are offered the
opportunity to elect such directors (or fill any vacancy) at such annual
meeting of shareholders. Directors so elected will serve until the next annual
meeting of shareholders or until their respective successors are elected and
qualify. If, prior to the end of the term of any director so elected, a
vacancy in the office of such director shall occur, during the continuance of
a default by reason of death, resignation, or disability, such vacancy shall
be filled for the unexpired term of such former director by the appointment of
a new director by the remaining director or directors so elected.
The affirmative vote or consent of the holders of at least a majority of the
outstanding shares of each series of preferred stock will be required to amend
or repeal any provision of or add any provision to, our articles of
incorporation, including the certificate of determination, if such action
would materially and adversely alter or change the rights, preferences or
privileges of such series of preferred stock.
No consent or approval of the holders of any series of preferred stock
offered hereby will be required for the issuance from our authorized but
unissued preferred stock of other shares of any series of preferred stock
ranking on a parity with or junior to such series of preferred stock, or
senior to a series of preferred stock expressly made junior to other series of
preferred stock as to payment of dividends and distribution of assets,
including other shares of such series of 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 shall
be effected, all outstanding shares of such series of preferred stock had been
redeemed or called for redemption upon proper notice and sufficient funds had
been deposited in trust to effect such redemption.
Conversion Rights. The terms and conditions, if any, upon which shares of
any series of preferred stock offered hereby are convertible into common stock
will be set forth in the applicable prospectus supplement relating thereto.
Such terms will include the number of shares of common stock into which the
preferred stock is convertible, the conversion price (or manner of calculation
thereof), the conversion period, provisions as to whether conversion will be
at our option or at the option of the holders of the preferred stock or
automatically upon the occurrence of certain events, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such preferred stock.
DESCRIPTION OF EQUITY STOCK
We are authorized to issue 100,000,000 shares of equity stock. At April 30,
1999, we had no outstanding shares of equity stock. Our articles of
incorporation provide that the equity stock may be issued from time to time in
one or more series and give our board of directors broad authority to fix the
dividend and distribution rights, conversion and voting rights, redemption
provisions and liquidation rights of each series of equity stocks. Holders of
equity stock have no preemptive rights. The shares of equity stock will be,
when issued, fully paid and nonassessable.
The issuance of equity stock with special voting rights (or common stock)
could be used to deter attempts by a single shareholder or group of
shareholders to obtain control of us in transactions not approved by our board
of directors. We have no intention to issue the equity stock (or common stock)
for such purposes.
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Ownership Limitations
For a discussion of the ownership limitations that apply to equity stock,
see "Description of Common Stock--Ownership Limitations."
Terms of Equity Stock
The following description of equity stock sets forth certain general terms
and provisions of the equity stock to which any prospectus supplement may
relate. The statements below describing the equity stock are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of our articles of incorporation (including the applicable form of
certificate of determination) and bylaws.
Reference is made to the prospectus supplement relating to the equity stock
offered thereby for specific terms, including, where applicable, the
following: (1) the designation of such equity stock; (2) the number of shares
of such equity stock offered, the liquidation rights and the offering price of
such equity stock; (3) the dividend rate(s), period(s) and/or payment date(s)
or method(s) of calculation applicable to such equity stock; (4) the provision
for redemption, if applicable, of such equity stock; (5) any listing of such
equity stock on any securities exchange; (6) the terms and conditions, if
applicable, upon which such equity stock will be convertible into common
stock, including the conversion price (or manner of calculation thereof); (7)
the voting rights, if any, of such equity stock; (8) any other specific terms,
rights, limitations or restrictions of such equity stock; and (9) the relative
ranking of such equity stock as to dividend rights and rights upon
liquidation, dissolution or winding up of our affairs.
Ranking. The ranking of the equity stock is set forth in the applicable
prospectus supplement. Unless otherwise specified in the applicable prospectus
supplement, such equity stock will, with respect to dividend rights and rights
upon liquidation, dissolution or winding up of our affairs, rank on a parity
with the common stock.
Dividends. Holders of shares of the equity stock of each series offered
hereby shall be entitled to receive, when, as and if declared by our board of
directors, out of our assets legally available for payment, cash dividends at
such rates and on such dates as will be set forth in the applicable prospectus
supplement. Each such dividend shall be payable to holders of record as they
appear on our stock transfer books on such record dates as shall be fixed by
our board of directors. Unless otherwise specified in the applicable
prospectus supplement, dividends on such equity stock will be non-cumulative.
Redemption. If so provided in the applicable prospectus supplement, the
shares of equity stock will be subject to mandatory redemption or redemption
at our option, in whole or in part, in each case upon the terms, at the times
and at the redemption prices set forth in such prospectus supplement.
The prospectus supplement relating to a series of equity stock offered
hereby that is subject to mandatory redemption will specify the number of
shares of such equity stock that we redeem in each year commencing after a
date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if such equity stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in
cash, securities or other property, as specified in the applicable prospectus
supplement.
If fewer than all of the outstanding shares of equity stock of any series
offered hereby are to be redeemed, the number of shares to be redeemed will be
determined by us and such shares may be redeemed pro rata from the holders of
record of such shares in proportion to the number of such shares held by such
holders (with adjustments to avoid redemption of fractional shares) or any
other equitable method determined by us.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of equity stock of
any series to be redeemed at the address shown on our stock transfer
15
books. Each notice shall state: (i) the redemption date; (ii) the number of
shares and series of the equity stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such equity stock are
to be surrendered for payment of the redemption price; (v) that dividends on
the shares to be redeemed will cease to accrue on such redemption date; and
(vi) the date upon which the holder's conversion rights, if any, as to such
shares shall terminate. If fewer than all the shares of equity stock of any
series are to be redeemed, the notice mailed to each such holder thereof shall
also specify the number of shares of equity stock to be redeemed from each
such holder and, upon redemption, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof. In
order to facilitate the redemption of shares of equity stock, our board of
directors may fix a record date for the determination of shares of equity
stock to be redeemed, such record date to be not less than 30 or more than 60
days prior to the date fixed for such redemption.
Notice having been given as provided above, from and after the date
specified therein as the date of redemption, unless we default in providing
funds for the payment of the redemption price on such date, all dividends on
the Equity Stock called for redemption will cease. From and after the
redemption date, unless we so default, all rights of the holders of the equity
stock as our shareholders, except the right to receive the redemption price
(but without interest), will cease.
Liquidation Rights. If we voluntarily or involuntarily liquidate, dissolve
or wind-up our affairs, then, before any distribution or payment may be made
to the holders of the equity stock or any other class or series of our capital
stock ranking junior to any series of the preferred stock in the distribution
of assets upon our liquidation, dissolution or winding up, the holders of such
series of preferred stock will be entitled to receive out of our assets
legally available for distribution to shareholders liquidating distributions
in the amount of the liquidation preference per share, plus an amount equal to
all dividends accrued and unpaid thereon (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if such
preferred stock does not have a cumulative dividend). After payment of the
full amount of the liquidating distributions to which they are entitled, the
holders of Preferred Stock will have no right or claim to any of our remaining
assets. If we voluntarily or involuntarily liquidate, dissolve or wind-up our
affairs and our legally available assets are insufficient to pay the amount of
the liquidating distributions on all outstanding shares of any series of
preferred stock and the corresponding amounts payable on all shares of other
classes or series of our capital stock ranking on a parity with the preferred
stock in the distribution of assets upon liquidation, dissolution or winding
up, then the holders of such series of preferred stock and all other such
classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions have been made in full to all holders of
preferred stock, our remaining assets will be distributed among the holders of
any other classes or series of capital stock ranking junior to such series of
preferred stock upon liquidation, dissolution or winding up, including the
equity stock, according to their respective rights and in each case according
to their respective number of shares. For such purposes, our consolidation or
merger with or into any other corporation, or the sale, lease, transfer or
conveyance of all or substantially all of our property or business, will not
be deemed to constitute a liquidation, dissolution or winding up.
Unless otherwise specified in the applicable prospectus supplement, upon any
voluntary or involuntary liquidation, dissolution or winding up of our
affairs, holders of the equity stock will rank on a parity with the holders of
the common stock, subject to any maximum or minimum distribution to holders of
equity stock specified in such prospectus supplement.
Voting Rights. Unless otherwise specified in the applicable prospectus
supplement, holders of the equity stock will have the same voting rights as
holders of the common stock.
No consent or approval of the holders of any series of equity stock will be
required for the issuance from our authorized but unissued equity stock of
other shares of any series of equity stock including shares of such series of
equity stock.
16
Conversion Rights. The terms and conditions, if any, upon which shares of
any series of equity stock offered hereby are convertible into common stock
will be set forth in the applicable prospectus supplement relating thereto.
Such terms will include the number of shares of common stock into which the
equity stock is convertible, the conversion price (or manner of calculation),
the conversion period, provisions as to whether conversion will be at our
option or at the option of the holders of the equity stock or automatically
upon the occurrence of certain events, the events requiring an adjustment of
the conversion price and provisions affecting conversion in the event of the
redemption of such equity stock.
DESCRIPTION OF THE DEPOSITARY SHARES
We may, at our option, elect to offer depositary shares rather than full
shares of preferred stock or equity stock. In the event such option is
exercised, each of the depositary shares will represent ownership of and
entitlement to all rights and preferences of a fraction of a share of
preferred stock or equity stock of a specified series (including dividend,
voting, redemption and liquidation rights). The applicable fraction will be
specified in the prospectus supplement. The shares of preferred stock or
equity stock represented by the depositary shares will be deposited with a
depositary named in the applicable prospectus supplement, under a deposit
agreement, among the depositary, the holders of the depositary receipts and
us. Depositary receipts, which are certificates evidencing depositary shares,
will be delivered to those persons purchasing depositary shares in the
offering. The depositary will be the transfer agent, registrar and dividend
disbursing agent for the depositary shares. Holders of depositary receipts
agree to be bound by the deposit agreement, which requires holders to take
certain actions such as filing proof of residence and paying certain charges.
The summary of terms of the depositary shares contained in this prospectus
does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the deposit agreement, our articles of
incorporation and the form of certificate of determination for the applicable
series of preferred stock or equity stock.
Dividends
The depositary will distribute all cash dividends or other cash
distributions received in respect of the series of preferred stock represented
by the depositary shares to the record holders of depositary receipts in
proportion to the number of depositary shares owned by such holders on the
relevant record date, which will be the same date as the record date fixed by
us for the applicable series of preferred stock or equity stock. The
depositary, however, will distribute only such amount as can be distributed
without attributing to any depositary share a fraction of one cent, and any
balance not so distributed will be added to and treated as part of the next
sum received by the depositary for distribution to record holders of
depositary receipts then outstanding.
In the event of a distribution other than in cash, the depositary will
distribute property received by it to the record holders of depositary
receipts entitled thereto, in proportion, as nearly as may be practicable, to
the number of depositary shares owned by such holders on the relevant record
date, unless the depositary determines (after consultation with us) that it is
not feasible to make such distribution, in which case the depositary may (with
our approval) adopt any other method for such distribution as it deems
equitable and appropriate, including the sale of such property (at such place
or places and upon such terms as it may deem equitable and appropriate) and
distribution of the net proceeds from such sale to such holders.
Liquidation Rights
In the event of the liquidation, dissolution or winding up of our affairs,
whether voluntary or involuntary, the holders of each depositary share will be
entitled to the fraction of the liquidation amount accorded each share of the
applicable series of preferred stock or equity stock, as set forth in the
prospectus supplement.
17
Redemption
If the series of preferred stock represented by the applicable series of
depositary shares is redeemable, such depositary shares will be redeemed from
the proceeds received by the depositary resulting from the redemption, in
whole or in part, of preferred stock or equity stock held by the depositary.
Whenever we redeem any preferred stock or equity stock held by the depositary,
the depositary will redeem as of the same redemption date the number of
depositary shares representing the preferred stock or equity stock so
redeemed. The depositary will mail the notice of redemption promptly upon
receipt of such notice from us and not less than 30 nor more than 60 days
prior to the date fixed for redemption of the preferred stock or equity stock
and the depositary shares to the record holders of the depositary receipts.
Conversion
If the series of preferred stock or equity stock represented by the
applicable series of depositary shares is convertible into a different class
of our securities, the depositary shares will be also be convertible on the
terms described in the applicable prospectus supplement.
Voting
Promptly upon receipt of notice of any meeting at which the holders of the
series of preferred stock or equity stock represented by the applicable series
of depositary shares are entitled to vote, the depositary will mail the
information contained in such notice of meeting to the record holders of the
depositary receipts as of the record date for such meeting. Each such record
holder of depositary receipts will be entitled to instruct the depositary as
to the exercise of the voting rights pertaining to the number of shares of
preferred stock or equity stock represented by such record holder's depositary
shares. The depositary will endeavor, insofar as practicable, to vote such
preferred stock or equity stock represented by such depositary shares in
accordance with such instructions, and we will agree to take all action which
may be deemed necessary by the depositary in order to enable the depositary to
do so. The depositary will abstain from voting any of the preferred stock or
equity stock to the extent that it does not receive specific instructions from
the holders of depositary receipts.
Withdrawal of Preferred Stock
Upon surrender of depositary receipts at the principal office of the
depositary, upon payment of any unpaid amount due the depositary, and subject
to the terms of the deposit agreement, the owner of the depositary shares
evidenced thereby is entitled to delivery of the number of whole shares of
preferred stock or equity stock and all money and other property, if any,
represented by such depositary shares. Partial shares of preferred stock or
equity stock will not be issued. If the depositary receipts delivered by the
holder evidence a number of depositary shares in excess of the number of
depositary shares representing the number of whole shares of preferred stock
or equity stock to be withdrawn, the depositary will deliver to such holder at
the same time a new depositary receipt evidencing such excess number of
depositary shares. Holders of preferred stock or equity stock thus withdrawn
will not thereafter be entitled to deposit such shares under the deposit
agreement or to receive depositary receipts evidencing depositary shares
therefor.
Amendment and Termination of Deposit Agreement
The form of depositary receipt evidencing the depositary shares and any
provision of the deposit agreement may at any time and from time to time be
amended by agreement between the Depositary and us. However, any amendment
which materially and adversely alters the rights of the holders (other than
any change in fees) of depositary shares will not be effective unless such
amendment has been approved by at least a majority of the depositary shares
then outstanding. No such amendment may impair the right, subject to the terms
of the deposit agreement, of any owner of any depositary shares to surrender
the depositary receipt evidencing such depositary shares with instructions to
the depositary to deliver to the holder the preferred stock and all money and
other property, if any, represented thereby, except in order to comply with
mandatory provisions of applicable law. The deposit agreement may be
terminated by the depositary or us only if (i) all outstanding depositary
shares
18
have been redeemed or (ii) there has been a final distribution in respect of
the preferred stock or equity stock in connection with our liquidation,
dissolution or winding up and such distribution has been made to all the
holders of depositary shares.
Charges of Depositary
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the depositary arrangements. We will pay charges
of the depositary in connection with the initial deposit of the preferred
stock or equity stock and the initial issuance of the depositary shares, and
redemption of the preferred stock or equity stock and all withdrawals of
preferred stock or equity stock by owners of depositary shares. Holders of
depositary receipts will pay transfer, income and other taxes and governmental
charges and certain other charges as are provided in the deposit agreement to
be for their accounts. In certain circumstances, the depositary may refuse to
transfer depositary shares, may withhold dividends and distributions and sell
the depositary shares evidenced by such depositary receipt if such charges are
not paid.
Miscellaneous
The depositary will forward to the holders of depositary receipts all
reports and communications from us which are delivered to the depositary and
which we are required to furnish to the holders of the preferred stock. In
addition, the depositary will make available for inspection by holders of
depositary receipts at the principal office of the depositary, and at such
other places as it may from time to time deem advisable, any reports and
communications received from us which are received by the depositary as the
holder of preferred stock or equity stock.
Neither the depositary nor we assume any obligation or will be subject to
any liability under the deposit agreement to holders of depositary receipts
other than for its negligence or willful misconduct. Neither the depositary
nor we will be liable if the depositary is prevented or delayed by law or any
circumstance beyond its control in performing its obligations under the
deposit agreement. Our obligations and those of the depositary under the
deposit agreement will be limited to performance in good faith of their duties
thereunder, and they will not be obligated to prosecute or defend any legal
proceeding in respect of any depositary shares or preferred stock unless
satisfactory indemnity is furnished. We and the depositary may rely on written
advice of counsel or accountants, on information provided by holders of
depositary receipts or other persons believed in good faith to be competent to
give such information and on documents believed to be genuine and to have been
signed or presented by the proper party or parties.
Resignation and Removal of Depositary
The depositary may resign at any time by delivering to us notice of its
election to do so, and we may at any time remove the depositary, any such
resignation or removal to take effect upon the appointment of a successor
depositary and its acceptance of such appointment. Such successor depositary
must be appointed within 60 days after delivery of the notice for resignation
or removal and must be a bank or trust company having its principal office in
the United States of America and having a combined capital and surplus of at
least $150,000,000.
Federal Income Tax Considerations
Owners of the depositary shares will be treated for federal income tax
purposes as if they were owners of the preferred stock or equity stock
represented by such depositary shares. Accordingly, such owners will be
entitled to take into account, for federal income tax purposes, income and
deductions to which they would be entitled if they were holders of such
preferred stock. In addition, (i) no gain or loss will be recognized for
federal income tax purposes upon the withdrawal of preferred stock in exchange
for depositary shares, (ii) the tax basis of each share of preferred stock or
equity stock to an exchanging owner of depositary shares will, upon such
exchange, be the same as the aggregate tax basis of the depositary shares
exchanged therefor, and (iii) the holding period for preferred stock or equity
stock in the hands of an exchanging owner of depositary shares will include
the period during which such person owned such depositary shares.
19
DESCRIPTION OF WARRANTS
We have no warrants outstanding (other than options issued under our stock
option plan). We may issue warrants for the purchase of common stock,
preferred stock or equity stock. Warrants may be issued independently or
together with any other securities offered by any prospectus supplement and
may be attached to or separate from such securities. Each series of warrants
will be issued under a separate warrant agreement to be entered into between
the Company, a warrant agent specified in the applicable prospectus supplement
and us. The warrant agent will act solely as our agent in connection with the
warrants of such series and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of warrants. The
following sets forth certain general terms and provisions of the warrants
offered hereby. Further terms of the warrants and the applicable warrant
agreement will be set forth in the applicable prospectus supplement.
The applicable prospectus supplement will describe the terms of the warrants
in respect of which this prospectus is being delivered, including, where
applicable, the following: (1) the title of such warrants; (2) the aggregate
number of such warrants; (3) the price or prices at which such warrants will
be issued; (4) the designation, number and terms of the shares of common
stock, preferred stock or equity stock purchasable upon exercise of such
warrants; (5) the designation and terms of the other securities, if any, with
which such warrants are issued and the number of such warrants issued with
each such security; (6) the date, if any, on and after which such warrants and
the related common stock, preferred stock or equity stock, if any, will be
separately transferable; (7) the price at which each share of common stock,
preferred stock or equity stock purchasable upon exercise of such warrants may
be purchased; (8) the date on which the right to exercise such warrants shall
commence and the date on which such right shall expire; (9) the minimum or
maximum amount of such warrants which may be exercised at any one time; and
(10) any other terms of such warrants, including terms, procedures and
limitations relating to the exchange and exercise of such warrants.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain federal income tax
considerations relating to the Company and to the acquisition, ownership and
disposition of Common Stock. The applicable Prospectus Supplement will contain
information about additional federal income tax considerations, if any,
relating to Securities other than Common Stock. The following discussion,
which is not exhaustive of all possible tax considerations, does not give a
detailed description of any state, local, or foreign tax considerations. Nor
does it discuss all of the aspects of federal income taxation that may be
relevant to a prospective Shareholder in light of his or her particular
circumstances or to certain types of Shareholders (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 federal income tax
laws. The information in this section is based on the Code, current, temporary
and proposed Treasury Regulations thereunder, the legislative history of the
Code, current administrative interpretations and practices of the IRS
(including its practices and policies as endorsed in private letter rulings,
which are not binding on the IRS except with respect to the taxpayer that
receives such a ruling), and court decisions, all as of the date hereof. No
assurance can be given that future legislation, Treasury Regulations,
administrative interpretations and court decisions will not significantly
change current law or adversely affect existing interpretations of current
law. Any such change could apply retroactively to transactions preceding the
date of the change. The Company has not requested and does not plan to request
any rulings from the IRS concerning the tax treatment of the Company or the
Operating Partnership. Thus, no assurance can be provided that the statements
set forth herein (which do not bind the IRS or the courts) will not be
challenged by the IRS or will be sustained by a court if so challenged.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS
SUPPLEMENT, AS WELL AS HIS OR HER TAX ADVISOR, REGARDING THE TAX CONSEQUENCES
TO HIM OR HER OF THE ACQUISITION, OWNERSHIP AND SALE OF THE SECURITIES,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF
SUCH ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
20
As used under this heading, the term "Company" refers solely to PS Business
Parks, Inc.
Taxation of the Company
General. The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Code commencing with its taxable year ended December 31,
1990. The Company believes that its has been organized and operated in a
manner so as to qualify as a REIT, and the Company intends to continue to
operate in such a manner. So long as the Company qualifies for taxation as a
REIT, it generally will not be subject to federal corporate income taxes on
net income that it distributes currently to Shareholders. However, the Company
will be subject to federal income tax in the following circumstances. First,
the Company will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the "alternative minimum
tax" on its items of tax preference. Third, if the Company has (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 lease
or a loan secured by the property) which is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income. Fourth, if the Company has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property (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. Fifth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), and has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the 75%
or 95% gross income test. Sixth, if the Company should fail to distribute
during each calendar year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of its REIT capital gain net income for such
year, and (iii) any undistributed taxable income from prior periods, it would
be subject to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed. Seventh, if the Company acquires or has
acquired any asset from a taxable C corporation in a transaction in which the
basis of the asset in the acquiror's hands is determined by reference to the
basis of the asset (or any other asset) in the hands of the C corporation and
the acquiror recognizes gain on the disposition of such asset during the 10
year period beginning on the date on which such asset was acquired by it, then
to the extent of such asset's "Built-In Gain" (i.e., the excess of (a) the
fair market value of such asset at the time of the acquisition by the Company
over (b) the adjusted basis in such asset, determined at the time of such
acquisition), such gain will be subject to tax at the highest regular
corporate rate applicable, pursuant to anticipated Treasury Regulations that
have yet to be promulgated. The results described above with respect to the
recognition of Built-In Gain assume that the Company will make an election
pursuant to Notice 88-19 with respect to any such acquisition. Prior to 1997,
AOPP was taxable as a regular C corporation. In making its election to be
taxed as a REIT for 1997, AOPP elected to be subject to the Built-In Gain
rules of Notice 88-19.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) that is managed by one or more trustees or directors,
(2) the beneficial ownership of which is evidenced by transferable shares of
stock, or by transferable certificates of beneficial interest, (3) that would
be taxable as a domestic corporation, but for Sections 856 through 860 of the
Code, (4) that is neither a financial institution nor an insurance company
subject to certain provisions of the Code, (5) the beneficial ownership of
which is held by 100 or more persons, (6) that during the last half of each
taxable year not more than 50% in value of the outstanding stock of which is
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities), (7) that makes an election to be taxable as
a REIT, or has made such election for a previous taxable year which has not
been revoked or terminated, and satisfies all relevant filing and other
administrative requirements established by the IRS that must be met in order
to elect and maintain REIT status; (8) that uses a calendar year for federal
income tax purposes and complies with recordkeeping requirements of the Code
and regulations promulgated thereunder; and (9) that meets certain other
tests, described below, regarding the nature of its income and assets and the
amount of its distributions. The Code provides that conditions (1) through
(4), inclusive, must be met during the entire taxable year and that condition
(5) must be
21
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. For purposes of
determining stock ownership under condition (6), a supplemental unemployment
compensation benefits plan, a private foundation or a portion of a trust
permanently set aside or used exclusively for charitable purposes generally is
considered an individual. However, a trust that is a qualified trust under
Code section 401(a) generally is not considered an individual and
beneficiaries of such trust are treated as holding shares of a REIT in
proportion to their actuarial interests in such trust for purposes of
condition (6).
The Company's Articles of Incorporation contain restrictions regarding the
transfer of its capital stock that are intended to assist the Company in
continuing to satisfy the stock ownership requirements described in conditions
(5) and (6). See "Description of Common Stock--Ownership Limitations." In
connection with condition (6), a REIT is required to send annual letters to
its shareholders requesting information regarding the actual ownership of
shares. For the Company's taxable years commencing on or after January 1,
1998, if the Company complies with the annual letters requirement and the
Company does not know, or exercising reasonable diligence would not have
known, whether it failed to meet requirement (6) above, the Company will be
treated as having met the requirement.
The ownership restrictions in the Company's articles of incorporation
generally prohibit the actual or constructive ownership of more than 2% of the
outstanding shares of Common Stock (excluding the interest held by PSI) or
more than 9.9% of the outstanding shares of each class or series of shares of
Preferred Stock, unless an exception is established by the Board of Directors.
The restrictions provide that if, at any time, for any reason, those ownership
limitations are violated or more than 50% in value of the Company's
outstanding stock otherwise would be considered owned by five or fewer
individuals, then a number of shares of stock necessary to cure the violation
will automatically and irrevocably be transferred from the person causing the
violation to a designated charitable beneficiary.
The REIT protective provisions are modeled after certain arrangements that
the IRS has ruled in private letter rulings will preclude a REIT from being
considered to violate the ownership restrictions so long as the arrangements
are enforceable as a matter of state law and the REIT seeks to enforce them as
and when necessary. There can be no assurance, however, that the IRS might not
seek to take a different position with respect to the Company (a private
letter ruling is legally binding only with respect to the taxpayer to whom it
was issued and the Company will not seek a private ruling on this or any other
issue) or contend that the Company failed to enforce these various
arrangements. Moreover, the Company's limitations will not apply to the
ownership of shares at the time of the Merger, or to shares of stock of the
Company deemed to be owned by a person as a result of such person's ownership
of shares of PSI (however, such deemed ownership will be taken into account in
determining whether a subsequent acquisition or transfer of shares of the
Company (but not PSI) violates the limitations), exceptions not contained in
the private letter rulings previously issued by the IRS. Accordingly, there
can be no assurance that these arrangements necessarily will preserve the
Company's REIT status. The Company believes, however, that it has issued and
outstanding sufficient shares with sufficient diversity of ownership to allow
it to satisfy the REIT ownership requirements.
A REIT is not permitted to have at the end of any taxable year any
undistributed earnings and profits that are attributable to a "C corporation"
taxable year. As a result of the Merger, the Company succeeded to various tax
attributes of AOPP, including any undistributed earnings and profits. AOPP was
taxable as a "C corporation" prior to 1997, and does not believe that it has
transferred any undistributed "C corporation earnings and profits" to the
Company. However, neither AOPP nor the Company has sought an opinion of
counsel or outside accountants to the effect that the Company has not acquired
any "C corporation earnings and profits" from AOPP. There can be no assurance
that the IRS would not contend otherwise on a subsequent audit of AOPP. It
appears that the Company could keep from being disqualified as a REIT by using
"deficiency dividend" procedures to distribute the "C corporation" earnings
and profits. In order to use this procedure, an affected REIT would have to
make an additional distribution to its shareholders (in addition to
distributions made for purposes of satisfying the normal REIT distribution
requirements), within 90 days of the IRS determination.
22
In addition, the REIT would have to pay to the IRS an interest charge on 50%
of the acquired C corporation earnings and profits that were not distributed
prior to the end of the REIT's taxable year in which they were acquired. If
C corporation earnings and profits were deemed to have been acquired by the
Company, there can be no assurance, however, that the IRS would not take the
position either that the procedure is not available at all (in which case the
Company would fail to qualify as a REIT) or, alternatively, that even if the
procedure is available, the Company cannot qualify as a REIT for its taxable
year in which the earnings and profits were acquired, but it could qualify as
a REIT for subsequent taxable years. Finally, if AOPP were determined not to
have qualified as a REIT for the taxable year ended December 31, 1997 or its
short taxable year ending at the time of the Merger, the Company would not be
eligible to elect REIT status for up to four years after the year in which
AOPP failed to qualify as a REIT. AOPP made an election to be taxed as a REIT
commencing with its taxable year ended December 31, 1997. The Company and AOPP
believe that AOPP's election is valid and that AOPP was organized, and
operated in 1997 and until the time of the Merger, in conformity with the
requirements for taxation as a REIT.
Income Tests. In order to maintain qualification as a REIT, the Company must
satisfy certain gross income requirements, which are applied on an annual
basis. First, at least 75% of the Company'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 Company's gross income (excluding gross income
from prohibited transactions) for each taxable year must be derived from the
same items which qualify under the 75% income test, and from dividends,
interest and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements described above only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. The Company anticipates that none of its annual gross
income will be attributable to rents that are based in whole or in part on the
income of any person (excluding rents based on a percentage of receipts or
sales, which, as described above, are permitted). Second, the Code provides
that rents received from a tenant will not qualify as "rents from real
property" if the Company, or an owner of 10% or more of the Company, directly
or constructively owns 10% or more of such tenant (a "Related Party Tenant").
The Company does not anticipate that it will receive income from Related Party
Tenants. Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of the total
rent received under the lease, then the portion of rent attributable to such
personal property will not qualify as "rents from real property." The Company
does not anticipate deriving rent attributable to personal property leased in
connection with real property that exceeds 15% of the total rents. Finally,
for rents to qualify as "rents from real property," the Company generally must
not operate or manage the property or furnish or render services to tenants,
other than through an "independent contractor" that is adequately compensated
and from whom the Company derives no revenue. The "independent contractor"
requirement, however, does not apply to the extent the services provided by
the Company are "usually or customarily rendered" in connection with the
rental of space for occupancy only and are not otherwise considered "rendered
to the occupant." Any services with respect to certain properties that the
Company believes may not be provided by the Company directly without
jeopardizing the qualification of rent as "rents from real property" will be
performed by "independent contractors."
For the Company's taxable years commencing on or after January 1, 1998,
rents received generally will qualify as rents from real property even if the
Company were to provide services that are not permissible services so long as
the amount received for such services meets a de minimis standard. The amount
received for "impermissible services" with respect to a property (or, if
services are available only to certain tenants, possibly with respect to such
tenants) cannot exceed 1% of all amounts received, directly or indirectly, by
the Company with respect to such property (or, if services are available only
to certain tenants, possibly with respect to such tenants). In computing any
such amounts, the amount that the Company would be deemed to have received for
23
performing "impermissible services" will be the greater of the actual amount
so received or 150% of the direct cost to the Company of providing those
services. If the impermissible service income exceeds 1% of the Company's
total income from a property, then all of the income from that property will
fail to qualify as rents from real property.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code. It is
not possible, however, to state whether in all circumstances the Company would
be entitled to the benefit of these relief provisions. Even if these relief
provisions were to apply, however, a 100% tax would be imposed with respect to
the "excess net income" attributable to the failure to satisfy the 75% and 95%
gross income tests.
Asset Tests. The Company, at the close of each quarter of its taxable year,
must satisfy three tests relating to the nature of its assets. First, at least
75% of the value of the Company's total assets must be represented by real
estate assets. The Company's real estate assets include, for this purpose, its
allocable share of real estate assets held by the Operating Partnership and
the non-corporate subsidiaries of the Operating Partnership, as well as stock
or debt instruments held for less than one year purchased with the proceeds of
a stock offering, or long-term (at least five years) debt offering of the
Company, cash, cash items and government securities. Second, not more than 25%
of the Company's total assets may be represented by securities other than
those in the 75% asset class. Third, of the investments included in the 25%
asset class, the value of any one issuer's securities owned by the Company may
not exceed 5% of the value of the Company's total assets, and, except for
REITs or "qualified REIT subsidiaries," the Company may not own more than 10%
of any one issuer's outstanding voting securities.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the 25% or
5% asset tests at the end of a later quarter solely by reason of changes in
the relative values of its assets. If the failure to satisfy the 25% or 5%
asset tests results from an acquisition of securities or other property during
a quarter, including, for example, as a result of the Company increasing its
interest in the Operating Partnership as a result of a merger, the exercise of
unit redemption rights or an additional capital contribution of proceeds of an
offering of shares by the Company, the failure can be cured by disposition of
sufficient nonqualifying assets within 30 days after the close of that
quarter. The Company intends to maintain adequate records of the value of its
assets to ensure compliance with the asset tests and to take any available
actions within 30 days after the close of any quarter as may be required to
cure any noncompliance with the 25% or 5% asset tests. If the Company fails to
cure noncompliance with the asset tests within such time period, the Company
would cease to qualify as a REIT.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends)
to its shareholders in an amount at least equal to (i) the sum of (a) 95% of
the Company's "REIT taxable income" (computed without regard to the dividends
paid deduction and the Company's net capital gain) and (b) 95% of the net
income (after tax), if any, from foreclosure property, minus (ii) the sum of
certain items of non-cash income. In addition, if the Company disposes of any
Built-In Gain Asset during the 10 year period beginning on the date the
Company acquired that asset, the Company will be required, pursuant to
Treasury Regulations which have not yet been promulgated, to distribute at
least 95% of the Built-In Gain (after tax), if any, recognized on the
disposition of such asset. See "--General" above for a discussion of "Built-In
Gain Assets." Such distributions must be paid in the taxable year to which
they relate, or in the following taxable year if declared before the Company
timely files its tax return for such year and if paid on or before the first
regular dividend payment date after such declaration.
To the extent that the Company does not distribute all of its net capital
gain or distributes at least 95%, but less than 100%, of its "REIT taxable
income," as adjusted, it will be subject to tax thereon at regular ordinary
and capital gain corporate tax rates. The Company may elect to require the
shareholders to include the Company's undistributed net capital gains in their
income by designating, in a written notice to shareholders, those amounts as
undistributed capital gains in respect of its shareholders' shares. If the
Company makes such
24
an election, the shareholders will (i) include in their income as capital
gains their proportionate share of such undistributed capital gains and (ii)
be deemed to have paid their proportionate share of the tax paid by the
Company on such undistributed capital gains and thereby receive a credit or
refund for such amount. A shareholder will increase the basis in its Common
Shares by the difference between the amount of capital gain included in its
income and the amount of the tax that the Company is deemed to have paid on
the shareholder's behalf. The earnings and profits of the Company will be
adjusted appropriately. For a more detailed description of the tax
consequences to a shareholder of such a designation, see "--Taxation of U.S.
Shareholders Holding Common Stock."
In addition, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject
to a 4% excise tax on the excess of such required distribution over the sum of
amounts actually distributed during the calendar year by the REIT and the
amount, if any, on which the REIT paid income tax for such year.
The Company intends to make timely distributions sufficient to satisfy its
annual distribution requirements. It is expected that the Company's REIT
taxable income will be less than its cash flow due to the allowance of
depreciation and other non-cash charges in computing REIT taxable income.
Accordingly, the Company anticipates that it will generally have sufficient
cash or liquid assets to enable it to satisfy the distribution requirements
described above. It is possible, however, that the Company, from time to time,
may not have sufficient cash or other liquid assets to meet these distribution
requirements due to timing differences between (i) the actual receipt of
income and actual payment of deductible expenses and (ii) the inclusion of
such income and deduction of such expenses in arriving at taxable income of
the Company, or due to the need to make nondeductible payments, such as
principal payments on any indebtedness it may have. If such circumstances
occur, in order to meet the distribution requirements, the Company may find it
necessary to arrange for short-term, or possibly long-term, borrowings or to
pay dividends in the form of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Company will be required to pay interest based upon the amount of
any deduction taken for deficiency dividends.
Recordkeeping Requirements. Pursuant to applicable Treasury Regulations, the
Company must comply with certain recordkeeping requirements to qualify for
taxation as a REIT.
Failure of the Company to Qualify as a REIT. For any taxable year that the
Company fails to qualify as a REIT, the Company would be taxed at the usual
corporate rates on all of its taxable income. Those taxes would reduce the
amount of cash available to the Company for distribution to its Shareholders.
Distributions to shareholders in any year in which the Company fails to
qualify as a REIT will not be deductible and will not be required to be made.
In addition, if the Company fails to qualify as a REIT, all distributions to
shareholders will be taxed as ordinary income, to the extent of the Company's
current and accumulated earnings and profits, and, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends received deduction.
Unless certain relief provisions apply, the Company's election to be treated
as a REIT will terminate automatically if the Company fails to meet the
qualification requirements described above and the Company will not be
eligible to elect REIT status again until the fifth taxable year that begins
after the first year for which the Company's election was terminated (or
revoked). If the Company loses its REIT status, but later qualifies and elects
to be taxed as a REIT again, the Company may face significant adverse tax
consequences.
25
Taxation of U.S. Shareholders Holding Common Stock
As used herein, the term "U.S. Shareholder" means a holder of shares of
Common Stock who (for United States federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership,
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, (iii) is an estate the income of which
is subject to United States federal income taxation regardless of its source
or (iv) is a trust the administration of which is subject to the primary
supervision of a United States court and which has one or more Untied States
persons who have the authority to control all substantial decisions of the
trust. Notwithstanding the preceding sentence, to the extent provided in
regulations, certain trusts in existence on August 20, 1996, and treated as
United States persons prior to such date that elect to continue to be treated
as United States persons, shall also be considered U.S. Shareholders.
Distributions by the Company. As long as the Company qualifies as a REIT,
distributions made to the Company's taxable U.S. Shareholders (and not
designated as capital gain dividends) will generally be taxable to such
Shareholders as ordinary income to the extent of the Company's current or
accumulated earnings and profits. For purposes of determining whether
distributions on shares of Common Stock are out of current or accumulated
earnings and profits, the earnings and profits of the Company will be
allocated first to shares of Preferred Stock and second to shares of Common
Stock. There can be no assurance that the Company will have sufficient
earnings and profits to cover distributions on any shares of Preferred Stock.
Such distributions will not be eligible for the dividends received deductions
in the case of Shareholders that are corporations. Dividends declared during
the last quarter of a calendar year and actually paid during January of the
immediately following calendar year generally are treated as if received by
the Shareholders on December 31 of the calendar year during which they were
declared.
Distributions designated by the Company as capital gain dividends generally
will be taxed as gain from the sale or exchange of a capital asset held for
more than one year (to the extent that the distributions do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the Shareholder has held its stock. Corporate Shareholders
however, may be required to treat up to 20% of certain capital gain dividends
as ordinary income.
Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. Instead, such losses would
be carried over by the Company for potential offset against future income
(subject to certain limitations). Distributions made by the Company and gain
arising from the sale or exchange by a holder of Common Stock will not be
treated as passive activity income, and, as a result, holders of Common Stock
generally will not be able to apply any "passive losses" against such income
or gain. Future regulations may require that Shareholders take into account,
for purposes of computing their individual alternative minimum tax liability,
certain tax preference items of the Company. In addition, taxable
distributions from the Company generally will be treated as investment income
for purposes of the investment interest limitations. Capital gain dividends
and capital gain from the disposition of shares, including distributions
treated as such, however, will be treated as investment income for purposes of
the investment interest limitation only if the U.S. Shareholder so elects, in
which case such capital gains will be taxed at ordinary income rates. The
Company will notify shareholders after the close of the Company's taxable year
as to the portions of distributions attributable to that year that constitute
ordinary income, return of capital and capital gain.
Distributions in excess of current or accumulated earnings and profits will
not be taxable to a U.S. shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares of Common Stock, but rather will
reduce the adjusted basis of such shares of Common Stock. To the extent that
such distributions exceed the adjusted basis of a U.S. shareholder's shares of
Common Stock, they will be included in income as capital gains, assuming the
shares of Common Stock are a capital asset in the hands of the U.S.
Shareholder.
For the Company's taxable years commencing on or after January 1, 1998, the
Company may elect to require the holders of Common Stock to include the
Company's undistributed net long-term capital gains in their income. If the
Company makes such an election, the holders of Common Stock will (i) include
in their income as long-term capital gains their proportionate share of such
undistributed capital gains and (ii) be deemed to have
26
paid their proportionate share of the tax paid by the Company on such
undistributed capital gains and thereby receive a credit or refund for such
amount. A holder of Common Stock will increase the basis in its Common Stock
by the difference between the amount of capital gain included in its income
and the amount of the tax it is deemed to have paid. The earnings and profits
of the Company will be adjusted appropriately. With respect to such long-term
capital gain of a taxable domestic shareholder that is an individual or an
estate or trust, the IRS has authority to issue regulations that could apply
the special tax rate applicable to sales of depreciable real property by an
individual or an estate or trust to the portion of the long-term capital gains
of an individual or an estate or trust attributable to deductions for
depreciation taken with respect to depreciable real property.
Sales of Shares. In general, a U.S. Shareholder will realize gain or loss on
the disposition of shares of Common Stock equal to the difference between (i)
the amount of cash and the fair market value of any property received on such
disposition and (ii) the shareholder's adjusted basis of such shares of Common
Stock. Such gain or loss will be capital gain or loss if the shares have been
held as a capital asset. In the case of a taxable U.S. Shareholder who is an
individual or an estate or trust, such gain or loss will be long-term capital
gain or loss, and such long-term capital gain shall be subject to the maximum
capital gain rate of 20%. In the case of a taxable U.S. Shareholder that is a
corporation, such gain or loss will be long-term capital gain or loss if such
shares have been held for more than one year and any such capital gain shall
be subject to the maximum capital gain rate of 35%. Loss upon a sale or
exchange of shares of Common Stock by a shareholder who has held such shares
of Common Stock for six months or less (after applying certain holding period
rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such shareholder as
long-term capital gain.
Taxpayer Relief Act and IRS Restructuring Act Changes to Capital Gain
Taxation. The Taxpayer Relief Act of 1997 (the "Taxpayer Relief Act") altered
the taxation of capital gain income. Under the Taxpayer Relief Act,
individuals, trusts and estates that hold certain investments for more than
18 months may be taxed at a maximum long-term capital gain rate of 20% on the
sale or exchange of those investments. Individuals, trusts and estates that
hold certain assets for more than one year but not more than 18 months may be
taxed at a maximum long-term capital gain rate of 28% on the sale or exchange
of those investments. The Taxpayer Relief Act also provides a maximum rate of
25% for "unrecaptured Section 1250 gain" for individuals, trusts and estates,
special rules for "qualified 5-year gain" and other changes to prior law. The
recently enacted IRS Restructuring Act of 1998, however, reduced the holding
period requirement established by the Taxpayer Relief Act for the application
of the 20% and 25% capital gain tax rates to 12 months from 18 months for
sales of capital gain assets after December 31, 1997 and thus eliminated the
28% rate. The Taxpayer Relief Act allows the IRS to prescribe regulations on
how the Taxpayer Relief Act's capital gain rates will apply to sales of
capital assets by "pass-through entities," including REITs, such as the
Company and to sales of interests in "pass-through entities." Shareholders are
urged to consult with their own tax advisors with respect to the rules
contained in the Taxpayer Relief Act and the IRS Restructuring Act.
On November 10, 1997, the IRS issued IRS Notice 97-64, which provides
generally that the Company may classify portions of its designated capital-
gain dividend as (i) a 20% rate gain distribution (which would be taxed as
long-term capital gain in the 20% group), (ii) an unrecaptured Section 1250
gain distribution (which would be taxed as long-term capital gain in the 25%
group), or (iii) a 28% rate gain distribution (which would be taxed as long-
term capital gain in the 28% group). (If no designation is made, the entire
designated capital gain dividend will be treated as a 28% rate gain
distribution.) IRS Notice 97-64 provides that a REIT must determine the
maximum amounts that it may designate as 20% and 25% rate capital gain
dividends by performing the computation required by the Code as if the REIT
were an individual whose ordinary income were subject to a marginal tax rate
of at least 28%. The Notice further provides that designations made by the
REIT will only be effective to the extent that they comply with Revenue Ruling
89-81, which requires that distributions made to different classes of shares
be composed proportionately of dividends of a particular type. Although Notice
97-64 will apply to sales of capital gain assets after July 28, 1997 and
before January 1, 1998, it is expected that the IRS will issue clarifying
guidance, most likely applying the same principles set forth in Notice 97-64,
regarding a REIT's designation of capital gain dividends in light of the new
holding period requirements.
27
Backup Withholding. The Company will report to its domestic shareholders and
the IRS the amount of dividends paid during each calendar year, and the amount
of tax withheld, if any, with respect thereto. Under the backup withholding
rules, a shareholder may be subject to backup withholding at the rate of 31%
with respect to dividends paid unless such holder (a) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact, or (b) provides a taxpayer identification number and certifies as
to no loss of exemption from backup withholding. Amounts withheld as backup
withholding will be creditable against the stockholder's income tax liability.
In addition, the Company may be required to withhold a portion of capital gain
distributions made to any shareholders who fail to certify their non-foreign
status to the Company. See "--Taxation of Non-U.S. Shareholders" below.
Taxation of Tax-Exempt Shareholders. As a general rule, amounts distributed
to a tax-exempt entity by a corporation do not constitute "unrelated business
taxable income" ("UBTI"), and thus distributions by the Company to a
stockholder that is a tax-exempt entity generally should not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of its
shares of Common Stock with "acquisition indebtedness" within the meaning of
the Code and the shares of Common Stock are not otherwise used in an unrelated
trade or business of the tax-exempt entity. However, distributions by a REIT
to a tax-exempt employee's pension trust that owns more than 10% of the REIT
will be treated as UBTI in an amount equal to the percentage of gross income
of the REIT that is derived from an "unrelated trade or business" (determined
as if the REIT were a pension trust) divided by the gross income of the REIT
for the year in which the dividends are paid. This rule only applies, however,
if (i) the percentage of gross income of the REIT that is derived from an
unrelated trade or business for the year in which the dividends are paid is at
least 5%, (ii) the REIT qualifies as a REIT only because the pension trust is
not treated as a single individual for purposes of the "five-or-fewer rule"
(see "--Taxation of the Company--Requirements for Qualification" above), and
(iii) (A) one pension trust owns more than 25 percent of the value of the REIT
or, (B) a group of pension trusts individually holding more than 10 percent of
the value of the REIT collectively own more than 50 percent of the value of
the REIT. The Company currently does not expect that this rule will apply.
Taxation of Non-U.S. Shareholders
The rules governing U.S. federal income taxation of non-U.S. Shareholders
are complex, and the following discussion is intended only as a summary of
such rules. Prospective non-U.S. Shareholders should consult with their tax
advisors to determine the impact of federal, state, local and foreign income
tax laws on an investment in the Company, including any reporting
requirements.
Distributions by the Company. Distributions to a non-U.S. Shareholder that
are not attributable to gain from sales or exchanges by the Company of U.S.
real property interests and not designated by the Company as capital gain
dividends will generally be subject to tax as ordinary income to the extent of
the Company's current or accumulated earnings and profits as determined for
U.S. federal income tax purposes. Such distributions will generally be subject
to a withholding tax equal to 30% of the gross amount of the distribution,
unless reduced by an applicable tax treaty or unless such dividends are
treated as effectively connected with a United States trade or business. If
the amount distributed exceeds a non-U.S. Shareholder's allocable share of
such earnings and profits, the excess will be treated as a tax-free return of
capital to the extent of such non-U.S. Shareholder's adjusted basis in the
Common Stock. To the extent that such distributions exceed the adjusted basis
of a non-U.S. Shareholder's Common Stock, such distributions will generally be
subject to tax if such non-U.S. Shareholder would otherwise be subject to tax
on any gain from the sale or disposition of its Common Stock, as described
below.
For withholding tax purposes, the Company currently is required to treat all
distributions as if made out of its current or accumulated earnings and
profits and thus intends to withhold at the rate of 30% (or a reduced treaty
rate if applicable) on the amount of any distribution (other than
distributions designated as capital gain dividends) made to a Non-U.S.
Shareholder. Under regulations generally effective for distributions on or
after January 1, 1999, the Company would not be required to withhold at the
30% rate on distributions it reasonably
28
estimates to be in excess of the Company's current and accumulated earnings
and profits. If it cannot be determined at the time a distribution is made
whether 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 ordinary dividends. As a result of a legislative change
made by the Small Business Job Protection Act of 1996, under current law, it
appears that the Company will be required to withhold 10% of any distribution
to a non-U.S. Shareholder in excess of the Company's current and accumulated
earnings and profits. Consequently, although the Company intends to withhold
at a rate of 30% on the entire amount of any distribution to a non-U.S.
Shareholder (or lower applicable treaty rate), to the extent the Company does
not do so, any portion of such a distribution not subject to withholding at a
rate of 30% (or lower applicable treaty rate) will be subject to withholding
at a rate of 10%. However, the non-U.S. Shareholder may seek a refund of such
amounts from the IRS if it subsequently determined that such distribution was,
in fact, in excess of current or accumulated earnings and profits of the
Company, and the amount withheld exceeded the non-U.S. Shareholder's United
States tax liability, if any, with respect to the distribution.
Distributions to a non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those
arising from the disposition of a United States real property interest)
generally will not be subject to United States federal income taxation, unless
(i) the investment in the Common Stock is effectively connected with the non-
U.S. Shareholder's United States trade or business, in which case the non-U.S.
Shareholder will be subject to the same treatment as U.S. Shareholders with
respect to such gain (except that a shareholder that is a foreign corporation
may also be subject to the 30% branch profits tax) or (ii) the non-U.S.
Shareholder is a nonresident alien individual who is present in the United
States for 183 days or more during the taxable year and certain other
requirements are met, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains.
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"),
distributions to a non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests
(whether or not designated as a capital gain dividend) will be taxed to a non-
U.S. Shareholder at the normal capital gains rates applicable to domestic
Shareholders (subject to 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 non-U.S. Shareholder
that is a corporation and that is not entitled to treaty relief or exemption.
The Company is required by applicable FIRPTA Treasury Regulations to withhold
35% of any such distribution that is or could be designated by the Company as
a capital gain dividend. That amount is creditable against the non-U.S.
Shareholder's United States FIRPTA tax liability.
Even if the Company does not qualify or ceases to be a domestically
controlled REIT, gain arising from the sale or exchange by a non-U.S.
Shareholder of Common Stock would still not be subject to U.S. taxation under
FIRPTA as a sale of a United States real property interest if (i) the class or
series of shares being sold is "regularly traded," as defined by applicable
Treasury Regulations, on an established securities market such as the New York
Stock Exchange, and (ii) the selling non-U.S. Shareholder owned 5% or less of
the value of the outstanding class or series of shares being sold throughout
the five-year period ending on the date of the sale or exchange.
If gain on the sale or exchange of Common Stock were subject to taxation
under FIRPTA, the non-U.S. Shareholder would be subject to regular United
States income tax with respect to such gain in the same manner as a taxable
U.S. Shareholder, subject to any applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals and the
possible application of the 30% branch profits tax in the case of foreign
corporations. The purchaser of the Common Stock would be required to withhold
and remit to the IRS 10% of the purchase price.
Although the law is not entirely clear on the matter, it appears that
amounts designated by the Company pursuant to the Taxpayer Relief Act as
undistributed capital gains in respect of shares of Common Stock (see
"Taxation of U.S. Shareholders Holding Common Stock" above) would be treated
with respect to non-U.S. Shareholders in the manner outlined in the preceding
paragraph for actual distributions by the Company of
29
capital gain dividends. Under that approach, the non-U.S. Shareholders would
be able to offset as a credit against their United States federal income tax
liability resulting therefrom their proportionate share of the tax paid by the
Company on such undistributed capital gains (and to receive from the IRS a
refund to the extent their proportionate share of such tax paid by the Company
were to exceed their actual United States federal income tax liability).
Sale of Common Stock. Gain recognized by a non-U.S. Shareholder upon a sale
of its Common Stock will generally not be subject to tax under FIRPTA if the
Company is a "domestically controlled REIT," which is defined generally as a
REIT in which at all times during a specified testing period less than 50% in
value of its shares were held directly or indirectly by non-U.S. persons.
Because only a minority of the Shareholders are non-U.S. Shareholders, the
Company expects to qualify as a "domestically controlled REIT." Accordingly, a
non-U.S. Shareholder should not be subject to U.S. tax on gains recognized
upon disposition of the Common Stock, provided that such gain is not
effectively connected with the conduct of a United States trade or business
and, in the case of an individual Shareholder, such holder is not present in
the United States for 183 days or more during the year of sale and certain
other requirements are met.
Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at a rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to non-U.S. Shareholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends, or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of Common Stock by or through a foreign office of a foreign
broker. Information reporting (but not backup withholding) will apply,
however, to a payment of the proceeds of a sale of Common Stock by a foreign
office of a broker that (a) is a United States person, (b) derives 50% or more
of its gross income for certain periods from the conduct of a trade or
business in the United States or (c) is a "controlled foreign corporation"
(generally a foreign corporation controlled by United States Shareholders) for
United States tax purposes, unless the broker has documentary evidence in its
records that the holder is a non-U.S. Shareholder and certain other conditions
are met, or the Shareholder otherwise establishes an exemption. Payment to or
through a United States office of a broker of the proceeds of a sale of Common
Stock is subject to both backup withholding and information reporting unless
the Shareholder certifies under penalty of perjury that the Shareholder is a
non-U.S. Shareholder, or otherwise establishes an exemption. A non-U.S.
Shareholder may obtain a refund of any amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS.
The United States Treasury Department has recently finalized regulations
regarding the withholding and information reporting rules discussed above. In
general, these regulations do not alter the substantive withholding and
information reporting requirements but unify certification procedures and
forms and clarify and modify reliance standards. These regulations generally
are effective for payments made after December 31, 1999, subject to certain
transition rules. Valid withholding certificates that are held on December 31,
1999, will remain valid until the earlier of December 31, 2000, or the date of
the expiration of the certificate under rules currently in effect, unless
otherwise invalidated due to changes in the circumstances of the person whose
name is on such certificate. A non-U.S. Shareholder should consult its advisor
regarding the effect of the new Treasury Regulations.
Administration's Proposed Changes to REIT Qualification Requirements
The administration's fiscal year 2000 budget proposal, announced February 1,
1999, includes a proposal that would change the 10% voting securities test to
a 10% vote or value test. Under the proposal, a REIT would not be able to own
more than 10% of the vote or value of the outstanding securities of any
corporation, except for a qualified REIT subsidiary or another REIT (see
"Taxation of the Company--Asset Tests" above). The proposal also contains an
exception to the 5% and 10% asset tests that would allow a REIT to have
"taxable
30
REIT subsidiaries," including both "qualified independent contractor
subsidiaries," which could perform noncustomary and other currently prohibited
services for tenants and other customers, and "qualified business
subsidiaries," which could undertake third-party management and development
activities as well as other non-real estate related activities. Under the
proposal, no more than 15% of a REIT's total assets could consist of taxable
REIT subsidiaries and no more than 5% of a REIT's total assets could consist
of qualified independent contractor subsidiaries. Under the budget proposal, a
taxable REIT subsidiary would not entitled to deduct any interest on debt
funded directly or indirectly by the REIT. This proposal would be effective
after the date of enactment and a REIT would be allowed to combine and convert
existing corporate subsidiaries into taxable REIT subsidiaries tax-free prior
to a certain date. A transition period would allow for conversion of existing
corporate subsidiaries before the 10% vote or value test would become
effective. For the Company's taxable years after the effective date of the
proposal and after any applicable transition period, the 10% vote or value
test would apply to the Company's ownership in any of the non-qualified REIT
subsidiaries not converted into taxable REIT subsidiaries. It is presently
uncertain whether any proposal regarding REIT subsidiaries, including the
budget proposal, will be enacted or, if enacted, what the terms, including the
effective date, of such proposal will be.
On April 28, 1999, the Real Estate Investment Trust Modernization Act of
1999 (the "bill") was introduced in Congress. The bill is similar to the
administration's proposal in several respects. Like the administration's
proposal, the bill would create "taxable REIT subsidiaries" that would not be
subject to the 5% asset test, but that would remain subject to the 25% asset
test (see "Taxation of the Company--Asset Tests" above). The "taxable REIT
subsidiaries" would also be subject to "earnings stripping" limitations on the
deductibility of interest. Under the bill, a REIT would be able to rent up to
10% of a property to a taxable REIT subsidiary and generally have the rent
qualify as good income. The bill would also change the 10% voting securities
test to a 10% vote or value test unless the corporation elects to be a taxable
REIT subsidiary or the securities qualify for the "grandfather rule." In
general, the "grandfather rule" would apply to securities of a corporation in
which the REIT owned an interest on April 28, 1999. The grandfather rule would
also apply to securities acquired in a tax-free exchange for "grandfathered
securities" and to securities acquired in a qualifying tax-free reorganization
with another REIT, if those securities were grandfathered in the hands of the
other REIT. Securities of a corporation will lose their "grandfathered" status
if the corporation acquires any substantial asset or engages in a substantial
new line of business after April 28, 1999 (other than pursuant to a binding
contract in effect on that date).
Tax Aspects of the Company's Ownership of Interests in the Operating
Partnership
General. A significant portion of the Company's investments will be held
indirectly through the Operating Partnership. In general, partnerships are
"pass-through" entities that are not subject to federal income tax. Rather,
partners are allocated their proportionate shares of the items of income,
gain, loss, deduction and credit of a partnership, and are potentially subject
to tax on those items, without regard to whether the partners receive a
distribution from the partnership. In the case of a REIT which is a partner in
a partnership, Treasury Regulations provide that for purposes of applying the
REIT gross income and gross asset tests, the REIT will be deemed to own its
proportionate share of the assets of the partnership and will be deemed to be
entitled to the income of the partnership attributable to that share, in each
case based on its "capital interest" in the partnership. In addition, the
character of the gross income and assets of the partnership shall retain the
same character in the hands of the REIT for purposes of Section 856 of the
Code which includes the gross income and asset tests described above. The
Company will have direct control of the Operating Partnership and intends to
operate it consistent with the requirements for qualification as a REIT. The
Company will include in its income its proportionate share of the foregoing
partnership items for purposes of the various REIT income tests and will take
into account its distributive share of partnership items in the computation of
its REIT taxable income. Moreover, for purposes of the REIT asset tests, the
Company will include its proportionate share of assets held through the
Operating Partnership.
Entity Classification. If the Operating Partnership were treated as an
association, the entity would be taxable as a corporation and therefore would
be subject to an entity level tax on its income. In such a situation,
31
the character of the Company's assets and items of gross income would change
and would preclude the Company from qualifying as a REIT. The same result
could occur if any subsidiary partnership failed to qualify for treatment as a
partnership.
Prior to January 1, 1997, an organization formed as a partnership or a
limited liability company was treated as a partnership for federal income tax
purposes rather than as a corporation only if it had no more than two of the
four corporate characteristics that the Treasury Regulations in effect at that
time used to distinguish a partnership from a corporation for tax purposes.
These four characteristics were (i) continuity of life, (ii) centralization of
management, (iii) limited liability and (iv) free transferability of
interests.
Under final Treasury Regulations that became effective January 1, 1997, the
four factor test has been eliminated and an entity formed as a partnership or
as a limited liability company will be taxed as a partnership for federal
income tax purposes unless it specifically elects otherwise. The Treasury
Regulations provide that the IRS will not challenge the classification of an
existing partnership or limited liability company for tax periods prior to
January 1, 1997 so long as (1) the entity had a reasonable basis for its
claimed classification, (2) the entity and all its members recognized the
federal income tax consequences of any changes in the entity's classification
within the 60 months prior to January 1, 1997, and (3) neither the entity nor
any member of the entity had been notified in writing on or before May 8,
1996, that the classification of the entity was under examination by the IRS.
The Company believes that the Operating Partnership will be treated as a
partnership for federal income tax purposes (and not as an association taxable
as a corporation).
Partnership Allocations. Although a partnership agreement will generally
determine the allocation of income and loss among partners, those allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Code and the related Treasury Regulations. Generally,
those provisions require that partnership allocations reflect the economic
arrangement of the partners. The allocations of taxable income and loss
provided for in the Operating Partnership Agreement are intended to comply
with the requirements of Section 704(b) of the Code and the related Treasury
Regulations. If an allocation is not recognized for federal income tax
purposes, the item subject to the allocation will be reallocated in accordance
with the partners' interests in the partnership, which will be determined by
taking into account all of the facts and circumstances relating to the
economic arrangement of the partners with respect to that item.
Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership, must be allocated in a manner so that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of the unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of contributed
property at the time of contribution and the adjusted tax basis of the
property at that time (a "Book-Tax Difference"). These allocations are solely
for federal income tax purposes and do not affect the book capital accounts or
other economic or legal arrangements among the partners. Similar rules can
apply in the case of appreciated or depreciated properties held by a
partnership at the time of new contributions to the partnership. The Operating
Partnership was formed by way of contributions of appreciated and depreciated
properties. Consequently, the Operating Partnership Agreement requires that
those allocations be made in a manner consistent with Section 704(c) of the
Code.
In general, the partners of the Operating Partnership who contributed assets
will be allocated differing depreciation deductions than if they had retained
the contributed property. In addition, on the disposition of any contributed
asset that has a Book-Tax Difference, the income or loss attributable to the
Book-Tax Difference generally will be allocated to the contributing partner.
These allocations will tend to eliminate the Book-Tax Difference over the life
of the Operating Partnership. However, the special allocation rules of Section
704(c) do not always entirely eliminate the Book-Tax Difference on an annual
basis or with respect to a specific taxable transaction such as a sale. Thus,
the carryover basis of the contributed assets in the hands of the Operating
32
Partnership may cause the Company to be allocated lower depreciation and other
deductions, and possibly an amount of taxable income in the event of a sale of
the contributed assets in excess of the economic or book income allocated to
it as a result of that sale. Such an allocation might cause the Company to
recognize taxable income in excess of cash proceeds, which might adversely
affect the Company's ability to comply with the REIT distribution
requirements.
Treasury Regulations under Section 704(c) of the Code provide partnerships
with a choice of several methods of accounting for Book-Tax Differences,
including the "traditional method" or the election of certain methods that
would permit any distortions caused by a Book-Tax Difference to be entirely
rectified on an annual basis or with respect to a specific taxable transaction
such as a sale. The Operating Partnership and the Company will determine with
respect to each contribution to the Operating Partnership which method to use.
Taxation of Holders of Preferred Stock, Equity Stock, Depositary Shares and
Warrants
If the Company offers one or more series of Preferred Stock, Equity Stock,
Depositary Shares or Warrants, there may be tax consequences for the holders
of such Securities not discussed herein. For a discussion of any such
additional consequences, see the applicable Prospectus Supplement.
State and Local Taxes
The tax treatment of the Company and the Shareholders in states having
taxing jurisdiction over them may differ from the federal income tax
treatment. Accordingly, no discussion of state taxation of the Company and the
Shareholders is provided nor is any representation made as to the tax status
of the Company in such states. All investors should consult their tax advisors
as to the treatment of the Company under the respective state tax laws
applicable to them.
PLAN OF DISTRIBUTION
We may sell the securities to one or more underwriters for public offering
and sale by them or may sell the securities to investors directly or through
agents. Any such underwriter or agent involved in the offer and sale of the
securities will be named in the applicable prospectus supplement.
Direct sales to investors may be accomplished through subscription offerings
or through shareholder purchase rights distributed to shareholders. In
connection with subscription offerings or the distribution of shareholder
purchase rights to shareholders, if all of the underlying securities are not
subscribed for, we may sell such unsubscribed securities to third parties
directly or through underwriters or agents and, in addition, whether or not
all of the underlying securities are subscribed for, we may concurrently offer
additional securities to third parties directly or through underwriters or
agents. Any such underwriter or agent involved in the offer and sale of the
securities will be named in the applicable prospectus supplement. If
securities are to be sold through shareholder purchase rights, such
shareholder purchase rights will be distributed as a dividend to the
shareholders for which they will pay no separate consideration. The prospectus
supplement with respect to the offer of securities pursuant to shareholder
purchase rights will set forth the relevant terms of the shareholder purchase
rights, including (i) whether common shares or common share warrants, or both,
will be offered pursuant to the shareholder purchase rights and the number of
common shares and common share warrants, as applicable, which will be offered
pursuant to the shareholder purchase rights, (ii) the period during which and
the price at which the shareholder purchase rights will be exercisable, (iii)
the number of shareholder purchase rights then outstanding, (iv) any
provisions for changes to or adjustments in the exercise price of the
shareholder purchase rights and (v) any other material terms of the
shareholder purchase rights.
Underwriters may offer and sell the securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. We also may, from time to time,
authorize underwriters acting as our agents to offer and sell the securities
upon the terms and conditions as are set forth in the applicable prospectus
supplement. In connection with the sale of securities, underwriters may
33
be deemed to have received compensation from us in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
securities for whom they may act as agent. Underwriters may sell securities to
or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agent.
Any underwriting compensation paid by us to underwriters or agents in
connection with the offering of securities, and any discounts, concessions or
commissions allowed by underwriters to participating dealers, will be set
forth in the applicable prospectus supplement. Underwriters, dealers and
agents participating in the distribution of the securities may be deemed to be
underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the securities may be deemed to be
underwriting discounts and commissions, under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements entered
into with us, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
Securities may also be offered and sold, if so indicated in the applicable
prospectus supplement, in connection with a remarketing upon their purchase,
in accordance with a redemption or repayment pursuant to their terms, or
otherwise, by one or more firms ("remarketing firms"), acting as principals
for their own accounts or as our agents. Any remarketing firm will be
identified and the terms of its agreement, if any, with us and its
compensation will be described in the applicable prospectus supplement.
Remarketing firms may be deemed to be underwriters in connection with the
securities remarketed thereby. Remarketing firms may be entitled under
agreements which may be entered into with us to indemnification by us against
certain liabilities, including liabilities under the Securities Act, and may
be customers of, engage in transactions with or perform services for us in the
ordinary course of business.
If so indicated in the applicable prospectus supplement, we will authorize
dealers acting as our agents to solicit offers by certain institutions to
purchase securities at the offering price set forth in such prospectus
supplement pursuant to delayed delivery contracts providing for payment and
delivery on the date or dates stated in such prospectus supplement. Each
contract will be for an amount not less than, and the aggregate principal
amount of securities sold pursuant to contracts shall be not less nor more
than, the respective amounts stated in the applicable prospectus supplement.
Institutions with whom contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions but
will in all cases be subject to our approval. Contracts will not be subject to
any conditions except (i) the purchase by an institution of the securities
covered by its contracts will not at the time of delivery be prohibited under
the laws of any jurisdiction in the United States to which such institution is
subject, and (ii) if the securities are being sold to underwriters, we will
have sold to such underwriters the total principal amount of the securities
less the principal amount thereof covered by contracts. Agents and
underwriters will have no responsibility in respect of the delivery or
performance of contracts.
Certain of the underwriters, if any, and their affiliates may be customers
of, engage in transactions with and perform services for us in the ordinary
course of business.
34
This prospectus may also be used in registered resales by the following
holders of common stock:
[Enlarge/Download Table]
Shares of Percentage of
Shares of Common Shares of Common Stock Outstanding Shares
Stock Percentage of Common Stock Beneficially of Common Stock
Beneficially Outstanding Shares Being Registered Owned After Beneficially Owned
Name Owned of Common Stock for Resale Resale After Resale
---- ---------------- ------------------ ---------------- ------------ ------------------
Acquiport Two
Corporation............ 6,110,265 25.8% 6,110,265 0 0%
State Treasurer, State
of Michigan............ 2,131,611 9.0% 888,172(1) 1,243,439 5.3%
Cohen & Steers Capital
Management, Inc.(2).... 1,176,234 4.9% 888,171(1) 288,063 1.2%
Morgan Stanley Asset
Management(2).......... 693,493 2.9% 693,493(1) 0 0%
Harvard Private Capital
Realty, Inc............ 874,074 3.7% 592,114(1) 281,960 1.2%
ABKB/LaSalle Securities
Limited
Partnership(2)......... 2,331,148 9.9% 592,113(1) 1,739,035 7.4%
Fidelity Real Estate
Investment Portfolio... 348,219 1.5% 348,219(1) 0 0%
Stanford University..... 437,037 1.8% 296,058(1) 140,979 (3)
The Fidelity REIT
Collective Pool........ 66,048 (3) 44,742(1) 21,306 (3)
State Employees'
Retirement Fund of the
State of Delaware...... 30,911 (3) 20,940(1) 9,971 (3)
J.W. McConnell Family
Foundation............. 7,821 (3) 5,298(1) 2,523 (3)
--------
(1) Reflects an aggregate of 4,588,885 shares issued to these holders in May
1998 pursuant to a Common Stock Purchase Agreement dated as of January 23,
1998.
(2) All shares of common stock held as agent for and for the benefit of
certain of such holder's clients.
(3) Less than 1%.
This prospectus may also be used in registered resales of common stock by
the following persons upon exchange of interests in our operating partnership
for common stock:
[Enlarge/Download Table]
Shares of Common Shares of Common Shares of Common
Stock Beneficially Stock Being Registered Stock Beneficially
Name Owned(1)(2) for Resale(1) Owned After Resale
---- ------------------ ---------------------- ------------------
Galaxy Partnership...... 14,384 14,384 0
Galaxy Associates,
L.L.C.................. 79,464 79,464 0
Galaxy Associates II,
L.L.C. ................ 13,669 13,669 0
Faraton Corp............ 1,748 1,748 0
--------
(1) Reflects shares to be issued upon exchange of interests in our operating
partnership.
(2) Less than 1% of the outstanding shares of common stock.
We have registered the shares of common stock by the holders in the tables
above to provide them with freely tradeable common stock, but the registration
of such shares does not necessarily mean that all of such shares will be
issued by us or any will be offered or sold by such holders. We will not
receive any proceeds from the offering by such holders.
The holders in the tables above may sell the shares of common stock to
investors directly or through agents or to one or more underwriters for public
offering and sale by them in any of the types of transactions described above.
Any such underwriter or agent involved in the offer and sale of such shares
will be named in the applicable prospectus supplement.
35
Any profits realized on sales pursuant to this prospectus by the holders in
the tables above of such shares may be regarded as underwriting compensation.
We will pay all expenses incident to the offering and sale of such shares,
other than commissions, discounts and fees of underwriters, broker-dealers or
agents. We have agreed to indemnify the holders of such shares against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
LEGAL OPINIONS
David Goldberg, our vice president and counsel, has delivered an opinion to
the effect that the securities offered by this prospectus will be validly
issued, fully paid and nonassessable. Hogan & Hartson L.L.P., Washington,
D.C., has delivered an opinion as to our status as a REIT. See "Certain
Federal Income Tax Considerations." Mr. Goldberg owns 4,256 shares of common
stock, and has options to acquire an additional 7,991 shares of common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K
for the year ended December 31, 1998, as set forth in their report, which is
incorporated by reference in this prospectus supplement and accompanying
prospectus and elsewhere in the registration statement. Our financial
statements and schedule are incorporated by reference in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
36
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses, other than underwriting discounts and commissions,
in connection with the offerings of the Securities, are as follows:
[Download Table]
Registration Fee--Securities and Exchange Commission............... $ 77,704
Transfer Agent and Depositary Fees................................. 125,000
Rating Agency Fees................................................. 100,000
Printing and Engraving Expenses.................................... 200,000
Legal Fees and Expenses............................................ 100,000
Accounting Fees and Expenses....................................... 100,000
Miscellaneous...................................................... 22,296
--------
Total............................................................ $725,000
========
Item 15. Indemnification of Directors and Officers.
The Company's Articles of Incorporation provide that the Company may
indemnify the agents of the Company to the maximum extent permitted under
California law. See Articles V and VI of the Restated Articles of
Incorporation (Exhibit 3.1) and Article VII of the Restated Bylaws (Exhibit
3.2) which are incorporated herein by this reference. The Company has also
entered into indemnity agreements with its management and non-management
directors and executive officers. The agreements permit the Company to
indemnify directors and executive officers to the maximum extent permitted
under California law and prohibit the Company from terminating its
indemnification obligations as to acts or omissions of any director or
executive officer occurring before the termination. The indemnification and
limitations on liability permitted by the Articles of Incorporation and the
agreements are subject to the limitations set forth by California law. The
Company believes the indemnification agreements will assist it in attracting
and retaining qualified individuals to serve as directors and executive
officers of the Company.
Item 16. Exhibits.
See Exhibit Index contained herein.
Item 17. Undertakings.
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;
(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 this
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 and 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 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
II-1
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement;
provided, however, that subparagraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in the periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference 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) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Exchange Act that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(4) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(5) To remove from registration by means of a post-effective amendment any
of the Securities being registered which remains unsold at the termination of
the offering.
(6) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(7) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Glendale, State of California, on the 17th day of
May, 1999.
PS BUSINESS PARKS, INC.
/s/ Ronald L. Havner, Jr.
By: _________________________________
Ronald L. Havner, Jr.,
President
Each person whose signature appears below hereby authorizes Ronald L.
Havner, Jr. and Harvey Lenkin, and each of them, as attorney-in-fact, to sign
on his behalf, individually and in each capacity stated below, any amendment,
including post-effective amendments to this Registration Statement, and to
file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
[Download Table]
Signature Capacity Date
--------- -------- ----
/s/ Ronald L. Havner, Jr. Chairman of the Board, Chief May 17, 1999
____________________________________ Executive Officer,
Ronald L. Havner, Jr. President
and Director
(principal executive
officer)
/s/ Jack E. Corrigan Vice President and Chief May 17, 1999
____________________________________ Financial Officer
Jack E. Corrigan (principal financial officer
and principal accounting
officer)
/s/ Harvey Lenkin Director May 17, 1999
____________________________________
Harvey Lenkin
/s/ Vern O. Curtis Director May 17, 1999
____________________________________
Vern O. Curtis
/s/ Arthur M. Friedman Director May 17, 1999
____________________________________
Arthur M. Friedman
/s/ James H. Kropp Director May 17, 1999
____________________________________
James H. Kropp
/s/ Alan K. Pribble Director May 17, 1999
____________________________________
Alan K. Pribble
/s/ Jack D. Steele Director May 17, 1999
____________________________________
Jack D. Steele
II-3
EXHIBIT INDEX
[Download Table]
Exhibit
No. Description
------- -----------
1.1 Form of Underwriting Agreement.(1)
3.1 Restated Articles of Incorporation.
3.2 Restated Bylaws.(2)
4.1 Form of Certificate of Determination for additional series of Preferred
Stock.(1)
4.2 Form of Deposit Agreement.(1)
4.3 Form of Certificate of Determination for series of Equity Stock.(1)
4.4 Form of Warrant Agreement.(1)
5.1 Opinion of David Goldberg as to the legality of the securities being
registered.
8.1 Opinion of Hogan & Hartson L.L.P. re tax matters.
12.1 Statement on computation of ratio of earnings to fixed charges.(3)
23.1 Consent of Ernst & Young LLP.
23.2 Consent of David Goldberg (included in Exhibit 5.1).
23.3 Consent of Hogan & Hartson L.L.P. (included in Exhibit 8.1).
24.1 Power of Attorney (included on page II-3).
--------
(1) To be filed by amendment or as an exhibit to a document to be incorporated
by reference herein in connection with the offering of Securities.
(2) Filed with the registrant's Current Report on Form 8-K dated March 17,
1998 and incorporated herein by reference.
(3) Filed with the registrant's Form 10-Q for the quarterly period ended March
31, 1999 and incorporated herein by reference.
II-4
Dates Referenced Herein and Documents Incorporated by Reference
2 Subsequent Filings that Reference this Filing
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