Filed Pursuant to Rule 424(b)(5)
Registration No. 333-68283
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, JUNE 17, 2003
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 17, 1998)
SHARES
[AMB PROPERTY CORPORATION LOGO]
AMB PROPERTY CORPORATION
% SERIES L CUMULATIVE REDEEMABLE PREFERRED STOCK
LIQUIDATION PREFERENCE $25.00 PER SHARE
--------------------------------------------------------------------------------
We are offering shares of our % Series L Cumulative
Redeemable Preferred Stock, par value $0.01 per share. We will pay cumulative
dividends on the series L preferred stock from June , 2003 at the rate of %
per annum of the $25.00 liquidation preference per share, which is equivalent to
$ per share per year. Dividends on the series L preferred stock will be
payable quarterly in arrears, beginning on July 15, 2003. The shares of series L
preferred stock have no stated maturity, will not be subject to any sinking fund
or mandatory redemption and will not be convertible into any other securities.
Holders of shares of series L preferred stock will generally have no voting
rights, except for limited voting rights if we fail to pay dividends for six or
more quarterly periods (whether or not consecutive) and in certain other events.
Except in limited circumstances to preserve our status as a real estate
investment trust, we may not redeem the series L preferred stock until June ,
2008. On or after June , 2008, we may, at our option, redeem the series L
preferred stock, in whole or from time to time in part, for cash at a redemption
price of $25.00 per share, plus all accumulated and unpaid dividends on such
series L preferred stock, to the redemption date. Any partial redemption will be
on a pro rata basis, by lot or by any other equitable method that we determine.
We are organized and conduct our operations to qualify as a real estate
investment trust for federal income tax purposes. To assist us in complying with
certain federal income tax requirements applicable to real estate investment
trusts, our charter contains certain restrictions relating to the ownership and
transfer of our stock, including an ownership limit of 9.8% of the series L
preferred stock. See "Description of Series L Preferred Stock" and "Description
of Capital Stock" in this prospectus supplement for a discussion of these
restrictions.
No market currently exists for the series L preferred stock. We intend to
apply to list our series L preferred stock on the New York Stock Exchange under
the symbol "AMB -- PrL." If the application is approved, we expect that trading
will commence within 30 days after the initial delivery of the series L
preferred stock. Our common stock currently trades on the New York Stock
Exchange under the symbol "AMB."
SEE "RISK FACTORS"' BEGINNING ON PAGE S-5 IN THIS PROSPECTUS SUPPLEMENT AND
IN THE SECTION ENTITLED "OTHER INFORMATION -- BUSINESS RISKS" AND ELSEWHERE IN
OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002 AND IN OUR
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2003 FOR A
DISCUSSION OF THE RISKS RELEVANT TO AN INVESTMENT IN THE SERIES L PREFERRED
STOCK.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus supplement and the accompanying
prospectus. Any representation to the contrary is a criminal offense.
PER SHARE TOTAL
--------- --------
Public offering price....................................... $25.0000 $
Underwriting discounts and commissions...................... $ 0.7875 $
Proceeds, before expenses, to us............................ $24.2125 $
We have granted the underwriters a 30-day option to purchase up to
additional shares of series L preferred stock at a price of $25.00 per
share to cover over-allotments. If the underwriters exercise their option in
full to purchase additional shares, the aggregate proceeds to us will
be $ before deducting transaction costs payable by us.
The underwriters are severally underwriting the shares being offered.
The shares of series L preferred stock will be ready for delivery in
book-entry form through The Depository Trust Company on or about June , 2003.
--------------------------------------------------------------------------------
WACHOVIA SECURITIES
BEAR, STEARNS & CO. INC.
MCDONALD INVESTMENTS INC.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JUNE , 2003.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
About this Prospectus Supplement............................ iii
Forward-Looking Information................................. iii
Where You Can Find More Information......................... iv
Incorporation of Certain Documents By Reference............. iv
Prospectus Supplement Summary............................... S-1
Risk Factors................................................ S-5
Ratios of Earnings to Fixed Charges And Preferred Dividends
And Distributions......................................... S-5
Use of Proceeds............................................. S-6
Description of Series L Preferred Stock..................... S-6
Description of Capital Stock................................ S-13
Restrictions on Ownership and Transfer of Capital Stock..... S-39
Certain Provisions of Maryland Law and of Our Charter And
Bylaws.................................................... S-41
Certain United States Federal Income Tax Considerations..... S-45
Underwriting................................................ S-62
Legal Matters............................................... S-63
Experts..................................................... S-63
PROSPECTUS
About This Prospectus....................................... 1
Where You Can Find More Information......................... 1
Incorporation of Certain Documents By Reference............. 2
Forward Looking Statements.................................. 3
The Company................................................. 4
Use of Proceeds............................................. 4
Ratio of Earnings To Fixed Charges and Preferred Dividends
and Distributions......................................... 4
Description of Debt Securities.............................. 5
Description of Common Stock................................. 20
Description of Preferred Stock.............................. 21
Description of Depositary Shares............................ 34
Description of Warrants..................................... 37
Restrictions on Ownership and Transfer of Capital Stock..... 38
Certain Provisions of Maryland Law and of Our Charter And
Bylaws.................................................... 40
Description of Certain Provisions of The Partnership
Agreement of The Operating Partnership.................... 43
Certain Federal Income Tax Considerations................... 54
Plan of Distribution........................................ 64
Legal Matters............................................... 65
Experts..................................................... 65
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS SUPPLEMENT AND 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. THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS
SUPPLEMENT AND THE DATE OF THE PROSPECTUS, RESPECTIVELY.
ii
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus
supplement, which describes the specific terms of the series L preferred stock
we are offering and certain other matters relating to us. The second part, the
accompanying prospectus, gives more general information about securities we may
offer from time to time, some of which do not apply to the series L preferred
stock we are offering.
To the extent any inconsistency or conflict exists between the information
included in this prospectus supplement and the information included in the
accompanying prospectus, the information included or incorporated by reference
in this prospectus supplement updates and supersedes the information in the
accompanying prospectus. This prospectus supplement incorporates by reference
important business and financial information about us that is not included in or
delivered with this prospectus supplement.
FORWARD-LOOKING INFORMATION
This prospectus supplement and the accompanying prospectus, including the
information incorporated by reference into this prospectus supplement, may
contain forward-looking statements within the meaning of the Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. We caution you that many forward-looking statements
presented in this prospectus supplement and the accompanying prospectus are
based on management's beliefs and assumptions made by, and information currently
available to, management. Statements contained and incorporated by reference in
this prospectus and accompanying prospectus supplement that are not historical
facts may be forward-looking statements. Such statements relate to our future
performance and plans, results of operations, capital expenditures,
acquisitions, and operating improvements and costs. You can identify
forward-looking statements by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "pro forma," "estimates" or "anticipates," or the negative
of these words and phrases, or similar words or phrases. You can also identify
forward-looking statements by discussions of strategy, plans or intentions.
Forward-looking statements involve numerous risks and uncertainties and you
should not rely upon them as predictions of future events. There is no assurance
that the events or circumstances reflected in forward-looking statements will
occur or be achieved. Forward-looking statements are necessarily dependent on
assumptions, data or methods that may be incorrect or imprecise and we may not
be able to realize them.
The following factors, among others, could cause actual results and future
events to differ materially from those set forth or contemplated in the
forward-looking statements:
- defaults or non-renewal of leases by customers;
- increased interest rates and operating costs;
- our failure to obtain necessary outside financing;
- difficulties in identifying properties to acquire and in effecting
acquisitions;
- our failure to successfully integrate acquired properties and operations;
- our failure to divest of properties that we have contracted to sell or to
timely reinvest proceeds from any such divestitures;
- risks and uncertainties affecting property development and construction
(including construction delays, cost overruns, our inability to obtain
necessary permits and public opposition to these activities);
- our failure to qualify and maintain our status as a real estate
investment trust under the Internal Revenue Code of 1986;
- environmental uncertainties;
- risks related to natural disasters;
iii
- financial market fluctuations;
- changes in real estate and zoning laws;
- increases in real property tax rates; and
- risks of doing business internationally, including currency risks.
Our success also depends upon economic trends generally, including interest
rates, income tax laws, governmental regulation, legislation, population changes
and those other risk factors discussed in the section entitled "Risk Factors" in
this Prospectus Supplement and in the section entitled "Other Information --
Business Risks" and elsewhere in our most recent Annual Report on Form 10-K and
our most recent Quarterly Report on Form 10-Q. We caution you not to place undue
reliance on forward-looking statements, which reflect our analysis only and
speak as of the date of this prospectus supplement or as of the dates indicated
in the statements.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933, as amended with respect to the
securities offered hereunder. As permitted by the Securities and Exchange
Commission's rules and regulations, this prospectus supplement and the
accompanying prospectus do not contain all the information set forth in the
registration statement. For further information regarding us and our equity
stock, please refer to the registration statement and the contracts, agreements
and other documents filed as exhibits to the registration statement.
Additionally, we file annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission.
You may read and copy all or any portion of the registration statement or
any other materials that we file with the Securities and Exchange Commission at
the Securities and Exchange Commission public reference room at 450 Fifth
Street, Washington, D.C., 20549. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Our Securities and Exchange Commission filings,
including the registration statement, are also available to you on the
Securities and Exchange Commission's web site (www.sec.gov). We also have a web
site (www.amb.com) through which you may access our Securities and Exchange
Commission filings. In addition, you may look at our Securities and Exchange
Commission filings at the offices of the New York Stock Exchange, Inc., which is
located at 20 Broad Street, New York, New York 10005.
INFORMATION CONTAINED ON OUR WEB SITE IS NOT AND SHOULD NOT BE DEEMED A
PART OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to incorporate by
reference the information contained in documents that we file with the
Securities and Exchange Commission. The information incorporated by reference is
considered to be part of this prospectus supplement and the accompanying
prospectus, and information that we file later with the Securities and Exchange
Commission will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future
filings we make with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, prior to the completion of this
offering:
- Our Annual Report on Form 10-K for the year ended December 31, 2002;
- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003;
- Our definitive proxy statement dated March 14, 2003 with respect to the
Annual Meeting of Stockholders held on May 22, 2003;
iv
- Our Current Report on Form 8-K filed on April 8, 2003 (excluding Item 9
and Item 12);
- Our Current Report on Form 8-K filed on January 16, 2003;
- Our pro forma financial statements for the divestiture of 25 properties
to BPP Retail, LLC during 1999 from our Current Report on Form 8-K filed
on December 14, 1999;
- Our reports, financial statements and pro forma financial statements for
the Columbia Business Center, Manekin Portfolio, Technology Park II
Portfolio, WOCAC Portfolio, Junction Industrial Park and the Miami
Airport Business Center from our Current Report on Form 8-K filed on
November 16, 1999;
- Our reports, financial statements and pro forma financial statements for
the J.A. Green Portfolio, Magnum Realty Corp. Portfolio, Beacon Centre
Portfolio, AFCO Portfolio, AFCO Investors Portfolio, Cargo I Associates
L.P. Portfolio and the WEST*PAC Portfolio from our Current Report on Form
8-K filed on December 14, 2000;
- Our Registration Statement on Form 8-A filed on October 28, 1997,
registering our common stock under the Securities Exchange Act; and
- Our Registration Statement on Form 8-A filed on July 14, 1998,
registering our 8 1/2% Series A Cumulative Preferred Stock under the
Securities Exchange Act.
You may request a free copy of these filings (other than exhibits, unless
they are specifically incorporated by reference in the documents) by writing or
telephoning us at the following address and telephone number:
AMB Property Corporation
Attention: Investor Relations
Pier 1, Bay 1
San Francisco, California 94111
(415) 394-9000
v
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information about us. It may not contain
all the information that may be important to you in deciding whether to invest
in the series L preferred stock. You should read this entire prospectus
supplement and the accompanying prospectus, together with the information
incorporated by reference, including the financial data and related notes,
before making an investment decision. All references to "we" "our", and "us," in
this prospectus supplement and in the accompanying prospectus mean AMB Property
Corporation and its consolidated subsidiaries, except where it is made clear
that the terms mean AMB Property Corporation only.
THE COMPANY
AMB Property Corporation, a Maryland corporation, acquires, develops and
operates industrial property in key distribution markets throughout North
America, Europe and Asia. We commenced operations as a fully integrated real
estate company effective with the completion of our initial public offering on
November 26, 1997. We believe our properties increasingly are designed for
customers who value the efficient movement of goods in the world's busiest
distribution markets: large, supply-constrained locations with close proximity
to airports, seaports and major freeway systems. As of March 31, 2003, we served
2,546 customers in a portfolio (owned, managed or under development) totaling
987 buildings, encompassing approximately 93.7 million square feet (8.7 million
square meters), in 29 global markets.
Through our subsidiary, AMB Property, L.P., a Delaware limited partnership,
we are engaged in the acquisition, ownership, operation, management, renovation,
expansion and development of primarily industrial properties in target markets
in North America, Europe and Asia. We refer to AMB Property, L.P. in this
prospectus supplement as our operating partnership. As of March 31, 2003, we
owned an approximate 94.4% general partnership interest in the operating
partnership, excluding preferred units. As the sole general partner of the
operating partnership, we have the full, exclusive and complete responsibility
and discretion in the day-to-day management and control of the operating
partnership.
Our investment strategy targets customers whose businesses are growing at a
faster rate than world gross domestic product -- specifically, participants in
global trade. To serve the facilities needs of these customers, we invest in
major markets: transportation hubs and gateways in the United States, and
targeted distribution and airport markets internationally. Our target markets
are characterized by large population densities and typically offer substantial
consumer bases, proximity to large clusters of distribution-facility users and
significant labor pools. When measured by annual base rents, approximately 70%
of our assets are concentrated in eight United States hub distribution markets:
Atlanta, Chicago, Dallas/Fort Worth, Los Angeles, Northern New Jersey/New York
City, San Francisco Bay Area, Miami and Seattle. By focusing on an investment
strategy that benefits from high customer demand and limited competition from
new supply, we believe that over time our net operating income will grow and our
property values will increase.
Our portfolio is comprised of strategically located industrial buildings in
in-fill submarkets. In-fill locations are characterized by supply constraints on
the availability of land for competing projects as well as physical, political
or economic barriers to new development. A majority of our owned or managed
buildings function as High Throughput Distribution(R) facilities; buildings
designed to quickly distribute our customers' products, rather than store them.
Our investment focus on High Throughput Distribution assets is based on the
secular change toward lower inventory levels and expedited supply chains.
High Throughput Distribution facilities have a variety of characteristics
that allow the rapid transport of goods from point-to-point; examples include
numerous dock doors, shallower building depths, fewer columns, large truck
courts and more space for trailer parking. These facilities function best when
located in convenient proximity to transportation infrastructure such as major
airports and seaports. We believe that these building characteristics represent
an important success factor for time-sensitive tenants such as air express,
logistics and freight forwarding companies.
As of March 31, 2003, we owned and operated (exclusive of properties that
we managed for third parties) 873 industrial buildings and nine retail and other
properties, totaling approximately 81.4 million rentable
S-1
square feet, located in 27 markets throughout North America and in France. As of
March 31, 2003, our industrial and retail properties were 92.5% and 87.9%
leased, respectively. As of March 31, 2003, through our subsidiary, AMB Capital
Partners, LLC, we also managed, but did not have an ownership interest in,
industrial buildings and retail centers, totaling approximately 1.7 million
rentable square feet. In addition, as of March 31, 2003, we had investments in
67 operating industrial buildings, totaling approximately 7.9 million rentable
square feet, through unconsolidated joint ventures.
We are self-administered and self-managed and have qualified and expect
that we will continue to qualify as a real estate investment trust for federal
income tax purposes beginning with the year ended December 31, 1997. As a
self-administered and self-managed real estate investment trust, our own
employees perform our administrative and management functions, rather than our
relying on an outside manager for these services. Our principal executive office
is located at Pier 1, Bay 1, San Francisco, California 94111; our telephone
number is (415) 394-9000. We also maintain regional offices in Boston,
Massachusetts and Amsterdam, the Netherlands. As of March 31, 2003, we employed
175 individuals, 131 at our San Francisco headquarters, 43 in our Boston office
and one in our Amsterdam office.
RECENT DEVELOPMENTS
We intend to call for redemption all 3,995,800 of our outstanding 8 1/2%
Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share, at a
redemption price of $25.00 per share, plus all accumulated and unpaid dividends
on such shares to the redemption date. Our board of directors is expected to set
July 28, 2003 as the redemption date on which all of our outstanding series A
preferred stock will be redeemed. See "Use of Proceeds."
Investment-Grade Credit Ratings. We have received prospective ratings on
the series L preferred stock of Baa2 from Moody's Investors Service, BBB from
FitchRatings and BBB- from Standard & Poor's Rating Services.
THE OFFERING
Issuer........................ AMB Property Corporation, a Maryland
corporation.
Securities Offered............ shares of % Series L Cumulative
Redeemable Preferred Stock (exclusive of the
over-allotment option).
Ranking....................... The series L preferred stock will rank, with
respect to dividends and upon our voluntary or
involuntary liquidation, dissolution or winding
up:
- senior to all classes or series of our common
stock and to all of our equity securities
(which do not include convertible debt
securities) the terms of which provide that
such equity securities shall rank junior to
such series L preferred stock;
- junior to all of our equity securities (which
do not include convertible debt securities)
the terms of which provide that such equity
securities shall rank senior to the series L
preferred stock; and
- on a parity with all equity securities issued
by us (including the series A, and if and
when issued, the series B, D, E, F, H, I, J
and K preferred stock, but not including
convertible debt securities) other than those
referred to in the bullet points above.
See "Series L Preferred Stock -- Ranking.",
"-- Dividends" and "-- Liquidation Preference."
S-2
Use of Proceeds............... We will contribute the net proceeds from this
offering to the operating partnership and, in
exchange, the operating partnership will issue
to us % Series L Cumulative Redeemable
Preferred Units. We intend for the operating
partnership to use the proceeds, in addition to
some or all of the proceeds we previously
contributed to the operating partnership from
other equity offerings subsequent to our
issuance of our series A preferred stock, to
redeem its 8 1/2% Series A Cumulative
Redeemable Preferred Units, held by us. In
turn, we intend to use those funds to pay a
portion of the redemption price of our 8 1/2%
Series A Cumulative Redeemable Preferred Stock
at $25.00 per share, plus all accumulated and
unpaid dividends on such shares to the
redemption date. Any additional or remaining
proceeds will be used by the operating
partnership for general corporate purposes.
Dividends..................... Dividends on the series L preferred stock are
cumulative from the date of original issuance
and are payable quarterly in arrears on the
15th day of January, April, July and October of
each year, commencing on July 15, 2003 (or, if
any such date is not a business day, on the
next succeeding business day), at the rate of
% of the liquidation preference per annum
(which is equivalent to $ per annum per
share of series L preferred stock). Dividends
on the series L preferred stock will accumulate
whether or not there are funds legally
available for the payment of such dividends and
whether or not such dividends are declared. If
we designate any portion of a dividend as
capital gain dividend, a holder's share of such
capital gain dividend will be an amount that
bears the same ratio to the total amount of
dividends (as determined for federal income tax
purposes) paid to such holder for the year as
the aggregate amount designated as a capital
gain dividend bears to the aggregate amount of
all dividends (as determined for federal income
tax purposes) paid on all classes of shares for
the year. See "Series L Preferred
Stock -- Dividends."
Liquidation Preference........ The series L preferred stock will have a
liquidation preference of $25.00 per share. In
addition, upon liquidation, the holders of the
series L preferred stock will be entitled to a
preferential payment in an amount equal to
accumulated and unpaid dividends. See "Series L
Preferred Stock -- Liquidation Preference
Rights."
Redemption.................... The series L preferred stock is not redeemable
prior to June , 2008 except as provided for
in our charter. On and after such date, we may
redeem the series L preferred stock for cash at
our option, upon not less than 30 nor more than
60 days' written notice, in whole or in part,
at a redemption price of $25.00 per share, plus
all accumulated and unpaid dividends on such
shares to the redemption date. In certain
circumstances related to the our maintenance of
our ability to qualify as a real estate
investment trust for federal income tax
purposes, we may redeem shares of series L
preferred stock. See "Description of Series L
Preferred Stock -- Optional Redemption."
Voting Rights................. Holders of the series L preferred stock
generally will have no voting rights, except as
required by law. However, if dividends on the
series L preferred stock remain unpaid for six
or more
S-3
quarterly periods (whether or not consecutive),
holders of the series L preferred stock (voting
separately as a class with all other classes or
series of our equity securities upon which like
voting rights have been conferred and are
exercisable) will be entitled to vote for the
election of two additional directors to serve
on our board of directors until all dividend
arrearages with respect to the series L
preferred stock are eliminated. The series L
preferred stock will also be entitled to
certain additional voting rights described in
this prospectus supplement. See "Series L
Preferred Stock -- Voting Rights."
Conversion.................... The series L preferred stock will not be
convertible into or exchangeable for any other
of our properties or securities.
Restrictions on Ownership..... In order to assist us in maintaining our
qualification as a real estate investment trust
for federal income tax purposes, ownership,
actually or constructively, by any person of
more than 9.8% in value or number (whichever is
more restrictive) of shares of series L
preferred stock is restricted by our charter.
See "Series L Preferred Stock" and
"Restrictions on Ownership and Transfer of
Capital Stock."
Maturity...................... The series L preferred stock has no stated
maturity and will not be subject to mandatory
redemption or any sinking fund.
Trading....................... We intend to apply to the New York Stock
Exchange to list the series L preferred stock
under the symbol "AMB -- PrL." If approved,
trading of the series L preferred stock on the
New York Stock Exchange is expected to commence
within a 30-day period after the initial
delivery of the shares of series L preferred
stock.
S-4
RISK FACTORS
An investment in the series L preferred stock involves various material
risks. You should carefully consider the risk factors under the heading "Other
Information -- Business Risks" and elsewhere in our most recent annual report on
Form 10-K and quarterly report on Form 10-Q and other filings with the
Securities and Exchange Commission that are incorporated by reference in this
prospectus supplement and the accompanying prospectus, as well as the following
risk factors before purchasing shares of series L preferred stock.
THERE IS CURRENTLY NO ESTABLISHED TRADING MARKET FOR THE SERIES L PREFERRED
STOCK, WHICH MAY NEGATIVELY AFFECT ITS MARKET VALUE AND YOUR ABILITY TO TRANSFER
OR SELL YOUR SERIES L PREFERRED STOCK.
The shares of series L preferred stock are a new issue of securities with
no established trading market. We have applied to list the series L preferred
stock on the New York Stock Exchange. However, we cannot assure you that the
shares will be approved for listing on the NYSE. Even if so approved, trading of
the shares on the NYSE is not expected to begin until 30 days after the date of
the initial delivery of the shares and, in any event, we cannot assure you that
an active trading market on the New York Stock Exchange for the shares will
develop or, even if one develops, will last. As a result, your ability to
transfer or sell the series L preferred stock and any trading price of the
series L preferred stock could be adversely affected. We have been advised by
the underwriters that they intend to make a market in the shares, but they are
not obligated to do so and may discontinue market-making at any time without
notice.
THE MARKET VALUE OF THE SERIES L PREFERRED STOCK COULD BE SUBSTANTIALLY AFFECTED
BY VARIOUS FACTORS.
As with other publicly traded securities, the trading price of the series L
preferred stock will depend on many factors, which may change from time to time,
including:
- prevailing interest rates, increases in which may have an adverse effect;
- the market for similar securities issued by real estate investment
trusts;
- general economic and financial market conditions; and
- our financial condition, performance and prospects.
RATIOS OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS AND DISTRIBUTIONS
Our ratio of earnings to fixed charges and preferred dividends and
distributions for the three month period ended March 31, 2003 and for each of
the 5 years in the period ended December 31, 2002 were the following:
FOR THREE MONTHS FOR FISCAL YEAR ENDED DECEMBER 31,
ENDED MARCH 31, -------------------------------------
2003 2002 2001 2000 1999 1998
---------------- ----- ----- ----- ----- -----
Ratio of earnings to fixed charges
and preferred dividends and
distributions...................... 1.8 1.6 1.8 1.8 2.4 2.3
We have computed the ratios of earnings to fixed charges and preferred
dividends/distributions by dividing fixed charges, excluding capitalized
interest and income from unconsolidated entities, plus income from continuing
operations including income from minority interests which have fixed charges and
including distributed operating income from unconsolidated joint ventures
instead of income from unconsolidated joint ventures and amortization of
capitalization interest, by fixed charges plus preferred dividends/
distributions. Fixed charges consist of interest costs, whether expensed or
capitalized, the interest component of rental expense, amortization of debt
issuance costs, series A preferred stock dividends and preferred distributions
of consolidated subsidiaries.
S-5
USE OF PROCEEDS
We expect to receive net proceeds from this offering of approximately
$ (exclusive of the over-allotment option) after deducting underwriting
discounts and commissions and estimated transaction expenses payable by us. We
will contribute the net proceeds to the operating partnership and, in exchange,
the operating partnership will issue to us % Series L Cumulative Redeemable
Preferred Units. We intend for the operating partnership to use the proceeds, in
addition to some or all of the proceeds we previously contributed to the
operating partnership from other equity offerings subsequent to our issuance of
our series A preferred stock, to redeem its 8 1/2% Series A Cumulative
Redeemable Preferred Units, held by us. In turn, we intend to use those funds to
pay a portion of the redemption price of our 8 1/2% Series A Cumulative
Redeemable Preferred Stock, at $25.00 per share, plus all accumulated and unpaid
dividends on such shares to the redemption date. Any additional or remaining
proceeds will be used by the operating partnership for general corporate
purposes.
DESCRIPTION OF SERIES L PREFERRED STOCK
The summary of the terms of our preferred stock and series L preferred
stock set forth below does not purport to be complete and is subject to and
qualified in its entirety by reference to our charter, including our articles
supplementary establishing the terms of the series L preferred stock, our bylaws
and the Maryland General Corporation Law.
PREFERRED STOCK GENERALLY
Our charter authorizes us to issue 500,000,000 shares of common stock and
100,000,000 shares of preferred stock. As of June 13, 2003, 81,668,442 shares of
our common stock and 3,995,800 shares of our 8 1/2% Series A Cumulative
Redeemable Preferred Stock were issued and outstanding. We have reserved for
issuance upon the exchange of limited partnership units 1,300,000 shares of
series B preferred stock, 1,595,337 shares of series D preferred stock, 220,440
shares of series E preferred stock, 267,439 shares of series F preferred stock,
840,000 shares of series H preferred stock, 510,000 shares of series I preferred
stock, 800,000 shares of series J preferred stock and 800,000 shares of series K
preferred stock.
Our charter authorizes our board of directors to issue 100,000,000 shares
of preferred stock, to classify any unissued shares of preferred stock and to
reclassify any previously classified but unissued shares of preferred stock of
any class from time to time, in one or more classes, as authorized by our board
of directors. Prior to issuance of shares of preferred stock of each class, our
board of directors is required by Maryland law and our charter to set the terms,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption for each such class. Thus, our board of directors,
without stockholder approval, could authorize the issuance of shares of
preferred stock with terms and conditions which could have the effect of
delaying, deferring or preventing a transaction or a change in control of us
that might involve a premium price for holders of shares of preferred stock or
shares of our common stock or otherwise be in the stockholders" best interest,
or that could adversely affect the rights and powers of the series A preferred
stock. See "-- Power to Issue Additional Common Stock and Preferred Stock"
below.
SERIES L PREFERRED STOCK GENERALLY
Our board of directors adopted articles supplementary establishing the
terms of the series L preferred stock as a class of our preferred stock,
designated as the % Series L Cumulative Redeemable Preferred Stock. When
issued, the series L preferred stock will be validly issued, fully paid and
nonassessable.
In connection with this offering, we, in accordance with the terms of the
partnership agreement of the operating partnership, will contribute or otherwise
transfer the net proceeds of the sale of the series L preferred stock to the
operating partnership and the operating partnership will issue to us %
Series L Cumulative Redeemable Preferred Units that mirror the rights,
preferences and other terms of the series L preferred stock. The operating
partnership will be required to make all required distributions on such series L
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preferred units prior to any distribution of cash or assets to the holders of
any other units or any other equity interests in the operating partnership,
except for any other series of partnership interests ranking on a parity with
such series L preferred units as to dividends or voluntary or involuntary
liquidation, dissolution or winding up of the operating partnership.
We intend to apply to list the series L preferred stock on the New York
Stock Exchange. If so approved, trading of the series L preferred stock on the
New York Stock Exchange is expected to commence within a 30-day period after the
date of initial delivery of the series L preferred stock. See "Underwriting."
RANKING
The series L preferred stock will rank, with respect to dividends and upon
our voluntary or involuntary liquidation, dissolution or winding up:
- senior to all classes or series of our common stock and to all of our
equity securities (which do not include convertible debt securities) the
terms of which provide that such equity securities shall rank junior to
such series L preferred stock;
- junior to all of our equity securities (which do not include convertible
debt securities) the terms of which provide that such equity securities
shall rank senior to the series L preferred stock and
- on a parity with all equity securities issued by us (including the series
A, and if and when issued, the series B, D, E, F, H, I, J and K preferred
stock, but not including convertible debt securities) other than those
referred to in the bullet points above.
DIVIDENDS
Holders of the series L preferred stock shall be entitled to receive, when
and as authorized by our board of directors out of funds legally available
therefor, cumulative preferential cash dividends at the rate of % of the
liquidation preference per annum (equivalent to $ per annum per share).
Dividends on the series L preferred stock offered hereby shall accumulate on a
daily basis, computed on the basis of a 360-day year consisting of twelve 30-day
months, and be cumulative from the date of original issuance and shall be
payable quarterly (such quarterly periods for purposes of payment and accrual
will be the quarterly periods ending on the dates specified in this sentence and
not calendar year quarters) in equal amounts in arrears on the 15th day of each
January, April, July and October, or, if not a business day, the next succeeding
business day, commencing on July 15, 2003. Dividends will be payable to holders
of record as they appear in our share records at the close of business on the
applicable record date, which shall be a date designated by our board of
directors for the payment of dividends that is not more than 30 nor less than 10
days prior to the applicable payment date. Any dividend payable on the series L
preferred stock for any portion of a dividend period shall be prorated and
computed on the basis of a 360-day year of twelve 30-day months. If any date on
which distributions are to be made on the series L preferred stock is not a
business day, then payment of the distribution to be made on such date will be
made on the next succeeding day that is a business day (and without any interest
or other payment in respect of any such delay) except that, if such business day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding business day, in each case with the same force and effect
as if made on such date.
No dividends on the series L preferred stock shall be authorized by our
board of directors or be paid or set apart for payment by us at such time as the
terms and provisions of any of our agreements, including any agreement relating
to our indebtedness, prohibits such authorization, payment or setting apart for
payment or provides that such authorization, payment or setting apart for
payment would constitute a breach of such agreement or a default under such
agreement, or if such authorization or payment shall be restricted or prohibited
by law. Covenants in our $500 million unsecured revolving line of credit provide
generally that we may not pay distributions in excess of 95% of funds from
operations in any year, but such covenants permit us, upon certain
circumstances, to pay distributions in an amount necessary to maintain our
qualification as a real estate investment trust. We do not believe that these
covenants will have any adverse impact on our ability to pay dividends in
respect of the series L preferred stock or in the normal course of business to
our stockholders in amounts necessary to maintain our qualification as a real
estate investment trust.
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Except as provided below, unless full cumulative dividends on the series L
preferred stock have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all
dividend periods, no dividends (other than in our common stock or other of our
equity securities ranking junior to the series L preferred stock as to dividends
and upon our voluntary or involuntary liquidation, dissolution and winding up)
shall be declared or paid or set aside for payment or other dividend be declared
or made upon our common stock or any other of our equity securities ranking as
to dividends or upon our voluntary or involuntary liquidation, dissolution or
winding up junior to or on a parity with the series L preferred stock, nor shall
any of our common stock or any other of our equity securities ranking junior to
or on a parity with the series L preferred stock as to dividends or upon our
voluntary or involuntary liquidation, dissolution or winding up be redeemed,
purchased or otherwise acquired for any consideration (or any monies be paid to
or made available for a sinking fund for the redemption of any such securities)
by us (except by conversion into or exchange for other of our equity securities
ranking junior to the series L preferred stock as to dividends and upon our
voluntary or involuntary liquidation, dissolution and winding up and pursuant to
the provisions of our charter and the series L articles supplementary providing
for limitations on ownership and transfer in order to ensure that we remain
qualified as a real estate investment trust). When dividends are not paid in
full (or a sum sufficient for such full payment is not set apart) upon series L
preferred stock and any other equity securities ranking as to dividends on a
parity with the series L preferred stock, all dividends declared upon series L
preferred stock and any other of our equity securities ranking on a parity with
the series L preferred stock as to dividends and upon our voluntary or
involuntary liquidation, dissolution or winding up will be declared pro rata so
that the amount of dividends declared per share of series L preferred stock and
each such other equity securities shall in all cases bear to each other the same
ratio that accumulated dividends per share of series L preferred stock and such
other equity securities (which shall not include any accumulation in respect of
unpaid dividends for prior dividend periods if such other equity securities do
not have a cumulative dividend) bear to each other. No interest, or sum of money
in lieu of interest, shall be payable in respect of any dividend payment or
payments on series L preferred stock which may be in arrears.
Notwithstanding the foregoing, dividends on the series L preferred stock
will accumulate whether or not restrictions exist in respect thereof, whether or
not there are funds legally available for the payment thereof and whether or not
such dividends are declared. Accumulated but unpaid dividends on the series L
preferred stock will not bear interest and holders of the series L preferred
stock will not be entitled to any dividends in excess of full cumulative
dividends as described above. Any dividend payment made on the series L
preferred stock shall first be credited against the earliest accumulated but
unpaid dividend due with respect to such shares which remains payable.
If we properly designate any portion of a dividend as a capital gain
dividend, a holder's share of such capital gain dividend would be an amount
which bears the same ratio to the total amount of dividends (as determined for
federal income tax purposes) paid to such holder for the year as the aggregate
amount designated as a capital gain dividend bears to the aggregate amount of
all dividends (as determined for federal income tax purposes) paid on all
classes of shares of our capital stock for the year.
LIQUIDATION PREFERENCE
In the event of our voluntary or involuntary liquidation, dissolution or
winding up, the holders of the series L preferred stock will be entitled to
receive out of our assets legally available for distribution to our stockholders
remaining after payment or provision for payment of all of our debts and
liabilities, a liquidation preference, in cash, of $25.00 per share, and in
addition, a preferential payment in an amount equal to any accumulated and
unpaid dividends to the date of such payment, before any distribution of assets
is made to holders of our common stock or any other equity securities that rank
junior to the series L preferred stock as to voluntary or involuntary
liquidation. After payment of the full amount of the liquidating distributions
to which they are entitled, the holders of the series L preferred stock will
have no right or claim to any of our remaining assets. Our consolidation or
merger with or into any other entity, a merger of another entity with or into
us, a statutory share exchange by us or the sale, lease, transfer or conveyance
of all or substantially all of our property or business shall not be deemed to
constitute our liquidation, dissolution or winding up.
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If, upon any such voluntary or involuntary liquidation, dissolution or
winding up, our assets are insufficient to make full payment to holders of the
series L preferred stock and the corresponding amounts payable on all shares of
other classes or series of our equity securities ranking on a parity with the
series L preferred stock as to liquidation rights, then the holders of the
series L preferred stock and all other such classes or series of equity
securities will share ratably in any such distribution of assets in proportion
to the full liquidating distributions to which they would otherwise be
respectively entitled. In determining whether a distribution (other than upon
our voluntary or involuntary liquidation, dissolution or winding up) by
dividend, redemption or other acquisition of shares of our stock or otherwise is
permitted under the Maryland General Corporation Law, no effect shall be given
to amounts that would be needed, if we were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of holders of
shares of the series L preferred stock, whose preferential rights upon
dissolution are superior to those receiving the distribution.
OPTIONAL REDEMPTION
The series L preferred stock will not be redeemable prior to June , 2008.
On and after June , 2008, we, at our option upon not less than 30 or more than
60 days' written notice, may redeem the series L preferred stock, in whole or
from time to time in part, for cash, at a redemption price of $25.00 per share,
plus all accumulated and unpaid dividends on the shares of series L preferred
stock held to the date fixed for redemption. Holders of shares of series L
preferred stock to be redeemed shall surrender such shares of series L preferred
stock at the place designated in the notice of redemption and shall be entitled
to the redemption price and any accumulated and unpaid dividends payable upon
such redemption upon such surrender. If notice of redemption of any shares of
series L preferred stock has been given and if we have set aside the funds
necessary for such redemption in trust for the benefit of the holders of such
shares, then from and after the redemption date dividends on such shares of
series L preferred stock will cease to accumulate and any such shares of series
L preferred stock will no longer be deemed outstanding and all rights of the
holders thereof will terminate, except the right to receive the redemption price
(including accumulated and unpaid dividends up to the redemption date). If fewer
than all of the outstanding shares of series L preferred stock are to be
redeemed, the shares of series L preferred stock to be redeemed shall be
selected pro rata (as nearly as may be practicable without creating fractional
shares), by lot or by any other equitable method that we determine. If such
redemption is to be by lot and, as a result of such redemption, any holder of
shares of series L preferred stock would have actual or constructive ownership
of more than 9.8% of the issued and outstanding shares of series L preferred
stock by value or number of shares, whichever is more restrictive, because such
holder's shares of series L preferred stock were not redeemed, or were only
redeemed in part, then, except as otherwise provided in the charter documents,
we will redeem the requisite number of shares of series L preferred stock of
such holder such that no holder will hold in excess of the 9.8% ownership limit
subsequent to such redemption. See "-- Restrictions on Ownership and Transfer."
Notwithstanding the foregoing, unless full cumulative dividends on all
outstanding shares of series L preferred stock shall have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past dividend periods and the then
current dividend period, no shares of series L preferred stock shall be redeemed
unless all outstanding shares of series L preferred stock are simultaneously
redeemed; provided, however, that the foregoing shall not prevent the purchase
or acquisition of shares of series L preferred stock pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding shares of
series L preferred stock. In addition, unless full cumulative dividends on all
outstanding shares of series L preferred stock have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment of such
dividends set apart for payment for all dividend periods, we shall not purchase
or otherwise acquire directly or indirectly any shares of series L preferred
stock or any of our equity securities ranking junior to or on a parity with the
series L preferred stock as to dividends or upon our voluntary or involuntary
liquidation, dissolution or winding up (except by conversion into or exchange
for our equity securities ranking junior to the series L preferred stock as to
dividends and upon our voluntary or involuntary liquidation, dissolution or
winding up).
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The foregoing provisions shall not prevent our acquisition of shares of
series L preferred stock pursuant to the provisions of the Series L Preferred
Articles Supplementary, or the acquisition of other shares of our capital stock
pursuant to similar provisions of our charter, in each case providing for
limitations on ownership and transfer in order to ensure that we remain
qualified as a real estate investment trust for federal income tax purposes. See
"-- Restrictions on Ownership and Transfer."
Notice of redemption will be given by publication in a newspaper of general
circulation in The City of New York, such publication to be made once a week for
two successive weeks commencing not less than 30 nor more than 60 days' prior to
the redemption date. We will mail a similar notice, postage prepaid, not less
than 30 nor more than 60 days' prior to the redemption date, addressed to the
respective holders of record of the series L preferred stock to be redeemed at
their respective addresses as they appear on our share transfer records. No
failure to give such notice or any defect therein or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any shares of
series L preferred stock except as to the holder to whom notice was defective or
not given. Each notice shall state:
- the redemption date;
- the redemption price;
- the number of shares of series L preferred stock to be redeemed;
- the place or places where the certificates evidencing shares of series L
preferred stock are to be surrendered for payment of the redemption
price; and
- that dividends on the series L preferred stock to be redeemed will cease
to accumulate on such redemption date.
If fewer than all the shares of series L preferred stock held by any holder
are to be redeemed, the notice mailed to such holder shall also specify the
number of shares of series L preferred stock to be redeemed from such holder.
The holders of shares of series L preferred stock at the close of business
on a dividend record date will be entitled to receive the dividend payable with
respect to the shares of series L preferred stock held on the corresponding
dividend payment date notwithstanding the redemption thereof between such
dividend record date and the corresponding dividend payment date or our default
in the payment of the dividend due. Except as provided above, we will make no
payment or allowance for unpaid dividends, whether or not in arrears, on the
shares of series L preferred stock to be redeemed.
MATURITY
The series L preferred stock will not have a stated maturity and will not
be subject to any sinking fund or mandatory redemption provisions.
VOTING RIGHTS
Holders of the series L preferred stock will not have any voting rights,
except as described below.
In any matter in which the holders of series L preferred stock are entitled
to vote (as expressly provided herein), including any action by written consent,
each share of series L preferred stock shall be entitled to one vote, which may
be directed by the holder thereof (or by any proxy or proxies of such holder).
Whenever dividends on any shares of the series L preferred stock remain
unpaid for six or more quarterly periods (whether or not consecutive), the
holders of the series L preferred stock (voting as a single class with all other
of our equity securities ranking on a parity with the series L preferred stock
as to dividends and upon our voluntary or involuntary liquidation, dissolution
or winding up upon which like voting rights have been conferred and are
exercisable, including any outstanding shares of series A preferred stock,
series B preferred stock, series D preferred stock, series E preferred stock,
series F preferred stock, series H preferred stock, series I preferred stock,
series J preferred stock and series K preferred stock) will be entitled to vote
for the election of two additional directors to serve on our board of directors
for a one-year
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term (or until such director's term of office terminates as set forth below).
Such elections shall be held at a special meeting called by or at the request of
the holders of record of at least 20% of the outstanding series L preferred
stock or the holders of shares of any other series or class of preferred shares
ranking on parity with the series L preferred stock, as described above, with
respect to which dividends are so unpaid (unless such request is received less
than 90 days before the date fixed for the next annual or special meeting of
stockholders) or, if we receive the request for a special meeting less than 90
days before the date fixed for the next annual or special meeting of
stockholders, at the next annual or special meeting of stockholders, and at each
subsequent annual meeting of stockholders until all dividends accumulated on the
series L preferred stock for all past dividend periods and the dividend for the
then current dividend period shall have been fully paid or declared and a sum
sufficient for the payment thereof set aside for payment in full.
At any time when the voting rights with respect to unpaid dividends shall
have vested, one of our officers shall call or cause to be called, a special
meeting of the holders of series L preferred stock and all the series of
preferred stock on parity with series L preferred stock upon which like voting
rights have been conferred and are exercisable by mailing or causing to be
mailed to such holders a notice of the special meeting to be held not less than
ten and not more than 45 days after the date the notice is given. The record
date for determining holders of the securities on parity with the series L
preferred stock entitled to notice of and to vote at the special meeting will be
the close of business on the third business day preceding the day on which the
notice is mailed. At any such special meeting, all of such holders, by plurality
vote, voting together as a single class without regard to series will be
entitled to elect two directors on the basis of one vote per $25.00 of
liquidation preference to which such securities are entitled by their terms
(excluding amounts in respect of accumulated and unpaid dividends) and not
cumulatively.
If and when all accumulated dividends and the dividend for the then current
dividend period on the series L preferred stock shall have been paid in full or
declared by us and set aside for payment in full, the holders of series L
preferred stock shall be divested of the voting rights set forth in the
immediately preceding paragraph (subject to revesting in the event of each and
every default of a series L preferred dividend where dividends on such shares
remain unpaid for six or more quarterly periods (whether or not consecutive) )
and, if all accumulated dividends and the dividend for the then current dividend
period have been paid in full or declared by us and set aside for payment in
full on all other series or classes of preferred shares ranking on parity with
the series L preferred stock, as described above, upon which like voting rights
have been conferred and are exercisable, the term of office of each director so
elected shall terminate. So long as a default of a series L preferred dividend
where dividends on such shares remain unpaid for six or more quarterly periods
(whether or not consecutive) shall continue, any vacancy in the office of a
director so elected may be filled by written consent of the director so elected
remaining in office or, if there is no such remaining director, by vote of
holders of a majority of the outstanding series L preferred stock and any series
of preferred shares ranking on parity with the series L preferred stock, as
described above, upon which like voting rights have been conferred and are
exercisable (voting as a single class). Any director elected by the holders of
series L preferred stock and any other such preferred shares ranking on parity
with the series L preferred stock, as described above, may be removed at any
time with or without cause by the vote of, and shall not be removed otherwise
than by the vote of, the holders of a majority of the outstanding series L
preferred stock when they only have the voting rights set forth in the
immediately preceding paragraph and, when preferred shares ranking on parity
with the series L preferred stock, as described above, are issued and
outstanding, by a majority vote of the series L preferred stock and all series
and classes of preferred shares ranking on parity with the series L preferred
stock, as described above, upon which like voting rights have been conferred and
are exercisable (voting as a single class).
So long as any series L preferred stock remain outstanding, we will not,
without the affirmative vote or consent of the holders of at least two-thirds of
the series L preferred stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (the series L preferred stock voting
separately as a class),
- authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking senior to the series L preferred stock
with respect to payment of dividends or the distribution of assets upon
voluntary or involuntary liquidation, dissolution or winding up or
reclassify any of our authorized
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stock into any such shares, or create, authorize or issue any obligation
or security convertible into, exchangeable or exercisable for, or
evidencing the right to purchase, any such stock; or
- amend, alter or repeal the provisions of our charter documents, whether
by merger or consolidation or otherwise, so as to materially and
adversely affect any right, preference, privilege or voting power of the
series L preferred stock or the holders thereof;
provided, however, with respect to the occurrence of any of the merger or
consolidation events set forth in the second bullet above, so long as shares of
series L preferred stock (or shares issued by a surviving entity in substitution
for the shares of series L preferred stock) remain outstanding with the terms
thereof materially unchanged, taking into account that upon the occurrence of
such an event, we may not be the surviving entity, the occurrence of any such
event shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers of holders of series L preferred stock;
and, provided further, that any increase in the amount of our authorized
preferred stock or the creation or issuance of any other class or series of
preferred stock, or any increase in the amount of authorized series L preferred
stock or any other class or series of our preferred stock, in each case ranking
on a parity with or junior to the series L preferred stock with respect to
payment of dividends and the distribution of assets upon voluntary or
involuntary liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of series L preferred stock shall have been
redeemed or called for redemption upon proper notice and sufficient funds shall
have been deposited in trust to effect such redemption.
CONVERSION RIGHTS
The series L preferred stock will not be convertible into or exchangeable
for any other of our property or securities.
POWER TO ISSUE ADDITIONAL COMMON STOCK AND PREFERRED STOCK
We believe that the power of our board of directors to issue additional
authorized but unissued common stock or preferred stock and to classify or
reclassify unissued common stock or preferred stock and thereafter to cause us
to issue such classified or reclassified common stock or preferred stock
provides us with increased flexibility in structuring possible future financings
and acquisitions and in meeting other needs which might arise. The additional
classes or series of preferred stock, as well as our common stock, are available
for issuance without further action by our stockholders, unless such action is
required by applicable law or the rules of any stock exchange or automated
quotation system on which the our securities may be listed or traded. Although
our board of directors has no intention at the present time of doing so, it
could authorize us to issue a class or series that could, depending upon the
terms of such class or series, delay, defer or prevent a transaction or a change
in control that might involve a premium price for holders of our common stock or
otherwise be in their best interest, or that could adversely affect the rights
and voting power of the series L preferred stock.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
In order for us to qualify as a real estate investment trust under the
Internal Revenue Code of 1986, our capital stock is subject to certain
restrictions on ownership and transfer. See "Description of Capital Stock" and
"-- Restrictions on Ownership and Transfer of Capital Stock."
TRANSFER AGENT, REGISTRAR, CONVERSION AGENT AND DIVIDEND DISBURSING AGENT
The transfer agent, registrar and dividend disbursing agent for the series
L preferred stock is EquiServe, Inc.
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DESCRIPTION OF CAPITAL STOCK
We have summarized certain terms and provisions of our capital stock in
this section. This summary is not complete. For more detail you should refer to
the Maryland General Corporation Law and our charter and bylaws. See "Where You
Can Find More Information."
COMMON STOCK
Our charter provides that we are authorized to issue 500,000,000 shares of
common stock, $.01 par value per share. As of June 13, 2003, we had 81,668,442
shares of common stock issued and outstanding. Each outstanding share of common
stock entitles the holder to one vote on all matters presented to stockholders
generally for a vote, including the election of directors. Except as otherwise
required by law and except as provided in any resolution adopted by the board of
directors establishing any other class or series of stock, the holders of common
stock possess the exclusive voting power, subject to the provisions of our
charter regarding the ownership of shares of common stock in excess of the
ownership limit or any other limit specified in our charter, or otherwise
permitted by the board of directors. Holders of shares of common stock do not
have any conversion, exchange, sinking fund, redemption or appraisal rights or
any preemptive rights to subscribe for any of our securities or cumulative
voting rights in the election of directors. All shares of our common stock that
are issued and outstanding are duly authorized, fully paid and nonassessable.
Subject to the preferential rights of any other shares or series or classes of
stock, including our preferred stock, and to the provisions of our charter
regarding ownership of shares of common stock in excess of the ownership limit,
or such other limit specified in our charter or as otherwise permitted by the
board of directors, we may pay distributions to the holders of shares of common
stock if and when authorized and declared by the board of directors out of funds
legally available for distribution. We intend to continue to make quarterly
distributions on outstanding shares of common stock.
Under the Maryland General Corporation Law, stockholders are generally not
liable for our debts or obligations. If we liquidate, subject to the right of
any holders of preferred stock to receive preferential distributions, each
outstanding share of common stock will be entitled to participate pro rata in
the assets remaining after payment of, or adequate provision for, all of our
known debts and liabilities, including debts and liabilities arising out of our
status as general partner of the operating partnership.
Subject to the provisions of our charter regarding the ownership of shares
of common stock in excess of the ownership limit, or such other limit specified
in our charter, or as otherwise permitted by the board of directors as described
below, all shares of common stock have equal distribution, liquidation and
voting rights, and have no preference or exchange rights.
Under the Maryland General Corporation Law, a Maryland corporation
generally cannot dissolve, amend its charter, merge, sell all or substantially
all of its assets, engage in a share exchange or engage in similar transactions
outside the ordinary course of business unless advised by its board of directors
and approved by the affirmative vote of at least two-thirds of the votes
entitled to be cast on the matter unless a lesser percentage (but not less than
a majority of all of the votes entitled to be cast on the matter) is set forth
in the corporation's charter. Under the Maryland General Corporation Law, the
term "substantially all of the company's assets" is not defined and is,
therefore, subject to Maryland common law and to judicial interpretation and
review in the context of the unique facts and circumstances of any particular
transaction. Our charter does not provide for a lesser percentage in any of the
above situations.
Our charter authorizes the board of directors to reclassify any unissued
shares of capital stock into other classes or series of classes of stock and to
establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations and restrictions on ownership, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
class or series.
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PREFERRED STOCK
Our charter provides that we are authorized to issue 100,000,000 shares of
preferred stock, $.01 par value per share, of which 4,600,000 shares are of a
separate class designated as series A preferred stock, 1,300,000 shares are of a
separate class designated as series B preferred stock, 1,595,337 shares are of a
separate class designated as series D preferred stock, 220,440 shares are of a
separate class designated as series E preferred stock, 267,439 shares are of a
separate class designated as series F preferred stock, 840,000 shares are of a
separate class designated as series H preferred stock, 510,000 shares are of a
separate class designated as series I preferred stock, 800,000 shares are of a
separate class designated as series J preferred stock and 800,000 shares are of
a separate class designated as series K preferred stock. Our series B, J and K
preferred stock are issuable in exchange, on a one-for-one basis, subject to
adjustment, for series B, J and K preferred units, respectively, of the
operating partnership. Our series D, E, F, H and I preferred stock are issuable
in exchange, on a one-for-one basis, subject to adjustment, for series D, E, F,
H and I preferred units of AMB Property II, L.P., a partnership in which our
wholly owned subsidiary, AMB Property Holding Corporation, owns an approximate
1% general partnership interest and the operating partnership owns an
approximate 99% common limited partnership interest. We currently have 3,995,800
shares of series A preferred stock issued and outstanding. We currently have
1,300,000 shares of series B preferred stock, 1,595,337 shares of series D
preferred stock, 220,440 shares of series E preferred stock, 267,439 shares of
series F preferred stock, 840,000 shares of series H preferred stock, 510,000
shares of series I preferred stock, 800,000 shares of series J preferred stock
and 800,000 shares of series K preferred stock reserved for issuance but not
issued or outstanding. We may issue additional shares of preferred stock from
time to time, in one or more classes, as authorized by our board of directors.
Prior to the issuance of shares of each class of preferred stock, our board of
directors is required by the Maryland General Corporation Law and our charter to
fix for each class the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to distributions, qualifications and terms
or conditions of redemption, as permitted by Maryland law. Because our board of
directors has the power to establish the preferences, powers and rights of each
class of preferred stock, it may afford the holders of any class of preferred
stock preferences, powers and rights, voting or otherwise, senior to the rights
of holders of shares of common stock. The issuance of preferred stock could have
the effect of delaying or preventing a change of control that might involve a
premium price for holders of shares of common stock or otherwise be in their
best interest.
Series A Preferred Stock. The series A preferred stock ranks, with respect
to dividends and in the event we voluntarily or involuntarily liquidate,
dissolve or wind up:
- senior to all classes or series of common stock and to all of our equity
securities that provide that they rank junior to the series A preferred
stock;
- junior to all equity securities issued by us which rank senior to the
series A preferred stock; and
- on a parity with all equity securities issued by us (including, if and
when issued, any series B, D, E, F, H, I, J, and K preferred stock, and
the series L preferred stock) other than those referred to in the bullet
points above.
The term "equity securities" does not include convertible debt securities.
Holders of the series A preferred stock are entitled to receive, when and
as authorized by the board of directors out of funds legally available for
dividends, cumulative preferential cash dividends at the rate of 8 1/2% of the
liquidation preference per annum (equivalent to $2.125 per annum per share of
series A preferred stock). Dividends on the series A preferred stock accumulate
on a daily basis and are payable quarterly in arrears on the 15th day of each
January, April, July and October. Except as provided below, unless full
cumulative dividends on the series A preferred stock have been or at the same
time are declared and paid or declared and a sum sufficient for payment set
apart for payment for all past dividend periods and the then current dividend
period, no dividends (other than in common stock or other equity securities
ranking junior to the series A preferred stock as to dividends and upon
liquidation, dissolution and winding up) shall be declared or paid or set aside
for payment, nor may any common stock or any other equity securities ranking
junior to or on a parity with the series A preferred stock be redeemed,
purchased or otherwise acquired for
S-14
any consideration (or any monies be paid to or made available for a sinking fund
for the redemption of any such securities) by us (except by conversion into or
exchange for other equity securities ranking junior to the series A preferred
stock and pursuant to the provisions of our charter providing for limitations on
ownership and transfer in order to ensure that we remain qualified as a real
estate investment trust). When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon the series A
preferred stock and any other equity securities ranking as to dividends on a
parity with the series A preferred stock, all dividends declared upon the series
A preferred stock and any other equity securities ranking as to dividends on a
parity with the series A preferred stock will be declared pro rata so that the
amount of dividends declared per share of series A preferred stock and each such
other equity securities shall bear to each other the same ratio that accumulated
dividends per share of series A preferred stock and such other equity securities
(which shall not include any accumulation in respect of unpaid dividends for
prior dividend periods if such other equity securities do not have a cumulative
dividend) bear to each other. Dividends on the series A preferred stock will
accumulate whether or not we have funds legally available for the payment of
dividends and whether or not we declare dividends. If we designate any portion
of a dividend as a "capital gain dividend," a holder's share of the capital gain
dividend will be an amount that bears the same ratio to the total amount of
dividends (as determined for federal income tax purposes) paid to the holder for
the year as the aggregate amount designated as a capital gain dividend bears to
the aggregate amount of all dividends (as determined for federal income tax
purposes) paid on all classes of shares for the year.
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up, the holders of our series A preferred stock are entitled to receive out
of our assets legally available for distribution to our stockholders remaining
after payment or provision for payment of all of our debts and liabilities, a
liquidation preference, in cash, of $25.00 per share, and in addition, a
preferential payment in an amount equal to any accumulated and unpaid dividends
to the date of such payment, before any distribution of assets is made to
holders of common stock or any other equity securities that rank junior to the
series A preferred stock. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of the series A preferred
stock will have no right or claim to any of our remaining assets. Our
consolidation or merger with or into any other entity, a merger of another
entity with or into us, a statutory share exchange or the sale, lease, transfer
or conveyance of all or substantially all of our property or business do not
constitute a liquidation, dissolution or winding up for purposes of triggering
the liquidation preference.
If we voluntarily or involuntarily liquidate, dissolve or wind up and our
assets are insufficient to make full payment to holders of the series A
preferred stock and the corresponding amounts payable on all shares of other
classes or series of equity securities ranking on a parity with the series A
preferred stock as to liquidation rights, then the holders of the series A
preferred stock and all other such classes or series of equity securities will
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be entitled.
The series A preferred stock has no stated maturity and is not subject to
mandatory redemption or any sinking fund. We cannot redeem the series A
preferred stock prior to July 27, 2003. On and after July 27, 2003, we can
redeem the series A preferred stock for cash at our option, in whole or from
time to time in part, at a redemption price of $25.00 per share, plus
accumulated and unpaid dividends, if any, to the redemption date. We must pay
the redemption price (other than the portion of the redemption price consisting
of accumulated and unpaid dividends) solely out of the sale proceeds of other
equity securities, which may include other classes or series of preferred stock.
In certain circumstances related to our maintenance of our ability to qualify as
a real estate investment trust for federal income tax purposes, we may redeem
shares of series A preferred stock.
Holders of series A preferred stock have no voting rights, except as
described below. If we do not pay dividends on the series A preferred stock for
six or more quarterly periods (whether or not consecutive), holders of the
series A preferred stock (voting separately as a class with all other classes or
series of equity securities upon which like voting rights have been conferred
and are exercisable) will be entitled to vote for the election of two additional
directors to serve on our board of directors until we have eliminated all
dividend arrearages with respect to the series A preferred stock. So long as any
shares of series A preferred stock remain outstanding, we may not, without the
affirmative vote or consent of at least two-thirds of the
S-15
votes entitled to be cast by the holders of outstanding shares of series A
preferred stock (the series A preferred stock voting separately as a class):
- authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking senior to the series A preferred stock;
- reclassify any of our authorized stock into any class or series of stock
ranking senior to the series A preferred stock;
- create, authorize or issue any obligation or security convertible into,
exchangeable or exercisable for, or evidencing the right to purchase, any
class or series of stock ranking senior to the series A preferred stock;
or
- amend, alter or repeal the provisions of our charter, whether by merger
or consolidation or otherwise, so as to materially and adversely affect
any right, preference, privilege or voting power of the series A
preferred stock.
With respect to the occurrence of any of the events set forth in the fourth
bullet point above, so long as shares of series A preferred stock (or shares
issued by a surviving entity in substitution for shares of the series A
preferred stock) remain outstanding with the terms materially unchanged, taking
into account that upon the occurrence of such an event, we may not be the
surviving entity, the occurrence of any such event will not be considered to
materially and adversely affect rights, preferences, privileges or voting powers
of holders of series A preferred stock. Any increase in the amount of the
authorized preferred stock, the creation or issuance of any other class or
series of preferred stock or any increase in the amount of authorized series A
preferred stock or any other class or series of preferred stock, in each case
ranking on a parity with or junior to the series A preferred stock will not be
considered to materially and adversely affect such rights, preferences,
privileges or voting powers.
In accordance with the terms of the operating partnership's partnership
agreement, we contributed the net proceeds of the sale of the series A preferred
stock to the operating partnership and the operating partnership issued to us
series A preferred units that mirror the rights, preferences and other terms of
the series A preferred stock. The operating partnership is required to make all
required distributions on the series A preferred units prior to any distribution
of cash or assets to the holders of any other units or any other equity
interests in the operating partnership, except for any other series of preferred
units ranking on a parity with the series A preferred units as to dividends or
voluntary or involuntary liquidation, dissolution or winding up of the operating
partnership.
Series B Preferred Stock. We currently have no shares of series B
preferred stock issued or outstanding. The series B preferred stock is issuable
upon exchange of the operating partnership's series B preferred units.
The series B preferred stock, if and when issued, will rank, with respect
to dividends and in the event we voluntarily or involuntarily liquidate,
dissolve or wind up:
- senior to all classes or series of common stock and to all of our equity
securities that provide that they rank junior to the series B preferred
stock;
- junior to all equity securities issued by us which rank senior to the
series B preferred stock; and
- on a parity with all equity securities issued by us (including the series
A, and if and when issued, the series D, E, F, H, I, and J and K
preferred stock, and including the series L preferred stock) other than
those referred to in the bullet points above.
The term "equity securities" does not include convertible debt securities.
If ever issued, the series B preferred stock will entitle the holders to
receive, when and as authorized by the board of directors out of funds legally
available for dividends, cumulative preferential cash dividends at the rate of
8 5/8% of the liquidation preference per annum (equivalent to $4.3125 per annum
per share of series B preferred stock). Dividends on the series B preferred
stock will accumulate on a daily basis and will be payable quarterly in arrears
on the 15th day of each January, April, July and October. Except as provided
S-16
below, unless full cumulative dividends on the series B preferred stock have
been or at the same time are declared and paid or declared and a sum sufficient
for payment set apart for payment for all dividend periods, no dividends (other
than in common stock or other equity securities ranking junior to the series B
preferred stock as to distributions and upon voluntary or involuntary
liquidation, dissolution and winding up) shall be declared or paid or set aside
for payment or other dividend be declared or made upon the common stock or any
other equity securities ranking as to distributions or upon voluntary or
involuntary liquidation, dissolution or winding up junior to or on a parity with
the series B preferred stock, nor shall any common stock or any other equity
securities ranking junior to or on a parity with the series B preferred stock as
to distributions or upon voluntary or involuntary liquidation, dissolution or
winding up be redeemed, purchased or otherwise acquired for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such securities) by us (except by conversion into or exchange
for other equity securities ranking junior to the series B preferred stock as to
distributions and upon voluntary and involuntary liquidation, dissolution and
winding up and pursuant to the provisions of our charter providing for
limitations on ownership and transfer in order to ensure that we remain
qualified as a real estate investment trust). When dividends are not paid in
full (or a sum sufficient for such full payment is not so set apart) upon the
series B preferred stock and any other equity securities ranking as to
distributions on a parity with the series B preferred stock, all dividends
declared upon the series B preferred stock and any other equity securities
ranking on a parity with the series B preferred stock as to distributions and
upon voluntary or involuntary liquidation, dissolution or winding up will be
declared pro rata so that the amount of dividends declared per share of series B
preferred stock and each such other equity securities shall bear to each other
the same ratio that accumulated dividends per share of series B preferred stock
and such other equity securities (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if such other equity
securities do not have a cumulative dividend) bear to each other. Dividends on
the series B preferred stock will accumulate whether or not we have funds
legally available for the payment of dividends and whether or not we declare
dividends. If we designate any portion of a dividend as a "capital gain
dividend," a holder's share of the capital gain dividend will be an amount that
bears the same ratio to the total amount of dividends (as determined for federal
income tax purposes) paid to the holder for the year as the aggregate amount
designated as a capital gain dividend bears to the aggregate amount of all
dividends (as determined for federal income tax purposes) paid on all classes of
shares for the year.
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up following the issuance of the series B preferred stock, the holders of
the series B preferred stock will be entitled to receive out of our assets
legally available for distribution to our stockholders remaining after payment
or provision for payment of all of our debts and liabilities, a liquidation
preference, in cash, of $50.00 per share, and in addition, a preferential
payment in an amount equal to any accumulated and unpaid dividends to the date
of such payment, before any distribution of assets is made to holders of common
stock or any other equity securities that rank junior to the series B preferred
stock. After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of the series B preferred stock will have
no right or claim to any of our remaining assets. Our consolidation or merger
with or into any other entity, a merger of another entity with or into us, a
statutory share exchange or the sale, lease, transfer or conveyance of all or
substantially all of our property or business will not constitute a liquidation,
dissolution or winding up for purposes of triggering the liquidation preference.
If we voluntarily or involuntarily liquidate, dissolve or wind up following
the issuance of series B preferred stock and our assets are insufficient to make
full payment to the holders of the series B preferred stock and the
corresponding amounts payable on all shares of other classes or series of equity
securities ranking on a parity with the series B preferred stock as to
liquidation rights then the holders of the series B preferred stock and all
other such classes or series of equity securities will share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be entitled.
The series B preferred stock will have no stated maturity and will not be
subject to mandatory redemption or any sinking fund. If issued, we will not be
able to redeem the series B preferred stock prior to November 12, 2003. On and
after November 12, 2003, we will be able to redeem the series B preferred stock
S-17
for cash at our option, in whole or from time to time in part, at a redemption
price of $50.00 per share, plus accumulated and unpaid dividends, if any, to the
redemption date. We will be required to pay the redemption price (other than the
portion of the redemption price consisting of accumulated and unpaid dividends)
solely out of the sale proceeds of other equity securities, which may include
other classes or series of preferred stock. In certain circumstances related to
our maintenance of our ability to qualify as a real estate investment trust for
federal income tax purposes, we will be able to redeem shares of series B
preferred stock.
Holders of series B preferred stock will have no voting rights, except as
described below. If, after issuance, we do not pay dividends on the series B
preferred stock for six or more quarterly periods (whether or not consecutive),
holders of the series B preferred stock (voting separately as a class with all
other classes or series of equity securities upon which like voting rights have
been conferred and are exercisable) will be entitled to vote for the election of
two additional directors to serve on our board of directors until we have
eliminated all dividend arrearages with respect to the series B preferred stock.
So long as any shares of series B preferred stock remain outstanding, we may
not, without the affirmative vote or consent of at least two-thirds of the votes
entitled to be cast by the holders of the outstanding shares of series B
preferred stock (the series B preferred stock voting separately as a class):
- authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking senior to the series B preferred stock;
- reclassify any of our authorized stock into any class or series of stock
ranking senior to the series B preferred stock;
- designate or create, or increase the authorized or issued amount of, or
reclassify, any authorized shares into, any preferred stock ranking on a
parity with the series B preferred stock or create, authorize or issue
any obligations or securities convertible into any such shares, but only
to the extent such stock is issued to one of our affiliates; or
- either consolidate, merge into or with, or convey, transfer or lease our
assets substantially as an entirety, to any corporation or other entity,
or amend, alter or repeal the provisions of our charter, whether by
merger or consolidation or otherwise, in each case so as to materially
and adversely affect the powers, special rights, preferences, privileges
or voting power of the series B preferred stock.
With respect to the occurrence of any of the events set forth in the fourth
bullet point above, so long as we are either the surviving entity and shares of
series B preferred stock remain outstanding with the terms materially unchanged
or the resulting, surviving or transferee entity is a corporation organized
under the laws of any state and substitutes for the series B preferred stock
other preferred stock having substantially the same terms and rights as the
series B preferred stock, the occurrence of any such event will not be
considered to materially and adversely affect rights, preferences, privileges or
voting powers of holders of series B preferred stock. Any increase in the amount
of authorized preferred stock, the creation or issuance of any other class or
series of preferred stock or any increase in an amount of authorized shares of
each class or series, in each case ranking on a parity with or junior to the
series B preferred stock will not be considered to materially and adversely
affect such rights, preferences, privileges or voting powers.
We have agreed to file a registration statement registering the resale of
the shares of series B preferred stock issuable to the holders of operating
partnership series B preferred units as soon as practicable but not later than
60 days after the date the operating partnership series B preferred units are
exchanged for shares of series B preferred stock. We have also agreed to use our
best efforts to cause the registration statement to be declared effective within
120 days after the date of the exchange.
Series D Preferred Stock. We currently have no shares of series D
preferred stock issued or outstanding. The series D preferred stock is issuable
upon exchange of AMB Property II, L.P. series D preferred units. The AMB
Property II, L.P. series D preferred units are exchangeable in whole at any time
on or after May 5, 2009, at the option of 51% of the holders of all outstanding
series D preferred units, on a one-for-one basis, subject to adjustment, for
shares of our series D preferred stock. In addition, AMB Property II, L.P.
series D preferred
S-18
units are exchangeable in whole at any time at the option of 51% of the holders
of all outstanding series D preferred units of AMB Property II, L.P. if:
- any series D preferred unit shall not have received full distributions
with respect to six prior quarterly distribution periods (whether or not
consecutive); or
- AMB Property Holding Corporation, the general partner of AMB Property II,
L.P., or one of its subsidiaries takes the position, and a holder or
holders of series D preferred units receive an opinion of independent
counsel that AMB Property II, L.P. is, or upon the happening of a certain
event likely will be, a "publicly traded partnership" within the meaning
of the Internal Revenue Code.
The series D preferred units of AMB Property II, L.P. are exchangeable in
whole for shares of our series D preferred stock at any time after May 5, 2002
and prior to May 5, 2009 at the option of 51% of the holders of all outstanding
series D preferred units if those holders deliver to AMB Property Holding
Corporation a private letter ruling or an opinion of independent counsel to the
effect that an exchange of the series D preferred units at that time would not
cause the series D preferred units to be considered "stock and securities"
within the meaning of the Internal Revenue Code for purposes of determining
whether the holder of the series D preferred units is an "investment company"
under the Internal Revenue.
In lieu of an exchange for our series D preferred stock, AMB Property II,
L.P. may redeem the series D preferred units for cash in an amount equal to the
original capital account balance of the holder of AMB Property II, L.P. series D
preferred units. A holder of series D preferred units of AMB Property II, L.P.
will not be entitled to exchange the units for series D preferred stock if the
exchange would result in a violation of the ownership limit. See "Description of
Capital Stock -- Restrictions on Ownership and Transfer of Capital Stock."
The series D preferred stock, if and when issued, will rank, with respect
to dividends and in the event we voluntarily or involuntarily liquidate,
dissolve or wind up:
- senior to all classes or series of common stock and to all of our equity
securities that provide that they rank junior to the series D preferred
stock;
- junior to all equity securities issued by us which rank senior to the
series D preferred stock; and
- on a parity with all equity securities issued by us (including the series
A, and if and when issued, the series B, E, F, H, I, J and K preferred
stock, and including the series L preferred stock) other than those
referred to in the bullet points above.
The term "equity securities" does not include convertible debt securities
until converted into equity securities.
If ever issued, the series D preferred stock will entitle the holders to
receive, when and as authorized by the board of directors out of funds legally
available for dividends, cumulative preferential cash dividends at the rate of
7.75% of the liquidation preference per annum (equivalent to $3.875 per annum
per share of series D preferred stock). Dividends on the series D preferred
stock will accumulate on a daily basis and will be payable quarterly in arrears
on the 15th day of each January, April, July and October. Except as provided
below, unless full cumulative dividends on the series D preferred stock have
been or at the same time are declared and paid or declared and a sum sufficient
for payment set apart for payment for all dividend periods, no dividends (other
than in common stock or other equity securities ranking junior to the series D
preferred stock as to distributions and upon voluntary or involuntary
liquidation, dissolution or winding up) shall be declared or paid or set aside
for payment or other dividend be declared or made upon the common stock or any
other equity securities ranking as to distributions or upon voluntary or
involuntary liquidation, dissolution or winding up junior to or on a parity with
the series D preferred stock, nor shall any common stock or any other equity
securities ranking junior to or on a parity with the series D preferred stock as
to distributions or upon voluntary or involuntary liquidation, dissolution or
winding up be redeemed, purchased or otherwise acquired for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such securities) by us (except by conversion into or exchange
for other equity securities ranking junior to the series D preferred stock and
pursuant to the provisions of our charter
S-19
providing for limitations on ownership and transfer in order to ensure that we
remain qualified as a real estate investment trust). When dividends are not paid
in full (or a sum sufficient for such full payment is not so set apart) upon the
series D preferred stock and any other equity securities ranking as to
distributions on a parity with the series D preferred stock, all dividends
declared upon the series D preferred stock and any other equity securities
ranking on a parity with the series D preferred stock as to distributions and
upon voluntary or involuntary liquidation, dissolution or winding up will be
declared pro rata so that the amount of dividends declared per share of series D
preferred stock and each such other equity securities shall bear to each other
the same ratio that accumulated dividends per share of series D preferred stock
and such other equity securities (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if such other equity
securities do not have a cumulative dividend) bear to each other. Dividends on
the series D preferred stock will accumulate whether or not we have funds
legally available for the payment of dividends and whether or not we declare
dividends. If we designate any portion of a dividend as a "capital gain
dividend," a holder's share of the capital gain dividend will be an amount that
bears the same ratio to the total amount of dividends (as determined for federal
income tax purposes) paid to the holder for the year as the aggregate amount
designated as a capital gain dividend bears to the aggregate amount of all
dividends (as determined for federal income tax purposes) paid on all classes of
shares for the year.
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up following the issuance of series D preferred stock, the holders of the
series D preferred stock will be entitled to receive out of our assets legally
available for distribution to our stockholders remaining after payment or
provision for payment of all of our debts and liabilities, a liquidation
preference, in cash, of $50.00 per share, plus an amount equal to any
accumulated or accrued and unpaid dividends to the date of such payment, before
any distribution of assets is made to holders of common stock or any other
equity securities that rank junior to the series D preferred stock. After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of the series D preferred stock will have no right or
claim to any of our remaining assets. Our consolidation or merger with or into
any other entity, a merger of another entity with or into us, a statutory share
exchange or the sale, lease, transfer or conveyance of all or substantially all
of our property or business will not constitute a liquidation, dissolution or
winding up for purposes of triggering the liquidation preference.
If we voluntarily or involuntarily liquidate, dissolve or wind up following
the issuance of series D preferred stock and our assets are insufficient to make
full payment to holders of the series D preferred stock and the corresponding
amounts payable on all shares of other classes or series of equity securities
ranking on a parity with the series D preferred stock as to liquidation rights
then the holders of the series D preferred stock and all other such classes or
series of equity securities will share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be entitled.
The series D preferred stock will have no stated maturity and will not be
subject to mandatory redemption or any sinking fund. If issued, we will not be
able to redeem the series D preferred stock prior to May 5, 2004. On and after
May 5, 2004, we will be able to redeem the series D preferred stock for cash at
our option, in whole or from time to time in part, at a redemption price of
$50.00 per share, plus accumulated and unpaid dividends, if any, to the
redemption date. We will be required to pay the redemption price (other than the
portion of the redemption price consisting of accumulated and unpaid dividends)
solely out of the sale proceeds of other equity securities, which may include
other classes or series of preferred stock. In certain circumstances related to
our maintenance of our ability to qualify as a real estate investment trust for
federal income tax purposes, we will be able to redeem shares of series D
preferred stock.
Holders of series D preferred stock will have no voting rights, except as
described below. If, after issuance, we do not pay dividends on the series D
preferred stock for six or more quarterly periods (whether or not consecutive),
holders of the series D preferred stock (voting separately as a class with all
other classes or series of equity securities upon which like voting rights have
been conferred and are exercisable) will be entitled to vote for the election of
two additional directors to serve on our board of directors until we have
eliminated all dividend arrearages with respect to the series D preferred stock.
So long as any shares of series D preferred stock remain outstanding, we may
not, without the affirmative vote or consent of at least
S-20
two-thirds of the votes entitled to be cast by the holders of the outstanding
shares of series D preferred stock (the series D preferred stock voting
separately as a class):
- authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking senior to the series D preferred stock;
- reclassify any of our authorized stock into any class or series of stock
ranking senior to the series D preferred stock;
- designate or create, or increase the authorized or issued amount of, or
reclassify, any authorized shares into, any preferred stock ranking on a
parity with the series D preferred stock or create, authorize or issue
any obligations or securities convertible into any such shares, but only
to the extent such stock is issued to one of our affiliates; or
- either consolidate, merge into or with, or convey, transfer or lease our
assets substantially, as an entirety, to any corporation or other entity,
or amend, alter or repeal the provisions of our charter, whether by
merger or consolidation or otherwise, in each case so as to materially
and adversely affect the powers, special rights, preferences, privileges
or voting power of the series D preferred stock.
With respect to the occurrence of any of the events set forth in the fourth
bullet point above, so long as we are either the surviving entity and shares of
series D preferred stock remain outstanding with the terms materially unchanged
or the resulting, surviving or transferee entity is a corporation, business
trust or like entity organized under the laws of any state and substitutes for
the series D preferred stock other preferred stock or preferred shares having
substantially the same terms and rights as the series D preferred stock, the
occurrence of any such event will not be considered to materially and adversely
affect rights, preferences, privileges or voting powers of holders of series D
preferred stock. Any increase in the amount of authorized preferred stock, the
creation or issuance of any other class or series of preferred stock or any
increase in an amount of authorized shares of each class or series, in each case
ranking on a parity with or junior to the series D preferred stock will not be
considered to materially and adversely affect such rights, preferences,
privileges or voting powers.
We have agreed to file a registration statement registering the resale of
the shares of series D preferred stock issuable to the holders of AMB Property
II, L.P. series D preferred units as soon as practicable but not later than 60
days after the date the AMB Property II, L.P. series D preferred units are
exchanged for shares of series D preferred stock. We have also agreed to use our
best efforts to cause the registration statement to be declared effective within
120 days after the date of the exchange.
Series E Preferred Stock. We currently have no shares of series E
preferred stock issued or outstanding. The series E preferred stock is issuable
upon exchange of AMB Property II, L.P. series E preferred units. The AMB
Property II, L.P. series E preferred units are exchangeable in whole at any time
on or after August 31, 2009, at the option of 51% of the holders of all
outstanding series E preferred units, on a one-for-one basis, subject to
adjustment, for shares of our series E preferred stock. In addition, AMB
Property II, L.P. series E preferred units are exchangeable in whole at any time
at the option of 51% of the holders of all outstanding series E preferred units
of AMB Property II, L.P. if:
- any series E preferred unit shall not have received full distributions
with respect to six prior quarterly distribution periods (whether or not
consecutive); or
- AMB Property Holding Corporation, the general partner of AMB Property II,
L.P., or one of its subsidiaries takes the position, and a holder or
holders of series E preferred units receive an opinion of independent
counsel that AMB Property II, L.P. is, or upon the happening of a certain
event likely will be, a "publicly traded partnership" within the meaning
of the Internal Revenue Code.
The series E preferred units of AMB Property II, L.P. are exchangeable in
whole for shares of our series E preferred stock at any time after August 31,
2002 and prior to August 31, 2009 at the option of 51% of the holders of all
outstanding series E preferred units if those holders deliver to AMB Property
Holding Corporation a private letter ruling or an opinion of independent counsel
to the effect that an exchange of the series E preferred units at that time
would not cause the series E preferred units to be considered "stock and
S-21
securities" within the meaning of the Internal Revenue Code for purposes of
determining whether the holder of the series E preferred units is an "investment
company" under the Internal Revenue Code.
In lieu of an exchange for our series E preferred stock, AMB Property II,
L.P. may redeem the series E preferred units for cash in an amount equal to the
original capital account balance of the holder of AMB Property II, L.P. series E
preferred units. A holder of series E preferred units will not be entitled to
exchange the units for series E preferred stock if the exchange would result in
a violation of the ownership limit. See "Description of Capital
Stock -- Restrictions on Ownership and Transfer of Capital Stock."
The series E preferred stock, if and when issued, will rank, with respect
to dividends and in the event we voluntarily or involuntarily liquidate,
dissolve or wind up:
- senior to all classes or series of common stock and to all of our equity
securities that provide that they rank junior to the series E preferred
stock;
- junior to all equity securities issued by us which rank senior to the
series E preferred stock; and
- on a parity with all equity securities issued by us (including the series
A and if and when issued, the series B, D, F, H, I, J and K preferred
stock, and including the series L preferred stock) other than those
referred to in the bullet points above.
The term "equity securities" does not include convertible debt securities until
converted into equity securities.
If ever issued, the series E preferred stock will entitle the holders to
receive, when and as authorized by the board of directors out of funds legally
available for dividends, cumulative preferential cash dividends at the rate of
7.75% of the liquidation preference per annum (equivalent to $3.875 per annum
per share of series E preferred stock). Dividends on the series E preferred
stock will accumulate on a daily basis and will be payable quarterly in arrears
on the 15th day of each January, April, July and October. Except as provided
below, unless full cumulative dividends on the series E preferred stock have
been or at the same time are declared and paid or declared and a sum sufficient
for payment set apart for payment for all dividend periods, no dividends (other
than in common stock or other equity securities ranking junior to the series E
preferred stock as to distributions and upon voluntary or involuntary
liquidation, dissolution or winding up) shall be declared or paid or set aside
for payment or other dividend be declared or made upon the common stock or any
other equity securities ranking as to distributions or upon voluntary or
involuntary liquidation, dissolution or winding up junior to or on a parity with
the series E preferred stock, nor shall any common stock or any other equity
securities ranking junior to or on a parity with the series E preferred stock as
to distributions or upon voluntary or involuntary liquidation, dissolution or
winding up be redeemed, purchased or otherwise acquired for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such securities) by us (except by conversion into or exchange
for other equity securities ranking junior to the series E preferred stock as to
distributions and upon voluntary or involuntary liquidation, dissolution or
winding up and pursuant to the provisions of our charter providing for
limitations on ownership and transfer in order to ensure that we remain
qualified as a real estate investment trust). When dividends are not paid in
full (or a sum sufficient for such full payment is not so set apart) upon the
series E preferred stock and any other equity securities ranking as to
distributions on a parity with the series E preferred stock, all dividends
declared upon the series E preferred stock and any other equity securities
ranking on a parity with the series E preferred stock as to distributions and
upon voluntary or involuntary liquidation, dissolution or winding up will be
declared pro rata so that the amount of dividends declared per share of series E
preferred stock and each such other equity securities shall bear to each other
the same ratio that accumulated dividends per share of series E preferred stock
and such other equity securities (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if such other equity
securities do not have a cumulative dividend) bear to each other. Dividends on
the series E preferred stock will accumulate whether or not we have funds
legally available for the payment of dividends and whether or not we declare
dividends. If we designate any portion of a dividend as a "capital gain
dividend," a holder's share of the capital gain dividend will be an amount that
bears the same ratio to the total amount of dividends (as determined for federal
income tax purposes) paid to the holder for the year as
S-22
the aggregate amount designated as a capital gain dividend bears to the
aggregate amount of all dividends (as determined for federal income tax
purposes) paid on all classes of shares for the year.
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up following the issuance of series E preferred stock, the holders of the
series E preferred stock will be entitled to receive out of our assets legally
available for distribution to our stockholders remaining after payment or
provision for payment of all of our debts and liabilities, a liquidation
preference, in cash, of $50.00 per share, and in addition, a preferential
payment in an amount equal to any accumulated or accrued and unpaid dividends to
the date of such payment, before any distribution of assets is made to holders
of common stock or any other equity securities that rank junior to the series E
preferred stock. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of the series E preferred
stock will have no right or claim to any of our remaining assets. Our
consolidation or merger with or into any other entity, a merger of another
entity with or into us, a statutory share exchange or the sale, lease, transfer
or conveyance of all or substantially all of our property or business will not
constitute a liquidation, dissolution or winding up for purposes of triggering
the liquidation preference.
If we voluntarily or involuntarily liquidate, dissolve or wind up following
the issuance of series E preferred stock and our assets are insufficient to make
full payment to holders of the series E preferred stock and the corresponding
amounts payable on all shares of other classes or series of equity securities
ranking on a parity with the series E preferred stock as to liquidation rights,
then the holders of the series E preferred stock and all other such classes or
series of equity securities will share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be entitled.
The series E preferred stock will have no stated maturity and will not be
subject to mandatory redemption or any sinking fund. If issued, we will not be
able to redeem the series E preferred stock prior to August 31, 2004. On and
after August 31, 2004, we will be able to redeem the series E preferred stock
for cash at our option, in whole or from time to time in part, at a redemption
price of $50.00 per share, plus accumulated and unpaid dividends, if any, to the
redemption date. We will be required to pay the redemption price (other than the
portion of the redemption price consisting of accumulated and unpaid dividends)
solely out of the sale proceeds of other equity securities, which may include
other classes or series of preferred stock. In certain circumstances related to
our maintenance of our ability to qualify as a real estate investment trust for
federal income tax purposes, we will be able to redeem shares of series E
preferred stock.
Holders of series E preferred stock will have no voting rights, except as
described below. If, after issuance, we do not pay dividends on the series E
preferred stock for six or more quarterly periods (whether or not consecutive),
holders of the series E preferred stock (voting separately as a class with all
other classes or series of equity securities upon which like voting rights have
been conferred and are exercisable) will be entitled to vote for the election of
two additional directors to serve on our board of directors until we have
eliminated all dividend arrearages with respect to the series E preferred stock.
So long as any shares of series E preferred stock remain outstanding, we may
not, without the affirmative vote or consent of at least two-thirds of the votes
entitled to be cast by the holders of the outstanding shares of series E
preferred stock (the series E preferred stock voting separately as a class):
- authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking senior to the series E preferred stock;
- reclassify any of our authorized stock into any class or series of stock
ranking senior to the series E preferred stock;
- designate or create, or increase the authorized or issued amount of, or
reclassify, any authorized shares into, any preferred stock ranking on a
parity with the series E preferred stock or create, authorize or issue
any obligations or securities convertible into any such shares, but only
to the extent such stock is issued to one of our affiliates; or
- either consolidate, merge into or with, or convey, transfer or lease our
assets substantially, as an entirety, to any corporation or other entity,
or amend, alter or repeal the provisions of our charter,
S-23
whether by merger or consolidation or otherwise, in each case so as to
materially and adversely affect the powers, special rights, preferences,
privileges or voting power of the series E preferred stock.
With respect to the occurrence of any of the events set forth in the fourth
bullet point above, so long as we are either the surviving entity and shares of
series E preferred stock remain outstanding with the terms materially unchanged
or the resulting, surviving or transferee entity is a corporation, business
trust or like entity organized under the laws of any state and substitutes for
the series E preferred stock other preferred stock or preferred shares having
substantially the same terms and rights as the series E preferred stock, the
occurrence of any such event will not be considered to materially and adversely
affect rights, preferences, privileges or voting powers of holders of series E
preferred stock. Any increase in the amount of authorized preferred stock, the
creation or issuance of any other class or series of preferred stock or any
increase in an amount of authorized shares of each class or series, in each case
ranking on a parity with or junior to the series E preferred stock will not be
considered to materially and adversely affect such rights, preferences,
privileges or voting powers.
We have agreed to file a registration statement registering the resale of
the shares of series E preferred stock issuable to the holders of AMB Property
II, L.P. series E preferred units as soon as practicable but not later than 60
days after the date the AMB Property II, L.P. series E preferred units are
exchanged for shares of series E preferred stock. We have also agreed to use our
best efforts to cause the registration statement to be declared effective within
120 days after the date of the exchange.
Series F Preferred Stock. We currently have no shares of series F
preferred stock issued or outstanding. The series F preferred stock is issuable
upon exchange of AMB Property II, L.P. series F preferred units. The AMB
Property II, L.P. series F preferred units are exchangeable in whole at any time
on or after March 22, 2010, at the option of 51% of the holders of all
outstanding series F preferred units, on a one-for-one basis, subject to
adjustment, for shares of our series F preferred stock. In addition, AMB
Property II, L.P. series F preferred units are exchangeable in whole at any time
at the option of 51% of the holders of all outstanding series F preferred units
of AMB Property II, L.P. if:
- any series F preferred unit shall not have received full distributions
with respect to six prior quarterly distribution periods (whether or not
consecutive); or
- AMB Property Holding Corporation, the general partner of AMB Property II,
L.P., or one of its subsidiaries takes the position, and a holder or
holders of series F preferred units receive an opinion of independent
counsel that AMB Property II, L.P. is, or upon the happening of a certain
event likely will be, a "publicly traded partnership" within the meaning
of the Internal Revenue Code.
The series F preferred units of AMB Property II, L.P. are exchangeable in
whole for shares of our series F preferred stock at any time after March 22,
2003 and prior to March 22, 2010 at the option of 51% of the holders of all
outstanding series F preferred units of AMB Property II, L.P. if those holders
deliver to AMB Property Holding Corporation a private letter ruling or an
opinion of independent counsel to the effect that an exchange of the series F
preferred units at that time would not cause the series F preferred units to be
considered "stock and securities" within the meaning of the Internal Revenue
Code for purposes of determining whether the holder of the series F preferred
units is an "investment company" under the Internal Revenue Code.
In addition, the series F preferred units of AMB Property II, L.P. may be
exchanged, in whole but not in part, at the option of 51% of the holders, at any
time that there exists an imminent and substantial risk that such holders'
interest in AMB Property II, L.P. represents or will represent more than 19.0%
of the total profits of or capital interests in AMB Property II, L.P. for a
taxable year.
Furthermore, the AMB Property II, L.P. series F preferred units may be
exchanged, in whole but not in part, at the option of 51% of the holders, if the
AMB Property II, L.P. series F preferred units are held by a
S-24
real estate investment trust and excluding the effect of certain loans and
advances for purposes of the 5% test of Section 856(c)(4)(B) of the Internal
Revenue Code, either:
- AMB Property II, L.P. is advised by counsel that, based on the assets and
income of AMB Property II, L.P. for a taxable year after 1998, it would
not satisfy the income and assets tests of Section 856 of the Internal
Revenue Code for such taxable year if it were a real estate investment
trust; or
- the holder of the AMB Property II, L.P. series F preferred units delivers
an opinion of independent counsel to the effect that, based on the assets
and income of AMB Property II, L.P. for a taxable year after 1999, AMB
Property II, L.P. would not satisfy the income and assets tests of
Section 856 of the Internal Revenue Code for such taxable year if it were
a real estate investment trust and that such failure would create a
meaningful risk that the holder of the AMB Property II, L.P. series F
preferred units would fail to maintain its qualification as a real estate
investment trust.
In lieu of an exchange for series F preferred stock, AMB Property II, L.P.
may redeem the series F preferred units for cash in an amount equal to the
original capital account balance of the holder of the series F preferred units.
A holder of series F preferred units of AMB Property II, L.P. will not be
entitled to exchange the units for series F preferred stock if the exchange
would result in a violation of the ownership limit. See "Description of Capital
Stock -- Restrictions on Ownership and Transfer of Capital Stock."
The series F preferred stock, if and when issued, will rank with respect to
dividends and in the event we voluntarily or involuntarily liquidate, dissolve
or wind up:
- senior to all classes or series of common stock and to all of our equity
securities that provide that they rank junior to the series F preferred
stock;
- junior to all equity securities issued by us which rank senior to the
series F preferred stock; and
- on a parity with all equity securities issued by us (including the series
A, and if and when issued, the series B, D, E, H, I, J and K preferred
stock, and including the series L preferred stock) other than those
referred to in the bullet points above.
The term "equity securities" does not include convertible debt securities until
converted into equity securities.
If ever issued, the series F preferred stock will entitle the holders to
receive, when and as authorized by the board of directors out of funds legally
available for dividends, cumulative preferential cash dividends at the rate of
7.95% of the liquidation preference per annum (equivalent to $3.975 per annum
per share of series F preferred stock). Dividends on the series F preferred
stock will accumulate on a daily basis and will be payable quarterly in arrears
on the 15th day of each January, April, July and October. Except as provided
below, unless full cumulative dividends on the series F preferred stock have
been or at the same time are declared and paid or declared and a sum sufficient
for payment set apart for payment for all dividend periods, no dividends (other
than in common stock or other equity securities ranking junior to the series F
preferred stock as to distributions and upon voluntary or involuntary
liquidation, dissolution or winding up) shall be declared or paid or set aside
for payment or other dividend be declared or made upon the common stock or any
other equity securities ranking as to distributions or upon voluntary or
involuntary liquidation, dissolution or winding up junior to or on a parity with
the series F preferred stock, nor shall any common stock or any other equity
securities ranking junior to or on a parity with the series F preferred stock as
to distributions or upon voluntary or involuntary liquidation, dissolution or
winding up be redeemed, purchased or otherwise acquired for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such securities) by us (except by conversion into or exchange
for other equity securities ranking junior to the series F preferred stock as to
distributions and upon voluntary or involuntary liquidation, dissolution or
winding up and pursuant to the provisions of our charter providing for
limitations on ownership and transfer in order to ensure that we remain
qualified as a real estate investment trust). When dividends are not paid in
full (or a sum sufficient for such full payment is not so set apart) upon the
series F preferred stock and any other equity securities ranking as to
distributions on a parity with the series F preferred stock, all dividends
declared upon the series F preferred stock and any other equity securities
S-25
ranking on a parity with the series F preferred stock as to distributions and
upon voluntary or involuntary liquidation, dissolution or winding up will be
declared pro rata so that the amount of dividends declared per share of series F
preferred stock and each such other equity securities shall bear to each other
the same ratio that accumulated dividends per share of series F preferred stock
and such other equity securities (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if such other equity
securities do not have a cumulative dividend) bear to each other. Dividends on
the series F preferred stock will accumulate whether or not we have funds
legally available for the payment of dividends and whether or not we declare
dividends. If we designate any portion of a dividend as a "capital gain
dividend," a holder's share of the capital gain dividend will be an amount that
bears the same ratio to the total amount of dividends (as determined for federal
income tax purposes) paid to the holder for the year as the aggregate amount
designated as a capital gain dividend bears to the aggregate amount of all
dividends (as determined for federal income tax purposes) paid on all classes of
shares for the year.
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up following the issuance of series F preferred stock, the holders of the
series F preferred stock will be entitled to receive out of our assets legally
available for distribution to our stockholders remaining after payment or
provision for payment of all of our debts and liabilities, a liquidation
preference, in cash, of $50.00 per share, and in addition, a preferential
payment in an amount equal to any accumulated or accrued and unpaid dividends to
the date of such payment, before any distribution of assets is made to holders
of common stock or any other equity securities that rank junior to the series F
preferred stock. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of the series F preferred
stock will have no right or claim to any of our remaining assets. Our
consolidation or merger with or into any other entity, a merger of another
entity with or into us, a statutory share exchange or the sale, lease, transfer
or conveyance of all or substantially all of our property or business will not
constitute a liquidation, dissolution or winding up for purposes of triggering
the liquidation preference.
If we voluntarily or involuntarily liquidate, dissolve or wind up following
the issuance of series F preferred stock and our assets are insufficient to make
full payment to holders of the series F preferred stock and the corresponding
amounts payable on all shares of other classes or series of equity securities
ranking on a parity with the series F preferred stock as to liquidation rights,
then the holders of the series F preferred stock and all other such classes or
series of equity securities will share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be entitled.
The series F preferred stock will have no stated maturity and will not be
subject to mandatory redemption or any sinking fund. If issued, we will not be
able to redeem the series F preferred stock prior to March 22, 2005. On and
after March 22, 2005, we will be able to redeem the series F preferred stock for
cash at our option, in whole or from time to time in part, at a redemption price
of $50.00 per share, plus accumulated and unpaid dividends, if any, to the
redemption date. We will be required to pay the redemption price (other than the
portion of the redemption price consisting of accumulated and unpaid dividends)
solely out of the sale proceeds of other equity securities, which may include
other classes or series of preferred stock. In certain circumstances related to
our maintenance of our ability to qualify as a real estate investment trust for
federal income tax purposes, we will be able to redeem shares of series F
preferred stock.
Holders of series F preferred stock will have no voting rights, except as
described below. If, after issuance, we do not pay dividends on the series F
preferred stock for six or more quarterly periods (whether or not consecutive),
holders of the series F preferred stock (voting separately as a class with all
other classes or series of equity securities upon which like voting rights have
been conferred and are exercisable) will be entitled to vote for the election of
two additional directors to serve on our board of directors until we have
eliminated all dividend arrearages with respect to the series F preferred stock.
So long as any shares of series F preferred stock remain outstanding, we may
not, without the affirmative vote or consent of at least two-thirds of the votes
entitled to be cast by the holders of the outstanding shares of series F
preferred stock (the series F preferred stock voting separately as a class):
- authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking senior to the series F preferred stock;
S-26
- reclassify any of our authorized stock into any class or series of stock
ranking senior to the series F preferred stock;
- designate or create, or increase the authorized or issued amount of, or
reclassify, any authorized shares into, any preferred stock ranking on a
parity with the series F preferred stock or create, authorize or issue
any obligations or securities convertible into any such shares, but only
to the extent such stock is issued to one of our affiliates; or
- either consolidate, merge into or with, or convey, transfer or lease our
assets substantially, as an entirety, to any corporation or other entity,
or amend, alter or repeal the provisions of our charter, whether by
merger or consolidation or otherwise, in each case so as to materially
and adversely affect the powers, special rights, preferences, privileges
or voting power of the series F preferred stock.
With respect to the occurrence of any of the events set forth in the fourth
bullet point above, so long as we are either the surviving entity and shares of
series F preferred stock remain outstanding with the terms materially unchanged
or the resulting, surviving or transferee entity is a corporation, business
trust or like entity organized under the laws of any state and substitutes for
the series F preferred stock other preferred stock or preferred shares having
substantially the same terms and rights as the series F preferred stock, the
occurrence of any such event will not be considered to materially and adversely
affect rights, preferences, privileges or voting powers of holders of series F
preferred stock. Any increase in the amount of authorized preferred stock, the
creation or issuance of any other class or series of preferred stock or any
increase in an amount of authorized shares of each class or series, in each case
ranking on a parity with or junior to the series F preferred stock will not be
considered to materially and adversely affect such rights, preferences,
privileges or voting powers.
We have agreed to file a registration statement registering the resale of
the shares of series F preferred stock issuable to the holders of AMB Property
II, L.P. series F preferred units as soon as practicable but not later than 60
days after the date the AMB Property II, L.P. series F preferred units are
exchanged for shares of series F preferred stock. We have also agreed to use our
best efforts to cause the registration statement to be declared effective within
120 days after the date of the exchange.
Series H Preferred Stock. We currently have no shares of series H
preferred stock issued or outstanding. The series H preferred stock is issuable
upon exchange of AMB Property II, L.P. series H preferred units. The AMB
Property II, L.P. series H preferred units are exchangeable in whole at any time
on or after September 1, 2010, at the option of 51% of the holders of all
outstanding series H preferred units, on a one-for-one basis, subject to
adjustment, for shares of our series H preferred stock. In addition, AMB
Property II, L.P. series H preferred units are exchangeable in whole at any time
at the option of 51% of the holders of all outstanding series H preferred units
of AMB Property II, L.P. if:
- any series H preferred unit shall not have received full distributions
with respect to six prior quarterly distribution periods (whether or not
consecutive); or
- AMB Property Holding Corporation, the general partner of AMB Property II,
L.P., or one of its subsidiaries takes the position, and a holder or
holders of series H preferred units receive an opinion of independent
counsel that AMB Property II, L.P. is, or upon the happening of a certain
event likely will be, a "publicly traded partnership" within the meaning
of the Internal Revenue Code.
The series H preferred units of AMB Property II, L.P. are exchangeable in
whole for shares of our series H preferred stock at any time after September 1,
2003 and prior to September 1, 2010 at the option of 51% of the holders of all
outstanding series H preferred units of AMB Property II, L.P. if those holders
deliver to AMB Property Holding Corporation a private letter ruling or an
opinion of independent counsel to the effect that an exchange of the series H
preferred units at that time would not cause the series H preferred units to be
considered "stock and securities" within the meaning of the Internal Revenue
Code for purposes of determining whether the holder of the series H preferred
units is an "investment company" under the Internal Revenue Code.
S-27
In lieu of an exchange for series H preferred stock, AMB Property II, L.P.
may redeem the series H preferred units for cash in an amount equal to the
original capital account balance of the holder of the series H preferred units.
A holder of series H preferred units of AMB Property II, L.P. will not be
entitled to exchange the units for series H preferred stock if the exchange
would result in a violation of the ownership limit. See "Description of Capital
Stock -- Restrictions on Ownership and Transfer of Capital Stock."
The series H preferred stock, if and when issued, will rank, with respect
to dividends and in the event we voluntarily or involuntarily liquidate,
dissolve or wind up:
- senior to all classes or series of common stock and to all of our equity
securities that provide that they rank junior to the series H preferred
stock;
- junior to all equity securities issued by us which rank senior to the
series H preferred stock; and
- on a parity with all equity securities issued by us (including the series
A, and if and when issued, the series B, D, E, F, I, J, and K preferred
stock, and including the series L preferred stock) other than those
referred to in the bullet points above.
The term "equity securities" does not include convertible debt securities until
converted into equity securities.
If ever issued, the series H preferred stock will entitle the holders to
receive, when and as authorized by the board of directors out of funds legally
available for dividends, cumulative preferential cash dividends at the rate of
8.125% of the liquidation preference per annum (equivalent to $4.0625 per annum
per share of series H preferred stock). Dividends on the series H preferred
stock will accumulate on a daily basis and will be payable quarterly in arrears
on the 15th day of each January, April, July and October. Except as provided
below, unless full cumulative dividends on the series H preferred stock have
been or at the same time are declared and paid or declared and a sum sufficient
for payment set apart for payment for all dividend periods, no dividends (other
than in common stock or other equity securities ranking junior to the series H
preferred stock as to distributions and upon voluntary or involuntary
liquidation, dissolution or winding up) shall be declared or paid or set aside
for payment or other dividend be declared or made upon the common stock or any
other equity securities ranking as to distributions or upon voluntary or
involuntary liquidation, dissolution or winding up junior to or on a parity with
the series H preferred stock, nor shall any common stock or any other equity
securities ranking junior to or on a parity with the series H preferred stock as
to distributions or upon voluntary or involuntary liquidation, dissolution or
winding up be redeemed, purchased or otherwise acquired for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such securities) by us (except by conversion into or exchange
for other equity securities ranking junior to the series H preferred stock as to
distributions and upon voluntary or involuntary liquidation, dissolution or
winding up and pursuant to the provisions of our charter providing for
limitations on ownership and transfer in order to ensure that we remain
qualified as a real estate investment trust). When dividends are not paid in
full (or a sum sufficient for such full payment is not so set apart) upon the
series H preferred stock and any other equity securities ranking as to
distributions on a parity with the series H preferred stock, all dividends
declared upon the series H preferred stock and any other equity securities
ranking on a parity with the series H preferred stock as to distributions and
upon voluntary or involuntary liquidation, dissolution or winding up will be
declared pro rata so that the amount of dividends declared per share of series H
preferred stock and each such other equity securities shall bear to each other
the same ratio that accumulated dividends per share of series H preferred stock
and such other equity securities (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if such other equity
securities do not have a cumulative dividend) bear to each other. Dividends on
the series H preferred stock will accumulate whether or not we have funds
legally available for the payment of dividends and whether or not we declare
dividends.
If we designate any portion of a dividend as a "capital gain dividend," a
holder's share of the capital gain dividend will be an amount that bears the
same ratio to the total amount of dividends (as determined for federal income
tax purposes) paid to the holder for the year as the aggregate amount designated
as a capital gain dividend bears to the aggregate amount of all dividends (as
determined for federal income tax purposes) paid on all classes of shares for
the year.
S-28
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up following the issuance of series H preferred stock, the holders of the
series H preferred stock will be entitled to receive out of our assets legally
available for distribution to our stockholders remaining after payment or
provision for payment of all of our debts and liabilities, a liquidation
preference, in cash, of $50.00 per share, and in addition, a preferential
payment in an amount equal to any accumulated or accrued and unpaid dividends to
the date of such payment, before any distribution of assets is made to holders
of common stock or any other equity securities that rank junior to the series H
preferred stock. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of the series H preferred
stock will have no right or claim to any of our remaining assets. Our
consolidation or merger with or into any other entity, a merger of another
entity with or into us, a statutory share exchange or the sale, lease, transfer
or conveyance of all or substantially all of our property or business will not
constitute a liquidation, dissolution or winding up for purposes of triggering
the liquidation preference.
If we voluntarily or involuntarily liquidate, dissolve or wind up following
the issuance of series H preferred stock and our assets are insufficient to make
full payment to holders of the series H preferred stock and the corresponding
amounts payable on all shares of other classes or series of equity securities
ranking on a parity with the series H preferred stock as to liquidation rights,
then the holders of the series H preferred stock and all other such classes or
series of equity securities will share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be entitled.
The series H preferred stock will have no stated maturity and will not be
subject to mandatory redemption or any sinking fund. If issued, we will not be
able to redeem the series H preferred stock prior to September 1, 2005. On and
after September 1, 2005, we will be able to redeem the series H preferred stock
for cash at our option, in whole or from time to time in part, at a redemption
price of $50.00 per share, plus accumulated and unpaid dividends, if any, to the
redemption date. We will be required to pay the redemption price (other than the
portion of the redemption price consisting of accumulated and unpaid dividends)
solely out of the sale proceeds of other equity securities, which may include
other classes or series of preferred stock. In certain circumstances related to
our maintenance of our ability to qualify as a real estate investment trust for
federal income tax purposes, we will be able to redeem shares of series H
preferred stock.
Holders of series H preferred stock will have no voting rights, except as
described below. If, after issuance, we do not pay dividends on the series H
preferred stock for six or more quarterly periods (whether or not consecutive),
holders of the series H preferred stock (voting separately as a class with all
other classes or series of equity securities upon which like voting rights have
been conferred and are exercisable) will be entitled to vote for the election of
two additional directors to serve on our board of directors until we have
eliminated all dividend arrearages with respect to the series H preferred stock.
So long as any shares of series H preferred stock remain outstanding, we may
not, without the affirmative vote or consent of at least two-thirds of the votes
entitled to be cast by the holders of the outstanding shares of series H
preferred stock (the series H preferred stock voting separately as a class):
- authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking senior to the series H preferred stock;
- reclassify any of our authorized stock into any class or series of stock
ranking senior to the series H preferred stock;
- designate or create, or increase the authorized or issued amount of, or
reclassify, any authorized shares into, any preferred stock ranking on a
parity with the series H preferred stock or create, authorize or issue
any obligations or securities convertible into any such shares, but only
to the extent such stock is issued to one of our affiliates; or
- either consolidate, merge into or with, or convey, transfer or lease our
assets substantially, as an entirety, to any corporation or other entity,
or amend, alter or repeal the provisions of our charter, whether by
merger or consolidation or otherwise, in each case so as to materially
and adversely affect the powers, special rights, preferences, privileges
or voting power of the series H preferred stock.
S-29
With respect to the occurrence of any of the events set forth in the fourth
bullet point above, so long as we are either the surviving entity and shares of
series H preferred stock remain outstanding with the terms materially unchanged
or the resulting, surviving or transferee entity is a corporation, business
trust or like entity organized under the laws of any state and substitutes for
the series H preferred stock other preferred stock or preferred shares having
substantially the same terms and rights as the series H preferred stock, the
occurrence of any such event will not be considered to materially and adversely
affect rights, preferences, privileges or voting powers of holders of series H
preferred stock. Any increase in the amount of authorized preferred stock, the
creation or issuance of any other class or series of preferred stock or any
increase in an amount of authorized shares of each class or series, in each case
ranking on a parity with or junior to the series H preferred stock will not be
considered to materially and adversely affect such rights, preferences,
privileges or voting powers.
We have agreed to file a registration statement registering the resale of
the shares of series H preferred stock issuable to the holders of AMB Property
II, L.P. series H preferred units as soon as practicable but not later than 60
days after the date the AMB Property II, L.P. series H preferred units are
exchanged for shares of series H preferred stock. We have also agreed to use our
best efforts to cause the registration statement to be declared effective within
120 days after the date of the exchange.
Series I Preferred Stock. We currently have no shares of series I
preferred stock issued or outstanding. The series I preferred stock is issuable
upon exchange of AMB Property II, L.P. series I preferred units. The AMB
Property II, L.P. series I preferred units are exchangeable in whole at any time
on or after March 21, 2011, at the option of 51% of the holders of all
outstanding series I preferred units, on a one-for-one basis, subject to
adjustment, for shares of our series I preferred stock. In addition, AMB
Property II, L.P. series I preferred units are exchangeable in whole at any time
at the option of 51% of the holders of all outstanding series I preferred units
of AMB Property II, L.P. if:
- any series I Preferred Unit shall not have received full distributions
with respect to six prior quarterly distribution periods (whether or not
consecutive); or
- AMB Property Holding Corporation, the general partner of AMB Property II,
L.P., or one of its subsidiaries takes the position, and a holder or
holders of series I preferred units receive an opinion of independent
counsel that AMB Property II, L.P. is, or upon the happening of a certain
event likely will be, a "publicly traded partnership" within the meaning
of the Internal Revenue Code.
The series I preferred units of AMB Property II, L.P. are exchangeable in
whole for shares of our series I preferred stock at any time after March 21,
2011 and prior to March 21, 2011 at the option of 51% of the holders of all
outstanding series I preferred units of AMB Property II, L.P. if those holders
deliver to AMB Property Holding Corporation a private letter ruling or an
opinion of independent counsel to the effect that an exchange of the series I
preferred units at that time would not cause the series I preferred units to be
considered "stock and securities" within the meaning of the Internal Revenue
Code for purposes of determining whether the holder of the series I preferred
units is an "investment company" under the Internal Revenue Code.
In lieu of an exchange for series I preferred stock, AMB Property II, L.P.
may redeem the series I preferred units for cash in an amount equal to the
original capital account balance of the holder of the series I preferred units.
A holder of series I preferred units of AMB Property II, L.P. will not be
entitled to exchange the units for series I preferred stock if the exchange
would result in a violation of the ownership limit. See "Description of Capital
Stock -- Restrictions on Ownership and Transfer of Capital Stock."
The series I preferred stock, if and when issued, will rank, with respect
to dividends and in the event we voluntarily or involuntarily liquidate,
dissolve or wind up:
- senior to all classes or series of common stock and to all of our equity
securities that provide that they rank junior to the series I preferred
stock;
- junior to all equity securities issued by us which rank senior to the
series I preferred stock; and
S-30
- on a parity with all equity securities issued by us (including the series
A, and if and when issued, the series B, D, E, F, H, J and K preferred
stock, and including the series L preferred stock) other than those
referred to in the bullet points above.
The term "equity securities" does not include convertible debt securities until
converted into equity securities.
If ever issued, the series I preferred stock will entitle the holders to
receive, when and as authorized by the board of directors out of funds legally
available for dividends, cumulative preferential cash dividends at the rate of
8.00% of the liquidation preference per annum (equivalent to $4.00 per annum per
share of series I preferred stock). Dividends on the series I preferred stock
will accumulate on a daily basis and will be payable quarterly in arrears on the
15th day of each January, April, July and October. Except as provided below,
unless full cumulative dividends on the series I preferred stock have been or at
the same time are declared and paid or declared and a sum sufficient for payment
set apart for payment for all dividend periods, no dividends (other than in
common stock or other equity securities ranking junior to the series I preferred
stock as to distributions and upon voluntary or involuntary liquidation,
dissolution or winding up) shall be declared or paid or set aside for payment or
other dividend be declared or made upon the common stock or any other equity
securities ranking as to distributions or upon voluntary or involuntary
liquidation, dissolution or winding up junior to or on a parity with the series
I preferred stock, nor shall any common stock or any other equity securities
ranking junior to or on a parity with the series I preferred stock as to
distributions or upon voluntary or involuntary liquidation, dissolution or
winding up be redeemed, purchased or otherwise acquired for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such securities) by us (except by conversion into or exchange
for other equity securities ranking junior to the series I preferred stock as to
distributions and upon voluntary or involuntary liquidation, dissolution or
winding up and pursuant to the provisions of our charter providing for
limitations on ownership and transfer in order to ensure that we remain
qualified as a real estate investment trust). When dividends are not paid in
full (or a sum sufficient for such full payment is not so set apart) upon the
series I preferred stock and any other equity securities ranking as to
distributions on a parity with the series I preferred stock, all dividends
declared upon the series I preferred stock and any other equity securities
ranking on a parity with the series I preferred stock as to distributions and
upon voluntary or involuntary liquidation, dissolution or winding up will be
declared pro rata so that the amount of dividends declared per share of series I
preferred stock and each such other equity securities shall bear to each other
the same ratio that accumulated dividends per share of series I preferred stock
and such other equity securities (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if such other equity
securities do not have a cumulative dividend) bear to each other. Dividends on
the series I preferred stock will accumulate whether or not we have funds
legally available for the payment of dividends and whether or not we declare
dividends. If we designate any portion of a dividend as a "capital gain
dividend," a holder's share of the capital gain dividend will be an amount that
bears the same ratio to the total amount of dividends (as determined for federal
income tax purposes) paid to the holder for the year as the aggregate amount
designated as a capital gain dividend bears to the aggregate amount of all
dividends (as determined for federal income tax purposes) paid on all classes of
shares for the year.
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up following the issuance of series I preferred stock, the holders of the
series I preferred stock will be entitled to receive out of our assets legally
available for distribution to our stockholders remaining after payment or
provision for payment of all of our debts and liabilities, a liquidation
preference, in cash, of $50.00 per share, and in addition, a preferential
payment in an amount equal to any accumulated or accrued and unpaid dividends to
the date of such payment, before any distribution of assets is made to holders
of common stock or any other equity securities that rank junior to the series I
preferred stock. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of the series I preferred
stock will have no right or claim to any of our remaining assets. Our
consolidation or merger with or into any other entity, a merger of another
entity with or into us, a statutory share exchange or the sale, lease, transfer
or conveyance of all or substantially all of our property or business will not
constitute a liquidation, dissolution or winding up for purposes of triggering
the liquidation preference.
S-31
If we voluntarily or involuntarily liquidate, dissolve or wind up following
the issuance of series I preferred stock and our assets are insufficient to make
full payment to holders of the series I preferred stock and the corresponding
amounts payable on all shares of other classes or series of equity securities
ranking on a parity with the series I preferred stock as to liquidation rights,
then the holders of the series I preferred stock and all other such classes or
series of equity securities will share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be entitled.
The series I preferred stock will have no stated maturity and will not be
subject to mandatory redemption or any sinking fund. If issued, we will not be
able to redeem the series I preferred stock prior to March 22, 2005. On and
after March 22, 2005, we will be able to redeem the series I preferred stock for
cash at our option, in whole or from time to time in part, at a redemption price
of $50.00 per share, plus accumulated and unpaid dividends, if any, to the
redemption date. We will be required to pay the redemption price (other than the
portion of the redemption price consisting of accumulated and unpaid dividends)
solely out of the sale proceeds of other equity securities, which may include
other classes or series of preferred stock. In certain circumstances related to
our maintenance of our ability to qualify as a real estate investment trust for
federal income tax purposes, we will be able to redeem shares of series I
preferred stock.
Holders of series I preferred stock will have no voting rights, except as
described below. If, after issuance, we do not pay dividends on the series I
preferred stock for six or more quarterly periods (whether or not consecutive),
holders of the series I preferred stock (voting separately as a class with all
other classes or series of equity securities upon which like voting rights have
been conferred and are exercisable) will be entitled to vote for the election of
two additional directors to serve on our board of directors until we have
eliminated all dividend arrearages with respect to the series I preferred stock.
So long as any shares of series I preferred stock remain outstanding, we may
not, without the affirmative vote or consent of at least two-thirds of the votes
entitled to be cast by the holders of the outstanding shares of series I
preferred stock (the series I preferred stock voting separately as a class):
- authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking senior to the series I preferred stock;
- reclassify any of our authorized stock into any class or series of stock
ranking senior to the series I preferred stock;
- designate or create, or increase the authorized or issued amount of, or
reclassify, any authorized shares into, any preferred stock ranking on a
parity with the series I preferred stock or create, authorize or issue
any obligations or securities convertible into any such shares, but only
to the extent such stock is issued to one of our affiliates; or
- either consolidate, merge into or with, or convey, transfer or lease our
assets substantially, as an entirety, to any corporation or other entity,
or amend, alter or repeal the provisions of our charter, whether by
merger or consolidation or otherwise, in each case so as to materially
and adversely affect the powers, special rights, preferences, privileges
or voting power of the series I preferred stock.
With respect to the occurrence of any of the events set forth in the fourth
bullet point above, so long as we are either the surviving entity and shares of
series I preferred stock remain outstanding with the terms materially unchanged
or the resulting, surviving or transferee entity is a corporation, business
trust or like entity organized under the laws of any state and substitutes for
the series I preferred stock other preferred stock or preferred shares having
substantially the same terms and rights as the series I preferred stock, the
occurrence of any such event will not be considered to materially and adversely
affect rights, preferences, privileges or voting powers of holders of series I
preferred stock. Any increase in the amount of authorized preferred stock, the
creation or issuance of any other class or series of preferred stock or any
increase in an amount of authorized shares of each class or series, in each case
ranking on a parity with or junior to the series I preferred stock will not be
considered to materially and adversely affect such rights, preferences,
privileges or voting powers.
We have agreed to file a registration statement registering the resale of
the shares of series I preferred stock issuable to the holders of AMB Property
II, L.P. series I preferred units as soon as practicable but not
S-32
later than 60 days after the date the AMB Property II, L.P. series I preferred
units are exchanged for shares of series I preferred stock. We have also agreed
to use our best efforts to cause the registration statement to be declared
effective within 120 days after the date of the exchange.
Series J Preferred Stock. We currently have no shares of series J
preferred stock issued or outstanding. The series J preferred stock is issuable
upon exchange of the operating partnership's series J preferred units. The
operating partnership's series J preferred units are exchangeable in whole at
any time on or after September 21, 2011, at the option of the holders of 51% of
all outstanding series J preferred units, on a one-for-one basis, subject to
adjustment, for shares of our series J preferred stock. In addition, the
operating partnership's series J preferred units are exchangeable in whole at
any time at the option of the holders of 51% of all outstanding series J
preferred units of the operating partnership if:
- any series J preferred unit shall not have received full distributions
with respect to six prior quarterly distribution periods (whether or not
consecutive); or
- the holders of 51% of all outstanding series J preferred units reasonably
conclude that the operating partnership, if it were otherwise taxable as
a real estate investment trust, either:
- will not or likely will not satisfy the income tests of Section 856 of
the Internal Revenue Code for the year in which the determination is
made, or
- will not or likely will not satisfy the asset tests of Section 856 of
the Internal Revenue Code as of the end of the calendar quarter in which
the determination is made, which failure will not or is unlikely to be
(or is subsequently not) cured as permitted under Section 856 of the
Internal Revenue Code,
the holders of 51% of the series J preferred units deliver us an opinion
concurring with the holders' conclusion, the failure by the operating
partnership would create a meaningful risk that a holder of the series J
preferred units would fail to maintain its qualification as a real estate
investment trust and we, as the general partner, agree with the conclusions
reached by the holders and in the opinion; provided, that we may not
unreasonably withhold our agreement.
With certain limitations, the series J preferred units of the operating
partnership are also exchangeable, in whole but not in part, at the option of
the holders of 51% of the outstanding series J preferred units if:
- the holders of 51% of the outstanding series J preferred units reasonably
conclude that there exists an imminent and substantial risk that the
holders' interest in the operating partnership represents or will
represent more than 19.5% of the total profits or capital interests in
the operating partnership for a taxable year; and
- the holders of 51% of the outstanding series J preferred units deliver to
us an opinion to the effect that there is a substantial risk that its
interest in the operating partnership represents or will represent more
than 19.5% of the total profits or capital interests in the operating
partnership for a taxable year, and
- we, as the general partner, agree with the conclusions in the prior two
bullet points; provided, that we may not unreasonably withhold our
agreement.
In lieu of an exchange for series J preferred stock, we may elect to cause
the operating partnership to redeem the series J preferred units for cash in an
amount equal to the original capital account balance of the holder of the series
J preferred units. A holder of series J preferred units of the operating
partnership will not be entitled to exchange the units for series J preferred
stock if the exchange would result in a violation of the ownership limit. See
"Description of Capital Stock -- Restrictions on Ownership and Transfer of
Capital Stock."
The series J preferred stock, if and when issued, will rank, with respect
to dividends and in the event we voluntarily or involuntarily liquidate,
dissolve or wind up:
- senior to all classes or series of common stock and to all of our equity
securities that provide that they rank junior to the series J preferred
stock;
S-33
- junior to all equity securities issued by us which rank senior to the
series J preferred stock; and
- on a parity with all equity securities issued by us (including the series
A, and if and when issued, the series B, D, E, F, H, I and K preferred
stock, and including the series L preferred stock) other than those
referred to in the bullet points above.
The term "equity securities" does not include convertible debt securities until
converted into equity securities.
If ever issued, the series J preferred stock will entitle the holders to
receive, when and as authorized by the board of directors out of funds legally
available for dividends, cumulative preferential cash dividends at the rate of
7.95% of the liquidation preference per annum (equivalent to $3.975 per annum
per share of series J preferred stock). Dividends on the series J preferred
stock will accumulate on a daily basis and will be payable quarterly in arrears
on the 15th day of each January, April, July and October. Except as provided
below, unless full cumulative dividends on the series J preferred stock have
been or at the same time are declared and paid or declared and a sum sufficient
for payment set apart for payment for all dividend periods, no dividends (other
than in common stock or other equity securities ranking junior to the series J
preferred stock as to distributions and upon voluntary or involuntary
liquidation, dissolution or winding up) shall be declared or paid or set aside
for payment or other dividend be declared or made upon the common stock or any
other equity securities ranking as to distributions or upon voluntary or
involuntary liquidation, dissolution or winding up junior to or on a parity with
the series J preferred stock, nor may any common stock or any other equity
securities ranking as to distributions or upon voluntary or involuntary
liquidation, dissolution or winding up junior to or on a parity with the series
J preferred stock be redeemed, purchased or otherwise acquired for any
consideration (or any monies be paid to or made available for a sinking fund for
the redemption of any such securities) by us (except by conversion into or
exchange for other equity securities ranking junior to the series J preferred
stock as to distributions and upon voluntary or involuntary liquidation,
dissolution or winding up and pursuant to the provisions of our charter
providing for limitations on ownership and transfer in order to ensure that we
remain qualified as a real estate investment trust). When dividends are not paid
in full (or a sum sufficient for such full payment is not so set apart) upon the
series J preferred stock and any other equity securities ranking as to
distributions on a parity with the series J preferred stock, all dividends
declared upon the series J preferred stock and any other equity securities
ranking as to distributions and upon voluntary or involuntary liquidation,
dissolution or winding up on a parity with the series J preferred stock will be
declared pro rata so that the amount of dividends declared per share of series J
preferred stock and each such other equity securities shall bear to each other
the same ratio that accumulated dividends per share of series J preferred stock
and such other equity securities (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if such other equity
securities do not have a cumulative dividend) bear to each other. Dividends on
the series J preferred stock will accumulate whether or not we have funds
legally available for the payment of dividends and whether or not we declare
dividends. If we designate any portion of a dividend as a "capital gain
dividend," a holder's share of the capital gain dividend will be an amount that
bears the same ratio to the total amount of dividends (as determined for federal
income tax purposes) paid to the holder for the year as the aggregate amount
designated as a capital gain dividend bears to the aggregate amount of all
dividends (as determined for federal income tax purposes) paid on all classes of
shares for the year.
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up following the issuance of series J preferred stock, the holders of the
series J preferred stock will be entitled to receive out of our assets legally
available for distribution to our stockholders remaining after payment or
provision for payment of all of our debts and liabilities, a liquidation
preference, in cash, of $50.00 per share, and in addition, a preferential
payment in an amount equal to any accumulated or accrued and unpaid dividends to
the date of such payment, before any distribution of assets is made to holders
of common stock or any other equity securities that rank junior to the series J
preferred stock. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of the series J preferred
stock will have no right or claim to any of our remaining assets. Our
consolidation or merger with or into any other entity, a merger of another
entity with or into us, a statutory share exchange or the sale, lease, transfer
or conveyance of all or substantially all of our property or business will not
constitute a liquidation, dissolution or winding up for purposes of triggering
the liquidation preference.
S-34
If we voluntarily or involuntarily liquidate, dissolve or wind up following
the issuance of series J preferred stock and our assets are insufficient to make
full payment to holders of the series J preferred stock and the corresponding
amounts payable on all shares of other classes or series of equity securities
ranking on a parity with the series J preferred stock as to liquidation rights,
then the holders of the series J preferred stock and all other such classes or
series of equity securities will share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be entitled.
The series J preferred stock will have no stated maturity and will not be
subject to mandatory redemption or any sinking fund. If issued, we will not be
able to redeem the series J preferred stock prior to September 21, 2006. On and
after September 21, 2006, we will be able to redeem the series J preferred stock
for cash at our option, in whole or from time to time in part, at a redemption
price of $50.00 per share, plus accumulated and unpaid dividends, if any, to the
redemption date. We will be required to pay the redemption price (other than the
portion of the redemption price consisting of accumulated and unpaid dividends)
solely out of the sale proceeds of other equity securities, which may include
other classes or series of preferred stock. In certain circumstances related to
our maintenance of our ability to qualify as a real estate investment trust for
federal income tax purposes, we will be able to redeem shares of series J
preferred stock.
Holders of series J preferred stock will have no voting rights, except as
described below. If, after issuance, we do not pay dividends on the series J
preferred stock for six or more quarterly periods (whether or not consecutive),
holders of the series J preferred stock (voting separately as a class with all
other classes or series of equity securities upon which like voting rights have
been conferred and are exercisable) will be entitled to vote for the election of
two additional directors to serve on our board of directors until we have
eliminated all dividend arrearages with respect to the series J preferred stock.
So long as any shares of series J preferred stock remain outstanding, we may
not, without the affirmative vote or consent of at least two-thirds of the votes
entitled to be cast by the holders of the outstanding shares of series J
preferred stock (the series J preferred stock voting separately as a class):
- authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking senior to the series J preferred stock;
- reclassify any of our authorized stock into any class or series of stock
ranking senior to the series J preferred stock;
- designate or create, or increase the authorized or issued amount of, or
reclassify, any authorized shares into, any preferred stock ranking on a
parity with the series J preferred stock or create, authorize or issue
any obligations or securities convertible into any such shares, but only
to the extent such stock is issued to one of our affiliates; or
- either consolidate, merge into or with, or convey, transfer or lease our
assets substantially, as an entirety, to any corporation or other entity,
or amend, alter or repeal the provisions of our charter, whether by
merger or consolidation or otherwise, in each case so as to materially
and adversely affect the powers, special rights, preferences, privileges
or voting power of the series J preferred stock.
With respect to the occurrence of any of the events set forth in the fourth
bullet point above, so long as we are either the surviving entity and shares of
series J preferred stock remain outstanding with the terms materially unchanged
or the resulting, surviving or transferee entity is a corporation, business
trust or like entity organized under the laws of any state and substitutes for
the series J preferred stock other preferred stock or preferred shares having
substantially the same terms and rights as the series J preferred stock, the
occurrence of any such event will not be considered to materially and adversely
affect rights, preferences, privileges or voting powers of holders of series J
preferred stock. Any increase in the amount of authorized preferred stock, the
creation or issuance of any other class or series of preferred stock or any
increase in an amount of authorized shares of each class or series, in each case
ranking on a parity with or junior to the series J preferred stock will not be
considered to materially and adversely affect such rights, preferences,
privileges or voting powers.
We have agreed to file a registration statement registering the resale of
the shares of series J preferred stock issuable to the holders of AMB Property,
L.P. series J preferred units as soon as practicable but not later
S-35
than 60 days after the date the AMB Property, L.P. series J preferred units are
exchanged for shares of series J preferred stock. We have also agreed to use our
best efforts to cause the registration statement to be declared effective within
120 days after the date of the exchange.
Series K Preferred Stock. We currently have no shares of series K
preferred stock issued or outstanding. The series K preferred stock is issuable
upon exchange of the operating partnership's series K preferred units. The
operating partnership's series K preferred units are exchangeable in whole at
any time on or after April 17, 2012, at the option of the holders of 51% of all
outstanding series K preferred units, on a one-for-one basis, subject to
adjustment, for shares of our series K preferred stock. In addition, the
operating partnership's series K preferred units are exchangeable in whole at
any time at the option of the holders of 51% of all outstanding series K
preferred units of the operating partnership if any series K Preferred Unit
shall not have received full distributions with respect to six prior quarterly
distribution periods (whether or not consecutive).
With certain limitations, the series K preferred units of the operating
partnership are also exchangeable, in whole but not in part, at the option of
the holders of 51% of the outstanding series K preferred units if:
- the holders of 51% of the outstanding series K preferred units reasonably
conclude that there exists an imminent and substantial risk that the
holders' interest in the operating partnership represents or will
represent more than 19.5% of the total profits or capital interests in
the operating partnership for a taxable year; and
- the holders of 51% of the outstanding series K preferred units deliver to
us an opinion to the effect that there is a substantial risk that its
interest in the operating partnership represents or will represent more
than 19.5% of the total profits or capital interests in the operating
partnership for a taxable year, and
- we, as the general partner, agree with the conclusions in the prior two
bullet points; provided, that we may not unreasonably withhold our
agreement.
In lieu of an exchange for series K preferred stock, we may elect to cause
the operating partnership to redeem the series K preferred units for cash in an
amount equal to the original capital account balance of the holder of the series
K preferred units. A holder of series K preferred units of AMB Property, L.P.
will not be entitled to exchange the units for series K preferred stock if the
exchange would result in a violation of the ownership limit. See "Description of
Capital Stock -- Restrictions on Ownership and Transfer of Capital Stock."
The series K preferred stock, if and when issued, will rank, with respect
to dividends and in the event we voluntarily or involuntarily liquidate,
dissolve or wind up:
- senior to all classes or series of common stock and to all of our equity
securities that provide that they rank junior to the series K preferred
stock;
- junior to all equity securities issued by us which rank senior to the
series K preferred stock; and
- on a parity with all equity securities issued by us (including the series
A, and if and when issued, the series B, D, E, F, H, I and J preferred
stock, and including the series L preferred stock) other than those
referred to in the bullet points above.
The term "equity securities" does not include convertible debt securities until
converted into equity securities.
If ever issued, the series K preferred stock will entitle the holders to
receive, when and as authorized by the board of directors out of funds legally
available for dividends, cumulative preferential cash dividends at the rate of
7.95% of the liquidation preference per annum (equivalent to $3.975 per annum
per share of series K preferred stock). Dividends on the series K preferred
stock will accumulate on a daily basis and will be payable quarterly in arrears
on the 15th day of each January, April, July and October. Except as provided
below, unless full cumulative dividends on the series K preferred stock have
been or at the same time are declared and paid or declared and a sum sufficient
for payment set apart for payment for all dividend periods, no dividends (other
than in common stock or other equity securities ranking junior to the series K
preferred
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stock as to distributions and upon voluntary or involuntary liquidation,
dissolution or winding up) shall be declared or paid or set aside for payment or
other dividend be declared or made upon the common stock or any other equity
securities ranking as to distributions or upon voluntary or involuntary
liquidation, dissolution or winding up junior to or on a parity with the series
K preferred stock, nor may any common stock or any other equity securities
ranking as to distributions or upon voluntary or involuntary liquidation,
dissolution or winding up junior to or on a parity with the series K preferred
stock be redeemed, purchased or otherwise acquired for any consideration (or any
monies be paid to or made available for a sinking fund for the redemption of any
such securities) by us (except by conversion into or exchange for other equity
securities ranking junior to the series K preferred stock as to distributions
and upon voluntary or involuntary liquidation, dissolution or winding up and
pursuant to the provisions of our charter providing for limitations on ownership
and transfer in order to ensure that we remain qualified as a real estate
investment trust). When dividends are not paid in full (or a sum sufficient for
such full payment is not so set apart) upon the series K preferred stock and any
other equity securities ranking as to distributions on a parity with the series
K preferred stock, all dividends declared upon the series K preferred stock and
any other equity securities ranking as to distributions and upon voluntary or
involuntary liquidation, dissolution or winding up on a parity with the series K
preferred stock will be declared pro rata so that the amount of dividends
declared per share of series K preferred stock and each such other equity
securities shall bear to each other the same ratio that accumulated dividends
per share of series K preferred stock and such other equity securities (which
shall not include any accumulation in respect of unpaid dividends for prior
dividend periods if such other equity securities do not have a cumulative
dividend) bear to each other. Dividends on the series K preferred stock will
accumulate whether or not we have funds legally available for the payment of
dividends and whether or not we declare dividends. If we designate any portion
of a dividend as a "capital gain dividend," a holder's share of the capital gain
dividend will be an amount that bears the same ratio to the total amount of
dividends (as determined for federal income tax purposes) paid to the holder for
the year as the aggregate amount designated as a capital gain dividend bears to
the aggregate amount of all dividends (as determined for federal income tax
purposes) paid on all classes of shares for the year.
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up following the issuance of series K preferred stock, the holders of the
series K preferred stock will be entitled to receive out of our assets legally
available for distribution to our stockholders remaining after payment or
provision for payment of all of our debts and liabilities, a liquidation
preference, in cash, of $50.00 per share, and in addition a preferential payment
in an amount equal to any accumulated or accrued and unpaid dividends to the
date of such payment, before any distribution of assets is made to holders of
common stock or any other equity securities that rank junior to the series K
preferred stock. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of the series K preferred
stock will have no right or claim to any of our remaining assets. Our
consolidation or merger with or into any other entity, a merger of another
entity with or into us, a statutory share exchange or the sale, lease, transfer
or conveyance of all or substantially all of our property or business will not
constitute a liquidation, dissolution or winding up for purposes of triggering
the liquidation preference.
If we voluntarily or involuntarily liquidate, dissolve or wind up following
the issuance of series K preferred stock and our assets are insufficient to make
full payment to holders of the series K preferred stock and the corresponding
amounts payable on all shares of other classes or series of equity securities
ranking on a parity with the series K preferred stock as to liquidation rights,
then the holders of the series K preferred stock and all other such classes or
series of equity securities will share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be entitled.
The series K preferred stock will have no stated maturity and will not be
subject to mandatory redemption or any sinking fund. If issued, we will not be
able to redeem the series K preferred stock prior to April 17, 2007. On and
after April 17, 2007, we will be able to redeem the series K preferred stock for
cash at our option, in whole or from time to time in part, at a redemption price
of $50.00 per share, plus accumulated and unpaid dividends, if any, to the
redemption date. We will be required to pay the redemption price (other than the
portion of the redemption price consisting of accumulated and unpaid dividends)
solely out of the sale proceeds of other equity securities, which may include
other classes or series of preferred
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stock. In certain circumstances related to our maintenance of our ability to
qualify as a real estate investment trust for federal income tax purposes, we
will be able to redeem shares of series K preferred stock.
Holders of series K preferred stock will have no voting rights, except as
described below. If, after issuance, we do not pay dividends on the series K
preferred stock for six or more quarterly periods (whether or not consecutive),
holders of the series K preferred stock (voting separately as a class with all
other classes or series of equity securities upon which like voting rights have
been conferred and are exercisable) will be entitled to vote for the election of
two additional directors to serve on our board of directors until we have
eliminated all dividend arrearages with respect to the series K preferred stock.
So long as any shares of series K preferred stock remain outstanding, we may
not, without the affirmative vote or consent of at least two-thirds of the votes
entitled to be cast by the holders of the outstanding shares of series K
preferred stock (the series K preferred stock voting separately as a class):
- authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking senior to the series K preferred stock;
- reclassify any of our authorized stock into any class or series of stock
ranking senior to the series K preferred stock;
- designate or create, or increase the authorized or issued amount of, or
reclassify, any authorized shares into, any preferred stock ranking on a
parity with the series K preferred stock or create, authorize or issue
any obligations or securities convertible into any such shares, but only
to the extent such stock is issued to one of our affiliates; or
- either consolidate, merge into or with, or convey, transfer or lease our
assets substantially, as an entirety, to any corporation or other entity,
or amend, alter or repeal the provisions of our charter, whether by
merger or consolidation or otherwise, in each case so as to materially
and adversely affect the powers, special rights, preferences, privileges
or voting power of the series K preferred stock.
With respect to the occurrence of any of the events set forth in the fourth
bullet point above, so long as we are either the surviving entity and shares of
series K preferred stock remain outstanding with the terms materially unchanged
or the resulting, surviving or transferee entity is a corporation, business
trust or like entity organized under the laws of any state and substitutes for
the series K preferred stock other preferred stock or preferred shares having
substantially the same terms and rights as the series K preferred stock, the
occurrence of any such event will not be considered to materially and adversely
affect rights, preferences, privileges or voting powers of holders of series K
preferred stock. Any increase in the amount of authorized preferred stock, the
creation or issuance of any other class or series of preferred stock or any
increase in an amount of authorized shares of each class or series, in each case
ranking on a parity with or junior to the series K preferred stock will not be
considered to materially and adversely affect such rights, preferences,
privileges or voting powers.
We have agreed to file a registration statement registering the resale of
the shares of series K preferred stock issuable to the holders of AMB Property,
L.P. series K preferred units as soon as practicable, but not later than 60 days
after the date the AMB Property, L.P. series K preferred units are exchanged for
shares of series K preferred stock. We have also agreed to use our best efforts
to cause the registration statement to be declared effective within 120 days
after the date of the exchange.
TRANSFER AGENT, REGISTRAR, CONVERSION AGENT AND DIVIDEND DISBURSING AGENT
The transfer agent, registrar and dividend disbursing agent for our common
stock and preferred stock is EquiServe, Inc.
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RESTRICTIONS ON OWNERSHIP AND TRANSFER OF CAPITAL STOCK
In order for us to qualify as a real estate investment trust under the
Internal Revenue Code, no more than 50% in value of all classes of our
outstanding shares of capital stock may be owned, actually or constructively, by
five or fewer individuals (as defined in the Internal Revenue Code to include
certain entities) during the last half of a taxable year (other than the first
year for which we have made an election to be treated as a real estate
investment trust). In addition, if we, or an owner of 10% or more of our capital
stock, actually or constructively own 10% or more of one of our tenants (or a
tenant of any partnership or limited liability company in which we are a partner
or member), the rent received by us (either directly or through the partnership
or limited liability company) from the tenant will not be qualifying income for
purposes of the gross income tests for real estate investment trusts contained
in the Internal Revenue Code. A real estate investment trust's stock also must
be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months or during a proportionate part of a shorter taxable
year (other than the first year for which an election to be treated as a real
estate investment trust has been made).
Because our board of directors currently believes it is desirable for us to
qualify as a real estate investment trust, our charter, subject to certain
exceptions as discussed below, provides that no person may own, or be deemed to
own by virtue of the constructive ownership provisions of the Internal Revenue
Code, more than 9.8% (by value or number of shares, whichever is more
restrictive) of each of our issued and outstanding common stock, our issued and
outstanding series A preferred stock and our issued and outstanding series L
preferred stock. We also prohibit the ownership, actually or constructively, of
any shares of our series B, D, E, F, H, I, J and K preferred stock by any single
person so that no such person, taking into account all of our stock so owned by
such person, including any common stock or preferred stock may own in excess of
9.8% in value of our issued and outstanding capital stock. The constructive
ownership rules under the Internal Revenue Code are complex and may cause stock
owned actually or constructively by a group of related individuals and/or
entities to be owned constructively by one individual or entity. As a result,
the acquisition of less than 9.8% of our common stock, series A preferred stock,
series L preferred stock or any other capital stock (or the acquisition of an
interest in an entity that owns, actually or constructively, common stock,
series A preferred stock, series L preferred stock or any other capital stock)
by an individual or entity, could, nevertheless cause that individual or entity,
or another individual or entity, to own constructively in excess of 9.8% of our
outstanding common stock, series A preferred stock, series L preferred stock or
any other capital stock, as the case may be, and thereby subject the common
stock, series A preferred stock, series L preferred stock or any other capital
stock to the applicable ownership limit. The board of directors may, but in no
event will be required to, waive the applicable ownership limit with respect to
a particular stockholder if it determines that such ownership will not
jeopardize our status as a real estate investment trust and the board of
directors otherwise decides such action would be in our best interest. As a
condition of such waiver, the board of directors may require an opinion of
counsel satisfactory to it and/or undertakings or representations from the
applicant with respect to preserving our real estate investment trust status.
Our charter also provides that:
- no person may actually or constructively own common stock, series A
preferred stock, series B preferred stock, series D preferred stock,
series E preferred stock, series F preferred stock, series H preferred
stock, series I preferred stock, series J preferred stock, series K
preferred stock or series L preferred stock that would result in us being
"closely held" under Section 856(h) of the Internal Revenue Code or
otherwise cause us to fail to qualify as a real estate investment trust;
- no person may transfer common stock, series A preferred stock, series B
preferred stock, series D preferred stock, series E preferred stock,
series F preferred stock, series H preferred stock, series I preferred
stock, series J preferred stock, series K preferred stock or series L
preferred stock, if a transfer would result in shares of our capital
stock being owned by fewer than 100 persons; and
- any person who acquires or attempts or intends to acquire actual or
constructive ownership of common stock, series A preferred stock, series
B preferred stock, series D preferred stock, series E preferred stock,
series F preferred stock, series H preferred stock, series I preferred
stock, series J preferred stock, series K preferred stock or series L
preferred stock that will or may violate any of the
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foregoing restrictions on transferability and ownership is required to
notify us immediately and provide us with such other information as we
may request in order to determine the effect of the transfer on our
status as a real estate investment trust.
These restrictions on transferability and ownership will not apply if our
board of directors determines that it is no longer in our best interest to
attempt to qualify, or to continue to qualify, as a real estate investment trust
and such determination is approved by the affirmative vote of holders owning at
least two-thirds of the shares of our outstanding capital stock entitled to vote
thereon. Except as otherwise described above, any change in the applicable
ownership limit would require an amendment to our charter, which must be
declared advisable by our board of directors and approved by the affirmative
vote of holders owning at least two-thirds of the shares of our outstanding
capital stock entitled to vote on the amendment.
Under our charter, if any attempted transfer of shares of stock or any
other event would otherwise result in any person violating an ownership limit,
any other limit imposed by our board of directors or the other restrictions in
the charter, then any such attempted transfer will be void and of no force or
effect with respect to the purported transferee as to that number of shares that
exceeds the applicable ownership limit or such other limit (referred to as
"excess shares"). Under those circumstances, the prohibited transferee will
acquire no right or interest (or, in the case of any event other than an
attempted transfer, the person or entity holding record title to any shares in
excess of the applicable ownership limit will cease to own any right or
interest) in the excess shares. Any excess shares described above will be
transferred automatically, by operation of law, to a trust, the beneficiary of
which will be a qualified charitable organization selected by us. This automatic
transfer will be considered to be effective as of the close of business on the
business day prior to the date of the violating transfer or event. Within 20
days of receiving notice from us of the transfer of shares to the trust, the
trustee of the trust will be required to sell the excess shares to a person or
entity who could own the shares without violating the applicable ownership
limit, or any other limit imposed by our board of directors, and distribute to
the prohibited transferee an amount equal to the lesser of the price paid by the
prohibited transferee for the excess shares or the sales proceeds received by
the trust for the excess shares. In the case of any excess shares resulting from
any event other than a transfer, or from a transfer for no consideration (such
as a gift), the trustee will be required to sell the excess shares to a
qualified person or entity and distribute to the prohibited owner an amount
equal to the lesser of the applicable market price of the excess shares as of
the date of the event or the sales proceeds received by the trust for the excess
shares. In either case, any proceeds in excess of the amount distributable to
the prohibited transferee or prohibited owner will be distributed to the
beneficiary. Prior to a sale of any excess shares by the trust, the trustee will
be entitled to receive, in trust for the beneficiary, all dividends and other
distributions paid by us with respect to the excess shares, and also will be
entitled to exercise all voting rights with respect to the excess shares.
Subject to Maryland law, effective as of the date that the shares have been
transferred to the trust, the trustee will have the authority (at the trustee's
sole discretion) to rescind as void any vote cast by a prohibited transferee or
prohibited owner prior to the time that we discover that the shares have been
automatically transferred to the trust and to recast the vote in accordance with
the desires of the trustee acting for the benefit of the beneficiary. However,
if we have already taken irreversible corporate action, then the trustee will
not have the authority to rescind and recast the vote. If we pay the prohibited
transferee or prohibited owner any dividend or other distribution before we
discover that the shares were transferred to the trust, the prohibited
transferee or prohibited owner will be required to repay the trustee upon demand
for distribution to the beneficiary. If the transfer to the trust is not
automatically effective (for any reason), to prevent violation of the applicable
ownership limit or any other limit provided in our charter or imposed by the
board of directors, then our charter provides that the transfer of the excess
shares will be void ab initio.
In addition, shares of stock held in the trust will be considered to have
been offered for sale to us, or our designee, at a price per share equal to the
lesser of (1) the price per share in the transaction that resulted in the
transfer to the trust (or, in the case of a devise or gift, the market price at
the time of such devise or gift) and (2) the applicable market price on the date
that we, or our designee, accept the offer. We have the right to accept the
offer until the trustee has sold the shares held in the trust. Upon that sale to
us, the interest of the beneficiary in the shares sold will terminate and the
trustee will distribute the net proceeds of the sale to the prohibited
transferee or prohibited owner.
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If any attempted transfer of shares would cause us to be beneficially owned
by fewer than 100 persons, our charter provides that the transfer will be null
and void in its entirety and the intended transferee will acquire no rights to
the stock.
All certificates representing shares will bear a legend referring to the
restrictions described above. The ownership limitations described above could
delay, defer or prevent a transaction or a change in control that might involve
a premium price for the shares or otherwise be in the best interest of
stockholders.
Under our charter, owners of outstanding shares must, upon our demand,
provide us with a completed questionnaire containing information regarding
ownership of the shares, as set forth in the treasury regulations. In addition,
each stockholder must upon demand disclose to us in writing such information
that we may request in order to determine the effect, if any, of the
stockholder's actual and constructive ownership of shares of our stock, on our
status as a real estate investment trust and to ensure compliance with each
ownership limit, or any other limit specified in our charter or required by the
board of directors.
CERTAIN PROVISIONS OF MARYLAND LAW AND
OF OUR CHARTER AND BYLAWS
We have summarized certain terms and provisions of the Maryland General
Corporation Law and our charter and bylaws. This summary is not complete and is
qualified by the provisions of our charter and bylaws, and the Maryland General
Corporation Law. This summary supercedes, in its entirety, the summary in the
heading "Certain Provisions of Maryland law and of our Charter and Bylaws" in
the accompanying prospectus. See "Where You Can Find More Information."
For restrictions on ownership and transfer of our capital stock contained
in our charter, see "Restrictions on Ownership and Transfer of Capital Stock."
BOARD OF DIRECTORS
Our charter provides that the number of our directors shall be established
by the bylaws, but cannot be less than the minimum number required by the
Maryland General Corporation Law, which is one. Our bylaws also establish the
number of directors at nine, but provide the board of directors with the
authority to increase or decrease the number of directors, without amendment of
the bylaws, to a number of directors not fewer than five nor more than thirteen.
Because our board has the power to amend our bylaws, it could modify the bylaws
to change that range. A majority of the entire board of directors may fill any
vacancy (except for a vacancy caused by removal). Our bylaws provide that a
majority of our board of directors must be independent directors, as defined
from time to time by the listing standards of the New York Stock Exchange and
any other relevant laws, rules and regulation.
REMOVAL OF DIRECTORS
While our charter and the Maryland General Corporation Law empower our
stockholders to fill vacancies in our board of directors that are caused by the
removal of a director, our charter precludes stockholders from removing
incumbent directors except upon a substantial affirmative vote. Specifically,
our charter provides that stockholders may remove a director only for cause and
only by the affirmative vote of at least two-thirds of the votes entitled to be
cast in the election of directors, subject to the rights of the holders of
shares of our preferred stock to elect and remove directors elected by such
holders under certain circumstances. Maryland General Corporate Law does not
define the term "cause." As a result, removal for "cause" is subject to Maryland
common law and to judicial interpretation and review in the context of the
unique facts and circumstances of any particular situation. This provision, when
coupled with the provision in our bylaws authorizing our board of directors to
fill vacant directorships, precludes stockholders from removing incumbent
directors except upon a substantial affirmative vote and filling the vacancies
created by removal with their own nominees.
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OPT OUT OF BUSINESS COMBINATIONS AND CONTROL SHARE ACQUISITION STATUTES
We have elected in our bylaws not to be governed by the "control share
acquisition" provisions of the Maryland General Corporation Law (Sections 3-701
through 3-709), and the board of directors has determined, by irrevocable
resolution, that we will not be governed by the "business combination" provision
of Maryland General Corporate Law (Section 3-602), each of which could have the
effect of delaying or preventing a change of control. Our bylaws provide that we
cannot at a future date determine to be governed by either provision without the
approval of a majority of the outstanding shares entitled to vote. In addition,
the irrevocable resolution adopted by the board of directors may only be changed
by the approval of a majority of the outstanding shares of common stock entitled
to vote.
CERTAIN ELECTIVE PROVISIONS OF MARYLAND LAW
Any Maryland corporation that has a class of securities registered under
the Securities Exchange Act of 1934, as amended, and at least three independent
directors may elect to be governed in whole or in part by Maryland law
provisions relating to extraordinary actions and unsolicited takeovers. We have
not elected to be governed by these specific provisions, but we currently have
more than three independent directors, so our board of directors could elect to
provide for any of the following provisions. Pursuant to these provisions, the
board of directors of any Maryland corporation fitting such description, without
obtaining stockholder approval and notwithstanding a contrary provision in its
charter or bylaws, may elect to:
- classify the board;
- increase the required stockholder vote to remove a director to two-thirds
of all the votes entitled to be cast by the shareholders generally in the
election of directors; and/or
- require that a stockholder requested special meeting need be called only
upon the written request of the shareholders entitled to cast a majority
of all the votes entitled to be cast at the meeting.
Additionally, the board could provide that:
- the number of directors may be fixed only by a vote of the board of
directors;
- each vacancy on the board of directors (including a vacancy resulting
from the removal of a director by the stockholders) may be filled only by
the affirmative vote of a majority of the remaining directors in office,
even if the remaining directors do not constitute a quorum; and/or
- any director elected to fill a vacancy will hold office for the full
remainder of the term, rather than until the next election of directors.
These provisions do not provide for limits on the power of a corporation to
confer on the holders of any class or series of preferred stock the right to
elect one or more directors.
Although we have not elected to be governed by these provisions, our
charter and/or bylaws already provide for a two-thirds vote to remove directors
and only for cause, and provide that the number of directors may be determined
by a resolution of our board (or by our stockholders through a bylaw amendment),
subject to a minimum number, and that our Secretary must call a special meeting
of stockholders only upon the written request of the holders of a majority of
our outstanding shares entitled to vote.
AMENDMENT TO OUR CHARTER AND BYLAWS
Our charter may not be amended without the affirmative vote of at least
two-thirds of the shares of capital stock outstanding and entitled to vote on
the amendment, voting together as a single class. Our bylaws may be amended by
the vote of a majority of the board of directors or by a vote of a majority of
the shares of our capital stock entitled to vote on the amendment, except with
respect to the following bylaw provisions
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(each of which requires the approval of a majority of the shares of common stock
entitled to vote on the amendment):
- provisions opting out of the control share acquisition statute;
- provisions confirming that our board of directors has determined by
irrevocable resolution that we will not be governed by the business
combination provision of the Maryland General Corporation Law;
- the requirement in our bylaws that our independent directors approve
transactions involving our executive officers or directors or any limited
partners of the operating partnership and their affiliates; and
- provisions governing amendment of our Bylaws.
MEETINGS OF STOCKHOLDERS
Our bylaws provide for annual meetings of stockholders to elect the board
of directors and transact other business as may properly be brought before the
meeting. The president, the board of directors and the chairman of the board may
call a special meeting of stockholders. The holders of 50% or more of our
outstanding stock entitled to vote may also make a written request to call a
special meeting of stockholders.
The Maryland General Corporation Law provides that stockholders may act by
unanimous written consent without a meeting with respect to any action that they
are required or permitted to take at a meeting, if each stockholder entitled to
vote on the matter signs the consent setting forth the action and each
stockholder entitled to notice of the meeting but not entitled to vote at the
meeting signs a written waiver of any right to dissent.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
Our bylaws provide that with respect to an annual meeting of stockholders,
nominations of persons for election to the board of directors and the proposal
of business to be considered by stockholders may be made only:
- pursuant to the notice of the meeting;
- by or at the direction of the board of directors; or
- by a stockholder who is entitled to vote at the meeting and has complied
with the advance notice procedures set forth in our bylaws.
Our bylaws also provide that with respect to special meetings of
stockholders, only the business specified in the notice of meeting may be
brought before the meeting. Nomination of individuals for election to our board
of directors at a special meeting may only be made
- pursuant to our notice of meeting;
- by or at the direction of our board of directors; or
- provided that our board of directors has determined that directors will
be elected at the special meeting, by a stock holder who has complied
with the advance notice provisions of the bylaws.
The provisions in our charter regarding amendments to the charter and the
advance notice provisions of our bylaws could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of the
shares of common stock might receive a premium for their shares over the then
prevailing market price or which holders might believe to be otherwise in their
best interests.
DISSOLUTION OF THE COMPANY
Under the Maryland General Corporation Law, we may be dissolved upon the
affirmative vote of a majority of the entire board of directors declaring
dissolution to be advisable, and approval of the dissolution
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of any annual or special stockholders meeting by the affirmative vote of the
holders of two-thirds of the total number of shares of capital stock outstanding
and entitled to vote on the dissolution, voting as a single class.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY
Our officers and directors are indemnified under the Maryland General
Corporation Law, our charter and the partnership agreement of the operating
partnership against certain liabilities. Our charter and bylaws require us to
indemnify our directors and officers to the fullest extent permitted from time
to time by the Maryland General Corporation Law.
The Maryland General Corporation Law permits a corporation to indemnify its
directors and officers and certain other parties against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless:
- the act or omission of the director or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty;
- the director or officer actually received an improper personal benefit in
money, property or services; or
- in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
A corporation may indemnify a director or officer against judgments,
penalties, fines, settlements and reasonable expenses that the director or
officer actually incurs in connection with the proceeding unless the proceeding
is one by or in the right of the corporation and the director or officer has
been adjudged to be liable to the corporation. In addition, a corporation may
not indemnify a director or officer with respect to any proceeding charging
improper personal benefit to the director or officer in which the director or
officer was adjudged to be liable on the basis that a personal benefit was
received. The termination of any proceeding by conviction, or upon a plea of
nolo contendere or its equivalent, or an entry of any order of probation prior
to judgment, creates a rebuttable presumption that the director or officer did
not meet the requisite standard of conduct required for indemnification to be
permitted.
The Maryland General Corporation Law permits the charter of a Maryland
corporation to include a provision limiting the liability of its directors and
officers to the corporation and its stockholders for money damages, subject to
specified restrictions. Our charter contains this provision. The Maryland
General Corporation Law does not, however, permit the liability of directors and
officers to the corporation or its stockholders to be limited to the extent
that:
- it is proved that the person actually received an improper personal
benefit in money, property or services;
- a judgment or other final adjudication is entered in a proceeding based
on a finding that the person's action, or failure to act, was committed
in bad faith or was the result of active and deliberate dishonesty and
was material to the cause of action adjudicated in the proceeding; or
- in the case of any criminal proceeding, the director had reasonable cause
to believe that the act or failure to act was unlawful.
This provision does not limit our ability or our stockholders' ability to
obtain other relief, such as an injunction or rescission. The partnership
agreement of the operating partnership also provides for our indemnification, as
general partner, and our officers and directors to the same extent
indemnification is provided to our officers and directors in our charter, and
limits our liability and the liability of our officers and directors to the
operating partnership and the partners of the operating partnership to the same
extent liability of our officers and directors to us and our stockholders is
limited under our charter. See "Description of Certain Provisions of the
Partnership Agreement of the Operating Partnership -- Our Exculpation and
Indemnification."
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Insofar as the foregoing provisions permit indemnification for liability
arising under the Securities Act of 1933, as amended, of directors, officers or
persons controlling us, we have been informed that in the opinion of the
Securities and Exchange Commission, this indemnification is against public
policy as expressed in the Securities Act of 1933, as amended and is therefore
unenforceable.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain United States federal income
tax considerations anticipated to be material to purchasers of series L
preferred stock. This summary supersedes, in its entirety, the summary under the
heading "Certain United States Federal Income Tax Considerations" in the
accompanying prospectus. This summary of material federal income tax
considerations regarding us is based on current law, is for general information
only and is not tax advice. The information in this section is based on:
- the Internal Revenue Code of 1986, as amended;
- current, temporary and proposed Treasury regulations promulgated under
the Internal Revenue Code;
- the legislative history of the Internal Revenue Code;
- current administrative interpretations and practices of the Internal
Revenue Service; and
- court decisions;
in each case, as of the date of this prospectus supplement. In addition, the
administrative interpretations and practices of the Internal Revenue Service
include its practices and policies as expressed in private letter rulings which
are not binding on the Internal Revenue Service except with respect to the
particular taxpayers who requested and received those rulings. Future
legislation, Treasury regulations, administrative interpretations and practices
and/or court decisions may adversely affect the tax considerations described in
this discussion, and any such change could apply retroactively.
This summary does not purport to deal with all aspects of federal income
taxation that may affect particular holders of series L preferred stock in light
of their individual circumstances, nor with holders subject to special treatment
under the federal income tax laws, including:
- insurance companies;
- tax-exempt organizations;
- financial institutions or broker-dealers;
- traders in securities that elect to mark to market;
- holders owning our capital stock as part of a "straddle," "hedge" or
"conversion transaction;"
- holders whose functional currency is not the United States dollar;
- holders subject to the alternative minimum tax;
- persons deemed to sell capital stock under the constructive sale
provisions of the Internal Revenue Code;
- "S" corporations;
- expatriates;
- real estate investment trusts or regulated investment companies;
- holders who acquired our capital stock as compensation; and
- holders of our capital stock who are neither citizens nor residents of
the United States, or that are foreign corporations, foreign partnerships
or foreign estates or trusts for United States federal income tax
purposes.
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If a partnership holds our capital stock, the tax treatment of a partner in
the partnership will generally depend upon the status of the partner and the
activities of the partnership. If you are a partner of a partnership holding our
capital stock, you should consult your tax advisor regarding the tax
consequences of the ownership and disposition of that stock.
This summary assumes that shares of series L preferred stock are held as
"capital assets" within the meaning of the Internal Revenue Code (generally,
property held for investment). In addition, this summary does not consider the
effect of any foreign, state, local or other tax laws that may be applicable to
us or to our stockholders. This discussion also assumes that the series L
preferred stock will properly be treated as equity (and not indebtedness) for
federal income tax purposes.
The statements in this prospectus supplement are not binding on the
Internal Revenue Service or any court. Thus, we can provide no assurance that
the tax considerations described in this discussion will not be challenged by
the Internal Revenue Service or, if challenged, would be sustained by a court.
THIS SUMMARY OF UNITED STATES FEDERAL TAX CONSIDERATIONS IS FOR GENERAL
INFORMATION ONLY AND IS NOT TAX ADVICE. YOU ARE URGED TO CONSULT YOUR TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO YOU OF:
- THE ACQUISITION, OWNERSHIP AND SALE OR OTHER DISPOSITION OF THE SERIES L
PREFERRED STOCK, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH AN ACQUISITION, OWNERSHIP AND SALE OR OTHER
DISPOSITION;
- OUR ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST FOR FEDERAL
INCOME TAX PURPOSES; AND
- POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
OUR QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST
General. We elected to be taxed as a real estate investment trust under
Sections 856 through 860 of the Internal Revenue Code, commencing with our
taxable year ended December 31, 1997. We believe that we have been organized and
have operated in a manner that allows us to qualify for taxation as a real
estate investment trust under the Internal Revenue Code commencing with our
taxable year ended December 31, 1997, and we currently intend to continue to
operate in this manner. However, our qualification and taxation as a real estate
investment trust depends upon our ability to meet the various qualification
tests imposed under the Internal Revenue Code, including through actual annual
operating results, asset diversification, distribution levels and diversity of
stock ownership, the results of which have not been and will not be reviewed by
our tax counsel. Accordingly, the actual results of our operations during any
particular taxable year may not satisfy those requirements, and no assurance can
be given that we have operated or will continue to operate in a manner so as to
qualify or remain qualified as a real estate investment trust. Further, the
anticipated income tax treatment described in this prospectus supplement may be
changed, perhaps retroactively, by legislative, administrative or judicial
action at any time. See "-- Failure to Qualify".
The sections of the Internal Revenue Code and the corresponding Treasury
regulations that relate to the qualification and operation as a real estate
investment trust are highly technical and complex. This summary is qualified in
its entirety by the applicable Internal Revenue Code provisions, relevant rules
and Treasury regulations promulgated under the Internal Revenue Code, and
administrative and judicial interpretations of the Internal Revenue Code, and
these rules and Treasury regulations.
Assuming we qualify for taxation as a real estate investment trust, we
generally will not be required to pay federal corporate income taxes on our net
income that is currently distributed to our stockholders. We will, however, be
required to pay federal income tax as follows:
- First, we will be required to pay tax at regular ordinary and capital
gains corporate tax rates on any undistributed "real estate investment
trust taxable income," including undistributed net capital gains.
- Second, we may be required to pay the "alternative minimum tax" on our
items of tax preference.
- Third, if we have (1) net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in
the ordinary course of business or (2) other nonqualifying
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income from foreclosure property, we will be required to pay tax at the
highest corporate rate on this income. Foreclosure property is generally
defined as property acquired through foreclosure or after a default on a
loan secured by the property or a lease of the property.
- Fourth, we will be required to pay a 100% tax on any net income from
prohibited transactions. Prohibited transactions are, in general, sales
or other taxable dispositions of property, other than foreclosure
property, held as inventory or primarily for sale to customers in the
ordinary course of business.
- Fifth, if we fail to satisfy the 75% gross income test or the 95% gross
income test, as described below, but nonetheless maintain our
qualification as a real estate investment trust because certain other
requirements are met, we will be required to pay a tax equal to (1) the
greater of (A) the amount by which 75% of our gross income exceeds the
amount qualifying under the 75% gross income test described below, and
(B) the amount by which 90% of our gross income exceeds the amount
qualifying under the 95% gross income test described below, multiplied by
(2) a fraction intended to reflect our profitability.
- Sixth, we will be required to pay a 4% excise tax to the extent we fail
to distribute during each calendar year at least the sum of (1) 85% of
our real estate investment trust ordinary income for the year, (2) 95% of
our real estate investment trust capital gain net income for the year,
and (3) any undistributed taxable income from prior periods.
- Seventh, if we acquire any asset from a corporation that is or has been a
C corporation in a transaction in which the basis of the asset in our
hands is determined by reference to the basis of the asset in the hands
of the C corporation, and we subsequently recognize gain on the
disposition of the asset during the ten-year period beginning on the date
on which we acquired the asset, then we will be required to pay tax at
the highest regular corporate tax rate on this gain to the extent of the
excess of (1) the fair market value of the asset over (2) our adjusted
basis in the asset, in each case determined as of the date on which we
acquired the asset. A C corporation is generally defined as a corporation
that is required to pay full corporate level tax. The results described
in this paragraph with respect to the recognition of gain assume that we
will make or refrain from making an election under Treasury regulations
promulgated under Section 337 of the Internal Revenue Code, depending
upon the time of the acquisition.
- Eighth, we will be subject to a 100% tax on any "redetermined rents",
"redetermined deductions" or "excess interest". In general, redetermined
rents are rents from real property that are overstated as a result of
services furnished by a "taxable REIT subsidiary" of ours to any of our
tenants. See "-- Ownership of Interests in Taxable REIT Subsidiaries".
Redetermined deductions and excess interest represent amounts that are
deducted by a taxable REIT subsidiary of ours for amounts paid to us that
are in excess of the amounts that would have been deducted based on arm's
length negotiations. See "-- Redetermined Rents, Redetermined Deductions,
and Excess Interest" below for a description of these items.
Requirements for Qualification as a Real Estate Investment Trust. The
Internal Revenue Code defines a "real estate investment trust" or "REIT" as a
corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates to
evidence its beneficial ownership;
(3) that would be taxable as a domestic corporation, but for Sections
856 through 860 of the Internal Revenue Code;
(4) that is not a financial institution or an insurance company within
the meaning of the Internal Revenue Code;
(5) that is beneficially owned by 100 or more persons;
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(6) not more than 50% in value of the outstanding stock of which is
owned, actually or constructively, by five or fewer individuals, including
specified entities, during the last half of each taxable year; and
(7) that meets other tests, described below, regarding the nature of its
income and assets and the amount of its distributions.
The Internal Revenue Code provides that conditions (1) through (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of twelve months, or
during a proportionate part of a taxable year of less than twelve months.
Conditions (5) and (6) above do not apply until after the first taxable year for
which an election is made to be taxed as a real estate investment trust. For
purposes of condition (6), pension funds and other specified tax-exempt entities
generally are treated as individuals, except that a "look-through" exception
applies with respect to pension funds.
We believe that we have satisfied conditions (1) through (7), inclusive
during the relevant time periods. In addition, our charter provides for
restrictions on the ownership and transfer of shares. These restrictions are
intended to assist us in continuing to satisfy the share ownership requirements
described in conditions (5) and (6) above. These ownership and transfer
restrictions may not ensure that we will, in all cases, be able to satisfy the
share ownership requirements described in conditions (5) and (6) above. If we
fail to satisfy these share ownership requirements, except as provided in the
next sentence, our status as a real estate investment trust will terminate. If,
however, we comply with the rules contained in applicable Treasury regulations
that require us to ascertain the actual ownership of our shares and we do not
know, or would not have known through the exercise of reasonable diligence, that
we failed to meet the requirement described in condition (6) above, we will be
treated as having met this requirement. See the section below entitled "--
Failure to Qualify".
In addition, we may not maintain our status as a real estate investment
trust unless our taxable year is the calendar year. We have and intend to
continue to have a calendar taxable year.
Ownership of a Partnership Interest. We own and operate one or more
properties through partnerships and limited liability companies taxed as
partnerships. Treasury regulations provide that if we are a partner in a
partnership, we will be deemed to own our proportionate share of the assets of
the partnership. We also will be deemed to be entitled to our proportionate
share of the income of the partnership. The character of the assets and gross
income of the partnership retains the same character in our hands for purposes
of Section 856 of the Internal Revenue Code, including satisfying the gross
income tests and the asset tests. In addition, for these purposes, the assets
and items of income of any partnership in which we directly or indirectly own an
interest include such partnership's share of assets and items of income of any
partnership in which it owns an interest. Thus, our proportionate share of the
assets and items of income of the operating partnership, including the operating
partnership's share of these items for any partnership in which the operating
partnership owns an interest, are treated as our assets and items of income for
purposes of applying the requirements described in this prospectus supplement,
including the income and asset tests described below. A brief summary of the
rules governing the federal income taxation of partnerships is included below in
"-- Tax Aspects of the Operating Partnership, our Subsidiary Partnerships and
the Limited Liability Companies". We have direct control of the operating
partnership and some of our subsidiary partnerships, and we intend to continue
to operate them in a manner consistent with the requirements for qualification
as a real estate investment trust. However, we are a limited partner in certain
partnerships. If a partnership in which we own an interest takes or expects to
take actions that could jeopardize our status as a real estate investment trust
or require us to pay tax, we may be forced to dispose of our interest in such
entity. In addition, it is possible that a partnership could take an action that
could cause us to fail a real estate investment trust income or asset test, and
that we would not become aware of such action in a time frame which would allow
us to dispose of our interest in the partnership or take other corrective action
on a timely basis. In that case, we could fail to qualify as a real estate
investment trust. The treatment described in this paragraph also applies with
respect to our ownership of interests in limited liability companies or other
entities or arrangements that are treated as partnerships for tax purposes.
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Ownership of Interests in Qualified REIT Subsidiaries. We own 100% of the
stock of a number of corporate subsidiaries that we believe will be treated as
qualified REIT subsidiaries under the Internal Revenue Code, and may acquire
additional qualified REIT subsidiaries in the future. A corporation will qualify
as a qualified REIT subsidiary if we own 100% of its stock and it is not a
"taxable REIT subsidiary," as described below. A qualified REIT subsidiary is
not treated as a separate corporation for United States federal income tax
purposes. All assets, liabilities and items of income, deduction and credit of a
qualified REIT subsidiary are treated as our assets, liabilities and such items
(as the case may be) for all purposes under the Internal Revenue Code, including
the real estate investment trust qualification tests. For this reason,
references under "Certain United States Federal Income Tax Considerations" to
our income and assets include the income and assets of any qualified REIT
subsidiary we own. A qualified REIT subsidiary is not subject to federal income
tax, and our ownership of the stock of a qualified REIT subsidiary will not
violate the real estate investment trust asset tests, as described below under
"-- Asset Tests".
Ownership of Interests in Taxable REIT Subsidiaries. Our taxable REIT
subsidiaries are corporations other than real estate investment trusts and
qualified REIT subsidiaries in which we directly or indirectly hold stock, and
that have made a joint election with us to be treated as taxable REIT
subsidiaries. A taxable REIT subsidiary also includes any corporation other than
a real estate investment trust with respect to which one of our taxable REIT
subsidiaries owns securities possessing more than 35% of the total voting power
or value of the outstanding securities of such corporation. Other than some
activities relating to lodging and health care facilities, a taxable REIT
subsidiary may generally engage in any business, including the provision of
customary or non-customary services to tenants of its parent real estate
investment trust. A taxable REIT subsidiary is subject to federal income tax,
and state and local income tax where applicable, as a regular C corporation. In
addition, our taxable REIT subsidiaries may be prevented from deducting interest
on debt funded directly or indirectly by us if certain tests regarding the
taxable REIT subsidiary's debt to equity ratio and interest expense are not
satisfied. We currently hold an interest in a number of taxable REIT
subsidiaries, and may acquire securities in one or more additional taxable REIT
subsidiaries in the future. Our ownership of securities of taxable REIT
subsidiaries will not be subject to the 5% or 10% asset tests described under
"-- Asset Tests" below.
Income Tests. We must satisfy two gross income requirements annually to
maintain our qualification as a real estate investment trust. First, in each
taxable year we must derive directly or indirectly at least 75% of our gross
income, excluding gross income from prohibited transactions, 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, in each taxable year we must derive at least 95%
of our gross income, excluding gross income from prohibited transactions, from
(a) these real property investments, (b) dividends, interest and gain from the
sale or disposition of stock or securities, or (c) from any combination of the
foregoing. For these purposes, the term "interest" generally does not include
any amount received or accrued, directly or indirectly, if the determination of
all or some of the amount depends in any way on the income or profits of any
person. However, an amount received or accrued generally will not be excluded
from the term "interest" solely by reason of being based on a fixed percentage
or percentages of receipts or sales.
Rents we receive from a tenant will qualify as "rents from real property"
for the purpose of satisfying the gross income requirements described above only
if all of the following conditions are met:
- The amount of rent must not be based in whole or in part on the income or
profits of any person. However, an amount we 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;
- We, or an actual or constructive owner of 10% or more of our stock, must
not actually or constructively own 10% or more of the interests in the
assets or net profits of the tenant, or if the tenant is a corporation,
10% or more of the total combined voting power of all classes of stock
entitled to vote or 10% or more of the total value of all classes of
stock of the tenant. Rents received from such tenant that is a taxable
REIT subsidiary, however, will not be excluded from the definition of
"rents from real
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property" if at least 90% of the space at the property to which the rents
relate is leased to third parties, and the rents paid by the taxable REIT
subsidiary are comparable to rents paid by other tenants for comparable
space;
- Rent attributable to personal property, leased in connection with a lease
of real property, must not be greater than 15% of the total rent received
under the lease. If this requirement is not met, then the portion of the
rent attributable to personal property will not qualify as "rents from
real property"; and
- We generally must not operate or manage our property or furnish or render
services to our tenants, subject to a 1% de minimis exception, other than
through an independent contractor from whom we derive no revenue. We may,
however, directly perform services that are "usually or customarily
rendered" in connection with the rental of space for occupancy only and
are not otherwise considered "rendered to the occupant" of the property.
Examples of such services include the provision of light, heat, or other
utilities, trash removal and general maintenance of common areas. In
addition, we may employ a taxable REIT subsidiary, which may be wholly or
partially owned by us, to provide both customary and non-customary
services to our tenants without causing the rent we receive from those
tenants to fail to qualify as "rents from real property". Any amounts we
receive from a taxable REIT subsidiary with respect to the taxable REIT
subsidiary's provision of non-customary services will, however, be
nonqualified income under the 75% gross income test and, except to the
extent received through the payment of dividends, the 95% REIT gross
income test.
We generally do not intend, and as the general partner of the operating
partnership, do not intend to permit the operating partnership, to take actions
we believe will cause us to fail to satisfy any of the rental conditions
described above. However, we may intentionally have taken and may intentionally
continue to take actions that fail to satisfy these conditions to the extent the
failure will not, based on the advice of tax counsel, jeopardize our tax status
as a real estate investment trust.
Our taxable REIT subsidiaries may provide certain services in exchange for
a fee or derive other income that would not qualify under the REIT gross income
tests. Such fees and other income do not accrue to us, but we derive our
allocable share of dividend income from the taxable REIT subsidiaries through
our interest in the operating partnership. Such dividend income qualifies under
the 95%, but not the 75%, REIT gross income test. The operating partnership may
provide certain management or administrative services to our taxable REIT
subsidiaries. In addition, AMB Capital Partners, LLC conducts an asset
management business and receives fees, which may include incentive fees, in
exchange for the provision of certain services to asset management clients. The
fees we and AMB Capital Partners, LLC derive as a result of the provision of
such services will be non-qualifying income to us under both the 95% and 75%
REIT income tests. The amount of such dividend and fee income will depend on a
number of factors that cannot be determined with certainty, including the level
of services provided by AMB Capital Partners, LLC, our taxable REIT subsidiaries
and the operating partnership. We will monitor the amount of the dividend income
from our taxable REIT subsidiaries and the fee income described above, and will
take actions intended to keep this income, and any other non-qualifying income,
within the limitations of the REIT income tests. However, there can be no
guarantee that such actions will in all cases prevent us from violating a REIT
income test.
We believe that the aggregate amount of our nonqualifying income, from all
sources, in any taxable year will not exceed the limit on nonqualifying income
under the gross income tests. If we fail to satisfy one or both of the 75% or
95% gross income tests for any taxable year, we may nevertheless qualify as a
real estate investment trust for the year if we are entitled to relief under
certain provisions of the Internal Revenue Code. Generally, we may avail
ourselves of the relief provisions if:
- our failure to meet these tests was due to reasonable cause and not due
to willful neglect;
- we attach a schedule of the sources of our income to our federal income
tax return; and
- any incorrect information on the schedule was not due to fraud with
intent to evade tax.
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It is not possible, however, to state whether in all circumstances we would
be entitled to the benefit of these relief provisions. For example, if we fail
to satisfy the gross income tests because non-qualifying income that we
intentionally accrue or receive exceeds the limits on non-qualifying income, the
Internal Revenue Service could conclude that our failure to satisfy the tests
was not due to reasonable cause. If these relief provisions do not apply to a
particular set of circumstances, we will not qualify as a real estate investment
trust. As discussed above in "-- Our Qualification as a Real Estate Investment
Trust -- General", even if these relief provisions apply, and we retain our
status as a real estate investment trust, a tax would be imposed with respect to
our non-qualifying income. We may not always be able to comply with the gross
income tests for real estate investment trust qualification despite periodic
monitoring of our income.
Prohibited Transaction Income. Any gain we realize on the sale of property
held as inventory or other property held primarily for sale to customers in the
ordinary course of business, including our share of any such gain realized by
our qualified REIT subsidiaries, partnerships or limited liability companies,
will be treated as income from a prohibited transaction that is subject to a
100% penalty tax. Such prohibited transaction income could also adversely affect
our ability to satisfy the income tests for qualification as a real estate
investment trust. Under existing law, whether property is held as inventory or
primarily for sale to customers in the ordinary course of a trade or business
depends on all the facts and circumstances surrounding the particular
transaction. We intend to hold our properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing and
owning our properties and to make occasional sales of the properties as are
consistent with our investment objectives. We do not believe that any of our
sales were prohibited transactions. However, the Internal Revenue Service may
contend that one or more of these sales is subject to the 100% penalty tax.
Redetermined Rents, Redetermined Deductions, and Excess Interest. Any
redetermined rents, redetermined deductions or excess interest we generate will
be subject to a 100% penalty tax. In general, redetermined rents are rents from
real property that are overstated as a result of services furnished by one of
our taxable REIT subsidiaries to any of our tenants, and redetermined deductions
and excess interest represent amounts that are deducted by a taxable REIT
subsidiary for amounts paid to us that are in excess of the amounts that would
have been deducted based on arm's length negotiations. Rents we receive will not
constitute redetermined rents if they qualify under the safe harbor provisions
contained in the Internal Revenue Code. Safe harbor provisions are provided
where generally:
- amounts are received by a real estate investment trust for services
customarily furnished or rendered in connection with the rental of real
property;
- amounts are excluded from the definition of impermissible tenant service
income as a result of satisfying the 1% de minimis exception;
- the taxable REIT subsidiary renders a significant amount of similar
services to unrelated parties and the charges for such services are
substantially comparable;
- rents paid to the real estate investment trust by tenants who are not
receiving services from the taxable REIT subsidiary are substantially
comparable to the rents paid by the real estate investment trust's
tenants leasing comparable space who are receiving such services from the
taxable REIT subsidiary and the charge for the services is separately
stated; or
- the taxable REIT subsidiary's gross income from the service is not less
than 150% of the subsidiary's direct cost in furnishing or rendering the
service.
We intend to deal with our taxable REIT subsidiaries on a commercially
reasonable arm's length basis, but we may not always satisfy the safe harbor
provisions described above.
Asset Tests. At the close of each quarter of our taxable year, we must
also satisfy four tests relating to the nature and diversification of our
assets. First, at least 75% of the value of our total assets, including assets
held by our qualified REIT subsidiaries and our allocable share of the assets
held by the partnerships and limited liability companies in which we own an
interest, must be represented by real estate assets, cash, cash items and
government securities. For purposes of this test, real estate assets include
stock or debt
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instruments that are purchased with the proceeds of a stock offering or a public
offering of debt with a term of at least five years, but only for the one-year
period beginning on the date we receive such proceeds. Second, not more than 25%
of our total assets may be represented by securities, other than those
securities included in the 75% asset test. Third, of the investments included in
the 25% asset class, the value of any one issuer's securities may not exceed 5%
of the value of our total assets, and we may not own more than 10% by vote or
value of the outstanding securities of any one issuer. For years prior to 2001,
the 10% limit applies only with respect to voting securities of any issuer and
not to the value of the securities of any issuer. Fourth, not more than 20% of
the value of our total assets may be represented by the securities of one or
more taxable REIT subsidiaries. The 10% value limitation and the 20% asset test
are applicable to taxable years ending after December 31, 2000.
Through the operating partnership, we own an interest in several
corporations with which we have jointly elected taxable REIT subsidiary status.
These corporations own the stock of other corporations, which have also become
our taxable REIT subsidiaries. So long as each of these corporations qualifies
as a taxable REIT subsidiary, we will not be subject to the 5% asset test, 10%
voting securities limitation or 10% value limitation with respect to our
ownership of their securities. We may acquire securities in other taxable REIT
subsidiaries in the future. We believe that the aggregate value of our taxable
REIT subsidiaries will not exceed 20% of the aggregate value of our gross
assets. Prior to the election to treat these corporations as taxable REIT
subsidiaries, we did not own more than 10% of the voting securities of these
corporations. In addition, we believe that prior to the election to treat these
corporations as our taxable REIT subsidiaries, the value of the pro rata share
of the securities of these corporations held by us did not, in any case, exceed
5% of the total value of our assets. With respect to each issuer in which we
currently own securities, that does not qualify as a real estate investment
trust, a qualified REIT subsidiary or a taxable REIT subsidiary, we believe that
the value of the securities of each issuer does not exceed 5% of the total value
of our assets and our ownership of the securities of each issuer complies with
the 10% voting securities limitation and 10% value limitation. No independent
appraisals have been obtained to support these conclusions. In addition, there
can be no assurance that the Internal Revenue Service will not disagree with our
determinations of value.
The asset tests must be satisfied not only on the last day of the calendar
quarter in which we (directly or through our qualified REIT subsidiaries,
partnerships or limited liability companies) acquire securities in the
applicable issuer, but also on the last day of the calendar quarter in which we
increase our ownership of securities of such issuer, including as a result of
increasing our interest in the operating partnership. For example, our indirect
ownership of securities of each issuer will increase as a result of our capital
contributions to the operating partnership or as limited partners exercise their
redemption/exchange rights. After initially meeting the asset tests at the close
of any quarter, we will not lose our status as a real estate investment trust
for failure to satisfy the asset tests at the end of a later quarter solely by
reason of changes in asset values. If we fail to satisfy the asset tests because
we acquire securities or other property during a quarter, we can cure this
failure by disposing of sufficient non-qualifying assets within 30 days after
the close of that quarter. For this purpose, an increase in our interests in the
operating partnership or any other partnership or limited liability company in
which we directly or indirectly owns an interest will be treated as an
acquisition of a portion of the securities or other property owned by that
partnership or limited liability company. Although we believe that we have
satisfied the asset tests and plan to take steps to ensure that we satisfy such
tests for any quarter with respect to which retesting is to occur, there can be
no assurance that such steps will always be successful, or will not require a
reduction in the operating partnership's overall interest in an issuer. If we
fail to timely cure any noncompliance with the asset tests, we would cease to
qualify as a real estate investment trust.
Annual Distribution Requirements. To maintain our qualification as a real
estate investment trust, we are required to distribute dividends, other than
capital gain dividends, to our stockholders in an amount at least equal to the
sum of:
- 90% (95% for taxable years beginning before January 1, 2001) of our "real
estate investment trust taxable income"; and
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- 90% (95% for taxable years beginning before January 1, 2001) of our after
tax net income, if any, from foreclosure property; minus
- the excess of the sum of certain items of our non-cash income items over
5% of "real estate investment trust taxable income" as described below.
Our "real estate investment trust taxable income" is computed without
regard to the dividends paid deduction and our net capital gain. In addition,
for purposes of this test, non-cash income means income attributable to leveled
stepped rents, original issue discount on purchase money debt, cancellation of
indebtedness or a like-kind exchange that is later determined to be taxable.
In addition, if we dispose of any asset we acquired from a corporation
which is or has been a C corporation in a transaction in which our basis in the
asset is determined by reference to the basis of the asset in the hands of that
C corporation, within the ten-year period following our acquisition of such
asset, we would be required to distribute at least 90% (95% for taxable years
beginning before January 1, 2001) of the after-tax gain, if any, we recognized
on the disposition of the asset, to the extent that gain does not exceed the
excess of (a) the fair market value of the asset on the date we acquired the
asset over (b) our adjusted basis in the asset on the date we acquired the
asset.
We must pay these distributions in the taxable year to which they relate,
or in the following taxable year if they are declared during the last three
months of the taxable year, payable to stockholders of record on a specified
date during such period and paid during January of the following year. In
addition, at our election, a distribution for a taxable year may be declared
before we timely file our tax return for that year and paid on or before the
first regular dividend payment after such declaration, provided such payment is
made during the twelve month period following the close of that year. Except as
provided below, these distributions are taxable to our stockholders, other than
tax-exempt entities, as discussed below, in the year in which paid. This is so
even though these distributions relate to the prior year for purposes of our 90%
distribution requirement. The amount distributed must not be preferential. To
avoid being preferential, every stockholder of the class of stock to which a
distribution is made must be treated the same as every other stockholder of that
class, and no class of stock may be treated otherwise than in accordance with
its dividend rights as a class. To the extent that we do not distribute all of
our net capital gain or distributes at least 90% (95% for taxable years
beginning before January 1, 2001), but less than 100%, of our "real estate
investment trust taxable income", as adjusted, we will be required to pay tax on
such income at regular ordinary and capital gain corporate tax rates. We believe
we have made and intend to continue to make timely distributions sufficient to
satisfy these annual distribution requirements. In this regard, the operating
partnership agreement authorizes us, as general partner, to take such steps as
may be necessary to cause the operating partnership to distribute to its
partners an amount sufficient to permit us to meet these distribution
requirements.
We expect that our "real estate investment trust taxable income" will be
less than our cash flow because of depreciation and other non-cash charges
included in computing our "real estate investment trust taxable income."
Accordingly, we anticipate that we will generally have sufficient cash or liquid
assets to enable us to satisfy the distribution requirements described above.
However, we may not always have sufficient cash or other liquid assets to meet
these distribution requirements due to timing differences between the actual
receipt of income and actual payment of deductible expenses, and the inclusion
of income and deduction of expenses in determining our taxable income. If these
timing differences occur, we may need to arrange for short-term, or possibly
long-term, borrowings or need to pay dividends in the form of taxable stock
dividends in order to meet the distribution requirements.
We may be able to rectify an inadvertent failure to meet the 90%
distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which we may include in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, we will be required to
pay interest based upon the amount of any deduction taken for deficiency
dividends.
Furthermore, we will be required to pay a 4% excise tax on the excess of
the required distribution for the calendar year over the amounts actually
distributed for such year. For this purpose, the amount of the
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required distribution during each calendar year (or in the case of distributions
with declaration and record dates falling in the last three months of the
calendar year, by the end of January immediately following such year) equals the
sum of 85% of our real estate investment trust ordinary income for such year,
95% of our real estate investment trust capital gain income for the year and any
undistributed taxable income from prior periods. Any real estate investment
trust taxable income and net capital gain on which this excise tax is imposed
for any year is treated as an amount distributed during that year for purposes
of calculating the tax in subsequent years.
Distributions with declaration and record dates falling in the last three
months of the calendar year, which are paid to our stockholders by the end of
January immediately following that year, will be treated for federal income tax
purposes as having been paid on December 31 of the prior year.
Like-Kind Exchanges. We have in the past disposed of properties in
transactions intended to qualify as like-kind exchanges under the Internal
Revenue Code, and may continue this practice in the future. Such like-kind
exchanges are intended to result in the deferral of gain for federal income tax
purposes. The failure of any such transaction to qualify as a like-kind exchange
could subject us to federal income tax, possibly including the 100% prohibited
transaction tax, depending on the facts and circumstances surrounding the
particular transaction.
Earnings and Profits Distribution Requirement. A real estate investment
trust is not permitted to have accumulated earnings and profits attributable to
non-REIT years. A real estate investment trust has until the close of its first
taxable year in which it has non-REIT earnings and profits to distribute all
such earnings and profits. Our failure to comply with this rule would require
that we pay a "deficiency dividend" to our stockholders, and interest to the
Internal Revenue Service, to distribute any remaining earnings and profits. A
failure to make this deficiency dividend distribution would result in the loss
of our real estate investment trust status. See "-- Failure to Qualify."
FAILURE TO QUALIFY
If we fail to qualify for taxation as a real estate investment trust in any
taxable year, and the relief provisions of the Internal Revenue Code do not
apply, we will be required to pay tax, including any alternative minimum tax, on
our taxable income at regular corporate rates. Distributions to stockholders in
any year in which we fail to qualify as a real estate investment trust will not
be deductible by us and we will not be required to distribute any amounts to our
stockholders. As a result, we anticipate that our failure to qualify as a real
estate investment trust would reduce the cash available for distribution by us
to our stockholders. In addition, if we fail to qualify as a real estate
investment trust, all distributions to stockholders will be taxable as ordinary
corporate dividends to the extent of our current and accumulated earnings and
profits. In this event, subject to certain limitations of the Internal Revenue
Code, corporate distributees may be eligible for the dividends-received
deduction. Unless entitled to relief under specific statutory provisions, we
will also be disqualified from taxation as a real estate investment trust for
the four taxable years following the year in which we lose our qualification. It
is not possible to state whether in all circumstances we would be entitled to
this statutory relief.
TAX ASPECTS OF THE OPERATING PARTNERSHIP, OUR SUBSIDIARY PARTNERSHIPS AND THE
LIMITED LIABILITY COMPANIES
General. Substantially all of our investments are held indirectly through
the operating partnership and subsidiary partnerships and limited liability
companies. In general, partnerships and limited liability companies that are
classified as partnerships for federal income tax purposes are "pass-through"
entities which are not required to pay federal income tax. Rather, partners or
members are allocated their proportionate shares of the items of income, gain,
loss, deduction and credit of a partnership or limited liability company, and
are potentially required to pay tax on this income, without regard to whether
they receive a distribution from the partnership or limited liability company.
We will include in our income our proportionate share of these partnership and
limited liability company items for purposes of the various real estate
investment trust income tests and in the computation of our real estate
investment trust taxable
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income. Moreover, for purposes of the real estate investment trust asset tests,
we will include our proportionate share of assets held by the operating
partnership and our subsidiary partnerships and limited liability companies.
Entity Classification. Our ownership of an interest in the operating
partnership involves special tax considerations, including the possibility that
the Internal Revenue Service might challenge the status of the operating
partnership or one or more of the subsidiary partnerships or limited liability
companies as partnerships, as opposed to associations taxable as corporations
for federal income tax purposes. If the operating partnership or one or more of
the subsidiary partnerships or limited liability companies were treated as an
association, they would be taxable as a corporation and therefore be subject to
an entity-level income tax. In this situation, the character of our assets and
items of gross income would change and prevent us from satisfying the asset
tests and possibly the income tests. This, in turn, would prevent us from
qualifying as a real estate investment trust. In addition, a change in the tax
status of the operating partnership or one or more of the subsidiary
partnerships or limited liability companies might be treated as a taxable event,
in which case, we might incur a tax liability without any related cash
distributions.
Treasury regulations that apply for tax periods beginning on or after
January 1, 1997, provide that a domestic business entity not otherwise organized
as a corporation and which has at least two members may elect to be treated as a
partnership for federal income tax purposes. Unless it elects otherwise, an
eligible entity in existence prior to January 1, 1997, will have the same
classification for federal income tax purposes that it claimed under the entity
classification Treasury regulations in effect prior to this date. In addition,
an eligible entity which did not exist, or did not claim a classification, prior
to January 1, 1997, will be classified as a partnership for federal income tax
purposes unless it elects otherwise. The operating partnership and the
subsidiary partnerships and limited liability companies intend to claim
classification as partnerships under these regulations. As a result, we believe
that these partnerships and limited liability companies will be classified as
partnerships for federal income tax purposes.
Allocations of Income, Gain, Loss and Deduction. The net proceeds from our
issuance of preferred stock, including the series L preferred stock, will be
contributed to the operating partnership in exchange for its preferred limited
partnership units. In addition, to the extent we issue preferred stock in
exchange for preferred limited partnership units of AMB Property II, L.P., we
will contribute substantially all of such units to the operating partnership in
exchange for additional preferred limited partnership units in the operating
partnership. In each case, the operating partnership's partnership agreement
will provide for preferred distributions of cash and preferred allocations of
income to us with respect to these newly issued preferred units. As a
consequence, we will receive distributions from the operating partnership that
we will use to pay dividends on substantially all of the shares of preferred
stock that we issue, including the series L preferred stock, before any of the
other partners in the operating partnership (other than a holder of preferred
units, if such units are not then held by us) receive a distribution.
In addition, if necessary, income will be specially allocated to us, and
losses will be allocated to the other partners of the operating partnership, in
amounts necessary to ensure that the balance in our capital account will at all
times be equal to or in excess of the amount we are required to pay on the
preferred stock then issued by us upon liquidation or redemption. Similar
preferred distributions and allocations will be made for the benefit of other
holders of preferred limited partnership units in the operating partnership.
Except as provided below, all remaining items of operating income and loss will
be allocated to the holders of common units in the operating partnership in
proportion to the number of units or performance units held by each such
unitholder. All remaining items of gain or loss relating to the disposition of
the operating partnership's assets upon liquidation will be allocated first to
the partners in the amounts necessary, in general, to equalize our and the
limited partners' per unit capital accounts, with any special allocation of gain
to the holders of performance units being offset by a reduction in the gain
allocation to us and to unitholders that were performance investors.
Certain limited partners have agreed to guarantee debt of our operating
partnership, either directly or indirectly through an agreement to make capital
contributions to our operating partnership under limited circumstances. As a
result of these guarantees or contribution agreements, and notwithstanding the
foregoing
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discussion of allocations of income and loss of our operating partnership to
holders of units, such limited partners could under limited circumstances be
allocated a disproportionate amount of net loss upon a liquidation of our
operating partnership, which net loss would have otherwise been allocable to us.
If an allocation of income of a partnership or limited liability company
does not comply with the requirements of Section 704(b) of the Internal Revenue
Code and the Treasury regulations thereunder, the item subject to reallocation
will be reallocated according to the partners' or members' interests in the
partnership or limited liability company. This reallocation will be determined
by taking into account all of the facts and circumstances relating to the
economic arrangement of the partners or members with respect to such item. Our
operating partnership's allocations of taxable income and loss are intended to
comply with the requirements of Section 704(b) of the Internal Revenue Code and
the Treasury regulations thereunder.
Tax Allocations With Respect to the Properties. Under Section 704(c) of
the Internal Revenue Code, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership or
limited liability company in exchange for an interest in the partnership or
limited liability company must be allocated in a manner so that the contributing
partner or member is charged with the unrealized gain or benefits from the
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 or book value and the adjusted tax
basis of the property at the time of contribution as adjusted from time to time.
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 or members. The operating partnership was formed by way of
contributions of appreciated property, i.e., property having an adjusted tax
basis less than its fair market value at the time of contribution. Moreover,
subsequent to the formation of the operating partnership, additional appreciated
property has been contributed to it in exchange for operating partnership
interests. The operating partnership agreement requires that these allocations
be made in a manner consistent with Section 704(c) of the Internal Revenue Code.
Treasury regulations issued under Section 704(c) of the Internal Revenue
Code provide partnerships and limited liability companies with a choice of
several methods of accounting for book-tax differences. We and our operating
partnership have agreed to use the "traditional method" to account for book-tax
differences for the properties initially contributed to the operating
partnership and for some assets acquired subsequently. Under the "traditional
method," which is the least favorable method from our perspective, the carryover
basis of contributed interests in the properties in the hands of our operating
partnership (i) could cause us to be allocated lower amounts of depreciation
deductions for tax purposes than would be allocated to us if all contributed
properties were to have a tax basis equal to their fair market value at the time
of the contribution and (ii) could cause us to be allocated taxable gain in the
event of a sale of such contributed interests or properties in excess of the
economic or book income allocated to us as a result of such sale, with a
corresponding benefit to the other partners in our operating partnership. An
allocation described in (ii) above might cause us or the other partners to
recognize taxable income in excess of cash proceeds in the event of a sale or
other disposition of property, which might adversely affect our ability to
comply with the REIT distribution requirements. See "Our Qualification as a Real
Estate Investment Trust." To the extent our depreciation is reduced, or our gain
on sale is increased, stockholders may recognize additional dividend income
without an increase in distributions. We and our operating partnership have not
yet decided what method will be used to account for book-tax differences for
properties to be acquired by the operating partnership in the future.
Any property acquired by the operating partnership in a taxable transaction
will initially have a tax basis equal to its fair market value, and Section
704(c) of the Internal Revenue Code will not apply.
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TAXATION OF OUR STOCKHOLDERS
The following summary describes the United States federal income tax
considerations anticipated to be material to holders of our series L preferred
stock. When we use the term "United States stockholder," we mean a holder of our
series L preferred stock who is, for United States federal income tax purposes:
- a citizen or resident of the United States;
- a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of any state or in the District of
Columbia, unless, in the case of a partnership, Treasury Regulations
provide otherwise;
- an estate which is required to pay United States federal income tax
regardless of the source of its income; or
- a trust whose administration is under the primary supervision of a United
States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in the
Treasury Regulations, some trusts in existence on August 20, 1996, and
treated as United States persons prior to this date that elect to
continue to be treated as United States persons, shall also be considered
United States stockholders.
Distributions Generally. Distributions out of our current or accumulated
earnings and profits, other than capital gain dividends discussed below, will
constitute dividends taxable to our taxable United States stockholders as
ordinary income. As long as we qualify as a real estate investment trust, these
distributions will not be eligible for the dividends-received deduction in the
case of United States stockholders that are corporations. For purposes of
determining whether distributions to holders of series L preferred stock are out
of current or accumulated earnings and profits, our earnings and profits will be
allocated first to our outstanding preferred stock and then to our outstanding
common stock. See "New Legislation."
To the extent that we make distributions, other than capital gain dividends
discussed below, in excess of our current and accumulated earnings and profits,
these distributions will be treated first as a tax-free return of capital to
each United States stockholder. This treatment will reduce the adjusted tax
basis which each United States stockholder has in its shares of series L
preferred stock by the amount of the distribution, but not below zero.
Distributions in excess of our current and accumulated earnings and profits and
in excess of a United States stockholder's adjusted tax basis in its shares will
be taxable as capital gain, provided that the shares have been held as capital
assets. Such gain will be taxable as long-term capital gain if the shares have
been held for more than one year. Dividends we declare in October, November, or
December of any year and payable to a stockholder of record on a specified date
in any of these months will be treated as both paid by us and received by the
stockholder on December 31 of that year, provided we actually pay the dividend
on or before January 31 of the following year. Stockholders may not include in
their own income or on their tax returns any of our net operating losses or
capital losses.
Capital Gain Distributions. Distributions that we properly designate as
capital gain dividends will be taxable to our taxable United States stockholders
as gain from the sale or disposition of a capital asset, to the extent that such
gain does not exceed our actual net capital gain for the taxable year. Depending
on the characteristics of the assets which produced these gains, and on
specified designations, if any, which we may make, these gains may be taxable to
non-corporate United States stockholders at a 15% or 25% rate. United States
stockholders that are corporations may, however, be required to treat up to 20%
of some capital gain dividends as ordinary income. If we properly designate any
portion of a dividend as a capital gain dividend, then we intend to allocate a
portion of the total capital gain dividends paid or made available to holders of
all classes of our stock for the year to the holders of our series L preferred
stock in proportion to the amount that our total dividends, as determined for
federal income tax purposes, paid or made available to the holders of our series
L preferred stock for the year bears to the total dividends, as determined for
federal income tax purposes, paid or made available to holders of all classes of
our stock for the year.
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Retention of Net Long-Term Capital Gains. We may elect to retain, rather
than distribute as a capital gain dividend, our net long-term capital gains. If
we make this election, we would pay tax on our retained net long-term capital
gains. In addition, to the extent we designate, a United States stockholder
generally would:
- include its proportionate share of our undistributed long-term capital
gains in computing its long-term capital gains in its return for its
taxable year in which the last day of our taxable year falls;
- be deemed to have paid the capital gains tax imposed on us on the
designated amounts included in the United States stockholder's long-term
capital gains;
- receive a credit or refund for the amount of tax deemed paid by it;
- increase the adjusted basis of its series L preferred stock by the
difference between the amount of includable gains and the tax deemed to
have been paid by it; and
- in the case of a United States stockholder that is a corporation,
appropriately adjust its earnings and profits for the retained capital
gains as required by Treasury regulations to be prescribed by the
Internal Revenue Service.
Passive Activity Losses and Investment Interest Limitations. Distributions
we make and gain arising from the sale or exchange by a United States
stockholder of our shares will not be treated as passive activity income. As a
result, United States stockholders generally will not be able to apply any
"passive losses" against this income or gain. Distributions we make, to the
extent they do not constitute a return of capital, generally will be treated as
investment income for purposes of computing the investment interest limitation.
Gain arising from the sale or other disposition of our shares, however, may not
be treated as investment income depending upon your particular situation.
Dispositions of Series L Preferred Stock. If a United States stockholder
sells or disposes of its shares of series L preferred stock to a person other
than the Company, it will recognize gain or loss for federal income tax purposes
in an amount equal to the difference between the amount of cash and the fair
market value of any property it receives on the sale or other disposition and
its adjusted basis in the shares for tax purposes. This gain or loss will be
capital if that United States stockholder has held the series L preferred stock
as a capital asset. This gain or loss, except as provided below, will be
long-term capital gain or loss if it has held the series L preferred stock for
more than one year. In general, if a United States stockholder recognizes loss
upon the sale or other disposition of series L preferred stock that it has held
for six months or less, the loss recognized will be treated as a long-term
capital loss to the extent the United States stockholder received distributions
from us which were required to be treated as long-term capital gains.
Redemption of Series L Preferred Stock. A redemption of shares of the
series L preferred stock will be treated under Section 302 of the Internal
Revenue Code as a distribution taxable as a dividend to the extent of our
current and accumulated earnings and profits at ordinary income rates unless the
redemption satisfies one of the tests set forth in Section 302(b) of the
Internal Revenue Code and is therefore treated as a sale or exchange of the
redeemed shares. The redemption will be treated as a sale or exchange if it:
- is "substantially disproportionate" with respect to the United States
stockholder;
- results in a "complete termination" of the United States stockholder's
stock interest in the Company, or
- is "not essentially equivalent to a dividend" with respect to the United
States stockholder,
all within the meaning of Section 302(b) of the Internal Revenue Code.
In determining whether any of these tests have been met, shares of capital
stock, including common stock and other equity interests in us, considered to be
owned by the United States stockholder by reason of certain constructive
ownership rules set forth in the Internal Revenue Code, as well as shares of
capital stock actually owned by the United States stockholder, must generally be
taken into account. Because the determination as to whether any of the
alternative tests of Section 302(b) of the Internal Revenue Code will be
satisfied with respect to the United States stockholder depends upon the facts
and circumstances at the time
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of the redemption, United States stockholders are advised to consult their tax
advisors to determine the appropriate tax treatment.
If a redemption of shares of the series L preferred stock is treated as a
distribution taxable as a dividend, the amount of the distribution will be
measured by the amount of cash and the fair market value of any property
received. A United States stockholder's adjusted basis in the redeemed shares of
the series L preferred stock for tax purposes will be transferred to its
remaining shares of our capital stock, if any. If a United States stockholder
owns no other shares of our capital stock, such basis may, under certain
circumstances, be transferred to a related person or it may be lost entirely.
If a redemption of shares of the series L preferred stock is not treated as
a distribution taxable as a dividend, it will be treated as a taxable sale or
exchange in the manner described above under "Dispositions of Series L Preferred
Stock."
Taxation of Tax-Exempt Stockholders. The Internal Revenue Service has
ruled that amounts distributed as dividends by a real estate investment trust do
not constitute unrelated business taxable income when received by a tax-exempt
entity. Based on that ruling, except as described below, dividend income from us
and gain arising upon the sale of shares generally will not be unrelated
business taxable income to a tax-exempt stockholder. This income or gain will be
unrelated business taxable income, however, if the tax-exempt stockholder holds
its shares as "debt financed property" within the meaning of the Internal
Revenue Code or if the shares are used in a trade or business of the tax-exempt
stockholder. Generally, debt financed property is property the acquisition or
holding of which was financed through a borrowing by the tax-exempt stockholder.
For tax-exempt stockholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code,
respectively, income from an investment in our shares will constitute unrelated
business taxable income unless the organization is able to properly claim a
deduction for amounts set aside or placed in reserve for specific purposes so as
to offset the income generated by its investment in our shares. These
prospective investors should consult their tax advisors concerning these "set
aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" will be treated as unrelated business taxable income as to
some trusts that hold more than 10%, by value, of the interests of a real estate
investment trust. A real estate investment trust will not be a "pension held
REIT" if it is able to satisfy the "not closely held" requirement without
relying on the "look-through" exception with respect to certain trusts. As a
result of limitations on the transfer and ownership of stock contained in our
charter, we do not expect to be classified as a "pension-held REIT," and as a
result, the tax treatment described in this paragraph should be inapplicable to
our stockholders.
Taxation of Non-United States Stockholders. The preceding discussion does
not address the rules governing United States federal income taxation of the
ownership and disposition of our series L preferred stock by persons that are
non-United States stockholders. When we use the term "non-United States
stockholder" we mean stockholders who are not United States stockholders, as
described above in "Taxation of our Stockholders." In general, non-United States
stockholders may be subject to special tax withholding requirements on
distributions from us and with respect to their sale or other disposition of our
series L preferred stock, except to the extent reduced or eliminated by an
income tax treaty between the United States and the non-United States
stockholder's country. A non-United States stockholder who is a stockholder of
record and is eligible for reduction or elimination of withholding must file an
appropriate form with us in order to claim such treatment. Non-United States
stockholders should consult their own tax advisors concerning the federal income
tax consequences to them of an acquisition of shares of our series L preferred
stock, including the federal income tax treatment of dispositions of interests
in and the receipt of distributions from us.
Backup Withholding. Under the backup withholding rules, a United States
stockholder may be subject to backup withholding with respect to dividends paid
by us unless the holder is a corporation or is otherwise
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exempt and, when required, demonstrates this fact or provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with the backup withholding rules. A United
States stockholder that does not provide us with its correct taxpayer
identification number may also be subject to penalties imposed by the Internal
Revenue Service. Backup withholding is not an additional tax. Any amount paid as
backup withholding will be creditable against the stockholder's income tax
liability. In addition, we may be required to withhold a portion of capital gain
distributions to any stockholders who fail to certify their non-foreign status.
See "-- Taxation of Non-United States Stockholders".
OTHER TAX CONSEQUENCES
State and Local Taxation. We may be subject to state or local taxation in
various state or local jurisdictions, including those in which we transact
business, and our stockholders may be required to pay tax in various state or
local jurisdictions, including those in which they reside. Our state and local
tax treatment may not conform to the federal income tax consequences discussed
above. In addition, a stockholder's state and local tax treatment may not
conform to the federal income tax consequences discussed above. Consequently,
prospective investors should consult their tax advisors regarding the effect of
state and local tax laws on an investment in our shares.
NEW LEGISLATION
Legislation was recently enacted that reduces the maximum tax rate of
non-corporate taxpayers for capital gains generally from 20% to 15% (for taxable
years ending on or after May 6, 2003 and before January 1, 2009) and for
dividends payable to non-corporate taxpayers generally from 38.6% to 15% (for
taxable years beginning after December 31, 2002 and before January 1, 2009). In
general, dividends payable by real estate investment trusts are not eligible for
such treatment, except to the extent such dividends are attributable either to
dividends received from taxable corporations (such as our taxable REIT
subsidiary) or to income that was subject to tax at the corporate/real estate
investment trust level (for example, if we distributed less than 100% of our
taxable income). The recent legislation also reduces the maximum tax rate of
non-corporate taxpayers on ordinary income from 38.6% to 35%.
Although this legislation does not adversely affect the taxation of real
estate investment trusts or dividends paid by real estate investment trusts, the
more favorable treatment of regular corporate dividends could cause investors
who are individuals to consider stocks of other corporations that pay dividends
to be more attractive relative to stocks of real estate investment trusts. It is
not possible to predict whether this change in perceived relative value will
occur, or what the effect will be on the market price of our stock.
Distributions to our stockholders that we properly designate as capital
gain dividends will be taxable to our taxable United States stockholders as
gain, to the extent that such gain does not exceed our actual net tax capital
gain for the taxable year from the sale or disposition of capital assets.
Depending on the characteristics of the assets which produced these gains, and
on specific designations, if any, which we make, these gains may be taxable to
non-corporate United States stockholders at a 15% or 25% rate.
PROPOSED LEGISLATION
Recently, legislation was introduced in the United States House of
Representatives that would amend certain rules relating to real estate
investment trusts. As of the date hereof, this legislation has not been enacted
into law. The proposed legislation would, among other things, include the
following changes:
- As discussed above under "Our Qualification as a Real Estate Investment
Trust -- Asset Tests," we may not own more than 10% by vote or value of
any one issuer's securities. If we fail to meet this test at the end of
any quarter and such failure is not cured within 30 days thereafter, we
would fail to qualify as a real estate investment trust. Under the
proposal, after the 30 day cure period, a real estate investment trust
could dispose of sufficient assets to cure such a violation that does not
exceed the lesser of 1% of the real estate investment trust's assets at
the end of the relevant quarter or $10,000,000. For violations due to
reasonable cause that are larger than this amount, the legislation would
permit the real estate investment trust to avoid disqualification as a
real estate investment trust,
S-60
after the 30 day cure period, by taking steps including the disposition
of sufficient assets to meet the asset test and paying a tax equal to the
greater of $50,000 or the highest corporate tax rate multiplied by the
net income generated by the nonqualifying assets.
- In addition, the legislation would expand the straight debt safe harbor
under which certain types of securities are disregarded as securities
when calculating the 10% value limitation discussed above.
- The legislation also would change the formula for calculating the tax
imposed for certain violations of the 75% and 95% gross income tests
described above under "Our Qualification as a Real Estate Investment
Trust -- Income Tests" and would make certain changes to the requirements
for availability of the applicable relief provisions for failure to meet
such tests.
- The legislation would clarify a rule regarding our ability to enter into
leases with our taxable REIT subsidiaries.
- As discussed above under "Our Qualification as a Real Estate Investment
Trust -- Redetermined Rents, Redetermined Deductions, and Excess
Interest," amounts received by a real estate investment trust for
services customarily furnished or rendered in connection with the rental
of real property are excluded from treatment as "redetermined rents" and
therefore avoid the 100% penalty tax. The proposed legislation would
eliminate this exclusion.
The foregoing is a non-exhaustive list of changes that would be made by the
proposed legislation. The provisions contained in this legislation relating to
expansion of the straight debt safe harbor and our ability to enter into leases
with our taxable REIT subsidiaries, would apply to taxable years ending after
December 31, 2000, and the remaining provisions generally would apply to taxable
years beginning after the date the legislation is enacted.
As of the date of this prospectus supplement, it is not possible to predict
whether the proposed legislation discussed above will be enacted in its current
form or at all.
S-61
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement,
dated the date of the prospectus supplement, each underwriter named below, for
whom Wachovia Securities, LLC is acting as representative, has agreed to
purchase, and we have agreed to sell to that underwriter, the number of shares
of our series L preferred stock set forth opposite the underwriter's name.
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
Wachovia Securities, LLC....................................
Bear, Stearns & Co. Inc. ...................................
McDonald Investments Inc., a KeyCorp company................
--------
Total.............................................
========
The underwriting agreement provides that the obligations of the
underwriters to purchase the shares in this offering are subject to approval of
legal matters by their counsel and to other conditions. The underwriters are
obligated to purchase all the shares (other than those covered by the
over-allotment option described below) if they purchase any of the shares.
We expect that delivery of the shares of series L preferred stock will be
made against payment for such shares on or about June , 2003, which is the
business day following the date of this prospectus supplement.
We have filed an application to list the series L preferred stock on the
New York Stock Exchange. If approved, trading of the series L preferred stock on
the New York Stock Exchange is expected to commence within the 30-day period
after initial delivery of the series L preferred stock. The representative has
advised us that it intends to make a market in the series L preferred stock
prior to the commencement of trading on the New York Stock Exchange. The
representative will have no obligation to make a market in the series L
preferred stock, however, and may cease market-making activities, if commenced,
at any time.
Before this offering, there has been no public market for our series L
preferred stock. An active trading market for our shares may not develop. Even
if an active market does develop, the public price at which our shares trade in
the future may be below the offering price.
The underwriters propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus
supplement and some of the shares to dealers at the public offering price less a
concession not to exceed $0.50 per share. The underwriters may allow, and
dealers may reallow, a concession not to exceed $0.45 per share on sales to
other dealers. After the initial offering of the shares, the offering price and
other selling terms may from time to time be varied by the representative.
The following table shows the underwriting discounts and commissions that
we are to pay the underwriters in connection with this offering.
Per share of Series L Preferred Stock....................... $0.7875
Total....................................................... $
In connection with the offering the underwriters may purchase and sell
shares of series L preferred stock in the open market. These transactions may
include short sales, syndicate covering transactions and stabilizing
transactions. Short sales involve syndicate sales of series L preferred stock in
excess of the number of shares to be purchased by the underwriters in the
offering, which creates a syndicate short position. The underwriters must close
out any short position by purchasing shares of series L preferred stock in the
open market. A short position is more likely to be created if the underwriters
are concerned that there may be downward pressure on the price of the shares in
the open market after pricing that could adversely affect investors who purchase
in the offering. Stabilizing transactions consist of bids for, or purchases of,
shares in the open market while the offering is in progress. The underwriters
also may impose a penalty bid. Penalty bids permit the underwriters to reclaim a
selling concession from a syndicate member when the underwriters repurchase
shares originally sold by that syndicate member in order to cover syndicate
short positions or make stabilizing purchases. Any of these activities may have
the effect of preventing or
S-62
retarding a decline in the market price of the series L preferred stock. They
may also cause the price of the series L preferred stock to be higher than the
price that would otherwise exist in the open market in the absence of these
transactions. The underwriters may conduct these transactions on the New York
Stock Exchange or in the over-the-counter market, or otherwise. If the
underwriters commence any of these transactions, they may discontinue them at
any time.
We have agreed for a period of 30 days from the date of this prospectus
supplement, that we will not, without the prior written consent of the
representative, sell, dispose of, hedge or take certain other actions with
respect to any shares of our series L preferred stock or securities convertible
into or exchangeable for our series L preferred stock. The representative, in
its sole discretion, may release us from this lock-up agreement at any time
without notice.
We have granted the underwriters a 30-day option to purchase up to
additional shares of series L preferred stock at a price of $ per
share to cover over-allotments. If the underwriters exercise their option in
full to purchase additional shares, the aggregate proceeds to us will
be $ before deducting transaction costs payable by us.
We estimate that our portion of the total expenses of this offering, other
than the underwriting discounts and commissions referred to above, will be
approximately $ .
The underwriters have performed certain investment banking and advisory
services for us from time to time for which they have received customary fees
and expenses. Wachovia Bank, N.A., an affiliate of Wachovia Securities, LLC, and
KeyBank National Association, an affiliate of McDonald Investments Inc., are
lenders under our $500 million unsecured revolving line of credit. The
underwriters may, from time to time, engage in transactions with and perform
services for us in the ordinary course of their businesses.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or to
contribute to payments the underwriters may be required to make because of any
of those liabilities.
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed upon
for us by Latham & Watkins LLP, San Francisco, California and by Tamra D.
Browne, Esq., our General Counsel, San Francisco, California. Certain legal
matters relating to Maryland law, including the validity of the issuance of the
shares of series L preferred stock offered by this prospectus supplement, will
be passed upon for us by Ballard Spahr Andrews & Ingersoll, LLP, Baltimore,
Maryland. Certain legal matters in connection with this offering will be passed
upon for the underwriters by Gibson, Dunn & Crutcher, LLP, San Francisco,
California.
EXPERTS
The financial statements incorporated in this prospectus supplement and the
accompanying prospectus by reference to the Annual Report on Form 10-K for the
year ended December 31, 2002 have been so incorporated in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
S-63
PROSPECTUS
$600,000,000
AMB PROPERTY CORPORATION
Common Stock, Preferred Stock,
Depositary Shares and Warrants
$400,000,000
Guarantees
AMB PROPERTY, L.P.
Debt Securities
------------------------
AMB Property Corporation may offer, from time to time, in one or more
series or classes and in amounts, at prices and on terms that it will determine
at the time of offering, with an aggregate public offering price of up to
$600,000,000 (or its equivalent in another currency based on the exchange rate
at the time of sale):
- shares of common stock, $.01 par value per share;
- shares of preferred stock, $.01 par value per share;
- shares of preferred stock represented by depositary shares; and
- warrants to purchase common stock or preferred stock.
AMB Property, L.P. may offer, from time to time, its debt securities in one
or more series, which may be either senior or subordinated, at prices and on
terms that it will determine at the time of offering, with an aggregate public
offering price of up to $400,000,000 (or its equivalent in another currency
based on the exchange rate at the time of sale). AMB Property Corporation may
unconditionally guarantee the payment obligations on the debt securities on the
terms described in this prospectus and in the applicable supplement to this
prospectus.
We will provide the specific terms of these securities in supplements to
this prospectus. You should read this prospectus and the applicable supplement
carefully before you invest.
Our common stock is listed on the New York Stock Exchange under the symbol
"AMB." On December 16, 1998, the last reported sales price of our common stock
on the New York Stock Exchange was $21 5/8 per share.
------------------------
To facilitate maintenance of our qualification as a Real Estate Investment
Trust (a "REIT") for federal income tax purposes, subject to certain exceptions,
we prohibit the ownership, actually or constructively, by any single person of
more than 9.8% (by value or number of shares, whichever is more restrictive) of
the issued and outstanding shares of our common stock and more than 9.8% (by
value or number of shares, whichever is more restrictive) of the issued and
outstanding shares of our Series A Preferred Stock. We will also prohibit,
subject to certain exceptions, the ownership, actually or constructively, of any
shares of our Series B Preferred Stock and any shares of our Series C Preferred
Stock by any single person so that no such person, taking into account all of
our stock so owned by such person, may own in excess of 9.8% of our issued and
outstanding capital stock.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is December 17, 1998
WE HAVE NOT AUTHORIZED ANY DEALER, SALESMAN OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND THE ACCOMPANYING SUPPLEMENT TO
THIS PROSPECTUS. YOU MUST NOT RELY UPON ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR THE ACCOMPANYING
PROSPECTUS SUPPLEMENT AS IF WE HAD AUTHORIZED IT. THIS PROSPECTUS AND THE
ACCOMPANYING SUPPLEMENT TO THIS PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH THEY RELATE, NOR DO THIS PROSPECTUS AND THE ACCOMPANYING
SUPPLEMENT TO THIS PROSPECTUS CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. YOU SHOULD NOT
ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS AND THE SUPPLEMENT TO
THIS PROSPECTUS IS CORRECT ON ANY DATE AFTER THEIR RESPECTIVE DATES, EVEN THOUGH
THIS PROSPECTUS OR A SUPPLEMENT IS DELIVERED OR SECURITIES ARE SOLD ON A LATER
DATE.
------------------------
TABLE OF CONTENTS
PAGE
----
About This Prospectus....................................... 1
Where You Can Find More Information......................... 1
Incorporation Of Certain Documents By Reference............. 2
Forward Looking Statements.................................. 3
The Company................................................. 4
Use Of Proceeds............................................. 4
Ratios Of Earnings to Fixed Charges And Preferred Dividends
and Distributions......................................... 4
Description Of Debt Securities.............................. 5
Description Of Common Stock................................. 20
Description Of Preferred Stock.............................. 21
Description Of Depositary Shares............................ 34
Description Of Warrants..................................... 37
Restrictions On Ownership And Transfer Of Capital Stock..... 38
Certain Provisions Of Maryland Law And Of Our Charter And
Bylaws.................................................... 40
Description Of Certain Provisions Of The Partnership
Agreement Of The Operating Partnership.................... 43
Certain Federal Income Tax Considerations................... 54
Plan of Distribution........................................ 64
Legal Matters............................................... 65
Experts..................................................... 65
i
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 any combination of the common stock, preferred
stock, depositary shares and warrants described in this prospectus in one or
more offerings up to a total dollar amount of $600,000,000 and the Operating
Partnership may sell the debt securities described in this prospectus in one or
more offerings up to a total dollar amount of $400,000,000. This prospectus
provides you with a general description of the securities we may offer. Each
time we sell securities, we will provide a prospectus supplement that will
contain specific information about the terms of that offering. The prospectus
supplement may also add, update or change information contained in this
prospectus. You should read both this prospectus and the applicable prospectus
supplement together with additional information described under the heading
"Where You Can Find More Information."
Unless otherwise indicated or unless the context requires otherwise, all
references in this prospectus to "we," "us," "our" or the "Company" mean AMB
Property Corporation and its subsidiaries, including AMB Property, L.P. (which
we refer to as the "Operating Partnership") and its subsidiaries and, with
respect to the period prior to the Company's initial public offering, the
Company's predecessor, AMB Institutional Realty Advisors, Inc., and certain real
estate investment funds, trusts, corporations and partnerships that prior to the
Company's initial public offering owned properties that they contributed to the
Operating Partnership. In some instances, in order to avoid confusion between
AMB Property Corporation and the Operating Partnership, we refer to AMB Property
Corporation alone as the "Company." When we refer to our "Charter" we mean the
Company's Articles of Incorporation, as supplemented by the Articles
Supplementary establishing the terms of our 8 1/2% Series A Cumulative
Redeemable Preferred Stock (the "Series A Preferred Stock"), the Articles
Supplementary establishing the terms of our 8 5/8% Series B Cumulative
Redeemable Preferred Stock (the "Series B Preferred Stock") and the Articles
Supplementary establishing the terms of our 8.75% Series C Cumulative Redeemable
Preferred Stock (the "Series C Preferred Stock"). When we refer to "Units" we
mean the Operating Partnership's common units and preferred units, including the
8 1/2% Series A Cumulative Redeemable Preferred Units (the "Series A Preferred
Units"), the 8 5/8% Series B Cumulative Redeemable Preferred Units (the "Series
B Preferred Units") and any 8 3/4% Series C Cumulative Redeemable Preferred
Units (the "Series C Preferred Units"), and other partnership interests of the
Operating Partnership of different classes and series with rights, preferences
and privileges that the Company may determine in its capacity as general partner
of the Operating Partnership.
WHERE YOU CAN FIND MORE INFORMATION
The Company and the Operating Partnership file annual, quarterly and
special reports, proxy statements and other information with the Securities and
Exchange Commission (the "SEC"). You may read and copy any document we file with
the SEC at the SEC's public reference rooms at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC'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.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. The SEC also maintains a web site that contains reports, proxy
and information statements, and other information regarding registrants that
file electronically with the SEC (http://www.sec.gov). You can inspect reports
and other information we file at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.
We have filed a registration statement of which this prospectus is a part
and related exhibits with the SEC under the Securities Act of 1933, as amended
(the "Securities Act"). The registration statement contains additional
information about us and the securities. You may inspect the registration
statement and exhibits without charge at the office of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, and you may obtain copies from the SEC at
prescribed rates.
1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this prospectus. Any statement contained in a document which
is incorporated by reference in this prospectus is automatically updated and
superseded if information contained in this prospectus, or information that we
later file with the SEC, modifies or replaces this information. We incorporate
by reference the following documents we filed with the SEC:
- Annual Report of the Company on Form 10-K for the year ended December 31,
1997;
- Quarterly Reports of the Company on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998;
- Quarterly Reports of the Operating Partnership on Form 10-Q for the
quarters ended June 30, 1998 and September 30, 1998;
- Current Report of the Company on Form 8-K filed on January 13, 1998;
- Current Report of the Company on Form 8-K filed on July 9, 1998;
- Current Report of the Company on Form 8-K filed on December 2, 1998;
- Current Report of the Operating Partnership on Form 8-K filed on December
2, 1998;
- the description of the Company's common stock contained in the Company's
Registration Statement on Form 8-A filed with the SEC on October 28,
1997;
- the description of the Company's Series A Preferred Stock contained in
the Company's Registration Statement on Form 8-A filed with the SEC on
July 14, 1998;
- the report, financial statements and financial statement schedule for the
Operating Partnership from our Registration Statement on Form S-11 (No.
333-49163);
- the report, financial statements and financial statement schedule for the
AMB Contributed Properties from our Registration Statement on Form S-11
(No. 333-49163);
- the reports and financial statements for the Boston Industrial Portfolio,
the Jamesburg Property, Orlando Central Park, Totem Lake Malls, Dallas
Warehouse Portfolio (Garland Industrial Portfolio), Twin Cities
Office/Showroom Portfolio (Minnetonka Industrial Portfolio), Crysen
Corridor Warehouse, Cabot Industrial Portfolio, Cabot Business Park,
Manhattan Village Shopping Center, Weslayan Plaza and Silicon Valley R&D
Portfolio from our Registration Statement on Form S-11 (No. 333-58107);
and
- all documents filed by either the Company or the Operating Partnership
with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") after
the date of this prospectus and prior to the termination of the offering.
To receive a free copy of any of the documents incorporated by reference in
this prospectus (other than exhibits, unless they are specifically incorporated
by reference in the documents), call or write AMB Property Corporation, 505
Montgomery Street, San Francisco, CA, Attention: Secretary (415/394-9000).
You should rely only on the information incorporated by reference or set
forth in this prospectus or the applicable prospectus supplement. We have not
authorized anyone else to provide you with different information. We may only
use this prospectus to sell securities if it is accompanied by a prospectus
supplement. We are only offering these securities in states where the offer is
permitted. You should not assume that the information in this prospectus or the
applicable prospectus supplement is accurate as of any date other than the dates
on the front of these documents.
2
FORWARD LOOKING STATEMENTS
Some of the information included and incorporated by reference in this
prospectus contains forward-looking statements, such as those pertaining to our
(including certain of our subsidiaries') capital resources, portfolio
performance and results of operations. Likewise, the pro forma financial
statements and other pro forma information contained or incorporated by
reference in this prospectus also contain forward-looking statements. In
addition, all statements regarding anticipated growth in our funds from
operations and anticipated market conditions, demographics and results of
operations are forward-looking statements. Forward-looking statements involve
numerous risks and uncertainties and you should not rely on them as predictions
of future events. There is no assurance that the events or circumstances
reflected in forward-looking statements will be achieved or will occur. You can
identify forward-looking statements by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "should," "seeks,"
"approximately," "intends," "plans," "pro forma," "estimates" or "anticipates"
or the negative of these words and phrases or similar words or phrases. You can
also identify forward-looking statements by discussions of strategy, plans or
intentions. Forward-looking statements are necessarily dependent on assumptions,
data or methods that may be incorrect or imprecise and we may not be able to
realize them. The following factors, among others, could cause actual results
and future events to differ materially from those set forth or contemplated in
the forward-looking statements: defaults on or non-renewal of leases by tenants,
increased interest rates and operating costs, our failure to obtain necessary
outside financing, difficulties in identifying properties to acquire and in
effecting acquisitions, our failure to successfully integrate acquired
properties and operations, risks and uncertainties affecting property
development and construction (including construction delays, cost overruns, our
inability to obtain necessary permits and public opposition to such activities),
our failure to qualify and maintain our status as a REIT under the Internal
Revenue Code of 1986, as amended (the "Code"), environmental uncertainties,
risks related to natural disasters, financial market fluctuations, changes in
real estate and zoning laws and increases in real property tax rates. Our
success also depends upon economic trends generally, including interest rates,
income tax laws, governmental regulations, legislation, population changes and
certain other matters discussed in this prospectus and the applicable prospectus
supplement, including under the heading "Risk Factors" in the prospectus
supplement. We caution you not to place undue reliance on forward-looking
statements, which reflect our analysis only.
3
THE COMPANY
We are one of the largest publicly-traded real estate companies in the
United States. As of November 30, 1998, we owned 587 industrial buildings
located in 26 markets throughout the United States, including 40 industrial
buildings acquired since September 30, 1998, and 38 retail centers located in 16
markets throughout the United States, including one center acquired since
September 30, 1998. As of September 30, 1998, our industrial buildings,
principally warehouse distribution properties, encompassed approximately 53.1
million rentable square feet and, as of the same date, were 95.9% leased to over
1,500 tenants. As of September 30, 1998, our retail centers, principally
grocer-anchored community shopping centers, encompassed approximately 6.9
million rentable square feet and, as of the same date, were 94.8% leased to over
900 tenants. We own substantially all of our assets, and conduct substantially
all of our business, through the Operating Partnership and its subsidiaries.
We are engaged in the business of acquiring and operating industrial
buildings and community shopping centers in target markets nationwide. We are
led by Hamid R. Moghadam, our Chief Executive Officer and one of our three
founders. Douglas D. Abbey and T. Robert Burke, our other two founders, also
play active roles in our operations as the Chairman of our Investment Committee
and the Chairman of our Board of Directors, respectively. Our 10 executive
officers have an average of 23 years of experience in the real estate industry
and have worked together for an average of nine years building the AMB real
estate business.
The Company was organized in November 1997 and commenced operations upon
the completion of the initial public offering on November 26, 1997. We operate
as a self-administered and self-managed real estate company and believe that we
have qualified and that we will continue to qualify as a REIT for federal income
tax purposes beginning with the year ended December 31, 1997.
USE OF PROCEEDS
Unless we indicate otherwise in the applicable prospectus supplement, the
Operating Partnership intends to use the net proceeds from the sale of debt
securities for general purposes, which may include the acquisition or
development of additional properties and the repayment of indebtedness. Unless
we indicate otherwise in the applicable prospectus supplement, the Company will
invest any proceeds from the sale of common stock, preferred stock, depositary
shares or warrants in the Operating Partnership, which will use the proceeds as
described above unless we indicate otherwise in the applicable prospectus
supplement. Initially, we may temporarily invest net proceeds from the sale of
the securities in short-term securities.
RATIOS OF EARNINGS TO FIXED CHARGES AND
PREFERRED DIVIDENDS AND DISTRIBUTIONS
The ratio of earnings to fixed charges and preferred dividends for the
Company for the nine month period ended September 30, 1998 was 2.6x. Prior to
1998, the Company did not have any outstanding preference securities. The ratio
of earnings to fixed charges for the Company for the nine month period ended
September 30, 1998 was 2.7x and for the fiscal year ended December 31, 1997 was
5.6x. The Company's fiscal year ended December 31, 1997 includes the historical
results of AMB Institutional Realty Advisors, Inc., the Company's predecessor,
for the period from January 1, 1997 through November 25, 1997 and the Company's
historical results for the period from November 26, 1997 to December 31, 1997.
The ratio of earnings to fixed charges for AMB Institutional Realty Advisors,
Inc. for the fiscal years ended December 31, 1993, 1994, 1995 and 1996 are not
applicable because AMB Institutional Realty Advisors, Inc. had no or immaterial
fixed charges.
The ratio of earnings to fixed charges and preferred distributions for the
Operating Partnership for the nine month period ended September 30, 1998 was
2.6x. Prior to 1998, the Operating Partnership did not have any outstanding
preference securities. The ratios of earnings to fixed charges for the Operating
Partnership for the nine month period ended September 30, 1998 was 2.7x and for
the period from inception (November 26, 1997) to December 31, 1997 was 3.1x.
4
We have computed the ratios of earnings to fixed charges by dividing fixed
charges, excluding capitalized interest, plus income from continuing operations
including income from minority interests which have fixed charges and including
distributed operating income from unconsolidated joint ventures instead of
income from unconsolidated joint ventures, by fixed charges. Fixed charges
consist of interest costs, whether expensed or capitalized, the interest
component of rental expense and amortization of debt issuance costs.
We have computed the ratios of earnings to fixed charges and preferred
dividends/distributions by dividing fixed charges, excluding capitalized
interest, plus income from continuing operations including income from minority
interests which have fixed charges and including distributed operating income
from unconsolidated joint ventures instead of income from unconsolidated joint
ventures, by fixed charges plus preferred dividends/distributions. Fixed charges
consist of interest costs, whether expensed or capitalized, the interest
component of rental expense and amortization of debt issuance costs.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The debt securities will be direct, non-convertible, obligations of the
Operating Partnership, which may be secured or unsecured, and which may be
senior or subordinated indebtedness of the Operating Partnership. The Operating
Partnership will issue the debt securities under an Indenture dated as of June
30, 1998, as supplemented by the First Supplemental Indenture dated as of June
30, 1998, the Second Supplemental Indenture dated as of June 30, 1998 and the
Third Supplemental Indenture dated as of June 30, 1998, and as further amended
or supplemented from time to time, among the Operating Partnership, the Company
and State Street Bank and Trust Company of California, N.A., as Trustee
(together with any other trustee(s) appointed in a supplemental indenture with
respect to a particular series of debt securities, the "trustee"). The indenture
is subject to, and governed by, the Trust Indenture Act of 1939, as amended. The
statements made in this section relating to the indenture and the debt
securities are summaries of certain provisions of the debt securities and the
indenture. These summaries are not complete. For more detail you should refer to
the indenture, which we have filed as an exhibit to the registration statement
of which this prospectus is a part.
TERM
We will describe the particular terms of the debt securities offered by a
prospectus supplement in the applicable prospectus supplement, along with any
applicable modifications of or additions to the general terms of the debt
securities as described in this prospectus. Accordingly, for a description of
the terms of any series of debt securities, you must refer to both the
prospectus supplement relating to that series and the description of the debt
securities set forth in this prospectus. A prospectus supplement may change any
of the terms of the debt securities described in this prospectus.
The Operating Partnership may offer under this prospectus up to
$400,000,000 (or its equivalent in another currency based on the exchange rate
at the time of sale) aggregate principal amount of debt securities or if debt
securities are issued at a discount, such principal amount as may be sold for an
initial public offering price of up to $400,000,000. Unless we state otherwise
in any prospectus supplement, the Operating Partnership may issue the debt
securities in one or more series, as established from time to time by the
Operating Partnership. The Operating Partnership need not issue all debt
securities of one series at the same time and, unless otherwise provided, a
series may be reopened, without the consent of the holders of the debt
securities of that series, for issuances of additional debt securities of that
series.
The Operating Partnership may, but need not, designate more than one
trustee under the indenture, each with respect to one or more series of debt
securities. Any trustee may resign or be removed with respect to one or more
series of debt securities, and a successor trustee may be appointed to act with
respect to the series. If two or more persons are acting as trustee with respect
to different series of debt securities, each such trustee will be a trustee of a
trust under the indenture separate and apart from the trust administered by any
other trustee and, except as we state otherwise in this prospectus, any action
to be taken by a trustee may be taken
5
by each trustee with respect to, and only with respect to, the one or more
series of debt securities for which it is trustee.
The following summaries set forth certain general terms and provisions of
the indenture and the debt securities. The prospectus supplement relating to the
series of debt securities being offered will contain further terms of the debt
securities, including the following specific terms:
- the title of the debt securities;
- the limit on the aggregate principal amount of the debt securities of the
series that may be authenticated and delivered under the indenture;
- the date or dates, or the method for determining the date or dates, on
which the Operating Partnership will pay the principal of the debt
securities;
- the rate or rates (which may be fixed or variable), or the method by
which such rate or rates will be determined, at which the debt securities
will bear interest, if any;
- the date or dates (or the method for determining the date or dates) from
which any interest will accrue, the dates upon which any interest will be
payable and the record dates for payment of interest (or the method by
which the record dates will be determined);
- the place or places, if any, other than or in addition to the Borough of
Manhattan, The City of New York, where the principal of (and premium, if
any) and interest, if any, on the debt securities will be payable, where
the debt securities may be surrendered for conversion or registration of
transfer or exchange and where notices or demands to or upon the
Operating Partnership in respect of the debt securities and the indenture
may be served;
- any obligation the Operating Partnership has to redeem, repay or
repurchase the debt securities, in whole or in part, at the option of a
holder of the debt securities, and the period or periods within which,
the date or dates on which the price or prices at which and the terms and
conditions upon which the Operating Partnership will redeem, repay or
repurchase the debt securities;
- if other than the trustee, the identity of each security registrar and/or
paying agent;
- any provisions granting special rights to holders of the debt securities;
- any deletions from, modifications of, or additions to the events of
default or covenants of the Operating Partnership with respect to the
debt securities, whether or not such events of default or covenants are
consistent with the events of default or covenants with the indenture;
- the person to whom any interest will be payable, if other than the person
in whose name the debt security is registered; and
- any other terms of the debt securities and any deletions from or
modifications or additions to the indenture in respect of the debt
securities (whether or not consistent with the other provisions of the
indenture).
The Operating Partnership may issue debt securities at a discount below
their principal amount and provide for less than the entire principal amount of
the debt securities to be payable upon declaration of acceleration of maturity.
In such cases, we will describe any material U.S. federal income tax, accounting
and other considerations in the applicable prospectus supplement.
DENOMINATIONS AND INTEREST
Unless we specify otherwise in the applicable prospectus supplement, the
debt securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof. Unless we specify otherwise in the applicable
prospectus supplement, interest on any series of debt securities will be payable
to the person in whose name the security is registered at the close of business
on the record date for such interest at the office of the Operating Partnership
maintained for such purpose within the City and State of New York. However,
6
unless we provide otherwise in the applicable prospectus supplement, the
Operating Partnership may make interest payments by check mailed to the address
of the person entitled to the interest as it appears in the applicable register
for debt securities or by wire transfer of funds to such person at an account
maintained within the United States.
GLOBAL NOTES
Unless we specify otherwise in the applicable prospectus supplement, the
debt securities of each series will be issued in the form of one or more fully
registered book-entry debt securities of such series (each, a "Global Note")
that will be deposited with, or on behalf of The Depository Trust Company, New
York, New York ("DTC"). Global Notes will be issued in fully registered form.
The Operating Partnership anticipates that the Global Notes will be
deposited with, or on behalf of DTC, and that such Global Note will be
registered in the name of Cede & Co., DTC's nominee. Unless we specify otherwise
in the applicable prospectus supplement, the Operating Partnership further
anticipates that the following provisions will apply to the depository
arrangements with respect to the Global Notes.
So long as DTC or its nominee is the registered owner of the Global Notes,
DTC or its nominee, as the case may be, will be considered the sole holder of
the debt securities represented by the Global Note for all purposes under the
indenture. Except as described below, owners of beneficial interests in the
Global Notes will not be entitled to have debt securities represented by such
Global Note registered in their names, will not receive or be entitled to
receive physical delivery of debt securities in certificated form and will not
be considered the owners or holders of the debt securities under the indenture.
The laws of some states require that certain purchasers of securities take
physical delivery of such securities in certificated form; accordingly, such
laws may limit the transferability of beneficial interests in the Global Notes.
The Global Notes will be exchangeable for certificated debt securities only
if:
- DTC notifies the Operating Partnership that it is unwilling or unable to
continue as depository or DTC ceases to be a clearing agency registered
under the Exchange Act (if so required by applicable law or regulation)
and, in either case, a successor depository is not appointed by the
Operating Partnership within 90 days after the Operating Partnership
receives such notice or becomes aware of such ineligibility;
- the Operating Partnership in its sole discretion determines that the
Global Notes shall be exchangeable for certificated debt securities; or
- there shall have occurred and be continuing an event of default with
respect to debt securities of any series under the indenture and
beneficial owners representing a majority in aggregate principal amount
of the debt securities of such series represented by a Global Note advise
DTC to cease acting as depository. Upon any such exchange, owners of a
beneficial interest in such Global Note will be entitled to physical
delivery of individual debt securities of such series in certificated
form of like tenor, terms and rank, equal in principal amount to such
beneficial interest, and to have such debt securities in certificated
form registered in the names of the beneficial owners, which names are
expected to be provided by DTC's relevant Participants (as identified by
DTC) to the trustee.
Debt securities so issued in certificated form will be issued in denominations
of $1,000 or any integral multiple thereof, and will be issued in registered
form only, without coupons.
The following is based on information furnished to us by DTC:
DTC will act as securities depository for the debt securities. The debt
securities will be issued as fully registered securities registered in the name
of Cede & Co. (DTC's partnership nominee). One fully registered certificate will
be issued with respect to each $200 million (or such other amount as shall be
permitted by DTC from time to time) of principal amount of the debt securities,
and an additional certificate will be issued with respect to any remaining
principal amount.
7
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a clearing corporation" within the meaning
of the New York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC holds
securities that its participants ("participants") deposit with DTC. DTC also
facilitates the settlement among participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("direct participants"). DTC is
owned by a number of its direct participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others,
such as securities brokers and dealers, and banks and trust companies that clear
through or maintain a custodial relationship with a direct participant, either
directly or indirectly ("indirect participants"). The rules applicable to DTC
and its Participants are on file with the SEC.
Purchases of debt securities under the DTC system must be made by or
through direct participants, which will receive a credit for the debt securities
on DTC's records. The ownership interest of each actual purchaser of each debt
security ("beneficial owner") is in turn recorded on the Direct and Indirect
participants' records. A beneficial owner does not receive written confirmation
from DTC of its purchase, but is expected to receive a written confirmation
providing details of the transaction, as well as periodic statements of its
holdings, from the direct or indirect participant through which such beneficial
owner entered into the transaction. Transfers of ownership interests in debt
securities are accomplished by entries made on the books of direct and indirect
participants acting on behalf of beneficial owners. Beneficial owners do not
receive certificates representing their ownership interests in debt securities,
except under the circumstances described above.
To facilitate subsequent transfers, the debt securities are registered in
the name of DTC's nominee, Cede & Co. The deposit of the debt securities with
DTC and their registration in the name of Cede & Co. will effect no change in
beneficial ownership. DTC has no knowledge of the actual beneficial owners of
the debt securities; DTC records reflect only the identity of the direct
participants to whose accounts debt securities are credited, which may or may
not be the beneficial owners. The participants remain responsible for keeping
account of their holdings on behalf of their customers.
Delivery of notices and other communications by DTC to direct participants,
by direct participants to indirect participants, and by direct participants and
indirect participants to beneficial owners are governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
Neither DTC nor Cede & Co. consents or votes with respect to the debt
securities. Under its usual procedures, DTC mails a proxy (an "omnibus proxy")
to the issuer as soon as possible after the record date. The omnibus proxy
assigns Cede & Co.'s consenting or voting rights to those direct participants to
whose accounts the debt securities are credited on the record date (identified
on a list attached to the omnibus proxy).
Principal payments, premium payments, if any, and interest payments, if
any, on the debt securities will be made to DTC. DTC's practice is to credit
direct participants' accounts on the payment date in accordance with their
respective holdings as shown on DTC's records unless DTC has reason to believe
that it will not receive payment on the payment date. Payments by direct and
indirect participants to beneficial owners are governed by standing instructions
and customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name" and are the
responsibility of such direct and indirect participants and not of DTC, the
Trustee or the Operating Partnership, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal (and
premium, if any) and interest, if any, to DTC is the responsibility of the
Operating Partnership or the trustee, disbursement of such payments to direct
participants is the responsibility of DTC, and disbursement of such payments to
the beneficial owners is the responsibility of direct and indirect participants.
8
If applicable, redemption notices shall be sent to Cede & Co. If less than
all of the debt securities of any series represented by the Global Notes are
being redeemed, DTC's practice is to determine by lot the amount of the interest
of each direct participant in such issue to be redeemed.
DTC may discontinue providing its services as securities depository with
respect to the debt securities of any series at any time by giving reasonable
notice to the Operating Partnership or the trustee. Under such circumstances, in
the event that a successor securities depository is not appointed, certificates
are required to be printed and delivered as described above.
The Operating Partnership may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor securities depository). In that
event, certificates will be printed and delivered as described above.
Neither the Operating Partnership, the underwriters, the trustee, or any
applicable paying agent will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial interests
in the debt securities, or for maintaining, supervising or reviewing any records
relating to such beneficial interest.
Notices or demands to or upon the Operating Partnership in respect of the
debt securities and the indenture may be served and, in the event that debt
securities are issued in definitive certificated form, debt securities may be
surrendered for payment, registration of transfer or exchange, at the office or
agency of the Operating Partnership maintained for such purpose in the Borough
of Manhattan, The City of New York, which shall initially be the office of State
Street Bank and Trust Company, an affiliate of the Trustee, which on the date of
this Prospectus is located at 61 Broadway, 15th Floor, New York, New York.
GUARANTEES
Unless we specify otherwise in the applicable prospectus supplement, the
indenture provides that the Operating Partnership's obligations under the debt
securities will be guaranteed by the Company. The obligations of the Company
under any guarantee will be limited to the maximum amount permitted under
applicable federal or state law. A supplemental indenture establishing the terms
of a particular series of debt securities may provide that such series will not
be guaranteed by the Company.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Unless we specify otherwise in the applicable prospectus supplement, the
indenture provides that the Operating Partnership will not, in any transaction
or series of transactions, consolidate with, or sell, lease, assign, transfer or
otherwise convey all or substantially all of its assets to, or merge with or
into any other person unless:
- either the Operating Partnership is the continuing person or the
successor person (if other than the Operating Partnership) is a
corporation, partnership, limited liability company or other entity
organized and existing under the laws of the United States of America or
a State of the United States of America or the District of Columbia and
expressly assumes the Operating Partnership's obligations on the debt
securities and under the indenture;
- immediately after giving effect to the transaction and treating any Debt
(including Acquired Debt) which becomes an obligation of the Operating
Partnership or any of its affiliates as a result of such transaction as
having been incurred by the Operating Partnership or such affiliate at
the time of such transaction, no event of default under the indenture,
and no event which, after notice or lapse of time, or both, would become
an event of default, shall have occurred and be continuing; and
- the Operating Partnership delivers to the trustee an officers'
certificate and legal opinion covering these conditions.
In the event that the Operating Partnership is not the continuing person, then,
for purposes of the second bullet point above, the successor person will be
deemed to be the Operating Partnership.
9
Upon any such merger, consolidation, sale, assignment, transfer, lease or
conveyance in which the Operating Partnership is not the continuing legal
entity, the successor entity formed by the consolidation or into which the
Operating Partnership is merged or to which the sale, assignment, transfer,
lease or other conveyance is made shall succeed to, and be substituted for, and
may exercise every right and power of, the Operating Partnership under the
indenture with the same effect as if the successor entity has been named as the
Operating Partnership in the indenture and the Operating Partnership will be
released (except in the case of a lease) from its obligations under the
indenture and the debt securities.
The indenture provides that neither the Company, as guarantor of a series
of debt securities, nor any other guarantor, will in any transaction or series
of transactions, consolidate with, or sell, lease, assign, transfer or otherwise
convey all or substantially all of its assets to, or merge with or into any
other person unless:
- either such guarantor is the continuing person or the successor person
(if other than such guarantor) is a corporation, partnership, limited
liability company or other entity organized and existing under the laws
of the United States of America or a State of the United States of
America or the District of Columbia and expressly assumes such
guarantor's obligations on the debt securities and under the indenture;
- immediately after giving effect to the transaction, no event of default,
and no event which, after notice or lapse of time, or both, would become
an event of default, shall have occurred and be continuing; and
- such guarantor delivers to the trustee an officers' certificate and legal
opinion covering these conditions.
In the event that such guarantor is not the continuing corporation, then, for
purposes of the second bullet point above, the successor corporation will be
deemed to be such guarantor.
Any consolidation, merger, sale, lease, assignment, transfer or conveyance
permitted above is also subject to the condition precedent that the trustee
receive an officers' certificate and legal opinion to the effect that any such
consolidation, merger, sale, lease, assignment, transfer or conveyance, and the
assumption by any successor corporation, complies with the provisions of the
indenture and that all conditions precedent provided for in the indenture
relating to such transaction have been complied with.
A supplemental indenture establishing the terms of a particular series of
debt securities may provide that such series will not be guaranteed by the
Company.
CERTAIN COVENANTS
Unless we specify otherwise in the applicable prospectus supplement, the
indenture contains the following covenants:
Aggregate Debt Test. The Operating Partnership will not, and will not
permit any of its subsidiaries to, incur any Debt (including Acquired Debt) if,
immediately after giving effect to the incurrence of such Debt and the
application of the proceeds from such Debt on a pro forma basis, the aggregate
principal amount of all outstanding Debt of the Operating Partnership and its
subsidiaries (determined on a consolidated basis in accordance with generally
accepted accounting principles) is greater than 60% of the sum of the following
(without duplication):
- the Total Assets of the Operating Partnership and its subsidiaries as of
the last day of the then most recently ended fiscal quarter; and
- the aggregate purchase price of any real estate assets or mortgages
receivable acquired, and the aggregate amount of any securities offering
proceeds received (to the extent such proceeds were not used to acquire
real estate assets or mortgages receivable or used to reduce Debt) by the
Operating Partnership or any of its subsidiaries since the end of such
fiscal quarter, including the proceeds obtained from the incurrence of
such additional Debt, determined on a consolidated basis in accordance
with generally accepted accounting principles.
Debt Service Test. The Operating Partnership will not, and will not permit
any of its subsidiaries to, incur any Debt (including Acquired Debt) if the
ratio of Consolidated Income Available for Debt Service to
10
Annual Debt Service Charge for the period consisting of the four consecutive
fiscal quarters most recently ended prior to the date on which such additional
Debt is to be incurred shall have been less than 1.5:1 on a pro forma basis
after giving effect to the incurrence of such Debt and the application of the
proceeds from such Debt, and calculated on the following assumptions:
- such Debt and any other Debt (including Acquired Debt) incurred by the
Operating Partnership or any of its subsidiaries since the first day of
such four-quarter period had been incurred, and the application of the
proceeds from such Debt (including to repay or retire other Debt) had
occurred, on the first day of such period;
- the repayment or retirement of any other Debt of the Operating
Partnership or any of its subsidiaries since the first day of such
four-quarter period had occurred on the first day of such period (except
that, in making this computation, the amount of Debt under any revolving
credit facility, line of credit or similar facility will be computed
based upon the average daily balance of such Debt during such period);
and
- in the case of any acquisition or disposition by the Operating
Partnership or any of its subsidiaries of any asset or group of assets
with a fair market value in excess of $1 million, since the first day of
such four-quarter period, whether by merger, stock purchase or sale or
asset purchase or sale or otherwise, such acquisition or disposition had
occurred as of the first day of such period with the appropriate
adjustments with respect to such acquisition or disposition being
included in such pro forma calculation.
If the Debt giving rise to the need to make the calculation described above
or any other Debt incurred after the first day of the relevant four-quarter
period bears interest at a floating rate, then, for purposes of calculating the
Annual Debt Service Charge, the interest rate on such Debt will be computed on a
pro forma basis by applying the average daily rate which would have been in
effect during the entire four-quarter period to the greater of the amount of
such Debt outstanding at the end of such period or the average amount of Debt
outstanding during such period.
Secured Debt Test. The Operating Partnership will not, and will not permit
any of its subsidiaries to, incur any Debt (including Acquired Debt) secured by
any Lien on any property or assets of the Operating Partnership or any of its
subsidiaries, whether owned on the date of this indenture or subsequently
acquired, if, immediately after giving effect to the incurrence of such Debt and
the application of the proceeds from such debt on a pro forma basis, the
aggregate principal amount (determined on a consolidated basis in accordance
with generally accepted accounting principles) of all outstanding Debt of the
Operating Partnership and its subsidiaries which is secured by a Lien on any
property or assets of the Operating Partnership or any of its subsidiaries is
greater than 40% of the sum of (without duplication) the following:
- the Total Assets of the Operating Partnership and its subsidiaries as of
the last day of the then most recently ended fiscal quarter; and
- the aggregate purchase price of any real estate assets or mortgages
receivable acquired, and the aggregate amount of any securities offering
proceeds received (to the extent such proceeds were not used to acquire
real estate assets or mortgages receivable or used to reduce Debt) by the
Operating Partnership or any of its subsidiaries since the end of such
fiscal quarter, including the proceeds obtained from the incurrence of
such additional debt, determined on a consolidated basis in accordance
with generally accepted accounting principles.
Maintenance of Total Unencumbered Assets. The Operating Partnership will
not have at any time Total Unencumbered Assets of less than 150% of the
aggregate principal amount of all outstanding Unsecured Debt of the Operating
Partnership and its subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles.
Existence. Except as permitted under "-- Merger, Consolidation or Sale of
Assets," the Operating Partnership will do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
(charter and statutory) and franchises. However, the Operating Partnership will
not be
11
required to preserve any right or franchise if the Board of Directors of the
Company determines that the preservation of the right or franchise is no longer
desirable in the conduct of its business and that the loss of the right or
franchise is not disadvantageous in any material respect to the holders of the
debt securities.
Maintenance of Properties. The Operating Partnership will cause all of its
properties used or useful in the conduct of its business or the business of any
subsidiary to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment and cause all necessary repairs to be
made, all as in the judgment of the Operating Partnership and the Company may be
necessary in order for the Operating Partnership to all times properly and
advantageously conduct its business in connection with the properties.
Insurance. The Operating Partnership will, and will cause each of its
subsidiaries to, keep in force upon all of its properties and operations
insurance policies carried with responsible companies in customary amounts and
covering customary risks in accordance with prevailing market conditions and
availability.
Payment of Taxes and Other Claims. The Operating Partnership will pay or
discharge or cause to be paid or discharged before it becomes delinquent:
- all taxes, assessments and governmental charges levied or imposed on it
or any subsidiary or on its or any subsidiary's income, profits or
property; and
- all lawful claims for labor, materials and supplies that, if unpaid,
might by law become a lien upon its or any subsidiary's property.
However, the Operating Partnership will not be required to pay or
discharge or cause to be paid or discharged any tax, assessment, charge
or claim the amount, applicability or validity of which it is contesting
in good faith by appropriate proceedings.
Provision of Financial Information. The Operating Partnership will:
- file with the trustee, within 15 days after the Operating Partnership or
the Company is required to file them with the SEC, copies of the annual
reports and information, documents and other reports which the Operating
Partnership or the Company may be required to file with the SEC pursuant
to Section 13 or Section 15(d) of the Exchange Act; or, if the Operating
Partnership or the Company is not required to file information, documents
or reports pursuant to those Sections, then the Operating Partnership
will file with the trustee and the SEC, in accordance with rules and
regulations prescribed by the SEC, such of the supplementary and periodic
information, documents and reports which Section 13 of the Exchange Act
may require with respect to a security listed and registered on a
national securities exchange;
- file with the trustee and the SEC, in accordance with the rules and
regulations prescribed from time to time by the SEC, any additional
information, documents and reports with respect to compliance by the
Operating Partnership and the Company with the conditions and covenants
of the indenture as such rules and regulations may require; and
- transmit to the holders of the debt securities, within 30 days after
filing with the trustee, in the manner and to the extent provided in the
Trust Indenture Act of 1939, as amended, such summaries of any
information, documents and reports required to be filed by the Operating
Partnership and the Company pursuant to the bullet points above as the
Commission's rules and regulations may require.
Subsidiary Guarantees. The Operating Partnership will not permit any of its
subsidiaries to guarantee or secure through the granting of liens, the payment
of any Debt of the Operating Partnership or any guarantor. The indenture also
provides that the Operating Partnership will not and will not permit any of its
subsidiaries to pledge any intercompany notes representing obligations of any of
its subsidiaries, to secure the payment of any debt of the Operating Partnership
or any guarantor unless such subsidiary (a "Subsidiary Guarantor"), the
Operating Partnership and the trustee execute and deliver a supplemental
indenture evidencing such subsidiary's guarantee providing for the unconditional
guarantee by the subsidiary, on a senior basis, of the debt securities. If any
Subsidiary Guarantor is released from all of its obligations described above, it
will also be released from its unconditional guarantee.
12
Deletions, Modifications or Additions. We will specify in the applicable
prospectus supplement any deletions of, modifications of, or additions to the
covenants described above with respect to any series of debt securities.
DEFINITIONS
As used in this prospectus,
"Acquired Debt" means Debt of a person:
- existing at the time such person is merged or consolidated with or into,
or becomes a subsidiary of, the Operating Partnership; or
- assumed by the Operating Partnership or any of its subsidiaries in
connection with the acquisition of assets from such person.
"Annual Debt Service Charge" means, for any period, the interest expense of
the Operating Partnership and its subsidiaries for such period, determined on a
consolidated basis in accordance with generally accepted accounting principles,
including, without duplication:
- all amortization of debt discount and premiums;
- all accrued interest;
- all capitalized interest; and
- the interest component of capitalized lease obligations.
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income of the Operating Partnership and its subsidiaries for
such period, plus amounts which have been deducted and minus amounts which have
been added for, without duplication:
- interest expense on Debt;
- provision for taxes based on income;
- amortization of debt discount, premium and deferred financing costs;
- provisions for gains and losses on sales or other dispositions of
properties and other investments;
- property depreciation and amortization;
- the effect of any non-cash items; and
- amortization of deferred charges, all determined on a consolidated basis
in accordance with generally accepted accounting principles.
"Consolidated Net Income" for any period means the amount of net income (or
loss) of the Operating Partnership and its subsidiaries for such period,
excluding, without duplication:
- extraordinary items; and
- the portion of net income (but not losses) of the Operating Partnership
and its subsidiaries allocable to minority interests in unconsolidated
persons to the extent that cash dividends or distributions have not
actually been received by the Operating Partnership or one of
subsidiaries, all determined on a consolidated basis in accordance with
generally accepted accounting principles.
13
"Debt" means, with respect to any person, any indebtedness of such person,
whether or not contingent, in respect of:
- borrowed money or evidenced by bonds, notes, debentures or similar
instruments;
- indebtedness secured by any Lien on any property or asset owned by such
person, but only to the extent of the lesser of:
- the amount of indebtedness so secured; and
- the fair market value (determined in good faith by the board of
directors of such person or, in the case of the Operating Partnership or
a subsidiary, by the Company's Board of Directors) of the property
subject to such Lien;
- reimbursement obligations, contingent or otherwise, in connection with
any letters of credit actually issued or amounts representing the balance
deferred and unpaid of the purchase price of any property except any such
balance that constitutes an accrued expense or trade payable; or
- any lease of property by such person as lessee which is required to be
reflected on such person's balance sheet as a capitalized lease in
accordance with generally accepted accounting principles, and also
includes, to the extent not otherwise included, any obligation of such
person to be liable for, or to pay, as obligor, guarantor or otherwise
(other than for purposes of collection in the ordinary course of
business), Debt of the types referred to above of another person (it
being understood that Debt shall be deemed to be incurred by such person
whenever such person shall create, assume, guarantee or otherwise become
liable in respect thereof).
"Lien" means any mortgage, deed of trust, lien, charge, pledge, security
interest, security agreement, or other encumbrance of any kind.
"Total Assets" means the sum of, without duplication:
- Undepreciated Real Estate Assets; and
- all other assets (excluding accounts receivable and intangibles) of the
Operating Partnership and its subsidiaries, all determined on a
consolidated basis in accordance with generally accepted accounting
principles.
"Total Unencumbered Assets" means the sum of, without duplication:
- those Undepreciated Real Estate Assets which are not subject to a Lien
securing Debt; and
- all other assets (excluding accounts receivable and intangibles) of the
Operating Partnership and its subsidiaries not subject to a Lien securing
Debt, all determined on a consolidated basis in accordance with generally
accepted accounting principles.
"Undepreciated Real Estate Assets" means, as of any date, the cost
(original cost plus capital improvements) of real estate assets of the Operating
Partnership and its subsidiaries on such date, before depreciation and
amortization, all determined on a consolidated basis in accordance with
generally accepted accounting principles.
"Unsecured Debt" means Debt of the Operating Partnership or any of its
subsidiaries which is not secured by a Lien on any property or assets of the
Operating Partnership or any of its subsidiaries.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless we specify otherwise in the applicable prospectus supplement, the
indenture provides that the following events are "events of default" with
respect to any series of debt securities issued under the indenture:
- default in the payment of any interest upon any debt security of that
series when it becomes due and payable, and continuance of that default
for a period of 30 days;
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- default in the payment of principal of or premium, if any, on any debt
security of that series when due and payable;
- default in the performance or breach of any covenant or warranty of the
Operating Partnership in the indenture with respect to any debt security
of that series (other than a covenant or warranty the default or breach
of which is specifically dealt with in the indenture or that has been
included in the indenture solely for the benefit of a series of debt
securities other than that series), which default continues uncured for a
period of 60 days after receipt of written notice as provided in the
indenture;
- the following:
- default by the Operating Partnership or any subsidiary of the Operating
Partnership in the payment, beyond any grace period, of any principal of
or interest on any bond, note, debenture or other evidence of
indebtedness; or
- the occurrence of any other breach or default (or other event or
condition) under any agreement, indenture or instrument relating to any
such bond, note, debenture or other evidence of indebtedness beyond any
cure period,
- if as a result, the holder or holders of any such instrument has the
immediate right to cause any such instrument to become or be declared due
and payable, or required to be prepaid, redeemed, purchased or defeased
(or an offer of prepayment, redemption, purchase or defeasance be made),
prior to its stated maturity (other than by a scheduled mandatory
prepayment), which in the aggregate under the bullet points above have a
principal amount equal to or greater than $20,000,000 without such
instrument having been discharged, or such breach or default having been
cured, within a period of 10 days after the notice specified in the
indenture has been provided;
- certain events of bankruptcy, insolvency or reorganization with respect
to the Operating Partnership, the Company or any significant subsidiary
of the Operating Partnership (as defined in Regulation S-X under the
Securities Act); and
- any other event of default provided with respect to debt securities of
that series that is described in the applicable prospectus supplement.
A supplemental indenture establishing the terms of a particular series of
debt securities may delete, modify or add to the events of default described
above.
No event of default with respect to a particular series of debt securities
necessarily constitutes an event of default with respect to any other series of
debt securities. The occurrence of an event of default may constitute an event
of default under our bank credit agreements in existence from time to time. In
addition, the occurrence of certain events of default or an acceleration under
the indenture may constitute an event of default under certain of our other
indebtedness outstanding from time to time.
If an event of default with respect to debt securities of any series at the
time outstanding occurs and is continuing, then the trustee or the holders of
25% in principal amount of the outstanding debt securities of that series may,
by a notice in writing to us (and to the trustee if given by the holders),
declare all debt securities of that series to be due and payable immediately.
At any time after a declaration of acceleration with respect to debt
securities of any series has been made, but before a judgment or decree for
payment of the money due has been obtained by the trustee, the holders of a
majority in principal amount of the outstanding debt securities of that series
may rescind and annul the acceleration if:
- the Operating Partnership has paid or deposited with the trustee a sum
sufficient to pay:
- all overdue installments of interest on all outstanding debt securities
of that series;
- the principal of (and premium, if any, on) any outstanding debt
securities of that series which have become due otherwise than by such
declaration of acceleration, and interest thereon at the rates provided
for in such debt securities; and
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- to the extent lawful, interest upon overdue installments of interest at
the rate or rates provided in such debt securities; and
- all events of default with respect to debt securities of that series,
other than the nonpayment of the principal of (or premium, if any) or
interest on debt securities of that series which have become due solely
by such declaration of acceleration, have been cured or waived.
The indenture also provides that the holders of a majority in principal
amount of the outstanding debt securities of any series may on behalf of the
holders of all debt securities of such series waive any past default under the
indenture with respect to such debt securities and its consequences, except a
default:
- in the payment of the principal of (or premium, if any) or interest on or
payable in respect of any debt security of such series; or
- in respect of a covenant or provision of the indenture which cannot be
modified or amended without the consent of the holder of each outstanding
debt security of such series affected.
If the trustee knows of a default with respect to the debt securities of
any series, the indenture requires the trustee, within 90 days after the
default, to give notice to the holders of such debt securities, unless such
default shall have been cured or waived. However the trustee may withhold notice
to the holders of any debt securities of such series of any default (except a
default in the payment of the principal of (or premium, if any) or interest, if
any, on any debt security of such series) if the trustee determines such
withholding is in the interest of such holders.
The indenture provides that the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holders of outstanding debt securities, unless the holders offer the trustee
security or indemnity reasonably satisfactory to it against the costs, expenses
and liabilities which might be incurred by it in compliance with such request.
Subject to certain rights of the trustee, the holders of a majority in principal
amount of the outstanding debt securities of any series will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee or exercising any trust or power conferred on the
trustee with respect to the debt securities of that series.
No holder of any debt security of any series will have any right to
institute any proceeding, judicial or otherwise, with respect to the indenture
or for the appointment of a receiver or trustee, or for any remedy under the
indenture, unless:
- that holder has previously given to the trustee written notice of a
continuing event of default with respect to debt securities of that
series; and
- the holders of 25% in principal amount of the outstanding debt securities
of that series have made written request, and offered reasonable
indemnity, to the trustee to institute the proceeding as trustee, and the
trustee has not received from the holders of a majority in principal
amount of the outstanding debt securities of that series a direction
inconsistent with that request and has failed to institute the proceeding
within 60 days.
Notwithstanding the foregoing, the holder of any debt security will have an
absolute and unconditional right to receive payment of the principal of, premium
and any interest on that debt security on or after the due dates expressed in
that debt security and to institute suit for the enforcement of payment.
The indenture requires the Operating Partnership, within 120 days after the
end of each fiscal year, to furnish to the trustee a statement as to compliance
with the indenture. Further, upon any request by the Operating Partnership to
take any action under the indenture, the Operating Partnership will furnish to
the trustee:
- an officers' certificate stating that all conditions precedent, if any,
provided for in the indenture relating to the proposed action have been
complied with; and
- an opinion of counsel stating that in the opinion of such counsel all
such conditions precedent, if any, have been complied with.
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MODIFICATION AND WAIVER
We may modify and amend the indenture with the consent of the holders of a
majority in principal amount of the outstanding debt securities of each series
affected by the modifications or amendments except that we may not make any
modification or amendment without the consent of the holders of each affected
debt security then outstanding if that amendment will:
- change the stated maturity of the principal of (or premium, if any, on)
or any installment of principal of, or premium, if any, or the interest
payment date with respect to such debt security;
- reduce the principal amount of debt securities or the rate or amount of
interest on such debt securities, or any premium payable on such debt
security;
- adversely affect the right of any holder of debt securities to repayment
of such debt security at the holder's option;
- change the place, or the currency, for payment of principal of (or
premium, if any) such debt security;
- impair the right to institute suit for enforcement of any payment on or
with respect to such debt security;
- impair the right to institute suit for the enforcement of any payment on
or with respect to such debt security;
- reduce the amount of debt securities whose holders must consent to an
amendment or waiver or reduce the quorum or voting requirements set forth
in the indenture; or
- modify any of the foregoing provisions or any of the provisions relating
to the waiver of certain past defaults or certain covenants, except to
increase the required percentage to effect such action or to provide that
certain other provisions may not be modified or waived without the
consent of the holder of such debt security.
The holders of a majority in principal amount of the outstanding debt
securities of any series may on behalf of the holders of all debt securities of
that series waive the Operating Partnership's compliance with certain covenants
of the indenture.
Modifications and amendments of the indenture may be made by the Operating
Partnership and the trustee without the consent of any holder of debt securities
issued thereunder for any of the following purposes:
- to evidence the succession of another person to the Operating Partnership
or any guarantor under the indenture;
- to add to the covenants of the Operating Partnership or any guarantor for
the benefit of the holders of the debt securities or to surrender any
right or power conferred upon the Operating Partnership or any guarantor
in the indenture;
- to add events of default for the benefit of the holders of all or any
series of debt securities;
- to add or change any provisions of the indenture to facilitate the
issuance of the debt securities in certificated form, provided that such
action shall not adversely affect the interests of the holders of any
debt securities in any material respect;
- to secure the debt securities or guarantees;
- to provide for the acceptance of appointment by a successor trustee or to
facilitate the administration of the trusts under the indenture by more
than one trustee;
- to cure any ambiguity, defect or inconsistency in the indenture or to add
or change any other provisions with respect to matters or questions
arising under the indenture, provided that such action shall not
adversely affect the interests of holders of debt securities of any
series or any related guarantees in any material respect; or
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- to supplement any of the provisions of the indenture to the extent
necessary to permit or facilitate discharge, legal defeasance, or
covenant defeasance of any series of debt securities, provided that such
action shall not adversely affect the interests of the holders of the
debt securities in any material respect.
The indenture provides that in determining whether the holders of the
requisite principal amount of outstanding debt securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver under
the indenture or whether a quorum is present at a meeting of holders of the debt
securities of a series, debt securities of each series owned by the Operating
Partnership or any other obligor upon such debt securities or any affiliate of
the Operating Partnership or of such other obligor will be disregarded.
The indenture contains provisions for convening meetings of the holders of
debt securities of a series. A meeting may be called at any time by the trustee
and also, upon request, by the Operating Partnership or the Holders of 25% in
principal amount of the outstanding debt securities of such series, in any such
case upon notice given as provided in the indenture. Except for any consent that
must be given by the holder of each debt security affected by certain
modifications and amendments of the indenture, any resolution presented at a
meeting or adjourned meeting duly reconvened at which a quorum is present may be
adopted by the affirmative vote of the holders of a majority in principal amount
of the outstanding debt securities of such series. However, except as referred
to above, any resolution with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that may be made, given or
taken by the holders of a specified percentage, which is less or more than a
majority, in principal amount of the outstanding debt securities of such series
may be adopted at a meeting or adjourned meeting duly reconvened at which a
quorum is present by the affirmative vote of the holders of such specified
percentage in principal amount of the outstanding debt securities of such
series. Any resolution passed or decision taken at any meeting of holders of
debt securities of any series duly held in accordance with the indenture will be
binding on all holders of debt securities of such series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
persons holding or representing a majority in principal amount of the
outstanding debt securities of any series; provided, however, that if any action
is to be taken at such meeting with respect to a consent or waiver which may be
given by the holders of not less than a specified percentage, which is less or
more than a majority, in principal amount of the outstanding debt securities of
such series, the persons holding or representing such specified percentage in
principal amount of the outstanding debt securities of such series will
constitute a quorum.
Notwithstanding the provisions described above, the indenture provides that
if any action is to be taken at a meeting of holders of debt securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver or other action that the indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding debt securities of such series affected thereby:
- there shall be no minimum quorum requirement for such meeting; and
- the principal amount of the outstanding debt securities of such series
that are entitled to vote in favor of such request, demand,
authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has
been made, given or taken under the indenture.
DEFEASANCE OF DEBT SECURITIES AND CERTAIN COVENANTS IN CERTAIN CIRCUMSTANCES
Legal Defeasance and Covenant Defeasance. Unless we specify otherwise in
the applicable prospectus supplement, the indenture provides that the Operating
Partnership may elect:
- to be discharged from any and all obligations in respect of the debt
securities of any series (except for certain obligations to register the
transfer or exchange of debt securities of such series, to replace
stolen, lost or mutilated debt securities of such series, and to maintain
paying agencies and certain provisions relating to the treatment of funds
held by paying agents) ("legal deafeasance"); or
- to be released from compliance with the covenants in the indenture
("covenant defeasance").
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The Operating Partnership will be so discharged upon the deposit with the
trustee, in trust, of money and/or Government Obligations that, through the
payment of interest and principal in accordance with their terms, will provide
money in an amount sufficient to pay and discharge each installment of principal
(and premium, if any) and interest on the debt securities of that series on the
scheduled due dates or the applicable redemption date in accordance with the
terms of the indenture and those debt securities.
This trust may only be established if, among other things:
- the Operating Partnership has delivered to the trustee a legal opinion to
the effect that the holders of the debt securities will not recognize
income, gain or loss for United States federal income tax purposes as a
result of such legal defeasance or covenant defeasance and will be
subject to United States federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
legal defeasance or covenant defeasance had not occurred, and such legal
opinion, in the case of legal defeasance, must refer to and be based upon
a ruling of the Internal Revenue Service or a change in applicable United
States federal, income tax law occurring after the date of the indenture;
- if the cash and Government Obligations deposited are sufficient to pay
the outstanding debt securities of such series, provided such debt
securities are redeemed on a particular redemption date, the Operating
Partnership shall have given the trustee irrevocable instructions to
redeem the debt securities of such series on such date;
- such legal defeasance or covenant defeasance will not result in a breach
or violation of, or constitute a default under, the indenture or any
other material agreement or instrument to which the Operating Partnership
is a party or by which it is bound; and
- no event of default or event which with notice or lapse of time or both
would become an event of default with respect to the debt securities
shall have occurred and shall be continuing on the date of, or, solely in
the case of events of default due to certain events of bankruptcy,
insolvency, or reorganization, during the period ending on the 91st day
after the date of, such deposit into trust.
"Government Obligations" means securities which are:
- direct obligations of the United States of America, for the payment of
which obligations its full faith and credit is pledged; or
- obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States of America, the payment of
which is unconditionally guaranteed as a full faith and credit obligation
by the United States of America
and which, in either of the above cases, are not callable or redeemable at the
option of the issuer thereof and also includes a depository receipt issued by a
bank or trust company as custodian with respect to any such Government
Obligation held by such custodian for the account of the holder of a depository
receipt, provided that (except as provided by law) such custodian is not
authorized to make any amount received by the custodian.
Covenant Defeasance and Events of Default. In the event the Operating
Partnership exercises its option to effect covenant defeasance with respect to
any series of debt securities and the debt securities of that series are
declared due and payable because of the occurrence of any event of default, the
amount of money and/or Government Obligations on deposit with the trustee will
be sufficient to pay amounts due on the debt securities of that series at the
time of their stated maturity but may not be sufficient to pay amounts due on
the debt securities of that series at the time of the acceleration resulting
from the event of default. However, the Operating Partnership will remain liable
for those payments.
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DESCRIPTION OF COMMON STOCK
Our Charter provides that we are authorized to issue 500,000,000 shares of
common stock, $.01 par value per share. As of November 30, 1998, we had
85,874,513 shares of common stock issued and outstanding. Each outstanding share
of common stock entitles the holder to one vote on all matters presented to
stockholders generally for a vote, including the election of directors. Except
as otherwise required by law and except as provided in any resolution adopted by
the Board of Directors establishing any other class or series of stock, the
holders of common stock possess the exclusive voting power, subject to the
provisions of the Charter regarding the ownership of shares of common stock in
excess of the ownership limit or any other limit specified in the Charter or
otherwise permitted by the Board of Directors. Holders of shares of common stock
do not have any conversion, exchange, sinking fund, redemption or appraisal
rights or any preemptive rights to subscribe for any of our securities or
cumulative voting rights in the election of directors. All shares of common
stock that are issued and outstanding are duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares or series
or classes of stock, including the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock (see "-- Preferred Stock"), and
to the provisions of the Charter regarding ownership of shares of common stock
in excess of the ownership limit, or such other limit specified in the Charter
or as otherwise permitted by the Board of Directors, we may pay distributions to
the holders of shares of common stock if and when authorized and declared by the
Board of Directors out of funds legally available for distribution. We intend to
continue to make quarterly distributions on outstanding shares of common stock.
Under the Maryland General Corporation Law (the "MGCL"), stockholders are
generally not liable for our debts or obligations. If we liquidate, subject to
the right of any holders of preferred stock, including the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock (see
"-- Preferred Stock") to receive preferential distributions, each outstanding
share of common stock will be entitled to participate pro rata in the assets
remaining after payment of, or adequate provision for, all of our known debts
and liabilities, including debts and liabilities arising out of our status as
general partner of the Operating Partnership.
Subject to the provisions of our Charter regarding the ownership of shares
of common stock in excess of the ownership limit, or such other limit specified
in the Charter, or as otherwise permitted by the Board of Directors as described
below, all shares of common stock have equal distribution, liquidation and
voting rights, and have no preference or exchange rights.
Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of at least two-thirds of the
votes entitled to be cast on the matter unless a lesser percentage (but not less
than a majority of all of the votes entitled to be cast on the matter) is set
forth in the corporation's charter. Under the MGCL, the term "substantially all
of the Company's assets" is not defined and is, therefore, subject to Maryland
common law and to judicial interpretation and review in the context of the
unique facts and circumstances of any particular transaction. Our Charter does
not provide for a lesser percentage in any of the above situations.
Our Charter authorizes the Board of Directors to reclassify any unissued
shares of common stock into other classes or series of classes of stock and to
establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations and restrictions on ownership, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
class or series. The transfer agent and registrar for our common stock is
BankBoston, N.A., an affiliate of First National Bank of Boston.
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DESCRIPTION OF PREFERRED STOCK
Our Charter provides that we are authorized to issue 100,000,000 shares of
preferred stock, $.01 par value per share, of which 4,600,000 shares are of a
separate class designated as Series A Preferred Stock, 1,300,000 shares are of a
separate class designated as Series B Preferred Stock and 2,200,000 shares are
of a separate class designated as Series C Preferred Stock. The Series B
Preferred Stock is issuable in exchange, on a one for one basis, subject to
adjustment, for the Series B Preferred Units. The Series C Preferred Stock is
issuable in exchange, on a one for one basis, subject to adjustment, for 8 3/4%
Series C Cumulative Redeemable Preferred Units (the "AMB Property II Series C
Preferred Units") of AMB Property II, L.P. ("AMB Property II") that AMB Property
II issued to an institutional investor on November 24, 1998. The Company owns
100% of the common stock of AMB Property Holding Corporation, which has an
approximate 1% general partnership interest in AMB Property II. The Operating
Partnership has an approximate 99% limited partnership interest in AMB Property
II. As of November 30, 1998, we had 4,000,000 shares of Series A Preferred Stock
issued and outstanding. As of the same date, we had 1,300,000 shares of Series B
Preferred Stock and 2,200,000 shares of Series C Preferred Stock reserved for
issuance but not issued or outstanding.
The following description summarizes certain general terms and provisions
of the preferred stock to which any prospectus supplement may relate. This
summary and the summary included in the relevant prospectus supplement are not
complete. For more detail you should refer to the applicable provisions of our
Charter (including the applicable Articles Supplementary) and Bylaws. Our
Charter and Bylaws have been filed as exhibits to the registration statement of
which this prospectus is a part and the applicable Articles Supplementary will
be filed as an exhibit to this registration statement or incorporated by
reference in this registration statement by a Form 8-K.
GENERAL
We may issue preferred stock from time to time, in one or more classes, as
authorized by the Board of Directors. Prior to the issuance of shares of each
class of preferred stock, subject to the provisions of our Charter regarding the
restrictions on transfer of stock, the Board of Directors is required by the
MGCL and our Charter to fix for each class the terms, preferences, conversion or
other rights, voting powers, restrictions, limitations as to distributions,
qualifications and terms or conditions of redemption, as permitted by Maryland
law. Because the Board of Directors has the power to establish the preferences,
powers and rights of each class of preferred stock, it may afford the holders of
any class of preferred stock preferences, powers and rights, voting or
otherwise, senior to the rights of holders of shares of common stock. The
issuance of preferred stock could have the effect of delaying or preventing a
change of control of the Company that might involve a premium price for holders
of shares of common stock or otherwise be in their best interest.
Preferred stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The specific terms of a
particular class of preferred stock will be described in the prospectus
supplement relating to that class, including a prospectus supplement providing
that preferred stock may be issuable upon the exercise of warrants. The
description of preferred stock set forth below and the description of the terms
of a particular class of preferred stock set forth in a prospectus supplement do
not purport to be complete and are qualified in their entirety by reference to
the Articles Supplementary relating to that class.
The preferences and other terms of the preferred stock of each class will
be fixed by the Articles Supplementary relating to the class. A prospectus
supplement relating to each class of preferred stock will specify the following
terms:
- The title and stated value of the preferred stock;
- The number of shares of the preferred stock offered, the liquidation
preference per share and the offering price of the preferred stock;
- The dividend rate(s), period(s), and/or payment date(s) or method(s) of
calculation thereof applicable to the preferred stock;
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- Whether the preferred stock is cumulative or not and, if cumulative, the
date from which dividends on the preferred stock will accumulate;
- The provision for a sinking fund, if any, for the preferred stock;
- The provision for redemption, if applicable, of the preferred stock;
- Any listing of the preferred stock on any securities exchange;
- The terms and conditions, if applicable, upon which the preferred stock
will be converted into common stock, including the conversion price (or
manner of calculation thereof);
- A discussion of any material federal income tax considerations applicable
to the preferred stock;
- Any limitations on actual and constructive ownership and restrictions on
transfer, in each case as may be appropriate to preserve our status as a
REIT;
- The relative ranking and preferences of the preferred stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
our affairs;
- Any limitations on issuance of any class of preferred stock ranking
senior to or on a parity with such class or series of preferred stock as
to dividend rights and rights upon liquidation, dissolution or winding up
of our affairs;
- Any other specific terms, preferences, rights, limitations or
restrictions of the preferred stock; and
- Any voting rights of the preferred stock.
RANK
Unless otherwise specified in the applicable prospectus supplement, the
preferred stock will be, with respect to dividends and upon our voluntary or
involuntary liquidation, dissolution or winding up:
- senior to all classes or series of common stock and to all of our equity
securities the terms of which provide that the equity securities shall
rank junior to the preferred stock;
- junior to all equity securities that we issue which rank senior to the
preferred stock; and
- on a parity with all equity securities that we issued other than those
that are referred to in the bullet points above.
The term "equity securities" does not include convertible debt securities.
DIVIDENDS
Holders of shares of the preferred stock of each class will be entitled to
receive, when, as and if authorized and declared by our Board of Directors, out
of our assets legally available for payment, cash dividends at the rates and on
the dates as we will set forth in the applicable prospectus supplement.
Dividends will be payable to holders of record as they appear on our stock
transfer books on the record dates that the Board of Directors will fix.
Dividends on any class of preferred stock may be cumulative or
noncumulative, 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 authorize a
dividend payable on a dividend payment date on any class of preferred stock for
which dividends are noncumulative, then the holders of the class of preferred
stock will have no right to receive a dividend in respect of the dividend period
ending on the dividend payment date, and we will have no obligation to pay the
dividend accrued for the period, whether or not dividends on the class are
declared or paid for any future period.
Unless full cumulative dividends on the class of preferred stock have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and the
then current dividend period, no dividends (other than in common stock or any of
our
22
other equity securities ranking junior to the series or class of preferred stock
as to dividends and upon our voluntary or involuntary liquidation, dissolution
and winding up) shall be declared or paid or set aside for payment or other
dividend be declared or made upon the common stock or any of our other equity
securities ranking as to distributions or upon our voluntary or involuntary
liquidation, dissolution or winding up junior to or on a parity with the series
or class of preferred stock, nor will any common stock or any of our other
equity securities ranking junior to or on a parity with the class of preferred
stock as to dividends or upon our voluntary or involuntary liquidation,
dissolution or winding up be redeemed, purchased or otherwise acquired for any
consideration (or any monies be paid to or made available for a sinking fund for
the redemption of any such securities) by us (except by conversion into or
exchange for our other equity securities ranking junior to the class of
preferred stock as to dividends and upon voluntary or involuntary liquidation,
dissolution and winding up and pursuant to the provisions of our Charter
providing for limitations on ownership and transfer in order to ensure that we
remain qualified as a REIT). When dividends are not paid in full (or a sum
sufficient for full payment is not so set apart) upon the class of preferred
stock and any other equity securities ranking as to dividends on a parity with
the class of preferred stock, all dividends declared upon the series or class of
preferred stock and any of our other equity securities ranking on a parity with
the class of preferred stock as to dividends and upon voluntary or involuntary
liquidation, dissolution or winding up will be declared pro rata so that the
amount of dividends declared per share of the series or class of preferred stock
and each other equity securities will in all cases bear to each other the same
ratio that accumulated dividends per share of the series or class of preferred
stock and the other equity securities (which will not include any accumulation
in respect of unpaid dividends for prior dividend periods if the other equity
securities do not have a cumulative dividend) bear to each other. No interest,
or sum of money in lieu of interest, will be payable in respect of any dividend
payment or payments on any series or class of preferred stock which may be in
arrears.
Any dividend payment that we make on shares of a class of preferred stock
will first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series or class that remains payable.
REDEMPTION
If we so provide in the applicable prospectus supplement, the shares of
preferred stock will be subject to mandatory redemption or redemption at our
option, as a whole or in part, in each case on the terms, at the times and at
the redemption prices set forth in the prospectus supplement.
The prospectus supplement relating to a series or class of preferred stock
that is subject to mandatory redemption will specify the number of shares of
preferred stock that we will 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 accumulated and unpaid dividends thereon (which will not, if
the 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. We may pay the redemption price in cash or other property,
as specified in the applicable prospectus supplement. If the redemption price
for preferred stock of any class is payable only from the net proceeds of the
issuance of our stock, the terms of the preferred stock may provide that, if no
such preferred stock shall have been issued or to the extent the net proceeds
from any issuance are insufficient to pay in full the aggregate redemption price
then due, the preferred stock will automatically and mandatorily be converted
into shares of the applicable stock pursuant to conversion provisions specified
in the applicable prospectus supplement.
Notwithstanding the foregoing, if the class of preferred stock has a
cumulative dividend, unless full cumulative dividends on all outstanding shares
of the class of preferred stock 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, we
may not redeem any shares of the class of preferred stock unless we
simultaneously redeem all outstanding shares of the class of preferred stock;
provided, however, that the foregoing will not prevent the purchase or
acquisition of shares of the series or class of preferred stock pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
shares of the class of preferred stock. In addition, unless full cumulative
dividends on all outstanding shares of the class of preferred stock 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
23
the then current dividend period, we may not purchase or otherwise acquire
directly or indirectly any shares of such class of preferred stock or any of our
equity securities ranking junior to or on a parity with such class of preferred
stock as to dividends or upon voluntary or involuntary liquidation, dissolution
or winding up (except by conversion into or exchange for our equity securities
ranking junior to such class of preferred stock as to dividends and upon
voluntary or involuntary liquidation, dissolution or winding up).
The foregoing provisions will not prevent us from acquiring shares of
preferred stock pursuant to the provisions of the applicable Articles
Supplementary providing for limitations on ownership and transfer in order to
ensure that we remain qualified as a REIT for federal income tax purposes. See
"Restrictions on Ownership and Transfer of Capital Stock."
If we redeem fewer than all of the outstanding shares of a class of
preferred stock, we will select the shares that we will redeem pro rata (as
nearly as may be practicable without creating fractional shares), by lot or by
any other equitable method that we determine. If this redemption is to be by lot
and, as a result of the redemption, any holder of shares of the class of
preferred stock would become a holder of a number of shares of the class of
preferred stock in excess of the ownership limit because we did not redeem the
holder's shares of the class of preferred stock, or we only redeemed those
shares in part, then, except as otherwise provided in our Charter, we will
redeem the requisite number of shares of the series or class of preferred stock
of the holder such that no holder will hold in excess of the ownership limit
subsequent to the redemption. See "Restrictions on Ownership and Transfer of
Capital Stock."
We will give notice of redemption by publication in a newspaper of general
circulation in The City of New York. This publication will be made once a week
for two successive weeks commencing not less than 30 nor more than 60 days'
prior to the redemption date. We will mail a similar notice, postage prepaid,
not less than 30 nor more than 60 days' prior to the redemption date, addressed
to the respective holders of record of the preferred stock to be redeemed at
their respective addresses as they appear on our share transfer records. No
failure to give notice or any defect in notice or in the mailing thereof will
affect the validity of the proceedings for the redemption of any shares of the
series or class of preferred stock except as to the holder to whom notice was
defective or not given. Each notice will state the following:
- the redemption date;
- the redemption price;
- the number of shares of the class of preferred stock to be redeemed;
- the place or places where the certificates evidencing shares of the
series or class of preferred stock are to be surrendered for payment of
the redemption price; and
- that dividends on the class of preferred stock to be redeemed will cease
to accumulate on the redemption date. If we will redeem fewer than all
the shares of the class of preferred stock held by any holder, the notice
that we mail to the holder will also specify the number of shares of the
class of preferred stock that we will redeem from the holder.
The holders of shares of a class of preferred stock at the close of
business on a dividend record date will be entitled to receive the dividend
payable with respect to the shares of the class of preferred stock held on the
corresponding dividend payment date notwithstanding the redemption of the shares
between the dividend record date and the corresponding dividend payment date or
our default in the payment of the dividend due. Except as provided above, we
will make no payment or allowance for unpaid dividends, whether or not in
arrears, on shares of any class of preferred stock to be redeemed.
Subject to applicable law and the limitation on purchases when dividends on
a class of preferred stock are in arrears, we may, at any time and from time to
time, purchase any shares of the class of preferred stock in the open market, by
tender or by private agreement.
24
LIQUIDATION PREFERENCE
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up, the holders of preferred stock will be entitled to receive out of our
assets legally available for distribution to our stockholders remaining after
payment or provision for payment of all of our debts and, liquidating
distributions in the amount of the liquidation preference per share set forth in
the applicable prospectus supplement, plus an amount equal to any accumulated
and unpaid dividends to the date of payment, before any distribution of assets
is made to holders of common stock or any other equity securities that rank
junior to the class of preferred stock as to voluntary or involuntary
liquidation. After payment of the full amount of the liquidating distributions
to which they are entitled, the holders of the class of preferred stock will
have no right or claim to any of our remaining assets. Our consolidation or
merger with or into any other entity, a merger of another entity with or into
us, a statutory share exchange by us or the sale, lease, transfer or conveyance
of all or substantially all of our property or business will not be considered a
liquidation, dissolution or winding up.
If, upon any voluntary or involuntary liquidation, dissolution or winding
up, our assets are insufficient to make full payment to holders of such class of
preferred stock and the corresponding amounts payable on all shares of other
classes of our equity securities ranking on a parity with the class of preferred
stock as to liquidation rights, then the holders of the class of preferred stock
and all other such classes of equity securities will share ratably in any
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled. In determining whether a
distribution (other than upon voluntary or involuntary liquidation, dissolution
or winding up) by dividend, redemption or other acquisition of shares of stock
or otherwise is permitted under the MGCL, no effect will be given to amounts
that would be needed, if we were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of holders of
shares of the class of preferred stock, whose preferential rights upon
dissolution are superior to those receiving the distribution.
VOTING RIGHTS
Holders of the preferred stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as we
indicate in the applicable prospectus supplement.
Unless provided for otherwise by any class of preferred stock, so long as
any shares of preferred stock of a class remain outstanding, we will not,
without the affirmative vote or consent of at least two-thirds of the votes
entitled to be cast by the holders of such outstanding shares, given in person
or by proxy, either in writing or at a meeting (the class voting separately as a
class) do any of the following:
- authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking senior to such series or class of
preferred stock with respect to payment of dividends or the distribution
of assets upon voluntary or involuntary liquidation, dissolution or
winding up, or reclassify any of our authorized stock into shares, or
create, authorize or issue any obligation or security convertible into,
exchangeable or exercisable for, or evidencing the right to purchase, any
stock; or
- amend, alter or repeal the provisions of our Charter, whether by merger
or consolidation or otherwise, so as to materially and adversely affect
any right, preference, privilege or voting power of the class of
preferred stock or the holders of such class.
So long as shares of the class of preferred stock (or shares issued by a
surviving entity in substitution for the class of preferred stock) remain
outstanding with their terms materially unchanged, taking into account that upon
the occurrence of such an event, we may not be the surviving entity, the
occurrence of an event set forth in the second bullet point above will not be
considered to materially and adversely affect the rights, preferences,
privileges or voting powers of holders of such class of preferred stock.
Additionally, any increase in the amount of the authorized preferred stock or
the creation or issuance of any other class or series of preferred stock, or any
increase in the amount of authorized series or class of preferred stock or any
other class or series of preferred stock, in each case ranking on a parity with
or junior to such series or class of preferred stock with respect to payment of
dividends and the distribution of assets upon voluntary or involuntary
25
liquidation, dissolution or winding up, will not be considered to materially and
adversely affect such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the act
with respect to which such vote would otherwise be required, we have redeemed or
called for redemption upon proper notice and deposited sufficient funds in
trust.
CONVERSION RIGHTS
We will specify in the applicable prospectus supplement the terms and
conditions upon which any shares of any class or series of preferred stock are
convertible into common stock. The terms will include:
- the number of shares of common stock into which the shares of preferred
stock are convertible;
- the conversion price (or method for calculating the conversion price);
- the conversion period;
- provisions regarding whether conversion will be at the option of the
holders of the class of preferred stock or the Operating Partnership;
- the events requiring an adjustment of the conversion price; and
- provisions affecting conversion in the event of the redemption of the
class of preferred stock.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF CAPITAL STOCK
In order for the Company to qualify as a REIT under the Code, the Company's
capital stock is subject to certain restrictions on ownership and transfer. See
"Restrictions on Ownership and Transfer of Capital Stock."
TRANSFER AGENT AND REGISTRAR
The transfer agent, registrar and dividend disbursing agent for our Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock is
BankBoston, N.A. We will specify in the applicable prospectus supplement the
transfer agent, registrar and dividend disbursing agent for any other class of
preferred stock.
DESCRIPTION OF SERIES A PREFERRED STOCK
The Series A Preferred Stock ranks, with respect to dividends and in the
event we voluntarily or involuntarily liquidate, dissolve or wind up:
- senior to all classes or series of common stock and to all of our equity
securities that provide that they rank junior to the Series A Preferred
Stock;
- junior to all equity securities issued by us which rank senior to the
Series A Preferred Stock; and
- on a parity with all equity securities issued by us (including the Series
B Preferred Stock and the Series C Preferred Stock) other than those
referred to in the bullet points above. The term "equity securities" does
not include convertible debt securities.
Holders of the Series A Preferred Stock are entitled to receive, when and
as authorized by the Board of Directors out of funds legally available for
dividends, cumulative preferential cash dividends at the rate of 8 1/2% of the
liquidation preference per annum (equivalent to $2.125 per annum per share of
Series A Preferred Stock). Dividends on the Series A Preferred Stock accumulate
on a daily basis and are payable quarterly in arrears on the 15th day of each
January, April, July and October. Except as provided below, unless full
cumulative dividends on the Series A Preferred Stock have been or at the same
time are declared and paid or declared and a sum sufficient for payment set
apart for payment for all past dividend periods and the then current dividend
period, no dividends (other than in common stock or other equity securities
ranking junior to the Series A Preferred Stock) may be declared or paid or set
aside for payment or other dividend be declared
26
or made upon the common stock or any other equity securities ranking junior to
or on a parity with the Series A Preferred Stock (including the Series B
Preferred Stock and the Series C Preferred Stock), nor may any common stock or
any other equity securities ranking junior to or on a parity with the Series A
Preferred Stock (including the Series B Preferred Stock and the Series C
Preferred Stock) be redeemed, purchased or otherwise acquired for any
consideration (or any monies be paid to or made available for a sinking fund for
the redemption of any such securities) by us (except by conversion into or
exchange for other equity securities ranking junior to the Series A Preferred
Stock and pursuant to the provisions of our Charter providing for limitations on
ownership and transfer in order to ensure that we remain qualified as a REIT).
When dividends are not paid in full (or a sum sufficient for such full payment
is not so set apart) upon the Series A Preferred Stock and any other equity
securities ranking on a parity with the Series A Preferred Stock (including the
Series B Preferred Stock and the Series C Preferred Stock), all dividends
declared upon the Series A Preferred Stock and any other equity securities
ranking on a parity with the Series A Preferred Stock (including the Series B
Preferred Stock and the Series C Preferred Stock) will be declared pro rata so
that the amount of dividends declared per share of Series A Preferred Stock and
each such other equity securities shall bear to each other the same ratio that
accumulated dividends per share of Series A Preferred Stock and such other
equity securities (which shall not include any accumulation in respect of unpaid
dividends for prior dividend periods if such other equity securities do not have
a cumulative dividend) bear to each other. Dividends on the Series A Preferred
Stock will accumulate whether or not we have funds legally available for the
payment of dividends and whether or not we declare dividends. If we designate
any portion of a dividend as a "capital gain dividend," a holder's share of the
capital gain dividend will be an amount that bears the same ratio to the total
amount of dividends (as determined for federal income tax purposes) paid to the
holder for the year as the aggregate amount designated as a capital gain
dividend bears to the aggregate amount of all dividends (as determined for
federal income tax purposes) paid on all classes of shares for the year.
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up, the holders of the Series A Preferred Stock are entitled to receive out
of our assets legally available for distribution to our stockholders remaining
after payment or provision for payment of all of our debts and liabilities, a
liquidation preference, in cash, of $25.00 per share, plus an amount equal to
any accumulated and unpaid dividends to the date of such payment, before any
distribution of assets is made to holders of common stock or any other equity
securities that rank junior to the Series A Preferred Stock. After payment of
the full amount of the liquidating distributions to which they are entitled, the
holders of the Series A Preferred Stock will have no right or claim to any of
our remaining assets. Our consolidation or merger with or into any other entity,
a merger of another entity with or into us, a statutory share exchange or the
sale, lease, transfer or conveyance of all or substantially all of our property
or business do not constitute a liquidation, dissolution or winding up for
purposes of triggering the liquidation preference.
If we voluntarily or involuntarily liquidate, dissolve or wind up and our
assets are insufficient to make full payment to holders of the Series A
Preferred Stock and the corresponding amounts payable on all shares of other
classes or series of equity securities ranking on a parity with the Series A
Preferred Stock, then the holders of the Series A Preferred Stock and all other
such classes or series of equity securities will share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be entitled.
The Series A Preferred Stock has no stated maturity and is not subject to
mandatory redemption or any sinking fund. We cannot redeem the Series A
Preferred Stock prior to July 27, 2003. On and after July 27, 2003, we can
redeem the Series A Preferred Stock for cash at our option, in whole or from
time to time in part, at a redemption price of $25.00 per share, plus
accumulated and unpaid dividends, if any, to the redemption date. We must pay
the redemption price (other than the portion of the redemption price consisting
of accumulated and unpaid dividends) solely out of the sale proceeds of other
equity securities, which may include other classes or series of preferred stock.
In certain circumstances related to our maintenance of our ability to qualify as
a REIT for federal income tax purposes, we may redeem shares of Series A
Preferred Stock. See "-- Restrictions on Ownership and Transfer of Capital
Stock."
Holders of Series A Preferred Stock have no voting rights, except as
described below. If we do not pay dividends on the Series A Preferred Stock for
six or more quarterly periods (whether or not consecutive),
27
holders of the Series A Preferred Stock (voting separately as a class with all
other classes or series of equity securities upon which like voting rights have
been conferred and are exercisable) will be entitled to vote for the election of
two additional directors to serve on our Board of Directors until we have
eliminated all dividend arrearages with respect to the Series A Preferred Stock.
So long as any shares of Series A Preferred Stock remain outstanding, we may
not, without the affirmative vote or consent of at least two-thirds of the votes
entitled to be cast by the holders of outstanding shares of Series A Preferred
Stock (the Series A Preferred Stock voting separately as a class):
- authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking senior to the Series A Preferred Stock;
- reclassify any of our authorized stock into any class or series of stock
ranking senior to the Series A Preferred Stock;
- create, authorize or issue any obligation or security convertible into,
exchangeable or exercisable for, or evidencing the right to purchase, any
class or series of stock ranking senior to the Series A Preferred Stock;
or
- amend, alter or repeal the provisions of our Charter, whether by merger
or consolidation or otherwise, so as to materially and adversely affect
any right, preference, privilege or voting power of the Series A
Preferred Stock.
With respect to the occurrence of any of the events set forth in the fourth
bullet point above, so long as shares of Series A Preferred Stock (or shares
issued by a surviving entity in substitution for shares of the Series A
Preferred Stock) remain outstanding with the terms materially unchanged, taking
into account that upon the occurrence of such an event, we may not be the
surviving entity, the occurrence of any such event will not be considered to
materially and adversely affect rights, preferences, privileges or voting powers
of holders of Series A Preferred Stock. Any increase in the amount of the
authorized preferred stock, the creation or issuance of any other class or
series of preferred stock or any increase in the amount of authorized Series A
Preferred Stock or any other class or series of preferred stock, in each case
ranking on a parity with or junior to the Series A Preferred Stock, will not be
considered to materially and adversely affect such rights, preferences,
privileges or voting powers.
In accordance with the terms of the Third Amended and Restated Agreement of
Limited Partnership of the Operating Partnership (the "Partnership Agreement"),
we contributed the net proceeds of the sale of the Series A Preferred Stock to
the Operating Partnership and the Operating Partnership issued to us Series A
Preferred Units that mirror the rights, preferences and other terms of the
Series A Preferred Stock. The Operating Partnership is required to make all
required distributions on the Series A Preferred Units prior to any distribution
of cash or assets to the holders of any other Units or any other equity
interests in the Operating Partnership, except for any other series of preferred
Units ranking on a parity with the Series A Preferred Units as to dividends or
voluntary or involuntary liquidation, dissolution or winding up of the Operating
Partnership. The Operating Partnership has no preferred Units, other than the
Series A Preferred Units and the Series B Preferred Units, outstanding or any
other equity interests ranking prior to any other Units or any other equity
interests in the Operating Partnership.
DESCRIPTION OF SERIES B PREFERRED STOCK
We currently have no shares of Series B Preferred Stock issued or
outstanding. The Series B Preferred Stock is issuable upon exchange of the
Series B Preferred Units, as described under "Description of Certain Provisions
of the Partnership Agreement of the Operating Partnership -- Series B Preferred
Units -- Exchange Rights." The Series B Preferred Stock ranks, with respect to
dividends and in the event we voluntarily or involuntarily liquidate, dissolve
or wind up:
- senior to all classes or series of common stock and to all of our equity
securities that provide that they rank junior to the Series B Preferred
Stock;
- junior to all equity securities issued by us which rank senior to the
Series B Preferred Stock; and
28
- on a parity with all equity securities issued by us (including the Series
A Preferred Stock and the Series C Preferred Stock) other than those
referred to in the bullet points above. The term "equity securities" does
not include convertible debt securities.
If ever issued, the Series B Preferred Stock will entitle the holders to
receive, when and as authorized by the Board of Directors out of funds legally
available for dividends, cumulative preferential cash dividends at the rate of
8 5/8% of the liquidation preference per annum (equivalent to $4.3125 per annum
per share of Series B Preferred Stock). Dividends on the Series B Preferred
Stock accumulate on a daily basis and are payable quarterly in arrears on the
15th day of each January, April, July and October. Except as provided below,
unless full cumulative dividends on the Series B Preferred Stock have been or at
the same time are declared and paid or declared and a sum sufficient for payment
set apart for payment for all past dividend periods and the then current
dividend period, no distributions (other than in common stock or other equity
securities ranking junior to the Series B Preferred Stock) may be declared or
paid or set aside for payment or other dividend be declared or made upon the
common stock or any other equity securities ranking junior to or on a parity
with the Series B Preferred Stock (including the Series A Preferred Stock and
the Series C Preferred Stock), nor may any common stock or any other equity
securities ranking junior to or on a parity with the Series B Preferred Stock
(including the Series A Preferred Stock and the Series C Preferred Stock) be
redeemed, purchased or otherwise acquired for any consideration (or any monies
be paid to or made available for a sinking fund for the redemption of any such
securities) by us (except by conversion into or exchange for other equity
securities ranking junior to the Series B Preferred Stock and pursuant to the
provisions of our Charter providing for limitations on ownership and transfer in
order to ensure that we remain qualified as a REIT). When dividends are not paid
in full (or a sum sufficient for such full payment is not so set apart) upon the
Series B Preferred Stock and any other equity securities ranking on a parity
with the Series B Preferred Stock (including the Series A Preferred Stock and
the Series C Preferred Stock), all dividends declared upon the Series B
Preferred Stock and any other equity securities ranking on a parity with the
Series B Preferred Stock (including the Series A Preferred Stock and the Series
C Preferred Stock) will be declared pro rata so that the amount of dividends
declared per share of Series B Preferred Stock and each such other equity
securities shall bear to each other the same ratio that accumulated dividends
per share of Series B Preferred Stock and such other equity securities (which
shall not include any accumulation in respect of unpaid dividends for prior
dividend periods if such other equity securities do not have a cumulative
dividend) bear to each other. Dividends on the Series B Preferred Stock will
accumulate whether or not we have funds legally available for the payment of
dividends and whether or not we declare dividends. If we designate any portion
of a dividend as a "capital gain dividend," a holder's share of the capital gain
dividend will be an amount that bears the same ratio to the total amount of
dividends (as determined for federal income tax purposes) paid to the holder for
the year as the aggregate amount designated as a capital gain dividend bears to
the aggregate amount of all dividends (as determined for federal income tax
purposes) paid on all classes of shares for the year.
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up following the issuance of the Series B Preferred Stock, the holders of
the Series B Preferred Stock will be entitled to receive out of our assets
legally available for distribution to our stockholders remaining after payment
or provision for payment of all of our debts and liabilities, a liquidation
preference, in cash, of $50.00 per share, plus an amount equal to any
accumulated and unpaid dividends to the date of such payment, before any
distribution of assets is made to holders of common stock or any other equity
securities that rank junior to the Series B Preferred Stock. After payment of
the full amount of the liquidating distributions to which they are entitled, the
holders of the Series B Preferred Stock will have no right or claim to any of
our remaining assets. Our consolidation or merger with or into any other entity,
a merger of another entity with or into us, a statutory share exchange or the
sale, lease, transfer or conveyance of all or substantially all of our property
or business do not constitute a liquidation, dissolution or winding up for
purposes of triggering the liquidation preference.
If we voluntarily or involuntarily liquidate, dissolve or wind up following
the issuance of the Series B Preferred Stock and our assets are insufficient to
make full payment to holders of the Series B Preferred Stock and the
corresponding amounts payable on all shares of other classes or series of equity
securities ranking on a parity with the Series B Preferred Stock as to
liquidation rights (including the Series A Preferred Stock and
29
the Series C Preferred Stock) then the holders of the Series B Preferred Stock
and all other such classes or series of equity securities will share ratably in
any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be entitled.
The Series B Preferred Stock has no stated maturity and is not subject to
mandatory redemption or any sinking fund. If issued, we cannot redeem the Series
B Preferred Stock prior to November 12, 2003. On and after November 12, 2003, we
can redeem the Series B Preferred Stock for cash at our option, in whole or from
time to time in part, at a redemption price of $50.00 per share, plus
accumulated and unpaid dividends, if any, to the redemption date. We must pay
the redemption price (other than the portion of the redemption price consisting
of accumulated and unpaid dividends) solely out of the sale proceeds of other
equity securities, which may include other classes or series of preferred stock.
In certain circumstances related to our maintenance of our ability to qualify as
a REIT for federal income tax purposes, we may redeem shares of Series B
Preferred Stock. See "-- Restrictions on Ownership and Transfer of Capital
Stock."
Holders of Series B Preferred Stock will have no voting rights, except as
described below. If we do not pay dividends on the Series B Preferred Stock for
six or more quarterly periods (whether or not consecutive), holders of the
Series B Preferred Stock (voting separately as a class with all other classes or
series of equity securities upon which like voting rights have been conferred
and are exercisable) will be entitled to vote for the election of two additional
directors to serve on our Board of Directors until we have eliminated all
dividend arrearages with respect to the Series B Preferred Stock. So long as any
shares of Series B Preferred Stock remain outstanding, we may not, without the
affirmative vote or consent of at least two-thirds of the votes entitled to be
cast by the holders of the outstanding shares of Series B Preferred Stock (the
Series B Preferred Stock voting separately as a class):
- authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking senior to the Series B Preferred Stock;
- reclassify any of our authorized stock into any class or series of stock
ranking senior to the Series B Preferred Stock;
- designate or create, or increase the authorized or issued amount of, or
reclassify, any authorized shares into, any preferred stock ranking on a
parity with the Series B Preferred Stock or create, authorize or issue
any obligations or securities convertible into any such shares, but only
to the extent such stock is issued to one of our affiliates; or
- either consolidate, merge into or with, or convey, transfer or lease our
assets substantially as an entirety, to any corporation or other entity,
or amend, alter or repeal the provisions of our Charter, whether by
merger or consolidation or otherwise, in each case so as to materially
and adversely affect the powers, special rights, preferences, privileges
or voting power of the Series B Preferred Stock.
With respect to the occurrence of any of the events set forth in the fourth
bullet point above, so long as we are either the surviving entity and shares of
Series B Preferred Stock remain outstanding with the terms materially unchanged
or the resulting, surviving or transferee entity is a corporation organized
under the laws of any state and substitutes for the Series B Preferred Stock
other preferred stock having substantially the same terms and rights as the
Series B Preferred Stock, the occurrence of any such event will not be
considered to materially and adversely affect rights, preferences, privileges or
voting powers of holders of Series B Preferred Stock. Any increase in the amount
of authorized preferred stock, the creation or issuance of any other class or
series of preferred stock or any increase in an amount of authorized shares of
each class or series, in each case ranking on a parity with or junior to the
Series B Preferred Stock will not be considered to materially and adversely
affect such rights, preferences, privileges or voting powers.
We have granted certain registration rights with respect to any shares of
Series B Preferred Stock that we may issue upon exchange of the Series B
Preferred Units. See "Description of Certain Provisions of the Partnership
Agreement of the Operating Partnership -- Series B Preferred
Units -- Registration Rights."
30
DESCRIPTION OF SERIES C PREFERRED STOCK
We currently have no shares of Series C Preferred Stock issued or
outstanding. The Series C Preferred Stock is issuable upon exchange of the AMB
Property II Series C Preferred Units. The AMB Property II Series C Preferred
Units are exchangeable in whole at any time on or after November 24, 2008, at
the option of 51% of the holders of all outstanding AMB Property II Series C
Preferred Units, on a one for one basis, subject to adjustment, for shares of
our Series C Preferred Stock. In addition, the AMB Property II Series C
Preferred Units are exchangeable in whole at any time at the option of 51% of
the holders of all outstanding AMB Property II Series C Preferred Units if:
- any AMB Property II Series C Preferred Unit shall not have received full
distributions with respect to six prior quarterly distribution periods
(whether or not consecutive); or
- AMB Property Holding Corporation, the general partner of AMB Property II,
or one of its subsidiaries takes the position, and a holder or holders of
AMB Property II Series C
- Preferred Units receive an opinion of independent counsel that AMB
Property II is, or upon the happening of a certain event likely will be,
a "publicly traded partnership" within the meaning of the Code.
The AMB Property II Series C Preferred Units are exchangeable in whole for
shares of Series C Preferred Stock at any time after November 24, 2001 and prior
to November 24, 2008 at the option of 51% of the holders of all outstanding AMB
Property II Series C Preferred Units if those holders deliver to AMB Property
Holding Corporation a private letter ruling or an opinion of independent counsel
to the effect that an exchange of the AMB Property II Series C Preferred Units
at that time would not cause the AMB Property II Series C Preferred Units to be
considered "stock and securities" within the meaning of the Code for purposes of
determining whether the holder of AMB Property II Series C Preferred Units is an
"investment company" under the Code.
The AMB Property II Series C Preferred Units are also exchangeable in whole
at any time for shares of Series C Preferred Stock, if initial purchasers of the
AMB Property II Series C Preferred Units holding 51% of all outstanding AMB
Property II Series C Preferred Units determine, (regardless of whether held by
the initial purchasers) if:
- AMB Property II reasonably determines that the assets and income of AMB
Property II for a taxable year after 1998 would not satisfy the income
and assets tests of the Code for such taxable year if AMB Property II
were a REIT; or
- any holder of AMB Property II Series C Preferred Units delivers to AMB
Property II and AMB Property Holding Corporation an opinion of
independent counsel to the effect that (based on the assets and income of
AMB Property II for a taxable year after 1998) AMB Property II would not
satisfy the income and assets tests of the Code for such taxable year if
AMB Property II were a REIT and that such failure would create a
meaningful risk that a holder of AMB Property II Series C Preferred Units
would fail to maintain qualification as a REIT.
In lieu of an exchange for Series C Preferred Stock, AMB Property II may
redeem AMB Property II Series C Preferred Units for cash in an amount equal to
the original capital account balance of the holder of AMB Property II Series C
Preferred Units. A holder of AMB Property II Series C Preferred Units will not
be entitled to exchange the units for Series C Preferred Stock if the exchange
would result in a violation of the ownership limit. See "Description of Capital
Stock -- Restrictions on Ownership and Transfer of Capital Stock."
The Series C Preferred Stock ranks, with respect to dividends and in the
event we voluntarily or involuntarily liquidate, dissolve or wind up:
- senior to all classes or series of common stock and to all of our equity
securities that provide that they rank junior to the Series C Preferred
Stock;
- junior to all equity securities issued by us which rank senior to the
Series C Preferred Stock; and
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- on a parity with all equity securities issued by us (including the Series
A Preferred Stock and the Series B Preferred Stock) other than those
referred to in the bullet points above. The term "equity securities" does
not include convertible debt securities until converted into equity
securities.
If ever issued, the Series C Preferred Stock will entitle the holders to
receive, when and as authorized by the Board of Directors out of funds legally
available for dividends, cumulative preferential cash dividends at the rate of
8.75% of the liquidation preference per annum (equivalent to $4.375 per annum
per share of Series C Preferred Stock). Dividends on the Series C Preferred
Stock accumulate on a daily basis and are payable quarterly in arrears on the
15th day of each January, April, July and October. Except as provided below,
unless full cumulative dividends on the Series C Preferred Stock have been or at
the same time are declared and paid or declared and a sum sufficient for payment
set apart for payment for all past dividend periods and the then current
dividend period, no distributions (other than in common stock or other equity
securities ranking junior to the Series C Preferred Stock) may be declared or
paid or set aside for payment or other dividend be declared or made upon the
common stock or any other equity securities ranking junior to or on a parity
with the Series C Preferred Stock (including the Series A Preferred Stock and
the Series B Preferred Stock), nor may any common stock or any other equity
securities ranking junior to or on a parity with the Series C Preferred Stock
(including the Series A Preferred Stock and the Series B Preferred Stock) be
redeemed, purchased or otherwise acquired for any consideration (or any monies
be paid to or made available for a sinking fund for the redemption of any such
securities) by us (except by conversion into or exchange for other equity
securities ranking junior to the Series C Preferred Stock and pursuant to the
provisions of our Charter providing for limitations on ownership and transfer in
order to ensure that we remain qualified as a REIT). When dividends are not paid
in full (or a sum sufficient for such full payment is not so set apart) upon the
Series C Preferred Stock and any other equity securities ranking on a parity
with the Series C Preferred Stock (including the Series A Preferred Stock and
the Series B Preferred Stock), all dividends declared upon the Series C
Preferred Stock and any other equity securities ranking on a parity with the
Series C Preferred Stock (including the Series A Preferred Stock and the Series
B Preferred Stock) will be declared pro rata so that the amount of dividends
declared per share of Series C Preferred Stock and each such other equity
securities shall bear to each other the same ratio that accumulated dividends
per share of Series C Preferred Stock and such other equity securities (which
shall not include any accumulation in respect of unpaid dividends for prior
dividend periods if such other equity securities do not have a cumulative
dividend) bear to each other. Dividends on the Series C Preferred Stock will
accumulate whether or not we have funds legally available for the payment of
dividends and whether or not we declare dividends. If we designate any portion
of a dividend as a "capital gain dividend," a holder's share of the capital gain
dividend will be an amount that bears the same ratio to the total amount of
dividends (as determined for federal income tax purposes) paid to the holder for
the year as the aggregate amount designated as a capital gain dividend bears to
the aggregate amount of all dividends (as determined for federal income tax
purposes) paid on all classes of shares for the year.
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up following the issuance of Series C Preferred Stock, the holders of the
Series C Preferred Stock will be entitled to receive out of our assets legally
available for distribution to our stockholders remaining after payment or
provision for payment of all of our debts and liabilities, a liquidation
preference, in cash, of $50.00 per share, plus an amount equal to any
accumulated or accrued and unpaid dividends to the date of such payment, before
any distribution of assets is made to holders of common stock or any other
equity securities that rank junior to the Series C Preferred Stock. After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of the Series C Preferred Stock will have no right or
claim to any of our remaining assets. Our consolidation or merger with or into
any other entity, a merger of another entity with or into us, a statutory share
exchange or the sale, lease, transfer or conveyance of all or substantially all
of our property or business do not constitute a liquidation, dissolution or
winding up for purposes of triggering the liquidation preference.
If we voluntarily or involuntarily liquidate, dissolve or wind up following
the issuance of Series C Preferred Stock and our assets are insufficient to make
full payment to holders of the Series C Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of equity securities
ranking on a parity with the Series C Preferred Stock as to liquidation rights
(including the Series A Preferred Stock and
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the Series B Preferred Stock) then the holders of the Series C Preferred Stock
and all other such classes or series of equity securities will share ratably in
any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be entitled.
The Series C Preferred Stock has no stated maturity and is not subject to
mandatory redemption or any sinking fund. If issued, we cannot redeem the Series
C Preferred Stock prior to November 24, 2003. On and after November 24, 2003, we
can redeem the Series C Preferred Stock for cash at our option, in whole or from
time to time in part, at a redemption price of $50.00 per share, plus
accumulated and unpaid dividends, if any, to the redemption date. We must pay
the redemption price (other than the portion of the redemption price consisting
of accumulated and unpaid dividends) solely out of the sale proceeds of other
equity securities, which may include other classes or series of preferred stock.
In certain circumstances related to our maintenance of our ability to qualify as
a REIT for federal income tax purposes, we may redeem shares of Series C
Preferred Stock. See "-- Restrictions on Ownership and Transfer of Capital
Stock."
Holders of Series C Preferred Stock will have no voting rights, except as
described below. If we do not pay dividends on the Series C Preferred Stock for
six or more quarterly periods (whether or not consecutive), holders of the
Series C Preferred Stock (voting separately as a class with all other classes or
series of equity securities upon which like voting rights have been conferred
and are exercisable) will be entitled to vote for the election of two additional
directors to serve on our Board of Directors until we have eliminated all
dividend arrearages with respect to the Series C Preferred Stock. So long as any
shares of Series C Preferred Stock remain outstanding, we may not, without the
affirmative vote or consent of at least two-thirds of the votes entitled to be
cast by the holders of the outstanding shares of Series C Preferred Stock (the
Series C Preferred Stock voting separately as a class):
- authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking senior to the Series C Preferred Stock;
- reclassify any of our authorized stock into any class or series of stock
ranking senior to the Series C Preferred Stock;
- designate or create, or increase the authorized or issued amount of, or
reclassify, any authorized shares into, any preferred stock ranking on a
parity with the Series C Preferred Stock or create, authorize or issue
any obligations or securities convertible into any such shares, but only
to the extent such stock is issued to one of our affiliates; or
- either consolidate, merge into or with, or convey, transfer or lease our
assets substantially, as an entirety, to any corporation or other entity,
or amend, alter or repeal the provisions of our Charter, whether by
merger or consolidation or otherwise, in each case so as to materially
and adversely affect the powers, special rights, preferences, privileges
or voting power of the Series C Preferred Stock.
With respect to the occurrence of any of the events set forth in the fourth
bullet point above, so long as we are either the surviving entity and shares of
Series C Preferred Stock remain outstanding with the terms materially unchanged
or the resulting, surviving or transferee entity is a corporation, business
trust or like entity organized under the laws of any state and substitutes for
the Series C Preferred Stock other preferred stock or preferred shares having
substantially the same terms and rights as the Series C Preferred Stock, the
occurrence of any such event will not be considered to materially and adversely
affect rights, preferences, privileges or voting powers of holders of Series C
Preferred Stock. Any increase in the amount of authorized preferred stock, the
creation or issuance of any other class or series of preferred stock or any
increase in an amount of authorized shares of each class or series, in each case
ranking on a parity with or junior to the Series C Preferred Stock, will not be
considered to materially and adversely affect such rights, preferences,
privileges or voting powers.
We have agreed to file a registration statement registering the resale of
the shares of Series C Preferred Stock issuable to the holders of AMB Property
II Series C Preferred Units as soon as practicable but not later than 60 days
after the date the AMB Property II Series C Preferred Units are exchanged for
shares of Series C Preferred Stock. We have also agreed to use our best efforts
to cause the registration statement to be declared effective within 120 days
after the date of the exchange.
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DESCRIPTION OF DEPOSITARY SHARES
GENERAL
We may issue depositary shares, each of which will represent a fractional
interest of a share of a particular class of preferred stock, as specified in
the applicable prospectus supplement. We will deposit with a depositary (the
"preferred stock depositary") shares of a class of preferred stock represented
by depositary shares pursuant to a separate deposit agreement among the Company,
the preferred stock depositary and the holders from time to time of the
depositary receipts issued by the preferred stock depositary which will evidence
the depositary shares ("depositary receipts"). Subject to the terms of the
deposit agreement, each owner of a depositary receipt will be entitled, in
proportion to the fractional interest of a share of a particular class of
preferred stock represented by the depositary shares evidenced by the depositary
receipt, to all the rights and preferences of the class of the preferred stock
represented by the depositary shares (including dividend, voting, conversion,
redemption and liquidation rights).
The depositary shares will be evidenced by depositary receipts issued
pursuant to the applicable deposit agreement. Immediately after we issue and
deliver the preferred stock to a preferred stock depositary, we will cause the
preferred stock depositary to issue the depositary receipts on our behalf. You
may obtain copies of the applicable form of deposit agreement and depositary
receipt from us upon request. The statements made in this section relating to
the deposit agreement and the depositary receipt are summaries of certain
anticipated provisions. These summaries are not complete and may be modified by
the applicable prospectus supplement. For more detail you should refer to the
deposit agreement itself, which will be filed as an exhibit to the registration
statement of which this prospectus is a part or incorporated by reference in
this registration statement by a Form 8-K.
DIVIDENDS AND OTHER DISTRIBUTIONS
The preferred stock depositary will distribute all cash dividends or other
cash distributions received in respect of a class or series of preferred stock
to the record holders of depositary receipts evidencing the related depositary
shares in proportion to the number of depositary receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the preferred stock
depositary.
In the event of a distribution other than in cash, the preferred stock
depositary will distribute property that it receives to the record holders of
depositary receipts entitled to the property, subject to certain obligations of
holders to file proofs, certificates and other information and to pay certain
charges and expenses to the preferred stock depositary, unless the preferred
stock depositary determines that it is not feasible to make the distribution, in
which case the preferred stock depositary may, with our approval, sell the
property and distribute the net proceeds from the sale to the holders.
No distribution will be made in respect of any depositary share to the
extent that it represents any preferred stock converted into shares in excess of
the ownership limit or otherwise converted or exchanged.
WITHDRAWAL OF STOCK
Upon surrender of the depositary receipts at the corporate trust office of
the preferred stock depositary (unless the related depositary shares have
previously been called for redemption or converted, or converted into Excess
Shares (defined under "Restrictions on Ownership and Transfer of Capital Stock")
or otherwise), the holders will be entitled to delivery at the corporate trust
office, or upon each such holder's order, of the number of whole or fractional
shares of the class or series of preferred stock and any money or other property
represented by the depositary shares evidenced by such depositary receipts.
Holders of depositary receipts will be entitled to receive whole or fractional
shares of the related class or series of preferred stock on the basis of the
proportion of preferred stock represented by each depositary share as specified
in the applicable prospectus supplement, but holders of such shares of preferred
stock will not thereafter be entitled to receive depositary shares therefor. 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
shares of preferred stock to be
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withdrawn, the preferred stock depositary will deliver to such holder at the
same time a new depositary receipt evidencing the excess number of depositary
shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever we redeem shares of preferred stock held by the preferred stock
depositary, the preferred stock depositary will redeem as of the same redemption
date the number of the depositary shares representing shares of such class or
series of preferred stock so redeemed, provided we shall have paid in full to
the preferred stock depositary the redemption price of the preferred stock to be
redeemed plus an amount equal to any accrued and unpaid dividends on the
preferred stock to the date fixed for redemption. The redemption price per
depositary share will be equal to the corresponding portion of the redemption
price and any other amounts per share payable with respect to such class or
series of preferred stock. If we redeem fewer than all the depositary shares,
the depositary shares we will select the depositary shares that we will redeem
pro rata (as nearly as may be practicable without creating fractional depositary
shares), by lot or by any other equitable method that we determine that will not
result in the issuance of any Excess Shares.
From and after the date fixed for redemption, all dividends in respect of
the shares of a class or series of preferred stock so called for redemption will
cease to accrue, the depositary shares called for redemption will no longer be
deemed to be outstanding and all rights of the holders of the depositary
receipts evidencing the depositary shares so called for redemption will cease,
except the right to receive any moneys payable upon redemption and any money or
other property to which the holders of the depositary receipts were entitled
upon redemption upon surrender of the depositary receipts to the preferred stock
depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of a class of
preferred stock deposited with the preferred stock depositary are entitled to
vote, the preferred stock depositary will mail the information contained in the
notice of meeting to the record holders of the depositary receipts evidencing
the depositary shares which represent such class of preferred stock. Each record
holder of depositary receipts evidencing depositary shares on the record date
(which will be the same date as the record date for such class of preferred
stock) will be entitled to instruct the preferred stock depositary as to the
exercise of the voting rights pertaining to the amount of preferred stock
represented by the holder's depositary shares. The preferred stock depositary
will vote the amount of such class or series of preferred stock represented by
the depositary shares in accordance with such instructions, and we will agree to
take all reasonable action which the preferred stock depositary may deem
necessary in order to enable the preferred stock depositary to do so. The
preferred stock depositary will abstain from voting the amount of preferred
stock represented by the depositary shares to the extent it does not receive
specific instructions from the holders of depositary receipts evidencing the
depositary shares. The preferred stock depositary will not be responsible for
any failure to carry out any instruction to vote, or for the manner or effect of
any such vote made, as long as any such action or non-action is in good faith
and does not result from the preferred stock depositary's negligence or willful
misconduct.
LIQUIDATION PREFERENCE
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up, the holders of each depositary receipt will be entitled to the fraction
of the liquidation preference accorded each share of preferred stock represented
by the depositary share evidenced by the depositary receipt as set forth in the
applicable prospectus supplement.
CONVERSION OF PREFERRED STOCK
The depositary shares, as such, will not be convertible into common stock
or any other securities or property, except in connection with certain exchanges
in connection with the preservation of our status as a REIT. See "Restrictions
on Ownership and Transfer of Capital Stock." Nevertheless, if stated in the
applicable prospectus supplement relating to an offering of depositary shares,
holders may surrender depositary receipts to the applicable preferred stock
depositary with written instructions to the preferred stock depositary
35
to instruct us to cause conversion of a class or series of preferred stock
represented by the depositary shares evidenced by the depositary receipts into
whole shares of common stock, other shares of a class or series of preferred
stock (including Excess Shares) or other shares of stock, and we have agreed
that upon receipt of these instructions and any amounts payable, we will cause
the conversion of the shares of preferred stock utilizing the same procedures as
those provided for delivery of preferred stock to effect the conversion. If we
convert only a portion of depositary shares evidenced by a depositary receipt,
we will issue a depositary receipt or receipts for any depositary shares that we
do not covert. We will not issue fractional shares of common stock upon
conversion, and if conversion will result in a fractional share, we will pay an
amount in cash by equal to the value of the fractional interest based upon the
closing price of our common stock on the last business day prior to the
conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
The form of depositary receipt evidencing depositary shares which represent
the preferred stock and any provision of the deposit agreement may at any time
be amended by agreement between us and the preferred stock depositary. However,
any amendment that materially and adversely alters the rights of the holders of
depositary receipts or that would be materially or adversely inconsistent with
the rights granted to the holders of the related preferred stock will not be
effective unless such amendment has been approved by the existing holders of at
least two-thirds of the applicable depositary shares evidenced by the applicable
depositary receipts then outstanding. No amendment will impair the right,
subject to certain anticipated exceptions in the deposit agreements, of any
holder of depositary receipts to surrender any depositary receipt with
instructions to deliver to the holder the related class of preferred stock and
all money and other property, if any, represented by the depositary receipt,
except in order to comply with law. Every holder of an outstanding depositary
receipt at the time any such amendment becomes effective will be deemed, by
continuing to hold such depositary receipt, to consent and agree to such
amendment and to be bound by the applicable deposit agreement as amended.
We may terminate the deposit agreement upon not less than 30 days prior
written notice to the preferred stock depositary if such termination is
necessary to preserve our status as a REIT or a majority of each class or series
of preferred stock subject to the deposit agreement consents to termination, at
which time the preferred stock depositary will deliver or make available to each
holder of depositary receipts, upon surrender of the depositary receipts held by
the holder, the number of whole or fractional shares of preferred stock as are
represented by the depositary shares evidenced by the depositary receipts
together with any other property held by the preferred stock depositary with
respect to the depositary receipts. We will agree that if the deposit agreement
is terminated to preserve our status as a REIT, then we will use our best
efforts to list each class or series of preferred stock issued upon surrender of
the related depositary shares. In addition, the deposit agreement will
automatically terminate if:
- we have redeemed all outstanding depositary shares;
- there shall have been a final distribution in respect of each class or
series of preferred stock in connection with our liquidation, dissolution
or winding up and such distribution shall have been distributed to the
holders of the depositary receipts evidencing the depositary shares
representing such class or series of preferred stock; or
- each share of the related preferred stock shall have been converted into
our stock which is not represented by depositary shares.
CHARGES OF A PREFERRED STOCK DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the deposit agreement. In addition, we will pay the
fees and expenses of the preferred stock depositary in connection with the
performance of our duties under the deposit agreement. However, holders of
depositary receipts will pay the fees and expenses of the preferred stock
depositary for any duties requested by the holders to be performed which are
outside of those expressly provided for in the deposit agreement.
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RESIGNATION AND REMOVAL OF DEPOSITARY
The preferred stock 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 preferred
stock depositary, any such resignation or removal to take effect upon the
appointment of a successor preferred stock depositary. A successor preferred
stock depositary must be appointed within 60 days after delivery of the notice
of resignation or removal and must be a bank or trust company with its principal
office in the United States and a combined capital and surplus of at least
$50,000,000.
MISCELLANEOUS
The preferred stock depositary will forward to holders of depositary
receipts any reports and communications from us which are received by the
preferred stock depositary with respect to the related preferred stock.
We will not be liable, and the preferred stock depositary will not be
liable, if we are prevented or it is prevented from or delayed in, by law or any
circumstances beyond its or our control, performing the obligations under the
deposit agreement. Our obligations and the obligations of the preferred stock
depositary under the deposit agreement will be limited to performing our duties
in good faith and without negligence (in the case of any action or inaction in
the voting of a class or series of preferred stock represented by the depositary
shares), gross negligence or willful misconduct. We will not be obligated, and
the preferred stock depositary will not be obligated, to prosecute or defend any
legal proceeding in respect of any depositary receipts, depositary shares or
shares of a class or series of preferred stock represented thereby unless
satisfactory indemnity is furnished. We may rely on, and the preferred stock
depositary may rely on, written advice of counsel or accountants, or information
provided by persons presenting shares of preferred stock represented thereby for
deposit, holders of depositary receipts or other persons that we believe in good
faith to be competent to give such information, and on documents that we believe
in good faith to be genuine and signed by a proper party.
If a preferred stock depositary receives conflicting claims, requests or
instructions from any holders of depositary receipts, on the one hand, and from
us, on the other hand, the preferred stock depositary will be entitled to act on
such claims, requests or instructions received by us.
DESCRIPTION OF WARRANTS
We currently have no warrants outstanding (other than options issued under
our Stock Option and Incentive Plan). We may issue warrants for the purchase of
common stock or preferred stock. We may issue warrants independently or together
with any other securities offered pursuant to any prospectus supplement and
warrants may be attached to or separate from such securities. We will issue each
series of warrants under a separate warrant agreement that we will enter into
with a warrant agent specified in the applicable prospectus supplement. 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 provisions of the warrants. We will set forth additional
terms of the warrants and the applicable warrant agreements in the applicable
prospectus supplement.
The applicable prospectus supplement will describe the terms of the
warrants in respect of which we are delivering this prospectus, including, where
applicable, the following:
- the title of the warrants;
- the aggregate number of the warrants;
- the price or prices at which the warrants will be issued;
- the designation, terms and number of shares of preferred stock or common
stock purchasable upon exercise of the warrants;
- the designation and terms of any securities with which the warrants are
issued and the number of any warrants issued with each such security;
37
- the date, if any, on and after which the warrants and the related
preferred stock or common stock will be separately transferable,
including any limitations on ownership and transfer of the warrants as
may be appropriate to preserve our status as a REIT;
- the price at which each share of preferred stock or common stock
purchasable upon exercise of the warrants may be purchased;
- the date on which the right to exercise the warrants will commence and
the date on which the right will expire;
- the minimum or maximum amount of the warrants which may be exercised at
any one time;
- information with respect to book-entry procedures, if any;
- a discussion of certain federal income tax considerations; and
- any other terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the warrants.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF CAPITAL STOCK
In order for us to qualify as a REIT under the Code, no more than 50% in
value of all classes of our outstanding shares of capital stock may be owned,
actually or constructively, by five or fewer individuals (as defined in the Code
to include certain entities) during the last half of a taxable year (other than
the first year for which we have made an election to be treated as a REIT). In
addition, if we, or an owner of 10% or more of our capital stock, actually or
constructively own 10% or more of one of our tenants (or a tenant of any
partnership or limited liability company in which we are a partner or member),
the rent received by us (either directly or through the partnership or limited
liability company) from the tenant will not be qualifying income for purposes of
the gross income tests for REITs contained in the Code. A REIT's stock also must
be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months or during a proportionate part of a shorter taxable
year (other than the first year for which an election to be treated as a REIT
has been made).
Because our Board of Directors believes it is desirable for us to qualify
as a REIT, our Charter, subject to certain exceptions as discussed below,
provides that no person may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% (by value or number of
shares, whichever is more restrictive) of either our issued and outstanding
common stock or our issued and outstanding Series A Preferred Stock. We will
also prohibit the ownership, actually or constructively, of any shares of our
Series B Preferred Stock and any shares of our Series C Preferred Stock by any
single person so that no such person, taking into account all of our stock so
owned by such person, may own in excess of 9.8% of our issued and outstanding
capital stock. The constructive ownership rules under the Code are complex and
may cause stock owned actually or constructively by a group of related
individuals and/or entities to be owned constructively by one individual or
entity. As a result, the acquisition of less than 9.8% of our common stock,
Series A Preferred Stock or capital stock (or the acquisition of an interest in
an entity that owns, actually or constructively, common stock, Series A
Preferred Stock or capital stock) by an individual or entity, could,
nevertheless cause that individual or entity, or another individual or entity,
to own constructively in excess of 9.8% of our outstanding common stock, Series
A Preferred Stock or capital stock, as the case may be, and thereby subject the
common stock, Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock to the applicable ownership limit. The Board of Directors may,
but in no event will be required to, waive the applicable ownership limit with
respect to a particular stockholder if it determines that such ownership will
not jeopardize our status as a REIT and the Board of Directors otherwise decides
such action would be in our best interest. As a condition of such waiver, the
Board of Directors may require an opinion of counsel satisfactory to it and/or
undertakings or representations from the applicant with respect to preserving
our REIT status. The Board of Directors has waived the ownership limit
applicable to our common stock with respect to Ameritech Pension Trust, allowing
it to own up to 14.9% of our common stock and, under some circumstances,
allowing it to own up to 19.6%. However, we conditioned this waiver upon the
receipt of
38
undertakings and representations from Ameritech Pension Trust which we believed
were reasonably necessary in order for us to conclude that the waiver would not
cause us to fail to qualify as a REIT.
Our Charter also provides that:
- no person may actually or constructively own common stock, Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
that would result in us being "closely held" under Section 856(h) of the
Code or otherwise cause us to fail to qualify as a REIT;
- no person may transfer common stock, Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock if a transfer would result in
shares of our capital stock being owned by fewer than 100 persons; and
- any person who acquires or attempts or intends to acquire actual or
constructive ownership of common stock, Series A Preferred Stock, Series
B Preferred Stock or Series C Preferred Stock that will or may violate
any of the foregoing restrictions on transferability and ownership is
required to notify us immediately and provide us with such other
information as we may request in order to determine the effect of the
transfer on our status as a REIT. The foregoing restrictions on
transferability and ownership will not apply if our Board of Directors
determines that it is no longer in our best interest to attempt to
qualify, or to continue to qualify, as a REIT. Except as otherwise
described above, any change in the applicable ownership limit would
require an amendment to our Charter, which requires the affirmative vote
of holders owning at least two-thirds of the shares of our outstanding
capital stock entitled to vote on the amendment.
Under our Charter, if any attempted transfer of shares of stock or any
other event would otherwise result in any person violating an ownership limit,
any other limit imposed by our Board of Directors or the other restrictions in
the Charter, then any such attempted transfer will be void and of no force or
effect with respect to the purported transferee (the "Prohibited Transferee") as
to that number of shares that exceeds the applicable ownership limit or such
other limit (referred to as "Excess Shares"). Under those circumstances, the
Prohibited Transferee will acquire no right or interest (or, in the case of any
event other than an attempted transfer, the person or entity holding record
title to any shares in excess of the applicable ownership limit (the "Prohibited
Owner") will cease to own any right or interest) in the Excess Shares. Any
Excess Shares described above will be transferred automatically, by operation of
law, to a trust, the beneficiary of which will be a qualified charitable
organization selected by us (the "Beneficiary"). This automatic transfer will be
considered to be effective as of the close of business on the business day prior
to the date of the violating transfer or event. Within 20 days of receiving
notice from us of the transfer of shares to the trust, the trustee of the trust
will be required to sell the Excess Shares to a person or entity who could own
the shares without violating the applicable ownership limit, or any other limit
imposed by our Board of Directors, and distribute to the Prohibited Transferee
an amount equal to the lesser of the price paid by the Prohibited Transferee for
the Excess Shares or the sales proceeds received by the trust for the Excess
Shares. In the case of any Excess Shares resulting from any event other than a
transfer, or from a transfer for no consideration (such as a gift), the trustee
will be required to sell Excess Shares to a qualified person or entity and
distribute to the Prohibited Owner an amount equal to the lesser of the
applicable market price of the Excess Shares as of the date of the event or the
sales proceeds received by the trust for the Excess Shares. In either case, any
proceeds in excess of the amount distributable to the Prohibited Transferee or
Prohibited Owner will be distributed to the Beneficiary. Prior to a sale of any
Excess Shares by the trust, the trustee will be entitled to receive, in trust
for the Beneficiary, all dividends and other distributions paid by us with
respect to the Excess Shares, and also will be entitled to exercise all voting
rights with respect to the Excess Shares. Subject to Maryland law, effective as
of the date that the shares have been transferred to the trust, the trustee will
have the authority (at the trustee's sole discretion) to rescind as void any
vote cast by a Prohibited Transferee or Prohibited Owner prior to the time that
we discover that the shares have been automatically transferred to the trust and
to recast the vote in accordance with the desires of the trustee acting for the
benefit of the Beneficiary. However, if we have already taken irreversible
corporate action, then the trustee will not have the authority to rescind and
recast the vote. If we pay the Prohibited Transferee or Prohibited Owner any
dividend or other distribution before we discover that the shares were
transferred to the trust, the Purported Transferee or Prohibited Owner will be
39
required to repay the trustee upon demand for distribution to the Beneficiary.
If the transfer to the trust is not automatically effective (for any reason), to
prevent violation of the applicable ownership limit or any other limit provided
in our Charter or imposed by the Board of Directors, then our Charter provides
that the transfer of the Excess Shares will be void ab initio.
In addition, shares of stock held in the trust will be considered to have
been offered for sale to us, or our designee, at a price per share equal to the
lesser of (1) the price per share in the transaction that resulted in the
transfer to the trust (or, in the case of a devise or gift, the market price at
the time of such devise or gift) and (2) the applicable market price on the date
that we, or our designee, accept the offer. We have the right to accept the
offer until the trustee has sold the shares held in the trust. Upon that sale to
us, the interest of the Beneficiary in the shares sold will terminate and the
trustee will distribute the net proceeds of the sale to the Prohibited
Transferee or Prohibited Owner.
If any attempted transfer of shares would cause us to be beneficially owned
by fewer than 100 persons, our Charter provides that the transfer will be null
and void in its entirety and the intended transferee will acquire no rights to
the stock.
All certificates representing shares will bear a legend referring to the
restrictions described above. The ownership limitations described above could
delay, defer or prevent a transaction or a change in control that might involve
a premium price for the shares or otherwise be in the best interest of
stockholders.
Under our Charter, owners of outstanding shares must, upon our demand,
provide us with a completed questionnaire containing information regarding
ownership of the shares, as set forth in the treasury regulations. In addition,
each stockholder must upon demand disclose to us in writing such information
that we may request in order to determine the effect, if any, of the
stockholder's actual and constructive ownership of shares of common stock,
Series A Preferred Stock, Series B Preferred Stock and/or Series C Preferred
Stock on our status as a REIT and to ensure compliance with each ownership
limit, or any other limit specified in the Charter or required by the Board of
Directors.
CERTAIN PROVISIONS OF MARYLAND LAW AND
OF OUR CHARTER AND BYLAWS
We have summarized certain terms and provisions of the MGCL and our Charter
and Bylaws. This summary is not complete and is qualified by the provisions of
our Charter and Bylaws, and the MGCL. For more detail, you should refer to our
Charter and Bylaws, which we have filed as exhibits to the registration
statement of which this prospectus is a part. See "Where You Can Find More
Information."
BOARD OF DIRECTORS
The Charter provides that the number of our directors shall be established
by the Bylaws, but cannot be less than the minimum number required by the MGCL,
which in the case of the Company is three. Our Bylaws currently provide that the
Board of Directors consists of not fewer than five nor more than 13 members who
are elected to a one-year term at each annual meeting of our stockholders. A
majority of the entire Board of Directors may fill any vacancy (except for a
vacancy caused by removal). Our Bylaws provide that a majority of the Board of
Directors must be "Independent Directors." An "Independent Director" is a
director who is not:
- an employee, officer or affiliate of us or one of our subsidiaries or
divisions,
- a relative of a principal executive officer, or
- an individual member of an organization acting as advisor, consultant or
legal counsel, receiving compensation on a continuing basis from us in
addition to director's fees.
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REMOVAL OF DIRECTORS
While our Charter and the MGCL empower our stockholders to fill vacancies
in the Board of Directors that are caused by the removal of a director, our
Charter precludes stockholders from removing incumbent directors except upon a
substantial affirmative vote. Specifically, our Charter provides that
stockholders may remove a director only for cause and only by the affirmative
vote of at least two-thirds of the votes entitled to be cast in the election of
directors, subject to the rights of the holders of shares of Series A Preferred
Stock and any holders of shares of our preferred stock to elect and remove
directors elected by such holders under certain circumstances. The MGCL does not
define the term "cause." As a result, removal for "cause" is subject to Maryland
common law and to judicial interpretation and review in the context of the
unique facts and circumstances of any particular situation. This provision, when
coupled with the provision in our Bylaws authorizing the Board of Directors to
fill vacant directorships, precludes stockholders from removing incumbent
directors except upon a substantial affirmative vote and filling the vacancies
created by removal with their own nominees.
OPT OUT OF BUSINESS COMBINATIONS AND CONTROL SHARE ACQUISITION STATUTES
We have elected in our Bylaws not to be governed by the "control share
acquisition" provisions of the MGCL (Sections 3-701 through 3-709), and the
Board of Directors has determined, by irrevocable resolution, that we will not
be governed by the "business combination" provision of the MGCL (Section 3-602),
each of which could have the effect of delaying or preventing a change of
control. Our Bylaws provide that we cannot at a future date determine to be
governed by either provision without the approval of a majority of the
outstanding shares entitled to vote. In addition, the irrevocable resolution
adopted by the Board of Directors may only be changed by the approval of a
majority of the outstanding shares entitled to vote.
AMENDMENT TO OUR CHARTER AND BYLAWS
Our Charter may not be amended without the affirmative vote of at least
two-thirds of the shares of capital stock outstanding and entitled to vote on
the amendment, voting together as a single class. Our Bylaws may be amended by
the vote of a majority of the Board of Directors or by a vote of a majority of
the shares of our capital stock entitled to vote on the amendment, except with
respect to the following Bylaw provisions (each of which requires the approval
of a majority of the shares of capital stock entitled to vote on the amendment):
- provisions opting out of the control share acquisition statute;
- the requirement in our Bylaws that our independent directors approve
transactions involving our executive officers or directors or any limited
partners of the Operating Partnership and their affiliates; and
- provisions governing amendment of our Bylaws.
MEETINGS OF STOCKHOLDERS
Our Bylaws provide for annual meetings of stockholders to elect the Board
of Directors and transact other business as may properly be brought before the
meeting. The President, the Board of Directors and the Chairman of the Board may
call a special meeting of stockholders. The holders of 50% or more of our
outstanding stock entitled to vote may also make a written request to call a
special meeting of stockholders.
The MGCL provides that stockholders may act by unanimous written consent
without a meeting with respect to any action that they are required or permitted
to take at a meeting, if each stockholder entitled to vote on the matter signs
the consent setting forth the action and each stockholder entitled to notice of
the meeting but not entitled to vote at the meeting signs a written waiver of
any right to dissent.
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ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
Our Bylaws provide that with respect to an annual meeting of stockholders,
nominations of persons for election to the Board of Directors and the proposal
of business to be considered by stockholders may be made only:
- pursuant to the notice of the meeting;
- by or at the direction of the Board of Directors; or
- by a stockholder who is entitled to vote at the meeting and has complied
with the advance notice procedures set forth in our Bylaws.
Our Bylaws also provide that with respect to special meetings of
stockholders, only the business specified in the notice of meeting may be
brought before the meeting.
The provisions in our Charter regarding amendments to the Charter and the
advance notice provisions of our Bylaws could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of the
shares of common stock might receive a premium for their shares over the then
prevailing market price or which holders might believe to be otherwise in their
best interests.
DISSOLUTION OF THE COMPANY
Under the MGCL, we may be dissolved by the affirmative vote of a majority
of the entire Board of Directors declaring dissolution to be advisable and
directing that the proposed dissolution be submitted for consideration at any
annual or special meeting of stockholders. We may also be dissolved, upon proper
notice, by the affirmative vote of the holders of two-thirds of the total number
of shares of capital stock outstanding and entitled to vote on the dissolution,
voting as a single class.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY
Our officers and directors are indemnified under the MGCL, our Charter and
the Partnership Agreement against certain liabilities. Our Charter and Bylaws
require us to indemnify our directors and officers to the fullest extent
permitted from time to time by the MGCL.
The MGCL permits a corporation to indemnify its directors and officers and
certain other parties against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless:
- the act or omission of the director or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty;
- the director or officer actually received an improper personal benefit in
money, property or services; or
- in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
A corporation may indemnify a director or officer against judgments,
penalties, fines, settlements and reasonable expenses that the director or
officer actually incurs in connection with the proceeding unless the proceeding
is one by or in the right of the corporation and the director or officer has
been adjudged to be liable to the corporation. In addition, a corporation may
not indemnify a director or officer with respect to any proceeding charging
improper personal benefit to the director or officer in which the director or
officer was adjudged to be liable on the basis that personal benefit was
received. The termination of any proceeding by conviction, or upon a plea of
nolo contendere or its equivalent, or an entry of any order of probation prior
to judgment, creates a rebuttable presumption that the director or officer did
not meet the requisite standard of conduct required for indemnification to be
permitted.
The MGCL permits the charter of a Maryland corporation to include a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, subject to specified
42
restrictions. Our Charter contains this provision. The MGCL does not, however,
permit the liability of directors and officers to the corporation or its
stockholders to be limited to the extent that:
- it is proved that the person actually received an improper personal
benefit in money, property or services,
- a judgment or other final adjudication is entered in a proceeding based
on a finding that the person's action, or failure to act, was committed
in bad faith or was the result of active and deliberate dishonesty and
was material to the cause of action adjudicated in the proceeding or
- in the case of any criminal proceeding, the director had reasonable cause
to believe that the act or failure to act was unlawful.
This provision does not limit our ability or our stockholders to obtain
other relief, such as an injunction or rescission. The Partnership Agreement
also provides for our indemnification, as general partner, and our officers and
directors to the same extent indemnification is provided to our officers and
directors in our Charter, and limits our liability and the liability of our
officers and directors to the Operating Partnership and the partners of the
Operating Partnership to the same extent liability of our officers and directors
to us and our stockholders is limited under our Charter. See "Description of
Certain Provisions of the Partnership Agreement of the Operating
Partnership -- Our Exculpation and Indemnification."
Insofar as the foregoing provisions permit indemnification for liability
arising under the Securities Act of directors, officers or persons controlling
us, we have been informed that in the opinion of the SEC, this indemnification
is against public policy as expressed in the Securities Act and is therefore
unenforceable.
DESCRIPTION OF CERTAIN PROVISIONS OF THE
PARTNERSHIP AGREEMENT OF THE OPERATING PARTNERSHIP
Substantially all of our assets are held, and all of our operations are
conducted, by or through the Operating Partnership. We are the sole general
partner of the Operating Partnership and owned, as of November 30, 1998, an
approximate 95.1% interest in the Operating Partnership. As the sole general
partner, we have the exclusive right and power to manage the Operating
Partnership. Our interest in the Operating Partnership is designated as a
general partner interest. Except with respect to distributions of cash and
allocations of income and loss, and except as otherwise noted in this
prospectus, the description in this section of common limited partnership Units
is also applicable to Performance Units, and holders of Performance Units will
be treated as limited partners. We have summarized certain terms and provisions
of the Partnership Agreement. This summary is not complete and is qualified by
the provisions of the Partnership Agreement. For more detail, you should refer
to the Partnership Agreement itself, which we have filed as an exhibit to the
registration statement of which this prospectus is a part. See "Where You Can
Find More Information."
GENERAL
Holders of limited partnership Units hold limited partnership interests in
the Operating Partnership, and all holders of partnership interests (including
us in our capacity as general partner) are entitled to share in cash
distributions from, and in the profits and losses of, the Operating Partnership.
The number of general partnership Units (the "GP Units") held by us is
approximately equal to the total number of outstanding shares of our common
stock and preferred stock. Accordingly, the distributions that we pay per share
of common stock are expected to be equal to the distributions per unit that the
Operating Partnership pays on the common Units, and the distributions that we
pay per share of Series A Preferred Stock, any Series B Preferred Stock and any
Series C Preferred Stock are expected to be equal to the distributions per unit
that the Operating Partnership pays on the Series A Preferred Units, the Series
B Preferred Units and any Series C Preferred Units, respectively. The Units have
not been registered pursuant to federal or state securities laws, and they will
not be listed on the New York Stock Exchange or any other exchange or quoted on
any national market system. However, the shares of common stock, Series B
Preferred Stock and Series C Preferred Stock that we may issue upon exchange of
the common Units, Series B Preferred Units and AMB Property II Series C
Preferred Units may be sold in registered transactions or transactions exempt
from registration under
43
the Securities Act. The limited partners of the Operating Partnership have the
rights to which limited partners are entitled under the Partnership Agreement
and the Delaware Uniform Limited Partnership Act (the "Partnership Act"). The
Partnership Agreement imposes certain restrictions on the transfer of Units, as
described below.
PURPOSE, BUSINESS AND MANAGEMENT
The Operating Partnership is organized as a Delaware limited partnership
pursuant to the terms of the Partnership Agreement. We are the sole general
partner of the Operating Partnership and conduct substantially all of our
business through the Operating Partnership, except for investment advisory
services (which we conduct through AMB Investment Management, Inc. ("AMB
Investment Management")) and certain other activities that we conduct through
Headlands Realty Corporation. The Operating Partnership owns 100% of the
non-voting preferred stock of AMB Investment Management and Headlands Realty
Corporation (representing approximately 95% of the economic interest in each
entity). Certain of our executive officers and an officer of AMB Investment
Management own all of the outstanding voting common stock of AMB Investment
Management (representing approximately 5% of the economic interest in AMB
Investment Management). Certain of our executive officers and a director of
Headlands Realty Corporation own all of the outstanding voting common stock of
Headlands Realty Corporation (representing approximately 5% of the economic
interest in Headlands Realty Corporation). We refer to AMB Investment Management
and Headlands Realty Corporation as the "Preferred Stock Subsidiaries."
The primary purpose of the Operating Partnership is, in general, to
acquire, purchase, own, operate, manage, develop, redevelop, invest in, finance,
refinance, sell, lease and otherwise deal with industrial and retail properties
and assets related to those properties, and interests in those properties and
assets. The Operating Partnership is authorized to conduct any business that a
limited partnership formed under the Partnership Act may lawfully conduct,
except that the Partnership Agreement requires of the Operating Partnership to
conduct its business in such a manner that will permit the Company to be
classified as a REIT under Section 856 of the Code, unless the Company ceases to
qualify as a REIT for reasons other than the conduct of the business of the
Operating Partnership. Subject to the foregoing limitation, the Operating
Partnership may enter into partnerships, joint ventures or similar arrangements
and may own interests directly or indirectly in any other entity.
As the general partner of the Operating Partnership we have the exclusive
power and authority to conduct the business of the Operating Partnership,
subject to the consent of the limited partners in certain limited circumstances
(as discussed below) and except as expressly limited in the Partnership
Agreement.
We have the right to make all decisions and take all actions with respect
to the Operating Partnership's acquisition and operation of our properties and
all other assets and businesses of or related to the Operating Partnership. No
limited partner may take part in the conduct or control of the business or
affairs of the Operating Partnership by virtue of being a holder of Units. In
particular, each limited partner expressly acknowledged in the Partnership
Agreement that as general partner, we are acting on behalf of the Operating
Partnership's limited partners and our stockholders, collectively, and are under
no obligation to consider the tax consequences to limited partners when making
decisions for the benefit of the Operating Partnership. We intend to make
decisions in our capacity as general partner of the Operating Partnership so as
to maximize our profitability and the profitability of the Operating Partnership
as a whole, independent of the tax effects on the limited partners. The Company
and the Operating Partnership have no liability to a limited partner as a result
of any liabilities or damages incurred or suffered by, or benefits not derived
by, a limited partner as a result of an action or inaction of the Company as
general partner of the Operating Partnership as long as the Company acted in
good faith. Limited partners have no right or authority to act for or to bind
the Operating Partnership.
Limited partners of the Operating Partnership have no authority to transact
business for, or participate in the management activities or decisions of, the
Operating Partnership, except as provided in the Partnership Agreement or as
required by applicable law.
44
ENGAGING IN OTHER BUSINESSES; CONFLICTS OF INTEREST
We may not conduct any business other than in connection with the
ownership, acquisition and disposition of Operating Partnership interests as a
general partner and the management of the business of the Operating Partnership,
its operation as a public reporting company with a class (or classes) of
securities registered under the Exchange Act, as amended, its operation as a
REIT and activities that are incidental to these activities (including ownership
of any interest in AMB Property Holding Corporation, AMB Property Holding II
Corporation, the Preferred Stock Subsidiaries or a title holding, management or
finance subsidiary organized as a partnership, limited liability company or
corporation) without the consent of the holders of a majority of the limited
partnership interests. Unless they otherwise agree in writing, each limited
partner, and its affiliates, is free to engage in any business or activity, even
if the business or activity competes with or is enhanced by the business of the
Operating Partnership. The Partnership Agreement does not prevent another person
or entity that acquires control of the Company in the future from conducting
other businesses or owning other assets, even if it would be in the best
interests of the limited partners for the Operating Partnership to own those
businesses or assets. In the exercise of our power and authority under the
Partnership Agreement, we may contract and otherwise deal with or otherwise
obligate the Operating Partnership to entities in which we or any one or more of
our officers, directors or stockholders may have an ownership or other financial
interest, whether direct or indirect.
OUR REIMBURSEMENT; TRANSACTIONS WITH US AND OUR AFFILIATES
We do not receive any compensation for our services as general partner of
the Operating Partnership. However, as a partner in the Operating Partnership,
we have rights to allocations and distributions as a partner of the Operating
Partnership. In addition, the Operating Partnership reimburses us for all
expenses we incur relating to our activities as general partner, our continued
existence and qualification as a REIT and all other liabilities that we incur in
connection with the pursuit of our business and affairs. We may retain persons
or entities that we select (including ourselves, any entity in which we have an
interest, or any entity with which we are affiliated) to provide services to or
on behalf of the Operating Partnership. The Operating Partnership will reimburse
us for all expenses incurred relating to the ongoing operation of the Operating
Partnership and any issuance of additional partnership interests in the
Operating Partnership. These expenses include those incurred in connection with
the administration and activities of the Operating Partnership, such as the
maintenance of the Operating Partnership's books and records, management of the
Operating Partnership's property and assets, and preparation of information
regarding the Operating Partnership provided to the partners in the preparation
of their individual tax returns. Except as expressly permitted by the
Partnership Agreement, however, our affiliates will not engage in any
transactions with the Operating Partnership except on terms that are fair and
reasonable to the Operating Partnership and no less favorable to the Operating
Partnership than it would obtain from an unaffiliated third party.
OUR EXCULPATION AND INDEMNIFICATION
The Partnership Agreement generally provides that we, as general partner of
the Operating Partnership, will incur no liability to the Operating Partnership
or any limited partner for losses sustained, liabilities incurred, or benefits
not derived as a result of errors in judgment or for any mistakes of fact or law
or for anything that we may do or not do in connection with the business and
affairs of the Operating Partnership if we carry out our duties in good faith.
Our liability in any event is limited to our interest in the Operating
Partnership. We have no liability for the loss of any limited partner's capital.
In addition, we are not responsible for any misconduct, negligent act or
omission of any of our consultants, contractors or agents, or any of the
Operating Partnership's consultants, contractors or agents and we have no
obligation other than to use good faith in the selection of all contractors,
consultants and agents. We may consult with counsel, accountants, appraisers,
management consultants, investment bankers, and other consultants and advisors
that we select. An opinion by a consultant on a matter that we believe is within
the consultant's professional or expert competence is considered to be complete
protection as to any action that we take or fail to take based on the opinion
and in good faith.
45
The Partnership Agreement also requires the Operating Partnership to
indemnify us, our directors and officers, and other persons that we may from
time to time designate against any loss or damage, including reasonable legal
fees and court costs incurred by the person by reason of anything the person may
do or not do for or on behalf of the Operating Partnership or in connection with
its business or affairs unless it is established that:
- the act or omission of the indemnified person was material to the matter
giving rise to the proceeding and either the indemnified person committed
the act or omission in bad faith or as the result of active and
deliberate dishonesty;
- the indemnified person actually received an improper personal benefit in
money, property or services; or
- in the case of any criminal proceeding, the indemnified person had
reasonable cause to believe that the act or omission was unlawful. Any
indemnification claims must be satisfied solely out of the assets of the
Operating Partnership.
SALES OF ASSETS; LIQUIDATION
Under the Partnership Agreement, as general partner we generally have the
exclusive authority to determine whether, when and on what terms, the Operating
Partnership will sell its assets (including our properties, which we own through
the Operating Partnership). However, we have agreed, in connection with the
contribution of properties from taxable investors in our formation transactions
and certain property acquisitions for Units (with an estimated aggregate value
of approximately $253.7 million), not to dispose of certain assets in a taxable
sale or exchange for a mutually agreed upon period and, thereafter, to use
commercially reasonable or best efforts to minimize the adverse tax consequences
of any sale. We may enter into similar or other agreements in connection with
other acquisitions of properties for Units.
A merger of the Operating Partnership with another entity generally
requires an affirmative vote of the partners (other than the preferred limited
partners) holding a majority of the outstanding percentage interest (including
the interest held directly or indirectly by us) of all partners other than
preferred limited partners, subject to certain consent rights of holders of
Units as described below under "Amendment of the Partnership Agreement." A
dissolution or liquidation of the Operating Partnership, including a sale or
disposition of all or substantially all of the Operating Partnership's assets
and properties, generally requires an affirmative vote of the limited partners
(other than the preferred limited partners) holding a majority of the
outstanding percentage interest of all limited partners other than preferred
limited partners.
CAPITAL CONTRIBUTION
The Partnership Agreement provides that if the Operating Partnership
requires additional funds at any time or from time to time in excess of funds
available to the Operating Partnership from borrowings or capital contributions,
we may borrow funds from a financial institution or other lender or through
public or private debt offerings and lend the funds to the Operating Partnership
on the same terms and conditions as are applicable to our borrowing of the
funds. As an alternative to borrowing funds required by the Operating
Partnership, we may contribute the amount of the required funds as an additional
capital contribution to the Operating Partnership. If we contribute additional
capital to the Operating Partnership, our partnership interest in the Operating
Partnership will be increased on a proportionate basis. Conversely, the
partnership interests of the limited partners will be decreased on a
proportionate basis if we make additional capital contributions.
DISTRIBUTIONS; ALLOCATIONS OF INCOME AND LOSS
The Partnership Agreement generally provides that the Operating Partnership
will make quarterly distributions of Available Cash (as defined below), as
determined in the manner provided in the Partnership Agreement, to the partners
of the Operating Partnership in proportion to their percentage interests in the
Operating Partnership (which for any partner is determined by the number of
Units it owns relative to the total number of Units outstanding). If any
preferred Units are outstanding, the Operating Partnership will pay
46
distributions to holders of preferred Units in accordance with the rights of
each class of preferred Units (and, within each such class, pro rata in
proportion to the respective percentage interest of each holder), with any
remaining Available Cash distributed in accordance with the previous sentence.
"Available Cash" is generally defined as net cash flow from operations, plus any
reduction in reserves, and minus interest and principal payments on debt,
capital expenditures, any additions to reserves and other adjustments. Other
than as described below, neither the Company nor the limited partners are
currently entitled to any preferential or disproportionate distributions of
Available Cash with respect to the Units.
SERIES A PREFERRED UNITS
In connection with the sale of the Series A Preferred Shares, we received
Series A Preferred Units in the Operating Partnership that mirror the rights,
preferences and other terms of the Series A Preferred Stock. The Series A
Preferred Units rank, with respect to distribution rights and rights upon
liquidation, winding up or dissolution of the Operating Partnership:
- senior to the common Units and to all Units that provide that they rank
junior to the Series A Preferred Units;
- junior to all Units which rank senior to the Series A Preferred Units;
and
- on a parity with the Series B Preferred Units, any Series C Preferred
Units that the Operating Partnership may issue to us (see "-- Series C
Preferred Units") and all other Units expressly designated by the
Operating Partnership to rank on a parity with the Series A Preferred
Units.
We receive preferred distributions of cash and preferred allocations of
income on the Series A Preferred Units in an amount equal to the dividends
payable by us on the Series A Preferred Stock. If we acquire any Series B
Preferred Units from the holders pursuant to the exercise of their exchange
rights, or if the Operating Partnership issues any Series C Preferred Units to
us, we will receive preferred distributions of cash and preferred allocations of
income on the Series B Preferred Units or Series C Preferred Units in an amount
equal to the dividends payable by us on the Series B Preferred Stock or Series C
Preferred Stock. See "-- Series C Preferred Units."
As a consequence, we will receive distributions from the Operating
Partnership sufficient to pay dividends on the Series A Preferred Stock and any
Series B Preferred Stock and Series C Preferred Stock before any other partner
in the Operating Partnership (other than holders of parity preferred units,
including the Series B Preferred Units) receives a distribution. In addition, if
necessary, income will be specially allocated to us and losses will be allocated
to the other partners of the Operating Partnership in amounts necessary to
ensure that, to the extent possible, the balance in our capital account will at
all times be equal to or in excess of the amount payable by us on the Series A
Preferred Stock and any Series B Preferred Stock and Series C Preferred Stock
upon liquidation or redemption. See "Certain Federal Income Tax
Considerations -- Tax Aspects of the Operating Partnership and the Joint
Ventures -- Allocations of Operating Partnership Income, Gain, Loss and
Deduction."
SERIES B PREFERRED UNITS
General. The Series B Preferred Units rank, with respect to distribution
rights and rights upon liquidation, winding up or dissolution of the Operating
Partnership:
- senior to the common Units and to all Units that provide that they rank
junior to the Series B Preferred Units;
- junior to all Units which rank senior to the Series B Preferred Units;
and
- on a parity with the Series A Preferred Units, any Series C Preferred
Units and all other Units expressly designated by the Operating
Partnership to rank on a parity with the Series B Preferred Units.
Subject to the rights of holders of parity preferred Units (including the
Series A Preferred Units and any Series C Preferred Units), holders of the
Series B Preferred Units are entitled to receive, when, as and if declared by
the Operating Partnership, acting through us as general partner, cumulative
preferential cash
47
distributions in an amount equal to 8 5/8% per annum on an amount equal to
$50.00 per Series B Preferred Unit then outstanding (equivalent to $4.3125 per
annum). These distributions are payable on the 15th day of January, April, July
and October of each year.
Exchange Rights. The Series B Preferred Units are exchangeable in whole at
any time on or after November 12, 2008, at the option of 51% of the holders of
all outstanding Series B Preferred Units, on a one for one basis, subject to
adjustment, for shares of our Series B Preferred Stock. In addition, the Series
B Preferred Units are exchangeable in whole at any time at the option of 51% of
the holders of all outstanding Series B Preferred Units if:
- any Series B Preferred Unit shall not have received full distributions
with respect to six prior quarterly distribution periods (whether or not
consecutive); or
- we or one of our subsidiaries take the position, and a holder or holders
of Series B Preferred Units receive an opinion of independent counsel
that the Operating Partnership is, or upon the happening of a certain
event likely will be, a "publicly traded partnership" within the meaning
of the Code.
The Series B Preferred Units are exchangeable in whole for shares of Series
B Preferred Stock at any time after November 12, 2001 and prior to November 12,
2008 at the option of 51% of the holders of all outstanding Series B Preferred
Units if those holders deliver to us as general partner a private letter ruling
or an opinion of independent counsel to the effect that an exchange of the
Series B Preferred Units at that time would not cause the Series B Preferred
Units to be considered "stock and securities" within the meaning of the Code for
purposes of determining whether the holder of Series B Preferred Units is an
"investment company" under the Code.
With certain limitations, the Series B Preferred Units are also
exchangeable in whole at any time for shares of Series B Preferred Stock
(regardless of whether held by the initial purchaser) if:
- the initial purchaser of the Series B Preferred Units reasonably
concludes that there exists an imminent and substantial risk that the
initial purchaser's interest in the Operating Partnership represents or
will represent more than 19.5% of the total profits or capital interests
in the Operating Partnership for a taxable year;
- the initial purchaser of the Series B Preferred Units delivers to us an
opinion to the effect that there is a substantial risk that the initial
purchaser's interest in the Operating Partnership represents or will
represent more than 19.5% of the total profits or capital interests in
the Operating Partnership for a taxable year; and
- we, as the general partner, agree with the conclusions in the bullet
points above; provided, that we may not unreasonably withhold our
agreement.
In lieu of an exchange for Series B Preferred Stock, we may elect to cause
the Operating Partnership to redeem Series B Preferred Units for cash in an
amount equal to the original capital account balance of the Series B Preferred
Units plus all accrued and unpaid distributions to the date of redemption. A
holder of Series B Preferred Units will not be entitled to exchange the Units
for Series B Preferred Stock if the exchange would result in a violation of the
ownership limit. See "Description of Capital Stock -- Restrictions on Ownership
and Transfer."
Redemption. On or after November 12, 2003, the Operating Partnership has
the right to redeem the Series B Preferred Units, in whole or in part from time
to time, at a redemption price payable in cash equal to the capital account
balance of the holder, provided that the amount shall not be less than $50.00
per Series B Preferred Unit. The Operating Partnership must pay the redemption
price solely out of the sale proceeds of our capital stock or interests in the
Operating Partnership and from no other source. The Operating Partnership may
not redeem fewer than all of the Series B Preferred Units unless the Operating
Partnership has paid all accumulated and unpaid distributions on all Series B
Preferred Units for all quarterly distribution periods terminating on or prior
to the date of redemption.
48
Limited Approval Rights. For so long as any Series B Preferred Units are
outstanding, without the affirmative vote of the holders of at least two-thirds
of the Series B Preferred Units outstanding at the time, the Operating
Partnership may not:
- authorize, create or increase the authorized or issued amount of, or
reclassify, any class or series of partnership interests, or create,
authorize or issue any obligations or security convertible into or
evidencing the right to purchase any partnership interests, ranking prior
to the Series B Preferred Units;
- authorize, create or increase the authorized or issued amount of, or
reclassify, any class or series of partnership interests, or create,
authorize or issue any obligations or security convertible into or
evidencing a right to purchase any partnership interests, ranking equal
to the Series B Preferred Units, but only to the extent that such
securities are issued to an affiliate of the Operating Partnership, other
than us to the extent that the issuance is to allow us to issue
corresponding shares of Series B Preferred Stock to persons who are not
affiliates of the Operating Partnership; or
- either consolidate, merge into or with, or convey, transfer or lease its
assets substantially as an entirety to, any corporation or other entity
or amend, alter or repeal the provisions of the Partnership Agreement, in
a manner that would materially and adversely affect the powers, special
rights, preferences, privileges or voting power of the Series B Preferred
Units. So long as the Operating Partnership is the surviving entity and
the Series B Preferred Units remain outstanding on the same terms, or the
resulting, surviving or transferee entity is a partnership, limited
liability company or other pass-through entity and substitutes the Series
B Preferred Units for other interests in such entity, with substantially
the same terms and rights, then the occurrence of any of the events
listed above in this bullet point will not be considered to materially
and adversely affect such rights, privileges or voting powers.
Other than as discussed above or elsewhere in this prospectus, the holders
of Series B Preferred Units have no voting rights other than with respect to
certain matters that would adversely affect them or as otherwise provided by
applicable law.
Liquidation Preference. The distribution and income allocation provisions
of the Partnership Agreement have the effect of providing each Series B
Preferred Unit with a liquidation preference to each holder of such Units equal
to the holder's capital contributions, plus any accrued but unpaid
distributions, in preference to any other class or series of partnership
interest of the Operating Partnership, other than any Series A Preferred Units
and any Series C Preferred Units.
Registration Rights. We have agreed to file a registration statement
registering the resale of the shares of Series B Preferred Stock issuable to the
holders of Series B Preferred Units as soon as practicable but not later than 60
days after the date the Series B Preferred Units are exchanged for shares of
Series B Preferred Stock. We have also agreed to use our best efforts to cause
the registration statement to be declared effective within 120 days after the
date of the exchange.
SERIES C PREFERRED UNITS
As described under "Description of Capital Stock -- Preferred
Stock -- Series C Preferred Stock," holders of AMB Property II Series C
Preferred Units may exchange their units for shares of our Series C Preferred
Stock. If we issue Series C Preferred Stock, we will:
- contribute 99% of the AMB Property II Series C Preferred Units to the
Operating Partnership in exchange for Series C Preferred Units in the
Operating Partnership that mirror the rights, preferences and other terms
of the Series C Preferred Stock; and
- contribute 1% of the AMB Property II Series C Preferred Units to AMB
Property Holding Corporation.
Any Series C Preferred Units will rank on a parity with the Series A
Preferred Units and Series B Preferred Units. As a consequence, we would receive
distributions from the Operating Partnership that we would use to pay dividends
on any Series C Preferred Stock and the Series A Preferred Stock before any
other partner in the Operating Partnership (other than holders of parity
preferred units, including the Series B Preferred Units).
49
COMMON LIMITED PARTNERSHIP UNITS
Redemption/Exchange Rights
Holders of common Units have the right, commencing generally on or before
the first anniversary of the holder becoming a limited partner of the Operating
Partnership (or such other date agreed to by the Operating Partnership and the
applicable Unit holders), to require the Operating Partnership to redeem part or
all of their common Units for cash (based upon the fair market value of an
equivalent number of shares of common stock at the time of redemption) or we
may, in our sole and absolute discretion (subject to the limits on ownership and
transfer of common stock set forth in our Charter) elect to exchange those
common Units for shares of common stock (on a one-for-one basis, subject to
adjustment in the event of stock splits, stock dividends, issuance of certain
rights, certain extraordinary distributions and similar events). See
"Redemption/Exchange of Common Units for Common Stock." We presently anticipate
that we will elect to issue shares of common stock in exchange for common Units
in connection with each redemption request, rather than having the Operating
Partnership pay cash. With each redemption or exchange, our percentage ownership
interest in the Operating Partnership will increase. Common limited partners may
exercise this redemption/exchange right from time to time, in whole or in part,
subject to the limitations that limited partners may not exercise the right if
exercise would result in any person actually or constructively owning shares of
common stock in excess of the ownership limit or any other amount specified by
the Board of Directors, assuming common stock was issued in the exchange.
Holders of Performance Units also have limited redemption/exchange rights, as
discussed under the caption "-- Performance Units" below.
Registration Rights
We have granted to common limited partners certain registration rights with
respect to the shares of stock issuable upon exchange of common Units or
otherwise. We have agreed to file and generally keep continuously effective
generally beginning on or as soon as practicable after one year after issuance
of common Units a registration statement covering the issuance of shares of
common stock upon exchange of the Units and the resale of the shares. In
addition, we have agreed to file a registration statement covering shares of
common stock issuable upon exchange of Performance Units. We may also agree to
provide registration rights to any other person who may become an owner of
Units, provided the person provides us with satisfactory undertakings. See "Risk
Factors -- Ownership of Common Stock -- The Large Number of Shares Available for
Future Sale Could Adversely Affect the Market Price of Our Common Stock." We
will bear expenses incident to our registration obligations upon exercise of
registration rights, including the payment of federal securities law and state
Blue Sky registration fees, except that we will not bear any underwriting
discounts or commissions or transfer taxes relating to registration of the
shares.
PERFORMANCE UNITS
Notwithstanding the foregoing discussion of distributions and allocations
of income or loss of the Operating Partnership, depending on the trading price
of our common stock after November 26, 1998 (the first anniversary of our
initial public offering), certain of our officers, in their capacity as limited
partners of the Operating Partnership, may receive performance units
("Performance Units") as of each of February 26, May 26, August 26 and November
26, 1999. The Performance Units are similar to common Units in many respects,
including the right to share in operating distributions, and allocations of
operating income and loss, of the Operating Partnership on a pro rata basis with
common Units, and certain redemption and exchange rights, including limited
rights to cause the Operating Partnership to redeem the Performance Units for
cash or, at the Company's option, to exchange the Performance Units for shares
of common stock. Any redemption rights with respect to Performance Units,
however, will be dependent upon an increase in the value of the assets of the
Operating Partnership (in some cases measured by reference to the trading price
of the shares of common stock) after the issuance of the Performance Units. If
there is no increase, the holders of Performance Units will not be entitled to
receive any proceeds upon the liquidation of the Operating Partnership or the
redemption of their Performance Units.
50
Immediately prior to our initial public offering, certain investors owned
assets that were subject to advisory agreements with AMB Institutional Realty
Advisors, Inc. containing an incentive fee provision or a "catch up adjustment."
We refer to these investors as "Performance Investors." If officers receive
Performance Units, an equal number of GP Units allocable to the Company and
Units allocable to Performance Investors who are limited partners in the
Operating Partnership will be transferred to the Operating Partnership. If any
of our GP Units are transferred to the Operating Partnership as a result of the
issuance of Performance Units, an equal number of shares of common stock (the
"Performance Shares") will be transferred to us by the applicable Performance
Investors. Accordingly, no Company stockholder or limited partner in the
Operating Partnership (other than Performance Investors, to the extent of their
obligations to transfer Performance Shares to the Company or the Operating
Partnership, as applicable) will be diluted as a result of the issuance of
Performance Units.
REMOVAL OF THE GENERAL PARTNER; TRANSFERABILITY OF OUR INTERESTS; TREATMENT OF
LIMITED PARTNERSHIP UNITS IN SIGNIFICANT TRANSACTIONS
The limited partners may not remove us as general partner, with or without
cause, other than with our consent. The Partnership Agreement provides that we
may not withdraw from the Operating Partnership (whether by sale, statutory
merger, consolidation, liquidation or otherwise) without the consent of a
majority in interest of the limited partners other than the preferred limited
partners. However, except as set forth below, we may transfer or assign our
general partner interest in connection with a merger, consolidation or sale of
substantially all of our assets without limited partner consent.
Neither the Company nor the Operating Partnership may engage in any merger,
consolidation or other combination with or into another person, or effect any
reclassification, recapitalization or change of its outstanding equity
interests, and the Company may not sell all or substantially all of its assets
(each a "Termination Transaction") unless in connection with the Termination
Transaction all holders of limited partnership Units other than preferred Units
either will receive, or will have the right to elect to receive, for each Unit
an amount of cash, securities or other property equal to the product of the
number of shares of common stock into which each Unit is then exchangeable and
the greatest amount of cash, securities or other property paid to the holder of
one share in consideration of one share pursuant to the Termination Transaction.
If, in connection with the Termination Transaction, a purchase, tender or
exchange offer shall have been made to and accepted by the holders of the
outstanding shares of common stock, each holder of limited partnership Units
other than preferred Units will receive, or will have the right to elect to
receive, the greatest amount of cash, securities or other property that the
holder would have received had it exercised its right to redemption and received
shares of common stock in exchange for its Units immediately prior to the
expiration of the purchase, tender or exchange offer and had accepted the
purchase, tender or exchange offer. Any Performance Units issued will also have
the benefit of these provisions, irrespective of the capital account then
applicable to the Performance Units.
A Termination Transaction may also occur if the following conditions are
met:
- substantially all of the assets directly or indirectly owned by the
surviving entity are held directly or indirectly by the Operating
Partnership or another limited partnership or limited liability company
which is the survivor of a merger, consolidation or combination of assets
with the Operating Partnership;
- the holders of common Units, including the holders of any Performance
Units issued, own a percentage interest of the surviving partnership
based on the relative fair market value of the net assets of the
Operating Partnership and the other net assets of the surviving
partnership immediately prior to the consummation of the transaction;
- the rights, preferences and privileges of the holders in the surviving
partnership, including the holders of Performance Units issued or to be
issued, are at least as favorable as those in effect immediately prior to
the consummation of such transaction and as those applicable to any other
limited partners or non-managing members of the surviving partnership
(except, as to Performance Units, for such
51
differences with Units regarding liquidation, redemption or exchange as
are described in this prospectus); and
- such rights of the common limited partners, including the holders of
Performance Units issued or to be issued, include at least one of the
following:
- the right to redeem their interests in the surviving partnership for the
consideration available to them pursuant to the preceding paragraph; or
- the right to redeem their Units for cash on terms equivalent to those in
effect immediately prior to the consummation of the transaction, or, if
the ultimate controlling person of the surviving partnership has
publicly traded common equity securities, the common equity securities,
with an exchange ratio based on the relative fair market value of the
securities and the common stock.
Our Board of Directors will reasonably determine fair market values and
rights, preferences and privileges of the common limited partners as of the time
of the Termination Transaction and, to the extent applicable, the values will be
no less favorable to the holders of common Units than the relative values
reflected in the terms of the Termination Transaction.
In addition, in the event of a Termination Transaction, the arrangements
with respect to Performance Units and Performance Shares (as defined under
"-- Performance Units") will be equitably adjusted to reflect the terms of the
transaction, including, to the extent that the shares are exchanged for
consideration other than publicly traded common equity, the transfer or release
of remaining Performance Shares, and resulting issuance of any Performance
Units, as of the consummation of the Termination Transaction.
DUTIES AND CONFLICTS
Except as otherwise provided by our conflicts of interest policies with
respect to directors and officers and as provided in the non-competition
agreements described under "Risk Factors -- Conflicts of Interest -- Some of Our
Executive Officers are Involved in Other Real Estate Activities and
Investments," any limited partner of the Operating Partnership may engage in
other business activities outside the Operating Partnership, including business
activities that directly compete with the Operating Partnership.
MEETINGS; VOTING
As general partner, we may call meetings of the limited partners of the
Operating Partnership, on our own motion, or upon written request of limited
partners owning at least 25% of the then outstanding Units. Limited partners may
vote either in person or by proxy at meetings. Limited partners may take any
action that they are required or permitted to take either at a meeting of the
limited partners or without a meeting if consents in writing setting forth the
action taken are signed by limited partners owning not less than the minimum
number of Units that would be necessary to authorize or take the action at a
meeting of the limited partners at which all limited partners entitled to vote
on the action were present. On matters for which limited partners are entitled
to vote, each limited partner has a vote equal to the number of Units the
limited partner holds. A transferee of Units who has not been admitted as a
substituted limited partner with respect to the Units will have no voting rights
with respect to the Units, even if the transferee holds other Units as to which
it has been admitted as a limited partner. The Partnership Agreement does not
provide for, and we do not anticipate calling, annual meetings of the limited
partners.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed by the Company or
by limited partners owning at least 25% of the then outstanding Units entitled
to vote. Generally, the Partnership Agreement may be amended with our approval,
as general partner, and partners (including us, but not including the preferred
limited partners) holding a majority of the percentage interest of all partners
other than the preferred limited partners. Certain provisions regarding, among
other things, our rights and duties as general partner (e.g., restrictions on
our power to conduct businesses other than as denoted herein) or the dissolution
of the Operating Partnership, may not be amended without the approval of limited
partners (other than preferred
52
limited partners) holding a majority of the percentage interests of the limited
partners other than preferred limited partners. As general partner, we have the
power, without the consent of the limited partners, to amend the Partnership
Agreement as may be required to, among other things:
- add to our obligations as general partner or surrender any right or power
granted to us as general partner;
- reflect the admission, substitution, termination or withdrawal of
partners in accordance with the terms of the Partnership Agreement;
- establish the rights, powers, duties and preferences of any additional
partnership interests issued in accordance with the terms of the
Partnership Agreement;
- reflect a change of an inconsequential nature that does not materially
adversely affect any limited partner, or cure any ambiguity, correct or
supplement any provisions of the Partnership Agreement not inconsistent
with law or with other provisions of the Partnership Agreement, or make
other changes concerning matters under the Partnership Agreement that are
not otherwise inconsistent with the Partnership Agreement or applicable
law; or
- satisfy any requirements of federal, state or local law.
We must approve, and each limited partner that would be adversely affected
must approve, certain amendments to the Partnership Agreement, including
amendments effected directly or indirectly through a merger or sale of assets of
the Operating Partnership or otherwise, that would, among other things,
- convert a limited partner's interest into a general partner's interest;
- modify the limited liability of a limited partner;
- alter the interest of a partner in profits or losses, or the rights to
receive any distributions (except as permitted under the Partnership
Agreement with respect to the admission of new partners or the issuance
of additional Units, either of which actions will have the effect of
changing the percentage interests of the partners and thereby altering
their interests in profits, losses and distributions); or
- alter the limited partner's redemption right.
These protections apply to both holders of common Units and holders of
Performance Units. In addition, no amendment may be effected, directly or
indirectly, through a merger or sale of assets of the Operating Partnership or
otherwise, which would adversely affect the rights of former stockholders of AMB
Institutional Realty Advisors to receive Performance Units.
BOOKS AND REPORTS
The Operating Partnership's books and records are maintained at the
principal office of the Operating Partnership, which is located at 505
Montgomery Street, San Francisco, California 94111. All elections and options
available to the Operating Partnership for federal or state income tax purposes
may be taken or rejected by the Operating Partnership in our sole discretion as
general partner. The limited partners have the right, subject to certain
limitations, to receive copies of the most recent SEC filings by us and the
Operating Partnership, the Operating Partnership's federal, state and local
income tax returns, a list of limited partners, the Partnership Agreement, the
partnership certificate and all amendments and certain information about the
capital contributions of the partners. We may keep confidential from the limited
partners any information that we believe to be in the nature of trade secrets or
other information the disclosure of which we in good faith believe is not in the
best interests of the Operating Partnership or which the Operating Partnership
is required by law or by agreements with unaffiliated third parties to keep
confidential.
We will use reasonable efforts to furnish to each limited partner, within
90 days after the close of each taxable year, the tax information reasonably
required by the limited partners for federal and state income tax reporting
purposes.
TERM
The Operating Partnership will continue in full force and effect for
approximately 99 years or until sooner dissolved pursuant to the terms of the
Partnership Agreement.
53
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain federal income tax considerations
regarding the Company is based on current law, is for general information only
and is not tax advice. The information set forth below, to the extent that it
constitutes matters of law, summaries of legal matters or legal conclusions, is
the opinion of Latham & Watkins. The tax treatment of a holder of any of the
securities will vary depending upon the terms of the specific securities
acquired by such holder, as well as his or her particular situation, and this
discussion does not attempt to address any aspects of federal income taxation
relating to holders of securities. We will provide certain federal income tax
considerations relevant to holders of the securities in the prospectus
supplement relating to those securities.
The information in this section is based on the Code, current, temporary
and proposed Treasury Regulations promulgated under the Code, the legislative
history of the Code, current administrative interpretations and practices of the
Internal Revenue Service (the "IRS") (including its practices and policies as
expressed in certain private letter rulings which are not binding on the IRS
except with respect to the particular taxpayers who requested and received such
rulings), and court decisions, all as of the date of this prospectus. Future
legislation, Treasury Regulations, administrative interpretations and practices
and/or court decisions may adversely affect, perhaps retroactively, the tax
considerations described herein. We have not requested, and do not plan to
request, any rulings from the IRS concerning our tax treatment and the
statements in this prospectus are not binding on the IRS or a court. Thus, we
can provide no assurance that these statements will not be challenged by the IRS
or sustained by a court if challenged by the IRS.
YOU ARE ADVISED TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT, AS WELL AS
YOUR TAX ADVISOR, REGARDING THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE
ACQUISITION, OWNERSHIP AND SALE OF OUR 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.
TAXATION OF THE COMPANY
General. We elected to be taxed as a REIT under Sections 856 through 860 of
the Code, commencing with our taxable year ended December 31, 1997. We believe
we have been organized and have operated in a manner which allows us to qualify
for taxation as a REIT under the Code commencing with our taxable year ended
December 31, 1997. We intend to continue to operate in this manner. However, our
qualification and taxation as a REIT depends upon our ability to meet (through
actual annual operating results, asset diversification, distribution levels and
diversity of stock ownership) the various qualification tests imposed under the
Code. Accordingly, there is no assurance that we have operated or will continue
to operate in a manner so as to qualify or remain qualified as a REIT. See
"-- Failure to Qualify."
The sections of the Code that relate to the qualification and operation as
a REIT are highly technical and complex. The following sets forth the material
aspects of the sections of the Code that govern the federal income tax treatment
of a REIT and its stockholders. This summary is qualified in its entirety by the
applicable Code provisions, relevant rules and regulations promulgated under the
Code, and administrative and judicial interpretations of the Code, and these
rules and these regulations. Latham & Watkins has acted as tax counsel to the
Company in connection with the IPO, subsequent offerings of Common Stock, and
the Company's election to be taxed as a REIT.
Unless we specify otherwise in the applicable prospectus supplement, as a
condition to the closing of each offering of equity securities by the Company,
our tax counsel will render an opinion to the underwriters of the offering to
the effect that, commencing with our taxable year ended December 31, 1997, we
have been organized and operated in conformity with the requirements for
qualification as a REIT, and our proposed method of operation will enable us to
continue to meet the requirements for qualification and taxation as a REIT under
the Code. It must be emphasized that each such opinion will be based on various
factual assumptions relating to our organization and operation, including
matters relating to the Operating Partnership and the Preferred Stock
Subsidiaries, and will be conditioned upon certain representations to be made by
us as
54
to factual matters. Our tax counsel has no obligation to update any such opinion
subsequent to its date. In addition, such opinions will be based upon our
factual representations as set forth in this prospectus and any applicable
prospectus supplement or supplements, and assume that the actions described in
this prospectus and any such supplement or supplements will be completed by us
in a timely fashion. Moreover, such qualification and taxation as a REIT depends
upon the our ability to meet (through actual annual operating results, asset
diversification, distribution levels and diversity of stock ownership) the
various qualification tests imposed under the Code and discussed below, the
results of which have not been and will not be reviewed by our tax counsel.
Accordingly, we cannot assure you that the actual results of our operation
during any particular taxable year will satisfy such requirements. See
"-- Failure to Qualify." Further, the anticipated income tax treatment described
in the prospectus or in any prospectus supplement or supplements may be changed,
perhaps retroactively, by legislation, administrative or judicial action at any
time.
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on our net income that is currently distributed
to our stockholders. This treatment substantially eliminates the "double
taxation" (once at the corporate level when earned and once again at the
stockholder level when distributed) that generally results from investment in a
corporation. However, the Company will be subject to federal income tax as
follows:
First, we will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains.
Second, we may be subject to the "alternative minimum tax" on our items of
tax preference under certain circumstances.
Third, if we have (a) net income from the sale or other disposition of
"foreclosure property" (defined generally as property we acquired through
foreclosure or after a default on a loan secured by the property or a lease of
the property) which is held primarily for sale to customers in the ordinary
course of business or (b) other nonqualifying income from foreclosure property,
we will be subject to tax at the highest corporate rate on this income.
Fourth, we will be subject to a 100% tax on any net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of business
other than foreclosure property).
Fifth, we will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which we fail the 75% or 95%
gross income test multiplied by (b) a fraction intended to reflect our
profitability, if we fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), but have maintained our qualification as a
REIT because we satisfied certain other requirements.
Sixth, we would be subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed if we fail to distribute
during each calendar year at least the sum of (i) 85% of our REIT ordinary
income for the year, (ii) 95% of our REIT capital gain net income for the year,
and (iii) any undistributed taxable income from prior periods.
Seventh, if we acquire any asset (a "Built-In Gain Asset") from a
corporation which is or has been a C corporation (i.e., generally a corporation
subject to full corporate-level tax) in a transaction in which the basis of the
Built-In Gain Asset in our hands is determined by reference to the basis of the
asset in the hands of the C corporation, and we subsequently recognize gain on
the disposition of the asset during the ten-year period (the "Recognition
Period") beginning on the date on which we acquired the asset, then we will be
subject to tax at the highest regular corporate tax rate on this gain to the
extent of the Built-In Gain (i.e., the excess of (a) the fair market value of
the asset over (b) our adjusted basis in the asset, in each case determined as
of the beginning of the Recognition Period). The results described in this
paragraph with respect to the recognition of Built-In Gain assume that we will
make an election pursuant to IRS Notice 88-19.
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Requirements for Qualification as a REIT. The Code defines a REIT as a
corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates to
evidence its beneficial ownership;
(3) that would be taxable as a domestic corporation, but for Sections 856
through 859 of the Code;
(4) that is not a financial institution or an insurance company within the
meaning of certain provisions of the Code;
(5) that is beneficially owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of which is owned,
actually or constructively, by five or fewer individuals (as defined in
the Code to include certain entities) during the last half of each
taxable year; and
(7) 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) to (4), inclusive, must be met during
the entire taxable year and that condition (5) must be met during at least 335
days of a taxable year of twelve months, or during a proportionate part of a
taxable year of less than twelve months. Conditions (5) and (6) do not apply
until after the first taxable year for which an election is made to be taxed as
a REIT. For purposes of condition (6), pension funds and certain other
tax-exempt entities are treated as individuals, subject to a "look-through"
exception with respect to pension funds.
We believe that we have satisfied each of the above conditions. In
addition, our charter provides for restrictions regarding ownership and transfer
of shares. These restrictions are intended to assist us in continuing to satisfy
the share ownership requirements described in (5) and (6) above. These ownership
and transfer restrictions are described in "Description of Capital
Stock -- Restrictions on Ownership and Transfer of Capital Stock." These
restrictions, however, may not ensure that we will, in all cases, be able to
satisfy the share ownership requirements described in (5) and (6) above. If we
fail to satisfy these share ownership requirements, our status as a REIT will
terminate. However, if we comply with the rules contained in applicable Treasury
Regulations that require us to ascertain the actual ownership of our shares and
we do not know, or would not have known through the exercise of reasonable
diligence, that we failed to meet the requirement described in condition (6)
above, we will be treated as having met this requirement. See "-- Failure to
Qualify."
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. We have and will continue to have a calendar
taxable year.
Termination of S Status. Prior to its merger into the Company in connection
with our formation transactions, AMB Institutional Realty Advisors, Inc.
believed that it validly elected to be taxed as an S corporation and that such
election had not been revoked or otherwise terminated (except as provided
below). In order to allow us to become a REIT, AMB Institutional Realty
Advisors, Inc. revoked its S election shortly before its merger into the
Company. If AMB Institutional Realty Advisors, Inc. was not an S corporation in
1997 (the calendar year in which our formation transactions occurred), we likely
would not qualify as a REIT for our taxable year ended December 31, 1997 and
perhaps subsequent years. See "-- Failure to Qualify." In connection with our
initial public offering, Latham & Watkins rendered an opinion regarding AMB
Institutional Realty Advisors, Inc.'s federal income tax status as an S
corporation, which opinion was based upon certain representations made by AMB
Institutional Realty Advisors, Inc. as to factual matters and upon the opinion
of counsel for certain shareholders of AMB Institutional Realty Advisors, Inc.,
with respect to matters relating to the tax status of such shareholders.
Ownership of Interests in Partnerships and Qualified REIT Subsidiaries. In
the case of a REIT which is a partner in a partnership, IRS regulations provide
that the REIT will be deemed to own its proportionate share of the assets of the
partnership. Also, the REIT will be deemed to be entitled to the income of the
56
partnership attributable to its proportionate share. The character of the assets
and gross income of the partnership retains the same character in the hands of
the REIT for purposes of Section 856 of the Code, including satisfying the gross
income tests and the asset tests. Thus, our proportionate share of the assets
and items of income of the Operating Partnership (including the Operating
Partnership's share of these items for any partnership in which it owns an
interest) are treated as our assets and items of income for purposes of applying
the requirements described in this prospectus (including the income and asset
tests described below). We have included a brief summary of the rules governing
the federal income taxation of partnerships and their partners below in "-- Tax
Aspects of the Operating Partnerships and the Joint Ventures." We have direct
control of the Operating Partnership and will continue to operate it consistent
with the requirements for qualification as a REIT. However, we are a limited
partner or non-managing member in certain of our joint ventures. If a joint
venture takes or expects to take actions which could jeopardize our status as a
REIT or subject us to tax, we may be forced to dispose of our interest in such
joint venture. In addition, it is possible that a joint venture could take an
action which could cause us to fail a REIT income or asset test, and that we
would not become aware of such action in a time frame which would allow us to
dispose of our interest in the joint venture or take other corrective action on
a timely basis. In such a case, we could fail to qualify as a REIT. The Company
owns 100% of the stock of two subsidiaries that are qualified REIT subsidiaries
(each, a "QRS") and may acquire stock of one or more new subsidiaries. A
corporation will qualify as a QRS if 100% of its stock is held by the Company. A
QRS will not be treated as a separate corporation, and all assets, liabilities
and items of income, deduction and credit of a QRS will be treated as assets,
liabilities and such items (as the case may be) of the Company for all purposes
of the Code, including the REIT qualification tests. For this reason, references
under "Certain Federal Income Tax Considerations" to our income and assets shall
include the income and assets of any QRS. A QRS will not be subject to federal
income tax, and our ownership of the voting stock of a QRS will not violate the
restrictions against ownership of securities of any one issuer which constitute
more than 10% of such issuer's voting securities or more than 5% of the value of
our total assets, as described below under "-- Asset Tests."
Income Tests. We must satisfy two gross income requirements annually to
maintain our qualification as a REIT. First, in each taxable year we must derive
directly or indirectly at least 75% of our gross income (excluding gross income
from prohibited transactions) 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,
each taxable year we must derive at least 95% of our gross income (excluding
gross income from prohibited transactions) from these real property investments,
dividends, interest and gain from the sale or disposition of stock or securities
(or from any combination of the foregoing). The term "interest" generally does
not include any amount received or accrued (directly or indirectly) if the
determination of the amount depends 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 "interest" solely by reason of being based on a fixed
percentage or percentages of receipts or sales.
Rents we receive will qualify as "rents from real property" in satisfying
the gross income requirements for a REIT described above only if the following
conditions are met:
- 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 Code provides that rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests if the
REIT, or an actual or constructive owner of 10% or more of the REIT,
actually or constructively owns 10% or more of the interests in such
tenant (a "Related Party Tenant");
- 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 personal
property will not qualify as "rents from real property"; and
- for rents received to qualify as "rents from real property," the REIT
generally must not operate or manage the property or furnish or render
services to the tenants of the property (subject to a 1% de
57
minimis exception), other than through an independent contractor from
whom the REIT derives no revenue. The REIT may, however, directly perform
certain services that are "usually or customarily rendered" in connection
with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant" of the property.
We do not and will not, and as general partner of the Operating
Partnership, will not permit the Operating Partnership to:
- charge rent for any property that is based in whole or in part on the
income or profits of any person (except by reason of being based on a
percentage of receipts or sales, as described above);
- rent any property to a Related Party Tenant;
- derive rental income attributable to personal property (other than
personal property leased in connection with the lease of real property,
the amount of which is less than 15% of the total rent received under the
lease); or
- perform services considered to be rendered to the occupant of the
property, other than through an independent contractor from whom we
derive no revenue.
NOTWITHSTANDING THE FOREGOING, WE MAY HAVE TAKEN AND MAY CONTINUE TO TAKE
CERTAIN OF THE ACTIONS SET FORTH ABOVE TO THE EXTENT THESE ACTIONS WILL NOT,
BASED ON THE ADVICE OF OUR TAX COUNSEL, JEOPARDIZE OUR STATUS AS A REIT.
AMB Investment Management is the sole general partner of, and conducts its
operations through, AMB Investment Management Limited Partnership (the
"Investment Management Partnership.") The Investment Management Partnership
conducts the asset management business and receives fees (including incentive
fees) in exchange for the provision of certain services to asset management
clients. In addition, Headlands Realty Corporation may provide certain services
in exchange for a fee or derive other income which would not qualify under the
REIT gross income tests. Such fees and other income do not accrue to us, but we
derive our allocable share of dividend income from the Preferred Stock
Subsidiaries through our interest in the Operating Partnership. Such dividend
income qualifies under the 95%, but not the 75%, REIT gross income test. The
Operating Partnership may provide certain management or administrative services
to the Investment Management Partnership and Headlands Realty Corporation. The
fees derived by the Operating Partnership as a result of the provision of such
services will be nonqualifying income to us under both the 95% and 75% REIT
income tests. The amount of such dividend and fee income will depend on a number
of factors which cannot be determined with certainty, including the level of
services provided by the Investment Management Partnership, Headlands Realty
Corporation and the Operating Partnership. We will monitor the amount of the
dividend income from the Preferred Stock Subsidiaries and the fee income
described above, and will take actions intended to keep this income (and any
other nonqualifying income) within the limitations of the REIT income tests.
However, there can be no assurance that such actions will in all cases prevent
us from violating a REIT income test.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for the year if we are
entitled to relief under certain provisions of the Code. Generally, we may avail
ourselves of the relief provisions if:
- our failure to meet these tests was due to reasonable cause and not due
to willful neglect;
- we attach a schedule of the sources of our income to our federal income
tax return; and
- any incorrect information on the schedule was not due to fraud with
intent to evade tax.
IT IS NOT POSSIBLE, HOWEVER, TO STATE WHETHER IN ALL CIRCUMSTANCES WE WOULD
BE ENTITLED TO THE BENEFIT OF THESE RELIEF PROVISIONS. FOR EXAMPLE, IF WE FAIL
TO SATISFY THE GROSS INCOME TESTS BECAUSE NONQUALIFYING INCOME THAT WE
INTENTIONALLY INCUR EXCEEDS THE LIMITS ON NONQUALIFYING INCOME, THE IRS COULD
CONCLUDE THAT OUR FAILURE TO SATISFY THE TESTS WAS NOT DUE
58
TO REASONABLE CAUSE. IF THESE RELIEF PROVISIONS DO NOT APPLY TO A PARTICULAR SET
OF CIRCUMSTANCES, WE WILL NOT QUALIFY AS A REIT. AS DISCUSSED ABOVE IN
"-- TAXATION OF THE COMPANY -- GENERAL," EVEN IF THESE RELIEF PROVISIONS APPLY,
AND WE RETAIN OUR STATUS AS A REIT, A TAX WOULD BE IMPOSED WITH RESPECT TO OUR
EXCESS NET INCOME. WE MAY NOT ALWAYS BE ABLE TO MAINTAIN COMPLIANCE WITH THE
GROSS INCOME TESTS FOR REIT QUALIFICATION DESPITE OUR PERIODIC MONITORING OF OUR
INCOME.
Prohibited Transaction Income. Any gain realized by us on the sale of any
property held as inventory or other property held primarily for sale to
customers in the ordinary course of business (including our share of any such
gain realized by the Operating Partnership) will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. This prohibited
transaction income may also adversely affect our ability to satisfy the income
tests for qualification as a REIT. Under existing law, whether property is held
as inventory or primarily for sale to customers in the ordinary course of a
trade or business is a question of fact that depends on all the facts and
circumstances surrounding the particular transaction. The Operating Partnership
intends to hold its properties for investment with a view to long-term
appreciation, to engage in the business of acquiring, developing and owning its
properties and to make occasional sales of the properties as are consistent with
the Operating Partnership's investment objectives. However, the IRS may contend
that that one or more of these sales is subject to the 100% penalty tax.
Asset Tests. At the close of each quarter of our taxable year, we also must
satisfy three tests relating to the nature and diversification of our assets.
First, at least 75% of the value of our total assets must be represented by real
estate assets, cash, cash items and government securities. For purposes of this
test, real estate assets include stock or debt instruments that are purchased
with the proceeds of a stock offering or a long-term (at least five years)
public debt offering, but only for the one-year period beginning on the date we
receive such proceeds. Second, not more than 25% of our total assets may be
represented by securities, other than those securities includable in the 75%
asset test. Third, of the investments included in the 25% asset class, the value
of any one issuer's securities may not exceed 5% of the value of our total
assets and we may not own more than 10% of any one issuer's outstanding voting
securities.
The Operating Partnership owns 100% of the non-voting preferred stock of
each of the Preferred Stock Subsidiaries, and by virtue of its ownership of
interests in the Operating Partnership, the Company is considered to own its pro
rata share of such stock. See "Structure of the Company." The stock of each of
the Preferred Stock Subsidiaries held by us is not a qualifying real estate
asset. The Operating Partnership does not and will not own any of the voting
securities of either of the Preferred Stock Subsidiaries, and therefore we will
not be considered to own more than 10% of the voting securities of either of the
Preferred Stock Subsidiaries. In addition, we believe that the value of our pro
rata share of the securities of each of the Preferred Stock Subsidiaries held by
the Operating Partnership does not, in either case, exceed 5% of the total value
of our assets, and will not exceed such amount in the future. No independent
appraisals have been obtained to support this conclusion. There can be no
assurance that the IRS will not contend that the value of the securities of one
or both of the Preferred Stock Subsidiaries held by us exceeds the 5% value
limitation. The 5% value test must be satisfied not only on the date that we
(directly or through the Operating Partnership) acquire securities in the
applicable Preferred Stock Subsidiary, but also each time we increase our
ownership of securities of such Preferred Stock Subsidiary, including as a
result of increasing our interest in the Operating Partnership. For example, our
indirect ownership of securities of each Preferred Stock Subsidiary will
increase as a result of our capital contributions to the Operating Partnership
or as limited partners exercise their redemption/exchange rights. Although we
believe that we presently satisfy the 5% value test and plan to take steps to
ensure that we satisfy such test for any quarter with respect to which retesting
is to occur, there can be no assurance that such steps will always be
successful, or will not require a reduction in the Operating Partnership's
overall interest in either or both of the Preferred Stock Subsidiaries.
After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If we fail
to satisfy the asset tests because we acquire securities or other property
during a quarter (including an increase in our interests in the Operating
Partnership), we can cure this failure by disposing of sufficient
59
nonqualifying assets within 30 days after the close of that quarter. We believe
we have maintained and intend to continue to maintain adequate records of the
value of our assets to ensure compliance with the asset tests and to take such
other actions within the 30 days after the close of any quarter as may be
required to cure any noncompliance. If we fail to cure noncompliance with the
asset tests within this time period, we would cease to qualify as a REIT.
Annual Distribution Requirements. To maintain our qualification as a REIT,
we are required to distribute dividends (other than capital gain dividends) to
our stockholders in an amount at least equal to the sum of 95% of our "REIT
taxable income" (computed without regard to the dividends paid deduction and our
net capital gain) and 95% of our net income (after tax), if any, from
foreclosure property, minus the excess of the sum of certain items of noncash
income (i.e., income attributable to leveled stepped rents, original issue
discount on purchase money debt, or a like-kind exchange that is later
determined to be taxable) over 5% of "REIT taxable income" as described above.
These distributions must be paid in the taxable year to which they relate,
or in the following taxable year if they are declared before we timely file our
tax return for such year and if paid on or before the first regular dividend
payment after such declaration. Except as provided below, these distributions
are taxable to our stockholders (other than tax-exempt entities, as discussed
below) in the year in which paid. This is so even though these distributions
relate to the prior year for purposes of our 95% distribution requirement. The
amount distributed must not be preferential -- e.g., every stockholder of the
class of stock to which a distribution is made must be treated the same as every
other stockholder of that class, and no class of stock may be treated otherwise
than in accordance with its dividend rights as a class. To the extent that we do
not distribute all of our net capital gain or distribute at least 95%, but less
than 100%, of our "REIT taxable income," as adjusted, we will be subject to tax
thereon at regular ordinary and capital gain corporate tax rates. We believe we
have made and intend to continue to make timely distributions sufficient to
satisfy these annual distribution requirements. In this regard, the Partnership
Agreement authorizes us, as general partner of the Operating Partnership, to
take such steps as may be necessary to cause the Operating Partnership to
distribute to its partners an amount sufficient to permit us to meet these
distribution requirements.
We expect that our REIT taxable income will be less than our cash flow due
to the allowance of depreciation and other non-cash charges in computing REIT
taxable income. Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy the distribution
requirements described above. However, from time to time, we may not have
sufficient cash or other liquid assets to meet these distribution requirements
due to timing differences between the actual receipt of income and actual
payment of deductible expenses, and the inclusion of income and deduction of
expenses in arriving at our taxable income. If these timing differences occur,
in order to meet the distribution requirements, we may need to arrange for
short-term, or possibly long-term, borrowings or need to pay dividends in the
form of taxable stock dividends.
Under certain circumstances, we may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, we will be required to
pay interest based upon the amount of any deduction taken for deficiency
dividends.
Furthermore, we would be subject to a 4% excise tax on the excess of the
required distribution over the amounts actually distributed if we should fail to
distribute during each calendar year (or in the case of distributions with
declaration and record dates falling in the last three months of the calendar
year, by the end of January immediately following such year) at least the sum of
85% of our REIT ordinary income for such year, 95% of our REIT capital gain
income for the year and any undistributed taxable income from prior periods. Any
REIT taxable income and net capital gain on which this excise tax is imposed for
any year is treated as an amount distributed during that year for purposes of
calculating such tax.
Earnings and Profits Distribution Requirement. In order to qualify as a
REIT, we cannot have at the end of any taxable year any undistributed "earnings
and profits" that are attributable to a "C corporation" taxable year (i.e., a
year in which a corporation is neither a REIT nor an S corporation). In
connection with our
60
formation transactions, we succeeded to various tax attributes of AMB
Institutional Realty Advisors, Inc., AMB Current Income Fund, Inc. ("CIF") and
AMB Value Added Fund, Inc. ("VAF") (if the mergers of CIF and VAF into AMB
Institutional Realty Advisors, Inc. (the "Private REIT Mergers") were treated as
tax-free reorganizations under the Code), including any undistributed C
corporation earnings and profits of such corporations. If AMB Institutional
Realty Advisors, Inc. qualified as an S corporation for each year in which its
activities would have created earnings and profits, and each of CIF and VAF
qualified as a REIT during its existence and its merger into us was treated as a
tax-free reorganization under the Code, then those corporations would not have
any undistributed C corporation earnings and profits. If, however, either CIF or
VAF failed to qualify as a REIT throughout the duration of its existence, or AMB
Institutional Realty Advisors, Inc. failed to qualify as an S corporation for
any year in which its activities would have created earnings and profits, then
we would have acquired undistributed C corporation earnings and profits that, if
not distributed by us prior to the end of its first taxable year, would prevent
us from qualifying as a REIT.
We believe that each of CIF and VAF qualified as a REIT throughout the
duration of its existence and that, in any event, neither CIF nor VAF had any
undistributed C corporation earnings and profits at the time of the applicable
Private REIT Merger. We believe that AMB Institutional Realty Advisors, Inc.
qualified as an S corporation since its 1989 taxable year and that its
activities prior to such year did not create any earnings and profits. In
addition, in connection with our initial public offering, counsel to CIF and VAF
rendered opinions with respect to the qualification of those corporations as
REITs for federal income tax purposes, and Latham & Watkins rendered an opinion
with respect to AMB Institutional Realty Advisors, Inc.'s status as an S
corporation for federal income tax purposes. Those opinions were based on
certain representations and assumptions. However, the IRS may contend otherwise
on a subsequent audit of AMB Institutional Realty Advisors, Inc., CIF or VAF.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, we will be subject to tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to stockholders in any year in which we fail to qualify
will not be deductible by us and we will not be required to distribute any
amounts to our stockholders. As a result, our failure to qualify as a REIT would
reduce the cash available for distribution by us to our stockholders. In
addition, if we fail to qualify as a REIT, all distributions to stockholders
will be taxable as ordinary income to the extent of our 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
entitled to relief under specific statutory provisions, we will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which we lost our qualification. It is not possible to state whether
in all circumstances we would be entitled to this statutory relief.
TAX ASPECTS OF THE OPERATING PARTNERSHIP AND THE JOINT VENTURES
General. Substantially all of our investments will be held indirectly
through the Operating Partnership. In addition, the Operating Partnership holds
certain of its investments indirectly through joint ventures. In general,
partnerships are "pass-through" entities which 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 thereon, without regard to whether the partners receive a
distribution from the partnership. We will include in our income our
proportionate share of the foregoing partnership items for purposes of the
various REIT income tests and in the computation of our REIT taxable income.
Moreover, for purposes of the REIT asset tests, we will include our
proportionate share of assets held by the Operating Partnership and joint
ventures. See "-- Taxation of the Company."
Entity Classification. Our interests in the Operating Partnership and the
joint ventures involve special tax considerations, including the possibility of
a challenge by the IRS of the status of the Operating Partnership or a
partnership as a partnership (as opposed to an association taxable as a
corporation) for federal income tax purposes. If the Operating Partnership or a
partnership were treated as an association, it would be taxable as a corporation
and therefore be subject to an entity-level tax on its income. In such a
situation, the
61
character of our assets and items of gross income would change and preclude us
from satisfying the asset tests and possibly the income tests (see "-- Taxation
of the Company -- Asset Tests" and "-- Income Tests"). This, in turn, would
prevent us from qualifying as a REIT. See "-- Failure to Qualify" for a
discussion of the effect of our failure to meet these tests for a taxable year.
In addition, a change in the Operating Partnership's or a partnership's status
for tax purposes might be treated as a taxable event. If so, we might incur a
tax liability without any related cash distributions.
Treasury Regulations that apply for tax periods beginning on or after
January 1, 1997 provide that a domestic business entity not otherwise classified
as a corporation and which has at least two members (an "Eligible Entity") may
elect to be taxed as a partnership for federal income tax purposes. Unless it
elects otherwise, an Eligible Entity in existence prior to January 1, 1997 will
have the same classification for federal income tax purposes that it claimed
under the entity classification Treasury Regulations in effect prior to this
date. In addition, an Eligible Entity which did not exist, or did not claim a
classification, prior to January 1, 1997, will be classified as a partnership
for federal income tax purposes unless it elects otherwise. The Operating
Partnership and each of our joint ventures intend to claim classification as a
partnership under the Final Regulations, and, as a result, we believe such
partnerships will be classified as partnerships for federal income tax purposes.
Allocations of Operating Partnership Income, Gain, Loss and Deduction. The
Partnership Agreement provides for preferred distributions of cash and preferred
allocations of income to the Company with respect to its Series A Preferred
Units and to the holders of Series B Preferred Units. In addition, to the extent
the Company issues Series C Preferred Stock in exchange for AMB Property II
Series C Preferred Units, the Operating Partnership will issue Series C
Preferred Units to the Company, and the Partnership Agreement will be amended to
provide for similar preferred distributions of cash and preferred allocations of
income to the Company with respect to its Series C Preferred Units. As a
consequence, the Company will receive distributions from the Operating
Partnership and attributable to its other assets that we would use to pay
dividends on shares of Series A Preferred Stock and any shares of Series B
Preferred Stock or Series C Preferred Stock issued by the Company before any
other partner in the Operating Partnership (other than a holder of Series B
Preferred Units, if such units are not then held by the Company) receives a
distribution. In addition, if necessary, income will be specially allocated to
the Company, and losses will be allocated to the other partners of the Operating
Partnership, in amounts necessary to ensure that the balance in the capital
account of the Company will at all times be equal to or in excess of the amount
payable by the Company on the Series A Preferred Stock and any Series B
Preferred Stock or Series C Preferred Stock then issued by the Company upon
liquidation or redemption. As long as the Company does not hold the Series B
Preferred Units, similar preferred distributions and allocations will be made
for the benefit of the holders of such units. All remaining items of operating
income and loss will be allocated to the holders of common Units in proportion
to the number of Units or Performance Units held by each such unitholder. All
remaining items of gain or loss relating to the disposition of the Operating
Partnership's assets upon liquidation will be allocated first to the partners in
the amounts necessary, in general, to equalize the Company's and the limited
partners' per unit capital accounts, with any special allocation of gain to the
holders of Performance Units being offset by a reduction in the gain allocation
to the Company and unitholders which were Performance Investors. Certain limited
partners have agreed to guarantee debt of the Operating Partnership, either
directly or indirectly through an agreement to make capital contributions to the
Operating Partnership under limited circumstances. As a result of these
guarantees or contribution agreements, and notwithstanding the foregoing
discussion of allocations of income and loss of the Operating Partnership to
holders of common Units, such limited partners could under limited circumstances
be allocated a disproportionate amount of net loss upon a liquidation of the
Operating Partnership, which net loss would have otherwise been allocable to the
Company.
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. This reallocation will be determined by
taking into account all of the facts and circumstances relating to the economic
arrangement of the partners with respect to such item. The Operating
Partnership's allocations of taxable income and loss are intended to comply with
the requirements of Section 704(b) of the Code and the Treasury Regulations
promulgated under this section of the Code.
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Tax Allocations with Respect to the Properties. Under 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 the unrealized gain or benefits from the
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 the time of
contribution (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. The Operating Partnership was
formed by way of contributions of appreciated property. Moreover, subsequent to
the formation of the Operating Partnership, additional appreciated property has
been contributed to the Operating Partnership in exchange for interests in the
Operating Partnership. The Partnership Agreement requires that these allocations
be made in a manner consistent with Section 704(c) of the Code.
In general, the partners of the Operating Partnership (including the
Company) which contributed assets having an adjusted tax basis less than their
fair market value at the time of contribution will be allocated depreciation
deductions for tax purposes which are lower than such deductions would have been
if determined on a pro rata basis. In addition, in the event of the disposition
of any of the contributed assets which have such a Book-Tax Difference, all
income attributable to such Book-Tax Difference generally will be allocated to
such contributing partners. 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 Partnership may cause the Company or other
partners to be allocated lower depreciation and other deductions, and possibly
an amount of taxable income in the event of a sale of such contributed assets in
excess of the economic or book income allocated to the Company or other partners
as a result of such sale. Such an allocation might cause the Company or other
partners to recognize taxable income in excess of cash proceeds, which might
adversely affect the Company's ability to comply with the REIT distribution
requirements. See "-- Taxation of the Company -- Requirements for Qualification"
and "-- Annual Distribution Requirements."
Treasury Regulations issued under Section 704(c) of the Code provide
partnerships with a choice of several methods of accounting for Book-Tax
Differences, including retention of the "traditional method" or the election of
certain methods which 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. We and the Operating Partnership
have determined to use the "traditional method" for accounting for Book-Tax
Differences for the properties initially contributed to the Operating
Partnership and for certain assets contributed subsequently. We and the
Operating Partnership have not yet decided what method will be used to account
for Book-Tax Differences for properties acquired by the Operating Partnership in
the future.
Any property acquired by the Operating Partnership in a taxable transaction
will initially have a tax basis equal to its fair market value, and Section
704(c) of the Code will not apply.
OTHER TAX CONSEQUENCES
We may be subject to state or local taxation in various state or local
jurisdictions, including those in which we transact business. Our state and
local tax treatment may not conform to the federal income tax consequences
discussed above.
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PLAN OF DISTRIBUTION
We may sell securities offered pursuant to any applicable prospectus
supplement directly to one or more purchasers or though agents or underwriters.
We may sell securities offered pursuant to any applicable prospectus supplement
in at-the-market equity offerings or on a negotiated or competitive bid basis
through underwriters or dealers or directly to other purchasers or through
agents. Such underwriters or agents may include Morgan Stanley & Co.
Incorporated. We will name any underwriter or agent involved in the offer and
sale of the securities in the applicable prospectus supplement. The amount of
voting stock registered pursuant to this prospectus that we may sell in
at-the-market equity offerings will not exceed an aggregate offering price of
$203,645,123, which represents 10% of the aggregate market value of the
Company's outstanding voting stock held by non-affiliates of the Company
calculated as of October 14, 1998.
We may distribute the securities from time to time in one or more
transactions:
- at a fixed price or prices, which may be changed;
- at market prices prevailing at the time of sale;
- at prices related to prevailing market prices; or
- at negotiated prices.
In connection with the sale of the securities, underwriters may 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 the securities to or through
dealers, and 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.
We will describe in the applicable prospectus supplement any underwriting
compensation we pay to underwriters or agents in connection with the offering of
the securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers. 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. We may enter into agreements to indemnify underwriters, dealers and
agents against certain civil liabilities, including liabilities under the
Securities Act, and to reimburse these persons for certain expenses. We will
describe any indemnification agreements in the applicable prospectus supplement.
Unless we specify otherwise in the related prospectus supplement, each
series of securities offered will be a new issue with no established trading
market, other than the common stock which is listed on the New York Stock
Exchange. Any shares of common stock sold pursuant to a prospectus supplement
may be listed on the exchange, subject to official notice of issuance. We may
elect to list any series of preferred stock and any series of debt securities,
depository shares or warrants on any exchange, but we are not obligated to do
so. It is possible that one or more underwriters may make a market in a series
of offered securities, but will not be obligated to do so and may discontinue
any market making at any time without notice. Therefore, no assurance can be
given as to the liquidity of the trading market for the securities.
If indicated in the applicable prospectus supplement, we may authorize
dealers acting as our agents to solicit offers by certain institutions to
purchase the securities from us at the public offering price set forth in the
prospectus supplement pursuant to delayed delivery contracts providing for
payment and delivery on the date or dates stated in the prospectus supplement.
We may make delayed delivery with various institutions, including commercial and
savings banks, insurance companies, pension funds, investment companies and
educational and charitable institutions. Delayed delivery contracts will not be
subject to any conditions except:
- the purchase by an institution of the securities covered by its delayed
delivery contracts shall not at the time of delivery be prohibited under
the laws of any jurisdiction in the United States to which the
institution is subject; and
- if the securities are sold to underwriters, we shall have sold to the
underwriters the total principal amount of the offered securities less
the principal amount covered by the delayed delivery contracts.
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To facilitate the offering of the securities, certain persons participating
in the offering may engage in transactions that stabilize, maintain, or
otherwise affect the price of the securities. This may include over-allotments
or short sales of the securities, which involves the sale by persons
participating in the offering of more securities than we sold to them. In these
circumstances, these persons would cover the over-allotments or short positions
by making purchases in the open market or by exercising their over-allotment
option. In addition, these persons may stabilize or maintain the price of the
debt securities by bidding for or purchasing debt securities in the open market
or by imposing penalty bids, whereby selling concessions allowed to dealers
participating in the offering may be reclaimed if securities sold by them are
repurchased in connection with stabilization transactions. The effect of these
transactions may be to stabilize or maintain the market price of the securities
at a level above that which might otherwise prevail in the open market. These
transactions may be discontinued at any time.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for, us in the ordinary course
of business.
LEGAL MATTERS
The validity of the debt securities, depositary shares and warrants will be
passed upon for us by Latham & Watkins, San Francisco, and the validity of the
common stock and preferred stock will be passed upon for us by Ballard Spahr
Andrews & Ingersoll, LLP, Baltimore, Maryland.
In addition, the description of federal income tax consequences contained
in this prospectus under the heading "Certain Federal Income Tax Considerations"
is based upon the opinion of Latham & Watkins. Latham & Watkins will rely upon
the opinion of Ballard Spahr Andrews & Ingersoll, LLP, as to certain matters of
Maryland law.
EXPERTS
The audited financial statements and schedules incorporated by reference in
this prospectus and elsewhere in the registration statement to the extent and
for the periods indicated in their reports have been audited by Arthur Andersen
LLP, independent public accountants, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing in giving said
reports.
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[AMB PROPERTY CORPORATION LOGO]
AMB PROPERTY CORPORATION
SHARES
% SERIES L CUMULATIVE REDEEMABLE PREFERRED STOCK
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PROSPECTUS SUPPLEMENT
JUNE , 2003
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WACHOVIA SECURITIES
BEAR, STEARNS & CO. INC.
MCDONALD INVESTMENTS INC.