-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GRdqgY7ZclXy4IpFYPvpc8Q6oTcez2luWadQ7TlmsZfd6ShvctrNACMyaaxDqMd/ +qUht8X4rrh80fFtZb6HBA== 0000912057-96-012104.txt : 19960613 0000912057-96-012104.hdr.sgml : 19960613 ACCESSION NUMBER: 0000912057-96-012104 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960611 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRINET CORPORATE REALTY TRUST INC CENTRAL INDEX KEY: 0000899162 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 943175659 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-80709 FILM NUMBER: 96579542 BUSINESS ADDRESS: STREET 1: FOUR EMBARCADERO CENTER STREET 2: STE 3150 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4153914300 424B3 1 424B3 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been declared effective by the Securities and Exchange Commission. This prospectus supplement and the accompanying prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED JUNE 11, 1996 PROSPECTUS SUPPLEMENT (To Prospectus dated January 24, 1996) [LOGO] 3,000,000 Shares TRINET CORPORATE REALTY TRUST, INC. % SERIES A CUMULATIVE PREFERRED STOCK LIQUIDATION PREFERENCE $25 PER SHARE ------------------- Dividends on the % Series A Cumulative Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), of TriNet Corporate Realty Trust, Inc. ("TriNet" or the "Company") are cumulative from the date of original issue and are payable quarterly, commencing on September , 1996, at the rate of % per annum of the $25 liquidation preference (equivalent to a fixed annual rate of $ per share). See "Description of Series A Preferred Stock--Dividends." Except in certain circumstances relating to the Company's qualification as a real estate investment trust (a "REIT"), the Series A Preferred Stock is not redeemable prior to June , 2001. On and after June , 2001, the Series A Preferred Stock may be redeemed for cash at the option of the Company, in whole or in part, at a redemption price of $25 per share, plus accrued and unpaid dividends, if any, thereon to the redemption date. The redemption price (other than the portion thereof consisting of accrued and unpaid dividends) shall be payable solely out of the sale proceeds of other capital stock of the Company, which may include other series of the Company's preferred stock, par value $.01 per share ("Preferred Stock"), and from no other source. The Series A Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption and will not be convertible into any other securities of the Company. See "Description of Series A Preferred Stock--Redemption." In order to ensure that the Company remains a qualified REIT for federal income tax purposes, shares of Series A Preferred Stock may be exchanged for shares of Excess Stock (as defined in the accompanying Prospectus) if a holder owns more than 9.3% of the Company's capital stock, and the Company will have the right to purchase Excess Stock from the holder. See "Restrictions on Transfers of Capital Stock" in the accompanying Prospectus. Application has been made to list the Series A Preferred Stock on the New York Stock Exchange ("NYSE"). If so approved, trading of the Series A Preferred Stock on the NYSE is expected to commence within a 30-day period after the initial delivery of the Series A Preferred Stock. See "Underwriting." PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE S-10 IN THIS PROSPECTUS SUPPLEMENT. ----------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. 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.
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC(1) COMMISSIONS(2) COMPANY(3) Per Share........... $ $ $ Total(4)............ $ $ $
(1) Plus accrued dividends, if any, from the date of original issue. (2) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (3) Before deducting expenses payable by the Company estimated at $725,000. (4) The Company has granted the Underwriters an option for 30 days to purchase up to an additional 450,000 shares of Series A Preferred Stock on the same terms set forth above to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. The shares of Series A Preferred Stock are being offered by the several Underwriters named herein, subject to prior sale, when, as and if accepted by them and subject to certain conditions. It is expected that delivery of the shares of Series A Preferred Stock will be made at the offices of Smith Barney Inc., 333 West 34th Street, New York, New York 10001 on or about June , 1996. SMITH BARNEY INC. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. ROBERTSON, STEPHENS & COMPANY June , 1996 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES A PREFERRED STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. PROSPECTUS SUPPLEMENT SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR INCORPORATED HEREIN AND THEREIN BY REFERENCE. UNLESS THE CONTEXT REQUIRES OTHERWISE, ALL REFERENCES IN THIS PROSPECTUS SUPPLEMENT TO "TRINET" OR THE "COMPANY" REFER TO TRINET CORPORATE REALTY TRUST, INC. AND ITS SUBSIDIARIES ON A CONSOLIDATED BASIS. UNLESS OTHERWISE INDICATED, INFORMATION CONTAINED HEREIN IS GIVEN AS OF MARCH 31, 1996 AND ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. THE COMPANY TriNet is a real estate investment trust ("REIT") which acquires, owns and manages predominantly office and industrial properties net leased to corporations nationwide, including strategically important distribution facilities and corporate headquarters. TriNet's triple net leases typically provide that its tenants pay for most or all property operating expenses while contractual rental income escalates. TriNet is a self-administered and self-managed REIT. As of March 31, 1996, TriNet's portfolio consisted of 100 properties (the "Properties") located in 25 states, all of which were 100% leased pursuant to leases with an average remaining term (excluding extension options) of approximately 10.5 years when lease terms are weighted according to contractual rent revenues. Of the Company's 100 Properties, 61 were acquired concurrently with the consummation of the Company's initial public offering in June 1993 (the "Initial Offering"). At March 31, 1996, the Company had 39 tenants, and no single tenant accounted for more than 10% of the Company's annualized rental income. Since the Initial Offering, TriNet has: - completed the acquisition of 39 additional Properties for an aggregate purchase price of approximately $434 million; - more than tripled its aggregate annualized rental income from approximately $18.5 million to approximately $68 million; and - diversified and improved the credit quality of its tenant base by adding 29 new tenants through the acquisition of additional Properties. There can be no assurance that the foregoing trends will continue. See "Business--Recent Developments" and "Risk Factors." The Company grows its portfolio of net leased properties by either purchasing and leasing properties back to the sellers under net leases structured by the Company or acquiring properties subject to existing net leases. In a typical purchase/leaseback transaction, TriNet purchases the land and building from an operating company and simultaneously leases them back to the operating company under a long-term operating lease. These transactions are structured to provide TriNet with a consistent stream of income which typically increases periodically pursuant to the lease. In addition, TriNet may realize a capital gain if the property appreciates in value. A purchase/leaseback transaction enables an operating company (the seller/tenant) to realize the value of its owned real estate while continuing occupancy on a long-term basis. A purchase/ leaseback transaction also may provide the seller with specific accounting, earnings and market value benefits. For example, the lease on the property may be structured by the operating company as an off-balance sheet operating lease, consistent with the rules of the Financial Accounting Standards Board, which may increase the seller's earnings, net worth and borrowing capacity. S-2 TriNet generally seeks to include provisions in its leases which place on its tenants, to the greatest extent possible, the economic costs of ownership of its properties (such as real property taxes and assessments, insurance, operating expenses, responsibility for structural repairs and maintenance and the duty to restore, or relinquish to TriNet any insurance proceeds or condemnation awards, in case of casualty or condemnation), although under some of its leases, TriNet has agreed to retain responsibility for some of these obligations. As used herein, the terms "triple net lease" and "net lease" refer to leases in which the tenant is responsible for all or most of such obligations. BUSINESS OBJECTIVE AND STRATEGIES The Company seeks to increase its income primarily by acquiring additional net leased properties, structuring additional purchase/leaseback transactions and negotiating leases containing contractual rent increases. Its primary investment focus is on the acquisition, in either single property or multiple property transactions, of single-tenant, strategically important office and industrial properties subject to net leases. In structuring purchase/leaseback transactions, TriNet seeks types of transactions and seller circumstances that will allow it to obtain favorable terms. For example, the Company focuses its purchase/leaseback activities on businesses that are trying to achieve corporate financial and strategic goals and objectives, including repayment of high-cost debt and obtaining infusions of working capital for growth, rather than on businesses that are simply solving specific real estate financing problems. In addition, the Company concentrates on businesses that possess strong or improving credit quality characteristics, successful operating histories, potential for growth, recognized business franchises and market presence. The Company also believes that significantly less competition exists for purchase/leaseback transactions and net leased property acquisitions involving portfolios containing a number of properties located in more than one geographic region and that its national presence, acquisition experience and access to capital allow it to compete effectively for such transactions. The Company seeks to include in its leases provisions such as periodic rent increases, operating and financial covenants, indemnities against environmental and other claims, guaranties from additional entities, security such as letters of credit and cross default provisions in multiple property transactions. Its tenants generally are responsible for most operating and capital expenses relating to the properties they occupy, including real estate taxes, utilities, insurance, maintenance and capital improvements. As a result, the Company's operating costs are lower than would be the case if it invested in properties that were not net leased. When underwriting a potential transaction, the Company undertakes analyses in each of the following areas: (1) real estate factors such as the current value of the property, present and anticipated local market conditions and the prospects for selling or re-tenanting the property on favorable terms in the event of a vacancy, (2) the creditworthiness of the tenant and the need to obtain additional protections such as letters of credit and guarantees from other entities and (3) strategic factors such as the position of the prospective tenant in its industry, the strength of the prospective tenant's business franchise and the importance of the property to the prospective tenant's business. Consistent with its investment policies, the Company employs leverage, when available on favorable terms, in connection with funding purchase/leaseback transactions and acquiring net leased properties to enable it to acquire more properties than it otherwise could. The Company employs experienced individuals with backgrounds in credit and real estate analysis, finance and asset management, who use established procedures and systems to identify, acquire and manage commercial net leased real estate assets. TriNet's senior management team has developed an extensive network of contacts with bankers, brokers and senior corporate managers which it uses to identify new investment opportunities. See "Business--Business Objective and Strategies." S-3 RECENT DEVELOPMENTS During the first three months of 1996, the Company acquired three Properties (the "1996 Acquired Properties") for an aggregate purchase price of approximately $61.2 million. The 1996 Acquired Properties consist of: (1) a 402,192 square foot warehouse/distribution facility leased to Lever Brothers Company in St. Louis, Missouri, (2) the 241,927 square foot headquarters of Federal Express Corporation in Memphis, Tennessee and (3) a combined 56,000 square foot headquarters facility and 454,654 square foot warehouse/ distribution facility leased to MJD Investments, Inc. (d/b/a "MJDesigns") in the Dallas/Fort Worth, Texas area. Subsequent to March 31, 1996, the Company acquired two headquarters properties in Walnut Creek, California containing an aggregate of 145,000 square feet leased to Teradyne, Inc. and Fresenius USA, Inc. for an aggregate purchase price of approximately $11.5 million and a 118,800 square foot office and research and development facility located in King of Prussia, Pennsylvania which is leased to a wholly owned subsidiary of Lockheed Martin Corporation for a purchase price of approximately $4.6 million. In addition, on April 24, 1996, the Company sold its property in Denham Springs, Louisiana to Schwegmann Giant Super Markets ("Schwegmann"), the former tenant, for approximately $1.3 million, which resulted in an immaterial gain. On March 21, 1996, the Property leased to MacFrugal's Bargains-Closeouts, Inc. ("MacFrugal's") was destroyed by fire. The lease for this Property requires MacFrugal's to continue paying rent and to rebuild the structure to original specifications. MacFrugal's maintains insurance to cover the replacement cost of the building and the ongoing rent payments. On May 22, 1996, the Company completed a public offering of $100 million of its 7.30% Notes due 2001 (the "2001 Notes") and $50 million of its 7.95% Notes due 2006 (the "2006 Notes" and, together with the 2001 Notes, the "Notes"). The Notes are senior, unsecured obligations of the Company. The net proceeds of the offering of the Notes (the "Notes Offering") were used to repay the remaining $28.3 million balance of a $29.25 million mortgage loan from NationsBank of Texas, N.A. (the "NationsBank Mortgage Loan") and to reduce indebtedness under the Company's $200 million unsecured revolving credit facility (the "1995 Acquisition Facility"). See "The Notes, the 1995 Acquisition Facility and the 1994 Mortgage Loan." On June 3, 1996, the Company repaid a $28.5 million mortgage loan from Connecticut General Life Insurance Company (the "CIGNA Mortgage Loan") with funds borrowed under the 1995 Acquisition Facility. See "The Notes, the 1995 Acquisition Facility and the 1994 Mortgage Loan." S-4 THE PROPERTIES As of March 31, 1996, the Company's portfolio consisted of 100 Properties, all of which were 100% leased pursuant to leases with an average remaining term (excluding extension options) of approximately 10.5 years when lease terms are weighted according to contractual rent revenues. The Properties include office, industrial (E.G., warehouse and distribution) and retail facilities, which are located in 25 states and are leased to tenants in a variety of industries. Set forth below are summary descriptions of the Properties.
GROSS ANNUAL PERCENT PRIMARY LEASABLE RENT AT OF TOTAL LEASE NO. OF LOCATION AREA IN MARCH 31, ANNUAL TERM TENANT OR GUARANTOR FACILITY TYPE PROPERTIES (STATE) SQ. FT. 1996(1) RENT EXPIRATION - ------------------------- ------------------------- --------- ---------- ----------- ------------ ---------- ---------- AT&T Resource Management(2)........... Office 2 FL, NJ 466,002 $ 6,754,069 9.9% 2000 Unisys................... Office 3 IL, PA 755,157 6,171,000 9.1% (3) Schwegmann(4)............ Retail 5 LA 413,933 4,276,350 6.3% 2015 Caterair................. Ware./Dist. 12 7 states 493,617 4,124,375 6.1% 2018 Federal Express(5)....... Office 1 TN 241,927 3,991,796 5.9% 2008 Rex Stores............... Retail/Ware./Dist./Office 35 11 states 753,911 3,493,243 5.1% 2004 Volkswagen of America.... Ware./Dist. 3 CA, FL, IL 628,716 2,864,000 4.2% 2008 GATX Logistics........... Ware./Dist. 6 NY 1,135,500 2,824,610 4.2% 2001 MacFrugal's(6)........... Ware./Dist. 1 LA 1,216,676 2,428,382 3.6% 2009 Nike..................... Ware./Dist. 1 TN 812,697 2,247,405 3.3% 2004 MJDesigns................ Ware./Dist./Office 1 TX 510,654 2,173,000 3.2% 2011 Ralphs Grocery Co........ Ware./Dist. 1 CA 272,236 2,068,290 3.0% 2010 SPX...................... Office 2 MI 214,454 1,937,500 2.9% 2004 Lever Brothers........... Ware./Dist. 1 MO 402,192 1,579,603 2.3% 2000 Unison................... Office 1 FL 135,000 1,554,243 2.3% 2003 Primerica Life Insurance............... Office 1 GA 190,000 1,425,000 2.1% 2003 Certified Grocers........ Office 1 CA 108,000 1,293,750 1.9% 2014 First Health............. Office 1 UT 173,107 1,245,046 1.8% 2009 PNC Mortgage............. Office 1 IL 102,208 1,228,540 1.8% 2002 Cirrus Logic............. Office 2 CA 121,582 1,207,104 1.8% 2008 Sears Logistics(7)....... Ware./Dist. 1 OH 398,471 1,173,596 1.7% 2000 Microsoft(8)............. Office 1 TX 87,635 1,051,620 1.5% 2001 Linvatec................. Ware./Office 1 FL 124,950 1,045,798 1.5% 2005 TRW...................... Office 1 CA 124,400 1,030,524 1.5% 2004 Loral.................... Office 1 CA 174,600 987,694 1.5% 1999 Tech Data................ Ware./Dist. 1 IN 225,000 783,750 1.2% 2002 Universal Technical Institute............... Office 1 AZ 106,763 729,157 1.1% 2001 Deluxe................... Office 1 MN 73,150 694,560 1.0% 1999 Dunham's Athleisure...... Ware./Dist. 1 IN 249,920 647,500 1.0% 2004 Nissan Motor Acceptance Corp.................... Office 1 TX 174,421 618,472 0.9% 2003 Kelley-Clarke............ Office 1 CA 44,000 534,864 0.8% 2005 Compaq................... Ware./Dist. 1 TX 251,850 513,774 0.8% 1999 Northern States Power.... Office 1 MN 41,574 509,281 0.7% 2004 Arrow Electronics........ Office 1 CO 119,200 500,482 0.7% 2000 BancBoston Mortgage...... Office 1 FL 49,344 479,047 0.7% 1999 Artline.................. Ware./Dist. 1 IL 172,846 475,326 0.7% 2004 Fluid Systems............ Office/R&D 1 CA 90,500 470,000 0.7% 2005 Uarco.................... Ware./Office 1 IL 140,000 467,600 0.7% 2002 PepsiCo(9)............... Ware./Dist. 1 KS 105,600 353,040 0.5% 2010 --------- ----------- ------------ ---------- Total................ 100 11,901,793 $ 67,953,391 100.0% --------- ----------- ------------ ---------- --------- ----------- ------------ ----------
- ------------ (1) Contractual rent payments on a cash basis not taking into account a straight-line method of accounting. Annual rent is calculated by multiplying monthly rent in effect at March 31, 1996 by 12. (2) AT&T Resource Management Corporation is the tenant under one lease and the guarantor under the other lease, for which the tenant is one of its affiliates, AT&T Credit Holdings, Inc. The annual rent at March 31, 1996 for one of the Properties includes S-5 $481,212 during the initial term of the lease for tenant improvements made by the previous landlord. The annual rent at March 31, 1996 for the other Property has been calculated before deducting an annual management incentive fee payable to a third-party property manager, which the Company estimates is currently $750,000. (3) The Unisys tenancy consists of three separate Properties with primary lease terms that expire in 1997, 2002 and 2004, and with current annual rents of $525,000, $2,496,000 and $3,150,000, respectively. (4) In the event that Schwegmann determines to permanently vacate any of these Properties, it must offer to repurchase such Property at the greater of TriNet's original purchase price or fair market value (subject to the lease, including extension options), and if TriNet elects not to sell the Property to Schwegmann, the lease for such Property will terminate. In addition, Schwegmann has an option to purchase all of these Properties during a two-year period commencing in July 2003 at TriNet's original purchase price plus a fixed return and also has an option to purchase all of these Properties at the end of the initial lease term at a purchase price equal to the greater of TriNet's original purchase price plus a fixed return or fair market value (subject to the lease, including extension options). On April 24, 1996, Schwegmann repurchased one of these Properties, with an annual rent at March 31, 1996 of $138,554, for approximately $1.3 million. (5) The Company has a maximum annual obligation under the lease for operating expenses and taxes of $1,451,562. (6) The Company has a leasehold interest in this Property. The fee interest in this Property is subject to certain liens associated with industrial revenue bonds issued in connection with the development of the Property. On March 21, 1996, the building was destroyed by fire. The lease for this Property requires the tenant to continue paying rent in the specified amount, which the tenant has continued to do. See "Business--Recent Developments." (7) The Company has a maximum annual obligation under the lease for taxes and insurance of $134,518. (8) The Company has a maximum annual obligation under the lease for operating expenses of $526,634. (9) The Company holds fee title to the land and a leasehold interest in the building for this Property. S-6 THE OFFERING Securities Offered............... 3,000,000 shares of Series A Cumulative Preferred Stock (the "Series A Preferred Stock"). Application has been made to list the Series A Preferred Stock on the NYSE. See "Underwriting." Use of Proceeds.................. Of the net proceeds from the sale of the Series A Preferred Stock, $35 million will be used to repay mortgage indebtedness and the balance will be used to reduce indebtedness under the 1995 Acquisition Facility. See "Use of Proceeds." Ranking.......................... With respect to the payment of dividends and amounts upon liquidation, the Series A Preferred Stock will rank senior to the Company's common stock, par value $.01 per share ("Common Stock"), which is the only capital stock of the Company currently outstanding. See "Description of Series A Preferred Stock-- Dividends" and "--Liquidation Preference." Dividends........................ Dividends on the Series A Preferred Stock are cumulative from the date of original issue and are payable quarterly, commencing on September , 1996, at the rate of % per annum of the $25 liquidation preference (equivalent to a fixed annual rate of $ per share). See "Description of Series A Preferred Stock-- Dividends." Liquidation Rights............... Equivalent to $25 per share of Series A Preferred Stock, plus an amount equal to accrued and unpaid dividends (whether or not declared). See "Description of Series A Preferred Stock-- Liquidation Preference." Redemption....................... Except in certain circumstances relating to the preservation of the Company's status as a REIT (see "Restrictions on Transfers of Capital Stock" in the accompanying Prospectus), the Series A Preferred Stock is not redeemable prior to June , 2001. On and after June , 2001, the Series A Preferred Stock will be redeemable for cash at the option of the Company, in whole or in part, at a redemption price of $25 per share, plus dividends accrued and unpaid to the redemption date. The redemption price (other than the portion thereof consisting of accrued and unpaid dividends) shall be payable solely out of the sale proceeds of other capital stock of the Company, which may include other series of Preferred Stock, and from no other source. See "Description of Series A Preferred Stock--Redemption." Voting Rights.................... Holders of Series A Preferred Stock will generally have no voting rights except as required by law. However, whenever dividends on any shares of Series A Preferred Stock shall be in arrears for six or more quarterly periods, the holders of such shares (voting separately as a class with all other series of parity Preferred Stock upon which like voting rights have been conferred and are exercisable) will be entitled to vote for the election of two additional directors of the Company until all dividends accumulated on such shares of Series A Preferred Stock have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment. In addition, certain changes to the terms of the Series A Preferred Stock that would be materially adverse to the rights of holders of the Series A Preferred Stock cannot be made without the affirmative vote of holders of two-thirds of the oustanding Series A Preferred Stock. See "Description of Series A Preferred Stock--Voting Rights."
S-7 SUMMARY FINANCIAL AND OPERATING DATA The following sets forth summary financial, operating and other data on an historical basis for the Company and, for periods prior to the Initial Offering, the properties (the "Predecessor Partnerships Properties") that were owned by seven predecessor partnerships (the "Predecessor Partnerships"). Also set forth below are summary pro forma financial, operating and other data for the Company at and for the three months ended March 31, 1996 and the year ended December 31, 1995. The pro forma balance sheet data at March 31, 1996 have been prepared as if this offering (the "Offering"), the Notes Offering and the repayment of the CIGNA Mortgage Loan had occurred on March 31, 1996. The pro forma operating and other data for the three months ended March 31, 1996 have been prepared as if the following transactions had occurred on January 1, 1995: the Offering and the Notes Offering and the application of the net proceeds therefrom, the acquisition of the 1996 Acquired Properties, $9.1 million of borrowings under the 1995 Acquisition Facility and the repayment of the CIGNA Mortgage Loan. The pro forma operating and other data for the year ended December 31, 1995 have been prepared as if the foregoing transactions and the following transactions had occurred on January 1, 1995: the acquisition of all Properties acquired by the Company in 1995, the Company's public common stock offerings in February 1995 (the "February 1995 Equity Offering") and October 1995 (the "October 1995 Equity Offering"), the refinancing of the 1993 Mortgage Loan and the 1993 Acquisition Facility and entering into the Interest Rate Swap (each as hereinafter defined). The pro forma financial and operating data are not necessarily indicative of what the actual financial position or results of operations of the Company would have been as of the date or for the periods indicated, nor do they purport to represent the results of operations or financial position for future periods. This data should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Prospectus Supplement.
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ------------------------------ ---------------------------------------------------------- HISTORICAL HISTORICAL PRO FORMA ------------------ PRO FORMA ---------------------------------------------- 1996 1996 1995 1995 1995 1994 1993 1992 1991 --------- -------- -------- --------- -------- -------- -------- ------- ------- (DOLLARS IN THOUSANDS) OPERATING DATA: Revenue: Rent......... $ 18,250 $ 16,733 $ 11,737 $73,000 $ 56,199 $ 35,020 $ 17,511 $11,222 $11,009 Other........ 81 81 178 693 693 452 211 104 138 --------- -------- -------- --------- -------- -------- -------- ------- ------- Total revenue...... 18,331 16,814 11,915 73,693 56,892 35,472 17,722 11,326 11,147 Expenses: General and administrative and property operating costs....... 1,748 1,385 1,285 6,619 5,167 3,362 1,324 753 800 Financing expenses (related parties).... -- -- -- -- -- -- 433 933 568 Financing expenses (other)..... -- -- -- -- -- -- -- 207 291 Interest (related parties).... -- -- -- -- -- -- 1,326 2,793 3,772 Interest (other)(1)... 4,395 4,863 3,319 17,673 17,329 6,726 2,883 2,082 2,770 Depreciation and amortization.. 4,110 3,876 3,171 16,495 14,162 9,472 4,989 3,729 3,478 --------- -------- -------- --------- -------- -------- -------- ------- ------- Income before extraordinary charge........ 8,078 6,690 4,140 32,906 20,234 15,912 6,767 829 (532) Extraordinary charge from early extinguishment of debt(2).... -- -- -- 11,215 9,561 -- -- -- -- --------- -------- -------- --------- -------- -------- -------- ------- ------- Net income (loss)........ $ 8,078 $ 6,690 $ 4,140 $21,691 $ 10,673 $ 15,912 $ 6,767 $ 829 $ (532) --------- -------- -------- --------- -------- -------- -------- ------- ------- --------- -------- -------- --------- -------- -------- -------- ------- ------- OTHER DATA: Funds from operations(3)... $ 9,701 $ 9,790 $ 6,330 $39,418 $ 30,642 $ 22,380 $ 10,440 $ 3,845 $ 2,250 Preferred stock dividends(4)... $ 1,711 -- -- $ 6,844 -- -- -- -- -- Ratio of earnings to combined debt service and preferred stock dividends(5)... 2.04x 2.38x 2.25x 2.06x 2.17x 3.37x 2.61x 1.17x 0.92x Ratio of funds from operations to combined debt service and preferred stock dividends(6)... 2.59x 3.01x 2.91x 2.61x 2.77x 4.33x 3.48x 1.79x 1.34x Total Properties (at end of period)....... 100 100 84 100 97 82 67 42 42 Total gross leasable area in sq. ft. (at end of period, in thousands).... 11,902 11,902 8,964 11,902 10,747 8,590 5,851 1,834 1,834 BALANCE SHEET DATA (AT END OF PERIOD): Real estate, before accumulated depreciation... $598,826 $598,826 $394,454 $538,717 $377,522 $221,477 $91,066 $89,480 Total assets... 620,275 619,431 417,199 559,727 401,241 229,099 86,277 86,268 Total unsecured debt.......... 159,108 136,100 -- 77,000 -- -- -- -- Total secured debt.......... 75,000 167,750 181,271 167,750 204,415 114,912 88,302 88,052 Total liabilities... 262,240 331,983 192,263 270,387 214,554 120,151 92,326 90,996 Stockholders' equity (net deficit)...... 358,035 287,448 224,936 289,340 186,687 108,948 (6,049) (4,728)
- ------------ (1) Pro forma interest expense on the Company's floating rate debt for the three months ended March 31, 1996 and the year ended December 31, 1995 was based on the average 30-day LIBOR (as hereinafter defined) in effect for those periods of 5.437% and 5.96%, respectively, and is net of amounts received by the Company under interest rate protection agreements. S-8 (2) In connection with the refinancing of the 1993 Mortgage Loan and the 1993 Acquisition Facility, the Company recognized certain unamortized loan costs previously paid by the Company and incurred certain fees and expenses totaling $9,561 ($11,215 on a pro forma basis). (3) Funds From Operations has been calculated in accordance with the definition of "funds from operations" recently clarified by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT") generally as net income, computed in accordance with generally accepted accounting principles, excluding gains or losses from debt restructuring and sales of property, plus depreciation and amortization (in each case only on real estate related assets) and after adjustments for unconsolidated partnerships and joint ventures, less preferred stock dividends. Straight-line rent adjustments for the pro forma three months ended March 31, 1996 and for the historical three months ended March 31, 1996 and 1995 were $1,264, $1,132 and $871, respectively. Straight-line rent adjustments for the pro forma year ended December 31, 1995 and for the historical years ended December 31, 1995, 1994, 1993, 1992 and 1991 were $6,464, $4,226, $2,917, $1,301, $408 and $1,271, respectively. Funds From Operations should not be considered as a substitute for net income as an indication of the Company's performance or as a substitute for cash flow as a measure of its liquidity. (4) Preferred stock dividends reflect an assumed rate of 9.125% per annum of the liquidation preference on the Series A Preferred Stock. (5) For purposes of these computations, earnings consist of net income (loss) before extraordinary charges, if any, plus debt service. Debt service consists of interest and recurring principal amortization (excluding maturities) and excludes amortization of debt expense and discount related to indebtedness. During the periods presented, there was no recurring principal amortization. See "Ratios of Earnings to Fixed Charges" for the Company's historical ratios of earnings to fixed charges. (6) For purposes of these computations, funds from operations include debt service and preferred stock dividend requirements. Debt service consists of interest and recurring principal amortization (excluding maturities) and excludes amortization of debt expense and discount related to indebtedness. During the periods presented, there was no recurring principal amortization. S-9 RISK FACTORS AN INVESTMENT IN THE SERIES A PREFERRED STOCK INVOLVES VARIOUS RISKS. IN ADDITION TO GENERAL INVESTMENT RISKS AND THOSE FACTORS SET FORTH ELSEWHERE HEREIN, PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE FOLLOWING RISK FACTORS: RISKS ASSOCIATED WITH BORROWING GENERAL. The Company currently uses and intends to continue using leverage to increase the Company's rate of return on its investments and allow the Company to make more investments than it otherwise could. Such use of leverage presents an additional element of risk in the event that the cash flow from lease payments on its properties is insufficient to meet both debt payment obligations and the distribution requirements of the REIT provisions of the Internal Revenue Code of 1986, as amended (the "Code"). BALLOON PAYMENTS. The Company has financed the acquisition of the Properties in part, and may finance future investments, with debt obligations that provide for the repayment of principal in a lump-sum or "balloon" payment at maturity. Borrowings under the 2001 Notes, the 2006 Notes, the 1995 Acquisition Facility and a $110 million term loan ($35 million of which will be repaid with proceeds of the Offering) entered into in 1994 (the "1994 Mortgage Loan") require payments of interest only until maturity on May 15, 2001, May 15, 2006, October 3, 1997 (October 3, 1998, if extended) and December 1, 2004, respectively. See "Capitalization" and "Use of Proceeds." The ability to repay such indebtedness at maturity or otherwise may depend on the ability of the Company or its subsidiaries either to refinance such indebtedness or to sell properties. The Company has no commitments with respect to refinancing any such balloon payments, and there can be no assurance that such refinancing will be available, that such a sale will occur or that such refinancing or sale will be available on reasonable terms and conditions. See "The Notes, the 1995 Acquisition Facility and the 1994 Mortgage Loan." RISING INTEREST RATES. The 1994 Mortgage Loan and the 1995 Acquisition Facility bear interest at a floating rate tied to the London Interbank Offered Rate ("LIBOR"). Increases in the interest rates under the 1994 Mortgage Loan and the 1995 Acquisition Facility, to the extent not mitigated by interest rate protection agreements, could adversely affect the amount of cash available to pay dividends on the Series A Preferred Stock. See "The Notes, the 1995 Acquisition Facility and the 1994 Mortgage Loan." REAL ESTATE INVESTMENT RISKS Real property investments are subject to a number of risks. For example, under certain leases the Company is responsible for certain capital improvements such as roof replacement and major structural improvements. In addition, to the extent that the Company's lease for a property is not a triple net lease, the Company will have greater expenses associated with that property and will bear some or all of the risk of any increase in such expenses, unless the lease provides for a rent adjustment based on escalations in operating expenses. Similarly, adverse economic conditions could affect the ability of a tenant to make its lease payments, resulting in a reduction in the cash flow of the Company and a decrease in the value of the property leased to such tenant in the event the lease is terminated and the Company is unable to lease the property to another tenant on similar or better terms, or at all. In addition, demand for rental space in a particular market may be weak at the end of a lease term, which could prevent the Company from leasing the property to another tenant on favorable terms, or at all. In any such case, the Company could not only lose the cash flow from such property, but in order to prevent a foreclosure, also might divert cash flow generated by other properties to meet mortgage payments, if any, and pay other expenses associated with owning the property with respect to which the default or expiration occurred. Furthermore, the Company may enter into or acquire net leases with corporate tenants for properties that are specially suited to the needs of a particular tenant, and this may be the case with certain of the Properties. Such a property may require renovations or lease payment concessions in order to lease it to another tenant if the initial lease is terminated or not renewed. Although the Company seeks to acquire properties which it believes are strategically important to the ongoing operations of the tenants, the changing operational circumstances of the Company's tenants may S-10 alter the importance of the leased properties to their businesses. The level of ongoing strategic importance of any given property to a tenant may affect the probability of lease renewal by such tenant and, as such, could have an adverse impact on the Company's financial performance. The financial failure of a tenant could cause the tenant to become the subject of bankruptcy proceedings. Under bankruptcy law, a tenant has the option of assuming (continuing) or rejecting (terminating) an unexpired lease. If the tenant assumes its lease with the Company, the tenant must cure all defaults under the lease and provide the Company with adequate assurance of its future performance under the lease. If the tenant rejects the lease, the Company's claim for breach of the lease would (absent collateral securing the claim) be treated as a general unsecured claim. The amount of the claim would be capped at the amount owed for unpaid pre-petition lease payments unrelated to the rejection, plus the greater of one year's lease payments or 15% of the remaining lease payments payable under the lease (but not to exceed the amount of three years' lease payments). In a purchase/leaseback transaction it is also possible, depending on the terms of the transaction, that a bankruptcy court could recharacterize a purchase/leaseback transaction as a secured lending transaction. If a transaction were recharacterized as a secured lending transaction, the Company would not be treated as the owner of the property, but might have certain additional rights as a secured creditor. TENANT CONCENTRATION To the extent TriNet is dependent on lease payments from a limited number of tenants, the inability of any single tenant to make its lease payments could have a material adverse effect on the Company. At March 31, 1996, TriNet had leases with a total of 39 tenants. At such date, two of the Properties, representing in the aggregate approximately 10% of annualized rental income, were leased to wholly owned subsidiaries of AT&T Corporation, and five of the Company's tenants collectively accounted for approximately 37% of the Company's annualized rental income. For a list of the Company's tenants, see "Properties." REIT QUALIFICATION REQUIREMENTS The Company intends at all times to qualify as a REIT under the relevant provisions of the Code. To obtain the favorable tax treatment associated with the REIT provisions of the Code, the Company generally is required each year to distribute to its stockholders at least 95% of its REIT taxable income. In addition, the Company is subject to a 4% nondeductible excise tax on any amount by which certain distributions paid by it with respect to any calendar year are less than the sum of 85% of its ordinary income for the calendar year, 95% of its capital gains net income for the calendar year and any undistributed ordinary income or capital gain net income from the preceding calendar year. To comply with the 95% distribution requirement and to avoid the 4% nondeductible excise tax, the Company intends to make distributions to stockholders of substantially all of its taxable income at least annually. The Company anticipates that the cash flow available from operations will be sufficient to enable it to pay its operating expenses and meet this distribution requirement, but no assurance can be given in this regard. In addition, differences in timing between the actual receipt of income and payment of expenses in calculating taxable income could require the Company to borrow funds to meet the stockholder distribution requirements that are necessary to achieve the tax benefits associated with a qualifying REIT. Failure of the Company in any taxable year to qualify as a REIT will render the Company subject to tax on its taxable income at regular corporate rates, and distributions to stockholders in any nonqualifying years will not be deductible by the Company. If the Company's status as a REIT is terminated, the Company generally would not be eligible to elect REIT status again prior to the fifth taxable year following the year in which its REIT status is terminated. An exception to this general five-year rule exists if, among other things, the Company can satisfy the Internal Revenue Service that its failure to qualify as a REIT was due to reasonable cause and not to willful neglect of the qualification provisions of the Code. The additional tax liability of the Company for the year or years involved would reduce the net earnings of the Company and could adversely affect its ability to pay dividends on the Series A Preferred Stock. The Company might be required to borrow funds or to liquidate certain of its investments to pay the applicable taxes. S-11 POTENTIAL ENVIRONMENTAL LIABILITIES Under various federal, state and local environmental laws, regulations and ordinances, current or former owners of real estate, as well as certain other categories of parties, may be required to investigate and clean up hazardous or toxic chemicals, substances or waste or petroleum product or waste (collectively, "Hazardous Materials") releases on, under, in or from such property, and may be held liable to governmental entities or to third parties for certain damage and for investigation and cleanup costs incurred by such parties in connection with the release or threatened release of Hazardous Materials. Such laws typically impose responsibility and liability without regard to whether the owner knew of or was responsible for the presence of Hazardous Materials, and the liability under such laws has been interpreted to be joint and several under certain circumstances. The Company's leases generally provide that the tenant is responsible for all environmental liabilities and for compliance with environmental regulations relating to the tenant's operations. Such a contractual arrangement does not eliminate the Company's statutory liability or preclude claims against the Company by governmental authorities or persons who are not parties to such an arrangement. Contractual arrangements in the Company's leases may provide a basis for the Company to recover from the tenant damages or costs for which the Company has been found liable. The costs of investigation and cleanup of Hazardous Materials on, under, in or from property can be substantial, and the fact that the property has had a release of Hazardous Materials, even if remediated, may adversely affect the value of the property and the owner's ability to sell or lease the property or to borrow using the property as collateral. In addition, some environmental laws create a lien on a property in favor of the government for damages and costs it incurs in connection with the release or threatened release of Hazardous Materials, and certain state environmental laws provide that such a lien has priority over all other encumbrances on the property or that a lien can be imposed on other property owned by the responsible party. Finally, the presence of Hazardous Materials on a property could result in a claim by a private party for personal injury or a claim by a neighboring property owner for property damage. Other federal, state and local laws and regulations govern the removal or encapsulation of asbestos-containing material when such material is in poor condition or in the event of building remodeling, renovation or demolition. Still other federal, state and local statutes, regulations and ordinances may require the removal or upgrading of underground storage tanks that are out of service or out of compliance. In addition, federal, state and local laws, regulations and ordinances may impose prohibitions, limitations and operational standards on, or require permits, approvals and notifications in connection with, the discharge of wastewater and other water pollutants, the emission of air pollutants and operation of air polluting equipment, the generation and management of Hazardous Materials, and workplace health and safety. Non- compliance with environmental or health and safety requirements may also result in the need to cease or alter operations at a property, which could affect the financial health of a tenant and its ability to make lease payments. Furthermore, if there is a violation of such a requirement in connection with a tenant's operations, it is possible that the Company, as the owner of the property, could be held accountable by governmental authorities for such violation and could be required to correct the violation. The Company typically undertakes an investigation of potential environmental risks when evaluating an acquisition. Where warranted, Phase I and/or Phase II assessments are performed by third-party environmental consulting and engineering firms. The Company may acquire a property with Hazardous Materials, subject to a determination of the level of risk and potential cost of remediation. The Company normally requires property sellers to fully indemnify it against any environmental problem existing as of the date of purchase. Additionally, the Company normally structures its leases to require the tenant to assume all responsibility for environmental compliance or environmental remediation and to provide that non-compliance with environmental laws is deemed a lease default. In certain instances, the Company may also require a cash reserve, a letter of credit or a guarantee from the tenant, the parent company or a third party to assure lease compliance and funding of remediation. The value of any of these protections depends on the amount of the collateral and/or financial strength of the company providing the protection. Some of the Properties are located in urban and industrial areas where fill or current or historic industrial uses of the areas may have caused site contamination at the Properties. In addition, the Company S-12 is aware of environmental conditions at certain of the Properties that require remediation. All such environmental conditions are primarily the responsibility of the respective tenants under their leases. The Company and its consultants estimate that the aggregate cost of addressing environmental conditions known to require remediation at the Properties is approximately $4 million, the majority of which is covered by existing letters of credit and corporate guarantees. The Company believes that any material environmental conditions at the Properties are currently being or will soon be addressed by its tenants. However, the Company could be responsible for some or all of these costs if one or more of the tenants fails to perform its obligations or to indemnify the Company. Furthermore, no assurance can be given that the environmental studies that were performed at the Properties disclosed all environmental liabilities, that any prior owner did not create a material environmental condition not known to the Company, or that a material condition does not otherwise exist as to any of the Properties. S-13 THE COMPANY TriNet is a REIT which acquires, owns and manages predominantly office and industrial properties net leased to corporations nationwide, including strategically important distribution facilities and corporate headquarters. TriNet's triple net leases typically provide that its tenants pay for most or all property operating expenses while contractual rental income escalates. TriNet is a self-administered and self-managed REIT. As of March 31, 1996, TriNet's portfolio consisted of 100 Properties located in 25 states, all of which were 100% leased pursuant to leases with an average remaining term (excluding extension options) of approximately 10.5 years when lease terms are weighted according to contractual rent revenues. Sixty-one of the Properties were acquired concurrently with the consummation of the Initial Offering from the Predecessor Partnerships and from unaffiliated third parties. Since the Initial Offering in June 1993, the Company has acquired the fee title interest in 37 additional Properties and, to preserve favorable local property tax abatements, the leasehold interest (with an option to acquire the fee title interest) in two additional Properties. See "Properties." The Company employs experienced individuals with backgrounds in credit and real estate analysis, finance and asset management, who use established procedures and systems to identify, acquire and manage commercial net leased real estate assets. TriNet's senior management team has developed an extensive network of contacts with bankers, brokers and senior corporate managers which it uses to identify new investment opportunities. Prior to purchasing and leasing back a corporate property or acquiring a net lease, TriNet: (i) appraises the market value and evaluates the structural integrity of the buildings and the environmental condition of the land and improvements; (ii) underwrites the credit quality and financial ability of the tenant to pay rent; and (iii) evaluates the current and future usefulness of the property to the tenant's business operations. Based on management's assessment of current market conditions, the Company believes that opportunities exist for it to structure additional purchase/leaseback transactions and to acquire additional net leased properties on advantageous terms. The Company was incorporated under the laws of the State of Maryland on March 4, 1993. The Company's principal executive offices are located at Four Embarcadero Center, Suite 3150, San Francisco, California 94111, and its telephone number is (415) 391-4300. The Company also maintains regional offices in Florida and Pennsylvania. USE OF PROCEEDS Of the $71.9 million estimated net proceeds to the Company from the Offering, $35 million will be used to reduce the outstanding balance of the 1994 Mortgage Loan and the balance of approximately $36.9 million will be used to reduce indebtedness outstanding under the 1995 Acquisition Facility. As of June 10, 1996, the interest rate on the 1994 Mortgage Loan was 6.69% per annum. As of such date, approximately $59.4 million was outstanding under the 1995 Acquisition Facility, bearing interest at a weighted average interest rate of 6.96% per annum. See "Capitalization." Pending such uses, the Company will invest the net proceeds of the Offering in short-term, income producing investments such as depository accounts, investment grade commercial paper, government securities or money market funds that invest in government securities. RATIOS OF EARNINGS TO FIXED CHARGES The Company's historical ratios of earnings to fixed charges for the three months ended March 31, 1996 and 1995 were 2.20x and 1.97x, respectively, and for the years ended December 31, 1995, 1994, 1993 and 1992 were 1.97x, 2.65x, 2.17x and 1.12x, respectively. For the year ended December 31, 1991, earnings were insufficient to cover fixed charges by $532,000. To date, the Company has not issued any preferred stock and, therefore, its ratios of earnings to combined fixed charges and preferred dividend requirements are the same as the ratios of earnings to fixed charges. S-14 The ratios of earnings to fixed charges were computed by dividing earnings by fixed charges. For this purpose, earnings consist of pre-tax income from continuing operations plus fixed charges. Fixed charges consist of interest expense and the amortization of debt issuance costs. For the periods presented, the Company had no capitalized interest. S-15 CAPITALIZATION CAPITAL STRUCTURE The following table sets forth the capitalization of the Company as of March 31, 1996, and as adjusted to give effect to (i) the Notes Offering and the application of the net proceeds therefrom to repay the NationsBank Mortgage Loan and to reduce the amount outstanding under the 1995 Acquisition Facility, (ii) the repayment of the CIGNA Mortgage Loan with funds borrowed under the 1995 Acquisition Facility and (iii) the Offering made hereby and the application of the net proceeds therefrom to repay a portion of the 1994 Mortgage Loan and to reduce the amount outstanding under the 1995 Acquisition Facility. This information should be read in conjunction with the summary and selected financial information presented elsewhere in this Prospectus Supplement and the consolidated financial statements and notes thereto incorporated by reference into the accompanying Prospectus.
MARCH 31, 1996 ----------------------- ACTUAL AS ADJUSTED ---------- ----------- (in thousands) DEBT: Mortgage loans.................................................................. $ 167,750 $ 75,000 1995 Acquisition Facility....................................................... 136,100 9,108 7.30% Notes due 2001............................................................ -- 100,000 7.95% Notes due 2006............................................................ -- 50,000 ---------- ----------- Total debt.................................................................... 303,850 234,108 ---------- ----------- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 10,000,000 shares authorized, no shares issued and outstanding, actual; 3,000,000 shares issued and outstanding, as adjusted (aggregate liquidation preference $75,000,000)................................. -- 30 Common stock, $.01 par value, 40,000,000 shares authorized, 13,841,667 shares issued and outstanding......................................................... 138 138 Paid-in capital................................................................. 312,904 384,787 Distributions in excess of net income........................................... (25,594) (26,920) ---------- ----------- Total stockholders' equity.................................................... 287,448 358,035 ---------- ----------- Total capitalization.......................................................... $ 591,298 $ 592,143 ---------- ----------- ---------- -----------
SUMMARY OF INDEBTEDNESS The following table sets forth the indebtedness of the Company as of March 31, 1996, as adjusted to give effect to the Notes Offering and the Offering made hereby and the application of the net proceeds therefrom as described above and the repayment of the CIGNA Mortgage Loan with funds borrowed under the 1995 Acquisition Facility:
MATURITY LOAN INTEREST RATE DATE - ---------------------------------------- BALANCE ------------------- ------------ -------------- (IN THOUSANDS) 1994 Mortgage Loan...................... $ 75,000 LIBOR + 1.00%(1)(2) 12/1/2004 1995 Acquisition Facility............... 9,108 LIBOR + 1.75%(2)(3) 10/3/1997(4) 7.30% Notes due 2001.................... 100,000 7.30% 5/15/2001 7.95% Notes due 2006.................... 50,000 7.95% 5/15/2006 -------------- Total debt............................ $234,108 -------------- --------------
- --------- (1) The interest rate will be reduced to LIBOR + 1.00% from LIBOR + 1.25% effective upon the repayment of $35 million with proceeds from this Offering. (2) The Company has entered into interest rate protection agreements with respect to varying notional amounts of indebtedness to eliminate the Company's exposure to increases in LIBOR with respect to such notional amounts. See "The Notes, the 1995 Acquisition Facility and the 1994 Mortgage Loan." (3) Effective April 1, 1996, the interest rate changed to LIBOR + 1.50%. (4) The Company has an option to extend to a maturity date of October 3, 1998, subject to certain conditions. S-16 BUSINESS GENERAL The Company is a REIT which acquires, owns and manages predominantly office and industrial properties net leased to corporations nationwide, including strategically important distribution facilities and corporate headquarters. TriNet's triple net leases typically provide that its tenants pay for most or all property operating expenses while contractual rental income escalates. TriNet is a self-administered and self-managed REIT. TriNet grows its portfolio of net leased properties by either purchasing and leasing properties back to the sellers under net leases structured by the Company or acquiring properties subject to existing net leases. In a typical purchase/leaseback transaction, TriNet purchases the land and building from an operating company and simultaneously leases them back to the operating company under a long-term operating lease. These transactions are structured to provide TriNet with a consistent stream of income which typically increases periodically pursuant to the lease. In addition, TriNet may realize a capital gain if the property appreciates in value. A purchase/leaseback transaction enables an operating company (the seller/tenant) to realize the value of its owned real estate while continuing occupancy on a long-term basis. A purchase/ leaseback transaction also may provide the seller with specific accounting, earnings and market value benefits. For example, the lease on the property may be structured by the operating company as an off-balance sheet operating lease, consistent with the rules of the Financial Accounting Standards Board, which may increase the seller's earnings, net worth and borrowing capacity. TriNet generally seeks to include provisions in its leases which place on its tenants, to the greatest extent possible, the economic costs of ownership of its properties (such as real property taxes and assessments, insurance, operating expenses, responsibility for structural repairs and maintenance and the duty to restore, or relinquish to TriNet any insurance proceeds or condemnation awards, in case of casualty or condemnation), although under some of its leases, TriNet has agreed to retain responsibility for some of these obligations. As used herein, the terms "triple net lease" and "net lease" refer to leases in which the tenant is responsible for all or most of such obligations. The Company believes that opportunities exist to structure additional purchase/leaseback transactions and acquire additional net leased properties on advantageous terms. Since the Initial Offering, the Company has experienced an increase in investment opportunities as more businesses with significant equity in their real estate assets turn to TriNet as a source of capital that can allow them to realize the value of those assets to improve their balance sheets and fund their operating needs. BUSINESS OBJECTIVE AND STRATEGIES BUSINESS OBJECTIVE. TriNet seeks to increase its income primarily by acquiring additional net leased properties, structuring additional purchase/leaseback transactions and negotiating leases containing contractual rent increases. The Company generally intends to hold its net leased properties for long-term investment. However, the Company may dispose of a property if it deems such a disposition to be in its best interest, and may either reinvest the proceeds of such a disposition or distribute the proceeds to stockholders. GROWTH STRATEGIES. The Company intends to expand its portfolio of properties by acquiring additional net leased office and industrial properties and engaging in purchase/leaseback transactions with operating companies. Since the Initial Offering, TriNet has completed over $434 million (including acquisition costs) in acquisitions. The Company believes the experience of its management in structuring purchase/leaseback transactions to meet the often complex needs of prospective tenants while providing adequate security to the Company allows the Company to obtain a higher yield for a given level of risk than would typically be available by purchasing a property subject to an existing net lease. However, the Company will also seek to acquire properties subject to existing net leases if the Company believes the terms are favorable. To the extent additional investment opportunities are available on advantageous terms, TriNet intends to continue to grow by expanding its portfolio of properties. The Company generally seeks to negotiate or acquire triple net leases. The Company also seeks to include in its leases (i) clauses providing for periodic rent increases, either automatically or based on an index, such as the All Urban Consumer Price Index, (ii) change of control and restrictive operating and S-17 financial covenants, (iii) covenants providing that the tenant must indemnify the Company against environmental and other contingent liabilities (although such lease provisions may not entirely protect the Company as an owner in the event of a tenant's inability to satisfy an adverse judgment), (iv) guarantees from parent companies or other parties, (v) additional security through recourse to other assets or letters of credit and (vi) cross-default provisions in leases in multiple property transactions. The Company's primary focus is on the acquisition of single-tenant, net leased office and industrial properties. The Company does not intend to acquire hotels, health care facilities, restaurants or land unrelated to a corporate facility or the future operating requirements of a corporate tenant. The Company also does not intend to develop properties, but it may finance build-to-suit projects with identified tenants when it can do so by taking minimal risk of construction completion. The Company also may permit its tenants, under certain circumstances, to develop or further expand properties they lease from the Company. INVESTMENT FOCUS. In structuring purchase/leaseback transactions, the Company seeks types of transactions and seller circumstances that will allow it to obtain favorable terms, including the following: CORPORATE FINANCE SOLUTIONS. The Company focuses its purchase/leaseback activities on businesses that are trying to achieve corporate financial and strategic goals and objectives, including repayment of high-cost debt and obtaining infusions of working capital for growth, rather than on businesses that are simply solving specific real estate financing problems. TENANT CREDIT CHARACTERISTICS. The Company concentrates on businesses that possess strong or improving credit quality characteristics, successful operating histories, potential for growth, recognized business franchises and market presence. The Company will consider purchase/leaseback and net lease transactions with prospective tenants of diverse credit quality provided the real estate meets the Company's standards and the Company believes that the property is strategically important to the prospective corporate tenant. The Company's tenants may include public and private companies which may be unrated or rated investment grade or below investment grade. MULTIPLE PROPERTY TRANSACTIONS. The Company believes that there is significantly less competition for purchase/leaseback transactions and net leased property acquisitions involving portfolios containing a number of properties located in more than one geographic region. The Company believes that its national presence, acquisition experience and access to capital allow it to compete effectively for such transactions. UNDERWRITING EXPERTISE. In underwriting a purchase/leaseback transaction or the purchase of a property subject to an existing net lease, the Company undertakes the following analyses, each of which the Company believes is critical to the long-term profitability of the investment: REAL ESTATE ANALYSIS. The Company evaluates the value of the property, present and anticipated conditions in the local real estate market and the prospects for selling or re-tenanting the property on favorable terms in the event of a vacancy. The Company seeks to acquire general purpose commercial properties that may be easily re-leased to new tenants without significant new investment by TriNet. TENANT CREDIT ANALYSIS. The Company evaluates the prospective tenant's business and financial outlook to determine the prospective tenant's ability to meet its ongoing obligations under the lease and the need to obtain additional security for these obligations, such as letters of credit and guarantees from parent companies or other parties. STRATEGIC FACTORS. The Company evaluates a number of strategic factors, including the position of the prospective tenant in its industry, the strength of the prospective tenant's business franchise and the importance of the property to the prospective tenant's business. OPERATING AND FINANCING STRATEGIES The Company monitors, on an ongoing basis, compliance by its tenants with their lease obligations and the factors that could affect the financial performance of each of its properties. The Company reviews periodic financial statements with respect to each of its tenants and undertakes regular physical inspections S-18 of the condition and maintenance of its properties. The Company also monitors real estate market conditions, including market rents and occupancy trends in the areas where its properties are located. The Company will respond to changes in such market conditions as appropriate, including by negotiating to extend the lease terms or by selling the property subject to the existing lease. The Company's tenants generally are responsible for most operating and capital expenses relating to the properties they occupy, including real estate taxes, utilities, insurance, maintenance and capital improvements. As a result, the Company's operating costs are lower than would be the case if it invested in properties that were not net leased. Consistent with its investment policies, the Company employs leverage, when available on favorable terms, in connection with funding purchase/leaseback transactions and acquiring net leased properties to enable it to acquire more properties than it otherwise could. The Company seeks to maintain its operating flexibility and reduce its financing costs through unsecured borrowings, such as the 1995 Acquisition Facility and the Notes, and by reducing its Funds From Operations payout ratio over time as Funds From Operations increase. RECENT DEVELOPMENTS During the first three months of 1996, the Company acquired three Properties for an aggregate purchase price of approximately $61.2 million. The 1996 Acquired Properties consist of: - a 402,192 square foot warehouse/distribution facility leased to Lever Brothers Company in St. Louis, Missouri with a lease expiring in September 2000 and providing for a current annual rent of approximately $1.6 million; - the 241,927 square foot headquarters of Federal Express Corporation in Memphis, Tennessee with a lease providing for an initial term expiring in May 2008 and a current annual rent of approximately $4.0 million; and - a combined 56,000 square foot headquarters facility and 454,654 square foot warehouse/distribution facility leased to MJD Investments, Inc. (d/b/a "MJDesigns") in the Dallas/Fort Worth, Texas area with a lease expiring in March 2011 and providing for a current annual rent of approximately $2.2 million. Subsequent to March 31, 1996, the Company acquired two headquarters properties in Walnut Creek, California containing an aggregate of 145,000 square feet leased to Teradyne, Inc. and Fresenius USA, Inc. for an aggregate purchase price of approximately $11.5 million and a 118,800 square foot office and research and development facility located in King of Prussia, Pennsylvania which is leased to a wholly owned subsidiary of Lockheed Martin Corporation for a purchase price of approximately $4.6 million. In addition, on April 24, 1996, the Company sold its property in Denham Springs, Louisiana to Schwegmann, the former tenant, for approximately $1.3 million, which resulted in an immaterial gain. On March 21, 1996, the Property leased to MacFrugal's was destroyed by fire. The lease for this Property requires MacFrugal's to continue paying rent and to rebuild the structure to original specifications. MacFrugal's maintains insurance to cover the replacement cost of the building and the ongoing rent payments. On May 22, 1996, the Company completed a public offering of $100 million of the 2001 Notes and $50 million of the 2006 Notes. The Notes are senior, unsecured obligations of the Company. The net proceeds of the Notes Offering were used to repay the remaining $28.3 million balance of the NationsBank Mortgage Loan and to reduce indebtedness under the 1995 Acquisition Facility. See "The Notes, the 1995 Acquisition Facility and the 1994 Mortgage Loan." On June 3, 1996, the Company repaid the $28.5 million CIGNA Mortgage Loan with funds borrowed under the 1995 Acquisition Facility. See "The Notes, the 1995 Acquisition Facility and the 1994 Mortgage Loan." S-19 PROPERTIES The Company, through its subsidiaries, holds fee simple title to 98 of the Properties and a leasehold interest in two remaining Properties. The Properties are 100% leased and have leases with an average remaining term (excluding extension options) of approximately 10.5 years when lease terms are weighted according to contractual rent revenues. The weighted average remaining term of the Company's leases is calculated by adding together the products of each remaining lease term (excluding extension options) multiplied by its respective contractual annual rental income, and then dividing this sum by the sum of the contractual annual rental income for all of the Company's leases. For example, the weighted average remaining term of two leases, one with a term of 20 years and contractual annual rental income of $800,000 and a second lease with a term of 10 years and contractual annual rental income of $600,000, is 15.71 years. The first mortgage liens securing the repayment of the 1994 Mortgage Loan will be the only mortgage liens encumbering the Properties immediately following the Offering. See "The Notes, the 1995 Acquisition Facility and the 1994 Mortgage Loan." The following table provides certain information with respect to the Properties as of March 31, 1996.
GROSS AVERAGE LEASABLE RENT PER PRIMARY MAXIMUM LEASE TENANT OR GUARANTOR AND AREA IN ANNUAL SQ. PERCENT LEASE TERM TERM LOCATION OF PROPERTY SQ. FT. RENT(1) FT.(1) LEASED EXPIRATION EXPIRATION(2) - ----------------------------------- ---------- ----------- --------- ----- ---------- ------------- AT&T RESOURCE MANAGEMENT CORPORATION Jacksonville, FL(3)(4)........... 46,002 $ 874,069 $19.00 100% 2000 2015 Parsippany, NJ(4)(5)............. 420,000 5,880,000 14.00 100% 2000 2010 ---------- ----------- --------- Subtotal or Average............ 466,002 $ 6,754,069 $14.49 UNISYS CORPORATION Lisle, IL(3) 236,000 $ 3,150,000 $13.35 100% 2004 2019 Malvern, PA (Center Tract)....... 370,562 2,496,000 6.74 100% 2002 2002 Malvern, PA (West Tract)......... 148,595 525,000 3.53 100% 1997 2002 ---------- ----------- --------- Subtotal or Average............ 755,157 $ 6,171,000 $ 8.17 SCHWEGMANN GIANT SUPER MARKETS Baton Rouge, LA(6)............... 69,272 $ 533,261 $ 7.70 100% 2015 2035 Denham Springs, LA(6)............ 32,000 138,554 4.33 100% 2015 2035 Harvey, LA(6).................... 124,348 1,205,075 9.69 100% 2015 2035 Metairie, LA(6).................. 108,308 1,279,912 11.82 100% 2015 2035 New Orleans, LA(6)............... 80,005 1,119,548 13.99 100% 2015 2035 ---------- ----------- --------- Subtotal or Average............ 413,933 $ 4,276,350 $10.33 CATERAIR INTERNATIONAL CORPORATION San Francisco, CA................ 35,375 $ 350,000 $ 9.89 100% 2018 2038 San Francisco, CA................ 20,019 212,500 10.61 100% 2018 2038 Miami, FL........................ 108,534 875,000 8.06 100% 2018 2038 Miami, FL........................ 55,610 462,500 8.32 100% 2018 2038 Miami, FL........................ 46,749 400,000 8.56 100% 2018 2038 Orlando, FL...................... 49,148 431,250 8.77 100% 2018 2038 Minneapolis, MN.................. 22,536 115,625 5.13 100% 2018 2038 Reno, NV......................... 20,066 71,250 3.55 100% 2018 2038 New York, NY..................... 48,673 525,000 10.79 100% 2018 2038 New York, NY..................... 24,939 262,500 10.53 100% 2018 2038 Philadelphia, PA................. 31,218 181,250 5.81 100% 2018 2038 Seattle, WA...................... 30,750 237,500 7.72 100% 2018 2038 ---------- ----------- --------- Subtotal or Average............ 493,617 $ 4,124,375 $ 8.36 FEDERAL EXPRESS CORPORATION Memphis, TN(7)................... 241,927 $ 3,991,796 $16.50 100% 2008 2018
S-20
GROSS AVERAGE LEASABLE RENT PER PRIMARY MAXIMUM LEASE TENANT OR GUARANTOR AND AREA IN ANNUAL SQ. PERCENT LEASE TERM TERM LOCATION OF PROPERTY SQ. FT. RENT(1) FT.(1) LEASED EXPIRATION EXPIRATION(2) - ----------------------------------- ---------- ----------- --------- ----- ---------- ------------- REX STORES CORPORATION Oxford, AL....................... 10,000 $ 76,197 $ 7.62 100% 2004 2024 Tuscaloosa, AL................... 12,000 82,546 6.88 100% 2004 2024 Bradenton, FL.................... 6,321 43,178 6.83 100% 2004 2024 Mary Esther, FL.................. 8,182 53,338 6.52 100% 2004 2024 Melbourne, FL.................... 8,000 82,546 10.32 100% 2004 2024 Merritt Island, FL............... 10,000 82,546 8.25 100% 2004 2024 Ocala, FL........................ 10,000 92,071 9.21 100% 2004 2024 Pensacola, FL.................... 64,544 242,318 3.75 100% 2004 2024 Tallahassee, FL.................. 10,609 85,721 8.08 100% 2004 2024 Titusville, FL................... 12,010 82,546 6.87 100% 2004 2024 Venice, FL....................... 8,227 64,768 7.87 100% 2004 2024 Rome, GA......................... 10,250 77,434 7.55 100% 2004 2024 Peoria, IL....................... 8,850 63,498 7.17 100% 2004 2024 Rockford, IL..................... 10,100 81,276 8.05 100% 2004 2024 Springfield, IL.................. 10,292 88,896 8.64 100% 2004 2024 Anderson, IN..................... 15,429 90,804 5.89 100% 2004 2024 Muncie, IN....................... 12,479 82,546 6.61 100% 2004 2024 Richmond, IN..................... 6,449 31,117 4.83 100% 2004 2024 Council Bluffs, IA............... 9,023 40,638 4.50 100% 2004 2024 Des Moines, IA................... 10,000 63,498 6.35 100% 2004 2024 Columbus, MS..................... 10,016 63,498 6.34 100% 2004 2024 Greenville, MS................... 9,115 60,323 6.62 100% 2004 2024 Gulfport, MS..................... 12,008 83,816 6.98 100% 2004 2024 Hattiesburg, MS.................. 12,000 71,752 5.98 100% 2004 2024 Jackson, MS...................... 15,050 111,120 7.38 100% 2004 2024 Meridian, MS..................... 9,000 76,197 8.47 100% 2004 2024 Tupelo, MS....................... 12,000 79,372 6.61 100% 2004 2024 Vicksburg, MS.................... 10,000 69,847 6.98 100% 2004 2024 Jamestown, NY.................... 14,025 69,847 4.98 100% 2004 2024 Dayton, OH(3).................... 345,325 799,248 2.31 100% 2004 2024 Defiance, OH..................... 7,195 73,022 10.15 100% 2004 2024 Kettering, OH.................... 10,720 74,927 6.99 100% 2004 2024 Bristol, TN...................... 12,430 88,896 7.15 100% 2004 2024 Clarksville, TN.................. 10,004 75,000 7.50 100% 2004 2024 Vienna, WV....................... 12,258 88,896 7.25 100% 2004 2024 ---------- ----------- --------- Subtotal or Average............ 753,911 $ 3,493,243 $ 4.63 VOLKSWAGEN OF AMERICA, INC. Los Angeles, CA(3)............... 286,822 $ 1,224,360 $ 4.27 100% 2008 2018 Jacksonville, FL(3).............. 180,054 685,157 3.81 100% 2008 2018 Lincoln, IL(3)................... 161,840 954,483 5.90 100% 2008 2018 ---------- ----------- --------- Subtotal or Average............ 628,716 $ 2,864,000 $ 4.56 GATX LOGISTICS, INC. Clay, NY......................... 372,500 $ 881,435 $ 2.37 100% 2001 2001 Clay, NY......................... 123,000 278,173 2.26 100% 2001 2001 Clay, NY......................... 64,000 151,440 2.37 100% 2001 2001 Clay, NY......................... 96,000 227,162 2.37 100% 2001 2001 Lyons, NY(3)..................... 240,000 643,200 2.68 100% 2001 2001 Lysander, NY(3).................. 240,000 643,200 2.68 100% 2001 2001 ---------- ----------- --------- Subtotal or Average............ 1,135,500 $ 2,824,610 $ 2.49 MacFRUGAL'S BARGAINS-CLOSEOUTS, INC. New Orleans, LA(3)(8)............ 1,216,676 $ 2,428,382 $ 2.00 100% 2009 2021 NIKE, INC. Memphis, TN(3)................... 812,697 $ 2,247,405 $ 2.77 100% 2004 2014 MJDESIGNS Coppell, TX...................... 510,654 $ 2,173,000 $ 4.26 100% 2011 2023
S-21
GROSS AVERAGE LEASABLE RENT PER PRIMARY MAXIMUM LEASE TENANT OR GUARANTOR AND AREA IN ANNUAL SQ. PERCENT LEASE TERM TERM LOCATION OF PROPERTY SQ. FT. RENT(1) FT.(1) LEASED EXPIRATION EXPIRATION(2) - ----------------------------------- ---------- ----------- --------- ----- ---------- ------------- RALPH'S GROCERY COMPANY Los Angeles, CA.................. 272,236 $ 2,068,290 $ 7.60 100% 2010 2030 SPX CORPORATION Muskegon, MI (Terrace Plaza)..... 143,754 $ 875,000 $ 6.09 100% 2004 2019 Muskegon, MI (Terrace Point)..... 70,700 1,062,500 15.03 100% 2004 2019 ---------- ----------- --------- Subtotal or Average............ 214,454 $ 1,937,500 $ 9.03 LEVER BROTHERS COMPANY St. Louis, MO.................... 402,192 $ 1,579,603 $ 3.93 100% 2000 2000 UNISON INDUSTRIES, L.P. Jacksonville, FL(3).............. 135,000 $ 1,554,243 $11.51 100% 2003 2013 PRIMERICA LIFE INSURANCE COMPANY Duluth, GA....................... 190,000 $ 1,425,000 $ 7.50 100% 2003 2013 CERTIFIED GROCERS OF CALIFORNIA LTD. City of Commerce, CA(3).......... 108,000 $ 1,293,750 $11.98 100% 2014 2034 FIRST HEALTH STRATEGIES, INC. Salt Lake City, UT............... 173,107 $ 1,245,046 $ 7.19 100% 2009 2024 PNC MORTGAGE CORPORATION OF AMERICA, INC. Vernon Hills, IL(9).............. 102,208 $ 1,228,540 $12.02 100% 2002 2012 CIRRUS LOGIC, INC. Fremont, CA...................... 76,641 $ 760,920 $ 9.93 100% 2008 2018 Fremont, CA(3)................... 44,941 446,184 9.93 100% 2008 2018 ---------- ----------- --------- Subtotal or Average............ 121,582 $ 1,207,104 $ 9.93 SEARS LOGISTICS SERVICES Columbus, OH(3)(10).............. 398,471 $ 1,173,596 $ 2.95 100% 2000 2010 MICROSOFT CORPORATION Irving, TX(3)(11)................ 87,635 $ 1,051,620 $12.00 100% 2001 2011 LINVATEC CORPORATION Largo, FL........................ 124,950 $ 1,045,798 $ 8.37 100% 2005 2015 TRW, INC. Redondo Beach, CA................ 124,400 $ 1,030,524 $ 8.28 100% 2004 2009 LORAL CORPORATION Sunnyvale, CA(3)................. 174,600 $ 987,694 $ 5.66 100% 1999 2024 TECH DATA CORPORATION South Bend, IN................... 225,000 $ 783,750 $ 3.48 100% 2002 2012 UNIVERSAL TECHNICAL INSTITUTE Phoenix, AZ...................... 106,763 $ 729,157 $ 6.83 100% 2001 2013 DELUXE CORPORATION Arden Hills, MN(3)............... 73,150 $ 694,560 $ 9.50 100% 1999 1999 DUNHAM'S ATHLEISURE CORPORATION Marion, IN....................... 249,920 $ 647,500 $ 2.59 100% 2004 2024 NISSAN MOTOR ACCEPTANCE CORP. Irving, TX....................... 174,421 $ 618,472 $ 3.55 100% 2003 2003 KELLEY-CLARKE, INC. Fremont, CA...................... 44,000 $ 534,864 $12.16 100% 2005 2010 COMPAQ COMPUTER CORPORATION Houston, TX...................... 251,850 $ 513,774 $ 2.04 100% 1999 2009 NORTHERN STATES POWER COMPANY Roseville, MN(3)................. 41,574 $ 509,281 $12.25 100% 2004 2004 ARROW ELECTRONICS Aurora, CO....................... 119,200 $ 500,482 $ 4.20 100% 2000 2005 BANCBOSTON MORTGAGE CORPORATION Jacksonville, FL(3).............. 49,344 $ 479,047 $ 9.71 100% 1999 2002 ARTLINE, INC. Chicago, IL...................... 172,846 $ 475,326 $ 2.75 100% 2004 2004 FLUID SYSTEMS CORP. San Diego, CA.................... 90,500 $ 470,000 $ 5.19 100% 2005 2010
S-22
GROSS AVERAGE LEASABLE RENT PER PRIMARY MAXIMUM LEASE TENANT OR GUARANTOR AND AREA IN ANNUAL SQ. PERCENT LEASE TERM TERM LOCATION OF PROPERTY SQ. FT. RENT(1) FT.(1) LEASED EXPIRATION EXPIRATION(2) - ----------------------------------- ---------- ----------- --------- ----- ---------- ------------- UARCO INCORPORATED Chicago, IL...................... 140,000 $ 467,600 $ 3.34 100% 2002 2007 PEPSICO, INC.(12) Wichita, KS...................... 105,600 $ 353,040 $ 3.34 100% 2010 2025 ---------- ----------- --------- Total/Average.................. 11,901,793 $67,953,391 $ 5.71 100% ---------- ----------- --------- ---------- ----------- ---------
- ------------ (1) Contractual rent payments on a cash basis not taking into account a straight-line method of accounting. Annual rent is calculated by multiplying monthly rent in effect at March 31, 1996 by 12. (2) The expiration date of the lease assuming the tenant exercises all contractual lease extensions and that a longer extension period is not negotiated in the future. (3) The Property is encumbered by a first mortgage lien securing borrowings under the 1994 Mortgage Loan. (4) AT&T Resource Management Corporation is the tenant under one lease and the guarantor under the other lease, for which the tenant is one of its affiliates, AT&T Credit Holdings, Inc. The annual rent at March 31, 1996 for one of the Properties includes $481,212 during the initial term of the lease for tenant improvements made by the previous landlord. The annual rent at March 31, 1996 for the other Property has been calculated before deducting an annual management incentive fee payable to a third-party property manager, which the Company estimates is currently $750,000. (5) The Property was encumbered by a first mortgage lien securing borrowings under the CIGNA Mortgage Loan, which was repaid on June 3, 1996 with funds borrowed under the 1995 Acquisition Facility. (6) In the event that Schwegmann determines to permanently vacate any of these Properties, it must offer to repurchase such Property at the greater of TriNet's original purchase price or fair market value (subject to the lease, including extension options), and if TriNet elects not to sell the Property to Schwegmann, the lease for such Property will terminate. In addition, Schwegmann has an option to purchase all of these Properties during a two-year period commencing in July 2003 at TriNet's original purchase price plus a fixed return and also has an option to purchase all of these properties at the end of the initial lease term at a purchase price equal to the greater of TriNet's original purchase price plus a fixed return or fair market value (subject to the lease, including extension options). On April 24, 1996, Schwegmann repurchased the Denham Springs, Louisiana Property for approximately $1.3 million. These Properties were encumbered by a first mortgage lien securing borrowings under the NationsBank Mortgage Loan, which was repaid with a portion of the proceeds of the Notes Offering. (7) The Company has a maximum annual obligation under the lease for operating expenses and taxes of $1,451,562. (8) The Company has a leasehold interest in this Property. The fee interest in this Property is subject to certain liens associated with industrial revenue bonds issued in connection with the development of the Property. On March 21, 1996, the building was destroyed by a fire. Under such circumstances, the lease for this Property requires the tenant to continue paying rent in the specified amount, which the tenant has continued to do. In addition, the lease requires the tenant to rebuild the structure to original specifications. As specified in the lease, the tenant maintains insurance to cover the replacement cost of the building and ongoing rent payments. (9) On March 15, 1996, this Property was subleased to Komatsu America International Company ("Komatsu") effective July 29, 1996. Komatsu has executed a direct lease with the Company for the period between July 2002 and July 2006, which may be extended at Komatsu's option through July 2011. (10) The Company has a maximum annual obligation under the lease for taxes and insurance of $134,518. (11) The Company has a maximum annual obligation under the lease for operating expenses of $526,634. (12) The Company holds fee title to the land and a leasehold interest in the building for this Property. S-23 SELECTED FINANCIAL DATA The following sets forth selected financial, operating and other data on an historical basis for the Company and, for periods prior to the Initial Offering, the Predecessor Partnerships Properties. Also set forth below are selected pro forma financial, operating and other data for the Company at and for the three months ended March 31, 1996 and the year ended December 31, 1995. The pro forma balance sheet data at March 31, 1996 have been prepared as if the Offering, the Notes Offering and the repayment of the CIGNA Mortgage Loan had occurred on March 31, 1996. The pro forma operating and other data for the three months ended March 31, 1996 have been prepared as if the following transactions had occurred on January 1, 1995: the Offering and the Notes Offering and the application of the net proceeds therefrom, the acquisition of the 1996 Acquired Properties, $9.1 million of borrowings under the 1995 Acquisition Facility and the repayment of the CIGNA Mortgage Loan. The pro forma operating and other data for the year ended December 31, 1995 have been prepared as if the foregoing transactions and the following transactions had occurred on January 1, 1995: the acquisition of all Properties acquired by the Company in 1995, the February 1995 Equity Offering, the October 1995 Equity Offering, the refinancing of the 1993 Mortgage Loan and the 1993 Acquisition Facility and entering into the Interest Rate Swap. The pro forma financial and operating data are not necessarily indicative of what the actual financial position or results of operations of the Company would have been as of the date or for the periods indicated, nor do they purport to represent the results of operations or financial position for future periods. This data should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Prospectus Supplement.
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, --------------------------------- -------------------------------------------- HISTORICAL HISTORICAL PRO FORMA -------------------- PRO FORMA ------------------------------- 1996 1996 1995 1995 1995 1994 1993 ----------- --------- --------- ----------- --------- --------- --------- (DOLLARS IN THOUSANDS) OPERATING DATA: Revenue: Rent....................................... $ 18,250 $ 16,733 $ 11,737 $ 73,000 $ 56,199 $ 35,020 $ 17,511 Other...................................... 81 81 178 693 693 452 211 ----------- --------- --------- ----------- --------- --------- --------- Total revenue.............................. 18,331 16,814 11,915 73,693 56,892 35,472 17,722 Expenses: General and administrative and property operating costs........................... 1,748 1,385 1,285 6,619 5,167 3,362 1,324 Financing expenses (related parties)....... -- -- -- -- -- -- 433 Financing expenses (other)................. -- -- -- -- -- -- -- Interest (related parties)................. -- -- -- -- -- -- 1,326 Interest (other)(1)........................ 4,395 4,863 3,319 17,673 17,329 6,726 2,883 Depreciation and amortization.............. 4,110 3,876 3,171 16,495 14,162 9,472 4,989 ----------- --------- --------- ----------- --------- --------- --------- Income before extraordinary charge........... 8,078 6,690 4,140 32,906 20,234 15,912 6,767 Extraordinary charge from early extinguishment of debt(2)................... -- -- -- 11,215 9,561 -- -- ----------- --------- --------- ----------- --------- --------- --------- Net income (loss)............................ $ 8,078 $ 6,690 $ 4,140 $ 21,691 $ 10,673 $ 15,912 $ 6,767 ----------- --------- --------- ----------- --------- --------- --------- ----------- --------- --------- ----------- --------- --------- --------- OTHER DATA: Funds from operations(3)..................... $ 9,701 $ 9,790 $ 6,330 $ 39,418 $ 30,642 $ 22,380 $ 10,440 Preferred stock dividends(4)................. $ 1,711 -- -- $ 6,844 -- -- -- Ratio of earnings to combined debt service and preferred stock dividends(5)............ 2.04x 2.38x 2.25x 2.06x 2.17x 3.37x 2.61x Ratio of funds from operations to combined debt service and preferred stock dividends(6)................................ 2.59x 3.01x 2.91x 2.61x 2.77x 4.33x 3.48x Total Properties (at end of period).......... 100 100 84 100 97 82 67 Total gross leasable area in sq. ft. (at end of period, in thousands).................... 11,902 11,902 8,964 11,902 10,747 8,590 5,851 BALANCE SHEET DATA (AT END OF PERIOD): Real estate, before accumulated depreciation................................ $ 598,826 $ 598,826 $ 394,454 $ 538,717 $ 377,522 $ 221,477 Total assets................................. 620,275 619,431 417,199 559,727 401,241 229,099 Total unsecured debt......................... 159,108 136,100 -- 77,000 -- -- Total secured debt........................... 75,000 167,750 181,271 167,750 204,415 114,912 Total liabilities............................ 262,240 331,983 192,263 270,387 214,554 120,151 Stockholders' equity (net deficit)........... 358,035 287,448 224,936 289,340 186,687 108,948 1992 1991 --------- --------- OPERATING DATA: Revenue: Rent....................................... $ 11,222 $ 11,009 Other...................................... 104 138 --------- --------- Total revenue.............................. 11,326 11,147 Expenses: General and administrative and property operating costs........................... 753 800 Financing expenses (related parties)....... 933 568 Financing expenses (other)................. 207 291 Interest (related parties)................. 2,793 3,772 Interest (other)(1)........................ 2,082 2,770 Depreciation and amortization.............. 3,729 3,478 --------- --------- Income before extraordinary charge........... 829 (532) Extraordinary charge from early extinguishment of debt(2)................... -- -- --------- --------- Net income (loss)............................ $ 829 $ (532) --------- --------- --------- --------- OTHER DATA: Funds from operations(3)..................... $ 3,845 $ 2,250 Preferred stock dividends(4)................. -- -- Ratio of earnings to combined debt service and preferred stock dividends(5)............ 1.17x 0.92x Ratio of funds from operations to combined debt service and preferred stock dividends(6)................................ 1.79x 1.34x Total Properties (at end of period).......... 42 42 Total gross leasable area in sq. ft. (at end of period, in thousands).................... 1,834 1,834 BALANCE SHEET DATA (AT END OF PERIOD): Real estate, before accumulated depreciation................................ $ 91,066 $ 89,480 Total assets................................. 86,277 86,268 Total unsecured debt......................... -- -- Total secured debt........................... 88,302 88,052 Total liabilities............................ 92,326 90,996 Stockholders' equity (net deficit)........... (6,049) (4,728)
- ------------ (1) Pro forma interest expense on the Company's floating rate debt for the three months ended March 31, 1996 and the year ended December 31, 1995 was based on the average 30-day LIBOR in effect for those periods of 5.437% and 5.96%, respectively, and is net of amounts received by the Company under interest rate protection agreements. (2) In connection with the refinancing of the 1993 Mortgage Loan and the 1993 Acquisition Facility, the Company recognized certain unamortized loan costs previously paid by the Company and incurred certain fees and expenses totaling $9,561 ($11,215 on a pro forma basis). (3) Funds From Operations has been calculated in accordance with the definition of "funds from operations" recently clarified by NAREIT generally as net income, computed in accordance with generally accepted accounting principles, excluding gains or losses from debt restructuring and sales of property, plus depreciation and amortization (in each case only on real estate related assets) and after adjustments for unconsolidated partnerships and joint ventures, less preferred stock dividends. Straight-line rent adjustments for the pro forma three months ended March 31, 1996 and for the historical three months ended March 31, 1996 and 1995 were $1,264, $1,132 and $871, respectively. Straight-line rent S-24 adjustments for the pro forma year ended December 31, 1995 and for the historical years ended December 31, 1995, 1994, 1993, 1992 and 1991 were $6,464, $4,226, $2,917, $1,301, $408 and $1,271, respectively. Funds From Operations should not be considered as a substitute for net income as an indication of the Company's performance or as a substitute for cash flow as a measure of its liquidity. (4) Preferred stock dividends reflect an assumed rate of 9.125% per annum of the liquidation preference on the Series A Preferred Stock. (5) For purposes of these computations, earnings consist of net income (loss) before extraordinary charges, if any, plus debt service. Debt service consists of interest and recurring principal amortization (excluding maturities) and excludes amortization of debt expense and discount related to indebtedness. During the periods presented, there was no recurring principal amortization. See "Ratios of Earnings to Fixed Charges" for the Company's historical ratios of earnings to fixed charges. (6) For purposes of these computations, funds from operations include debt service and preferred stock dividend requirements. Debt service consists of interest and recurring principal amortization (excluding maturities) and excluding amortization of debt expense and discount related to indebtedness. During the periods presented, there was no recurring principal amortization. S-25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto incorporated by reference into the accompanying Prospectus. The operating data for the Company for the year ended December 31, 1993 have been derived from the audited consolidated financial statements of the Company since June 3, 1993 and the audited financial statements of the Predecessor Partnerships Properties for the period ended June 2, 1993. The historical financial data include certain general and administrative, financing and interest expenses incurred by the Predecessor Partnerships Properties which were not incurred by the Company, primarily due to historically greater leverage. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 Rent revenues for the first quarter of 1996 increased by $5.0 million, or 43%, compared to the first quarter of 1995. The 1995 revenues were received from 84 Properties, whereas the 1996 revenues were received from 100 Properties, reflecting the Company's continued growth through the acquisition of 16 Properties. The Company completed three additional property acquisitions subsequent to the quarter end for $16.1 million. Interest expense increased $1.5 million for the first quarter of 1996 compared to the first quarter of 1995. This resulted from an increase in borrowings from $181.3 million at March 31, 1995 to $303.9 million at March 31, 1996 due to property acquisitions, partially offset by a decrease in 30-day LIBOR from 6.125% at March 31, 1995 to 5.4375% at March 29, 1996. Depreciation expense increased by $0.93 million when compared to the same period in 1995 as a result of the Company's larger asset base. Amortization expense decreased by 24% to $0.7 million in the first quarter of 1996 compared to $0.96 million in the first quarter of 1995 due to the debt refinancing that occurred in the fourth quarter of 1995. RESULTS OF OPERATIONS--1995 TO 1994 For the year ended December 31, 1995, rent revenue increased by 60% to $56.2 million, compared to $35.0 million for the same period in 1994. During 1995, the Company acquired 15 additional properties (the "1995 Acquired Properties"). The 1995 Acquired Properties contributed $8.8 million to 1995 rental revenue. The remaining $12.4 million increase was a result of a full year's operations on the 15 properties acquired in 1994 (the "1994 Acquired Properties"). Compared to 1994, other revenue increased by 40% to $0.7 million. The increase is primarily due to larger cash balances which increased interest income. The $0.5 million increase in property operating expenses is primarily due to a full year of operations on the Microsoft property, which was acquired in August 1994 and whose lease provides for certain landlord obligations, and operating expenses relating to the 1995 Acquired Properties and 1994 Acquired Properties. Although general and administrative expenses increased 53% to $3.9 million for the year ended December 31, 1995, when compared to the same period in 1994, these expenses actually decreased as a percentage of total revenue. For the year ended December 31, 1995, general and administrative expenses were 6.8% of total revenue compared to 7.2% for 1994. Interest expense increased $10.6 million to $17.3 million for the year ended December 31, 1995, when compared to the same period in 1994. The increase is attributable to higher average LIBOR rates and the increased borrowings in 1995 to fund the $160.4 million in 1995 real estate acquisitions. The amount of outstanding debt for 1995 on a weighted average basis was approximately $235.8 million compared to approximately $102.2 million in 1994, with a significantly higher asset base in 1995. The weighted average interest rate for 1995 was 7.35% compared to 6.59% in 1994. Depreciation expense increased by $4.0 million as a result of the Company's larger asset base. Amortization expense increased $0.7 million in 1995 when compared to the year ended December 31, 1994. However, amortization expense decreased by 25% to $0.7 million in the fourth quarter of 1995 compared to $1.0 million in the third quarter of 1995 due to the debt repayments discussed below. S-26 In the fourth quarter of 1995, the Company recognized a $9.6 million extraordinary charge due to the early extinguishment of a $50 million mortgage loan (the "1993 Mortgage Loan") and early termination of the $150 million revolving acquisition facility (the "1993 Acquisition Facility"). In connection with entering into the 1995 Acquisition Facility, the Company repaid in full all outstanding borrowings under the 1993 Acquisition Facility and purchased U.S. Treasury securities that were held as substitute collateral in connection with the refinancing of the 1993 Mortgage Loan. In connection with these transactions, the Company incurred certain fees and recognized certain unamortized loan costs previously paid by the Company, which resulted in a cash charge of $3.7 million and non-cash charge of $5.9 million. RESULTS OF OPERATIONS--1994 TO 1993 For the year ended December 31, 1994, rent revenue increased by 100% to $35.0 million, compared to $17.5 million for the same period in 1993. During 1994, the Company acquired 15 additional properties. The 1994 Acquired Properties increased 1994 rent revenue by $6.9 million. Additionally, 1994 reflects a full year of revenue from the Properties acquired from unaffiliated entities in connection with the Initial Offering and the six properties the Company acquired in 1993 subsequent to the Initial Offering, which represents a $10.6 million increase over 1993 revenue for these properties. Compared to 1993, other revenue also more than doubled to $0.5 million. The increase is primarily due to larger cash balances which increased interest income. The $0.6 million increase in property operating expenses is attributable to the 1994 acquisition of the Microsoft property whose lease provides for certain landlord obligations, which totaled $0.2 million in 1994 and recognition of the landlord's obligations on the Sears property of $0.15 million, an increase of $0.05 million over 1993. The Sears property was acquired in June of 1993; therefore, 1993 reflected only seven months of operations for the Sears property. Additionally, asset management and other property costs increased due to the increase in the number of properties owned. General and administrative expenses increased by $1.4 million for the year ended December 31, 1994, when compared to the same period in 1993. This increase is primarily due to the Company's larger size, costs related to being a public company and management incentive compensation expenses which were recognized in the first quarter. Interest expense increased 45% to $6.7 million for the year ended December 31, 1994, when compared to the same period in 1993. The increase is attributable to the increased borrowings in 1994 to fund the approximately $153 million in acquisitions. The amount of outstanding debt for 1994 on a weighted average basis was approximately $102.2 million compared to approximately $73.2 million for 1993, with a significantly higher asset base in 1994. The weighted average interest rate for 1994 was 6.59% compared to 6.34% in 1993. Depreciation and amortization expense increased by $4.5 million as a result of the Company's larger asset base and related borrowing costs. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities increased by $4.9 million from the quarter ended March 31, 1995 to $11.5 million for the quarter ended March 31, 1996. The increase was primarily due to rent from 16 additional properties partially offset by the increased expenses due to increased portfolio size. Net cash used for investing activities was $62 million for the quarter ended March 31, 1996, which was used primarily to acquire the Lever Brothers property in Missouri, the Federal Express property in Tennessee and the MJDesigns property in Texas. Net cash provided by operating activities increased by $14.3 million from the year ended December 31, 1994 to $38.8 million for the year ended December 31, 1995. The increase was primarily due to rent from the additional property acquisitions and the effects of the February 1995 Equity Offering and the October 1995 Equity Offering. S-27 Following is an analysis of the Company's capital expenditures:
THREE YEAR ENDED MONTHS ENDED DECEMBER 31, MARCH 31, ---------------------------------- 1996 1995 1994 1993 ------------- ---------- ---------- ---------- (IN THOUSANDS) Real estate acquisitions..................................... $ 61,925 $ 160,389 $ 155,873 $ 130,411 Building improvements........................................ 5 806 172 -- Corporate furniture and equipment............................ 102 279 307 43 ------------- ---------- ---------- ---------- $ 62,032 $ 161,474 $ 156,352 $ 130,454 ------------- ---------- ---------- ---------- ------------- ---------- ---------- ----------
The Company did not incur any leasing costs or tenant improvement expenditures in the three months ended March 31, 1996 or in the year ended December 31, 1995, and it does not anticipate incurring either cost until at least 1997, the first scheduled lease expiration date in the current portfolio. The Company anticipates incurring capital expenditures of approximately $0.9 million for the remainder of 1996 and approximately $1.25 million in 1997. Net cash provided by financing activities for the first quarter of 1996 was $50.3 million, primarily as a result of $59.1 million of borrowings under the 1995 Acquisition Facility to fund acquisitions. This amount of net cash provided by financing activities was offset by dividends paid of $8.6 million. On February 2, 1995, the Company completed the 1.6 million share February 1995 Equity Offering. The net proceeds were approximately $40.7 million. The Company used $39.4 million to repay borrowings under the 1993 Acquisition Facility and the remaining net proceeds were used for subsequent property acquisitions. On October 3, 1995, the Company entered into the $200 million unsecured 1995 Acquisition Facility which replaced the $150 million secured 1993 Acquisition Facility. In addition, the Company entered into the Interest Rate Swap to effectively fix the interest rate on varying amounts of the Company's floating rate borrowings. These transactions reflect the Company's ongoing efforts to obtain financing that minimizes the Company's cost of capital, maximizes its operating and financial flexibility and mitigates its exposure to increases in interest rates. See "The Notes, the 1995 Acquisition Facility and the 1994 Mortgage Loan" for descriptions of the 1995 Acquisition Facility and the Interest Rate Swap. On October 24, 1995, the Company completed the three million share October 1995 Equity Offering. The net proceeds were approximately $79.7 million and were used to repay borrowings under the 1995 Acquisition Facility. On May 22, 1996, the Company completed the Notes Offering. The net proceeds were approximately $147.8 million and were used to repay mortgage indebtedness and repay indebtedness under the 1995 Acquisition Facility. On June 3, 1996, the Company repaid $28.5 million of mortgage indebtedness with funds borrowed under the 1995 Acquisition Facility. The Company expects to meet certain long-term liquidity requirements, such as property acquisitions and scheduled debt maturities, by long-term unsecured and secured borrowings and the issuance of debt securities or preferred and common stock of the Company. The Company has on file with the Securities and Exchange Commission two Form S-3 Registration Statements with a combined remaining availability, following the Offering and assuming no exercise of the Underwriters' over-allotment option, of $146 million. The exact amount of debt, preferred stock and common stock issued will depend on acquisitions, asset sales and the Company's unsecured debt and preferred stock ratings at the time of issuance. Additionally, the Company may occasionally sell assets to satisfy liquidity requirements. The debt outstanding as of March 31, 1996 consisted of mortgage notes and notes payable totaling $303.9 million. There are no maturities or scheduled principal amortization payments in 1996. S-28 THE NOTES, THE 1995 ACQUISITION FACILITY AND THE 1994 MORTGAGE LOAN THE 1996 DEBT OFFERING. In May 1996, the Company completed a public offering of $100 million of the 2001 Notes and $50 million of the 2006 Notes. The 2001 Notes bear interest at a rate of 7.30% per annum and mature on May 15, 2001, and the 2006 Notes bear interest at the rate of 7.95% per annum and mature on May 15, 2006. The Notes are senior, unsecured obligations of the Company. The supplemental indentures under which the Notes were issued create certain limitations on the ability of the Company to incur indebtedness. THE 1995 ACQUISITION FACILITY. In October 1995, the Company entered into the 1995 Acquisition Facility. The 1995 Acquisition Facility has a term of two years and, subject to certain conditions, may be extended by the Company for one additional year. Under the 1995 Acquisition Facility, the Company may borrow up to $200 million to acquire new properties, and up to $30 million of such amount may be borrowed for working capital purposes. Borrowings under the 1995 Acquisition Facility as of the date of this Prospectus Supplement bear interest at a variable interest rate equal to a LIBOR rate selected by the Company plus 1.50%. In addition, the 1995 Acquisition Facility requires an annual commitment fee of 25 basis points on the average undrawn balance in any given quarter, payable quarterly in arrears. The 1995 Acquisition Facility permits additional borrowings only if, after giving effect thereto, borrowings thereunder are not more than 50% of the value of certain of TriNet's unencumbered properties and the Company would have a debt service coverage ratio of at least 1.75:1 with respect to such unencumbered properties. The 1995 Acquisition Facility requires payment of interest only until the end of its term, at which time all unpaid principal and interest become due and payable. The 1995 Acquisition Facility is subject to debt service coverage ratio covenants, a fixed charges coverage ratio covenant, a debt to tangible fair market value net worth covenant and a minimum net worth covenant. THE 1994 MORTGAGE LOAN. On December 6, 1994, a subsidiary of the Company entered into the $110 million 1994 Mortgage Loan. The net proceeds from the 1994 Mortgage Loan were used to reduce the outstanding balance under the 1993 Acquisition Facility and to acquire one additional Property. The 1994 Mortgage Loan bears interest at a variable rate equal to 30-day LIBOR plus 1.25%, requires monthly installments of interest only and is due and payable in full on December 1, 2004. The Company entered into interest rate protection agreements with respect to the entire principal amount of the 1994 Mortgage Loan for the entire term, such that the Company's maximum cash interest exposure under the 1994 Mortgage Loan, prior to giving effect to the Interest Rate Swap, will not exceed 8.25% per annum for the first four years or 9.00% per annum during the remaining six years of such term. The 1994 Mortgage Loan allows prepayment of up to $35 million at any time; if the entire $35 million is prepaid, the margin over LIBOR on the remaining balance will decrease to 1.00%. See "Use of Proceeds." INTEREST RATE SWAP. Effective October 1, 1995, the Company entered into an interest rate swap agreement (the "Interest Rate Swap") with Dresdner Bank AG which, together with certain existing interest rate cap agreements, effectively fixes the interest rate on varying amounts of the Company's LIBOR-based borrowings at 5.58% plus the applicable margin. The notional amount of indebtedness covered by the Interest Rate Swap is $160 million from June 1996 through December 1997, $125 million from January 1998 through May 1998 and $75 million from June 1998 through November 2004. The actual borrowing cost to the Company with respect to indebtedness covered by the Interest Rate Swap will depend upon the applicable margin over LIBOR for such indebtedness, which will be determined by the terms of the relevant debt instruments. Currently, it is expected that the margin will range from 1.00% to 1.50%, which will provide for an all-in annual interest rate ranging from 6.58% to 7.08%. S-29 MANAGEMENT The following table sets forth certain information with respect to the Directors and senior executive officers of the Company:
NAME AGE OFFICE - ---------------------------- --- ------------------------------------------------------------------ Robert W. Holman, Jr. 52 Chairman of the Board of Directors Mark S. Whiting 39 President and Chief Executive Officer Willis Andersen, Jr. 64 Director John G. McDonald 59 Director Robert S. Morris 41 Director Stephen B. Oresman 63 Director Jay H. Shidler 50 Director A. William Stein 42 Executive Vice President and Chief Financial Officer Gary P. Lyon 35 Executive Vice President and Chief Acquisition Officer Jo Ann Chitty 35 Senior Vice President, Asset Management
ROBERT W. HOLMAN, JR. Mr. Holman was Co-Chairman of the Board of Directors and Chief Executive Officer of the Company from its formation until May 22, 1996, when he became Chairman of the Board. He was a co-founder and Chairman and the Chief Executive Officer of Holman/Shidler Capital Corporation ("HSCC") and, since 1986, has overseen the evaluation, structuring and closing of acquisitions of over 250 purchase/leaseback corporate properties in 40 states and Canada. Prior to founding HSCC, Mr. Holman acquired and managed an investment portfolio of real estate and corporate assets in Hawaii. For over 14 years, he managed the U.S. real estate portfolio of Australia's largest merchant bank, Partnership Pacific Bank, owned by Bank of Tokyo, Bank of America and Westpac, and was corporate treasurer and a director of Watkins Pacific, Inc., a public company. He also directed the State of Hawaii's revitalization of the Honolulu waterfront. An Economics graduate of the University of California at Berkeley, Mr. Holman received his M.A. degree in Economics and Planning from Lancaster University in England and was a Loeb Fellow at Harvard University. MARK S. WHITING. Mr. Whiting has been President of the Company since its formation and has been a Director since May 1993. Mr. Whiting became Chief Executive Officer of the Company on May 22, 1996. Prior thereto, Mr. Whiting was the Company's Chief Operating Officer. He joined The Shidler Group in 1987 where he directed its purchase/leaseback activities and managed the operation of over 250 purchase/ leaseback corporate properties in 40 states and Canada. Prior to joining The Shidler Group and HSCC, Mr. Whiting was Manager/Resort Development for Wailea Development Company, Inc. in Hawaii. Prior to that, Mr. Whiting served as a Corporate Financial and Operations Analyst for Alexander & Baldwin, Inc., in Hawaii. Before that, he was a Vice President of Trans-Pacific Realty, Inc., a real estate brokerage and investment firm located in Hawaii. Mr. Whiting holds a Bachelor of Arts degree from Stanford University and an M.B.A. from the Stanford University Graduate School of Business. WILLIS ANDERSEN, JR., CRE. Mr. Andersen became a Director of the Company in June 1993. He is a real estate and REIT industry consultant with over 35 years of experience as an advisor, financial consultant and principal in the real estate industry. Mr. Andersen currently specializes in advisory work for publicly traded real estate companies, focusing specifically on REITs. Mr. Andersen's real estate career has involved work with Allied Properties Inc. of San Francisco; Bankoh Advisory Corp. of Honolulu; RAMPAC and ICM Property Investors, Inc., NYSE-listed REITs; and Bedford Properties, Inc., a commercial property investment and development firm. He is an active member of the American Society of Real Estate Counselors and NAREIT, and is a former Governor and Past President (1980-81) of NAREIT. JOHN G. MCDONALD. Professor McDonald became a Director of the Company in June 1993. He is a Professor of Finance in the Graduate School of Business at Stanford University, where he has taught since 1968. Professor McDonald has taught M.B.A. courses and executive programs in two broad subject areas, investment management and corporate financial management, both with a global perspective. He currently S-30 serves on the Board of Directors of Scholastic Corporation, Varian Associates, Inc., Investment Company of America, Income Fund of America, Growth Fund of America, New Perspective Fund, EuroPacific Growth Fund, Emerging Markets Growth Fund, Inc. and American Balanced Fund. ROBERT S. MORRIS. Mr. Morris became a Director of the Company in June 1993. He is the founder and managing partner of Olympus Private Placement Fund, L.P. and Olympus Growth Fund, L.P. Mr. Morris is currently a director of Master Protection Holdings, Inc., Tempest Reinsurance Co. Ltd. and Nebraska Book Company, Inc. Prior to founding Olympus Private Placement Fund, L.P. in 1988, Mr. Morris was Senior Vice President of General Electric Investment Corporation where he established that company's Private Placements division in 1983 and subsequently managed and enlarged the portfolio to over $1.8 billion. From 1977 to 1982, Mr. Morris held management positions in various General Electric manufacturing and financial services businesses. STEPHEN B. ORESMAN. Mr. Oresman became a Director of the Company in June 1993. He has been the owner and President of Saltash, Ltd., a management consulting firm, since 1991. He was a partner and Vice President of The Canaan Group consulting firm from 1988 to 1991. Mr. Oresman's early career included ten years in the manufacturing sector, first with Bausch & Lomb, Inc. in Rochester, New York, and later with Interlake Steel Corp. in Chicago. Subsequently, Mr. Oresman joined Booz-Allen Hamilton, Inc., where he spent 19 years, including ten years as managing officer of the firm's Eastern Region and five years as Chairman of Booz-Allen Hamilton International, guiding the firm's activities outside of the U.S. Mr. Oresman later joined the advertising agency BBDO International, as President of the firm's independent marketing companies. Mr. Oresman is a member of the Boards of Directors of Cleveland Cliffs, Inc., Grossman's, Inc. and Technology Solutions Company. Mr. Oresman is a graduate of Amherst College and the Harvard Business School. JAY H. SHIDLER. Mr. Shidler has been a member of the Board of Directors since the formation of the Company in March 1993 and was Co-Chairman until May 1996. He is the founder and Managing Partner of The Shidler Group and was a co-founder of HSCC and in these capacities has been responsible for the overall investment strategies and policies of these entities. A nationally acknowledged innovator in the field of real estate investment, Mr. Shidler has over 20 years of experience in real estate investment and has acquired and managed properties involving over $2 billion in aggregate value. Since 1970, Mr. Shidler has been directly involved in the acquisition and management of over 500 properties in 40 states and Canada. Mr. Shidler holds a Bachelor's degree in Business Administration from the University of Hawaii. Mr. Shidler is co-founder and Chairman of the Board of First Industrial Realty Trust, Inc., a NYSE-listed REIT. He also serves on the boards of directors of several private companies and is active as a trustee of several charitable and cultural organizations. A. WILLIAM STEIN. Mr. Stein has been Executive Vice President and Chief Financial Officer since April 1996. He is responsible for the Company's corporate finance (including banking and capital markets), financial management, compliance and reporting. Between October 1995 and April 1996, Mr. Stein was Senior Vice President, Capital Markets of the Company. Prior to joining TriNet, Mr. Stein held a number of positions with Westinghouse Electric Corporation in Pittsburgh, Pennsylvania, including Assistant Treasurer and Director--Banking. In addition, Mr. Stein was a Vice President at Westinghouse Financial Services, with responsibilities for structured finance, capital markets and real estate sale/leaseback investments. Previously, he was Treasurer of Duquesne Light Company in Pittsburgh and practiced law both as a securities and finance lawyer and as a trial lawyer. Mr. Stein holds a Bachelor of Arts degree in Classics from Princeton University, a J.D. from the University of Pittsburgh and an M.S. in Industrial Administration from Carnegie Mellon University. Mr. Stein is a member of the Pennsylvania Bar and the Florida Bar. GARY P. LYON. Mr. Lyon has been Executive Vice President and Chief Acquisition Officer since April 1996. Mr. Lyon's responsibilities include directing all of the Company's purchase/leaseback and net leased real estate business functions. Between June 1993 and April 1996, Mr. Lyon served as a Senior Vice President of the Company with responsibility for acquisitions within the Midwest and the Northeast. Prior to S-31 joining The Shidler Group and HSCC in 1987, Mr. Lyon worked for J.P. Morgan & Co., Inc. and Goldman, Sachs & Co. Mr. Lyon received his Bachelor of Arts degree in Economics from Duke University and his M.B.A. in International Business from The Wharton School. JO ANN CHITTY. Ms. Chitty has been a Senior Vice President of the Company since its formation. From February 1990 until her employment with the Company, Ms. Chitty was the Vice President, Asset Management for HSCC. From September 1987 to February 1990, she served as Director of Sales--East for The Shidler Group. From January 1987 through September 1987, she served as Property Manager/Escrow Coordinator for HSCC. Prior to that time, she served as Escrow Coordinator with IU Terminal Properties, Inc., a property holding and management company. S-32 DESCRIPTION OF SERIES A PREFERRED STOCK THIS DESCRIPTION OF THE PARTICULAR TERMS OF THE SERIES A PREFERRED STOCK SUPPLEMENTS, AND TO THE EXTENT INCONSISTENT THEREWITH REPLACES, THE DESCRIPTION OF THE GENERAL TERMS AND PROVISIONS OF THE PREFERRED STOCK SET FORTH IN THE ACCOMPANYING PROSPECTUS, TO WHICH DESCRIPTION REFERENCE IS HEREBY MADE. GENERAL The Company is authorized to issue up to 10,000,000 shares of Preferred Stock in one or more series, with such terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption, in each case, if any, as are permitted by Maryland law and as the Board of Directors of the Company may determine by adoption of an amendment of the Company's Articles of Incorporation, as amended (the "Articles"), without any further vote or action by the Company's stockholders. See "Description of Preferred Stock" in the accompanying Prospectus. The Series A Preferred Stock is a series of the Company's Preferred Stock. The following summary of the terms and provisions of the Series A Preferred Stock does not purport to be complete and is qualified in its entirety by reference to the pertinent sections of the Articles and the Articles Supplementary creating the Series A Preferred Stock (the "Designating Amendment"), each of which is available from the Company. DIVIDENDS Holders of shares of the Series A Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, out of funds legally available for the payment of dividends, cumulative preferential cash dividends at the rate of % per annum of the $25 liquidation preference (equivalent to a fixed annual rate of $ per share). Such dividends shall be cumulative from the date of original issue and shall be payable quarterly in arrears on or before the day of each March, June, September and December or, if not a business day, the next succeeding business day (each, a "Dividend Payment Date"). The first dividend, which will be paid on September , 1996, will be for less than a full quarter. Such dividend and any dividend payable on the Series A Preferred Stock for any partial dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as they appear in the stock records of the Company at the close of business on the applicable record date, which shall be the day of the calendar month in which the applicable Dividend Payment Date falls or on such other date designated by the Board of Directors of the Company for the payment of dividends that is not more than 30 nor less than 10 days prior to such Dividend Payment Date (each, a "Dividend Record Date"). No dividends on shares of Series A Preferred Stock shall be declared by the Board of Directors of the Company or paid or set apart for payment by the Company at such time as the terms and provisions of any agreement of the Company, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. Notwithstanding the foregoing, dividends on the Series A Preferred Stock will accrue whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared. Accrued but unpaid dividends on the Series A Preferred Stock will accumulate as of the Dividend Payment Date on which they first become payable. Except as set forth in the next sentence, no dividends will be declared or paid or set apart for payment on any capital stock of the Company or any other series of Preferred Stock ranking, as to dividends, on a parity with or junior to the Series A Preferred Stock (other than a dividend in shares of the Company's Common Stock or in shares of any other class of stock ranking junior to the Series A Preferred Stock as to dividends and upon liquidation) for any period unless (i) full cumulative dividends have been or contemporaneously are declared and paid or declared and (ii) a sum sufficient for the payment thereof is set apart for such payment on the Series A Preferred Stock for all past dividend periods and the then current dividend period. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series A Preferred Stock and the shares of any other series of Preferred Stock ranking on a parity as to dividends with the S-33 Series A Preferred Stock, all dividends declared upon the Series A Preferred Stock and any other series of Preferred Stock ranking on a parity as to dividends with the Series A Preferred Stock shall be declared pro rata so that the amount of dividends declared per share of Series A Preferred Stock and such other series of Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the Series A Preferred Stock and such other series of Preferred Stock (which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such Preferred Stock does not have a cumulative dividend) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series A Preferred Stock which may be in arrears. Except as provided in the immediately preceding paragraph, unless full cumulative dividends on the Series A Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods and the then current dividend period, no dividends (other than in shares of Common Stock or other shares of capital stock ranking junior to the Series A Preferred Stock as to dividends and upon liquidation) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the Common Stock, or any other capital stock of the Company ranking junior to or on a parity with the Series A Preferred Stock as to dividends or upon liquidation, nor shall any shares of Common Stock, or any other shares of capital stock of the Company ranking junior to or on a parity with the Series A Preferred Stock as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Company (except by conversion into or exchange for other capital stock of the Company ranking junior to the Series A Preferred Stock of such series as to dividends and upon liquidation). Holders of shares of the Series A Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full cumulative dividends on the Series A Preferred Stock as provided above. Any dividend payment made on shares of the Series A Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to such shares which remains payable. See "Description of Preferred Stock--Dividends" in the accompanying Prospectus. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the holders of shares of Series A Preferred Stock are entitled to be paid out of the assets of the Company legally available for distribution to its stockholders a liquidation preference of $25.00 per share, plus an amount equal to any accrued and unpaid dividends to the date of payment, before any distribution of assets is made to holders of Common Stock or any other class or series of capital stock of the Company that ranks junior to the Series A Preferred Stock as to liquidation rights. Holders of Series A Preferred Stock will be entitled to written notice of any such liquidation. After payment of the full amount of the liquidating distributions to which they are entitled, the holders of Series A Preferred Stock will have no right or claim to any of the remaining assets of the Company. The consolidation or merger of the Company with or into any other corporation, trust or entity or of any other corporation with or into the Company, or the sale, lease or conveyance of all or substantially all of the property or business of the Company, shall not be deemed to constitute a liquidation, dissolution or winding up of the Company. For further information regarding the rights of the holders of the Series A Preferred Stock upon the liquidation, dissolution or winding up of the Company, see "Description of Preferred Stock--Liquidation Preference" in the accompanying Prospectus. REDEMPTION The Series A Preferred Stock is not redeemable prior to June , 2001. However, in order to ensure that the Company remains a qualified REIT for federal income tax purposes, Series A Preferred Stock will be subject to the Articles, pursuant to which Series A Preferred Stock owned by a stockholder in excess of the Ownership Limit (as defined in the accompanying Prospectus) will automatically be exchanged for shares of Excess Stock, and the Company will have the right to purchase Excess Stock from the holder. See "Restrictions on Transfers of Capital Stock" in the accompanying Prospectus. On and after June , 2001, the Company, at its option upon not less than 30 nor more than 60 days' written notice, may redeem shares of the Series A Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $25 per share, plus all accrued and unpaid dividends thereon to the date fixed for redemption (except as S-34 provided below), without interest. The redemption price of the Series A Preferred Stock (other than the portion thereof consisting of accrued and unpaid dividends) is payable solely out of the sale proceeds of other capital stock of the Company, which may include other series of Preferred Stock, and from no other source. For purposes of the preceding sentence, "capital stock" means any equity securities (including Common Stock and Preferred Stock), shares, interest, participation or other ownership interests (however designated) and any rights (other than debt securities convertible into or exchangeable for equity securities) or options to purchase any of the foregoing. Holders of Series A Preferred Stock to be redeemed shall surrender such Series A Preferred Stock at the place designated in such notice and shall be entitled to the redemption price and any accrued and unpaid dividends payable upon such redemption following such surrender. If notice of redemption of any shares of Series A Preferred Stock has been given and if the funds necessary for such redemption have been set aside by the Company in trust for the benefit of the holders of any shares of Series A Preferred Stock so called for redemption, then from and after the redemption date dividends will cease to accrue on such shares of Series A Preferred Stock, such shares of Series A Preferred Stock shall no longer be deemed outstanding and all rights of the holders of such shares will terminate, except the right to receive the redemption price. If less than all of the outstanding Series A Preferred Stock is to be redeemed, the Series A Preferred Stock to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method determined by the Company. Unless full cumulative dividends on all shares of Series A Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, no shares of Series A Preferred Stock shall be redeemed unless all outstanding shares of Series A Preferred Stock are simultaneously redeemed and the Company shall not purchase or otherwise acquire directly or indirectly any shares of Series A Preferred Stock (except by exchange for capital stock of the Company ranking junior to the Series A Preferred Stock as to dividends and upon liquidation); PROVIDED, HOWEVER, that the foregoing shall not prevent the purchase by the Company of shares of Excess Stock in order to ensure that the Company remains qualified as a REIT for Federal income tax purposes, as described under "Restrictions on Transfers of Capital Stock" in the accompanying Prospectus, or the purchase or acquisition of shares of Series A Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Series A Preferred Stock. Notice of redemption will be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the redemption date. A similar notice will be mailed by the Company, postage prepaid, not less than 30 nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series A Preferred Stock to be redeemed at their respective addresses as they appear on the stock transfer records of the Company. No failure to give such notice or any defect thereto or in the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of Series A Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the redemption date; (ii) the redemption price; (iii) the number of shares of Series A Preferred Stock to be redeemed; (iv) the place or places where the Series A Preferred Stock is to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date. If less than all of the Series A Preferred Stock held by any holder is to be redeemed, the notice mailed to such holder shall also specify the number of shares of Series A Preferred Stock held by such holder to be redeemed. Immediately prior to any redemption of Series A Preferred Stock, the Company shall pay, in cash, any accumulated and unpaid dividends through the redemption date, unless a redemption date falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case each holder of Series A Preferred Stock at the close of business on such Dividend Record Date shall be entitled to the S-35 dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares before such Dividend Payment Date. Except as provided above, the Company will make no payment or allowance for unpaid dividends, whether or not in arrears, on Series A Preferred Stock which is redeemed. The Series A Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption. However, in order to ensure that the Company remains a qualified REIT for Federal income tax purposes, Series A Preferred Stock owned by a stockholder in excess of the Ownership Limit will automatically be exchanged for shares of Excess Stock, and the Company will have the right to purchase Excess Stock from the holder. Shares of Series A Preferred Stock which have been exchanged for Excess Stock may be redeemed, in whole or in part, and, if in part, pro rata from the holders of record of such shares in proportion to the number of such shares held by such holders (with adjustments to avoid redemption of fractional shares) or by any other equitable method determined by the Company, at any time when outstanding shares of Series A Preferred Stock are being redeemed. VOTING RIGHTS Holders of the Series A Preferred Stock will not have any voting rights, except as set forth below or as otherwise from time to time required by law. Whenever dividends on any shares of Series A Preferred Stock shall be in arrears for six or more quarterly periods (a "Preferred Dividend Default"), the holders of such shares of Series A Preferred Stock (voting separately as a class with all other series of Preferred Stock ranking on a parity with the Series A Preferred Stock as to dividends or upon liquidation ("Parity Preferred") upon which like voting rights have been conferred and are exercisable) will be entitled to vote for the election of a total of two additional directors of the Company (the "Preferred Stock Directors") at a special meeting called by the holders of record of at least 20% of the Series A Preferred Stock or the holders of any series of Parity Preferred so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of the stockholders) or at the next annual meeting of stockholders, and at each subsequent annual meeting until all dividends accumulated on such shares of Series A Preferred Stock for the past dividend periods and the dividend for the then current dividend period shall have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment. If and when all accumulated dividends and the dividend for the then current dividend period on the Series A Preferred Stock shall have been paid in full or set aside for payment in full, the holders thereof shall be divested of the foregoing voting rights (subject to revesting in the event of each and every Preferred Dividend Default) and, if all accumulated dividends have been paid on all series of Parity Preferred upon which like voting rights have been conferred and are exerciseable, the term of office of each Preferred Stock Director so elected shall terminate. Any Preferred Stock Director may be removed at any time when they have the voting rights described above with or without cause by, and shall not be removed otherwise than by the vote of, the holders of record of a majority of the outstanding shares of the Series A Preferred Stock (voting separately as a class with all series of Parity Preferred upon which like voting rights have been conferred and are exercisable). So long as a Preferred Dividend Default shall continue, any vacancy in the office of a Preferred Stock Director may be filled by written consent of the Preferred Stock Director remaining in office, or if none remains in office, by a vote of the holders of record of a majority of the outstanding shares of Series A Preferred Stock when they have the voting rights described above (voting separately as a class with all series of Parity Preferred upon which like voting rights have been conferred and are exercisable). The Preferred Stock Directors shall each be entitled to one vote per director on any matter. So long as any shares of Series A Preferred Stock remain outstanding, the Company will not, without the affirmative vote or consent of the holders of at least two-thirds of the shares of the Series A Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (a) authorize or create, or increase the authorized or issued amount of, any class or series of capital stock ranking prior to the Series A Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or reclassify any authorized capital stock of the Company into such shares, or create, authorize or issue any obligation or security convertible S-36 into or evidencing the right to purchase any such shares; or (b) amend, alter or repeal the provisions of the Articles or the Designating Amendment, whether by merger, consolidation or otherwise (an "Event"), so as to materially and adversely affect any right, preference, privilege or voting power of the Series A Preferred Stock or the holders thereof; PROVIDED, HOWEVER, with respect to the occurrence of any Event set forth in (b) above, so long as the Series A Preferred Stock remains outstanding with the terms thereof materially unchanged, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting power of holders of the Series A Preferred Stock and provided further that (i) any increase in the amount of the authorized Preferred Stock or the creation or issuance of any other series of Preferred Stock, or (ii) any increase in the amount of authorized shares of such series, in each case ranking on a parity with or junior to the Series A Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers. The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of Series A Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption. CONVERSION The Series A Preferred Stock is not convertible into or exchangeable for any other property or securities of the Company, except that the shares of Series A Preferred Stock may be exchanged for shares of Excess Stock, in accordance with the Articles. See "Restrictions on Transfers of Capital Stock" in the accompanying Prospectus. RESTRICTIONS ON OWNERSHIP For information regarding restrictions on ownership of the Series A Preferred Stock, see "Restrictions on Transfers of Capital Stock" in the accompanying Prospectus. TRANSFER AGENT The transfer agent, registrar and dividend disbursing agent for the Series A Preferred Stock will be KeyCorp Shareholder Services, Inc., Denver, Colorado. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following summary of certain federal income tax considerations is based on current law, is for general information only, and is not tax advice. This discussion does not purport to deal with all aspects of taxation that may be relevant to particular stockholders in light of their personal investment or tax circumstances, or to certain types of stockholders (including insurance companies, tax exempt organizations, financial institutions or broker dealers, foreign corporations and persons who are not citizens or residents of the United States) subject to special treatment under the federal income tax laws. In addition, this section does not discuss foreign, state or local taxation. This discussion does not address the taxation of the Company or the impact on the Company of its election to be taxed as a REIT. Such matters are discussed in the accompanying Prospectus under "Federal Income Tax Considerations." Prospective investors should consult, and must depend on, their own tax advisors regarding the state, local, foreign and other tax consequences of holding and disposing of Series A Preferred Stock. DISTRIBUTIONS ON SERIES A PREFERRED STOCK As long as the Company qualifies as a REIT, distributions that are made to its stockholders out of the Company's current accumulated earnings and profits, and that are not designated as capital gain dividends, generally will be taxed to stockholders as ordinary income, either in the year of payment or, with respect to distributions declared in the last quarter of any year and paid by January 31 of the following year, in the year of declaration, and will not be eligible for the dividends received deduction for corporations. The Company's earnings and profits will be allocated first to any outstanding Series A Preferred Stock. A distribution of net S-37 capital gain by the Company generally will be treated as long term capital gain to stockholders to the extent properly designated by the Company as a capital gain dividend and regardless of the length of time a stockholder has held such stockholder's Series A Preferred Stock. Under Section 291 of the Code, however, corporate stockholders may be required to treat up to 20% of any such capital gain as ordinary income. Corporate stockholders of a REIT generally are required to treat the portion of a capital gain distribution attributable to the gain from the REIT's sale or exchange of depreciable real property as subject to the 20% ordinary income rule of Section 291 of the Code. Capital gain distributions also are not eligible for the dividends received deduction for corporations. A dividend in excess of current or accumulated earnings and profits will constitute a nontaxable return of capital to the extent of the stockholder's basis in such stockholder's Series A Preferred Stock, and will be applied to reduce the stockholder's basis in the Series A Preferred Stock. To the extent such a dividend is greater than such basis, it will be treated as capital gain to those stockholders holding their Series A Preferred Stock as capital assets. The Company will notify stockholders as to the portions of each distribution which, in its judgment, constitute ordinary income, capital gain distributions or return of capital. Should the Company incur ordinary or capital losses, stockholders will not be entitled to include such losses in their own income tax returns. REDEMPTION OF SERIES A PREFERRED STOCK A redemption of shares of Series A Preferred Stock for cash generally will be treated as a sale or exchange if the holder of such redeemed shares does not own, actually or constructively within the meaning of Section 318 of the Code, any stock of the Company other than the redeemed Series A Preferred Stock. If a holder does own, actually or constructively, such other stock (including Series A Preferred Stock not redeemed), a redemption of Series A Preferred Stock may be treated as a dividend to the extent of the Company's current or accumulated earnings and profits. Such dividend treatment would not apply if the redemption were "not essentially equivalent to a dividend" with respect to the holder under Section 302(b)(1) of the Code. A distribution to a holder will be "not essentially equivalent to a dividend" if it results in a "meaningful reduction" in the holder's stock interest in the Company. For this purpose, a redemption of Series A Preferred Stock that results in a reduction in the proportionate interest in the Company (taking into account any ownership of Common Stock and any stock constructively owned) of a holder whose relative stock interest in the Company is minimal and who exercises no control over corporate affairs should be regarded as a meaningful reduction in the holder's stock interest in the Company. If the redemption of the Series A Preferred Stock for cash is not treated as a distribution taxable as a dividend, the redemption will result in capital gain or loss equal to the difference between the amount of cash received by the holder and the holder's adjusted tax basis in the Series A Preferred Stock redeemed. If a redemption of Series A Preferred Stock is treated as a distribution that is taxable as a dividend, the holder's adjusted tax basis in the redeemed Series A Preferred Stock will be transferred to any remaining stock holdings in the Company. If the holder does not retain any stock ownership in the Company, the holder may lose such basis entirely. S-38 UNDERWRITING Under the terms and subject to the conditions of the Underwriting Agreement dated the date hereof, each of the Underwriters named below (the "Underwriters"), for whom Smith Barney Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Robertson, Stephens & Company LLC are acting as the Representatives (the "Representatives"), has severally agreed to purchase, and the Company has agreed to sell to each Underwriter, the number of shares of Series A Preferred Stock set forth opposite the name of such Underwriter below:
NUMBER OF UNDERWRITERS SHARES - ----------------------------------------- ----------- Smith Barney Inc......................... Donaldson, Lufkin & Jenrette Securities Corporation............................. Goldman, Sachs & Co...................... NUMBER OF UNDERWRITERS SHARES - ----------------------------------------- ----------- Merrill Lynch, Pierce, Fenner & Smith Incorporated............................ Robertson, Stephens & Company LLC........ ----------- Total................................ 3,000,000 ----------- -----------
The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the Series A Preferred Stock are subject to approval of certain legal matters by counsel and to certain other conditions. The Underwriters are obligated to take and pay for all shares of Series A Preferred Stock offered hereby (other than those covered by the over-allotment option described below) if any such shares are taken. The Underwriters initially propose to offer part of the shares of Series A Preferred Stock directly to the public at the public offering price set forth on the cover page of this Prospectus Supplement and part to certain dealers at a price which represents a concession not in excess of $ per share under the public offering price. The Underwriters may allow, and such dealers may re-allow, a concession not in excess of $ per share to the other Underwriters or to certain other dealers. After the initial public offering, the public offering price and such concessions may be changed by the Underwriters. The Company has granted to the Underwriters an option, exercisable for 30 days from the date of this Prospectus Supplement, to purchase up to an aggregate of 450,000 additional shares of Series A Preferred Stock at the public offering price set forth on the cover page of this Prospectus Supplement, minus the underwriting discounts and commissions. The Underwriters may exercise such option to purchase additional shares of Series A Preferred Stock solely for the purpose of covering over-allotments, if any, incurred in connection with the sale of the shares of Series A Preferred Stock offered hereby. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares of Series A Preferred Stock as the number of shares of Series A Preferred Stock set forth opposite such Underwriter's name in the preceding table bears to the total number of shares of Series A Preferred Stock in such table. The Company and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act of 1933, as amended. The Company has applied for listing of the shares of Series A Preferred Stock on the NYSE. Prior to the Offering, there has been no public market for the shares of Series A Preferred Stock. Trading of the shares of Series A Preferred Stock on the NYSE is expected to commence within a 30-day period after the initial delivery of the shares of Series A Preferred Stock. The Representatives have advised the Company that they intend to make a market in the Series A Preferred Stock prior to the commencement of trading on the NYSE, but are not obligated to do so and may discontinue market making at any time without notice. LEGAL MATTERS Certain legal matters, including the legality of the Series A Preferred Stock being offered hereby, are being passed upon for the Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts. Certain legal matters related to the Offering are being passed upon for the Underwriters by Cahill Gordon & Reindel (a partnership including a professional corporation), New York, New York. Cahill Gordon & Reindel will rely as to all matters of Maryland law on the opinion of Goodwin, Procter & Hoar LLP, Boston, Massachusetts. S-39 - ------------------------------------------- ------------------------------------------- - ------------------------------------------- ------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH THEY RELATE OR ANY OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION. ------------------- TABLE OF CONTENTS PROSPECTUS SUPPLEMENT
PAGE --------- Prospectus Supplement Summary.................. S-2 Risk Factors................................... S-10 The Company.................................... S-14 Use of Proceeds................................ S-14 Ratios of Earnings to Fixed Charges............ S-14 Capitalization................................. S-16 Business....................................... S-17 Properties..................................... S-20 Selected Financial Data........................ S-24 Management's Discussion and Analysis of Financial Condition and Results of Operations................................... S-26 The Notes, the 1995 Acquisition Facility and the 1994 Mortgage Loan....................... S-29 Management..................................... S-30 Description of Series A Preferred Stock........ S-33 Certain Federal Income Tax Considerations...... S-37 Underwriting................................... S-39 Legal Matters.................................. S-39 PROSPECTUS Available Information.......................... 2 Incorporation of Certain Documents by Reference.................................... 2 The Company.................................... 3 Use of Proceeds................................ 3 Ratios of Earnings to Fixed Charges............ 3 Description of Debt Securities................. 3 Description of Preferred Stock................. 18 Description of Common Stock.................... 23 Restrictions on Transfers of Capital Stock..... 24 Federal Income Tax Considerations.............. 25 Plan of Distribution........................... 25 Legal Matters.................................. 26 Experts........................................ 26
3,000,000 SHARES TRINET CORPORATE REALTY TRUST, INC. % SERIES A CUMULATIVE PREFERRED STOCK [LOGO] --------------------- PROSPECTUS SUPPLEMENT JUNE , 1996 --------------------- SMITH BARNEY INC. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. ROBERTSON, STEPHENS & COMPANY - ------------------------------------------- ------------------------------------------- - ------------------------------------------- ------------------------------------------- PROSPECTUS $300,000,000 [LOGO] TriNet Corporate Realty Trust, Inc. Debt Securities Preferred Stock Common Stock TriNet Corporate Realty Trust, Inc. ("TriNet" or the "Company") may offer from time to time in one or more series (i) its unsecured debt securities ("Debt Securities"), (ii) shares of its preferred stock, $.01 par value per share ("Preferred Stock"), and (iii) shares of its common stock, $.01 par value per share ("Common Stock"), with an aggregate public offering price of up to $300,000,000 (or its equivalent based on the exchange rate at the time of sale) in amounts, at prices and on terms to be determined at the time of offering. The Debt Securities, Preferred Stock and Common Stock (collectively, the "Securities") may be offered separately or together, in separate series, in amounts, at prices and on terms to be set forth in one or more supplements to this Prospectus (each a "Prospectus Supplement"). The specific terms of the Securities for which this Prospectus is being delivered will be set forth in the applicable Prospectus Supplement and will include, where applicable: (i) in the case of Debt Securities, the specific title, aggregate principal amount, ranking, currency, form (which may be registered or bearer, or certificated or global), authorized denominations, maturity, rate (or manner of calculation thereof) and time of payment of interest, terms for redemption at the option of the Company or repayment at the option of the holder, terms for sinking fund payments, terms for conversion into Common Stock or Preferred Stock, covenants and any initial public offering price; (ii) in the case of Preferred Stock, the specific designation and stated value per share, any dividend, liquidation, redemption, conversion, voting and other rights, and any initial public offering price; and (iii) in the case of Common Stock, any initial public offering price. In addition, such specific terms may include limitations on direct or beneficial ownership and restrictions on transfer of the Securities, in each case as may be consistent with the Company's Amended and Restated Articles of Incorporation or otherwise appropriate to preserve the status of the Company as a real estate investment trust ("REIT") for federal income tax purposes. See "Restrictions on Transfers of Capital Stock." The applicable Prospectus Supplement will also contain information, where appropriate, about certain 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 by the Company directly to one or more purchasers, through agents designated from time to time by the Company 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 between or among them will be set forth, or will be calculable from the information set forth, in an accompanying Prospectus Supplement. See "Plan of Distribution." No Securities may be sold without delivery of a Prospectus Supplement describing the method and terms of the offering of such Securities. 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. The date of this Prospectus is January 24, 1996. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "SEC" or "Commission") a Registration Statement on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Securities. This Prospectus, which constitutes part of the Registration Statement, omits certain of the information contained in the Registration Statement and the exhibits thereto on file with the Commission pursuant to the Securities Act and the rules and regulations of the Commission thereunder. The Registration Statement, including exhibits thereto, may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10048, and Northwestern Atrium Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and copies may be obtained at the prescribed rates from the Public Reference Section of the Commission at its principal office in Washington, D.C. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected and copied at the locations described above. Copies of such materials can be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. In addition, the Common Stock is listed on the New York Stock Exchange (the "NYSE"), and such materials can be inspected and copied at the NYSE, 20 Broad Street, New York, New York 10005. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed by the Company with the Commission pursuant to the Exchange Act are incorporated by reference in this Prospectus: (i) Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as amended by the Company's Form 10-K/A dated October 5, 1995, (ii) Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1995, June 30, 1995 and September 30, 1995, (iii) the Company's Current Report on Form 8-K dated May 2, 1995, as amended by the Company's Form 8-K/A dated June 14, 1995, (iv) the Company's Current Report on Form 8-K dated June 23, 1995, (v) the Company's Current Report on Form 8-K dated October 5, 1995, (vi) the Company's Current Report on Form 8-K dated November 4, 1995, and (vii) the description of the Company's Common Stock contained in the Company's Registration Statement on Form 8-A dated April 1, 1993. All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of all Securities shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. The Company will provide, without charge, to each person, including any beneficial owner, to whom a copy of this Prospectus is delivered, at the request of such person, a copy of any or all of the documents incorporated herein by reference (other than exhibits thereto, unless such exhibits are specifically incorporated by reference into such documents). Written requests for such copies should be directed to James R. Reinhart, Chief Financial Officer, TriNet Corporate Realty Trust, Inc., Four Embarcadero Center, Suite 3150, San Francisco, California 94111, telephone (415) 391-4300. Any statement contained herein or in a document incorporated or deemed to be incorporated herein by reference shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein (or in an applicable Prospectus Supplement) or in any subsequently filed document that is incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed to constitute a part of this Prospectus or any Prospectus Supplement, except as so modified or superseded. 2 THE COMPANY GENERAL TriNet Corporate Realty Trust, Inc. is real estate investment trust (a "REIT") which acquires, owns and manages properties that are net leased to corporations in a variety of industries throughout the United States and that the Company believes are essential or important to the ongoing operations of those corporations. Under a net lease, the tenant is responsible for obligations such as taxes, repairs and insurance, which would otherwise be the responsibility of the landlord. Based on total market capitalization, the Company is one of the largest publicly traded REITs in the United States engaged exclusively in the corporate net leased real estate business. As of January 18, 1996, TriNet's portfolio consists of 97 properties (the "Properties"), which are predominantly single-tenant industrial and office buildings located throughout the United States. The Properties are 100% net leased pursuant to leases with an average remaining term (excluding extension options) of approximately 11 years when lease terms are weighted according to contractual rent revenues. TriNet is a self-administered and self-managed REIT. The Company was incorporated under the laws of the State of Maryland on March 4, 1993. The Company's principal executive offices are located at Four Embarcadero Center, Suite 3150, San Francisco, California 94111, and its telephone number is (415) 391-4300. The Company also maintains regional offices in Florida and Pennsylvania. USE OF PROCEEDS Unless otherwise described in the applicable Prospectus Supplement, the Company intends to use the net proceeds from the sale of Securities for general corporate purposes, which may include the acquisition of additional properties, the repayment of outstanding debt or the improvement of certain properties already in the Company's portfolio. RATIOS OF EARNINGS TO FIXED CHARGES The following table sets forth the Company's consolidated ratios of earnings to fixed charges for the periods shown:
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, 1995 DECEMBER 31, 1994 - ------------------ ------------------ 1.92x 2.65x
The ratios of earnings to fixed charges were computed by dividing earnings by fixed charges. For this purpose, earnings consist of pre-tax income from continuing operations plus fixed charges. Fixed charges consist of interest expense and the amortization of debt issuance costs. To date, the Company has not issued any Preferred Stock; therefore, the ratios of earnings to combined fixed charges and preferred stock dividend requirements are the same as the ratios of earnings to fixed charges presented above. DESCRIPTION OF DEBT SECURITIES The Debt Securities will be direct unsecured obligations of the Company and may be either senior Debt Securities ("Senior Debt Securities") or subordinated Debt Securities ("Subordinated Debt Securities"). The Debt Securities will be issued under one or more indentures, each dated as of a date prior to the issuance of the Debt Securities to which it relates. Senior Debt Securities and Subordinated Debt Securities may be issued pursuant to separate indentures (respectively, a "Senior Indenture" and a "Subordinated Indenture"), in each case between the Company and a trustee (a "Trustee"), which may be the same Trustee, and in the form that has been filed as an exhibit to the Registration Statement of which this Prospectus is a part, subject to such amendments or supplements as may be adopted from time to time. The Senior Indenture and the Subordinated Indenture, as amended or supplemented from time to time, are sometimes hereinafter referred to collectively as the "Indentures." 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 3 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. Capitalized terms used herein and not defined shall have the meanings assigned to them in the applicable Indenture. TERMS GENERAL. The Debt Securities will be direct, unsecured obligations of the Company. The indebtedness represented by the Senior Debt Securities will rank equally with all other unsecured and unsubordinated indebtedness of the Company. The indebtedness represented by Subordinated Debt Securities will be subordinated in right of payment to the prior payment in full of Senior Indebtedness of the Company as described under "--Subordination." The particular terms of the Debt Securities offered by a Prospectus Supplement will be described in the applicable Prospectus Supplement, along with any applicable modifications of or additions to the general terms of the Debt Securities as described herein and in the applicable Indenture and any applicable federal income tax considerations. Accordingly, for a description of the terms of any series of Debt Securities, reference must be made to both the Prospectus Supplement relating thereto and the description of the Debt Securities set forth in this Prospectus. Except as set forth in any Prospectus Supplement, 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 by the Company or as set forth 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 issuance of additional Debt Securities of such series. Each Indenture will provide that the Company may, but need not, designate 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, and only with respect to, the one or more series of Debt Securities for which it is Trustee under the applicable Indenture. The following summaries set forth certain general terms and provisions of the Indentures and the Debt Securities. The Prospectus Supplement relating to the series of Debt Securities being offered will contain further terms of such Debt Securities, including the following specific terms: (1) The title of such Debt Securities and whether such Debt Securities are Senior Debt Securities or Subordinated Debt Securities; (2) The aggregate principal amount of such Debt Securities and any limit on such aggregate principal amount; (3) The price (expressed as a percentage of the principal amount thereof) 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, or (if applicable) the portion of the principal amount of such Debt Securities that is convertible into Common Stock or Preferred Stock, or the method by which any such portion shall be determined; (4) If convertible, the terms on which such Debt Securities are convertible, including the initial conversion price or rate and the conversion period and any applicable limitations on the ownership or transferability of the Common Stock or Preferred Stock receivable on conversion; 4 (5) The date or dates, or the method for determining such date or dates, on which the principal of such Debt Securities will be payable; (6) 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; (7) 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 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; (8) The place or places where the principal of (and premium or Make-Whole Amount (as defined in the Indenture), if any) and interest, if any, on such Debt Securities will be payable, where such Debt Securities may be surrendered for registration of transfer or exchange and where notices or demands to or upon the Company in respect of such Debt Securities and the applicable Indenture may be served; (9) The period or periods, if any, within which, the price or prices at which and the other terms and conditions upon which such Debt Securities may, pursuant to any optional or mandatory redemption provisions, be redeemed, as a whole or in part, at the option of the Company; (10) The obligation, if any, of the Company to redeem, repay or purchase such Debt Securities pursuant to any sinking fund or analogous provision or at the option of a holder thereof, and the period or periods within which, the price or prices at which and the other terms and conditions upon which such Debt Securities will be redeemed, repaid or purchased, as a whole or in part, pursuant to such obligation; (11) If other than U.S. dollars, the currency or currencies in which such Debt Securities are denominated and payable, which may be a foreign currency or units of two or more foreign currencies or a composite currency or currencies, and the terms and conditions relating thereto; (12) Whether the amount of payments of principal of (and premium or Make-Whole Amount, if any, including any amount due upon redemption, 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 the yield on or trading price of other securities, including United States Treasury securities, or on a currency, currencies, currency unit or units, or composite currency or currencies) and the manner in which such amounts shall be determined; (13) Whether the principal of (and premium or Make-Whole Amount, if any) or interest on the Debt Securities of the series are to be payable, at the election of the Company or a holder thereof, in a currency or currencies, currency unit or units or composite currency or currencies other than that in which such Debt Securities are denominated or stated to be payable, the period or periods within which, and the terms and conditions upon which, such election may be made, and the time and manner of, and identity of the exchange rate agent with responsibility for, determining the exchange rate between the currency or currencies, currency unit or units or composite currency or currencies in which such Debt Securities are denominated or stated to be payable and the currency or currencies, currency unit or units or composite currency or currencies in which such Debt Securities are to be so payable; (14) Provisions, if any, granting special rights to the holders of Debt Securities of the series upon the occurrence of such events as may be specified; (15) Any deletions from, modifications of or additions to the Events of Default (as defined in the Indenture) or covenants of the Company with respect to Debt Securities of the series, whether or not such Events of Default or covenants are consistent with the Events of Default or covenants described herein; 5 (16) Whether and under what circumstances the Company will pay any additional amounts on such Debt Securities in respect of any tax, assessment or governmental charge and, if so, whether the Company will have the option to redeem such Debt Securities in lieu of making such payment; (17) Whether Debt Securities of the series are to be issuable as Registered Securities, Bearer Securities (with or without coupons) or both, any restrictions applicable to the offer, sale or delivery of Bearer Securities and the terms upon which Bearer Securities of the series may be exchanged for Registered Securities of the series and vice versa (if permitted by applicable laws and regulations), whether any Debt Securities of the series are to be issuable initially in temporary global form and whether any Debt Securities of the series are to be issuable in permanent global form with or without coupons and, if so, whether beneficial owners of interests in any such permanent global Security may exchange such interests for Debt Securities of such series and of like tenor of any authorized form and denomination and the circumstances under which any such exchanges may occur, if other than in the manner provided in the Indenture, and, if Registered Securities of the series are to be issuable as a Global Security (as defined), the identity of the depository for such series; (18) The date as of which any Bearer Securities of the series and any temporary Global Security representing outstanding Debt Securities of the series shall be dated if other than the date of original issuance of the first Security of the series to be issued; (19) The Person to whom any interest on any Registered Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, the manner in which, or the Person to whom, any interest on any Bearer Security of the series shall be payable, if otherwise than upon presentation and surrender of the coupons appertaining thereto as they severally mature, and the extent to which, or the manner in which, any interest payable on a temporary Global Security on an Interest Payment Date will be paid if other than in the manner provided in the Indenture; (20) The applicability, if any, of the defeasance and covenant defeasance provisions of the Indenture to the Debt Securities of the series; (21) If the Debt Securities of such series are to be issuable in definitive form (whether upon original issue or upon exchange of a temporary Security of such series) only upon receipt of certain certificates or other documents or satisfaction of other conditions, then the form and/or terms of such certificates, documents or conditions; (22) The obligation, if any, of the Company to permit the conversion of the Debt Securities of such series into Common Stock or Preferred Stock, as the case may be, and the terms and conditions upon which such conversion shall be effected (including, without limitation, the initial conversion price or rate, the conversion period, any adjustment of the applicable conversion price and any requirements relative to the reservation of such shares for purposes of conversion); and (23) Any other terms of the series (which terms shall not be inconsistent with the provisions of the Indenture under which the Debt Securities are issued). If so provided in the applicable Prospectus Supplement, the Debt Securities may be issued at a discount below their principal amount and provide for less than the entire principal amount thereof to be payable upon declaration of acceleration of the maturity thereof ("Original Issue Discount Securities"). In such cases, all material U.S. federal income tax, accounting and other considerations applicable to Original Issue Discount Securities will be described in the applicable Prospectus Supplement. Except as may be set forth in any Prospectus Supplement, the Debt Securities will not contain any provisions that would limit the ability of the Company to incur indebtedness or that would afford holders of Debt Securities protection in the event of a highly leveraged or similar transaction involving the Company or in the event of a change of control. Restrictions on ownership and transfers of the Common Stock and Preferred Stock are designed to preserve its status as a REIT and, therefore, may act to prevent or hinder a 6 change of control. See "Restrictions on Transfers of Capital Stock." Reference is made to the applicable Prospectus Supplement for information with respect to any deletions from, modifications of, or additions to, the events of default or covenants of the Company that are described below, including any addition of a covenant or other provision providing event risk or similar protection. DENOMINATION, INTEREST, REGISTRATION AND TRANSFER Unless otherwise described in the applicable Prospectus Supplement, the Debt Securities of any series will be issuable in denominations of $1,000 and integral multiples thereof. Where Debt Securities of any series are issued in bearer form, the special restrictions and considerations, including special offering restrictions and special federal income tax considerations, applicable to any such Debt Securities and to payment on and transfer and exchange of such Debt Securities will be described in the applicable Prospectus Supplement. Bearer Debt Securities will be transferable by delivery. Unless otherwise specified in the applicable Prospectus Supplement, the principal of (and applicable premium or Make-Whole Amount, if any) and interest on any series of Debt Securities will be payable at the corporate trust office of the applicable Trustee, the address of which will be stated in the applicable Prospectus Supplement; provided that, at the option of the Company, payment of interest may be made by check mailed to the address of the person entitled thereto as it appears in the applicable register for such Debt Securities or by wire transfer of funds to such person at an account maintained within the United States. Any interest not punctually paid or duly provided for on any Interest Payment Date with respect to a Debt Security in registered form ("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, in which case notice thereof shall be given to the holder of such Debt Security not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner, all as more completely described in the applicable Indenture. Subject to certain limitations imposed upon Debt Securities issued in book-entry form, the Debt Securities of any series will be exchangeable for any authorized denomination of other Debt Securities of the same series and of a like aggregate principal amount and tenor upon surrender of such Debt Securities at the corporate trust office of the applicable Trustee or at the office of any transfer agent designated by the Company for such purpose. 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 registration of transfer or exchange thereof at the corporate trust office of the applicable Trustee or at the office of any transfer agent designated by the Company for such purpose. Every Debt Security in registered form surrendered for registration of transfer or exchange must be duly endorsed or accompanied by a written instrument of transfer, and the person requesting such action must provide evidence of title and identity satisfactory to the applicable Trustee or transfer agent. No service charge will be made for any registration of transfer or exchange of any Debt Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. If the applicable Prospectus Supplement refers to any transfer agent (in addition to the applicable Trustee) initially designated by the Company with respect to any series of Debt Securities, the Company may at any time rescind the designation of any such transfer agent or approve a change in the location through which any such transfer agent acts, except that the Company will be required to maintain a transfer agent in each place of payment for such series. The Company may at any time designate additional transfer agents with respect to any series of Debt Securities. Neither the Company nor any Trustee shall be required to (a) issue, register the transfer of or exchange Debt Securities of any series during a period beginning at the opening of business 15 days before the selection of any Debt Securities for redemption and ending at the close of business on the day of mailing of the notice of redemption; (b) register the transfer of or exchange any Debt Security, or portion thereof, so selected for redemption, in whole or in part, except the unredeemed portion of any Debt Security being 7 redeemed in part; or (c) 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. Payment in respect of Debt Securities in bearer form will be made in the currency and in the manner designated in the applicable Prospectus Supplement, subject to any applicable laws and regulations, at such paying agencies outside the United States as the Company may appoint from time to time. The paying agents outside the United States, if any, initially appointed by the Company for a series of Debt Securities will be named in the Prospectus Supplement. Unless otherwise provided in the applicable Prospectus Supplement, the Company may at any time designate additional paying agents or rescind the designation of any paying agents, except that, if Debt Securities of a series are issuable in registered form, the Company will be required to maintain at least one paying agent in each place of payment for such series and if Debt Securities of a series are issuable in bearer form, the Company will be required to maintain at least one paying agent in a place of payment outside the United States where Debt Securities of such series and any coupons appertaining thereto may be presented and surrendered for payment. MERGER, CONSOLIDATION OR SALE OF ASSETS The Indentures will provide that the Company may, without the consent of the holders of any outstanding Debt Securities, consolidate with, or sell, lease or convey all or substantially all of its assets to, or merge with or into, any other entity provided that (a) either the Company shall be the continuing entity, or the successor entity (if other than the Company) formed by or resulting from any such consolidation or merger or which shall have received the transfer of such assets is organized under the laws of any domestic jurisdiction and assumes the Company's obligations to pay principal of (and premium or Make-Whole Amount, 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 such Indenture; (b) immediately after giving effect to such transaction and treating any indebtedness that becomes an obligation of the Company or any subsidiary as a result thereof as having been incurred by the Company or such subsidiary at the time of such transaction, no Event of Default under such Indenture, 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 and legal opinion covering such conditions shall be delivered to each Trustee. CERTAIN COVENANTS The applicable Prospectus Supplement will describe any material covenants in respect of a series of Debt Securities that are not described in this Prospectus. Unless otherwise indicated in the applicable Prospectus Supplement, Senior Debt Securities will include the following covenants of the Company: EXISTENCE. Except as permitted under "-Merger, Consolidation or Sale of Assets," the Indentures will require the Company to do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights (by articles of incorporation, by-laws and statute) and franchises; PROVIDED, HOWEVER, that the Company shall not be required to preserve any right or franchise if its Board of Directors determines that the preservation thereof is no longer desirable in the conduct of its business. MAINTENANCE OF PROPERTIES. The Indentures will require the Company to cause all of its material properties used or useful in the conduct of its business or the business of any subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; PROVIDED, HOWEVER, that the Company and its subsidiaries shall not be prevented from selling or otherwise disposing of their properties for value in the ordinary course of business. INSURANCE. The Indentures will require the Company to cause each of its and its subsidiaries' insurable properties to be 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. 8 PAYMENT OF TAXES AND OTHER CLAIMS. The Indentures will require the Company 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 Company or any subsidiary and (ii) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any subsidiary; PROVIDED, HOWEVER, that the Company 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. EVENTS OF DEFAULT, NOTICE AND WAIVER Unless otherwise provided in the applicable Prospectus Supplement, each Indenture will provide that the following events are "Events of Default" with respect to any series of Debt Securities issued thereunder: (a) default in the payment of any interest on any Debt Security of such series when such interest becomes due and payable that continues for a period of 30 days; (b) default in the payment of the principal of (or premium or Make-Whole Amount, if any, on) any Debt Security of such series when due and payable; (c) default in making any sinking fund payment as required for any Debt Security of such series; (d) default in the performance, or breach, of any other covenant or warranty of the Company in the applicable Indenture with respect to the Debt Securities of such series and continuance of such default or breach for a period of 60 days after written notice as provided in the Indenture; (e) default under any bond, debenture, note, mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company (or by any Subsidiary, the repayment of which the Company has guaranteed or for which the Company is directly responsible or liable as obligor or guarantor), having an aggregate principal amount outstanding of at least $25,000,000, whether such indebtedness now exists or shall hereafter be created, which default shall have resulted in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of 30 days after written notice to the Company as provided in the Indenture; (f) certain events of bankruptcy, insolvency or reorganization, or court appointment of a receiver, liquidator or trustee of the Company or any Significant Subsidiary; and (g) any other event of default provided with respect to a particular series of Debt Securities. The term "Significant Subsidiary" has the meaning ascribed to such term in Regulation S-X promulgated under the Securities Act. 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% in principal amount of the Debt Securities of that series will have the right to declare the principal amount (or, if the Debt Securities of that series are Original Issue Discount Securities or indexed securities, such portion of the principal amount as may be specified in the terms thereof) of, and premium or Make-Whole Amount, if any, on, all the Debt Securities of that series to be due and payable immediately by written notice thereof to the Company (and to the applicable Trustee if given by the holders). However, at any time after such a declaration of acceleration with respect to Debt Securities of such series 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 may rescind and annul such declaration and its consequences if (a) the Company shall have deposited with the applicable Trustee all required payments of the principal of (and premium or Make-Whole Amount, if any) and interest on the Debt Securities of such series, 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 and the premium or Make-Whole Amount, if any), with respect to Debt Securities of such series have been cured or waived as provided in such Indenture. The Indentures will also provide that the holders of not less than a majority in principal amount of the outstanding Debt Securities of any series may waive any past default with respect to such series and its consequences, except a default (i) in the payment of the principal of (or premium or Make-Whole Amount, if any) or interest on any Debt Security of such series or (ii) 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. 9 The Indentures will require each Trustee 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 or Make-Whole Amount, 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. The Indentures 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. This provision will not prevent, however, any holder of Debt Securities from instituting suit for the enforcement of payment of the principal of (and premium or Make-Whole Amount, if any) and interest on such Debt Securities at the respective due dates or redemption dates thereof. The Indentures will provide that, subject to provisions in each Indenture relating to its duties in case of default, a Trustee will be under no 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. 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 involve such Trustee in personal liability or which may be unduly prejudicial to the holders of Debt Securities of such series not joining therein. Within 120 days after the close of each fiscal year, the Company will be required to deliver to each Trustee a certificate, signed by one of several specified officers of the Company, 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. 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 affected by such modification or amendment; PROVIDED, HOWEVER, that no such modification or amendment may, without the consent of the holder of each such Debt Security affected thereby, (a) change the stated maturity of the principal of, or any installment of interest (or premium or Make-Whole Amount, if any) on, any such Debt Security; (b) reduce the principal amount of, or the rate or amount of interest on, or any premium or Make-Whole Amount 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 of, premium or Make-Whole Amount, if any, or interest on any such Debt Security; (d) impair the right to institute suit for the enforcement of any payment on or with respect to any such Debt Security; (e) reduce the above-stated percentage of outstanding Debt Securities of any series necessary to modify or amend the applicable Indenture, to waive compliance with certain provisions thereof or certain defaults and consequences thereunder or to reduce the quorum or voting requirements set forth in the applicable Indenture; (f) change the currency or currency unit in which any Debt Security or any premium or interest thereon is payable; (g) in the case of the Subordinated Indenture, modify the subordination provisions thereof in a manner adverse to the holders of Subordinated Debt Securities of any series then outstanding; or (h) modify any of the foregoing provisions or any of the provisions relating to the waiver of 10 certain past defaults or certain covenants, except to increase the required percentage to effect such action or to provide that certain other provisions may not be modified or waived without the consent of the holder of such Debt Security. The holders of a majority in aggregate principal amount of the outstanding Debt Securities of each series may, on behalf of all holders of Debt Securities of that series, waive, insofar as that series is concerned, compliance by the Company with certain restrictive covenants of the applicable Indenture. Modifications and amendments of an Indenture will be permitted to be made by the Company and the respective Trustee thereunder without the consent of any holder of Debt Securities for any of the following purposes: (a) to evidence the succession of another person to the Company as obligor under such Indenture; (b) to add to the covenants of the Company for the benefit of the holders of all or any series of Debt Securities or to surrender any right or power conferred upon the Company in such Indenture; (c) to add events of default for the benefit of the holders of all or any series of Debt Securities; (d) 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; (e) 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; (f) to secure the Debt Securities; (g) to establish the form or terms of Debt Securities of any series; (h) 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; (i) to cure any ambiguity, defect or inconsistency in an Indenture, PROVIDED that such action shall not adversely affect the interests of holders of Debt Securities of any series issued under such Indenture; or (j) 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 affect the interests of the holders of the outstanding Debt Securities of any series. The Indentures 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, (a) 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, (b) 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 an Original Issue Discount Security, the U.S. dollar equivalent on the issue date of such Debt Security of the amount determined as provided in (a) above), (c) the principal amount of an indexed security that shall be deemed outstanding shall be the principal face amount of such indexed security at original issuance, unless otherwise provided with respect to such indexed security pursuant such Indenture, and (d) Debt Securities owned by the Company or any other obligor upon the Debt Securities or any affiliate of the Company or of such other obligor shall be disregarded. The Indentures will contain provisions for convening meetings of the holders of Debt Securities of a series. A meeting will be permitted to be called at any time by the applicable Trustee, and also, upon request, by the Company or the holders of at least 25% in principal amount of the outstanding Debt Securities of such series, in any such case upon notice given as provided in such 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 principal amount of the outstanding Debt Securities of that series; PROVIDED, HOWEVER, that, except as referred to above, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action that may be made, given or taken by the holders of a specified percentage, which is less than a majority, in principal amount of the outstanding Debt Securities of a series may be adopted at a meeting or adjourned meeting or adjourned meeting duly reconvened at which a quorum is present by the affirmative vote of the 11 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, the Indentures 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 of the holders of such series and one or more additional series: (a) there shall be no minimum quorum requirement for such meeting, and (b) 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. CERTAIN DEFINITIONS "Indebtedness" means, with respect to any person, (a) any obligation of such person to pay the principal of, premium, if any, interest on (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to such person, whether or not a claim for such post-petition interest is allowed in such proceeding), penalties, reimbursement or indemnification amounts, fees, expenses or other amounts relating to any indebtedness of such person (i) for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof), (ii) evidenced by notes, debentures or similar instruments (including purchase money obligations) given in connection with the acquisition of any property or assets (other than trade accounts payable for inventory or similar property acquired in the ordinary course of business), including securities, for the payment of which such person is liable, directly or indirectly, or the payment of which is secured by a lien, charge or encumbrance on property or assets of such person, (iii) for goods, materials or services purchased in the ordinary course of business (other than trade accounts payable arising in the ordinary course of business), (iv) with respect to letters of credit or bankers acceptances issued for the account of such person or performance bonds, (v) for the payment of money relating to a Capitalized Lease Obligation (as defined in the Indenture), or (vi) under interest rate swaps, caps or similar agreements and foreign exchange contracts, currency swaps or similar agreements; (b) any liability of others of the kind described in the preceding clause (a) which such person has guaranteed or which is otherwise its legal liability; and (c) any and all deferrals, renewals, extensions and refunding of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (a) or (b). "Senior Indebtedness" means Indebtedness of the Company, whether outstanding on the date of issue of any Subordinated Debt Securities or thereafter created, incurred, assumed or guaranteed by the Company, other than the following: (a) any Indebtedness as to which, in the instrument evidencing such Indebtedness or pursuant to which such Indebtedness was issued, it is expressly provided that such Indebtedness is subordinate in right of payment to all indebtedness of the Company not expressly subordinated to such Indebtedness; (b) any Indebtedness which by its terms refers explicitly to the Subordinated Debt Securities and states that such Indebtedness shall not be senior, shall be PARI PASSU or shall be subordinated in right of payment to the Subordinated Debt Securities; and (c) with respect to any series of Subordinated Debt Securities, any Indebtedness of the Company evidenced by Subordinated Debt Securities of the same or of another series. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness shall not include: (x) Indebtedness of or amounts owed by the Company for compensation to employees, or for goods, materials and services purchased in the ordinary course of business, or (y) Indebtedness of the Company to a subsidiary of the Company. 12 SUBORDINATION Unless otherwise provided in the applicable Prospectus Supplement, Subordinated Debt Securities will be subject to the following subordination provisions. The payment of the principal of, interest on, or any other amounts due on, the Subordinated Debt Securities will be subordinated in right of payment to the prior payment in cash in full of all Senior Indebtedness of the Company. No payment on account of the principal of, redemption of, interest on or any other amounts due on the Subordinated Debt Securities and no redemption, purchase or other acquisition of the Subordinated Debt Securities may be made, unless (a) full payment in cash of amounts then due for principal, sinking funds, interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company, whether or not a claim for such post-petition interest is allowed in such proceeding), penalties, reimbursement or indemnification amounts, fees and expenses, and of all other amounts then due on all Senior Indebtedness shall have been made or duly provided for pursuant to the terms of the instrument governing such Senior Indebtedness, and (b) at the time of, or immediately after giving effect to, any such payment, redemption, purchase or other acquisition, there shall not exist under any Senior Indebtedness or any agreement pursuant to which any Senior Indebtedness has been issued, any default which shall not have been cured or waived and which shall have resulted in the full amount of such Senior Indebtedness being declared due and payable and not rescinded. In addition, the Subordinated Indenture provides that, if holders of any Senior Indebtedness notify the Company and the Subordinated Trustee that a default has occurred giving the holders of such Senior Indebtedness the right to accelerate the maturity thereof, no payment on account of principal, sinking fund or other redemption, interest or any other amounts due on the Subordinated Debt Securities and no purchase, redemption or other acquisition of the Subordinated Debt Securities will be made for the period (the "Payment Blockage Period") commencing on the date such notice is received and ending on the earlier of (i) the date on which such event of default shall have been cured or waived or (ii) 180 days from the date such notice is received. Notwithstanding the foregoing, only one payment blockage notice with respect to the same event of default or any other events of default existing and known to the person giving such notice at the time of such notice on the same issue of Senior Indebtedness may be given during any period of 360 consecutive days. No new Payment Blockage Period may be commenced by the holders of Senior Indebtedness during any period of 360 consecutive days unless all events of default which triggered the preceding Payment Blockage Period have been cured or waived. Upon any distribution of its assets in connection with any dissolution, winding-up, liquidation or reorganization of the Company, all Senior Indebtedness must be paid in full in cash before the holders of the Subordinated Debt Securities are entitled to any payments whatsoever. The Subordinated Indenture does not restrict the amount of Senior Indebtedness or other indebtedness of the Company or any Subsidiary. As a result of these subordination provisions, in the event of the Company's insolvency, holders of the Subordinated Debt Securities may recover ratably less than general creditors of the Company. If this Prospectus is being delivered in connection with a series of Subordinated Debt Securities, the accompanying Prospectus Supplement or the information incorporated herein by reference will set forth the approximate amount of Senior Indebtedness outstanding as of the end of the Company's most recent fiscal quarter. DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE Unless otherwise indicated in the applicable Prospectus Supplement, the Company will be permitted, at its option, to discharge certain obligations to holders of any series of Debt Securities issued under any Indenture 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 or Make-Whole Amount, 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. 13 The Indentures will provide that, unless otherwise indicated in the applicable Prospectus Supplement, the Company may elect either (a) to defease and be discharged from any and all obligations with respect to such Debt Securities (except for the 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") or (b) to be released from certain obligations with respect to such Debt Securities under the applicable Indenture (including the restrictions described under "-Certain Covenants") or, if provided in the applicable Prospectus Supplement, its obligations with respect to any other covenant, and any omission to comply with such obligations shall not constitute an Event of Default with respect to such Debt Securities ("covenant defeasance"), in either case upon the irrevocable deposit by the Company with the applicable Trustee, in trust, of an amount, in such currency or currencies, currency unit or units or composite currency or currencies in which such Debt Securities are payable at stated maturity, or Government Obligations (as defined below), or both, applicable to such Debt Securities, which through the scheduled payment of principal and interest in accordance with their terms will provide money in an amount sufficient to pay the principal of (and premium or Make-Whole Amount, if any) and interest on such Debt Securities, and any mandatory sinking fund or analogous payments thereon, on the scheduled due dates therefor. Such a trust will only be permitted to be established if, among other things, the Company has delivered to the applicable Trustee an opinion of counsel (as specified in the applicable Indenture) to the effect that the holders of such Debt Securities will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such defeasance or covenant defeasance and will be subject to U.S. 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 received from or published by the Internal Revenue Service or a change in applicable United States federal income tax law occurring after the date of the Indenture. In the event of such defeasance, the holders of such Debt Securities would thereafter be able to look only to such trust fund for payment of principal (and premium or Make-Whole Amount, if any) and interest. "Government Obligations" means securities that are (a) 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 (b) 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 payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America or such other 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 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. Unless otherwise provided in the applicable Prospectus Supplement, if after the Company has deposited funds and/or Government Obligations to effect defeasance or covenant defeasance with respect to Debt Securities of any series, (a) the holder of a Debt Security of such series is entitled to, and does, elect pursuant to 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 or Make-Whole Amount, 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 14 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 or Make-Whole Amount, 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 Company effects covenant defeasance with respect to any Debt Securities and such Debt Securities are declared due and payable because of the occurrence of any of Event of Default other than the Event of Default described in clause (d) under "-Events of Default, Notice and Waiver" with respect to specified sections of an Indenture (which sections would no longer be applicable to such Debt Securities) or described in clause (g) 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 of Event of Default. However, the Company would remain liable to make payment of such amounts due at the time of acceleration. The applicable Prospectus Supplement may further describe the provisions, if any, permitting such defeasance or covenant defeasance, including any modifications to the provisions described above, with respect to the Debt Securities of or within a particular series. CONVERSION RIGHTS The terms and conditions, if any, upon which the Debt Securities are convertible into Common Stock or Preferred Stock will be set forth in the applicable Prospectus Supplement relating thereto. Such terms will include whether such Debt Securities are convertible into shares of Common Stock or Preferred Stock, the conversion price (or manner of calculation thereof), the conversion period, provisions as to whether conversion will be at the option of the holders or the Company, the events requiring an adjustment of the conversion price and provisions affecting conversion in the event of the redemption of such Debt Securities and any restrictions on conversion, including restrictions directed at maintaining the Company's REIT status. BOOK-ENTRY SYSTEM The Debt Securities of a series may be issued in whole or in part in the form of one or more global securities ("Global Securities") that will be deposited with, or on behalf of, a depository (the "Depository") identified in the Prospectus Supplement relating to such series. Global Securities, if any, issued in the United States are expected to be deposited with The Depository Trust Company ("DTC"), as Depository. Global Securities may be issued in fully registered form and may be issued in either temporary or permanent form. Unless and until it is exchanged in whole or in part for the individual Debt Securities represented thereby, a Global Security may not be transferred except as a whole by the Depository for such Global Security to a nominee of such Depository or by a nominee of such Depository to such Depository or another nominee of such Depository or by such Depository or any nominee of such Depositor to a successor Depository or any nominee of such successor. The specific terms of the depository arrangement with respect to a series of Debt Securities will be described in the Prospectus Supplement relating to such series. The Company expects that unless otherwise indicated in the applicable Prospectus Supplement, the following provisions will apply to depository arrangements. 15 Upon the issuance of a Global Security, the Depository for such Global Security or its nominee will credit on its book-entry registration and transfer system the respective principal amounts of the individual Debt Securities represented by such Global Security to the accounts of persons that have accounts with such Depository ("Participants"). Such accounts shall be designated by the underwriters, dealers or agents with respect to such Debt Securities or by the Company if such Debt Securities are offered directly by the Company. Ownership of beneficial interests in such Global Security will be limited to Participants or persons that may hold interests through Participants. The Company expects that, pursuant to procedures established by DTC, ownership of beneficial interests in any Global Security with respect to which DTC is the Depository will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee (with respect to beneficial interests of Participants) and records of Participants (with respect to beneficial interests of persons who hold through Participants). Neither the Company nor the Trustee will have any responsibility or liability for any aspect of the records of DTC or for maintaining, supervising or reviewing any records of DTC or any of its Participants relating to beneficial ownership interests in the Debt Securities. The laws of some states require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and laws may impair the ability to own, pledge or transfer beneficial interest in a Global Security. So long as the Depository for a Global Security or its nominee is the registered owner of such Global Security, such Depository or such nominee, as the case may be, will be considered the sole owner or holder of the Debt Securities represented by such Global Security for all purposes under the applicable Indenture. Except as described below or in the applicable Prospectus Supplement, owners of beneficial interest in a Global Security will not be entitled to have any of the individual Debt Securities represented by such Global Security registered in their names, will not receive or be entitled to receive physical delivery of any such Debt Securities in definitive form and will not be considered the owners or holders thereof under the applicable Indenture. Beneficial owners of Debt Securities evidenced by a Global Security will not be considered the owners or holders thereof under the applicable Indenture for any purpose, including with respect to the giving of any direction, instructions or approvals to the Trustee thereunder. Accordingly, each person owning a beneficial interest in a Global Security with respect to which DTC is the Depository must rely on the procedures of DTC and, if such person is not a Participant, on the procedures of the Participant through which such person owns its interests, to exercise any rights of a holder under the applicable Indenture. The Company understands that, under existing industry practice, if it requests any action of holders or if an owner of a beneficial interest in a Global Security desires to give or take any action which a holder is entitled to give or take under the applicable Indenture, DTC would authorize the Participants holding the relevant beneficial interest to give or take such action, and such Participants would authorize beneficial owners through such Participants to give or take such actions or would otherwise act upon the instructions of beneficial owners holding through them. Payments of principal of, any premium or Make-Whole Amount and any interest on individual Debt Securities represented by a Global Security registered in the name of a Depository or its nominee will be made to or at the direction of the Depository or its nominee, as the case may be, as the registered owner of the Global Security under the applicable Indenture. Under the terms of the applicable Indenture, the Company and the Trustee may treat the persons in whose name Debt Securities, including a Global Security, are registered as the owners thereof for the purpose of receiving such payments. Consequently, neither the Company nor the Trustee has or will have any responsibility or liability for the payment of such amounts to beneficial owners of Debt Securities (including principal, premium or Make-Whole Amount, if any, and interest). The Company believes, however, that it is currently the policy of DTC to immediately credit the accounts of relevant Participants with such payments, in amounts proportionate to their respective holdings of beneficial interests in the relevant Global Security as shown on the records of DTC or its nominee. The Company also expects that payments by Participants to owners of beneficial interests in such Global Security held through such Participants will be governed by standing instructions and customary practices, as is the case with securities held for the account of customers in bearer form or registered in street name, and will be the responsibility of such Participants. Redemption notices with respect to any Debt Securities represented 16 by a Global Security will be sent to the Depository or its nominee. If less than all of the Debt Securities of any series are to be redeemed, the Company expects the Depository to determine the amount of the interest of each Participant in such Debt Securities to be redeemed to be determined by lot. None of the Company, the Trustee, any Paying Agent or the Security Registrar for such Debt Securities will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Security for such Debt Securities or for maintaining any records with respect thereto. Neither the Company nor the Trustee will be liable for any delay by the holders of a Global Security or the Depository in identifying the beneficial owners of Debt Securities and the Company and the Trustee may conclusively rely on, and will be protected in relying on, instructions from the holder of a Global Security or the Depository for all purposes. The rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. If a Depository for any Debt Securities is at any time unwilling, unable or ineligible to continue as depository and a successor depository is not appointed by the Company within 90 days, the Company will issue individual Debt Securities in exchange for the Global Security representing such Debt Securities. In addition, the Company may at any time and in its sole discretion, subject to any limitations described in the Prospectus Supplement relating to such Debt Securities, determine not to have any of such Debt Securities represented by one or more Global Securities and in such event will issue individual Debt Securities in exchange for the Global Security or Securities representing such Debt Securities. Individual Debt Securities so issued will be issued in denominations of $1,000 and integral multiples thereof. The Debt Securities of a series may also be issued in whole or in part in the form of one or more bearer global securities (a "Bearer Global Security") that will be deposited with a depository, or with a nominee for such depository, identified in the applicable Prospectus Supplement. Any such Bearer Global Securities may be issued in temporary or permanent form. The specific terms and procedures, including the specific terms of the depository arrangement, with respect to any portion of a series of Debt Securities to be represented by one or more Bearer Global Securities will be described in the applicable Prospectus Supplement. PAYMENT AND PAYING AGENTS Unless otherwise specified in the applicable Prospectus Supplement, the principal of (and applicable premium or Make-Whole Amount, 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 Company, payment of interest may be made by check mailed to the address of the person entitled thereto as it appears in the applicable register for such Debt Securities or by wire transfer of funds to such person at an account maintained within the United States. All moneys paid by the Company to a paying agent or a Trustee for the payment of the principal of or any premium, Make-Whole Amount or interest on any Debt Security which remain unclaimed at the end of two years after such principal, premium, Make-Whole Amount or interest has become due and payable will be repaid to the Company, and the holder of such Debt Security thereafter may look only to the Company for payment thereof. 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 depositary 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 depositary arrangement with respect to a series of Debt Securities will be described in the applicable Prospectus Supplement relating to such series. 17 DESCRIPTION OF PREFERRED STOCK The description of the Company's preferred stock, par value $.01 per share ("Preferred Stock"), set forth below does not purport to be complete and is qualified in its entirety by reference to the Company's Amended and Restated Articles of Incorporation (the "Articles of Incorporation") and Amended and Restated Bylaws (the "Bylaws"). GENERAL Under the Articles of Incorporation, the Company has authority to issue 10 million shares of Preferred Stock, none of which was outstanding as of January 18, 1996. Shares of Preferred Stock may be issued from time to time, in one or more series, as authorized by the Board of Directors of the Company. Prior to issuance of shares of each series, the Board of Directors is required by the Maryland General Corporation Law ("MGCL") and the Company's Articles of Incorporation to fix for each series, subject to the provisions of the Company's Articles of Incorporation regarding excess stock, $.01 par value per share ("Excess Stock"), the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption, as are permitted by Maryland law. The Preferred Stock will, when issued, be fully paid and nonassessable and will have no preemptive rights. The Board of Directors could authorize the issuance of shares of Preferred Stock with terms and conditions that could have the effect of discouraging a takeover or other transaction that holders of Common Stock might believe to be in their best interests or in which holders of some, or a majority, of the shares of Common Stock might receive a premium for their shares over the then market price of such shares of Common Stock. TERMS The following description of the Preferred Stock sets forth certain general terms and provisions of the Preferred Stock to which any Prospectus Supplement may relate. The statements below describing the Preferred Stock are in all respects subject to and qualified in their entirety by reference to the applicable provisions of the Company's Articles of Incorporation and Bylaws and any applicable amendment to the Articles of Incorporation designating terms of a series of Preferred Stock (a "Designating Amendment"). Reference is made to the Prospectus Supplement relating to the Preferred Stock offered thereby for specific terms, including: (1) The title and stated value of such Preferred Stock; (2) The number of shares of such Preferred Stock offered, the liquidation preference per share and the offering price of such Preferred Stock; (3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of calculation thereof applicable to such Preferred Stock; (4) The date from which dividends on such Preferred Stock shall accumulate, if applicable; (5) The procedures for any auction and remarketing, if any, for such Preferred Stock; (6) The provision for a sinking fund, if any, for such Preferred Stock; (7) The provision for redemption, if applicable, of such Preferred Stock; (8) Any listing of such Preferred Stock on any securities exchange; (9) The terms and conditions, if applicable, upon which such Preferred Stock will be convertible into Common Stock, including the conversion price (or manner of calculation thereof); (10) Any other specific terms, preferences, rights, limitations or restrictions of such Preferred Stock; (11) A discussion of federal income tax considerations applicable to such Preferred Stock; (12) The relative ranking and preference of such Preferred Stock as to dividend rights and rights upon liquidation, dissolution or winding up of the affairs of the Company; 18 (13) Any limitations on issuance of any series of Preferred Stock ranking senior to or on a parity with such series of Preferred Stock as to dividend rights and rights upon liquidation, dissolution or winding up of the affairs of the Company; and (14) Any limitations on direct or beneficial ownership and restrictions on transfer, in each case as may be appropriate to preserve the status of the Company as a REIT. 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 of the Company, and to all equity securities ranking junior to such Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Company; (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 with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Company; 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 with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Company. The term "equity securities" does not include convertible debt securities. DIVIDENDS Holders of the Preferred Stock of each series will 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. Each such dividend shall be payable to holders of record as they appear on the share transfer books of the Company on such record dates as shall be fixed by the Board of Directors of the Company. Dividends on any series of the 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 the Preferred Stock for which dividends are non-cumulative, then the holders of such series of the Preferred Stock will have no right to receive a dividend in respect of the dividend period ending on such dividend payment date, and the Company will have no obligation to pay the dividend accrued for such period, whether or not dividends on such series are declared payable on any future dividend payment date. If Preferred Stock of any series is outstanding, no dividends will be declared or paid or set apart for payment on any capital stock of the Company of any other series ranking, as to dividends, on a parity with or junior to the Preferred Stock of such series for any period unless (i) if such series of Preferred Stock has a cumulative dividend, full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Preferred Stock of such series for all past dividend periods and the then current dividend period or (ii) if such series of Preferred Stock does not have a cumulative dividend, full dividends for the then current dividend period have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Preferred Stock of such series. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon Preferred Stock of any series and the shares of any other series of Preferred Stock ranking on a parity as to dividends with the Preferred Stock of such series, all dividends declared upon Preferred Stock of such series and any other series of Preferred Stock ranking on a parity as to dividends with such Preferred Stock shall be declared pro rata so that the amount of dividends declared per share of Preferred Stock of such series and such other series of Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends per share on the Preferred Stock of such series (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) and such other series of Preferred Stock bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on Preferred Stock of such series which may be in arrears. 19 Except as provided in the immediately preceding paragraph, unless (i) if such series of Preferred Stock has a cumulative dividend, full cumulative dividends on the Preferred Stock of such series have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods and the then current dividend period, and (ii) if such series of Preferred Stock does not have a cumulative dividend, full dividends on the Preferred Stock of such series have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for the then current dividend period, no dividends (other than in shares of Common Stock or other shares of capital stock ranking junior to the Preferred Stock of such series as to dividends and upon liquidation) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the Common Stock, or any other capital stock of the Company ranking junior to or on a parity with the Preferred Stock of such series as to dividends or upon liquidation, nor shall any shares of Common Stock, or any other shares of capital stock of the Company ranking junior to or on a parity with the Preferred Stock of such series as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Company (except by conversion into or exchange for other capital stock of the Company ranking junior to the Preferred Stock of such series as to dividends and upon liquidation). 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 If so provided in the applicable Prospectus Supplement, the Preferred Stock will be subject to mandatory redemption or redemption at the option of the Company, as a whole or in part, in each case upon the terms, at the times and at the redemption prices set forth in such Prospectus Supplement. The Prospectus Supplement relating to a series of Preferred Stock 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 shares of capital stock of the Company, the terms of such Preferred Stock may provide that, if no such shares of 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 the applicable shares of capital stock of the Company pursuant to conversion provisions specified in the applicable Prospectus Supplement. Notwithstanding the foregoing, unless (i) if a series of Preferred Stock has a cumulative dividend, full cumulative dividends on all shares of such series of Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, and (ii) if a series of Preferred Stock does not have a cumulative dividend, full dividends on all shares of the Preferred Stock of such series have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for the then current dividend period, no shares of such series of Preferred Stock shall be redeemed unless all outstanding shares of Preferred Stock of such series are simultaneously redeemed; PROVIDED, HOWEVER, that the foregoing shall not prevent the purchase or acquisition of Preferred Stock of such series to preserve the REIT status of the Company or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Preferred Stock of such series. In addition, unless (i) if such series of Preferred Stock has a cumulative dividend, full cumulative dividends on all outstanding shares of such series of Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, and (ii) if such series of Preferred Stock does not have a cumulative dividend, full 20 dividends on the Preferred stock of such series have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for the then current dividend period, the Company shall not purchase or otherwise acquire directly or indirectly any shares of Preferred Stock of such series (except by conversion into or exchange for capital shares of the Company ranking junior to the Preferred Stock of such series as to dividends and upon liquidation); PROVIDED, HOWEVER, that the foregoing shall not prevent the purchase or acquisition of shares of Preferred Stock of such series to preserve the REIT status of the Company or pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Preferred Stock of such series. If fewer than all of the outstanding shares of Preferred Stock of any series are to be redeemed, the number of shares to be redeemed will be determined by the Company and such shares may be redeemed pro rata from the holders of record of such shares in proportion to the number of such shares held or for which redemption is requested by such holder (with adjustments to avoid redemption of fractional shares) or by any other equitable manner determined by the Company. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of record of Preferred Stock of any series to be redeemed at the address shown on the stock transfer books of the Company. Each notice shall state: (i) the redemption date; (ii) the number of shares and series of the Preferred Stock to be redeemed; (iii) the redemption price; (iv) the place or places where certificates for such Preferred Stock are to be surrendered for payment of the redemption price; (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date; and (vi) the date upon which the holder's conversion rights, if any, as to such shares shall terminate. If fewer than all the shares of Preferred Stock of any series are to be redeemed, the notice mailed to each such holder thereof shall also specify the number of shares of Preferred Stock to be redeemed from each such holder. If notice of redemption of any Preferred Stock has been given and if the funds necessary for such redemption have been set aside by the Company in trust for the benefit of the holders of any Preferred Stock so called for redemption, then from and after the redemption date dividends will cease to accrue on such Preferred Stock, and all rights of the holders of such shares will terminate, except the right to receive the redemption price. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, then, before any distribution or payment shall be made to the holders of any Common Stock or any other class or series of capital stock of the Company ranking junior to the Preferred Stock in the distribution of assets upon any liquidation, dissolution or winding up of the Company, 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, if any, 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 noncumulative dividends for prior dividend periods). 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 Preferred Stock, the remaining assets of the Company shall be distributed among the holders of any other classes or series of capital stock ranking junior to the Preferred Stock upon liquidation, dissolution or winding up, according to their respective rights and preferences and in each case according to their respective number of shares. For such purposes, the consolidation or merger of the Company with or into any other corporation, trust or entity, 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. 21 VOTING RIGHTS Holders of the Preferred Stock will not have any voting rights, except as set forth below or as otherwise from time to time required by law or as indicated in the applicable Prospectus Supplement. Unless provided otherwise for any series of Preferred Stock, so long as any shares of Preferred Stock of a series remain outstanding, the Company will not, without the affirmative vote or consent of the holders of at least two-thirds of the shares of such series of Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting (such series voting separately as a class), (i) authorize or create, or increase the authorized or issued amount of, any class or series of capital stock ranking prior to such series of Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or reclassify any authorized capital stock of the Company into such shares, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any such shares; or (ii) amend, alter or repeal the provisions of the Company's Articles of Incorporation or the Designating Amendment for such series of Preferred Stock, whether by merger, consolidation or otherwise (an "Event"), so as to materially and adversely affect any right, preference, privilege or voting power of such series of Preferred Stock or the holders thereof; PROVIDED, HOWEVER, with respect to the occurrence of any of the Events set forth in (ii) above, so long as the Preferred Stock remains outstanding with the terms thereof materially unchanged, taking into account that upon the occurrence of an Event the Company may not be the surviving entity, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting power of holders of Preferred Stock, and PROVIDED FURTHER that (x) any increase in the amount of the authorized Preferred Stock or the creation or issuance of any other series of Preferred Stock, or (y) any increase in the amount of authorized shares of such series or any other series of Preferred Stock, in each case ranking on a parity with or junior to the Preferred Stock of such series with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers. The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding shares of such series of Preferred Stock shall have been redeemed or called for redemption and sufficient funds shall have been deposited in trust to effect such redemption. CONVERSION RIGHTS The terms and conditions, if any, upon which any series of Preferred Stock is 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 shares of Preferred Stock are convertible, the conversion price (or manner of calculation thereof), the conversion period, provisions as to whether conversion will be at the option of the holders of the Preferred Stock or the Company, the events requiring an adjustment of the conversion price and provisions affecting conversion in the event of the redemption of such series of Preferred Stock. RESTRICTIONS ON OWNERSHIP For the Company to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), not more than 50% in value of its outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year. To assist the Company in meeting this requirement, the Company may take certain actions to limit the beneficial ownership, directly or indirectly, by a single person of the Company's outstanding equity securities, including any Preferred Stock of the Company. Therefore, the Designating Amendment for each series of Preferred Stock may contain provisions restricting the ownership and transfer of the Preferred Stock. The applicable Prospectus Supplement will specify any additional ownership limitation relating to a series of Preferred Stock. See "Restrictions on Transfers of Capital Stock." TRANSFER AGENT The transfer agent and registrar for the Preferred Stock will be set forth in the applicable Prospectus Supplement. 22 DESCRIPTION OF COMMON STOCK The description of the Company's Common Stock set forth below does not purport to be complete and is qualified in its entirety by reference to the Company's Articles of Incorporation and Bylaws. GENERAL Under the Articles of Incorporation, the Company has authority to issue 40 million shares of Common Stock, par value $.01 per share. Under Maryland law, stockholders generally are not responsible for the corporation's debts or obligations. At January 18, 1996, the Company had outstanding 13,841,667 shares of Common Stock. TERMS Subject to the preferential rights of any other shares or series of stock and to the provisions of the Company's Articles of Incorporation regarding Excess Stock, holders of shares of Common Stock will be entitled to receive dividends on shares of Common Stock if, as and when authorized and declared by the Board of Directors of the Company out of assets legally available therefor and to share ratably in the assets of the Company legally available for distribution to its stockholders in the event of its liquidation, dissolution or winding-up after payment of, or adequate provision for, all known debts and liabilities of the Company. Subject to the provisions of the Company's Articles of Incorporation regarding Excess Stock, each outstanding share of Common Stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of Directors and, except as otherwise required by law or except as provided with respect to any other class or series of stock, the holders of Common Stock will possess the exclusive voting power. There is no cumulative voting in the election of Directors, which means that the holders of a majority of the outstanding shares of Common Stock can elect all of the Directors then standing for election, and the holders of the remaining shares of Common Stock will not be able to elect any Directors. Holders of Common Stock have no conversion, sinking fund or redemption rights, or preemptive rights to subscribe for any securities of the Company. The Company intends to furnish its stockholders with annual reports containing audited consolidated financial statements and an opinion thereon expressed by an independent public accounting firm and quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. Subject to the provisions of the Company's Articles of Incorporation regarding Excess Stock, all shares of Common Stock will have equal dividend, distribution, liquidation and other rights, and will have no preference, appraisal or exchange rights. Pursuant to the MGCL, a corporation generally cannot dissolve, amend its Articles of Incorporation, merge, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business unless approved by the affirmative vote of stockholders holding at least two-thirds of the shares entitled to vote on the matter unless a lesser percentage (but not less than a majority of all of the votes to be cast on the matter) is set forth in the corporation's Articles of Incorporation. The Company's Articles of Incorporation do not provide for a lesser percentage in such situations. RESTRICTIONS ON OWNERSHIP For the Company to qualify as a REIT under the Code, not more than 50% in value of its outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year. To assist the Company in meeting this requirement, the Company may take certain actions to limit the beneficial ownership, directly or indirectly, by a single person of the Company's outstanding equity securities. See "Restrictions on Transfers of Capital Stock." TRANSFER AGENT The transfer agent and registrar for the Common Stock is KeyCorp Shareholder Services, Inc. of Cleveland, Ohio. 23 RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK For the Company to qualify as a REIT under the Code, among other things, not more than 50% in value of its outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals (defined in the Code to include certain entities) during the last half of a taxable year, and such capital stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year (in each case, other than the first such year). To ensure that the Company remains a qualified REIT, the Articles of Incorporation, subject to certain exceptions, provide that no holder may own, or be deemed to own by virtue of the attribution provisions of the Code, more than 9.3% (the "Ownership Limit") of the Company's capital stock. The Board of Directors may waive the Ownership Limit if evidence satisfactory to the Board of Directors and the Company's tax counsel is presented that the changes in ownership will not then or in the future jeopardize the Company's status as a REIT. Any transfer of capital stock or any security convertible into capital stock that would create a direct or indirect ownership of capital stock in excess of the Ownership Limit or that would result in the disqualification of the Company as a REIT, including any transfer that results in the capital stock being owned by fewer than 100 persons or results 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 capital stock. 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. Capital stock owned, or deemed to be owned, or transferred to a stockholder in excess of the Ownership Limit will automatically be exchanged for shares of Excess Stock that will be transferred, by operation of law, to the Company as trustee of a trust for the exclusive benefit of the transferees to whom such capital stock may be ultimately transferred without violating the Ownership Limit. While the Excess Stock is held in trust, it will not be entitled to vote, it will not be considered for purposes of any stockholder vote or the determination of a quorum for such vote and, except upon liquidation, it will not be entitled to participate in dividends or other distributions. Any dividend or distribution paid to a proposed transferee of Excess Stock prior to the discovery by the Company that capital stock has been transferred in violation of the provisions of the Company's Articles of Incorporation shall be repaid to the Company upon demand. The Excess Stock is not treasury stock, but rather constitutes a separate class of issued and outstanding stock of the Company. The original transferee-stockholder may, at any time the Excess Stock is held by the Company in trust, transfer the interest in the trust representing the Excess Stock to any individual whose ownership of the capital stock exchanged into such Excess Stock would be permitted under the Ownership Limit, at a price not in excess of the price paid by the original transferee-stockholder for the capital stock that was exchanged in Excess Stock. Immediately upon the transfer to the permitted transferee, the Excess Stock will automatically be exchanged for capital stock of the class from which it was converted. 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 Stock may be deemed, at the option of the Company, to have acted as an agent on behalf of the Company in acquiring the Excess Stock and to hold the Excess Stock on behalf of the Company. In addition to the foregoing transfer restrictions, the Company will have the right, for a period of 90 days during the time any Excess Stock is held by the Company in trust, to purchase all or any portion of the Excess Stock from the original transferee-stockholder for the lesser of the price paid for the capital stock by the original transferee-stockholder or the market price (as determined in the manner set forth in the Articles of Incorporation) of the capital stock on the date the Company exercises its option to purchase. The 90-day period begins on the date on which the Company receives written notice of the transfer or other event resulting in the exchange of capital stock for Excess Stock. Each stockholder shall upon demand be required to disclose to the Company in writing any information with respect to the direct, indirect and constructive ownership of beneficial interests as the Board of Directors deems necessary to comply with the provisions of the Code applicable to REITs, to comply with the requirements of any taxing authority or governmental agency or to determine any such compliance. 24 This ownership limitation may have the effect of precluding acquisition of control of the Company unless the Board of Directors determines that maintenance of REIT status is no longer in the best interests of the Company. FEDERAL INCOME TAX CONSIDERATIONS The Company believes it has operated, and the Company intends to continue to operate, in such manner as to qualify as a REIT under the Code, but no assurance can be given that it will at all times so qualify. The provisions of the Code pertaining to REITs are highly technical and complex. The following is a brief and general summary of certain provisions that currently govern the federal income tax treatment of the Company and its stockholders. For the particular provisions that govern the federal income tax treatment of the Company and its stockholders, reference is made to Sections 856 through 860 of the Code and the regulations thereunder. The following summary is qualified in its entirety by such reference. Under the Code, if certain requirements are met in a taxable year, a REIT generally will not be subject to federal income tax with respect to income that it distributes to its stockholders. If the Company fails to qualify during any taxable year as a REIT, unless certain relief provisions are available, it will be subject to tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates, which could have a material adverse effect upon its stockholders. In any year in which the Company qualifies to be taxed as a REIT, distributions made to its stockholders out of current or accumulated earnings and profits will be taxed to stockholders as ordinary income except that distributions of net capital gains designated by the Company as capital gain dividends will be taxed as long-term capital gain income to the stockholders. To the extent that distributions exceed current or accumulated earnings and profits, they will constitute a return of capital, rather than dividend or capital gain income, and will reduce the basis for the stockholder's Securities with respect to which the distribution is paid or, to the extent that they exceed such basis, will be taxed in the same manner as gain from the sale of those Securities. Investors are urged to consult their own tax advisors with respect to the appropriateness of an investment in the Securities offered hereby and with respect to the tax consequences arising under federal law and the laws of any state, municipality or other taxing jurisdiction, including tax consequences resulting from such investor's own tax characteristics. In particular, foreign investors should consult their own tax advisors concerning the tax consequences of an investment in the Company, including the possibility of United States income tax withholding on Company distributions. PLAN OF DISTRIBUTION The Company may sell Securities to or through one or more underwriters or dealers for public offering and sale by or through them, and may also sell Securities directly to one or more institutional or other purchasers, through agents or through any combination of these methods of sale. Any such underwriter, dealer or agent involved in the offer and sale of Securities will be named in the applicable Prospectus Supplement. Underwriters may offer and sell the Securities at a fixed price or prices, which may be changed, or from time to time at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. The Company also may, from time to time, authorize underwriters acting as the Company's agents to offer and sell the Securities upon the terms and conditions as shall be set forth in any Prospectus Supplement. In connection with the sale of Securities, underwriters may be deemed to have received compensation from the Company in the form of underwriting discounts or commissions and may also receive commissions from purchasers of Securities for whom they may act as agent. Underwriters may sell Securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions (which may be changed from time to time) from the purchasers for whom they may act as agent. 25 Any underwriting compensation paid by the Company to underwriters or agents in connection with the offering of Securities, and any discounts, concessions or commission allowed by underwriters to participating dealers, will be set forth in an 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 with the Company, to indemnification against and contribution toward certain civil liabilities, including liabilities under the Securities Act, and to reimbursement by the Company for certain expenses. Each series of Debt Securities or Preferred Stock will be a new issue with no established trading market. The Company may elect to list any series of Debt Securities or Preferred Stock on an exchange, but is not obligated to do so. It is possible that one or more underwriters may make a market in a series of Securities, but will not be obligated to do so and may discontinue any market making at any time without notice. Therefore, no assurance can be given as to the liquidity of, or the trading market for, the Securities. Underwriters, dealers and agents and their associates may engage in transactions with, or perform services for, the Company in the ordinary course of business. If so indicated in the applicable Prospectus Supplement, the Company will authorize dealers or other persons acting as the Company's agents to solicit offers by certain institutions to purchase Debt Securities from the Company at the public offering price set forth in such Prospectus Supplement pursuant to delayed delivery contracts ("Contracts") providing for payment and delivery on the date or dates stated in such Prospectus Supplement. Each Contract will be for an amount no less than, and the aggregate principal amounts of Debt 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. Contracts will not be subject to any conditions except (i) the purchase by an institution of the Debt 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 Debt Securities are being sold to underwriters, the Company shall have sold to such underwriters the total principal amount of the Debt Securities less the principal amount thereof covered by the Contracts. If in conjunction with the sale of Debt Securities to institutions under Contracts, Debt Securities are also being sold to the public, the consummation of the sale under the Contracts shall occur simultaneously with the consummation of the sale to the public. The underwriters and such other agents will not have any responsibility in respect of the validity or performance of such Contracts. In order to comply with the securities laws of certain states and other jurisdictions, if applicable, the Securities offered hereby will be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states Securities may not be sold unless they have been registered or qualified for sale in the applicable state or other jurisdiction or an exemption from the registration or qualification requirement is available and is complied with. Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the Securities offered hereby may not simultaneously engage in market making activities with respect to the Securities for a period of two business days prior to the commencement of such distribution. LEGAL MATTERS Certain legal matters, including the legality of the Securities, will be passed upon for the Company by Goodwin, Procter & Hoar, Boston, Massachusetts. EXPERTS The financial statements and schedules thereto incorporated by reference in this Prospectus or elsewhere in the Registration Statement, to the extent and for the periods indicated in their reports, have been audited by Coopers & Lybrand L.L.P., independent accountants, and are incorporated herein in reliance upon the authority of said firm as experts in giving said reports. 26 -----END PRIVACY-ENHANCED MESSAGE-----