Rule 424 b(2)
Registration Statement
No. 333-14595
PROSPECTUS SUPPLEMENT
(To Prospectus dated March 14, 2002)
SUN COMMUNITIES, INC.
1,600,000 SHARES OF COMMON STOCK
This prospectus supplement relates to the issuance and sale of up to 1,600,000
shares of our common stock pursuant to the terms of a sales agreement dated as
of October 3, 2001 ("Sales Agreement"). The Sales Agreement was described in a
prospectus supplement dated November 8, 2001, which (together with the
prospectus dated November 8, 2001) accompanies this prospectus supplement.
On January 1, 2002, RCG Brinson Patrick, a division of Ramius Securities, LLC,
assigned all of its rights and obligations as our sales manager under the Sales
Agreement to Brinson Patrick Securities Corporation. Brinson Patrick Securities
Corporation has become our sales manager under the Sales Agreement. The
assignment was effected pursuant to an Assignment and Assumption Agreement that
has been filed as an Exhibit to the post-effective amendment to the registration
statement of which this prospectus supplement is a part.
Our common stock trades on the New York Stock Exchange under the symbol "SUI."
Sales of shares of our common stock under this prospectus supplement, if any,
will be made by means of ordinary brokers' transactions through the facilities
of the New York Stock Exchange at prices prevailing at the time of sale. These
sales will be made by the sales manager on a best efforts basis. On March 4,
2002, the last reported sales price of our common stock on the New York Stock
Exchange was $38.73 per share.
The compensation to the sales manager for sales of common shares shall be at a
fixed commission rate of 3% of the gross sales price per common share sold. The
net proceeds from any sales under this prospectus supplement will be used as
described under "Use of Proceeds" in the accompanying prospectus.
In connection with the sale of common stock on our behalf, the sales manager may
be deemed to be an "underwriter" within the meaning of the Securities Act, and
the compensation of the sales manager may be deemed to be underwriting
commissions or discounts. We have agreed to indemnify the sales manager against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments the sales manager may be required to make in respect of
those liabilities.
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF CERTAIN
FACTORS THAT YOU SHOULD CONSIDER PRIOR TO PURCHASING SHARES OF OUR COMMON STOCK.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus supplement and the accompanying
prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is March 14, 2002.
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PROSPECTUS DATED MARCH 14, 2002
PROSPECTUS
$300,000,000
SUN COMMUNITIES, INC.
COMPANY DEBT SECURITIES, PREFERRED STOCK,
COMMON STOCK AND SECURITIES WARRANTS
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
PARTNERSHIP DEBT SECURITIES
Sun Communities, Inc. (the "Company") may from time to time offer, with
an aggregate public offering price of up to $250,000,000 (or its equivalent in
another currency based on the exchange rate at the time of sale), in one or more
series: (i) unsecured debt securities ("Company Debt Securities"), (ii) shares
of its preferred stock, par value $0.01 per share ("Preferred Stock"), (iii)
shares of its common stock, par value $0.01 per share (the "Common Stock"), and
(iv) its warrants exercisable for Preferred Stock or Common Stock ("Securities
Warrants"), and Sun Communities Operating Limited Partnership (the "Operating
Partnership") may from time to time offer in one or more series its unsecured
non-convertible investment grade debt securities ("Partnership Debt Securities";
Company Debt Securities and Partnership Debt Securities are sometimes
hereinafter collectively referred to as the "Debt Securities") with an aggregate
public offering price of up to $50,000,000 (or its equivalent in another
currency based on the exchange rate at the time of sale), in each case in
amounts, at prices and on terms to be determined at the time of offering. The
Debt Securities, Preferred Stock, Common Stock and Securities Warrants
(collectively, the "Securities") may be offered, separately or together, in
separate series in amounts, at prices and on terms to be described in one or
more supplements to this Prospectus (a "Prospectus Supplement").
With respect to the Debt Securities, the issuer, specific title,
aggregate principal amount, form (which may be registered or bearer, or
certificated or global), maturity, rate (or manner of calculation thereof) and
time of payment of interest, terms for redemption at the option of the issuer or
repayment at the option of the holder, any sinking fund provisions and any
conversion provisions will be set forth in the applicable Prospectus Supplement.
The terms of the Preferred Stock, including the specific designation and stated
value per share, any dividend, liquidation, redemption, conversion, voting and
other rights, and all other specific terms of the Preferred Stock will be set
forth in the applicable Prospectus Supplement. In the case of the Common Stock,
the specific number of shares and issuance price per share will be set forth in
the applicable Prospectus Supplement. In the case of the Securities Warrants,
the duration, offering price, exercise price and detachability, if applicable,
will be set forth in the applicable Prospectus Supplement. In addition, such
specific terms may include limitations on direct or beneficial ownership and
restrictions on transfer of the Securities, in each case as may be appropriate
to preserve the status of the Company as a real estate investment trust ("REIT")
for United States federal income tax purposes. The applicable Prospectus
Supplement will also contain information, where applicable, about all material
United States federal income tax considerations relating to, and any listing on
a securities exchange of, the Securities covered by such Prospectus Supplement.
The Securities may be offered directly by the Company or the Operating
Partnership, through agents designated from time to time by the Company or the
Operating Partnership, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Securities, their names,
and any applicable purchase price, fee, commission or discount arrangement with,
between or among them, will be set forth, or will be calculable from the
information set forth, in an accompanying Prospectus Supplement. See "Plan of
Distribution."
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No Securities may be sold without delivery of a Prospectus Supplement describing
the method and terms of the offering of such Securities.
SEE "RISK FACTORS" ON PAGE 4 FOR CERTAIN FACTORS RELATING TO AN
INVESTMENT IN THE SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
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AVAILABLE INFORMATION
We file annual, quarterly and special reports and other information
with the SEC. You may read and copy any document we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the SEC's
public reference rooms. Our SEC filings are also available to the public over
the Internet at the SEC's web site at http://www.sec.gov. In addition, our
common stock is listed on the New York Stock Exchange and such reports, proxy
statements and other information concerning the Company can be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
The Company and the Operating Partnership have filed with the
Commission a registration statement on Form S-3 (the "Registration Statement"),
of which this Prospectus is a part, under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Securities offered hereby. This
Prospectus does not contain portions of the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other documents are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or documents filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto. For further information regarding the Company,
the Operating Partnership and the Securities, reference is hereby made to the
Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the following documents we filed with the SEC and our
future filings with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") until we or any
underwriters sell all of the securities:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 2000, filed with the Commission on March 30,
2001, as amended by the Company's Form 10-K/A filed with the
Commission on July 2, 2001.
2. The Operating Partnership's Annual Report on Form 10-K for the
year ended December 31, 2000, filed with the Commission on
March 30, 2001.
3. The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2001, filed with the Commission on May 14,
2001.
4. The Operating Partnership's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2001, filed with the Commission on
May 14, 2001.
5. The Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001, filed with the Commission on August 14,
2001.
6. The Operating Partnership's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2001, filed with the Commission on
August 14, 2001.
7. The Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001, filed with the Commission on
November 14, 2001.
8. The Operating Partnership's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2001, filed with the
Commission on November 14, 2001.
9. The description of the Company's common stock contained in our
Registration Statement on Form 8-A dated November 23, 1993,
No. 1-12616.
10. The description of rights to purchase the Company's Junior
Participating Preferred Stock contained in its Registration
Statement on Form 8-A, dated May 27, 1998.
11. The information contained in the section "Policies With
Respect to Certain Activities" contained in the Registration
Statement on Form S-11 (File No. 33-80972) filed on June 30,
1994, as amended.
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All documents filed by the Company or the Operating Partnership
subsequent to the date of this Prospectus pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act and prior to termination of the offering of all
Securities to which this Prospectus relates shall be deemed to be incorporated
by reference in this Prospectus and shall be part hereof from the date of filing
of such document.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus (in the case of a statement in a previously filed
document incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of Securities
or in any other subsequently filed document that is also incorporated or deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
accompanying Prospectus Supplement. Subject to the foregoing, all information
appearing in this Prospectus and each accompanying Prospectus Supplement is
qualified in its entirety by the information appearing in the documents
incorporated by reference.
The Company and the Operating Partnership will provide without charge
to each person, including any beneficial owner, to whom a copy of this
Prospectus is delivered, upon their written or oral request, a copy of any or
all of the documents incorporated herein by reference (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
in such documents). Written requests for such copies should be addressed to
Jeffrey P. Jorissen, the Company's Senior Vice President and Chief Financial
Officer at Sun Communities, Inc., 31700 Middlebelt Road, Suite 145, Farmington
Hills, Michigan 48334, telephone number (248) 932-3100.
As used herein, the term "Company" includes Sun Communities, Inc., a
Maryland corporation, and one or more of its subsidiaries (including the
Operating Partnership and Sun Home Services, Inc.).
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THE COMPANY
We own and operate manufactured housing communities concentrated in the
midwestern and southeastern United States. We are a fully integrated real estate
company which, together with our affiliates and predecessors, has been in the
business of acquiring, operating, and expanding manufactured housing communities
since 1975. As of September 30, 2001, we owned, managed, and/or financed a
portfolio of 114 communities (the "Properties") located in 15 states containing
an aggregate of approximately 39,300 developed sites and approximately 4,700
sites suitable for development.
We are the sole general partner of, and, as of September 30, 2001, held
approximately 86.8% of the interests (not including preferred limited
partnership interests) in, the Operating Partnership. Substantially all of our
assets are held by or through the Operating Partnership. The ownership and
management of the Properties is allocated among our subsidiaries. However,
subject to the tax and other risks discussed in the section entitled "Risk
Factors", our stockholders achieve substantially the same economic benefits as
direct ownership, operation, and management of the Properties, except that 5% of
the cash flow from operating activities of Sun Home Services, Inc., a Michigan
corporation ("Home Services"), will be distributed to Gary A. Shiffman (current
Chairman of the Board of the Company) and the Estate of Milton M. Shiffman
(former Chairman of the Board of the Company), as the holders of all the common
stock of Home Services. As sole general partner of the Operating Partnership, we
have the exclusive power to manage and conduct the business of the Operating
Partnership, subject to certain limited exceptions.
Our executive and principal property management office is located at
31700 Middlebelt Road, Suite 145, Farmington Hills, Michigan 48334, and
telephone number is (248) 932-3100. We have regional property management offices
in Elkhart, Indiana and Tampa, Florida.
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RISK FACTORS
Prospective investors should carefully consider, among other factors,
the matters described below.
CONFLICTS OF INTEREST
Failure to Enforce Terms of Home Services Agreement. Gary A. Shiffman,
President, Chief Executive Officer and Chairman of the Board of Directors of the
Company and the Estate of Milton M. Shiffman (former Chairman of the Board of
the Company), are the owners of all of the outstanding common stock of Home
Services, and as such are entitled to 5% of the cash flow from the operating
activities of Home Services (the Operating Partnership is entitled to 95% of
such cash flow). Home Services has entered into an agreement with the Operating
Partnership for sales, brokerage, and leasing services that was not negotiated
on an arm's length basis. Thus, Mr. Shiffman will have a conflict of interest
with respect to his obligations as an officer and director of the Company to
enforce the terms of this services agreement due to his right and the Estate's
right to receive a portion of the cash flow from the operating activities of
Home Services. The failure to enforce the material terms of this agreement could
have an adverse effect on the Company.
Tax Consequences Upon Sale of Properties. Gary A. Shiffman, President,
Chief Executive Officer and Chairman of the Board of Directors of the Company,
holds limited partnership interests in the Operating Partnership ("Common OP
Units") which were received in connection with the sale of 24 Properties the
Company acquired from partnerships previously affiliated with him (the "Sun
Partnerships"). Prior to any redemption of Common OP Units for our common stock
(the "Common Stock"), Mr. Shiffman will have tax consequences different from
those of the Company and its public stockholders on the sale of any of the Sun
Partnerships. Therefore, Mr. Shiffman and the Company, as partners in the
Operating Partnership, may have different objectives regarding the appropriate
pricing and timing of any sale of those Properties.
Relationship with Origen. Certain of our officers and directors have a
relationship with Bingham and Origen (defined below). See "Relationship with
Origen" below for more information.
RELATIONSHIP WITH ORIGEN
In the past, we have provided financing to Bingham Financial Services
Corporation ("Bingham"), a financial services company that provides and services
loans used to finance manufactured homes. In December 2001, we made a $15.0
million equity investment in a newly formed company, Origen Financial, L.L.C.,
that will merge with Origen Financial, Inc., a subsidiary of Bingham, as part of
a recapitalization of Bingham. As a result of this equity investment, we will
own approximately a 30% interest in the surviving company ("Origen"), which
company will hold all of the operating assets of Bingham and its subsidiaries.
As part of the recapitalization, the funds contributed to capitalize Origen were
used to repay approximately $38.9 million of Bingham's outstanding indebtedness
to the Company.
Certain of our officers and directors have an interest in Bingham
and/or Origen. Gary A. Shiffman, our Chairman of the Board, Chief Executive
Officer and President, is a director and officer of Bingham and a manager of
Origen, and Arthur A. Weiss, one of our directors, is a director of Bingham.
Bingham owns approximately a 20% interest in Origen. In addition, concurrently
with our investment in Origen, the Shiffman Family LLC, an entity owned and
controlled by Mr. Shiffman and members of his family, purchased approximately an
8.4% equity interest in Origen for approximately $4.2 million. Finally, for
certain tax and accounting reasons, we made our equity investment in Origen
through a taxable REIT subsidiary ("TRS") which is wholly-owned by Sun Home
Services, Inc. ("SHS"), one of our subsidiaries. The Operating Partnership
contributed $15.0 million to SHS in connection with the Origen investment and
owns all of the non-voting preferred stock of SHS, which entitles us to 95% of
the cash flow from the operating activities of SHS (including the operating
activities of the TRS) and effectively an approximate 30% interest in Origen.
Gary A. Shiffman and the Estate of Milton M. Shiffman (a former officer and
director of the Company) contributed approximately $790,000 to SHS in connection
with the Origen investment and own all of the voting common stock of SHS, which
entitles them to 5% of the cash flow from the operating activities of SHS
(including the operating activities of the TRS) and effectively an approximate
1.6% interest in Origen. Mr. Weiss is a personal representative of the Estate of
Milton M. Shiffman. As a result of the ownership and management of Origen, Mr.
Shiffman and Mr. Weiss may have a conflict of interest with respect to any
transaction between the Company and Origen.
Currently, we (together with another unaffiliated lender) provide
financing to Origen. This financing consists of a $17.5 million standby line of
credit, bearing interest at a per annum rate equal to 700 basis points over
LIBOR, with a minimum interest rate of 11% and a maximum interest rate of 15%.
The line of credit will be reduced to $12.5 million as of the earlier of June
30, 2002 and the closing date of Origen's next securitization of manufactured
home loans. This line of credit is secured by a security interest in Origen's
assets, which is subordinate in all respects to all institutional indebtedness
of Origen, and a guaranty and pledge of assets by Bingham. As of February 28,
2002, approximately $17.0 million was outstanding under the line of credit.
Under the terms of a participation agreement we entered into with the
other lender, we each will loan Origen up to $8.75 million under the line of
credit, we each participate pari passu in all proceeds from the line of credit
and we jointly administer the line of credit. From time to time, as is customary
with lines of credit, the Company may, at its discretion, increase the available
line of credit and lend additional funds to Origen. Under the participation
agreement, if additional funds above the existing line of credit are loaned to
Origen and both lenders do not participate therein, any additional amounts
funded will be subordinate in all respects to all indebtedness of Origen in
which both lenders have participated.
The line of credit subjects the Company to the risks of being a lender.
These risks include the risks relating to borrower delinquency and default and
the adequacy of the collateral for such loans. Because the line of credit is
subordinated to certain senior debt of Origen, in the event Origen was unable to
meet its obligations under the senior debt facility, our right to receive
amounts owed to us under the line of credit would be suspended pending payment
of the amounts owing under the senior debt facility. In addition, because the
security interest securing Origen's obligations under the line of credit is
subordinate to the security interest of certain senior debt of Origen, in the
event of a bankruptcy of Origen, our right to access Origen's assets to satisfy
the amounts outstanding under the line of credit would be subject to the senior
lender's prior rights to the same collateral. Moreover, if we choose to advance
additional funds to Origen beyond the original $17.5 million line of credit and
the other participation lender does not participate in such additional advances,
these secondary advances will be subordinate to any senior debt of Origen and
subordinate to all indebtedness of Origen in which both lenders have
participated.
ADVERSE CONSEQUENCES OF DEBT FINANCING
We are subject to the risks normally associated with debt financing,
including the following risks:
- our cash flow will be insufficient to meet required payments of
principal and interest;
- existing indebtedness will not be able to be refinanced;
- the terms of such refinancing will not be as favorable as the
terms of such existing indebtedness; and
- necessary capital expenditures for such purposes as renovations
and other improvements will not be able to be financed on
favorable terms or at all.
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If a property is mortgaged to secure payment of indebtedness and the Company is
unable to meet mortgage payments, the property could be transferred to the
mortgagee with a consequent loss of income and asset value to the Company.
As of September 30, 2001, we had outstanding $77.7 million of
indebtedness that is collateralized by mortgage liens on 17 of the Properties
(the "Mortgage Debt"). In addition, as of September 30, 2001, we had entered
into three (3) capitalized lease obligations having an aggregate value of $26.2
million. Each capitalized lease obligation involves a lease for a manufactured
housing community providing that we will lease the community for a certain
number of years and then have the option to purchase the community at or prior
to the end of the lease term. In each case, if we fail to exercise our purchase
right, the landlord has the right to require us to buy the property at the same
price for which we had the purchase option. If we fail to meet our obligations
under the Mortgage Debt, the lender would be entitled to foreclose on all or
some of the Properties securing such debt. If we fail to satisfy our lease
obligations or an obligation to purchase the property, the landlord/seller would
be entitled to evict us from the property. In each event, this could have a
material adverse effect on us and our ability to make expected distributions,
and could threaten our continued viability.
CHANGES IN INVESTMENT AND FINANCING POLICIES WITHOUT STOCKHOLDER APPROVAL
Our investment and financing policies, and our policies with respect to
certain other activities, including our growth, debt, capitalization,
distributions, real estate investment trust ("REIT") status, and operating
policies, are determined by our Board of Directors. Although the Board of
Directors has no present intention to do so, these policies may be amended or
revised from time to time at the discretion of the Board of Directors without
notice to or a vote of our stockholders. Accordingly, stockholders may not have
control over changes in our policies and changes in our policies may not fully
serve the interests of all stockholders.
DEPENDENCE ON KEY PERSONNEL
We are dependent on the efforts of our executive officers, particularly
Gary Shiffman, Jeffrey Jorissen, and Brian Fannon (together, the "Senior
Officers"). While we believe that we could find replacements for these key
personnel, the loss of their services could have a temporary adverse effect on
our operations. We do not currently maintain or contemplate obtaining any
"key-man" life insurance on the Senior Officers.
OWNERSHIP LIMIT AND LIMITS ON CHANGES IN CONTROL
9.8% Ownership Limit. In order to qualify and maintain our
qualification as a REIT, not more than 50% of the outstanding shares of our
capital stock may be owned, directly or indirectly, by five or fewer
individuals. Thus, ownership of more than 9.8% of our outstanding shares of
common stock by any single stockholder has been restricted, with certain
exceptions, for the purpose of maintaining our qualification as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"). Such restrictions in our
charter do not apply to Mr. Shiffman, the Estate of Milton M. Shiffman and
Robert B. Bayer, a former director and officer of the Company.
The 9.8% ownership limit, as well as our ability to issue additional
shares of Common Stock or shares of other stock (which may have rights and
preferences over the Common Stock), may discourage a change of control of the
Company and may also: (1) deter tender offers for the Common Stock, which offers
may be advantageous to stockholders; and (2) limit the opportunity for
stockholders to receive a premium for their Common Stock that might otherwise
exist if an investor were attempting to assemble a block of Common Stock in
excess of 9.8% of the outstanding shares of the Company or otherwise effect a
change of control of the Company.
Staggered Board. Our Board of Directors has been divided into three
classes of directors. The term of one class will expire each year. Directors for
each class will be chosen for a three-year term upon the expiration of such
class's term, and the directors in the other two classes will continue in
office. The staggered terms for directors may affect the stockholders' ability
to change control of the Company even if a change in control were in the
stockholders' interest.
Preferred Stock. Our charter authorizes the Board of Directors to issue
up to 10,000,000 shares of preferred stock and to establish the preferences and
rights (including the right to vote and the right to convert into shares of
Common Stock) of any shares issued. The power to issue preferred stock could
have the effect of delaying or preventing a change in control of the Company
even if a change in control were in the stockholders' interest.
Rights Plan. We adopted a stockholders rights plan in 1998 that
provides that our stockholders (other than a stockholder attempting to acquire a
15% or greater interest in the Company) will have the right to purchase stock in
the Company at a discount in the event any person attempts to acquire a 15% or
greater interest in the Company. Because this plan could make it more expensive
for a person to acquire a controlling interest in the Company, it could have the
effect of delaying or preventing a change in control of the Company even if a
change in control were in the stockholders' interest.
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REAL ESTATE INVESTMENT CONSIDERATIONS
General. Income from real property investments, and our resulting
ability to make expected distributions to stockholders, may be adversely
affected by:
- the general economic climate;
- local conditions such as oversupply of manufactured housing sites
or a reduction in demand for manufactured housing sites in an
area;
- the attractiveness of the Properties to tenants;
- zoning or other regulatory restrictions;
- competition from other available manufactured housing sites and
alternative forms of housing (such as apartment buildings and
site-built single-family homes); or
- our ability to provide adequate maintenance and insurance, and
increased operating costs (including insurance premiums and real
estate taxes).
Our income would also be adversely affected if tenants were unable to
pay rent or if sites were unable to be rented on favorable terms. If we were
unable to promptly relet or renew the leases for a significant number of the
sites, or if the rental rates upon such renewal or reletting were significantly
lower than expected rates, then our funds from operations and ability to make
expected distributions to stockholders could be adversely affected. In addition,
certain expenditures associated with each equity investment (such as real estate
taxes and maintenance costs) generally are not reduced when circumstances cause
a reduction in income from the investment. Furthermore, real estate investments
are relatively illiquid and, therefore, will tend to limit our ability to vary
our portfolio promptly in response to changes in economic or other conditions.
Competition. All of the Properties are located in developed areas that
include other manufactured housing community properties. The number of
competitive manufactured housing community properties in a particular area could
have a material effect on our ability to lease sites and on rents charged at the
Properties or at any newly acquired properties. We may be competing with others
with greater resources and whose officers and directors have more experience
than our officers and directors. In addition, other forms of multi-family
residential properties, such as private and federally funded or assisted
multi-family housing projects and single-family housing, provide housing
alternatives to potential tenants of manufactured housing communities.
Changes in Laws. Costs resulting from changes in real estate tax laws
generally may be passed through to tenants and will not affect us. Increases in
income, service or other taxes, however, generally are not passed through to
tenants under leases and may adversely affect our funds from operations and our
ability to make distributions to stockholders. Similarly, changes in laws
increasing the potential liability for environmental conditions existing on
properties or increasing the restrictions on discharges or other conditions may
result in significant unanticipated expenditures, which would adversely affect
our funds from operations and our ability to make distributions to stockholders.
Investments in Real Estate and Installment Loans. As of September 30,
2001, we had an investment of approximately $58.3 million in real estate loans
to several entities and Properties, some of which are secured by a first lien on
the underlying property, and others which are secured by a lien on the
underlying real estate subordinate to the lien held by the primary lender. Also,
as of September 30, 2001, we had outstanding approximately $14.1 million in
installment loans to owners of manufactured homes. These installment loans are
collateralized by the manufactured homes. In addition, we may invest in
additional mortgages and installment loans in the future. By virtue of our
investment in the mortgages and the loans, we are subject to the following risks
of such investment:
- the borrowers may not be able to make debt service payments or pay
principal when due;
- the value of property securing the mortgages and loans may be less
than the amounts owed; and
- interest rates payable on the mortgages and loans may be lower
than our cost of funds.
If any of the above occurred, funds from operations and our ability to make
expected distributions to stockholders could be adversely affected.
Development of New Communities. We are engaged in the development of
new communities. The manufactured housing community development business
involves significant risks in addition to those involved in the ownership and
operation of established manufactured housing communities, including the
following risks:
- financing may not be available on favorable terms for development
projects;
- construction and lease-up may not be completed on schedule
resulting in increased debt service expense and construction
costs;
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- long-term financing may not be available upon completion of
construction; and
- sites may not be leased on profitable terms.
If any of the above occurred, our ability to make expected distributions to
stockholders could be adversely affected.
Rent Control Legislation. State and local rent control laws in certain
jurisdictions may limit our ability to increase rents and to recover increases
in operating expenses and the costs of capital improvements. Enactment of such
laws has been considered from time to time in other jurisdictions. Certain
Properties are located, and the Company may purchase additional properties, in
markets that are either subject to rent control or in which rent-limiting
legislation exists or may be enacted.
Environmental Matters. Under various Federal, state and local laws,
ordinances and regulations, an owner of real estate is liable for the costs of
removal or remediation of certain hazardous or toxic substances on or in such
property. Such laws often impose such liability without regard to whether the
owner knew of, or was responsible for, the presence of such hazardous or toxic
substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell or
rent such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of such substances at a
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain environmental laws impose liability for release
of asbestos-containing materials ("ACMs") into the air and third parties may
seek recovery from owners or operators of real properties for personal injury
associated with ACMs. In connection with the ownership (direct or indirect),
operation, management, and development of real properties, we may be considered
an owner or operator of such properties or as having arranged for the disposal
or treatment of hazardous or toxic substances and, therefore, are potentially
liable for removal or remediation costs, as well as certain other related costs,
including governmental fines and injuries to persons and property.
All of the Properties have been subject to a Phase I or similar
environmental audit (which involves general inspections without soil sampling or
ground water analysis) completed by independent environmental consultants. These
environmental audits have not revealed any significant environmental liability
that would have a material adverse effect on our business. No assurances can be
given that existing environmental studies of the Properties reveal all
environmental liabilities, that any prior owner of a Property did not create any
material environmental condition not known to us, or that a material
environmental condition does not otherwise exist as to any one or more
Properties.
Uninsured Loss. We maintain comprehensive liability, fire, flood (where
appropriate), extended coverage, and rental loss insurance on the Properties
with policy specifications, limits, and deductibles which are customarily
carried for similar properties. Certain types of losses, however, may be either
uninsurable or not economically insurable, such as losses due to earthquakes,
riots, or acts of war. In the event an uninsured loss occurs, we could lose both
our investment in and anticipated profits and cash flow from the affected
property which would adversely affect the Company's ability to make
distributions to our stockholders.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
Taxation as a Corporation. We expect to qualify and have made an
election to be taxed as a REIT under the Code, commencing with the calendar year
beginning January 1, 1994. Although we believe that we are organized and will
operate in such a manner, no assurance can be given that we are organized or
will be able to operate in a manner so as to qualify or remain so qualified.
Qualification as a REIT involves the satisfaction of numerous requirements (some
on an annual and quarterly basis) established under highly technical and complex
Code provisions for which there are only limited judicial or administrative
interpretations, and involves the determination of various factual matters and
circumstances not entirely within our control.
If we were to fail to qualify as a REIT in any taxable year, we would
be subject to Federal income tax (including any applicable alternative minimum
tax) on our taxable income at corporate rates. Moreover, unless entitled to
relief under certain statutory provisions, we also would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This treatment would reduce our net earnings available
for investment or distribution to stockholders because of the additional tax
liability to us for the years involved. In addition, distributions to
stockholders would no longer be required to be made.
Other Tax Liabilities. Even though we qualify as a REIT, we are subject
to certain Federal, state and local taxes on our income and property. In
addition, our sales operations, which are conducted through Home Services,
generally will be subject to Federal income tax at regular corporate rates.
REIT Modernization Act. In December 1999, the REIT Modernization Act
("RMA") was signed into law. The RMA contains several provisions that will allow
REITs to create a taxable REIT subsidiary ("TRS") that can provide services to
residents and others without disqualifying the rents that a REIT receives from
its residents.
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Furthermore, for tax years beginning after December 31, 2000 RMA changes the
minimum distribution requirement from 95 percent to 90 percent of the REIT's
taxable income, which will allow REITs to reinvest a larger percentage of
capital into their real estate assets or repay their existing debt.
ADVERSE EFFECT OF DISTRIBUTION REQUIREMENTS
We may be required from time to time, under certain circumstances, to
accrue as income for tax purposes interest and rent earned, but not yet
received. In such event, we could have taxable income without sufficient cash to
enable us to meet the distribution requirements of a REIT. Accordingly, we could
be required to borrow funds or liquidate investments on adverse terms in order
to meet such distribution requirements.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A PARTNERSHIP
We believe that the Operating Partnership and other various Company
subsidiary partnerships have each been organized as partnerships and will
qualify for treatment as such under the Code. If the Operating Partnership and
such other partnerships fail to qualify for such treatment under the Code, we
would cease to qualify as a REIT, and the Operating Partnership and such other
partnerships would be subject to Federal income tax (including any alternative
minimum tax) on their income at corporate rates.
ADVERSE EFFECT ON PRICE OF SHARES AVAILABLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for shares. As of September 30, 2001, up to 3,978,321 shares of Common
Stock may be issued in the future to the limited partners of the Operating
Partnership (both Common and Preferred OP Units). The limited partners may sell
such shares pursuant to registration rights or an available exemption from
registration. Also, Water Oak, Ltd., a former owner of one of the Properties,
will be issued Common OP Units with a value of approximately $1,000,000 annually
through 2009. In addition, as of September 30, 2001, 2,015,803 shares have been
reserved for issuance pursuant to our 1993 Employee Stock Option Plan and 1993
Non-Employee Director Stock Option Plan (the "Plans"). Under the Plans options
for 601,838 shares have been exercised, and 288,172 shares of restricted stock
have been issued as of September 30, 2001. Mr. Shiffman's employment agreement
provides for incentive compensation payable in shares of Common Stock. We have
also reserved 240,000 shares of Common Stock for issuance commencing January 31,
2002 pursuant to our Long Term Incentive Plan which is for the benefit of all of
our salaried employees other than our officers. No prediction can be made
regarding the effect that future sales of shares of Common Stock will have on
the market price of shares.
ADVERSE EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK
One of the factors that may influence the price of the Common Stock in
the public market will be the annual distributions to stockholders relative to
the prevailing market price of the Common Stock. An increase in market interest
rates may tend to make the Common Stock less attractive relative to other
investments, which could adversely affect the market price of Common Stock.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the
Company intends to invest, contribute or otherwise transfer the net proceeds of
any sale of Common Stock, Preferred Stock, Company Debt Securities, or
Securities Warrants to the Operating Partnership. Unless otherwise specified in
the applicable Prospectus Supplement, the Operating Partnership intends to use
such net proceeds and the net proceeds from the sale of any Partnership Debt
Securities for general business purposes, including the development and
acquisition of additional properties and other acquisition transactions, the
payment of certain outstanding debt and improvements to certain properties in
the Company's portfolio.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's and the Operating Partnership's ratios of earning to
fixed charges for the years ended December 31, 1996, 1997, 1998, 1999 and 2000
and the nine months ended September 30, 2001 was 2.49:1; 2.39:1, 2.03:1, 1.95:1;
1.87:1, and 1.89:1, respectively.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and
provisions of the Debt Securities to which this Prospectus and any applicable
Prospectus Supplement may relate. The particular terms of the Debt Securities
8
being offered and the extent to which such general provisions may apply will be
set forth in the applicable Indenture or in one or more indentures supplemental
thereto and described in a Prospectus Supplement relating to such Debt
Securities. The forms of the Senior Indenture (as defined herein) and the
Subordinated Indenture (as defined herein) have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
GENERAL
The Debt Securities will be direct, unsecured obligations of the
Company or the Operating Partnership (the entity issuing the Debt Securities is
hereinafter referred to as the "Issuer"), and may be either senior Debt
Securities ("Senior Securities") or subordinated Debt Securities ("Subordinated
Securities"). The Debt Securities will be issued under one or more indentures
(the "Indentures"). Senior Securities and Subordinated Securities will be issued
pursuant to separate indentures (respectively, a "Senior Indenture" and a
"Subordinated Indenture"), in each case between the Issuer and a trustee (a
"Trustee"). The Indentures will be subject to and governed by the Trust
Indenture Act of 1939, as amended (the "TIA"). The statements made under this
heading relating to the Debt Securities and the Indentures are summaries of the
anticipated provisions thereof, do not purport to be complete and are qualified
in their entirety by reference to the Indentures and such Debt Securities. All
section references appearing herein are to sections of each Indenture unless
otherwise indicated and capitalized terms used but not defined below shall have
the respective meanings set forth in each Indenture.
The indebtedness represented by Subordinated Securities will be
subordinated in right of payment to the prior payment in full of the Senior Debt
(as defined below) of the Issuer as described under "--Subordination."
Except as set forth in the applicable Indenture or in one or more
indentures supplemental thereto and described in a Prospectus Supplement
relating thereto, the Debt Securities may be issued without limit as to
aggregate principal amount, in one or more series, in each case as established
from time to time in or pursuant to authority granted by a resolution of the
Board of Directors of the Company, either in its own capacity or in its capacity
as sole general partner of the Operating Partnership, or as established in the
applicable Indenture or in one or more indentures supplemental to such
Indenture. All Debt Securities of one series need not be issued at the same time
and, unless otherwise provided, a series may be reopened, without the consent of
the Holders of the Debt Securities of such series, for issuances of additional
Debt Securities of such series.
It is anticipated that each Indenture will provide that there may be
more than one Trustee thereunder, each with respect to one or more series of
Debt Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a trustee of a trust under the applicable
Indenture separate and apart from the trust administered by any other Trustee,
and, except as otherwise indicated herein, any action described herein to be
taken by each Trustee may be taken by each such Trustee with respect to the one
or more series of Debt Securities for which it is Trustee under the applicable
Indenture.
The Prospectus Supplement relating to any series of Debt Securities
being offered will contain the specific terms thereof, including, without
limitation:
(1) The title of such Debt Securities and whether such Debt
Securities are Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) The percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal
amount thereof, the portion of the principal amount thereof
payable upon declaration of acceleration of the maturity
thereof;
(4) The date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be
payable;
9
(5) The rate or rates (which may be fixed or variable), or the
method by which such rate or rates shall be determined, at
which such Debt Securities will bear interest, if any;
(6) The date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the dates on
which any such interest will be payable, the regular record
dates for such interest payment dates, or the method by which
such dates shall be determined, the persons to whom such
interest shall be payable, and the basis upon which interest
shall be calculated if other than that of a 360-day year of
twelve 30-day months;
(7) The place or places where the principal (and premium, if any)
and interest, if any, on such Debt Securities will be payable,
where such Debt Securities may be surrendered for conversion
or registration of transfer or exchange and where notices or
demands to or upon the Issuer in respect of such Debt
Securities and the applicable Indenture may be served;
(8) The period or periods within which, the price or prices at
which and the other terms and conditions upon which such Debt
Securities may be redeemed, in whole or in part, at the option
of the Issuer, if the Issuer is to have such an option;
(9) The obligation, if any, of the Issuer to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or
analogous provision or at the option of a Holder thereof, and
the period or periods within which or the date and dates on
which, the price or prices at which and the other terms and
conditions upon which such Debt Securities will be redeemed,
repaid or purchased, in whole or in part, pursuant to such
obligation;
(10) If other than U.S. dollars, the currency or currencies in
which such Debt Securities are denominated and/or payable,
which may be a foreign currency or units of two or more
foreign currencies or a composite currency or currencies, and
the terms and conditions relating thereto;
(11) Whether the amount of payments of principal of (and premium,
if any) or interest, if any, on such Debt Securities may be
determined with reference to an index, formula or other method
(which index, formula or method may, but need not be, based on
a currency, currencies, currency unit or units or composite
currency or currencies) and the manner in which such amounts
shall be determined;
(12) Any additions to, modifications of or deletions from the terms
of such Debt Securities with respect to Events of Default or
covenants set forth in the applicable Indenture;
(13) Whether such Debt Securities will be issued in certificate or
book-entry form;
(14) Whether such Debt Securities will be in registered or bearer
form and, if in registered form, the denominations thereof if
other than $1,000 and any integral multiple thereof and, if in
bearer form, the denominations thereof and terms and
conditions relating thereto;
(15) The applicability, if any, of the defeasance and covenant
defeasance provisions of Article Fourteen of the applicable
Indenture;
(16) Whether and under what circumstances the Issuer will pay any
additional amounts on such Debt Securities in respect of any
tax, assessment or
10
governmental charge and, if so, whether the Issuer will have
the option to redeem such Debt Securities in lieu of mailing
such payment; and
(17) Any other terms of such Debt Securities not inconsistent with
the provisions of the applicable Indenture (Section 301).
In addition, the Prospectus Supplement relating to any series of Debt
Securities that provides for redemption, prepayment, or conversion upon the
occurrence of certain events (i.e. a change of control) at the option of the
Holder thereof will disclose the following to the extent applicable:
(1) the effect that such provisions may have in deterring certain
mergers, tender offers or other takeover attempts, as well as
any possible adverse effect on the market price of the
Issuer's securities or the ability to obtain additional
financing in the future;
(2) the Issuer's compliance with the requirements of Rule 14e-1
under the Securities Exchange Act of 1934 and any other
applicable securities laws in connection with such provisions
and any related offers by the Issuer;
(3) whether the occurrence of the specified events may give rise
to cross-defaults on other indebtedness such that payment on
the Debt Securities may be effectively subordinated;
(4) any limitations on the Issuer's financial or legal ability to
repurchase the Debt Securities upon the triggering of an event
risk provision requiring such a repurchase or offer to
repurchase;
(5) the impact, if any, under the governing instrument of the
failure to repurchase, including whether such failure to make
any required repurchases in the event of a change of control
will create an Event of Default with respect to the Debt
Securities or will become an Event of Default only after the
continuation of such failure for a specified period of time
after written notice is given to the Issuer by the Trustee or
to the Issuer and the Trustee by the holders of a specified
percentage in aggregate principal amount of the Debt
Securities outstanding;
(6) to the extent true, that there can be no assurance that
sufficient funds will be available at the time of the
triggering of an event risk provision to make any required
repurchases;
(7) if the Debt Securities are to be subordinated to other
obligations of the Issuer or its subsidiaries that would be
accelerated upon the triggering of a change in control,
fundamental change or poison put feature, the material effect
thereof of a triggering of the change in control, fundamental
change or poison put feature with respect to the Debt
Securities;
(8) if there is any anti-takeover device relating to the Issuer's
equity securities, any material effects thereof on the
Issuer's debt securities, including the Debt Securities;
(9) to the extent that there is a definition of "Change in
Control" that includes the concept of "all or substantially
all," how such term will be quantified or, in the alternative,
the established meaning of the phrase under the applicable
governing law of the Indenture will be provided. If an
established meaning for the phrase is not available, then
disclosure as to the effects of such an uncertainty on the
ability of a holder of the Debt Securities to determine when a
"Change of Control" has occurred will be provided; and
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(10) if applicable, the ramifications and limitations of the
"Change of Control" definition will be described in a manner
that clearly states whether the "Change of Control" provisions
will be triggered if a change in control of the Board of
Directors occurs as a result of a proxy contest involving the
solicitation of revocable proxies.
The Debt Securities may provide for less than the entire principal
amount thereof to be payable upon declaration of acceleration of the maturity
thereof ("Original Issue Discount Securities"). Material federal income tax,
accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
Except as set forth in the applicable Indenture or in one or more
indentures supplemental thereto, the applicable Indenture will not contain any
provisions that would limit the ability of the Issuer to incur indebtedness or
that would afford Holders of Debt Securities protection in the event of a highly
leveraged or similar transaction involving the Issuer. However, restrictions on
ownership and transfers of the Company's Common Stock and Preferred Stock,
designed to preserve the Company's status as a REIT, may act to prevent or
hinder a change of control. See "Description of Preferred Stock -- Restrictions
on Ownership" and "Description of Common Stock -- Restrictions on Ownership."
Reference is made to the applicable Prospectus Supplement for information with
respect to any deletions from, modifications of or additions to the Events of
Default or covenants of the Issuer that are described below, including any
addition of a covenant or other provision providing event risk or similar
protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of Debt
Securities will be payable at the corporate trust office of the Trustee, the
address of which will be stated in the applicable Prospectus Supplement;
provided that, at the option of the Issuer, payment of interest may be made by
check mailed to the address of the person entitled thereto as it appears in the
applicable register for such Debt Securities or by wire transfer of funds to
such person at an account maintained within the United States (Sections 301,
305, 306, 307 and 1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable regular record
date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than ten days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture
(Section 307).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the applicable Trustee referred
to above. In addition, subject to certain limitations imposed upon Debt
Securities issued in book-entry form, the Debt Securities of any series may be
surrendered for conversion or registration of transfer or exchange thereof at
the corporate trust office of the applicable Trustee. Every Debt Security
surrendered for conversion, registration of transfer or exchange must be duly
endorsed or accompanied by a written instrument of transfer. No service charge
will be made for any registration of transfer or exchange of any Debt
Securities, but the Issuer may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. If the
applicable Prospectus Supplement refers to any transfer agent (in addition to
the applicable Trustee) initially designated by the Issuer with respect to any
series of Debt Securities, the Issuer may at any time rescind the designation of
any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that the Issuer will be required to maintain a
transfer agent in each place of payment for such series. The Issuer may at any
time designate additional transfer agents with respect to any series of Debt
Securities (Section 1002).
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Neither the Issuer nor any Trustee shall be required to (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) issue, register the transfer of or exchange any Debt Security
that has been surrendered for repayment at the option of the Holder, except the
portion, if any, of such Debt Security not to be so repaid (Section 305).
MERGER, CONSOLIDATION OR SALE
The Issuer will be permitted to consolidate with, or sell, lease or
convey all or substantially all of its assets to, or merge with or into, any
other entity provided that (a) either the Issuer shall be the continuing entity,
or the successor entity (if other than the Issuer) formed by or resulting from
any such consolidation or merger or which shall have received the transfer of
such assets shall expressly assume payment of the principal of (and premium, if
any) and interest on all of the Debt Securities and the due and punctual
performance and observance of all of the covenants and conditions contained in
each Indenture; (b) immediately after giving effect to such transaction and
treating any indebtedness that becomes an obligation of the Issuer or any
Subsidiary as a result thereof as having been incurred by the Issuer or such
Subsidiary at the time of such transaction, no Event of Default under the
Indentures, and no event which, after notice or the lapse of time, or both,
would become such an Event of Default, shall have occurred and be continuing;
and (c) an officer's certificate of the Company, either in its own capacity or
in its capacity as sole general partner of the Operating Partnership, and legal
opinion covering such conditions shall be delivered to each Trustee (Sections
801 and 803).
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CERTAIN COVENANTS
Existence. Except as described above under "Merger, Consolidation or
Sale", the Issuer will be required to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
(declaration and statutory) and franchises; provided, however, that the Issuer
shall not be required to preserve any right or franchise if it determines that
the preservation thereof is no longer desirable in the conduct of its business
and that the loss thereof is not disadvantageous in any material respect to the
Holders of the Debt Securities (Section 1006).
Maintenance of Properties. The Issuer will be required to cause all of
its material properties used or useful in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Issuer may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that the issuer and its Subsidiaries
are not prevented from selling or disposing of for value its or their properties
in the ordinary course of business (Section 1007).
Insurance. The Issuer will be required to, and will be required to
cause each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
insurers of recognized responsibility and, if described in the applicable
Prospectus Supplement, having a specified rating from a recognized insurance
rating service (Section 1008).
Payment of Taxes and Other Claims. The Issuer will be required to pay
or discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of the
Issuer or any Subsidiary, and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Issuer or any Subsidiary; provided, however, that the Issuer shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings (Section 1009).
ADDITIONAL COVENANTS AND/OR MODIFICATIONS TO THE COVENANTS DESCRIBED ABOVE
Any additional covenants of the Issuer and/or modifications to the
covenants described above with respect to any Debt Securities or series thereof,
including any covenants relating to limitations on incurrence of indebtedness or
other financial covenants, will be set forth in the applicable Indenture or an
indenture supplemental thereto and described in the Prospectus Supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture will provide that the following events are "Events of
Default" with respect to any series of Debt Securities issued thereunder: (i)
default for 30 days in the payment of any installment of interest on any Debt
Security of such series; (ii) default in the payment of principal of (or
premium, if any, on) any Debt Security of such series at its maturity; (iii)
default in making any sinking fund payment as required for any Debt Security of
such series; (iv) default in the performance or breach of any other covenant or
warranty of the Issuer contained in the applicable Indenture (other than a
covenant added to the Indenture solely for the benefit of a series of Debt
Securities issued thereunder other than such series), continued for 60 days
after written notice as provided in the applicable Indenture; (v) default in the
payment of an aggregate principal amount exceeding $10,000,000 of any
indebtedness of the Issuer or any mortgage, indenture or other instrument under
which such indebtedness is issued or by which such indebtedness is secured, such
default having occurred after the expiration of any applicable grace period and
having resulted in the acceleration of the maturity of such indebtedness, but
only if such indebtedness is not discharged or such acceleration is not
rescinded or annulled; (vi) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of the
Issuer or any Significant Subsidiary or either of its property; and (vii) any
other Event of Default provided with respect to a particular series of Debt
Securities (Section 501).
If an Event of Default under any Indenture with respect to Debt
Securities of any series at the time outstanding occurs and is continuing, then
in every such case the applicable Trustee or the Holders of not less than 25% of
the principal amount of the Outstanding Debt Securities of that series will have
the right to declare the
14
principal amount (or, if the Debt Securities of that series are Original Issue
Discount Securities or indexed securities, such portion of the principal amount
as may be specified in the terms thereof) of all the Debt Securities of that
series to be due and payable immediately by written notice thereof to the Issuer
(and to the applicable Trustee if given by the Holders); provided, however, that
in the case of an Event of Default described under clause (vi) of the preceding
paragraph, acceleration is automatic. However, at any time after such a
declaration of acceleration with respect to Debt Securities of such series (or
of all Debt Securities then Outstanding under any Indenture, as the case may be)
has been made, but before a judgment or decree for payment of the money due has
been obtained by the applicable Trustee, the Holders of not less than a majority
in principal amount of Outstanding Debt Securities of such series (or of all
Debt Securities then Outstanding under the applicable Indenture, as the case may
be) may rescind and annul such declaration and its consequences if (a) the
Issuer shall have deposited with the applicable Trustee all required payments of
the principal of (and premium, if any) and interest on the Debt Securities of
such series (or of all Debt Securities then Outstanding under the applicable
Indenture, as the case may be), plus certain fees, expenses, disbursements and
advances of the applicable Trustee and (b) all events of default, other than the
non-payment of accelerated principal (or specified portion thereof), with
respect to Debt Securities of such series (or of all Debt Securities then
Outstanding under the applicable Indenture, as the case may be) have been cured
or waived as provided in such Indenture (Section 502). Each Indenture also will
provide that the Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series (or of all Debt Securities then
Outstanding under the applicable Indenture, as the case may be) may waive any
past default with respect to such series and its consequences, except a default
(x) in the payment of the principal of (or premium, if any) or interest on any
Debt Security of such series or (y) in respect of a covenant or provision
contained in the applicable Indenture that cannot be modified or amended without
the consent of the Holder of each Outstanding Debt Security affected thereby
(Section 513).
Each Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default shall have been cured or waived; provided, however, that such
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if specified responsible officers of such Trustee
consider such withholding to be in the interest of such Holders (Section 601).
Each Indenture will provide that no Holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to
such Indenture or for any remedy thereunder, except in the case of failure of
the applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it (Section 507). This provision will not prevent, however, any
Holder of Debt Securities from instituting suit for the enforcement of payment
of the principal of (and premium, if any) and interest on such Debt Securities
at the respective due dates thereof (Section 508).
Subject to provisions in each Indenture relating to its duties in case
of default, no Trustee will be under any obligation to exercise any of its
rights or powers under an Indenture at the request or direction of any Holders
of any series of Debt Securities then Outstanding under such Indenture, unless
such Holders shall have offered to the Trustee thereunder reasonable security or
indemnity (Section 602). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series (or of all Debt
Securities then Outstanding under an Indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the applicable Trustee, or of exercising any trust or
power conferred upon such Trustee. However, a Trustee may refuse to follow any
direction which is in conflict with any law or the applicable Indenture, which
may subject such Trustee to personal liability or which may be unduly
prejudicial to the Holders of Debt Securities of such series not joining therein
(Section 512).
Within 120 days after the close of each fiscal year, the Issuer will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers of the Company, either in its own capacity or in its capacity
as sole general partner of the Operating Partnership, stating whether or not
such officer has knowledge of any default under the applicable Indenture and, if
so, specifying each such default and the nature and status thereof (Section
1013).
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MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be
made only with the consent of the Holders of not less than a majority in
principal amount of all Outstanding Debt Securities issued under such Indenture
which are affected by such modification or amendment; provided, however, that no
such modification or amendment may, without the consent of the Holder of each
such Debt Security affected thereby, (a) change the stated maturity of the
principal of, or any installment of interest (or premium, if any) on, any such
Debt Security; (b) reduce the principal amount of, or the rate or amount of
interest on, or any premium payable on redemption of, any such Debt Security, or
reduce the amount of principal of an Original Issue Discount Security that would
be due and payable upon declaration of acceleration of the maturity thereof or
would be provable in bankruptcy, or adversely affect any right of repayment of
the Holder of any such Debt Security; (c) change the place of payment, or the
coin or currency, for payment of principal or premium, if any, or interest on
any such Debt Security; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any such Debt Security; (e)
reduce the above-stated percentage of Outstanding Debt Securities of any series
necessary to modify or amend the applicable Indenture, to waive compliance with
certain provisions thereof or certain defaults and consequences thereunder or to
reduce the quorum or voting requirements set forth in the applicable Indenture;
or (f) modify any of the foregoing provisions or any of the provisions relating
to the waiver of certain past defaults or certain covenants, except to increase
the required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the Holder of
such Debt Security (Section 902).
The Holders of not less than a majority in principal amount of
Outstanding Debt Securities of each series affected thereby will have the right
to waive compliance by the Issuer with certain covenants in such Indenture
(Section 1013).
Modifications and amendments of an Indenture will be permitted to be
made by the Issuer and the respective Trustee thereunder without the consent of
any Holder of Debt Securities for any of the following purposes: (i) to evidence
the succession of another person to the Issuer as obligor under such Indenture;
(ii) to add to the covenants of the Issuer for the benefit of the Holders of all
or any series of Debt Securities or to surrender any right or power conferred
upon the Issuer in the Indenture; (iii) to add Events of Default for the benefit
of the Holders of all or any series of Debt Securities; (iv) to add or change
any provisions of an Indenture to facilitate the issuance of, or to liberalize
certain terms of, Debt Securities in bearer form, or to permit or facilitate the
issuance of Debt Securities in uncertificated form, provided that such action
shall not adversely affect the interests of the Holders of the Debt Securities
of any series in any material respect; (v) to change or eliminate any provisions
of an Indenture, provided that any such change or elimination shall become
effective only when there are no Debt Securities Outstanding of any series
created prior thereto which are entitled to the benefit of such provision; (vi)
to secure the Debt Securities; (vii) to establish the form or terms of Debt
Securities of any series, including the provisions and procedures, if
applicable, for the conversion of such Debt Securities into Common Stock or
Preferred Stock; (viii) to provide for the acceptance of appointment by a
successor Trustee or facilitate the administration of the trusts under an
Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or
inconsistency in an Indenture, provided that such action shall not adversely
effect the interests of Holders of Debt Securities of any series issued under
such Indenture in any material respect; or (x) to supplement any of the
provisions of an Indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such Debt Securities, provided that
such action shall not adversely effect the interests of the Holders of the Debt
Securities of any series in any material respect (Section 901).
Each Indenture will provide that in determining whether the Holders of
the requisite principal amount of Outstanding Debt Securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of any Debt Security denominated in a foreign currency that shall be deemed
Outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an indexed security that shall be deemed Outstanding shall
be the principal face amount of such indexed security pursuant to the applicable
Indenture, and (iv) Debt Securities owned by the Issuer or any other obligor
upon the Debt Securities or any affiliate of the Issuer or of such other obligor
shall be disregarded.
Each Indenture will contain provisions for convening meetings of the
Holders of Debt Securities of a series (Section 1501). A meeting will be
permitted to be called at any time by the applicable Trustee, and also, upon
16
request, by the Issuer or the Holders of at least 10% in principal amount of the
Outstanding Debt Securities of such series, in any such case upon notice given
as provided in the Indenture. Except for any consent that must be given by the
Holder of each Debt Security affected by certain modifications and amendments of
an Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the Holders of a majority in the principal amount of the Outstanding Debt
Securities of that series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specified percentage, which is less than a majority, in principal
amount of the Outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting or at which a quorum is present by the affirmative
vote of the Holders of such specified percentage in principal amount of the
Outstanding Debt Securities of that series. Any resolution passed or decision
taken at any meeting of Holders of Debt Securities of any series duly held in
accordance with an Indenture will be binding on all Holders of Debt Securities
of that series. The quorum at any meeting called to adopt a resolution, and at
any reconvened meeting, will be persons holding or representing a majority in
principal amount of the Outstanding Debt Securities of a series; provided,
however, that if any action is to be taken at such meeting with respect to a
consent or waiver which may be given by the Holders of not less than a specified
percentage in principal amount of the Outstanding Debt Securities of a series,
the persons holding or representing such specified percentage in principal
amount of the Outstanding Debt Securities of such series will constitute a
quorum.
Notwithstanding the foregoing provisions, each Indenture will provide
that if any action is to be taken at a meeting of Holders of Debt Securities of
any series with respect to any request, demand, authorization, direction,
notice, consent, waiver and other action that such Indenture expressly provides
may be made, given or taken by the Holders of a specified percentage in
principal amount of all Outstanding Debt Securities affected thereby, or the
Holders of such series and one or more additional series: (i) there shall be no
minimum quorum requirement for such meeting, and (ii) the principal amount of
the Outstanding Debt Securities of such series that vote in favor of 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 such Indenture.
SUBORDINATION
Upon any distribution to creditors of the Issuer in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
any Subordinated Securities will be subordinated to the extent provided in the
applicable Indenture in right of payment to the prior payment in full of all
Senior Debt (Sections 1601 and 1602 of the Subordinated Indenture), but the
obligation of the Issuer to make payment of the principal and interest on such
Subordinated Securities will not otherwise be affected (Section 1608 of the
Subordinated Indenture). No payment of principal or interest will be permitted
to be made on Subordinated Securities at any time if a default on Senior Debt
exists that permits the Holders of such Senior Debt to accelerate its maturity
and the default is the subject of judicial proceedings or the Issuer receives
notice of the default (Section 1602 of the Subordinated Indenture). After all
Senior Debt is paid in full and until the Subordinated Securities are paid in
full, Holders will be subrogated to the right of Holders of Senior Debt to the
extent that distributions otherwise payable to Holders have been applied to the
payment of Senior Debt (Section 1607 of the Subordinated Indenture). By reason
of such subordination, in the event of a distribution of assets upon insolvency,
certain general creditors of the Issuer may recover more, ratably, than Holders
of Subordinated Securities.
Senior Debt will be defined in the Subordinated Indenture as the
principal of and interest on, or substantially similar payments to be made by
the Issuer in respect of, the following; whether outstanding at the date of
execution of the applicable Indenture or thereafter incurred, created or
assumed: (i) indebtedness of the Issuer for money borrowed or represented by
purchase money obligations, (ii) indebtedness of the Issuer evidenced by notes,
debentures, or bonds or other securities issued under the provisions of an
indenture, fiscal agency agreement or other agreement, (iii) obligations of the
Issuer as lessee under leases of property either made as part of any sale and
leaseback transaction to which the Issuer is a party or otherwise, (iv)
indebtedness, obligations and liabilities of others in respect of which the
Issuer is liable contingently or otherwise to pay or advance money or property
or as guarantor, endorser or otherwise or which the Issuer has agreed to
purchase or otherwise acquire, and (v) any binding commitment of the Issuer to
fund any real estate investment or to fund any investment in any entity making
such real estate investment, in each case other than (1) any such indebtedness,
obligation or liability referred to in clauses (i) through (v) above as to
which, in the instrument creating or evidencing the same pursuant to which the
same is outstanding, it is provided that such indebtedness, obligation or
liability is not superior in right of payment
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to the Subordinated Securities or ranks pari passu with the Subordinated
Securities, (2) any such indebtedness, obligation or liability which is
subordinated to indebtedness of the Issuer to substantially the same extent as
or to a greater extent than the Subordinated Securities are subordinated, and
(3) the Subordinated Securities.
If this Prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will contain the approximate amount
of Senior Debt outstanding as of the end of the Issuer's most recent fiscal
quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Issuer may be permitted under the applicable Indenture to discharge
certain obligations to Holders of any series of Debt Securities issued
thereunder that have not already been delivered to the applicable Trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the applicable Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the stated maturity or redemption
date, as the case may be.
Each Indenture will provide that, if the provisions of Article Fourteen
are made applicable to the Debt Securities of or within any series pursuant to
Section 301 of such Indenture, the Issuer may elect either (a) to defease and be
discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay additional amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities, and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 1402) or (b) to be released from its obligations with
respect to such Debt Securities under certain specified sections of Article Ten
of such Indenture as specified in the applicable Prospectus Supplement and any
omission to comply with such obligations shall not constitute an Event of
Default with respect to such Debt Securities ("covenant defeasance") (Section
1403), in either case upon the irrevocable deposit by the Issuer with the
applicable Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at stated maturity, or Government Obligations (as defined
below), or both, applicable to such Debt Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient without reinvestment to pay the principal of (and
premium, if any) and interest on such Debt Securities, and any mandatory sinking
fund or analogous payments thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Issuer has delivered to the applicable Trustee an opinion of counsel
(as specified in the applicable Indenture) to the effect that the Holders of
such Debt Securities will not recognize income, gain or loss for federal income
tax purposes as a result of such defeasance or covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance or covenant defeasance
had not occurred, and such opinion of counsel, in the case of defeasance, will
be required to refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable U.S. federal income tax law occurring after
the date of the Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct
obligations of the United States of America or the government which issued the
foreign currency in which the Debt Securities of a particular series are
payable, for the payment of which its full faith and credit is pledged or (ii)
obligations of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which issued
the foreign currency in which the Debt Securities of such series are payable,
the timely payment of which is unconditionally guaranteed as a full faith and
credit obligation of the United States of America or such government, which, in
either case, are not callable or redeemable at the option of the issuer thereof,
and shall also include a depository receipt issued by a bank or trust company as
custodian with respect to any such Government Obligation or a specific payment
of interest on or principal of any such Government Obligation held by such
custodian for the account of the Holder of a depository receipt, provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the Holder of such depository receipt from
any
18
amount received by the custodian in respect of the Government Obligation or the
specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt (Section 101 of each Indenture).
Unless otherwise provided in the applicable Prospectus Supplement, if
after the Issuer has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security will be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate. "Conversion
Event" means the cessation of use of (i) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community, (ii) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Communities or (iii) any currency
unit or composite currency other than the ECU for the purposes for which it was
established. Unless otherwise provided in the applicable Prospectus Supplement,
all payments of principal of (and premium, if any) and interest on any Debt
Security that is payable in a foreign currency that ceases to be used by its
government of issuance shall be made in U.S. dollars.
In the event the Issuer effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default described
in clause (iv) under "Events of Default, Notice and Waiver" with respect to
certain specified sections of Article Ten of each Indenture (which sections
would no longer be applicable to such Debt Securities as a result of such
covenant defeasance) or described in clause (vii) under "Events of Default,
Notice and Waiver" with respect to any other covenant as to which there has been
covenant defeasance, the amount in such currency, currency unit or composite
currency in which such Debt Securities are payable, and Government Obligations
on deposit with the applicable Trustee, will be sufficient to pay amounts due on
such Debt Securities at the time of their stated maturity but may not be
sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Default. However, the Issuer would remain
liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the
provisions, if any, permitting such defeasance or covenant defeasance, including
any modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
REDEMPTION OF SECURITIES
The Indenture provides that the Debt Securities may be redeemed at any
time at the option of the Issuer, in whole or in part, at the Redemption Price,
except as may otherwise be provided in connection with any Debt Securities or
series thereof.
From and after notice has been given as provided in the Indenture, if
funds for the redemption of any Debt Securities called for redemption shall have
been made available on such redemption date, such Debt Securities will cease to
bear interest on the date fixed for such redemption specified in such notice,
and the only right of the Holders of the Debt Securities will be to receive
payment of the Redemption Price.
Notice of any optional redemption of any Debt Securities will be given
to Holders at their addresses, as shown in the Security Register, not more than
60 nor less than 30 days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the Redemption Price and the
principal amount of the Debt Securities held by such Holder to be redeemed.
If the Issuer elects to redeem Debt Securities, it will notify the
Trustee at least 45 days prior to the redemption date (or such shorter period as
satisfactory to the Trustee) of the aggregate principal amount of Debt
Securities to be redeemed and the redemption date. If less than all the Debt
Securities are to be redeemed, the
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Trustee shall select the Debt Securities to be redeemed pro rata, by lot or in
such manner as it shall deem fair and appropriate.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in
the form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depository identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depository arrangement with respect to a series of
Debt Securities, including the terms under which the depository may take any
action permitted to be taken by an owner or holder of the Debt Securities, will
be described in the applicable Prospectus Supplement relating to such series.
DESCRIPTION OF COMMON STOCK
The Company has the authority to issue 100,000,000 shares of capital
stock, of which 90,000,000 are Common Stock, par value $0.01 per share, and
10,000,000 are Preferred Stock, par value $0.01 per share. As of September 30,
2001, the Company had outstanding 17,505,017 shares of Common Stock and no
shares of Preferred Stock.
The following description of the Common Stock sets forth certain
general terms and provisions of the Common Stock to which any Prospectus
Supplement may relate, including a Prospectus Supplement providing that Common
Stock will be issuable upon conversion of Preferred Stock of the Company or upon
the exercise of the Securities Warrants issued by the Company. The statements
below describing the Common Stock are in all respects subject to and qualified
in their entirety by reference to the applicable provisions of the Company's
Amended Articles of Incorporation (the "Articles") and Bylaws.
GENERAL
Holders of the Company's Common Stock will be entitled to receive
dividends when, as and if declared by the Board of Directors of the Company, out
of funds legally available therefor. Payment and declaration of dividends on the
Common Stock and purchases of shares thereof by the Company will be subject to
certain restrictions if the Company fails to pay dividends on the Preferred
Stock. See "Description of Preferred Stock." Upon any liquidation, dissolution
or winding up of the Company, holders of Common Stock will be entitled to share
equally and ratably in any assets available for distribution to them, after
payment or provision for payment of the debts and other liabilities of the
Company and the preferential amounts owing with respect to any outstanding
Preferred Stock or senior debt securities. The Common Stock will possess
ordinary voting rights for the election of directors and in respect of other
corporate matters, each share entitling the holder thereof to one vote. Holders
of Common Stock will not have cumulative voting rights in the election of
directors. Upon receipt by the Company of lawful payment therefor, the Common
Stock will, when issued, be fully paid and nonassessable, and will not be
subject to redemption except (as described in the Articles) as necessary to
preserve the Company's status as a REIT. A stockholder of the Company has no
preemptive rights to subscribe for additional shares of Common Stock or other
securities of the Company except as may be granted by the Board of Directors.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, the Common Stock
must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months (other than the first year) or during a proportionate
part of a shorter taxable year. Also, not more than 50% of the value of the
issued and outstanding shares of capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities such as qualified private pension plans) during the last half
of a taxable year (other than the first year) or during a proportionate part of
a shorter taxable year.
Because the Board of Directors believes it is essential for the Company
to continue to qualify as a REIT, the charter, subject to certain exceptions,
provides that no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% (the "Ownership Limit") of
the value of the issued and outstanding shares of the Company's stock. The Board
of Directors may exempt a person from the Ownership Limit if evidence
satisfactory to the Board of Directors and the Company's tax counsel is
presented that the proposed
20
transfer of stock to the intended transferee will not then or in the future
jeopardize the Company's status as a REIT. As a condition of such exemption, the
intended transferee must give written notice to the Company of the proposed
transfer and must furnish such opinions of counsel, affidavits, undertakings,
agreements, and information as may be required by the Board of Directors no
later than the fifteenth day prior to any transfer which, if consummated, would
result in the intended transferee owning shares in excess of the Ownership
Limit. The foregoing restrictions on transferability and ownership will not
apply if the Board of Directors determines that it is no longer in the best
interests of the Company to attempt to qualify or to continue to qualify as a
REIT. Any transfer of shares of Common Stock that would: (i) create a direct or
indirect ownership of shares of stock in excess of the Ownership Limit; (ii)
result in the shares of stock being owned by fewer than 100 persons; or (iii)
result in the Company being "closely held" within the meaning of Section 856(h)
of the Code, shall be null and void, and the intended transferee will acquire no
rights to the shares.
The Company's charter excludes the Principals and any brother, sister,
spouse, ancestor, or lineal descendant of a Principal from the Ownership Limit.
These persons may acquire additional shares of stock through the redemption of
OP Units, through the Stock Option Plan, from other stockholders or otherwise,
but in no event will they be entitled to acquire additional shares such that the
five largest beneficial owners of the Company's stock hold more than 50% of the
total outstanding stock.
Shares purported to be transferred in excess of the Ownership Limit
that are not otherwise permitted as provided above will constitute excess shares
("Excess Shares"), which will be transferred by operation of law to the Company
as trustee for the exclusive benefit of the person or persons to whom the Excess
Shares are ultimately transferred, until such time as the intended transferee
retransfers the Excess Shares. While these Excess Shares are held in trust, they
will not be entitled to vote or to share in any dividends or other
distributions. Subject to the Ownership Limit, the Excess Shares may be
retransferred by the intended transferee to any person who may hold such Excess
Shares at a price not to exceed the price paid by the intended transferee, at
which point the Excess Shares will automatically be exchanged for the stock to
which the Excess Shares are attributable. In addition, such Excess Shares held
in trust are subject to purchase by the Company. The purchase price of any
Excess Shares shall be equal to the lesser of the price paid for the stock by
the intended transferee and the fair market value of such shares of stock
reflected in the closing sales price for the shares of stock, if then listed on
a national securities exchange, or such price for the shares of stock on the
principal exchange if then listed on more than one national securities exchange,
or, if the shares of stock are not then listed on a national securities
exchange, the latest bid quotation for the shares of stock if then traded
over-the-counter, or, if such quotation is not available, the fair market value
as determined by the Board of Directors in good faith, on the last trading day
immediately preceding the day on which notice of such proposed purchase is sent
by the Company. From and after the intended transfer to the intended transferee
of the Excess Shares, the intended transferee shall cease to be entitled to
distributions, voting rights, and other benefits with respect to such shares of
the stock except the right to payment of the purchase price for the shares of
stock or the transfer of shares as provided above. Any dividend or distribution
paid to a proposed transferee on Excess Shares prior to the discovery by the
Company that such shares of stock have been transferred in violation of the
provisions of the Company's charter shall be repaid to the Company upon demand.
If the foregoing transfer restrictions are determined to be void or invalid by
virtue of any legal decision, statute, rule, or regulation, then the intended
transferee of any Excess Shares may be deemed, at the option of the Company, to
have acted as an agent on behalf of the Company in acquiring such Excess Shares
and to hold such Excess Shares on behalf of the Company.
All certificates representing shares of stock will bear a legend
referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution
provisions of the Code, more than 5% of the value of the outstanding shares of
stock of the Company must give a written notice to the Company containing the
information specified in the Company's charter by January 31 of each year. In
addition, each stockholder shall upon demand be required to disclose to the
Company in writing such information with respect to the direct, indirect and
constructive ownership of shares of Common Stock as the Board of Directors deems
necessary to comply with the provisions of the Code applicable to a REIT, to
comply with the requirements of any taxing authority or governmental agency or
to determine any such compliance.
These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority of, shares
of Common Stock might receive a premium for their shares over the then
prevailing market price or which such holders might believe to be otherwise in
their best interest.
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The registrar and transfer agent for the Common Stock is EquiServe
Trust Company, N.A.
DESCRIPTION OF PREFERRED STOCK
The following description of the terms of the Preferred Stock sets
forth certain general terms and provisions of the Preferred Stock to which any
Prospectus Supplement may relate. Certain other terms of any series of the
Preferred Stock offered by any Prospectus Supplement will be described in such
Prospectus Supplement. The description of certain provisions of the Preferred
Stock set forth below and in any Prospectus Supplement does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Company's Articles (including the Articles Supplementary relating to each series
of the Preferred Stock) which will be filed with the Commission and incorporated
by reference as an exhibit to the Registration Statement of which this
Prospectus is a part at or prior to the time of the issuance of such series of
the Preferred Stock.
GENERAL
The Company is authorized to issue 10,000,000 shares of preferred
stock, par value $0.01 per share, of which no shares of Preferred Stock were
outstanding as of September 30, 2001.
Under the Company's Articles, the Board of Directors (without further
stockholder action) may from time to time establish and issue one or more series
of Preferred Stock with such designations, powers, preferences or rights of the
shares of such series and the qualifications, limitations or restrictions
thereon.
The Preferred Stock shall have the dividend, liquidation, redemption
and voting rights set forth below unless otherwise provided in a Prospectus
Supplement relating to a particular series of the Preferred Stock. Reference is
made to the Prospectus Supplement relating to the particular series of the
Preferred Stock offered thereby for specific terms, including: (i) the
designation and stated value per share of such Preferred Stock and the number of
shares offered; (ii) the amount of liquidation preference per share; (iii) the
initial public offering price at which such Preferred Stock will be issued; (iv)
the dividend rate (or method of calculation), the dates on which dividends shall
be payable and the dates from which dividends shall commence to accumulate, if
any; (v) any redemption or sinking fund provisions; (vi) any conversion rights;
and (vii) any additional voting, dividend, liquidation, redemption, sinking fund
and other rights, preferences, privileges, limitations and restrictions. The
Preferred Stock will, when issued for lawful consideration, be fully paid and
nonassessable and will have no preemptive rights.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock and to all equity securities ranking junior to such
Preferred Stock; (ii) on a parity with all equity securities issued by the
Company the terms of which specifically provide that such equity securities rank
on a parity with the Preferred Stock; and (iii) junior to all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank senior to the Preferred Stock. As used in the Articles for these
purposes, the term "equity securities" does not include convertible debt
securities. The rights of the holders of each series of the Preferred Stock will
be subordinate to those of the Company's general creditors.
DIVIDENDS
Holders of shares of Preferred Stock of each series shall be entitled
to receive, when, as and if declared by the Board of Directors of the Company,
out of assets of the Company legally available for payment, cash dividends at
such rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Such rate may be fixed or variable or both. Each such dividend shall
be payable to holders of record as they appear on the stock transfer books of
the Company on such record dates as shall be fixed by the Board of Directors of
the Company, as specified in the Prospectus Supplement relating to such series
of Preferred Stock.
Dividends on any series of Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of
Preferred Stock for which dividends are noncumulative, then the
22
holders of such series of Preferred Stock will have no right to receive a
dividend in respect of the dividend period ending on such dividend payment date,
and the Company will have no obligation to pay the dividend accrued for such
period, whether or not dividends on such series are declared payable on any
future dividend payment date. Dividends on shares of each series of Preferred
Stock for which dividends are cumulative will accrue from the date on which the
Company initially issues shares of such series.
So long as the shares of any series of Preferred Stock shall be
outstanding, the Company may not declare or pay any dividends, make a
distribution, or purchase, acquire, redeem, pay monies to the holders of in
respect of, or set aside or make funds available for a sinking or other
analogous fund for the purchase or redemption of, any shares of Common Stock of
the Company or any other stock of the Company ranking as to dividends or
distributions of assets junior to such series of Preferred Stock (the Common
Stock and any such other stock being herein referred to as "Junior Stock"),
whether in cash or property or in obligations or stock of the Company, other
than Junior Stock which is neither convertible into, nor exchangeable or
exercisable for, any securities of the Company other than Junior Stock, unless
(i) full dividends (including if such Preferred Stock is cumulative, dividends
for prior dividend periods) shall have been paid or declared and set apart for
payment on all outstanding shares of the Preferred Stock of such series and all
other classes and series of Preferred Stock of the Company (other than Junior
Stock, as defined below); and (ii) all sinking or other analogous fund payments
and amounts for the repurchase or other mandatory retirement of any shares of
Preferred Stock of such series or any shares of any other Preferred Stock of the
Company of any class or series (other than Junior Stock) have been paid or duly
provided for.
Any dividend payment made on shares of a series of Preferred Stock
shall first be credited against the earliest accrued but unpaid dividend due
with respect to shares of such series which remains payable.
REDEMPTION
A series of Preferred Stock may be redeemable, in whole or from time to
time in part, at the option of the Company, and may be subject to mandatory
redemption pursuant to a sinking fund or otherwise, in each case upon terms, at
the times and at the redemption prices set forth in the Prospectus Supplement
relating to such series. Shares of the Preferred Stock redeemed by the Company
will be restored to the status of authorized but unissued shares of Preferred
Stock.
The Prospectus Supplement relating to a series of Preferred Stock that
is subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital stock of the Company, the terms of such
Preferred Stock may provide that, if no such capital 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, such Preferred Stock shall
automatically and mandatorily be converted into shares of the applicable capital
stock of the Company pursuant to conversion provisions specified in the
applicable Prospectus Supplement.
So long as any dividends on shares of any series of the Preferred Stock
or any other series of preferred stock of the Company ranking on a parity as to
dividends and distribution of assets with such series of the Preferred Stock are
in arrears, no shares of any such series of the Preferred Stock or such other
series of Preferred Stock of the Company will be redeemed (whether by mandatory
or optional redemption) unless all such shares are simultaneously redeemed, and
the Company will not purchase or otherwise acquire any such shares; provided,
however, that the foregoing will not prevent the purchase or acquisition of such
shares pursuant to a purchase or exchange offer made on the same terms to
holders of all such shares outstanding.
In the event that fewer than all of the outstanding shares of a series
of the Preferred Stock are to be redeemed, whether by mandatory or optional
redemption, the number of shares to be redeemed will be determined by lot or pro
rata (subject to rounding to avoid fractional shares) as may be determined by
the Company or by any other method as may be determined by the Company in its
sole discretion to be equitable. From and after the redemption date (unless
default shall be made by the Company in providing for the payment of the
redemption price plus accumulated and unpaid dividends, if any), dividends shall
cease to accumulate on the shares of the Preferred
23
Stock called for redemption and all rights of the holders thereof (except the
right to receive the redemption price plus accumulated and unpaid dividends, if
any) shall cease.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, then, before any distribution or payment shall
be made to the holders of any Junior Stock, the holders of each series of
Preferred Stock shall be entitled to receive out of assets of the Company
legally available for distribution to stockholders, liquidating distributions in
the amount of the liquidation preference per share (set forth in the applicable
Prospectus Supplement), plus an amount equal to all dividends accrued and unpaid
thereon (which shall not include any accumulation in respect of unpaid dividends
for prior dividend periods if such Preferred Stock does not have a cumulative
dividend). After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Preferred Stock will have no right or
claim to any of the remaining assets of the Company. In the event that upon any
such voluntary or involuntary liquidation, dissolution or winding up, the
available assets of the Company are insufficient to pay the amount of the
liquidating distributions on all outstanding shares of Preferred Stock and the
corresponding amounts payable on all shares of other classes or series of
capital stock of the Company ranking on a parity with the Preferred Stock in the
distribution of assets, then the holders of the Preferred Stock and all other
such classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all
holders of shares of Preferred Stock, the remaining assets of the Company shall
be distributed among the holders of Junior Stock, according to their respective
rights and preferences and in each case according to their respective number of
shares. For such purposes, the consolidation or merger of the Company with or
into any other corporation, or the sale, lease or conveyance of all or
substantially all of the property or business of the Company, shall not be
deemed to constitute a liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Except as indicated below or in a Prospectus Supplement relating to a
particular series of the Preferred Stock, or except as required by applicable
law, holders of the Preferred Stock will not be entitled to vote for any
purpose.
So long as any shares of the Preferred Stock of a series remain
outstanding, the consent or the affirmative vote of the holders of at least
66-2/3% of the votes entitled to be cast with respect to the then outstanding
shares of such series of the Preferred Stock together with any Other Preferred
Stock (as defined below), voting as one class, either expressed in writing or at
a meeting called for that purpose, will be necessary (i) to permit, effect or
validate the authorization, or any increase in the authorized amount, of any
class or series of shares of the Company ranking prior to the Preferred Stock of
such series as to dividends, voting or upon distribution of assets; and (ii) to
repeal, amend or otherwise change any of the provisions applicable to the
Preferred Stock of such series in any manner which adversely affects the powers,
preferences, voting power or other rights or privileges of such series of the
Preferred Stock. In case any series of the Preferred Stock would be so affected
by any such action referred to in clause (ii) above in a different manner than
one or more series of the Other Preferred Stock which will be similarly
affected, the holders of such series of Preferred Stock will be entitled to vote
as a class, and the Company will not take such action without the consent or
affirmative vote, as above provided, of at least 66-2/3% of the total number of
votes entitled to be cast with respect to each such series of the Preferred
Stock and the Other Preferred Stock then outstanding, in lieu of the consent or
affirmative vote hereinabove otherwise required.
With respect to any matter as to which the Preferred Stock of any
series is entitled to vote, holders of the Preferred Stock of such series and
any other series of Preferred Stock of the Company ranking on a parity with such
series of the Preferred Stock as to dividends and distributions of assets and
which by its terms provides for similar voting rights (the "Other Preferred
Stock") will be entitled to cast the number of votes set forth in the Prospectus
Supplement with respect to that series of Preferred Stock. As a result of the
provisions described in the preceding paragraph requiring the holders of shares
of a series of the Preferred Stock to vote together as a class with the holders
of shares of one or more series of Other Preferred Stock, it is possible that
the holders of such shares of Other Preferred Stock could approve action that
would adversely affect such series of Preferred Stock, including the creation of
a class of capital stock ranking prior to such series of Preferred Stock as to
dividends, voting or distribution of assets.
24
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series of
Preferred Stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion.
RESTRICTIONS ON OWNERSHIP
See "Description of Common Stock -- Restrictions on Ownership" for a
discussion of the restrictions on capital stock (Common Stock and Preferred
Stock) ownership necessary for the Company to qualify as a REIT under the Code.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Preferred Stock will be set
forth in the applicable Prospectus Supplement.
DESCRIPTION OF SECURITIES WARRANTS
The Company may issue Securities Warrants for the purchase of Preferred
Stock or Common Stock. Securities Warrants may be issued independently or
together with any other Securities offered by any Prospectus Supplement and may
be attached to or separate from such Securities. Each series of Securities
Warrants will be issued under a separate warrant agreement (each, a "Warrant
Agreement") to be entered into between the Company and a warrant agent specified
in the applicable Prospectus Supplement (the "Warrant Agent"). The Warrant Agent
will act solely as an agent of the Company in connection with the Securities
Warrants of such series and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of Securities
Warrants. The following summaries of certain provisions of the Securities
Warrant Agreement and the Securities Warrants do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all the
provisions of the Securities Warrant Agreement and the Securities Warrant
certificates relating to each series of Securities Warrants which will be filed
with the Commission and incorporated by reference as an exhibit to the
Registration Statement of which this Prospectus is a part at or prior to the
time of the issuance of such series of Securities Warrants.
The applicable Prospectus Supplement will describe the terms of such
Securities Warrants, including the following where applicable: (i) the offering
price; (ii) the aggregate number of shares purchasable upon exercise of such
Securities Warrants, the exercise price, and in the case of Securities Warrants
for Preferred Stock, the designation, aggregate number and terms of the series
of Preferred Stock purchasable upon exercise of such Securities Warrants; (iii)
the designation and terms of any series of Preferred Stock with which such
Securities Warrants are being offered and the number of such Securities Warrants
being offered with such Preferred Stock; (iv) the date, if any, on and after
which such Securities Warrants and the related series of Preferred Stock or
Common Stock will be transferable separately; (v) the date on which the right to
exercise such Securities Warrants shall commence and the date on which such
right shall expire (the "Expiration Date"); (vi) any special United States
federal income tax consequences; and (vii) any other material terms of such
Securities Warrants.
Securities Warrant certificates may be exchanged for new Securities
Warrant certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Securities Warrant agent or any other office indicated in
the applicable Prospectus Supplement. Prior to the exercise of any Securities
Warrants, holders of such Securities Warrants will not have any rights of
holders of such Preferred Stock or Common Stock, including the right to receive
payments of dividends, if any, on such Preferred Stock or Common Stock, or to
exercise any applicable right to vote.
25
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase
such number of shares of Preferred Stock or Common Stock, as the case may be, at
such exercise price as shall in each case be set forth in, or calculable from,
the Prospectus Supplement relating to the offered Securities Warrants. After the
close of business on the Expiration Date (or such later date to which such
Expiration Date may be extended by the Company), unexercised Securities Warrants
will become void.
Securities Warrants may be exercised by delivering to the Securities
Warrant Agent payment as provided in the applicable Prospectus Supplement of the
amount required to purchase the Preferred Stock or Common Stock, as the case may
be, purchasable upon such exercise together with certain information set forth
on the reverse side of the Securities Warrant certificate. Securities Warrants
will be deemed to have been exercised upon receipt of payment of the exercise
price, subject to the receipt within five (5) business days, of the Securities
Warrant certificate evidencing such Securities Warrants. Upon receipt of such
payment and the Securities Warrant certificate properly completed and duly
executed at the corporate trust office of the Securities Warrant agent or any
other office indicated in the applicable Prospectus Supplement, the Company
will, as soon as practicable, issue and deliver the Preferred Stock or Common
Stock, as the case may be, purchasable upon such exercise. If fewer than all of
the Securities Warrants represented by such Securities Warrant certificate are
exercised, a new Securities Warrant certificate will be issued for the remaining
amount of Securities Warrants.
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AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
The Warrant Agreements may be amended or supplemented without the
consent of the holders of the Securities Warrants issued thereunder to effect
changes that are not inconsistent with the provisions of the Securities Warrants
and that do not adversely affect the interests of the holders of the Securities
Warrants.
COMMON STOCK WARRANT ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of shares of Common Stock covered by, a Common
Stock Warrant are subject to adjustment in certain events, including (i) payment
of a dividend on the Common Stock payable in capital stock and stock splits,
combinations or reclassification of the Common Stock; (ii) issuance to all
holders of Common Stock of rights or warrants to subscribe for or purchase
shares of Common Stock at less than their current market price (as defined in
the Warrant Agreement for such series of Securities Warrants); and (iii) certain
distributions of evidences of indebtedness or assets (including securities but
excluding cash dividends or distributions paid out of consolidated earnings or
retained earnings or dividends payable other than in Common Stock) or of
subscription rights and warrants (excluding those referred to above).
No adjustment in the exercise price of, and the number of shares of
Common Stock covered by, a Common Stock Warrant will be made for regular
quarterly or other periodic or recurring cash dividends or distributions or for
cash dividends or distributions to the extent paid from consolidated earnings or
retained earnings. No adjustment will be required unless such adjustment would
require a change of at least 1% in the exercise price then in effect. Except as
stated above, the exercise price of, and the number of shares of Common Stock
covered by, a Common Stock Warrant will not be adjusted for the issuance of
Common Stock or any securities convertible into or exchangeable for Common
Stock, or carrying the right or option to purchase or otherwise acquire the
foregoing, in exchange for cash, other property or services.
In the event of any (i) consolidation or merger of the Company with or
into any entity (other than a consolidation or a merger that does not result in
any reclassification, conversion, exchange or cancellation of outstanding shares
of Common Stock); (ii) sale, transfer, lease or conveyance of all or
substantially all of the assets of the Company; or (iii) reclassification,
capital reorganization or change of the Common Stock (other than solely a change
in par value or from par value to no par value), then any holder of a Common
Stock Warrant will be entitled, on or after the occurrence of any such event, to
receive on exercise of such Common Stock Warrant the kind and amount of shares
of stock or other securities, cash or other property (or any combination
thereof) that the holder would have received had such holder exercised such
holder's Common Stock Warrant immediately prior to the occurrence of such event.
If the consideration to be received upon exercise of the Common Stock Warrant
following any such event consists of common stock of the surviving entity, then
from and after the occurrence of such event, the exercise price of such Common
Stock Warrant will be subject to the same anti-dilution and other adjustments
described in the second preceding paragraph, applied as if such common stock
were Common Stock.
27
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain federal income tax considerations to
the Company is based on current law, is for general information only, and is not
tax advice. 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 particular situation, and this discussion does not attempt to
address any aspects of federal income taxation relating to holders of
Securities.
EACH INVESTOR IS ADVISED TO CONSULT HIS OWN TAX ADVISOR, REGARDING THE
TAX CONSEQUENCES TO HIM OF THE ACQUISITION, OWNERSHIP AND SALE OF THE
SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY AS A REIT
General. The Company has elected to be taxed as a real estate
investment trust under Sections 856 through 860 of the Code, commencing with its
taxable year ended December 31, 1994. The Company believes that, commencing with
its taxable year ended December 31, 1994 it was organized and has been operating
in such a manner as to qualify for taxation as a REIT under the Code and the
Company intends to continue to operate in such manner, but no assurance can be
given that it will operate in a manner so as to qualify or remain qualified.
These sections of the Code are highly technical and complex. The
following sets forth the material aspects of the sections that govern the
federal income tax treatment of a REIT. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof.
In the opinion of Jaffe, Raitt, Heuer & Weiss, Professional
Corporation, commencing with the Company's taxable year which ended December 31,
1994, the Company has been organized in conformity with the requirements for
qualification as a REIT, and its method of operation enabled it to meet the
requirements for qualification and taxation as a REIT under the Code. It must be
emphasized that this opinion is based on various assumptions and is conditioned
upon certain representations made by the Company as to factual matters. In
addition, such qualification and taxation as a REIT depends upon the Company's
ability to meet, through actual annual operating results, distribution levels,
diversity of stock ownership, and the various qualification tests imposed under
the Code discussed below, the results of which have not been and will not be
reviewed by Jaffe, Raitt, Heuer & Weiss, Professional Corporation. Accordingly,
no assurance can be given that the actual results of the Company's operation in
any particular taxable year will satisfy such requirements. See "Taxation of the
Company -- Failure to Qualify".
In brief, if certain detailed conditions imposed by the REIT provisions
of the Code are met, entities, such as the Company, that invest primarily in
real estate and that otherwise would be treated for Federal income tax purposes
as corporations, are generally not taxed at the corporate level on that portion
of their ordinary income or capital gain that is currently distributed to
stockholders. This treatment substantially eliminates the "double taxation" (at
both the corporate and stockholder levels) that generally results from the use
of corporate investment vehicles.
If the Company fails to qualify as a REIT in any year, however, it will
be subject to Federal income tax as if it were a domestic corporation, and its
stockholders will be taxed in the same manner as stockholders of ordinary
corporations. In this event, the Company could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its stockholders would be reduced.
The Company has elected REIT status for the taxable year beginning
January 1, 1994. The Board of Directors of the Company intends that the Company
will operate in a manner that permits it to continue qualification as a REIT in
each taxable year thereafter. There can be no assurance, however, that this
expectation will be fulfilled, since qualification as a REIT depends on the
Company continuing to satisfy numerous asset, income and distribution tests
described below, which in turn will be dependent in part on the Company's
operating results.
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TAXATION OF THE COMPANY
General. In any year in which the Company qualifies as a REIT, in
general it will not be subject to Federal income tax on that portion of its
ordinary income or capital gain which is distributed to stockholders. The
Company may, however, be subject to tax at normal corporate rates upon any
taxable income or capital gain not distributed.
If the Company should fail either the 75% or the 95% gross income tests
(as discussed below), and nonetheless maintains its qualification as a REIT
because certain other requirements are met, it will be subject to a 100% tax on
the greater of the amount by which the Company fails either the 75% or the 95%
test, multiplied by a fraction intended to reflect the Company's profitability.
The Company will also be subject to a tax of 100% on net income from any
"prohibited transaction," as described below. In addition, if the Company should
fail to distribute during each calendar year at least the sum of: (i) 85% of its
REIT ordinary income for such year; (ii) 95% of its REIT capital gain net income
for such year; and (iii) any undistributed taxable income from prior years, the
Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. The Company may also be
subject to the corporate "alternative minimum tax," as well as tax in certain
situations and on certain transactions not presently contemplated. The Company
will use the calendar year both for Federal income tax purposes and for
financial reporting purposes.
In order to qualify as a REIT, the Company must meet, among others, the
following requirements:
Share Ownership Test. The Company's Common Stock must be held by a
minimum of 100 persons for at least approximately 92% of the days in each
taxable year. In addition, at all times during the second half of each taxable
year, no more than 50% in value of the capital stock of the Company may be
owned, directly, or indirectly and by applying certain constructive ownership
rules, by five or fewer individuals. For this purpose, a pension and other
exempt trusts will generally not be treated as a single individual. Rather,
based upon a look through approach, the beneficial owners of the trust will be
treated as owners of the REIT in proportion to their actuarial interests in the
trust.
In order to ensure compliance with these requirements, the Company has
placed certain restrictions on the transfer of the Common Stock to prevent
further concentration of stock ownership. Moreover, to evidence compliance with
these requirements, the Company must maintain records which disclose the actual
ownership of its outstanding Common Stock. In fulfilling its obligations to
maintain records, the Company must and will demand written statements each year
from the record holders of designated percentages of its Common Stock disclosing
the actual owners of such Common Stock. A list of those persons failing or
refusing to comply with such demand must be maintained as a part of the
Company's records. A stockholder failing or refusing to comply with the
Company's written demand must submit with his tax returns a similar statement
disclosing the actual ownership of Common Stock and certain other information.
In addition, the Company's charter provides restrictions regarding the transfer
of its shares that are intended to assist the Company in continuing to satisfy
the share ownership requirements. See "Description of Common Stock --
Restrictions on Ownership."
Asset Tests. At the close of each quarter of the Company's taxable
year, the Company must satisfy two tests relating to the nature of its assets.
First, at least 75% of the value of the Company's total assets must be
represented by interests in real property, interests in mortgages on real
property, shares in other REITs, cash, cash items and government securities.
Second, although the remaining 25% of the Company's assets generally may be
invested without restriction, securities in this class may not exceed either:
(i) 5% of the value of the Company's total assets as to any one non-government
issuer; or (ii) 10% of the outstanding voting securities or value of any one
issuer. An exception to these 5% and 10% tests exists for securities of a
taxable REIT subsidiary owned by the Company; provided however, in no event may
more than 20% of the value of the Company's total assets consist of securities
of one or more taxable REIT subsidiaries. Where the Company invests in a
partnership, it will be deemed to own a proportionate share of the partnership's
assets. See "Federal Income Tax Considerations -- Tax Aspects of the Company's
Investment in the Operating Partnership -- General." The Company's investment in
the Properties through its interest in the Issuer will constitute a qualified
asset for purposes of the 75% asset test.
Gross Income Tests. There are two separate percentage tests relating to
the sources of the Company's gross income which must be satisfied for each
taxable year. For purposes of these tests, where the Company invests in a
partnership, the Company will be treated as receiving its share of the
proportionate income and loss of the partnership, and the gross income of the
partnership will retain the same character in the hands of the Company as it has
in the hands of the partnership. See "Federal Income Tax Considerations -- Tax
Aspects of the Company's Investment in the Operating Partnership -- General"
below.
29
1. The 75% Test. At least 75% of the Company's gross income for the
taxable year must be "qualifying income." Qualifying income generally includes:
(i) rents from real property (except as modified below); (ii) interest on
obligations collateralized by mortgages on, or interests in, real property;
(iii) gains from the sale or other disposition of interests in real property and
real estate mortgages, other than gain from property held primarily for sale to
customers in the ordinary course of the Company's trade or business ("dealer
property"); (iv) dividends or other distributions on shares in other REITs, as
well as gain from the sale of such shares; (v) abatements and refunds of real
property taxes; (vi) income from the operation, and gain from the sale, of
property acquired at or in lieu of a foreclosure of the mortgage collateralized
by such property ("foreclosure property"); and (vii) commitment fees received
for agreeing to make loans collateralized by mortgages on real property or to
purchase or lease real property.
Rents received from a tenant will not, however, qualify as rents from
real property in satisfying the 75% test (or the 95% gross income test described
below) if the Company, or an owner of 10% or more of the Company, directly or
constructively, owns 10% or more of the outstanding voting securities or value
of such tenant (a "Related Party Tenant") unless such Related Party Tenant is a
taxable REIT subsidiary whose rental payment is substantially comparable to the
rent paid by other tenants for comparable space and at least 90% of the
Company's leased space is rented to parties other than Related Party Tenants or
taxable REIT subsidiaries. In addition, if rent attributable to personal
property, leased in connection with a lease of real property, is greater than
15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as rents from real
property. Moreover, an amount received or accrued will not qualify as rents from
real property (or as interest income) for purposes of the 75% and 95% gross
income tests if it is based in whole or in part on the income or profits of any
person. Finally, for rents received to qualify as rents from real property, the
Company generally must not operate or manage the property or furnish or render
services to tenants (other than de minimis services the income from which in no
event exceeds 1% of the gross rent from a particular property), other than
through an "independent contractor" from whom the Company derives no revenue, or
through a taxable REIT subsidiary. The "independent contractor" requirement,
however, does not apply to the extent that the services provided by the Company
are "usually or customarily rendered" in connection with the rental of space for
occupancy only, and are not otherwise considered "rendered to the occupant."
The Company, through the Operating Partnership (which is not an
independent contractor), provides certain services with respect to the
Properties and any newly acquired manufactured housing community properties. The
Company believes that the services provided by the Operating Partnership are
usually or customarily rendered in connection with the rental of space for
occupancy only, and therefore that the provision of such services will not cause
the rents received with respect to the Properties to fail to qualify as rents
from real property for purposes of the 75% and 95% gross income tests. The
Company does not anticipate charging rent that is based in whole or in part on
the income or profits of any person. The Company does not anticipate deriving
rent attributable to personal property leased in connection with real property
that exceeds 15% of the total rent. Finally, the Company does not anticipate
receiving rent from Related Party Tenants, other than taxable REIT subsidiaries
whose lease payments would be at a market rate.
2. The 95% Test. In addition to deriving 75% of its gross income from
the sources listed above, at least 95% of the Company's gross income for the
taxable year must be derived from the above-described qualifying income, or from
dividends, interest, or gains from the sale or disposition of stock or other
securities that are not dealer property. Dividends and interest on any
obligations not collateralized by an interest in real property are included for
purposes of the 95% test, but not for purposes of the 75% test.
For purposes of determining whether the Company complies with the 75%
and 95% income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property, excluding
certain dealer property held by the Company for at least four years and
foreclosure property. See "Federal Income Tax Considerations -- Taxation of the
Company -- General" and "-- Tax Aspects of the Company's Investment in the
Operating Partnership -- Sale of the Properties."
The Company's investment in the Properties through the Operating
Partnership will in major part give rise to rental income qualifying under the
75% and 95% gross income tests. Gains on sales of the Properties, or of the
Company's interest in the Operating Partnership, will generally qualify under
the 75% and 95% gross income tests. The Company anticipates that income on its
other investments will not result in the Company failing the 75% or 95% gross
income test for any year.
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Even if the Company fails to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may still qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code. These
relief provisions will generally be available if: (i) the Company's failure to
comply was due to reasonable cause and not to willful neglect; (ii) the Company
reports the nature and amount of each item of its income included in the tests
on a schedule attached to its tax return; and (iii) any incorrect information on
this schedule is not due to fraud with intent to evade tax. If these relief
provisions apply, the Company will, however, still be subject to a special tax
upon the greater of the amount by which it fails either the 75% or 95% gross
income test for that year.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders each year in an amount at least equal to: (i) the sum of: (a)
90% of the Company's REIT taxable income (computed without regard to the
dividends paid deduction and the REIT's net capital gain); and (b) 90% of the
net income (after tax), if any, from foreclosure property; minus (ii) the sum of
certain items of non-cash income. Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if declared before
the Company timely files its tax return for such year and if paid on or before
the first regular dividend payment after such declaration. To the extent that
the Company does not distribute all of its net capital gain or distributes at
least 90%, but less than 100%, of its REIT taxable income, as adjusted, it will
be subject to tax on the undistributed amount at regular capital gains or
ordinary corporate tax rates, as the case may be. Moreover, if the Company
should fail to distribute during each calendar year at least the sum of: (i) 85%
of its ordinary income for that year; (ii) 95% of its capital gain net income
for that year; and (iii) any undistributed taxable income from prior periods,
the Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. In addition, during its
Recognition Period (defined below), if the Company disposes of any asset subject
to the Built-In Gain Rules, the Company will be required, pursuant to guidance
issued by the Service, to distribute at least 95% of the Built-In Gain (after
tax), if any, recognized on the disposition of the asset.
The Company intends to make timely distributions sufficient to satisfy
the annual distribution requirements. In this regard, the partnership agreement
of the Operating Partnership authorizes the Company, 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 the Company to meet these
distribution requirements. It is possible that the Company may not have
sufficient cash or other liquid assets to meet the 90% distribution requirement,
due to timing differences between the actual report of income and actual payment
of expenses on the one hand, and the inclusion of such income and deduction of
such expenses in computing the Company's REIT taxable income on the other hand.
To avoid any problem with the 90% distribution requirement, the Company will
closely monitor the relationship between its REIT taxable income and cash flow,
and if necessary, will borrow funds (or cause the Operating Partnership or other
affiliates to borrow funds) in order to satisfy the distribution requirement.
If the Company fails to meet the 90% distribution requirement as a
result of an adjustment to the Company's tax return by the Service, the Company
may retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
Failure to Qualify. If the Company fails to qualify for taxation as a
REIT in any taxable year and the relief provisions do not apply, the Company
will be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to stockholders in any
year in which the Company fails to qualify will not be deductible by the
Company, nor will they be required to be made. In such event, to the extent of
current and accumulated earnings and profits, all distributions to stockholders
will be taxable as ordinary income, and, subject to certain limitations in the
Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, the
Company also will be disqualified from taxation as a REIT for the four taxable
years following the year during which qualification was lost. It is not possible
to state whether in all circumstances the Company would be entitled to such
statutory relief.
TAX ASPECTS OF THE COMPANY'S INVESTMENT IN THE OPERATING PARTNERSHIP
General. The Company holds a direct interest in the Operating
Partnership, and an indirect interest in certain other Partnerships
(collectively, the "Partnerships"). 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. The Company will include its proportionate share of the foregoing
partnership items for purposes of the various REIT income tests and in the
computation of its REIT
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taxable income. See "Federal Income Tax Considerations -- Taxation of the
Company -- General" and "-- Gross Income Tests." Any resultant increase in the
Company's REIT taxable income will increase its distribution requirements (see
"Federal Income Tax Considerations -- Taxation of the Company -- Annual
Distribution Requirements"), but will not be subject to Federal income tax in
the hands of the Company provided that such income is distributed by the Company
to its stockholders. Moreover, for purposes of the REIT asset tests (see
"Federal Income Tax Considerations -- Taxation of the Company -- Asset Tests"),
the Company includes its proportionate share of assets held by the Partnerships.
Entity Classification. The Company's interests in the Partnerships
involve special tax considerations, including the possibility of a challenge by
the Service of the status of each Partnership as a partnership (as opposed to an
association taxable as a corporation) for Federal income tax purposes. If the
Operating Partnership were to be treated as an association, it would be taxable
as a corporation and therefore subject to an entity-level tax on its income. In
such a situation, the character of the Company's assets and items of gross
income would change, which would preclude the Company from satisfying the asset
tests and possibly the income tests (see "Federal Income Tax Considerations --
Taxation of the Company -- Asset Tests" and "-- Gross Income Tests"), and in
turn would prevent the Company from qualifying as a REIT. See "Taxation of the
Company -- Failure to Qualify" above for a discussion of the effect of the
Company's failure to meet such tests for a taxable year. Based on certain
representations of the Company, in the opinion of Jaffe, Raitt, Heuer & Weiss,
Professional Corporation, the Operating Partnership will be treated for Federal
income tax purposes as a partnership (and not as an association taxable as a
corporation). Such opinion, however, is not binding on the Service, and no
assurance can be given that the Service will not challenge the tax status of the
Operating Partnership.
Tax Allocations with Respect to the Properties. Pursuant to Section
704(c) of the Code, income, gain, loss, and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership (such as the Properties deemed
contributed by the Principals and the Former General Partners), must be
allocated in a manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain, or unrealized loss associated
with the property at the time of the contribution. The amount of such 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 such property at the time of contribution (a "Book-Tax
Difference"). Such 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 with contributions of
appreciated property (including the Properties deemed contributed by the
Principals and the Former General Partners). Consequently, the partnership
agreement will require such allocations to be made in a manner consistent with
Section 704(c) of the Code.
In general, the Principals, the Former General Partners, and certain
other persons and entities that contributed Properties to the Partnerships will
be allocated less depreciation, and increased taxable gain on sale of certain
Properties. This will tend to eliminate the Book-Tax Difference. However, the
special allocation rules of Section 704(c) do not always rectify the Book-Tax
Difference on an annual basis or with respect to a specific taxable transaction
such as a sale. Under the applicable Treasury Regulations, such special
allocations of income and gain and depreciation deductions must be made on a
property-by-property basis. Depreciation deductions resulting from the carryover
basis of a contributed property are used to eliminate the Book-Tax Difference by
allocating such deductions to the non-contributing partners (i.e., the REIT) up
to the amount of their share of book depreciation. Any remaining tax
depreciation for the contributed property would be allocated to the partners who
contributed the property. Each Partnership has elected the traditional method of
rectifying the Book-Tax Difference under the applicable Treasury Regulations,
pursuant to which, if depreciation deductions are less than the non-contributing
partners' share of book depreciation, then the non-contributing partners lose
the benefit of these deductions ("ceiling rule"). When the property is sold, the
resulting tax gain is used to the extent possible to eliminate the Book-Tax
Difference (reduced by any previous book depreciation). Even under the
traditional method, it is possible that the carryover basis of the contributed
assets in the hands of a Partnership may cause the Company to be allocated lower
depreciation and other deductions. This may cause the Company to recognize
taxable income in excess of cash proceeds, which might adversely affect the
Company's ability to comply with the REIT distribution requirements. See
"Federal Income Tax Considerations -- Taxation of the Company -- Annual
Distribution Requirements."
With respect to any property purchased by the Operating Partnership
subsequent to the admission of the Company to the Operating Partnership, such
property will initially have a tax basis equal to its fair market value and
Section 704(c) of the Code will not apply.
32
Sale of the Properties. The Company's share of any gain realized by the
Operating Partnership on the sale of any dealer property generally will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "Federal Income Tax Considerations -- Taxation of the Company
-- General" and "-- Gross Income Tests -- The 95% Test." Under existing law,
whether property is dealer property is a question of fact that depends on all
the facts and circumstances with respect to the particular transaction. The
Partnerships intend to hold the Properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing,
owning, and operating the Properties and other manufactured housing communities,
and to make such occasional sales of the Properties as are consistent with the
Company's investment objectives. Based upon such investment objectives, the
Company believes that in general the Properties should not be considered dealer
property and that the amount of income from prohibited transactions, if any,
will not be material.
TAX CONSEQUENCES OF CONVERSION TO REIT STATUS
The Company elected to be taxed as a REIT by filing such an election
with its United States Federal income tax return for the taxable year beginning
January 1, 1994. The Code provides that, in the case of an entity such as the
Company, such corporation is eligible to be taxed as a REIT for a taxable year
only if, as of the close of such year, it has no earnings and profits
accumulated in any non-REIT year. Under the Code, in order to distribute all
earnings and profits accumulated as of the end of a prior taxable year it is
necessary to distribute all earnings and profits accumulated in the current
taxable year. Although calculations of earnings and profits are complex and it
is possible for divergences of opinion with respect to the amount of accumulated
earnings and profits, the Company believes that its pre-1995 distributions have
satisfied the special distribution requirements of the Code in a timely fashion.
If during the 10-year period (the "Recognition Period") beginning on
the first day of the first taxable year for which the Company qualified as a
REIT, the Company recognizes gain on the disposition of any asset held by the
Company as of the beginning of such Recognition Period, then, to the extent of
the excess of: (i) the fair market value of such asset as of the beginning of
such Recognition Period; over (ii) the Company's adjusted basis in such asset as
of the beginning of such Recognition period (the "Built-in Gain"), such gain
will be subject to tax at the highest regular corporate rate to the extent of
the Company's net Built-in Gain as of the beginning of such Recognition Period,
pursuant to regulations that have not yet been promulgated by the Service.
Furthermore, if the Company acquires any asset from a corporation in a
transaction in which the basis of the asset in the Company's hands is determined
by reference to the basis of the asset (or any other property) in the hands of
the transferor, and the Company recognizes gain on the disposition of such asset
during the Recognition Period beginning on the date on which such asset was
acquired by the Company, then, pursuant to regulations that have not yet been
promulgated by the Service, to the extent of the Built-in Gain, such gain will
be subject to tax at the highest regular corporate rate.
These provisions regarding the potential taxation of Built-in Gains
would not be applicable to the Properties and would only be applicable to the
assets owned by the Company prior to January 1, 1994, the first day of the first
year that the Company elected to be taxed as a REIT. Accordingly, the Company
does not expect this provision to have any significant effect.
PLAN OF DISTRIBUTION
The Company and the Operating Partnership may sell the Securities to
one or more underwriters for public offering and sale by them or may sell the
Securities to investors directly or through agents, which agents may be
affiliated with the Company. Direct sales to investors may be accomplished
through subscription rights distributed to the Company's stockholders. In
connection with the distribution of subscription rights to stockholders, if all
of the underlying Securities are not subscribed for, the Company and the
Operating Partnership may sell such unsubscribed Securities directly to third
parties or may engage the services of an underwriter to sell such unsubscribed
Securities to third parties. Any underwriter or agent involved in the offer and
sale of the Securities will be named in the applicable Prospectus Supplement.
The distribution of the Securities may be effected from time to time in
one or more transactions at a fixed price or prices, or at prices related to the
prevailing market prices at the time of sale or at negotiated prices (any of
which may represent a discount from the prevailing market prices). The Company
and the Operating Partnership also may, from time to time, authorize
underwriters acting as the Company's agents to offer and sell the Securities
upon the terms and conditions as are set forth in the applicable Prospectus
Supplement. In connection with the sale
33
of Securities, underwriters may be deemed to have received compensation from the
Company or from the Operating Partnership in the form of underwriting discounts
or commissions and may also receive commissions from purchasers of Securities
for whom they may act as agent. Underwriters may sell Securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company or the Operating
Partnership to underwriters or agents in connection with the offering of
Securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, will be set forth in the applicable
Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of the Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Securities may be deemed to be underwriting discounts and
commissions, under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements entered into with the Company, to indemnification
against and contribution toward certain civil liabilities, including liabilities
under the Securities Act. Any such indemnification agreements will be described
in the applicable Prospectus Supplement.
If so indicated in the applicable Prospectus Supplement, the Company or
the Operating Partnership, as the case may be, will authorize dealers acting as
the Company's or the Operating Partnership's agents to solicit offers by certain
institutions to purchase Securities from the Company or the Operating
Partnership at the public offering price set forth in such Prospectus Supplement
pursuant to Delayed Delivery Contracts ("Contracts") providing for payment and
delivery on the date or dates stated in such Prospectus Supplement. Each
Contract will be for an amount not less than, and the aggregate principal amount
of Securities sold pursuant to Contracts shall be not less nor more than, the
respective amounts stated in the applicable Prospectus Supplement. Institutions
with whom Contracts, when authorized, may be made include commercial and savings
banks, insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company or the Operating Partnership, as the case may be.
Contracts will not be subject to any conditions except (i) the purchase by an
institution of the Securities covered by its Contracts shall not at the time of
delivery be prohibited under the laws of any jurisdiction in the United States
to which such institution is subject; and (ii) if the Securities are being sold
to underwriters, the Company shall have sold to such underwriters the total
principal amount of the Securities less the principal amount thereof covered by
the Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company or the
Operating Partnership in the ordinary course of business.
LEGAL MATTERS
The legality of the Securities will be passed upon for the Company and
the Operating Partnership by Jaffe, Raitt, Heuer & Weiss, Professional
Corporation. In addition, Jaffe, Raitt, Heuer & Weiss, Professional Corporation,
will provide an opinion as to the basis of the description of Federal income tax
consequences contained in the section titled "Federal Income Tax Consequences."
Arthur A. Weiss, who is a director of the Company, is a shareholder of Jaffe,
Raitt, Heuer & Weiss, P.C. In addition, as of January 31, 2002 certain
shareholders of Jaffe, Raitt, Heuer & Weiss, P.C. beneficially owned
approximately 55,799 shares of our Common Stock.
EXPERTS
The consolidated financial statements and financial schedule of the
Company and the Operating Partnership incorporated in this Registration
Statement by reference to the Annual Report on Form 10-K/A for the Company and
Form 10-K for the Operating Partnership for the year ended December 31, 2000
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.
34
No dealer, salesperson or other individual has been authorized to give
any information or to make any representations not contained or incorporated by
reference in this Prospectus in connection with any offering to be made by the
Prospectus. If given or made, such information or representations must not be
relied upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, the
Securities, in any jurisdiction where, or to any person to whom, it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any offer or sale made hereunder shall, under any circumstance, create an
implication that there has been no change in the facts set forth in this
Prospectus or in the affairs of the Company since the date hereof.
TABLE OF CONTENTS
PROSPECTUS
Page
Available Information 1
Incorporation of Certain Documents by Reference 1
The Company 3
Risk Factors 4
Use of Proceeds 8
Ratios of Earnings to Fixed Charges 8
Description of Debt Securities 8
Description of Common Stock 20
Description of Preferred Stock 22
Description of Securities Warrants 25
Federal Income Tax Considerations 28
Plan of Distribution 33
Legal Matters 34
Experts 34
SUN COMMUNITIES, INC.
SUN COMMUNITIES OPERATING
LIMITED PARTNERSHIP
$300,000,000
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PROSPECTUS
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The date of this prospectus is March 14, 2002.
35