<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CORNERSTONE PROPERTIES INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
NEVADA 74-2170858
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
</TABLE>
------------------------
TOWER 56, 126 EAST 56TH STREET
NEW YORK, NEW YORK 10022
(212) 605-7100
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------------
JOHN S. MOODY
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
CORNERSTONE PROPERTIES INC.
TOWER 56, 126 EAST 56TH STREET
NEW YORK, NEW YORK 10022
(212) 605-7100
(Name, address, including zip code, and telephone number,
including area code, of agent for service for the Registrant)
------------------------------
COPIES TO:
F.H. MOORE, JR., ESQ.
SHEARMAN & STERLING
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective as determined by
market conditions.
------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF OFFERING PROPOSED MAXIMUM
SECURITIES AMOUNT TO PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED BE REGISTERED PER SHARE (1) PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, without par value....... 3,428,571 $17.875 $61,285,706.63 $18,079.28
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) of the Securities Act.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 16, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS 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.
<PAGE>
PROSPECTUS
3,428,571 SHARES
CORNERSTONE PROPERTIES INC.
COMMON STOCK
------------------
All of the 3,428,571 shares (the "Shares") of common stock, without par
value ("Common Stock"), of Cornerstone Properties Inc. (the "Company") offered
hereby are being offered by Prudential Insurance Company of America ( the
"Selling Stockholder"). The Selling Stockholder acquired the Shares, which were
originally issued by the Company, in connection with the Company's acquisition
of a Class A office property located at One Memorial Drive, Cambridge,
Massachusetts on April 28, 1998. See "Selling Stockholder."
The Selling Stockholder may from time to time sell all or a portion of its
Shares on the New York Stock Exchange (the "NYSE"), on any other national
securities exchange on which the Common Stock is listed or traded, in the
over-the-counter market, in negotiated transactions or otherwise, at fixed
prices, at prevailing market prices at the time of the sale, at varying prices
determined at the time of the sale or at negotiated prices. The Shares may be
sold directly or through underwriters, brokers, dealers or agents who may
receive compensation in the form of underwriting discounts, commissions or
concessions. To the extent required, the specific Shares to be sold, the
respective purchase prices and public offering prices, the names of any
underwriter, broker, dealer or agent, and any applicable discounts, commissions
or concessions with respect to a particular offer will be set forth in an
accompanying prospectus supplement. The Selling Stockholder reserves the sole
right to accept and, together with the Selling Stockholder's underwriters,
brokers, dealers or agents from time to time, to reject, in whole or in part,
any proposed purchase of Shares to be made directly or through underwriters,
brokers, dealers or agents. See "Plan of Distribution."
The Selling Stockholder and any underwriters, brokers, dealers or agents
that participate with the Selling Stockholder in the distribution of Shares may
be deemed to be "underwriters" within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"), in which event any discounts, commissions and
concessions received by such underwriters, brokers, dealers or agents and any
profit on the resale of the Shares purchased by them may be deemed to be
underwriting discounts and commissions under the Securities Act.
The Company will receive no proceeds of any sales made hereunder. The
aggregate net proceeds to the Selling Stockholder from the sale of the Shares
offered by the Selling Stockholder hereby will be the purchase price of such
Shares, less any commissions, if any, and other expenses of issuance and
distribution not borne by the Company. See "Plan of Distribution."
To ensure that the Company maintains its qualification as a REIT, ownership
by any single person, in general, is limited to 6.0% (and 3.0% with respect to
Non-U.S. persons, as defined herein) of the value of the outstanding capital
stock of the Company.
The Shares have not been registered for sale by the Selling Stockholder
under the securities laws of any state as of the date of this Prospectus.
Brokers or dealers effecting transactions in the Shares should confirm the
registration thereof under the securities laws of the states in which such
transactions occur, or the existence of any exemption from registration.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE SHARES.
---------------------
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 date of this Prospectus is , 1998.
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR ANY
ACCOMPANYING PROSPECTUS SUPPLEMENT IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDER OR BY ANY UNDERWRITER, DEALER OR AGENT.
THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH
THEY RELATE. NEITHER THE DELIVERY OF THIS PROSPECTUS AND ANY ACCOMPANYING
PROSPECTUS SUPPLEMENT NOR ANY SALE OF OR OFFER TO SELL THE SHARES SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
AFTER THE DATE HEREOF. THIS PROSPECTUS AND ANY ACCOMPANYING PROSPECTUS
SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SHARES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH STATE.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (of which this Prospectus is a part) on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act, with respect to the Shares. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission, and in the exhibits thereto. Statements
contained in this Prospectus as to the content of any contract or other document
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
and the exhibits and schedules thereto. For further information regarding the
Company and the Shares, reference is hereby made to the Registration Statement
and such exhibits and schedules, which may be examined without charge at, or
copies of which may be obtained upon payment of prescribed fees from, the
Commission and its regional offices listed below.
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, proxy and information statements, and other information
with the Commission. The Registration Statement, as well as such reports, proxy
and information statements and other information filed with the Commission, may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material also may
be obtained from the Public Reference Section of the Commission, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Company files its reports, proxy statements and other information with the
Commission electronically. The Commission maintains a world wide web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission at
http://www.sec.gov. Such materials may also be inspected at the offices of the
New York Stock Exchange, at 20 Broad Street, New York, New York 10005.
2
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been filed by the Company with the Commission
and are incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1997.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
3. The Company's Current Reports on Form 8-K, dated January 14, 1998,
February 5, 1998, March 27, 1998, March 27, 1998 and April 2, 1998.
4. The Company's Proxy Statement, dated April 17, 1998.
All documents and reports filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of filing hereof and prior
to the termination of the offering of the Shares shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
dates of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document that also
is or is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will furnish without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any and all of the documents incorporated
herein by reference, other than exhibits to such documents unless such exhibits
are specifically incorporated by reference into the Registration Statement to
which this Prospectus relates or into such other documents. Requests for
documents should be directed to Cornerstone Properties Inc., Tower 56, 126 East
56th Street, New York, New York 10022, Attention: Secretary (telephone number:
(212) 605-7100).
FORWARD-LOOKING INFORMATION
The Company has made forward-looking statements in this document (and in
documents that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include information concerning
possible or assumed future results of operations of the Company. Also, when
words such as "believes," "expects," "anticipates" or similar expressions are
used, forward-looking statements are being made. Prospective investors should
note that many factors, some of which are discussed elsewhere in this document
and in the documents which are incorporated by reference, could affect the
future financial results of the Company and could cause those results to differ
materially from those expressed in any forward-looking statements contained or
incorporated by reference in this document. These factors include (i) operating,
legal and regulatory risks; (ii) economic, political and competitive forces
affecting the Company's real estate interests; and (iii) the risk that the
Company's analysis of these risks and forces could be incorrect and/or that the
strategies developed to address them could be unsuccessful.
3
<PAGE>
RISK FACTORS
Prior to making an investment decision with respect to the Shares offered
hereby, prospective investors should consider the following matters set forth
below, together with the other information included and incorporated by
reference in this Prospectus.
SUBSTANTIAL CONCENTRATION OF OWNERSHIP OF COMMON STOCK
As of June 30, 1998, Stichting Pensioenfonds Voor de Gezondheid Geestelijke
en Maatschappelijke Belangen ("PGGM") and its wholly owned subsidiary, Dutch
Institutional Holding Company, Inc. ("DIHC"), together owned approximately 33.7%
of the outstanding Common Stock of the Company, and the New York State Teachers
Retirement System ("NYSTRS") and Rodamco N.V. (together with its subsidiaries
"Rodamco") owned 6.8% and 4.5%, respectively, of the outstanding Common Stock of
the Company. As of June 30, 1998, Deutsche Bank AG and its affiliates owned all
of the outstanding shares of the Company's 7% Preferred Stock (as defined
herein) which, if converted, would constitute 2.9% of the outstanding Common
Stock, and the Company has been advised by Deutsche Bank AG and its affiliates
that it has investment discretion over an additional approximately 3.3 million
shares of Common Stock owned by investors in Germany as of January 16, 1998.
Pursuant to their rights under the Registration Rights and Voting Agreement
(defined herein), PGGM and DIHC together have nominated two directors elected to
the Company's eleven member Board of Directors (the "Board"). The Registration
Rights and Voting Agreement also provides that, until the earlier of October 27,
2002 or the date when PGGM and DIHC and their affiliates own less than 25% of
the Common Stock, (i) the Company will take all action necessary to ensure that
one of the directors nominated by PGGM and DIHC is appointed to the board
affairs committee of the Board and (ii) the Company will not increase the number
of directors constituting the Board without the prior written consent of PGGM.
These stockholders are the largest stockholders of the Company and, because of
certain limitations that the Company has adopted to preserve its status as a
REIT, no other stockholder is permitted to own, directly or indirectly, more
than 6.0% of the capital stock of the Company (or more than 3.0% of the capital
stock of the Company with respect to Non-U.S. persons (as defined herein)),
subject to certain exceptions set forth in the Company's Restated Articles of
Incorporation, as amended (the "Articles of Incorporation"), or to approval by
the Board. This concentration of ownership could potentially be disadvantageous
to other stockholders' interests.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the efforts of its senior officers, and,
in particular, John S. Moody, the Chairman of the Board and Chief Executive
Officer, and Rodney C. Dimock, the President and Chief Operating Officer. While
the Company believes that it could find replacements for these key personnel,
the loss of their services could have a material adverse effect on the Company.
RISKS ASSOCIATED WITH EXPANSION
Part of the Company's strategy for growth is to actively seek to acquire
additional Class A office properties, which acquisitions may include the
acquisition of other companies and business entities owning such properties. The
Company's future growth will depend upon (i) the availability of suitable
properties, (ii) the Company's ability to compete effectively for available
properties and (iii) the availability of capital to complete the acquisitions.
In pursuing a strategy of acquiring other properties, the Company will face
risks commonly encountered with growth through acquisitions. Although the
Company will engage in due diligence with respect to each new acquisition, there
can be no assurance that the Company will be aware of all potential liabilities
and problems associated with such properties, and the Company may have limited
contractual recourse, or no contractual recourse, against the sellers of such
properties. In addition, risks associated with acquisitions include failure of
the investments to perform in accordance with expectations, failure to
assimilate the acquired properties, disruption of the Company's ongoing
business, dissipation of the Company's limited management resources, failure to
maintain uniform standards, controls and policies
4
<PAGE>
and impairment of relationships with tenants as a result of changes in
management. Acquiring additional properties, as the Company intends, could also
have a significant impact on the Company's financial position, and could cause
substantial fluctuations in the Company's quarterly and yearly operating
results. See "--Risks Associated with the DIHC Acquisition."
RISKS ASSOCIATED WITH THE WILSON ACQUISITION
On June 22, 1998, the Company entered into a merger agreement with William
Wilson & Associates of San Mateo, California, pursuant to which, if consummated,
the Company will nearly double the size of its operations by acquiring
approximately 9.1 million square feet of Class A office buildings, which are
located in the San Francisco Bay Area, Southern California, Phoenix, Salt Lake
City and Seattle (the "Wilson Acquisition"). Subject to stockholder approval and
other conditions to closing, the Wilson Acquisition is scheduled to close in the
fourth quarter of 1998. The Wilson Acquisition will require the integration of
two portfolios of properties that have previously operated independently. No
assurance can be given that the Company will be able to integrate these
properties into its operations without encountering difficulties or that the
benefits of integration will be realized. See "The Company--Recent
Developments."
NEED FOR FINANCING AND POSSIBLE DILUTION THROUGH ISSUANCE OF STOCK
The Company will require substantial additional capital in order to continue
to acquire properties in the future. The Company intends to finance acquisitions
with cash on hand, through the issuance from time to time of additional capital
stock or UPREIT Units (described below), borrowings under its $350 million
unsecured Revolving Credit Facility with Bankers Trust Company and The Chase
Manhattan Bank (the "Revolving Credit Facility") and through mortgage financing.
Using cash to complete acquisitions could substantially limit the Company's
financial flexibility. Using stock or UPREIT Units to consummate acquisitions
may result in significant dilution of stockholders' equity in the Company. Using
the Revolving Credit Facility to complete acquisitions will increase the
Company's exposure to the risks associated with debt financing. See "--Risks of
Debt Financing." In addition, 15 of the Company's 21 properties are pledged to
secure the Company's mortgage indebtedness amounting to approximately $849
million as of June 30, 1998, which indebtedness may impede the Company's ability
to borrow from other sources. If the Company is unable to obtain additional
capital on acceptable terms, the Company may be required to reduce the scope of
its presently anticipated expansion, which could materially adversely affect the
Company's business and the value of the Common Stock.
RISKS OF DEBT FINANCING
DEPENDENCE ON REVOLVING CREDIT FACILITY AND MORTGAGE FINANCING
The Company is subject to the risks normally associated with debt financing,
including the risk that the Company's cash flow from operations will be
insufficient to meet required payments of principal and interest, the risk that
the Company will not be able to refinance existing indebtedness or that the
terms of any such refinancing will not be as favorable as the terms of such
indebtedness, and the risk that the Company may be unable to finance future
acquisitions or capital expenditures on favorable terms, or at all. In addition,
the Revolving Credit Facility provides that an acceleration of any debt
instrument also could, pursuant to a cross-default clause, cause or permit the
acceleration of the Revolving Credit Facility. Any such acceleration could have
a material adverse effect on the Company and its ability to make distributions
to stockholders and to maintain its qualification as a REIT under the Internal
Revenue Code of 1986, as amended (the "Code"), potentially threatening the
continued viability of the Company.
5
<PAGE>
REFINANCING RISKS
The Company has significant amounts of debt maturing under outstanding
mortgage loans beginning in the year 2000 in the following increments: $65.0
million or 7.7% in 2000; $109.2 million or 12.9% in 2001; $111.3 million or
13.1% in 2002; $67.7 million or 8.0% in 2003; $65.0 million or 7.7% in 2004;
$311.0 million or 36.5% in 2005; and $120.0 million or 14.1% in 2007. In the
event the Company is unable to secure refinancing of such mortgage indebtedness
on acceptable terms, the Company might be forced to dispose of properties upon
disadvantageous terms, which might result in losses to the Company and might
adversely affect the cash flow available for distribution to equity holders or
for debt service. In addition, if the Company is unable to meet mortgage
payments with respect to one or more of its mortgaged properties, the mortgages
securing such properties could be foreclosed upon by, or such properties could
be otherwise transferred to, the mortgagees with a consequent loss of income and
asset value to the Company.
POLICIES ON INDEBTEDNESS SUBJECT TO CHANGE
While the Company currently intends to maintain a reasonable level of debt
service coverage taking into account the Company's high quality of assets and
tenancy, the Company could become more highly leveraged. This could result in an
increase in debt service which could adversely affect the Company and its
ability to make distributions to stockholders and result in increased risk of
default on its obligations. Moreover, although the Company will consider factors
other than its market capitalization in making decisions regarding the
incurrence of debt (such as the purchase price of properties to be acquired with
debt financing, the estimated market value of properties upon refinancing, and
the ability of particular properties and the Company as a whole to generate cash
flow to cover expected debt service), there can be no assurance that the
Company's future cash flow will be sufficient to allow the Company, after
meeting debt service obligations, to make stockholder distributions at the level
currently expected.
RISK OF RISING INTEREST RATES
Advances under the Revolving Credit Facility bear interest at a variable
rate. In addition, the Company may incur indebtedness in the future that also
bears interest at a variable rate or may be required to refinance its debt at
higher rates. Increases in interest rates could increase the Company's interest
expense, which could adversely affect the Company's ability to pay expected
distributions to stockholders.
CONCENTRATION OF ASSETS IN BOSTON MARKET
As of June 30, 1998, five of the Company's 21 properties are located in the
Boston market and account for approximately 30% of the Company's Full Service
Straight-Line Rent (the average of all actual rent required to be paid through
the term of the leases relating to the properties calculated in accordance with
general accepted accounting principles, plus recoveries). This concentration of
assets makes the Company particularly vulnerable to adverse changes in economic
conditions in the Boston metropolitan area. A significant decline in these
economic conditions could have a material adverse effect on the Company.
TAX RISKS; RISKS ASSOCIATED WITH REIT STATUS
ADVERSE CONSEQUENCES OF THE FAILURE TO MAINTAIN QUALIFICATION AS A REIT
The Company believes that it has operated so as to qualify as a REIT under
the Code, commencing with its taxable year ended December 31, 1983. However, no
assurance can be given that the Company will be able to continue to operate in a
manner enabling it to remain so qualified. Qualification as a REIT involves the
application of highly technical and complex Code provisions which have only a
limited number
6
<PAGE>
of judicial and administrative interpretations, and the determination of various
factual matters and circumstances not entirely within the Company's control may
have an impact on its ability to maintain its qualification as a REIT. For
example, in order to qualify as a REIT, at least 95% of the Company's gross
income in any year must be derived from qualifying sources and the Company must
make distributions to stockholders aggregating annually at least 95% of its REIT
taxable income (excluding net capital gains). In addition, no assurance can be
given that new legislation, regulations issued by the United States Treasury
Department (the "Treasury Regulations") under the Code, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to its qualification as a REIT or the federal income tax
consequences of such qualification. The Company, however, is not aware of any
proposal to amend the tax laws that would significantly and adversely affect the
Company's ability to continue to operate as a REIT.
As a condition to maintaining status as a REIT, the Code and the Treasury
Regulations promulgated thereunder contain a requirement (the "Five or Fewer
Requirement") that, during the last half of each taxable year, not more than 50%
in value of the REIT's outstanding stock be owned, directly or indirectly, by
five or fewer individuals (defined in the Code to include certain specified
entities). For this purpose, stock that is held by most entities such as a
corporation, partnership, limited liability company or pension plan, is treated
as held proportionately by their beneficiaries rather than by such entities. In
addition, as described below, the Articles of Incorporation contain restrictions
on share ownership that are designed to prevent violation of the Five or Fewer
Requirement. See "--Transfer and Ownership Limitations." Therefore, the Company
believes that it is unlikely that five or fewer "individuals" would be
considered to own more than 50% of the outstanding shares.
If the Company fails to maintain its qualification as a REIT, or is found
not to have qualified as a REIT for any prior year, the Company would not be
entitled to deduct dividends paid to its stockholders and would be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. In addition, unless entitled to
relief under certain statutory provisions, the Company would also be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification was lost. This treatment would reduce amounts
available for investment or distribution to stockholders because of the
additional tax liability to the Company for the year or years involved. In
addition, the Company would no longer be required by the Code to make any
distributions. As a result, disqualification of the Company as a REIT could have
a material adverse effect on the Company and its ability to make distributions
to stockholders. To the extent that distributions to stockholders have been made
in anticipation of the Company's qualifying as a REIT, the Company might be
required to borrow funds or to liquidate certain of its investments to pay the
applicable tax. See "Federal Income Tax Considerations."
EFFECT OF DISTRIBUTION REQUIREMENTS
To maintain its status as a REIT, the Company is required each year to
distribute to its stockholders at least 95% of its taxable income (excluding net
capital gains). In addition, the Company is subject to a 4% nondeductible excise
tax on the amount, if any, by which certain distributions paid by it with
respect to any calendar year are less than the sum of 85% of its ordinary income
and 95% of its capital gain net income for the calendar year plus any amount of
such income not distributed in prior years. See "Federal Income Tax
Considerations." Although the Company anticipates that cash flow from operations
will be sufficient to enable it to pay its operating expenses and meet the
distribution requirements discussed above, there can be no assurance that this
will be the case, and it may be necessary for the Company to incur borrowings or
otherwise obtain funds to satisfy the distribution requirements associated with
maintaining its qualification as a REIT. In addition, differences in timing
between the receipt of income and the payment of expenses in arriving at taxable
income of the Company could require the Company to incur borrowings or otherwise
obtain funds to meet the distribution requirements that are necessary to
maintain its qualification as a
7
<PAGE>
REIT. There can be no assurance that the Company will be able to borrow funds or
otherwise obtain funds if and when necessary to satisfy such requirements.
TRANSFER AND OWNERSHIP LIMITATIONS
For the purpose of preserving the Company's REIT qualification, the Articles
of Incorporation provide that no holder is permitted to own, either actually or
constructively under the applicable attribution rules of the Code, more than 6%
of the value of the aggregate outstanding shares of all classes of stock of the
Company (the "6% Limit"). In addition, the Articles of Incorporation have
similar restrictions on transfer designed to encourage Common Stock to remain in
the hands of "U.S. Persons" (as defined herein) in order for the Company to be
considered a domestically controlled REIT for purposes of U.S. tax law (the
"Non-U.S. Ownership Limit"). The Board may waive the 6% Limit and/or the
Non-U.S. Ownership Limit with respect to a particular stockholder if it
determines in good faith that the proposed ownership by such stockholder would
not jeopardize the Company's status as a REIT and otherwise decides such action
would be in the best interests of the Company. The Board has previously waived
the 6% Limit and the Non-U.S. Ownership Limit in connection with the DIHC
Acquisition and certain private placements of equity. These limits on transfer
may preserve the concentration of ownership for longer periods of time than
might be true without such limits, and therefore be potentially disadvantageous
to other stockholders' interests.
RISKS INVOLVED IN PROPERTY OWNERSHIP THROUGH PARTNERSHIPS AND JOINT VENTURES
All of the Company's interest in its properties are held through the
Operating Partnership (as defined herein) of which the Company is the sole
general partner. See "The Company." In addition, interests in six of the
Company's properties are held by the Company through partnerships in which other
entities own an interest. Partnership investments may, under certain
circumstances, involve risks not otherwise present in property ownership,
including the possibility that the Company's partners might become bankrupt,
that such partners or co-venturers might at any time have economic or other
business interests or goals which are inconsistent with the business interests
or goals of the Company, and that such partners may be in a position to take
action contrary to the Company's instructions or requests or contrary to the
Company's policies or objectives, including the Company's policy with respect to
maintaining its qualification as a REIT. The Company will, however, seek to
maintain sufficient control of such partnerships to permit the Company's
business objectives to be achieved. In addition, certain provisions of the
partnership agreements, including rights of first refusal and other restrictions
on the transferability of the Company's partnership interests, may limit the
liquidity of the Company's partnership investments and thereby reduce the rate
of return that may be realized by the Company with respect to such investments.
There is no limitation under the Company's organizational documents as to the
amount of available funds that may be invested in partnerships or joint
ventures.
REAL ESTATE INVESTMENT RISKS
GENERAL
Real property investments are subject to numerous risks. The yields
available from an equity investment in real estate depend on the amount of
income generated and costs incurred by the related properties. If properties in
which the Company invests do not generate sufficient income to meet costs,
including debt service and capital expenditures, the Company's results of
operations and ability to make distributions to its stockholders will be
adversely affected. Revenues and values of the Company's properties may be
adversely affected by a number of factors, including the national economic
climate, the local economic climate, local real estate conditions (such as an
oversupply of space or a reduction in demand for real estate in an area), the
attractiveness of the properties to tenants, competition from other available
space, the ability of the Company to provide adequate maintenance and insurance
and to cover
8
<PAGE>
other operating costs, government regulations and changes in real estate, zoning
or tax laws, interest rate levels, the availability of financing and potential
liabilities under environmental and other laws. In addition, certain significant
expenditures associated with each property (such as debt service, real estate
taxes and maintenance costs) are generally not reduced when circumstances cause
a reduction in rental income from the investment. Should such events occur, the
Company's results of operations and ability to make distributions to
stockholders could be adversely affected.
MARKET ILLIQUIDITY
Equity real estate investments, especially assets of relatively large size,
are often illiquid. Such illiquidity will tend to limit the ability of the
Company to vary its portfolio promptly in response to changes in economic or
other conditions.
REGULATORY COMPLIANCE
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances released on, above, under
or in such property. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The costs of such removal or remediation could be
substantial. Additionally, the presence of such substances, or the failure to
properly remediate such substances, may adversely affect the owner's ability to
borrow using such real estate as collateral. All of the Company's properties
have Phase I environmental site assessments (which involve inspection without
soil sampling or groundwater analysis) by independent environmental consultants
(the "Phase I Assessments") and have been inspected for hazardous materials as
part of the Company's acquisition inspections. None of the Phase I Assessments
has revealed any environmental conditions requiring material expenditures for
remediation. No assurance can be given that these Phase I Assessments or the
Company's inspections have revealed all environmental liabilities and problems
relating to its properties.
The Company believes that it is in compliance in all material respects with
all federal, state and local laws regarding hazardous or toxic substances. To
date, compliance with federal, state and local environmental protection
regulations has not had a material effect upon the Company. However, there can
be no assurance that costs of investigating and remediating environmental
matters with respect to properties currently or previously owned by the Company
or properties which the Company may acquire in the future, or other expenditures
or liabilities (including claims by private parties) resulting from hazardous
substances present in, on, under or above such properties or resulting from
circumstances or other actions or claims relating to environmental matters, will
not have a material adverse effect on the Company and its ability to make
distributions to stockholders.
OTHER REGULATIONS
The Company's properties are, and properties which the Company may acquire
in the future will be, subject to various other federal, state and local
regulatory requirements such as local building codes and other similar
regulations. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to private
litigants. The Company believes that its properties are currently in substantial
compliance with all applicable regulatory requirements, although expenditures at
properties owned by the Company may be required to comply with changes in these
laws. No material expenditures are contemplated at this time in order to comply
with any such laws or regulations; however, there can be no assurance that these
requirements will not be changed or that new requirements will not be imposed
that would require significant unanticipated expenditures by the
9
<PAGE>
Company, which could have an adverse effect on the Company and its ability to
make distributions to stockholders. Similarly, changes in laws increasing the
potential liability for environmental conditions existing on the Company's
properties may result in significant unanticipated expenditures, which could
adversely affect the Company and its ability to make distributions to
stockholders.
SHARES AVAILABLE FOR FUTURE SALE; REGISTRATION RIGHTS
Future sales of substantial amounts of the Common Stock in the public
market, including hereunder, or the perception that such sales could occur, may
have an adverse effect on the market price of the Common Stock. In addition, any
future issuances of Common Stock, UPREIT Units, each of which is convertible
into shares of Common Stock, or other capital stock of the Company could also be
dilutive to investors in the Common Stock. As of June 30, 1998, there were
101,542,254 shares of Common Stock outstanding (excluding 2,682,000 shares of
Common Stock that may be issued upon exercise of outstanding options granted to
certain directors and officers) and 105,688,137 UPREIT Units outstanding. The
Company has granted certain of its existing stockholders, in addition to the
Selling Stockholder, registration rights.
CHANGE IN POLICIES
The major policies of the Company, including its policies with respect to
maintaining its qualification as a REIT and with respect to dividends,
acquisitions, debt and investments, are established by the Board. Although it
has no present intention to do so, the Board may amend or revise these and other
policies from time to time without a vote of or notice to the stockholders of
the Company (subject to the rights of the holders of the Company's outstanding
series of Preferred Stock). Accordingly, holders of the shares of Common Stock
will have no control over changes in policies of the Company, including any
policies relating to the payment of dividends or maintaining qualification as a
REIT.
RISK OF INABILITY TO SUSTAIN DISTRIBUTION LEVEL
The Company's current intended distribution level is based on a number of
assumptions, including assumptions relating to the future operations of the
Company. These assumptions concern, among other matters, continued property
occupancy and profitability of tenants, capital expenditures and other costs
relating to its properties, the level of leasing activity, the strength of real
estate markets, competition, the cost of environmental compliance and compliance
with other laws, the amount of uninsured losses and decisions by the Company to
reinvest rather than distribute cash available for distribution. The Company
currently expects to maintain its current distribution level. However, some of
the assumptions described above are beyond the control of the Company, and a
significant change in any such assumptions could cause a reduction in cash
available for distributions, which could affect the Company's ability to sustain
its distribution level.
10
<PAGE>
THE COMPANY
OVERVIEW
The Company is a self-advised equity real estate investment trust ("REIT")
with interests in 21 Class A office properties comprising nearly 11.5 million
rentable square feet. The Company's properties are located in 11 metropolitan
areas throughout the United States: Atlanta, Boston, Charlotte, Chicago, Denver,
Minneapolis, New York City, San Francisco, Santa Monica, Seattle and Washington
D.C. and surrounding suburbs. All of the properties were built between 1979 and
1991. The Company's strategy is to own Class A office properties in prime
central business district ("CBD") locations and major suburban office markets in
U.S. metropolitan areas. Class A office properties are generally considered to
be those that have the most favorable locations and physical attributes, attract
premium rents and experience the highest tenant retention rates within their
markets.
The Company focuses its professional and executive staff on the execution of
its acquisition and management strategy, including market research, budgeting,
leasing, capital planning, finance and asset management. The Company engages
prominent regional or national third-party management companies to provide
day-to-day property management functions at the local level. The Company
believes that its use of third-party property managers offers a flexible,
cost-efficient and demonstrably effective means for managing a national office
portfolio, as historically its properties have consistently outperformed their
respective submarkets' Class A property rent and occupancy levels. In all cases,
the Company retains full responsibility for capital planning, budgeting,
leasing, major tenant relationships, financing and strategic initiatives with
respect to its properties.
In January 1998, the Company converted its corporate structure into an
umbrella limited partnership REIT ("UPREIT"). Under the UPREIT structure, all of
the Company's interests in the properties are held by or through Cornerstone
Properties Limited Partnership, a Delaware limited partnership (the "Operating
Partnership"), of which the Company is the sole general partner. The UPREIT
structure provides the Company with more flexibility in accessing equity capital
in connection with its acquisition strategy by allowing the Company to acquire
properties in transactions that allow the seller tax-deferred treatment through
the issuance to the seller of units of limited partnership interest in the
Operating Partnership ("UPREIT Units"). At the request of a Unitholder, UPREIT
Units may be exchanged for either one share of the Company's Common Stock, or,
at the election of the Company, cash equal to the fair market value of the share
of Common Stock. In addition to its sole general partnership interest, as of
June 30, 1998, the Company owned directly or indirectly 96.1% of the outstanding
UPREIT Units.
As a major owner of Class A office properties, management believes that the
Company is well positioned to capitalize on the expected improvement in the
fundamentals for office property markets in the United States. Management also
believes that the Company can continue to use its portfolio of premium quality
assets, proven access to multiple sources of debt and equity capital and
efficient management structure to expand nationally through the use of UPREIT
Unit-for-asset or stock-for-asset transactions.
The principal executive offices of the Company are located at Tower 56, 126
East 56th Street, New York, New York 10022, and its telephone number at that
location is (212) 605-7100. The Company was organized under the laws of the
State of Nevada in May 1981.
RECENT DEVELOPMENTS
On June 22, 1998, the Company entered into a merger agreement with William
Wilson & Associates ("WWA") of San Mateo, California, pursuant to which the
Company will acquire the WWA operating company and 9.1 million square feet of
Class A office buildings owned by WWA, its partners and affiliated opportunity
funds, which are located in the San Francisco Bay Area, Southern California,
Phoenix, Salt Lake City and Seattle.
11
<PAGE>
The total purchase price for the Wilson Acquisition is approximately $1.77
billion, which is to be paid through the issuance to WWA and its investors of
approximately $635 million in Common Stock and UPREIT Units, valued at $17.25
per share/unit, with the balance to be paid in cash. In addition, the Company
will assume or repay approximately $780 million of WWA's existing indebtedness.
The transaction will be financed in part through the Company's Revolving Credit
Facility and through the expected sale of $200 million of Common Stock to PGGM
at an agreed price of $17.25 per share.
Upon consummation of the Wilson Acquisition, the Company will have
approximately 20.5 million square feet of office space. William Wilson III, the
President and Founder of WWA, and all of his employees, will become full-time
employees of the Company. Mr. Wilson will serve as Chairman of the Company's
Board, and John S. Moody will serve as Chief Executive Officer and President of
the Company. In addition, under the terms of the merger agreement, the Board
will be expanded to include two nominees to be selected by Mr. Wilson. The
consummation of the Wilson Acquisition is subject to the approval of the
stockholders of the Company and the investors of WWA, as well as other
outstanding closing conditions. If such approvals are obtained, the Wilson
Acquisition is expected to close in the fourth quarter of 1998.
12
<PAGE>
USE OF PROCEEDS
The Selling Stockholder will receive all of the proceeds from the sale of
the Shares. The Company will receive no proceeds from the sale of Shares by the
Selling Stockholder.
DESCRIPTION OF OUTSTANDING CAPITAL STOCK OF THE COMPANY
The authorized capital stock of the Company consists of 250,000,000 shares
of Common Stock and 65,000,000 shares of Preferred Stock, with no par value (the
"Preferred Stock"). Stockholders have no preemptive or other rights to subscribe
for or purchase any proportionate part of any new or additional shares of stock
of any class or of securities convertible into stock of any class. The following
brief description of the capital stock of the Company does not purport to be
complete and is subject in all respects to applicable Nevada law and to the
provisions of the Company's Articles of Incorporation and Bylaws, as amended,
and to the respective certificates of designations for each series of Preferred
Stock, copies of which are exhibits to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK
The Company had 101,542,254 shares of Common Stock outstanding at June 30,
1998. Subject to the provisions of the Articles of Incorporation regarding
preservation of the Company's REIT status, each outstanding share of Common
Stock entitles the holder thereof to one vote on all matters presented to
stockholders for a vote. There are no cumulative voting rights with respect to
the election of directors. Holders of Common Stock have no conversion, sinking
fund or redemption rights. All of the Common Stock in respect of which this
Prospectus is being delivered were, when issued, fully paid and nonassessable.
The holders of the Common Stock are entitled to receive dividends when, as
and if declared by the Board of the Company out of funds legally available
therefor, subject to the terms of any Preferred Stock at the time outstanding
and to the provisions of the Articles of Incorporation regarding preservation of
the Company's REIT status. In the event of the liquidation of the Company, each
outstanding share of Common Stock is entitled to participate pro rata in the
assets remaining after payment of, or adequate provision for, all known debts
and liabilities of the Company.
The Transfer Agent and Registrar for the Common Stock is Boston EquiServe,
Inc.
REGISTRATION RIGHTS AND VOTING AGREEMENT WITH PGGM AND DIHC
The Registration Rights and Voting Agreement among the Company, PGGM and
DIHC (the "Registration Rights and Voting Agreement") provides that so long as
PGGM and DIHC and their affiliates own in the aggregate 5% or more of the
outstanding shares of Common Stock, the Company will take all action necessary
to ensure that two members of the Company's Board are individuals designated by
PGGM ("PGGM Directors"). Pursuant to their rights under this agreement, PGGM and
DIHC have nominated two directors who were elected to the Board. The
Registration Rights and Voting Agreement also provides that, until the earlier
of October 27, 2002 or the date when PGGM and DIHC and their affiliates own less
than 25% of the Common Stock, (i) the Company will take all action necessary to
ensure that one PGGM Director is appointed to the board affairs committee of the
Board, (ii) other than incumbent directors and PGGM Directors, all nominees for
the Board will be persons not affiliated with PGGM, DIHC or their affiliates and
(iii) the Company will not increase the number of directors constituting the
Board without the prior written consent of PGGM. Furthermore, so long as PGGM
and DIHC and their respective affiliates own in the aggregate 2.5% or more of
outstanding shares of Common Stock, the Company will maintain, with certain
exceptions, a debt leverage ratio not in excess of 0.45 to 1.
13
<PAGE>
PREFERRED STOCK
Under the Articles of Incorporation, the Board of Directors of the Company
is authorized, without further stockholder action, to provide for the issuance
of Preferred Stock in one or more series. The powers, designations, preferences
and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions, including dividend rights, voting
rights, conversion rights, terms of redemption and liquidation preferences, of
the Preferred Stock of each series are fixed or designated by the Board pursuant
to a certificate of designations (each, a "Certificate of Designations"). Such
Preferred Stock may have voting or other rights which could adversely affect the
rights of holders of the Common Stock.
Holders of Preferred Stock have no voting rights in general corporate
matters except as provided by law or as set forth in the Certificate of
Designations therefor. Under Nevada law, if any proposed amendment to the
Articles of Incorporation would alter or change any preference or any relative
or other right given to the holders of Preferred Stock, then the amendment must
be approved by the affirmative vote of the holders of shares representing a
majority of the voting power of each class or series affected by the amendment
regardless of limitations or restrictions on the voting power thereof.
As of June 30, 1998, the Preferred Stock established by the Company
consisted of (i) 3,030,303 shares of 7% Cumulative Convertible Preferred Stock,
with no par value (the "7% Preferred Stock"), all of which were issued and
outstanding and held by Deutsche Bank AG and its affiliates and (ii) 344,828
shares of 8% Cumulative Convertible Preferred Stock, with no par value (the "8%
Preferred Stock"), none of which is issued and outstanding. The Company
originally authorized 1,035,483 shares of 8% Preferred Stock; however, in
November 1996, the Company issued 689,655 shares of 8% Preferred Stock to
NYSTRS, all of which shares were subsequently converted into 6,896,550 shares of
Common Stock in July 1997. The Company does not intend to issue the remaining
authorized shares of 8% Preferred Stock. Set forth below is a brief description
of the terms of the 7% Preferred Stock.
7% PREFERRED STOCK
PRIORITY. The 7% Preferred Stock, with respect to dividends and
distributions and upon the liquidation, dissolution or winding-up of the
Company, ranks (i) senior to all classes of Common Stock and to each other class
of capital stock or series of Preferred Stock established by the Board (except
as set forth below) which does not expressly provide that it ranks senior to the
7% Preferred Stock as to dividends and distributions and upon the liquidation,
winding-up and dissolution of the Company and (ii) on a parity with any other
class of capital stock or series of Preferred Stock issued by the Company, the
terms of which expressly provide that such class or series will rank on a parity
with the 7% Preferred Stock as to dividends and distributions or upon the
liquidation, dissolution or winding-up of the Company.
DIVIDENDS. Holders of 7% Preferred Stock are entitled to receive cumulative
cash dividends payable annually at the rate of 7% per annum when, as and if
declared by the Board out of funds legally available therefor and in preference
to any dividend payable on the Common Stock. Such dividends accrue from day to
day and are cumulative, whether or not declared.
LIQUIDATION. Upon the liquidation, dissolution or winding-up of the Company
(either voluntary or involuntary), holders of 7% Preferred Stock are entitled to
receive out of the assets of the Company available for distribution after
payment of all liabilities, before any distribution is made to the holders of
the Common Stock, an amount equal to $16.50 per share plus an amount equal to
all dividends (whether or not earned or declared) accrued and accumulated and
unpaid on the shares of 7% Preferred Stock to the date of final distribution.
CONVERSION. Each share of the 7% Preferred Stock is convertible, at the
option of the holder thereof, at any time after August 4, 2000, into that number
of shares of Common Stock as is determined by dividing
14
<PAGE>
the stated value of such share by the conversion price in effect for the 7%
Preferred Stock at the time of conversion. The conversion price currently in
effect is $16.50 per share of Common Stock, subject to adjustment.
REDEMPTION. The 7% Preferred Stock is not redeemable.
VOTING. The Certificate of Designations for the 7% Preferred Stock provides
that if dividends payable on the 7% Preferred Stock shall be in arrears for six
calendar quarters or more, whether or not consecutive, the holders of the
outstanding shares of the 7% Preferred Stock shall have the right to elect two
of the authorized number of members of the Board at the Company's next annual
meeting of stockholders until such arrearages have been paid or set apart for
payment. In addition, the Certificate of Designations for the 7% Preferred Stock
provides that the issuance of any shares of Preferred Stock ranking prior to the
7% Preferred Stock shall require the consent of the holders of the 7% Preferred
Stock. The Company has agreed that so long as Deutsche Bank AG holds at least
1,000,000 shares of the 7% Preferred Stock, the Company will not issue any
shares of Preferred Stock ranking on a parity with the 7% Preferred Stock
without the prior written consent of Deutsche Bank AG.
REGISTRATION RIGHTS. If at any time after one year following a registered
initial public offering in the United States by the Company, Deutsche Bank AG
notifies the Company in writing that it intends to offer or to cause to be
offered for sale its shares of the 7% Preferred Stock and/or shares of Common
Stock issued upon conversion of the 7% Preferred Stock and requests the Company
to cause such securities to be registered under the Securities Act, the Company
will use its best efforts to cause such securities to be so registered if
counsel for the Company shall deem such registration necessary or advisable.
Deutsche Bank AG is required to hold and to intend to offer for public sale not
less than a total of 1,500,000 shares of the 7% Preferred Stock and/or shares of
Common Stock issued upon conversion thereof at the time of any such request. The
Company is not obligated to make more than one registration pursuant to these
provisions.
CERTAIN PROVISIONS OF NEVADA LAW
AND OF THE COMPANY'S ARTICLES OF INCORPORATION
The terms of Chapter 78 of the Nevada Revised Statutes, entitled the Nevada
General Corporation Law (the "NGCL"), apply to the Company. Under certain
circumstances, the following selected provisions of the NGCL may delay or make
more difficult acquisitions or changes of control of the Company. The Articles
of Incorporation and Bylaws of the Company do not exclude the Company from such
provisions of the NGCL. Such provisions may make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests. Such provisions may also have the effect of preventing changes in the
management of the Company.
CONTROL SHARE ACQUISITIONS
Pursuant to Sections 78.378 to 78.3793 of the NGCL, an "acquiring person,"
who acquires a "controlling interest" in an "issuing corporation," may not
exercise voting rights on any "control shares" unless such voting rights are
conferred by a majority vote of the disinterested stockholders of the issuing
corporation at an annual meeting or a special meeting of such stockholders held
upon the request and at the expense of the acquiring person. In the event that
the control shares are accorded full voting rights and the acquiring person
acquires control shares with a majority or more of all the voting powers, any
stockholder, other than the acquiring person, who does not vote in favor of
authorizing voting rights for the control shares is entitled to demand payment
for the fair value of his or her shares, and the corporation must comply with
the demand. For purposes of the above provisions, "acquiring person" means
(subject to certain exceptions) any person who, individually or in association
with others, acquires or offers to acquire, directly or indirectly, a
controlling interest in an issuing corporation. "Controlling interest" means the
ownership of outstanding voting shares of an issuing corporation sufficient to
enable the acquiring person,
15
<PAGE>
individually or in association with others, directly or indirectly, to exercise
(i) one-fifth or more but less than one-third, (ii) one-third or more but less
than a majority and/or (iii) a majority or more of the voting power of the
issuing corporation in the election of directors. Voting rights must be
conferred by a majority of the disinterested stockholders as each threshold is
reached and/or exceeded. "Control Shares" means those outstanding voting shares
of an issuing corporation which an acquiring person acquires or offers to
acquire in an acquisition or within 90 days immediately preceding the date when
the acquiring person became an acquiring person. "Issuing corporation" means a
corporation that is organized in Nevada, has 200 or more stockholders (at least
100 of whom are stockholders of record and residents of Nevada) and does
business in Nevada directly or through an affiliated corporation. The above
provisions do not apply if the articles of incorporation or bylaws of the
corporation in effect on the 10th day following the acquisition of a controlling
interest by an acquiring person provide that said provisions do not apply. As
noted above, the Company's Articles of Incorporation and Bylaws do not exclude
the Company from the restrictions imposed by such provisions.
CERTAIN BUSINESS COMBINATIONS
Sections 78.411 to 78.444 of the NGCL restrict the ability of a "resident
domestic corporation" to engage in any combination with an "interested
stockholder" for three years following the interested stockholder's date of
acquiring the shares that cause such stockholder to become an interested
stockholder, unless the combination or the purchase of shares by the interested
stockholder on the interested stockholder's date of acquiring the shares that
cause such stockholder to become an interested stockholder is approved by the
board of directors of the resident domestic corporation before that date. If the
combination was not previously approved, the interested stockholder may effect a
combination after the three-year period only if such stockholder receives
approval from a majority of the disinterested shares or the offer meets certain
fair price criteria. For purposes of the above provisions, "resident domestic
corporation" means a Nevada corporation that has 200 or more stockholders.
"Interested stockholder" means any person, other than the resident domestic
corporation or its subsidiaries, who is (i) the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the outstanding voting shares
of the resident domestic corporation or (ii) an affiliate or associate of the
resident domestic corporation and, at any time within three years immediately
before the date in question, was the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the then outstanding shares of the
resident domestic corporation. The above provisions do not apply to corporations
that so elect in a charter amendment approved by a majority of the disinterested
shares. Such a charter amendment, however, would not become effective for 18
months after its passage and would apply only to stock acquisitions occurring
after its effective date. As noted above, the Company's Articles of
Incorporation and Bylaws do not exclude the Company from the restrictions
imposed by such provisions.
DIRECTORS' DUTIES
Section 78.138 of the NGCL allows directors and officers, in exercising
their respective powers with a view to the interests of the corporation, to
consider the interests of the corporation's employees, suppliers, creditors and
customers, the economy of the state and the nation, the interests of the
community and of society and the long and short-term interests of the
corporation and its stockholders, including the possibility that these interests
may be best served by the continued independence of the corporation. Directors
may resist a change or potential change in control if the directors, by a
majority vote of a quorum, determine that the change or potential change is
opposed to or not in the best interest of the corporation. In so determining,
the board of directors must consider the interests set forth above or have
reasonable grounds to believe that, within a reasonable time, the debt created
as a result of the change in control would cause the assets of the corporation
or any successor to be less than the liabilities or would render the corporation
or any successor insolvent or lead to bankruptcy proceedings.
16
<PAGE>
OWNERSHIP RESTRICTIONS
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 by the Code to include certain entities)
during the last half of a taxable year. To help ensure that the Company
continues to qualify as a REIT, Article 8 of the Company's Articles of
Incorporation provides that shares of the Company's stock shall not be
transferred to any person if such transfer would cause such person to become the
direct or indirect owner of more than 6% of the value of the outstanding shares
of capital stock of the Company (the "6% Limit"). Shares of stock acquired in
excess of the 6% Limit shall be deemed to be transferred to the Company as
trustee for the benefit of the person to whom the person who acquired the excess
shares later transfers such shares. In addition, excess shares shall be deemed
to have been offered for sale to the Company or its designee at their "fair
market value" for a 90-day period. Article 8 further provides that a person who
knowingly violates the 6% Limit must indemnify the Company and its stockholders
for losses if such violation causes the Company either to fail to qualify as a
REIT or to be subject to personal holding company taxes. The affirmative vote of
the holders of at least 80% of the outstanding shares of Common Stock is
required to alter, amend, repeal or adopt any provision inconsistent with such
restrictions.
The Company's Articles of Incorporation also contain provisions designed to
assist the Company in becoming a "domestically controlled REIT" under the Code.
Article 9 of the Company's Articles of Incorporation provides that shares of the
Company's stock may not be transferred to any Non-U.S. person if such transfer
would cause such Non-U.S. person to become the direct or indirect owner of more
than 3% of the value of the outstanding shares of any class of capital stock of
the Company (the "Non-U.S. Ownership Limit"). Shares of stock acquired in excess
of the Non-U.S. Ownership Limit are deemed to be transferred to the Company as
trustee for the benefit of the person to whom the Non-U.S. person who acquired
the excess shares later transfers such shares. In addition, excess shares are
deemed to have been offered for sale to the Company or its designee at their
"fair market value" for a 90-day period. Article 9 does not apply, however, to
transfers by any U.S. Person by operation of law or pursuant to death, a merger
or sale of substantially all of the assets of such person, bankruptcy or pledges
of security.
As used in the preceding paragraph:
"Non-U.S. Person" means (i) a nonresident alien individual (as defined in
the Code), (ii) a foreign corporation, foreign partnership, foreign trust,
foreign estate, foreign government, and any other organization or entity which
is not organized under the laws of the United States or a State, and (iii) any
other person or entity treated as a "foreign person" under regulations
promulgated under the Code.
"U.S. Person" means any person other than a Non-U.S. Person.
17
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING IS A GENERAL SUMMARY OF THE MATERIAL FEDERAL INCOME TAX
CONSIDERATIONS ASSOCIATED WITH AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
SHEARMAN & STERLING, COUNSEL TO THE COMPANY, HAS REVIEWED THE FOLLOWING
DISCUSSION AND IS OF THE OPINION THAT IT FAIRLY SUMMARIZES THE FEDERAL INCOME
TAX CONSIDERATIONS THAT ARE LIKELY TO BE MATERIAL TO A HOLDER OF COMMON STOCK.
THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE OF ALL POSSIBLE TAX CONSIDERATIONS
AND IS NOT TAX ADVICE. MOREOVER THIS SUMMARY DOES NOT DEAL WITH ALL TAX ASPECTS
THAT MIGHT BE RELEVANT TO A PARTICULAR PROSPECTIVE STOCKHOLDER IN LIGHT OF HIS
OR HER PERSONAL CIRCUMSTANCES; NOR DOES IT DEAL WITH PARTICULAR TYPES OF
STOCKHOLDERS THAT ARE SUBJECT TO SPECIAL TREATMENT UNDER THE CODE, SUCH AS
INSURANCE COMPANIES, FINANCIAL INSTITUTIONS AND BROKER-DEALERS. THE CODE
PROVISIONS GOVERNING THE FEDERAL INCOME TAX TREATMENT OF REITS ARE HIGHLY
TECHNICAL AND COMPLEX, AND THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE
APPLICABLE CODE PROVISIONS, RULES AND TREASURY REGULATIONS PROMULGATED
THEREUNDER, AND ADMINISTRATIVE AND JUDICIAL INTERPRETATIONS THEREOF. THE
FOLLOWING DISCUSSION AND THE OPINIONS OF SHEARMAN & STERLING ARE BASED ON
CURRENT LAW.
EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX
ADVISOR WITH RESPECT TO SUCH PURCHASER'S SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN
AND OTHER TAX CONSEQUENCES OF THE PURCHASE, HOLDING AND SALE OF COMMON STOCK OF
THE COMPANY.
FEDERAL INCOME TAXATION OF THE COMPANY
The Company believes that, commencing with its taxable year ended December
31, 1983, it was organized and has operated in such a manner so as to qualify
for taxation as a REIT under the Code, and the Company intends to continue to
operate in such a manner, but no assurance can be given that it has qualified or
will remain qualified as a REIT. The Company has not requested and does not
intend to request a ruling from the Internal Revenue Service (the "IRS") as to
its status as a REIT. Based on various assumptions and factual representations
made by the Company, in the opinion of Shearman & Sterling, counsel to the
Company, the Company was organized and has operated in conformity with the
requirements for qualification as a REIT, the Company has operated so as to
qualify as a REIT since its taxable year ended December 31, 1992 (which such
counsel believes is the Company's earliest taxable year which is within the
normal period for federal tax audit), and the Company's proposed method of
operation will enable it to meet the requirements for qualification and taxation
as a REIT under the Code for each of its subsequent taxable years. Such
qualification depends upon the Company's ability to meet the various
requirements imposed under the Code through actual operations, as discussed
below, and no assurance can be given that actual operations will meet these
requirements. The opinion of Shearman & Sterling is not binding on the IRS. The
opinion of Shearman & Sterling also is based upon existing law, the regulations
issued by the United States Treasury Department (the "Treasury Regulations"),
currently published administrative positions of the IRS and judicial decisions,
which are subject to change either prospectively or retroactively.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on that portion of its ordinary income
or capital gain that is currently distributed to stockholders. The REIT
provisions of the Code generally allow a REIT to deduct dividends paid to its
stockholders. This deduction for dividends paid to stockholders substantially
eliminates the federal "double taxation" on earnings (once at the corporate
level and once again at the stockholder level) that usually results from
investments in a corporation.
The Company, however, will be subject to federal income tax, as follows:
first, the Company will be taxed at regular corporate rates on its undistributed
REIT taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the corporate "alternative
minimum tax." Third, if the Company has net income from the sale or other
disposition of "foreclosure property" that is held primarily for sale to
customers in the ordinary course of business or
18
<PAGE>
other non-qualifying income from foreclosure property, it will be subject to tax
at the highest corporate rate on such income. Fourth, if the Company has net
income from prohibited transactions (which are, in general, certain sales or
other dispositions of property other than foreclosure property held primarily
for sale to customers in the ordinary course of business), such income will be
subject to a 100% tax. Fifth, if the Company should fail to satisfy either the
75% or 95% gross income test (discussed below) but has nonetheless maintained
its qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on the net income attributable to the greater of
the amount by which the Company fails the 75% or 95% test, multiplied by a
fraction intended to reflect the Company's profitability. Sixth, if the Company
fails to distribute during each year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income for
such year and (iii) any undistributed taxable income from prior periods, the
Company will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, if the Company
should acquire or be treated as acquiring any asset from a C corporation (i.e.,
a corporation generally subject to full corporate-level tax) in a
carryover-basis transaction and the Company subsequently recognizes gain on the
disposition of such asset during the ten-year period (the "Recognition Period")
beginning on the date on which such asset was acquired by the Company, then, to
the extent of the excess of (a) the fair market value of the asset as of the
beginning of the applicable Recognition Period over (b) the Company's adjusted
basis in such asset as of the beginning of such Recognition Period (the
"Built-In Gain"), such gain will be subject to tax at the highest regular
corporate rate, pursuant to guidelines issued by the IRS (the "Built-In Gain
Rules").
REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, the Company must elect to be so treated and must meet
the requirements, discussed below, relating to the Company's organization,
sources of income, nature of assets and distributions of income to stockholders.
ORGANIZATIONAL REQUIREMENTS
The Code defines a REIT as a corporation, trust or association: (i) that is
managed by one or more directors or trustees, (ii) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest, (iii) that would be taxable as a domestic corporation but
for Sections 856 through 859 of the Code, (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code,
(v) the beneficial ownership of which is held by 100 or more persons (the "100
Stockholder Requirement"), and (vi) during the last half of each taxable year
not more than 50% in value of the outstanding stock of which is owned, directly
or indirectly, through the application of certain attribution rules, by five or
fewer individuals (as defined in the Code to include certain entities) (the
"Five or Fewer Requirement"). In addition, certain other tests, described below,
regarding the nature of its income and assets also must be satisfied. The Code
provides that conditions (i) through (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335 days
of a taxable year of 12 months or during a proportionate part of a taxable year
of less than 12 months. For purposes of conditions (v) and (vi), pension funds
and certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of condition (vi).
In order to protect the Company from a concentration of ownership of its
stock that would cause the Company to fail the Five or Fewer Requirement or the
100 Stockholder Requirement, the Articles of Incorporation of the Company
provide that no holder is permitted to own, either actually or constructively
under the applicable attribution rules of the Code, more than 6% (in value) of
the aggregate outstanding shares of all classes of stock of the Company with
certain exceptions. In addition, no holder is permitted to own, either actually
or constructively under the applicable attribution rules of the Code, any shares
of any class of the Company's stock if such ownership would cause more than 50%
in value of the Company's outstanding stock to be owned by five or fewer
individuals or would result in the Company's stock being
19
<PAGE>
beneficially owned by less than 100 persons (determined without reference to any
rule of attribution). In rendering its opinion that the Company has operated in
a manner so as to qualify, and its proposed method of operation will continue to
enable it to qualify, as a REIT, Shearman & Sterling is relying on the
representation of the Company that the ownership of its stock has satisfied and
will satisfy the Five or Fewer Requirement and the 100 Stockholder Requirement,
without regard to whether, as a matter of law, the provisions contained in the
Articles of Incorporation will preclude the Company from failing the Five or
Fewer Requirement or the 100 Stockholder Requirement.
Pursuant to applicable Treasury Regulations, a REIT must maintain certain
records and request on an annual basis certain information designed to disclose
the actual owners of its outstanding shares. The Company believes it has
satisfied and intends to continue to satisfy such requirements.
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. The Company has a calendar year taxable year.
OPERATING ENTITIES
Substantially all of the Company's investments are held indirectly through
the Operating Partnership, and the Operating Partnership's investments generally
are held indirectly through various lower-tier entities treated as partnerships
or disregarded as separate entities for federal income tax purposes. In general,
partnerships are "pass-through" entities which are not subject to federal income
tax. Rather, partners are allocated their proportionate shares of the items of
income, gain, loss, deduction and credit of a partnership, and are potentially
subject to tax thereon, without regard to whether the partners receive a
distribution from the partnership. The Company will include in its income its
proportionate share of such partnership items for purposes of the REIT income
tests (described below) and in the computation of its REIT taxable income.
Moreover, for purposes of the REIT asset tests (described below), the Company
will include its proportionate share of assets held by the Operating
Partnership, including the Operating Partnership's proportionate share of the
assets held by the lower-tier entities. A partnership agreement's provisions
allocating income and loss among partners will generally be respected for tax
purposes if they comply with the requirements of Section 704(b) and the Treasury
Regulations promulgated thereunder. Generally, Section 704(b) and the Treasury
Regulations promulgated thereunder require that partnership allocations respect
the economic arrangement of the partners. If an allocation is not recognized for
federal income tax purposes, the item subject to the allocation will be
reallocated in accordance with the partners' interests in the partnership, which
will be determined by taking into account all of the facts and circumstances
relating to the economic arrangement of the partners with respect to such item.
The Operating Partnership's (and any lower-tier partnership's) allocations of
taxable income and loss are intended to comply with the requirements of Section
704(b) of the Code and the Treasury Regulations promulgated thereunder.
The Company has owned and operated a number of properties through wholly
owned subsidiaries. Under the Code, a corporation which is a "qualified REIT
subsidiary" is not treated as a separate corporation; rather, all assets,
liabilities and items of income, deduction, and credit of a "qualified REIT
subsidiary" are treated as assets, liabilities and such items (as the case may
be) of the REIT. Thus, in applying the requirements described herein, the
Company's "qualified REIT subsidiaries" are ignored, and all assets, liabilities
and items of income, deduction and credit of such subsidiaries are treated as
assets, liabilities and items of the Company.
INCOME TESTS
To maintain qualification as a REIT, the Company must satisfy two gross
income requirements annually. First, at least 75% of the Company's gross income,
excluding gross income from certain dispositions of property held primarily for
sale to customers in the ordinary course of a trade or business ("prohibited
transactions"), for each taxable year must be derived directly or indirectly
from investments
20
<PAGE>
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from "prohibited transactions") for each taxable year
must be derived from such real property investments and from dividends, interest
and gain from the sale or disposition of stock or securities or from any
combination of the foregoing. In addition, for each taxable year beginning prior
to January 1, 1998, short-term gain from the sale or other disposition of stock
or securities, gain from "prohibited transactions" and gain from the sale or
other disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) was required to
represent less than 30% of the Company's gross income (including gross income
from prohibited transactions) for such taxable year.
Rents received or deemed to be received by the Company will qualify as
"rents from real property" in satisfying the gross income requirements for a
REIT described above only if several conditions are met. First, the amount of
rent generally must not be based in whole or in part on the income or profits of
any person. However, an amount received or accrued generally will not be
excluded from the term "rents from real property," solely by reason of being
based on a fixed percentage or percentages of receipts or sales. Second, the
Code provides that rents received from a tenant will not qualify as "rents from
real property" in satisfying the gross income tests if the REIT, or a direct or
constructive owner of 10% or more of the REIT, directly or constructively owns
10% or more of such tenant (a "Related Party Tenant"). Third, if rent
attributable to personal property, leased in connection with a lease of real
property, is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to the personal property will not qualify as
"rents from real property." Fourth, subject to a DE MINIMIS exception, for rents
to qualify as "rents from real property" the REIT must not operate or manage the
property or furnish or render services to tenants, other than through an
"independent contractor" who is adequately compensated and from whom the REIT
does not derive any income; PROVIDED, HOWEVER, that a REIT may provide services
with respect to its properties and the income will qualify as "rents from real
property" if the services are "usually or customarily rendered" in connection
with the rental of room or other space for occupancy only and are not otherwise
considered "rendered to the occupant."
The Company has not and does not anticipate that it will in the future (i)
charge rent that is based in whole or in part on the income or profits of any
person (except by reason of being based on a fixed percentage or percentages of
receipts or sales consistent with the rule described above), (ii) derive rent
attributable to personal property leased in connection with real property that
exceeds 15% of the total rents or (iii) derive rent attributable to a Related
Party Tenant. The Company believes it has met and will continue to meet the
three gross income requirements outlined above.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. An amount received or
accrued generally will not be excluded from the term "interest," however, solely
by reason of being based on a fixed percentage or percentages of receipts or
sales.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for that year
if it is eligible for relief under certain provisions of the Code. These relief
provisions will be generally available if (i) the Company's failure to meet
these tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches a schedule of the sources of its income to its federal income
tax return and (iii) any incorrect information on the schedule is not due to
fraud with intent to evade tax. It is not possible, however, to state whether,
in all circumstances, the Company would be entitled to the benefit of these
relief provisions. For example, if the Company fails to satisfy the gross income
tests because nonqualifying income that the Company intentionally incurs exceeds
the limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. As discussed above in
"--Federal Income Taxation of the Company," even if these relief provisions
apply, a tax would be imposed with respect to the excess net income. No similar
21
<PAGE>
mitigation provision provided relief if the Company failed the 30% income test
that applied to taxable years beginning prior to January 1, 1998.
ASSET TESTS
At the close of each quarter of its taxable year, the Company also must
satisfy three tests relating to the nature and diversification of its assets.
First, at least 75% of the value of the Company's total assets must be
represented by real estate assets, cash, cash items and government securities.
Second, no more than 25% of the Company's total assets may be represented by
securities other than those in the 75% asset class. Third, of the investments
included in the 25% asset class, the value of any one issuer's securities owned
by the Company may not exceed 5% of the value of the Company's total assets, and
the Company may not own more than 10% of any one issuer's outstanding voting
securities (excluding securities of a qualified REIT Subsidiary or another
REIT).
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company has maintained and intends in the future to maintain
adequate records of the value of its assets to ensure compliance with the asset
tests and to take such other actions within 30 days after the close of any
quarter as may be required to cure any noncompliance.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to be taxed as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its stockholders in an amount
at least equal to (a) the sum of (i) 95% of the Company's "REIT taxable income"
(computed without regard to the dividends-paid deduction and the Company's net
capital gain) and (ii) 95% of the net income, if any, from foreclosure property
in excess of the special tax on income from foreclosure property, minus (b) the
sum of certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate or in the following taxable year if declared
before the Company timely files its federal income tax return for such year and
if paid on or before the first regular dividend payment after such declaration.
Even if the Company satisfies the foregoing distribution requirements, to the
extent that the Company does not distribute all of its "REIT taxable income," as
adjusted, it will be subject to tax thereon at corporate tax rates. To the
extent that the Company does not distribute all of its net capital gain, it will
be subject to tax on the undistributed amount of net capital gain. The Company
may elect, however, to pay the tax on its net undistributed long-term capital
gains on behalf of its stockholders, in which case the stockholders would
include in income their proportionate share of the undistributed long-term
capital gains and receive a credit or refund for their share of the tax paid by
the Company. Furthermore, if the Company should fail to distribute during each
calendar year at least the sum of (a) 85% of its REIT ordinary income for that
year, (b) 95% of its capital gain net income for that year and (c) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed, apparently regardless of whether the Company elects (as
described above) to pay the capital gains tax on undistributed capital gains. In
addition, during its Recognition Period, if the Company disposes of any asset
subject to the Built-In Gain Rules, the Company will be required, pursuant to
guidance issued by the IRS, to distribute at least 95% of the Built-In Gain
(after tax), if any, recognized on the disposition of the asset.
It is expected that the Company's REIT taxable income will continue to be
less than its cash flow due to the allowance of depreciation and other non-cash
charges in computing REIT taxable income. Accordingly, the Company anticipates
that it generally will have sufficient cash or liquid assets to enable it to
satisfy the 95% distribution requirement. It is possible, however, that the
Company, from time to time, may not have sufficient cash or other liquid assets
to meet the 95% distribution requirement or to
22
<PAGE>
distribute such greater amount as may be necessary to avoid income and excise
taxation, as a result of timing differences between (i) the actual receipt of
income and actual payment of deductible expenses and (ii) the inclusion of such
income and deduction of such expenses in arriving at taxable income of the
Company, or as a result of nondeductible expenses such as principal amortization
or repayments, or capital expenditures in excess of noncash deductions. In the
event that such timing differences occur, the Company may find it necessary to
seek funds through borrowings or the issuance of equity securities (there being
no assurance that it will be able to do so) or, if possible, to pay taxable
stock dividends in order to meet the dividend requirement.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in the Company's deduction
for dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends. The Company will,
however, be required to pay interest based upon the amount of any deduction
taken for deficiency dividends.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable corporate alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to stockholders in any year in
which the Company fails to qualify will not be deductible by the Company nor
will they be required to be made. In such event, to the extent of current or
accumulated earnings and profits, all distributions to stockholders will be
dividends, taxable as ordinary income; and subject to certain limitations of the
Code, corporate distributees may be eligible for the dividends-received
deduction. Unless the Company is entitled to relief under specific statutory
provisions, the Company also will be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief. For example, if the Company fails to satisfy
the gross income tests because nonqualifying income that the Company
intentionally incurs exceeds the limit on such income, the IRS could conclude
that the Company's failure to satisfy the tests was not due to reasonable cause.
TAXATION OF U.S. STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a holder of Common Stock
that for United States federal income tax purposes is (a) a citizen or resident
of the United States, (b) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof or (c) an estate or trust, the income of which is subject to
United States federal income taxation regardless of its source. For any taxable
year for which the Company qualifies for taxation as a REIT, amounts distributed
to taxable U.S. Stockholders will be taxed as follows.
DISTRIBUTIONS GENERALLY
Distributions to U.S. Stockholders, other than capital gain dividends
discussed below, will constitute dividends up to the amount of the Company's
current or accumulated earnings and profits and will be taxable to the
stockholders as ordinary income. For purposes of determining whether
distributions are out of earnings and profits, the earnings and profits of the
Company will be allocated first to the Company's Preferred Stock (to the extent
of distributions made in respect thereof), and then to the Common Stock.
Distributions are not eligible for the dividends-received deduction for
corporations. To the extent that the Company makes a distribution in excess of
its current or accumulated earnings and profits, the distribution will be
treated first as a tax-free return of capital, reducing the tax basis in the
U.S. Stockholder's Common Stock, and the distribution in excess of a U.S.
Stockholder's tax basis in its Common Stock will be taxable as gain realized
from the sale of its Common Stock. Dividends declared by the Company in October,
November or December of any year payable to a stockholder of record on a
specified date in any such
23
<PAGE>
month shall be treated as both paid by the Company and received by the
stockholder on December 31 of the year, provided that the dividend is actually
paid by the Company during January of the following calendar year. Stockholders
may not include on their own federal income tax returns any losses of the
Company.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax discussed in
"--Federal Income Taxation of the Company" above. Moreover, any "deficiency
dividend" will be treated as an ordinary or capital gain dividend, as the case
may be, regardless of the Company's earnings and profits. As a result,
stockholders may be required to treat certain distributions that would otherwise
result in a tax-free return of capital as taxable dividends.
CAPITAL GAIN DIVIDENDS
Dividends to U.S. Stockholders that are properly designated by the Company
as capital gain dividends are subject to special treatment. According to a
recently published IRS notice, until further guidance is issued, if the Company
designates a dividend as a capital gain dividend, it may also designate the
dividend as (i) a 20% rate gain distribution, (ii) an unrecaptured section 1250
gain distribution (25% rate), or (ii) a 28% rate gain distribution. The maximum
amount which may be designated in each class of capital gain dividends is
determined by treating the Company as an individual with capital gains that may
be subject to the maximum 20% rate, the maximum 25% rate, and the maximum 28%
rate. If the Company does not designate all or part of a capital gain dividend
as within such classes, the undesignated portion will be considered as a 28%
rate gain distribution. Such designations are binding on each stockholder,
without regard to the period for which the stockholder has held his stock.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Capital gain dividends are not
eligible for the dividends-received deduction for corporations.
In addition, if the Company elects to pay tax on its undistributed long-term
capital gains on behalf of its stockholders (as discussed above in "--Annual
Distribution Requirements"), the undistributed long-term capital gains are
considered to be designated as capital gain dividends and therefore eligible for
further designation as one of the three types of capital gain distributions.
PASSIVE ACTIVITY LOSS AND INVESTMENT INTEREST LIMITATIONS
Distributions from the Company and gain from the disposition of Common Stock
will not be treated as passive activity income, and therefore stockholders may
not be able to apply any "passive activity losses" against such income.
Dividends from the Company (to the extent they do not constitute a return of
capital) will generally be treated as investment income for purposes of the
investment income limitation on the deduction of investment interest. Under
recently enacted legislation, net capital gain from the disposition of Common
Stock and capital gain dividends generally will be excluded from investment
income.
CERTAIN DISPOSITIONS OF SHARES
In general, a U.S. Stockholder will realize capital gain or loss on the
disposition of shares of Common Stock equal to the difference between the sales
price for such shares and the adjusted tax basis for such shares. Gain or loss
realized upon a sale or exchange of Common Stock by a U.S. Stockholder who is an
individual, trust or estate and who has held such Common Stock (i) for more than
18 months will be treated as long-term capital gain or loss, respectively, (ii)
for more than 12 months but not more than 18 months will be treated as mid-term
capital gain or loss, respectively, and (iii) for 12 months or less will be
treated as short-term capital gain or loss, respectively. However, losses
incurred on the sale or exchange of Common Stock held for less than six months
(after applying certain holding period rules) will be deemed long-term capital
loss to the extent of any capital gain dividends received by the selling
stockholder from those shares.
24
<PAGE>
TREATMENT OF TAX-EXEMPT STOCKHOLDERS
A tax-exempt investor that is exempt from tax on its investment income, such
as an individual retirement account ("IRA") or a 401(k) plan, that holds the
Common Stock as an investment generally will not be subject to tax on dividends
paid by the Company. However, if such tax-exempt investor is treated as having
purchased its Common Stock with borrowed funds, some or all of its dividends
will be subject to tax. In addition, a portion of the dividends paid to certain
pension plans (including 401(k) plans but not including IRAs and government
pension plans) that own more than 10% (by value) of the Company's outstanding
capital stock will be taxed as unrelated business taxable income if the Company
is a "pension held REIT." The Company does not expect to be a pension held REIT.
SPECIAL TAX CONSIDERATIONS FOR FOREIGN STOCKHOLDERS
The rules governing United States federal income taxation of non-resident
alien individuals, foreign corporations, foreign partnerships and foreign trusts
and estates (collectively, "Non-U.S. Stockholders") are complex, and the
following discussion is intended only as a summary of these rules. Prospective
Non-U.S. Stockholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws on an investment in the
Company, including any reporting requirements.
In general, Non-U.S. Stockholders will be subject to regular United States
federal income tax with respect to their investment in the Company if the
investment is "effectively connected" with the Non-U.S. Stockholder's conduct of
a trade or business in the United States. A corporate Non-U.S. Stockholder that
receives income that is (or is treated as) effectively connected with a U.S.
trade or business also may be subject to the branch profits tax under Section
884 of the Code, which is imposed in addition to regular United States federal
corporate income tax generally at the rate of 30%, subject to reduction under a
tax treaty, if applicable. Certain certification requirements must be met in
order for effectively connected income to be exempt from withholding. The
following discussion will apply to Non-U.S. Stockholders whose investment in the
Company is not so effectively connected.
A distribution by the Company that is not attributable to gain from the sale
or exchange by the Company of a United States real property interest and that is
not designated by the Company as a capital gain dividend will be treated as an
ordinary dividend to the extent that it is made out of current or accumulated
earnings and profits. Generally, any ordinary income dividend will be subject to
a United States federal income tax equal to 30% of the gross amount of the
dividend unless this tax is reduced by an applicable tax treaty. To the extent
that the Company makes a distribution in excess of its current or accumulated
earnings and profits, the distribution will be treated first as a tax-free
return of capital, reducing a Non-U.S. Stockholder's basis in its Common Stock
(but not below zero), and the distribution in excess of a Non-U.S. Stockholder's
tax basis in its Common Stock will be treated as gain realized from the sale of
its Common Stock.
Distributions by the Company that are attributable to gain from the sale or
exchange of a United States real property interest will be taxed to a Non-U.S.
Stockholder under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S. Stockholder
as if the distributions were gains "effectively connected" with a United States
trade or business. Accordingly, a Non-U.S. Stockholder will be taxed at the
normal capital gain rates applicable to a U.S. Stockholder (subject to any
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). Distributions subject to FIRPTA also may
be subject to the branch profits tax generally at the rate of 30%, subject to
reduction under a tax treaty, if applicable.
Although tax treaties may reduce the Company's withholding obligations, the
Company generally will withhold from distributions to Non-U.S. Stockholders, and
remit to the IRS, (i) 35% of designated capital gain dividends (or, if greater,
35% of the amount of any distributions that could be designated as capital gain
dividends) and (ii) 30% of all other distributions out of current or accumulated
earnings and profits, unless reduced by an applicable tax treaty. Further, the
Company generally will withhold from distributions
25
<PAGE>
to Non-U.S. Stockholders 10% of any distribution in excess of the Company's
current and accumulated earnings and profits. In addition, if the Company
designates prior distributions as capital gain dividends, subsequent
distributions, up to the amount of such prior distributions, will be treated as
capital gain dividends for purposes of withholding. A Non-U.S. Stockholder
generally will be entitled to a refund from the IRS to the extent an amount is
withheld from a distribution that exceeds the amount of U.S. tax owned by such
Non-U.S. Stockholder.
Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. Under
Treasury Regulations generally effective for payments made on or after January
1, 2000 (subject to certain transition rules), however, a Non-U.S. Stockholder
who wished to claim the benefit of an applicable treaty rate would be required
to satisfy certain certification and other requirements. Under certain treaties,
lower withholding rates generally applicable to dividends do not apply to
dividends from a REIT, such as the Company.
In general, the sale or other taxable disposition ("sale") of Common Stock
by a Five Percent Non-U.S. Stockholder is subject to United States income tax
unless and until the Company becomes a domestically controlled REIT (as
described below). A "Five Percent Non-U.S. Stockholder" is a Non-U.S.
Stockholder who at some time during the five-year period preceding such sale,
beneficially owned (including under certain rules of constructive ownership)
more than five percent of the total fair market value of the Common Stock (as
outstanding from time to time) or owned shares of another class of stock of the
Company that represented value equivalent to more than five percent of the
Common Stock (measured at the time such shares were acquired). For so long as
the Company continues to be regularly traded on an established securities
market, the sale of shares by any other Non-U.S. Stockholder is generally not
subject to United States federal income tax (unless any gain realized therefrom
is effectively connected with a trade or business conducted by such Non-U.S.
Stockholder in the United States or, in the case of a nonresident alien
individual, such person is present in the United States for more than 182 days
during the taxable year and certain other requirements are met).
A REIT is a domestically controlled REIT if at all times during the
five-year period preceding the relevant testing date, less than 50% in value of
its shares is held directly or indirectly by Non-U.S. Stockholders (taking into
account those persons required to include the Company's dividends in income for
United States federal income tax purposes). Currently more than 50% in value of
the Company's shares is held directly or indirectly by Non-U.S. Stockholders,
and the Company will not qualify as a domestically controlled REIT for at least
five years following such date as less than 50% is so held. Further, in part
because the Common Stock is publicly traded in the United States, Luxembourg and
Germany, no assurance can be given that the Company will qualify as a
domestically controlled REIT even following such five-year period. In this
regard, the Company's Articles of Incorporation were amended in 1997 to prohibit
transfers of shares of the Company's stock to a non-U.S. person (as specifically
defined) if such transfer would cause such non-U.S. person to own directly or
indirectly more than 3% of the value of the outstanding shares of any class of
the Company. So long as the Company is not a domestically controlled REIT, a
Five Percent Non-U.S. Stockholder will be taxable in the same manner as a U.S.
Stockholder with respect to gain on the sale of Common Stock (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals).
Even if the sale of shares of Common Stock by a Non-U.S. Stockholder is not
subject to United States federal income taxation under the above rules, a
Non-U.S. Stockholder would be subject to United States federal income taxation
on any gain from such a sale if either (i) such gain is effectively connected
with the conduct of a trade or business in the United States by such Non-U.S.
Stockholder (in which case the gain will be taxable on a net basis), or (ii) the
Non-U.S. Stockholder is a nonresident alien individual who is present in the
United States for more than 182 days during the taxable year and certain other
requirements are met (in which case such gain will be subject to a 30% tax on a
gross basis). Further, in all cases, a Non-U.S. Stockholder would remain subject
to United States federal income tax in respect of such Non-U.S.
26
<PAGE>
Stockholder's share of any distribution by the Company to the extent
attributable to gain recognized from the sale of a United States real property
interest.
Upon the death of a foreign individual stockholder, the stockholder's shares
will be treated as part of the stockholder's U.S. estate for purposes of the
U.S. estate tax, except as may be otherwise provided in an applicable estate tax
treaty.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
The Company will report to its U.S. Stockholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under certain circumstances, U.S. Stockholders may be subject to backup
withholding at a rate of 31% on payments made with respect to, or cash proceeds
of a sale or exchange of, Common Stock. Backup withholding will apply only if
the holder (i) fails to furnish his or her taxpayer identification number
("TIN") (which, for an individual, would be his or her Social Security number),
(ii) furnishes an incorrect TIN, (iii) is notified by the IRS that he or she has
failed properly to report payments of interest and dividends or is otherwise
subject to backup withholding or (iv) under certain circumstances, fails to
certify, under penalties of perjury, that he or she has furnished a correct TIN
and (a) that he or she has not been notified by the IRS that he or she is
subject to backup withholding for failure to report interest and dividend
payments or (b) that he or she has been notified by the IRS that he or she is no
longer subject to backup withholding. Backup withholding will not apply with
respect to payments made to certain exempt recipients, such as corporations and
tax-exempt organizations.
U.S. Stockholders should consult their own tax advisors regarding their
qualifications for exemption from backup withholding and the procedure for
obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a U.S.
Stockholder will be allowed as a credit against the U.S. Stockholder's United
States federal income tax liability and may entitle the U.S. Stockholder to a
refund, provided that the required information is furnished to the IRS.
Backup withholding tax and information reporting will generally not apply to
distributions paid to Non-U.S. Stockholders outside the United States that are
treated as (i) dividends subject to the 30% (or lower treaty rate) withholding
tax discussed above, (ii) capital gains dividends or (iii) distributions
attributable to gain from the sale or exchange by the Company of United States
real property interests. As a general matter, backup withholding and information
reporting will not apply to a payment of the proceeds of a sale of Common Stock
by or through a foreign office of a foreign broker. Information reporting (but
not backup withholding) will apply, however, to a payment of the proceeds of a
sale of Common Stock by a foreign office of a broker that (a) is a United States
person, (b) derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States or (c) is a "controlled
foreign corporation" (generally, a foreign corporation controlled by United
States stockholders) for United States tax purposes, unless the broker has
documentary evidence in its records that the holder is a Non-U.S. Stockholder
and certain other conditions are met, or the stockholder otherwise establishes
an exemption. Payment to or through a United States office of a broker of the
proceeds of a sale of Common Stock is subject to both backup withholding and
information reporting unless the stockholder certifies under penalty of perjury
that the stockholder is a Non-U.S. Stockholder, or otherwise establishes an
exemption. A Non-U.S. Stockholder may obtain a refund of any amounts withheld
under the backup withholding rules by filing the appropriate claim for refund
with the IRS.
STATE AND LOCAL TAX
The Company and its stockholders may be subject to state and local tax in
states and localities in which it does business or owns property. The tax
treatment of the Company and the stockholders in such jurisdictions may differ
from the federal income tax treatment described above. Consequently, prospective
stockholders should consult their own tax advisors regarding the effect of state
and local tax laws on an investment in the Company.
27
<PAGE>
SELLING STOCKHOLDER
The Prudential Insurance Company of America, the Selling Stockholder, is a
New Jersey corporation having its principal place of business in Newark, New
Jersey. On April 28, 1998, the Company originally issued the 3,428,571 Shares of
Common Stock offered hereby to the Selling Stockholder as part of the
consideration paid to the Selling Stockholder for its interest in a Class A
office property located at One Memorial Drive, Cambridge, Massachusetts acquired
by one of the Company's subsidiaries on that date. Within the past three years,
none of the Selling Stockholder, its directors, officers or employees had any
position, office or other material relationship with the Company or any of its
predecessors or affiliates.
The following table sets forth certain information with respect to the
Selling Stockholder as of June 30, 1998, including the number of Shares offered
by the Selling Stockholder, the number of Shares beneficially owned by the
Selling Stockholder before and after the offering and the percentage of
ownership of the outstanding shares of Common Stock represented by the Shares
held by the Selling Stockholder before and after the offering. The Selling
Stockholder may from time to time offer and sell pursuant to this Prospectus any
or all the Shares and there can be no assurance that all or any of the Shares
offered hereby will be sold. If any are sold, the Selling Stockholder will
receive all of the net proceeds from the sale of its Shares offered hereby.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED AFTER OFFERING
(IF ALL SHARES ARE SOLD)
OWNED PRIOR TO OFFERING
----------------------- ------------------------
<S> <C> <C> <C> <C> <C>
SHARES
SELLING STOCKHOLDER NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------------------------- ---------- ----------- ---------- ----------- -----------
The Prudential Insurance Company of America................ 3,428,571 3.7% 3,428,571 0 0
</TABLE>
28
<PAGE>
PLAN OF DISTRIBUTION
The Shares may be sold from time to time to purchasers directly by the
Selling Stockholder. Alternatively, the Selling Stockholder may from time to
time offer the Shares to or through underwriters, broker/dealers or agents, who
may receive compensation in the form of discounts, concessions or commissions;
such compensation, which may be in excess of ordinary brokerage commissions, may
be paid by the Selling Stockholder and/or the purchasers of the Shares offered
hereby for whom such underwriters, dealers or agents may act as agent. The
Selling Stockholder and any underwriters, broker/dealers or agents that
participate in the distribution of the Shares offered hereby may be deemed to be
"underwriters" as defined in the Securities Act, and any profit on the sale of
such Shares offered hereby by them and any discounts, commissions, concessions
or other compensation received by any such underwriter, broker/ dealer or agent
might be deemed to be underwriting discounts and commissions under the
Securities Act.
The Shares offered hereby may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of the sale or at negotiated
prices. The sale of Shares offered hereby may be effected in transactions (which
may involve crosses or block transactions) (i) on the NYSE or any national
securities exchange or quotation service on which the Common Stock may be listed
or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in
transactions otherwise than on such exchange or in the over-the-counter market
or (iv) through the writing of options. At the time a particular offering of the
Shares is made, a Prospectus Supplement, if required, will be distributed which
will set forth the aggregate amount of Shares being offered and the terms of the
offering, including the name or names of any underwriters, broker/dealers or
agents, and any discounts, commissions and other terms constituting compensation
from the Selling Stockholders and any discounts, commissions or concessions
allowed or reallowed or paid to broker/dealers.
To comply with the securities laws of certain states, if applicable, the
Shares offered hereby will be offered or sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be offered or sold unless they have been registered or qualified
for sale in the applicable state 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 Common Stock offered may be restricted from
engaging in market making activities with respect to the Common Stock. In
addition, and without limiting the foregoing, the Selling Stockholder will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, which may limit the timing of purchases and sales of the
Shares by the Selling Stockholder.
If the Selling Stockholder offers the Shares to or through underwriters, the
rules of the Commission permit the underwriters to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock.
If the Selling Stockholder offers the Shares to or through underwriters and
the underwriters create a short position in the Common Stock in connection with
the offering, i.e., if they sell more Shares than are being offered by the
Selling Shareholder, the underwriters may reduce that short position by
purchasing Common Stock in the open market.
If the Selling Stockholder offers Shares to or through underwriters, the
underwriters may impose a penalty bid on certain underwriters and selling group
members. This means that, if the underwriters purchase shares of Common Stock in
the open market to reduce the underwriters' short position or to stabilize the
price of the Common Stock, they may reclaim the amount of the selling concession
from the underwriters and selling group members who sold those shares as part of
the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The
29
<PAGE>
imposition of a penalty bid might also have an effect on the price of a security
to the extent that it were to discourage resales of the security. If the Selling
Stockholder offers Shares to or through underwriters, neither the Selling
Stockholder, the Company nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Selling Stockholder, the Company nor any of the underwriters makes any
representation that the underwriters will engage in such transactions, or that
such transactions, once commenced, will not be discontinued without notice.
Under agreements into which the Company may enter, underwriters, dealers and
agents who participate in the distribution of Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act. In the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
There can be no assurance that the Selling Stockholder will sell any or all
of the Shares offered hereunder.
The Company will pay all the expenses incident to the registration of the
Shares offered hereby, including, without limitation, Commission filing fees and
expenses of compliance with state securities or "blue sky" laws; provided,
however, that the Selling Stockholder will pay any underwriting discounts,
commissions, and transfer taxes.
The Company has agreed to indemnify the Selling Stockholder against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Lionel, Sawyer & Collins, Las Vegas, Nevada. Certain legal matters
related to the sale of the Shares will by passed upon for the Company by
Shearman & Sterling, New York, New York.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1996, and the
consolidated statements of income, changes in stockholders' investment and cash
flows for the years ended December 31, 1997, 1996 and 1995 and financial
statement schedules incorporated by reference in this Prospectus or elsewhere in
the Registration Statement of which this Prospectus is a part, have been
incorporated herein in reliance upon the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE OR, IN THE CASE OF INFORMATION INCORPORATED HEREIN
BY REFERENCE, THE DATE OF FILING WITH THE SECURITIES AND EXCHANGE COMMISSION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Information by Reference......................... 3
Forward-Looking Information............................................... 3
Risk Factors.............................................................. 4
The Company............................................................... 11
Use of Proceeds........................................................... 13
Description of Outstanding Capital Stock of the Company................... 13
Certain Provisions of Nevada Law and of the Company's Articles of
Incorporation........................................................... 15
Certain United States Federal Income Tax Considerations................... 18
Selling Stockholder....................................................... 28
Plan of Distribution...................................................... 29
Legal Matters............................................................. 30
Experts................................................................... 30
</TABLE>
3,428,571 SHARES
CORNERSTONE
PROPERTIES INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table is an itemized listing of expenses to be incurred by the
Registrant in connection with the issuance and distribution of the Shares of
Common Stock being registered hereby, other than underwriting discounts and
commissions. All amounts shown are estimates, except the Registration Fee and
the NYSE Listing Fee:
<TABLE>
<S> <C>
Registration Fee................................................ $18,079.28
NYSE Listing Fee................................................ [ ]
Printing and Engraving Expenses................................. [ ]
Accounting Fees and Expenses.................................... [ ]
Legal Fees and Expenses (other than Blue Sky)................... [ ]
Transfer Agent and Registrar Fees............................... [ ]
Miscellaneous................................................... [ ]
Total........................................................... [ ]
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Subsection 1 of Section 78.7502 of Chapter 78 of the Nevada Revised Statutes
(the "NRS") empowers a corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction or upon
a plea of nolo contendere or its equivalent does not, of itself, create a
presumption that the person did not act in good faith or in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation or that, with respect to any criminal action or proceeding, he had
reasonable cause to believe his actions were unlawful.
Subsection 2 of Section 78.7502 of the NRS empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted under similar
standards to those described above except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation or for amounts paid in settlement to
the corporation unless and only to the extent that the court in which such
action or suit was brought determines that, despite the adjudication of
liability, such person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
Section 78.7502 of the NRS further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (1) and (2) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including
II-1
<PAGE>
attorneys' fees) actually and reasonably incurred by him in connection
therewith. Section 78.751 of the NRS provides that any indemnification provided
for by Section 78.7502 of the NRS (by court order or otherwise) shall not be
deemed exclusive of any other rights to which the indemnified party may be
entitled and that the scope of indemnification shall continue as to directors,
officers, employees or agents who have ceased to hold such positions, and to
their heirs, executors and administrators. Section 78.752 empowers the
corporation to purchase and maintain insurance on behalf of a director, officer,
employee or agent of the corporation against any liability asserted against him
or incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 78.7502.
Article IX of the Bylaws of the Registrant provides for indemnification of
its officers and Directors, substantially identical in scope to that permitted
under Section 78.7502 of the NRS. The Bylaws provide, pursuant to Subsection 2
of Section 78.7502 of the NRS, that the expenses of officers and Directors
incurred in defending any action, suit or proceeding, whether civil, criminal,
administrative or investigative, must be paid by the Registrant as they are
incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of any undertaking by or on behalf of the Director or
Officer to repay such amounts unless it shall ultimately be determined that he
is entitled to be indemnified by the Registrant pursuant to Article IX of the
Bylaws.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------
<C> <S>
+4.1 Specimen of Common Stock Certificate.
++4.2(a) Restated Articles of Incorporation of the Registrant.
+4.2(b) Certificate of Amendment of Restated Articles of Incorporation of the
Registrant, dated October 27, 1997.
4.2(c) Certificate of Amendment of Restated Articles of Incorporation of the
Registrant, dated July 10, 1998.
++4.3 Bylaws of the Registrant.
5.1 Opinion of Lionel Sawyer & Collins.
8.1 Opinion of Shearman & Sterling as to certain tax matters.
23.1 Consent of Lionel Sawyer & Collins (contained in the opinion filed as Exhibit
5.1).
23.2 Consent of Shearman & Sterling (contained in the opinion filed as Exhibit 8.1).
*23.3 Consent of PricewaterhouseCoopers LLP.
*23.4 Consent of Grant Thornton LLP.
*23.5 Consent of Arthur Andersen LLP.
24.1 Power of Attorney.
</TABLE>
- ------------------------
+ Incorporated by reference from the Registrant's Registration Statement on
Form S-3, as filed with the Commission on March 2, 1998 (Registration No.
333-47149).
++ Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995.
* To be filed by amendment.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section
do not apply if the Registration Statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to Section 13 or
Section 15(d) of the Exchange Act that are incorporated by reference in the
Registration Statement;
(2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby further undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant hereby further undertakes to deliver or cause to
be delivered with the Prospectus, to each person to whom the Prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the Prospectus, to deliver, or cause to be
delivered to each person to whom the Prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
Prospectus to provide such interim financial information.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York, on this 16th day of July, 1998.
CORNERSTONE PROPERTIES INC.
BY: /S/ JOHN S. MOODY
-----------------------------------------
John S. Moody
Name:
CHIEF EXECUTIVE OFFICER, DIRECTOR
AND CHAIRMAN OF THE BOARD
Title:
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ JOHN S. MOODY
- ------------------------------ July 16, 1998
John S. Moody Chief Executive Officer,
Director and Chairman of
the Board (Principal
Executive Officer)
/s/ THOMAS P. LOFTUS
- ------------------------------ July 16, 1998
Thomas P. Loftus Chief Administrative
Officer, Secretary and
Controller (Principal
Accounting Officer)
/s/ KEVIN P. MAHONEY
- ------------------------------ July 16, 1998
Kevin P. Mahoney Senior Vice President and
Chief Financial Officer
(Principal Financial
Officer)
/s/ CECIL D. CONLEE
- ------------------------------ July 16, 1998
Cecil D. Conlee Director
- ------------------------------ July 16, 1998
Rodney C. Dimock Director
/s/ BLAKE EAGLE
- ------------------------------ July 16, 1998
Blake Eagle Director
/s/ DR. KARL-LUDWIG HERMANN
- ------------------------------ July 16, 1998
Dr. Karl-Ludwig Hermann Director
/s/ HANS C. MAUTNER
- ------------------------------ July 16, 1998
Hans C. Mautner Director
- ------------------------------ July 16, 1998
Dr. Lutz Mellinger Director
II-5
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ CRAIG R. STAPLETON
- ------------------------------ July 16, 1998
Craig R. Stapleton Director
- ------------------------------ July 16, 1998
Michael J.G. Topham Director
- ------------------------------ July 16, 1998
Dick van den Bos Director
- ------------------------------ July 16, 1998
Jan van der Vlist Director
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
<C> <S> <C>
+4.1 Specimen of Common Stock Certificate.
++4.2(a) Restated Articles of Incorporation of the Registrant.
+4.2(b) Certificate of Amendment of Restated Articles of Incorporation of the Registrant, dated
October 27, 1997.
4.2(c) Certificate of Amendment of Restated Articles of Incorporation of the Registrant, dated July
10, 1998.
++4.3 Bylaws of the Registrant.
5.1 Opinion of Lionel Sawyer & Collins.
8.1 Opinion of Shearman & Sterling as to certain tax matters.
23.1 Consent of Lionel Sawyer & Collins (contained in the opinion filed as Exhibit 5.1).
23.2 Consent of Shearman & Sterling (contained in the opinion filed as Exhibit 8.1).
*23.3 Consent of PricewaterhouseCoopers LLP.
*23.4 Consent of Grant Thornton LLP.
*23.5 Consent of Arthur Andersen LLP.
24.1 Power of Attorney.
</TABLE>
- ------------------------
+ Incorporated by reference from the Registrant's Registration Statement on
Form S-3, as filed with the Commission on March 2, 1998 (Registration No.
333-47149).
++ Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995.
* To be filed by amendment.
<PAGE>
Exhibit 4.2(c)
CERTIFICATE OF AMENDMENT OF
RESTATED ARTICLES OF INCORPORATION
OF
CORNERSTONE PROPERTIES INC.
The undersigned, being the President and Secretary of Cornerstone
Properties Inc., a Nevada corporation (the "Corporation"), do hereby certify
as follows:
1. That on May 20, 1998, the board of directors of the
Corporation by a vote taken and adopted, consented to the adoption of
resolutions setting forth the proposed amendment to the Restated Articles of
Incorporation of the Corporation, as hereinafter set forth, declaring the
advisability thereof, and calling a meeting of the shareholders for the
purpose of considering and voting upon the proposed amendment.
2. Said resolution called for the following amendment to the
Restated Articles of Incorporation:
I. The first paragraph of ARTICLE 4, Section 4.01, Authorized
Shares, is hereby amended in its entirety as follows:
Section 4.01 Authorized Shares. The aggregate number of shares
that the Corporation shall have the authority to issue is Three
Hundred Fifteen Million (315,000,000) shares of Capital Stock
consisting of Sixty-Five Million (65,000,000) shares of Preferred
Stock with no par value per share and Two Hundred Fifty Million
(250,000,000) shares of Common Stock with no par value per share.
Except as specifically amended herein, ARTICLE 4 shall not be
affected by this amendment and shall continue in full force and effect.
3. That at the annual meeting of the shareholders of the
Corporation held on May 20, 1998, of a total of 82,000,866 votes cast at such
annual meeting, shareholders holding 63,599,207 shares of the Corporation,
which constituted a majority of shares entitled to vote at the annual
meeting, cast votes in favor and adopted and consented to the adoption of a
resolution setting forth the proposed amendment to the Corporation's Restated
Articles of Incorporation as hereinabove set forth.
<PAGE>
4. That the Restated Articles of Incorporation of the Corporation
are hereby amended as set forth above and the undersigned make this
certificate pursuant to Section 78.385 and 78.390 of the Nevada Revised
Statutes.
CORNERSTONE PROPERTIES INC.
By: /s/Rodney C. Dimock
------------------------------------
Rodney C. Dimock
President
By: /s/Thomas P. Loftus
------------------------------------
Thomas P. Loftus
Secretary
State of New York
County of Richmond
This instrument was acknowledged before me on June 10, 1998 by
Rodney C. Dimock as President of CORNERSTONE PROPERTIES INC.
/s/Barbara E. Beltz
--------------------------------------
Notary Public
Printed: Barbara E. Beltz
------------------------------
My Commission expires: 1-18-00
----------------
(Seal, if any)
<PAGE>
[LETTERHEAD OF LIONEL SAWYER & COLLINS]
July 16, 1998
Cornerstone Properties Inc.
126 East 56th Street
New York, New York 10022
RE: Cornerstone Properties Inc.
Registration Statement on Form S-3
----------------------------------
Dear Sirs:
We have acted as special Nevada counsel for Cornerstone Properties Inc., a
Nevada corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-3 ("Registration Statement"), being filed by
the Company with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"), with respect to the
registration by the Company of 3,428,571 shares ("Shares") of Common Stock, no
par value per share (the "Common Stock"), for the account of Prudential
Insurance Company of America ("Prudential") such Shares to be offered in amounts
and at prices per share to be determined at the time of such offering, and set
forth in one or more prospectus supplements to the Registration Statement (each
a "Prospectus Supplement"). The Company has provided us with a draft prospectus
("Prospectus"), which is part of the Registration Statement. Capitalized terms
used in this Opinion Letter and not defined herein shall have the meaning given
to them in the Registration Statement.
<PAGE>
Cornerstone Properties Inc.
July 16, 1998
Page 2
We have examined originals or copies of such corporate records and
certificates of public officials as we have deemed necessary or advisable for
the purposes of this Opinion Letter. We have assumed the authenticity of all
documents submitted to us as originals, the genuineness of all signatures, the
legal capacity of natural persons and the conformity to originals of all copies
of all documents submitted to us. We have relied upon the certificates of all
public officials and corporate officers with respect to the accuracy of all
matters contained therein, including without limitation, the certificate of the
Company's Secretary, a copy of which has been previously provided to you.
Based upon and subject to the foregoing, and subject to the qualifications,
limitations, restrictions and assumptions set forth below, we are of the opinion
that:
1. The Company is a corporation duly incorporated, validly existing, and
in good standing under the laws of the State of Nevada.
2. The Company has the authority to issue up to Two Hundred Fifty Million
(250,000,000) shares of Common Stock.
3. The Shares have been validly issued and are fully paid and
nonassessable.
Nothing herein shall be deemed an opinion as to the laws of any other
jurisdiction other than the State of Nevada.
This Opinion Letter is intended solely for the use of the Company in
connection with the Registration Statement. It may not be relied upon by any
other person or for any other purpose, or reproduced or filed publicly by any
person without the written consent of this firm: provided, we hereby consent to
the filing of this Opinion Letter as an exhibit to the Registration Statement
and to the reference to our firm under the caption "Legal Matters" in the
Prospectus included therein. In giving consent, we do not hereby admit that we
are in a category of persons whose consent is required pursuant to Section 7 of
the Act or the rules and regulations of the Commission promulgated thereunder,
and we disclaim liability as an expert under the securities laws of the United
States or any other jurisdiction.
Very truly yours,
/s/ LIONEL SAWYER & COLLINS
LIONEL SAWYER & COLLINS
<PAGE>
Exhibit 8.1
July 16, 1998
Cornerstone Properties Inc.
126 East 56th Street
New York, NY 10022
Federal Income Tax Matters
Ladies and Gentlemen:
This opinion is delivered to you in our capacity as counsel to Cornerstone
Properties Inc. (the "Company") in connection with the Company's registration
statement on Form S-3 (the "Registration Statement") filed by the Company with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended, relating to the registration of 3,428,571 shares of the
Company's Common Stock, without par value, for the account of Prudential
Insurance Company of America (the "Selling Stockholder"). The opinion relates to
the Company's qualification for federal income tax purposes as a real estate
investment trust (a "REIT") as defined in section 856 of the Internal Revenue
Code of 1986, as amended, (the "Code").
In rendering the following opinions, we have examined the Restated Articles
of Incorporation, as amended, and Bylaws of the Company, and such other records,
certificates and documents as we have deemed necessary or appropriate for
purposes of rendering the opinions set forth herein. We have reviewed the
Registration Statement and the documents incorporated by reference therein (the
"Incorporated Documents") that describe the Company and its investments and
activities. We have relied upon the representations of the Company and its
affiliates and certain officers thereof (including, without limitation,
representations contained in a representation letter dated as of this date),
regarding the manner in which the Company has been and will continue to be owned
and operated. We assume that the Company has been and will be operated in
accordance with applicable laws and the terms and conditions of applicable
documents, and that the descriptions of the Company and its investments, and the
proposed investments, activities, operations and governance of the Company set
forth in the Registration Statement and the Incorporated Documents continue to
be true.
<PAGE>
Based upon and subject to the foregoing and based upon the Code, the
Regulations issued by the United States Treasury Department thereunder, court
decisions, and rulings and other pronouncements of the Internal Revenue Service,
all as in effect on the date hereof, we are of the opinion that:
The statements in the Registration Statement set forth under the
caption "Federal Income Tax Considerations," to the extent constituting
matters of law, summaries of legal matters, or legal conclusions, are
accurate in all material respects.
Qualifications of the Company as a REIT, however, will depend upon the
Company's satisfaction annually of the various qualification tests imposed by
the Code, and no assurance can be made that the Company will be able to satisfy
or will actually satisfy these various qualification tests. We do not undertake
to monitor whether the Company will, in fact, satisfy the various qualification
tests, and we express no opinion whether the Company actually will satisfy these
various qualification tests in the future.
This opinion is based on current federal income tax law, and we do not
undertake to advise you as to any future changes in federal income tax law that
may affect this opinion unless we are specifically engaged to do so.
This opinion relates solely to federal income tax law, and we do not
undertake to render any opinion as to the qualification of the Company as a REIT
under any state or local corporate franchise or income tax laws.
We hereby consent to the use of our name and opinions under "Federal
Income Tax Considerations" in the Registration Statement and the reference to
our name under the heading "Legal Matters" in the Registration Statement.
Very truly yours,
/s/ Shearman & Sterling
FHM/MCS/PHB/JMC/JPB
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints John S. Moody, and his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement and all amendments and supplements
to any prospectus relating thereto and any other documents and instruments
incidental thereto, and any registration statement filed pursuant to Rule 462
under the Securities Act of 1933, as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with John S.
Moody, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as full to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming that each of said attorneys-in-fact and agents and/or John S.
Moody, or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
13-7-1998 /s/ Dr. Lutz Mellinger
- ---------------------------- -----------------------------------
Date Dr. Lutz Mellinger
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints John S. Moody, and his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement and all amendments and supplements
to any prospectus relating thereto and any other documents and instruments
incidental thereto, and any registration statement filed pursuant to Rule 462
under the Securities Act of 1933, as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with John S.
Moody, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as full to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming that each of said attorneys-in-fact and agents and/or John S.
Moody, or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
13 July 1998 /s/ Hans C. Mautner
- ---------------------------- -----------------------------------
Date Hans C. Mautner
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints John S. Moody, and his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement and all amendments and supplements
to any prospectus relating thereto and any other documents and instruments
incidental thereto, and any registration statement filed pursuant to Rule 462
under the Securities Act of 1933, as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with John S.
Moody, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as full to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming that each of said attorneys-in-fact and agents and/or John S.
Moody, or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
13 July, 1998 /s/ Dr. Karl-Ludwig Hermann
- ---------------------------- -----------------------------------
Date Dr. Karl-Ludwig Hermann
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints John S. Moody, and his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement and all amendments and supplements
to any prospectus relating thereto and any other documents and instruments
incidental thereto, and any registration statement filed pursuant to Rule 462
under the Securities Act of 1933, as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with John S.
Moody, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as full to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming that each of said attorneys-in-fact and agents and/or John S.
Moody, or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
July 13, 1998 /s/ Blake Eagle
- ---------------------------- -----------------------------------
Date Blake Eagle
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints John S. Moody, and his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement and all amendments and supplements
to any prospectus relating thereto and any other documents and instruments
incidental thereto, and any registration statement filed pursuant to Rule 462
under the Securities Act of 1933, as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with John S.
Moody, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as full to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming that each of said attorneys-in-fact and agents and/or John S.
Moody, or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
7-13-98 /s/ Cecil D. Conlee
- ---------------------------- -----------------------------------
Date Cecil D. Conlee
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints John S. Moody, and his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement and all amendments and supplements
to any prospectus relating thereto and any other documents and instruments
incidental thereto, and any registration statement filed pursuant to Rule 462
under the Securities Act of 1933, as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with John S.
Moody, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as full to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming that each of said attorneys-in-fact and agents and/or John S.
Moody, or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
July 14, 1998 /s/ Craig R. Stapleton
- ---------------------------- -----------------------------------
Date Craig R. Stapleton
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints John S. Moody, and his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement and all amendments and supplements
to any prospectus relating thereto and any other documents and instruments
incidental thereto, and any registration statement filed pursuant to Rule 462
under the Securities Act of 1933, as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with John S.
Moody, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as full to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming that each of said attorneys-in-fact and agents and/or John S.
Moody, or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
7/14/98 /s/ Michael J.G. Topham
- ---------------------------- -----------------------------------
Date Michael J.G. Topham
