<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 2, 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 (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR 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, 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
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO MAXIMUM OFFERINGPRICE AGGREGATEOFFERING
TO BE REGISTERED BE REGISTERED PER SHARE(1) PRICE(1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, without par
value... 34,493,192 $17.8125 $614,409,982.50
==============================================================================================================
<CAPTION>
================================= =======================
TITLE OF EACH CLASS OF SECURITIES AMOUNT OF
TO BE REGISTERED REGISTRATION FEE
- --------------------------------- -----------------------
<S> <C>
Common Stock, without par
value... $181,250.94
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</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 THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
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.
SUBJECT TO COMPLETION, DATED MARCH 2, 1998
PROSPECTUS
34,493,192 SHARES
CORNERSTONE PROPERTIES INC.
COMMON STOCK
------------------------
All of the 34,493,192 shares (the "Shares") of common stock, without par
value ("Common Stock"), of Cornerstone Properties Inc. (the "Company") offered
hereby are being offered by certain stockholders of the Company named herein
(collectively, the "Selling Stockholders"). The Selling Stockholders received
the Shares, which were originally issued by the Company, in connection with the
acquisition by the Company of nine Class A office properties and one parcel of
undeveloped land in October 1997 and the purchase by the Company of certain
participation rights in one of the Company's Class A office properties in New
York City in January 1998. See "Selling Stockholders."
Each Selling Stockholder may from time to time sell all or 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 Stockholders reserve the sole
right to accept and, together with the Selling Stockholders' 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 Stockholders and any underwriters, brokers, dealers or agents
that participate with the Selling Stockholders 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 Stockholders from the sale of the Shares
offered by the Selling Stockholders 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 is limited to 6.0% (and 3% 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 Stockholders
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> 3
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 STOCKHOLDERS 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 of 1933, as amended (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 statements, and other information with the
Commission. The Registration Statement, as well as such reports, proxy
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, 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, 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 can also be inspected at the offices of the
NYSE, at 20 Broad Street, New York, New York 10005.
2
<PAGE> 4
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, 1996, as amended by the Company's Report on Form 10-K/A, dated
March 10, 1997, filed with the Commission pursuant to the Exchange Act.
2. The Company's Report on Form 10-K/A, dated February 21, 1997,
amending the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, filed with the Commission pursuant to the Exchange Act.
3. The Company's Reports on Form 10-Q, for the fiscal quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997, filed with the
Commission pursuant to the Exchange Act.
4. The Company's Current Reports on Form 8-K dated, January 29, 1997,
July 28, 1997, August 21, 1997, October 30, 1997, December 3, 1997,
December 19, 1997, January 14, 1998 and February 5, 1998 filed with the
Commission pursuant to the Exchange Act.
5. The Company's Current Reports on Form 8-K/A, dated January 22,
1997, February 24, 1997, February 24, 1997, March 10, 1997 and September
18, 1997, filed with the Commission pursuant to the Exchange Act.
6. The Company's Proxy Statement, dated September 23, 1997, filed with
the Commission pursuant to the Exchange Act.
7. The description of the Company's Common Stock contained in Item 10
of Form 10 filed with the Commission on April 30, 1982, pursuant to Section
12(g) of the Exchange Act, including all amendments and reports updating
such description.
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 or 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 analyses of these risks and forces could be incorrect and/or that the
strategies developed to address them could be unsuccessful.
3
<PAGE> 5
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 February 26, 1998, two Selling Stockholders hereunder, Stichting
Pensioenfonds Voor de Gezondheid Geestelijke en Maatschappelijke Belangen
("PGGM") and its wholly owned subsidiary, Dutch Institutional Holding Company,
Inc. ("DIHC"), together owned approximately 34.9% of the Common Stock of the
Company, and the New York State Teachers Retirement System ("NYSTRS") and
Rodamco N.V. (together with its subsidiaries "Rodamco") owned 7.0% and 4.7%,
respectively, of the Common Stock of the Company. As of February 26, 1998,
Deutsche Bank AG owned all of the outstanding shares of the Company's 7%
Preferred Stock (defined herein) which, if converted, would constitute 3.0% of
the Common Stock, and the Company has been advised by Deutsche Bank AG 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 Board of Directors (the "Board"); and NYSTRS and Rodamco, pursuant to
their rights when each was the owner of the Company's 8% Cumulative Convertible
Preferred Stock and 8% Cumulative Convertible Preferred Stock, Series A,
respectively, each has designated one director to the Board. 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% of the
capital stock of the Company designated (or more than 3% 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 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."
4
<PAGE> 6
RISKS ASSOCIATED WITH THE DIHC ACQUISITION
On October 27, 1997, the Company acquired (the "DIHC Acquisition")
interests in nine additional Class A office properties comprising nearly 4.5
million rentable square feet in Alexandria, Virginia (3 properties), Atlanta (2
properties), Boston (2 properties), Charlotte and Washington, D.C., as well as
an undeveloped parcel of land in Chicago. The DIHC Acquisition requires the
integration of two portfolios of Properties (as defined herein) that have
previously operated independently. No assurance can be given that the Company
will be able to integrate the recently acquired Properties into its operations
without encountering difficulties or that the benefits expected from such
integration will be realized. In addition, there can be no assurance that the
Company will realize anticipated operating synergies from the DIHC Acquisition.
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, 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, 13 of the Company's 19 Properties are pledged to
secure the Company's mortgage indebtedness amounting to approximately $786
million as of February 26, 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 Code,
potentially threatening the continued viability of the Company.
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 8.3% in 2000; $109.9 million or 14.0% in 2001; $80.0 million or 10.2%
in 2002; $67.8 million or 8.6% in 2003; $65.0 million or 8.3% in 2004; $278.7
million or 35.4% in 2005; and $120.0 million or 15.2% 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 mortgage
securing such Properties could be foreclosed upon by, or such Properties could
be otherwise transferred to, the mortgagee with a consequent loss of income and
asset value to the Company.
5
<PAGE> 7
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 February 27, 1998, four of the Company's 19 Properties are located in
the Downtown Boston market and account for approximately 27% 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 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
6
<PAGE> 8
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 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 below) 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
Interests in six of the 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
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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 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 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
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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 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 the 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 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 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 or other capital stock of the Company could
also be dilutive to investors in the Common Stock. As of February 26, 1998,
there were 97,874,511 shares of Common Stock outstanding (excluding 1,817,000
shares of Common Stock that may be issued upon exercise of outstanding options
granted to certain directors and officers). The Company has granted certain of
its existing stockholders, in addition to the Selling Stockholders, registration
rights.
HISTORICAL LOSSES; POSSIBILITY OF FUTURE LOSSES
The Company had losses of $7.0 million, and $13.6 million for fiscal years
1994 and 1995, respectively. Although such losses were due in large part to the
Company's higher levels of leverage in the past, unrealized losses and certain
non-recurring extraordinary items resulting from prepayment penalties on debt
refinancing, there can be no assurance that the Company will not incur
significant losses in the future. As of September 30, 1997, the Company's
consolidated balance sheet reflected an accumulated deficit aggregating
approximately $9.1 million, resulting from the losses referred to above and the
fact that aggregate distributions to stockholders have exceeded net income.
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.
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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 the 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.
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THE COMPANY
The Company is a self-advised REIT with interests in 19 Class A office
properties (collectively, the "Properties," and each, a "Property") comprising
nearly 11 million rentable square feet. The Properties are located in 10 major
metropolitan areas throughout the United States: Atlanta, Boston, Charlotte,
suburban Chicago, Denver, Minneapolis, New York City, Pittsburgh, Seattle and
Washington D.C. and surrounding suburbs. All of the Properties were built
between 1979 and 1991, with the exception of the Pittsburgh Property, which was
substantially renovated in 1988. The Company's strategy is to own Class A office
properties in prime 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. As of September 30, 1997, the Properties were approximately 96% leased
to 768 tenants.
All of the Company's interests in the Properties are held by or through a
Delaware limited partnership, Cornerstone Properties Limited Partnership (the
"Operating Partnership"), of which the Company is the sole general partner. The
Company currently owns directly or indirectly 99.17% of the outstanding units of
partnership interest in the Operating Partnership (excluding certain preferred
units owned by the Company).
The Company is led by John S. Moody, the Chairman of the Board and Chief
Executive Officer, who joined the Company in 1991, and by Rodney C. Dimock, the
President and Chief Operating Officer, who joined the Company in 1995. Mr. Moody
and Mr. Dimock have a combined total of approximately 50 years of commercial
real estate experience. They are supported by a team of ten officers with an
average of 13 years of experience in areas of acquisitions, asset management,
leasing and finance, as well as 14 professional and administrative staff
members.
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.
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 transactions and 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.
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USE OF PROCEEDS
The Selling Stockholders 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 Stockholders.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The authorized capital stock of the Company consists of 250,000,000 shares
of Common Stock and 15,000,000 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 97,874,511 shares of Common Stock outstanding at February
26, 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 Shares will be, 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 Directors 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.
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 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.
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
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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 February 26, 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 (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 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
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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, 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.
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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.
OWNERSHIP RESTRICTIONS
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
capital stock may be owned, directly or indirectly, by five or fewer individuals
(as defined 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.
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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.
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
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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 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
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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 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
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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 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
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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
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,
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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 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 non-cash 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 month shall be treated as both
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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.
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
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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 income 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 non-resident 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. In addition,
as a result of recently enacted legislation, the Company generally will withhold
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 owed by such Non-U.S. Stockholder.
23
<PAGE> 25
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, 1999 (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 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. 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.
24
<PAGE> 26
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.
25
<PAGE> 27
SELLING STOCKHOLDERS
In the DIHC Acquisition on October 27, 1997, the Company acquired interests
in nine Class A office properties comprising approximately 4.5 million rentable
square feet in Alexandria, Virginia (3 Properties), Atlanta (2 Properties),
Boston (2 Properties), Charlotte and Washington, D.C., as well as an undeveloped
parcel of land in Chicago (collectively, the "DIHC Properties"). The DIHC
Acquisition was effected by the Company purchasing all of the outstanding stock
of those direct and indirect subsidiaries of DIHC that owned interests in the
DIHC Properties, together with certain loans to such subsidiaries held by PGGM.
DIHC is a wholly owned subsidiary of PGGM. As consideration for the DIHC
Acquisition, PGGM and DIHC together received approximately $1.06 billion,
consisting of 34,185,500 Shares of Common Stock, approximately $260 million in
cash and $250 million in promissory notes. The Registration Rights and Voting
Agreement among the Company, DIHC and PGGM provides that as long as PGGM and
DIHC and their affiliates own in the aggregate 5% or more of the issued and
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. Pursuant to their rights under this agreement, PGGM and DIHC have
appointed two directors to the Board.
On January 5, 1998, the Company purchased the participation rights in the
cash flow and residual value of Tower 56 from Larry Jay Wyman, Timothy P. Carden
and Mazal American Partners for 307,692 Shares of Common Stock. As a result, all
cash flow and the residual value of Tower 56 will now inure to the Company.
The following table sets forth certain information with respect to the
Selling Stockholders as of February , 1998, including the number of Shares
offered by each Selling Stockholder, the number of Shares beneficially owned by
each Selling Stockholder before and after the offering and the percentage of
ownership of the outstanding shares of Common Stock represented by the holdings
of each Selling Stockholder before and after the offering. The Selling
Stockholders may from time to time offer and sell pursuant to this Prospectus
any or all of the Shares and there can be no assurance that all or any of the
Shares offered hereby will be sold. If any are sold, such Selling Stockholder
will receive all of the net proceeds from the sale of its respective Shares
offered hereby.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED AFTER
SHARES BENEFICIALLY OFFERING
OWNED PRIOR TO (IF ALL SHARES
OFFERING ARE SOLD)
---------------------- SHARES ------------------
SELLING STOCKHOLDER NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------- ---------- ------- ----------- ------ -------
<S> <C> <C> <C> <C> <C>
PGGM(1)................................. 27,458,750 28.0% 27,458,750 0 0
DIHC.................................... 6,726,750 6.9% 6,726,750 0 0
Mazal American Partners(2).............. 205,128 * 205,128 0 0
Larry Jay Wyman......................... 97,436 * 97,436 0 0
Timothy P. Carden....................... 5,128 * 5,128 0 0
</TABLE>
- ---------------
(1) As the sole stockholder of DIHC, PGGM may be deemed to beneficially own the
Shares held beneficially and of record by DIHC. Accordingly, PGGM may be
deemed to own, in the aggregate, 34,185,500 Shares, representing 34.9% of
the outstanding shares of Common Stock.
(2) The record holder of the Shares is Langtry Trust N.V.
(*) Less than 1%.
26
<PAGE> 28
PLAN OF DISTRIBUTION
The Shares may be sold from time to time to purchasers directly by the
Selling Stockholders. Alternatively, the Selling Stockholders 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 Stockholders and/or the purchasers of the Shares offered
hereby for whom such underwriters, dealers or agents may act as agent. The
Selling Stockholders 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 Stockholders 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 Stockholders.
If the Selling Stockholders offer the Shares to or through underwriters,
the rules of the Securities and Exchange 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 Stockholders offer 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 Shareholders, the underwriters may reduce that short position by
purchasing Common Stock in the open market.
If the Selling Stockholders offer 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 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 Stockholders offer Shares
to or through underwriters, neither the Selling
27
<PAGE> 29
Stockholders, 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 Stockholders, 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 Stockholders 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 Stockholders will pay any underwriting discounts,
commissions, and transfers taxes.
The Company has agreed to indemnify the Selling Stockholders against
certain liabilities, including liabilities under the Securities Act.
EXPERTS
The consolidated financial statements and financial statement schedules as
of December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995
and 1994 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 Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Shearman &
Sterling, New York, New York, and Lionel, Sawyer & Collins, Las Vegas, Nevada.
28
<PAGE> 30
======================================================
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
Risk Factors.......................... 4
The Company........................... 11
Use of Proceeds....................... 12
Description of Capital Stock of the
Company............................. 12
Certain Provisions of Nevada Law and
of the Company's Articles of
Incorporation....................... 14
Federal Income Tax Considerations..... 16
Plan of Distribution.................. 27
Experts............................... 28
Legal Matters......................... 28
</TABLE>
======================================================
======================================================
34,493,192 SHARES
CORNERSTONE PROPERTIES INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
[ ], 1998
======================================================
<PAGE> 31
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 Company 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 SEC Registration fee:
<TABLE>
<S> <C>
SEC Registration Fees............................................. $181,250
NYSE Listing Fee.................................................. 120,726
Printing and Engraving Expenses................................... 10,000
Accounting Fees and Expenses...................................... 0
Legal Fees and Expenses (other than Blue Sky)..................... 50,000
Transfer Agent and Registrar Fees................................. 0
Miscellaneous..................................................... 0
--------
Total................................................... 361,976
========
</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 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
II-1
<PAGE> 32
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 Company 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 Company 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 Company 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 Company (filed as
Exhibit 3.1 to the Company's Form 10-K for the year ended
December 31, 1995 (Commission File No. 0-10421) and
incorporated by reference herein)
4.2(b) Certificate of Amendment of Restated Articles of
Incorporation of Cornerstone Properties, dated October 27,
1997.
4.3* Bylaws of the Company (filed as Exhibit 3.5 to the Company's
Form 10-K for the year ended December 31, 1995 (Commission
File No. 0-10421) and incorporated by reference herein)
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 Coopers & Lybrand L.L.P.
23.4 Consent of Ernst & Young L.L.P.
23.5 Consent of Ernst & Young L.L.P.
23.6 Consent of Ernst & Young L.L.P.
23.7 Consent of Grant Thornton LLP
23.8 Consent of Arthur Andersen LLP
23.9 Consent of Coopers & Lybrand L.L.P.
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (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
II-2
<PAGE> 33
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 Securities
and Exchange Commission (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 (1)(i) and (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 Securities Exchange Act of 1934 (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.
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-3
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, New York, on this 2nd day of March, 1998.
CORNERSTONE PROPERTIES INC.
By: /s/ JOHN S. MOODY
------------------------------------
Name: John S. Moody
Title: Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN S. MOODY Chief Executive Officer, March 2, 1998
- ----------------------------------------------------- Director and Chairman of the
John S. Moody Board (Principal Executive
Officer)
/s/ THOMAS P. LOFTUS Chief Administrative Officer, March 2, 1998
- ----------------------------------------------------- Secretary and Controller
Thomas P. Loftus (Principal Accounting
Officer)
/s/ KEVIN P. MAHONEY Senior Vice President and Chief March 2, 1998
- ----------------------------------------------------- Financial Officer (Principal
Kevin P. Mahoney Financial Officer)
/s/ CECIL D. CONLEE Director March 2, 1998
- -----------------------------------------------------
Cecil D. Conlee
/s/ GEORGE A. DAVIS Director March 2, 1998
- -----------------------------------------------------
George A. Davis
/s/ BLAKE EAGLE Director March 2, 1998
- -----------------------------------------------------
Blake Eagle
/s/ DR. KARL-LUDWIG HERMANN Director March 2, 1998
- -----------------------------------------------------
Dr. Karl-Ludwig Hermann
/s/ HANS C. MAUTNER Director March 2, 1998
- -----------------------------------------------------
Hans C. Mautner
/s/ DR. LUTZ MELLINGER Director March 2, 1998
- -----------------------------------------------------
Dr. Lutz Mellinger
</TABLE>
II-4
<PAGE> 35
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GERALD RAUENHORST Director March 2, 1998
- -----------------------------------------------------
Gerald Rauenhorst
/s/ MICHAEL J.G. TOPHAM Director March 2, 1998
- -----------------------------------------------------
Michael J.G. Topham
/s/ DICK VAN DEN BOS Director March 2, 1998
- -----------------------------------------------------
Dick van den Bos
Director March 2, 1998
- -----------------------------------------------------
Jan van der Vlist
</TABLE>
- ---------------
* By John S. Moody as Attorney-In-Fact.
II-5
<PAGE> 36
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ----
<S> <C> <C>
4.1 Specimen of Common Stock Certificate
4.2(a)* Restated Articles of Incorporation of the Company (filed as
Exhibit 3.1 to the Company's Form 10-K for the year ended
December 31, 1995 (Commission File No. 0-10421) and
incorporated by reference herein)
4.2(b) Certificate of Amendment of Restated Articles of
Incorporation of Cornerstone Properties, dated October 27,
1997.
4.3* Bylaws of the Company (filed as Exhibit 3.5 to the Company's
Form 10-K for the year ended December 31, 1995 (Commission
File No. 0-10421) and incorporated by reference herein)
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 Coopers & Lybrand L.L.P.
23.4 Consent of Ernst & Young L.L.P.
23.5 Consent of Ernst & Young L.L.P.
23.6 Consent of Ernst & Young L.L.P.
23.7 Consent of Grant Thornton LLP
23.8 Consent of Arthur Andersen LLP
23.9 Consent of Coopers & Lybrand L.L.P.
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
Exhibit 4.1
COMMON STOCK THIS CERTIFICATE IS TRANSFERABLE
IN BOSTON MASSACHUSETTS
OR NEW YORK, NEW YORK
CUSIP 21922H 10 3
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN
OF THE STATE OF NEVADA DEFINITIONS AND RESTRICTIONS
CORNERSTONE PROPERTIES INC.
This Certifies that
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF NO PAR VALUE OF
Cornerstone Properties Inc. transferable only on the books of the Corporation
by the Registered Holder hereof in person or by duly authorized Attorney upon
surrender of this Certificate properly endorsed and upon compliance with the
transfer restrictions as on the back of this Certificate. This Certificate is
not valid until countersigned by the Transfer Agent and registered by the
Registrant.
As Witness Whereof, Cornerstone Properties Inc. has caused its
facsimile corporate seal to hereunto affixed and this Certificate to be
signed by the facsimile signatures of its duly authorized officers
Dated:
COUNTERSIGNED AND REGISTERED
BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE VICE PRESIDENT PRESIDENT AND CHIEF
AND SECRETARY EXECUTIVE OFFICER
<PAGE> 2
CORNERSTONE PROPERTIES INC.
The Company is authorized to issue more than one class or series of
stock. Upon written request the Company will furnish without charge to each
stockholder a copy of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitation or restrictions of such
preferences and/or rights.
UNDER THE CORPORATION'S RESTATED ARTICLES OF INCORPORATION, AS AMENDED,
IN ORDER TO MAINTAIN QUALIFICATION OF THE CORPORATION AS A REAL ESTATE
INVESTMENT TRUST AND IN ORDER TO BECOME AND REMAIN "DOMESTICALLY CONTROLLED"
UNDER RESPECTIVE APPLICABLE PROVISIONS OF THE INTERNAL REVENUE CODE, THE
TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE RESTRICTED AND
MAY BE DEEMED TRANSFERRED TO THE CORPORATION OR OFFERED FOR SALE TO IT.
VIOLATIONS OF CERTAIN OF THESE RESTRICTIONS MAY RESULT IN THE VIOLATOR BEING
REQUIRED TO INDEMNIFY THE CORPORATION FOR LOSSES.
The following abbreviations, when issued in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - _____Custodian______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with rights of under Uniform Gifts to Minors
survivorship and not as Act ___________________
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, ________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
| |
| |
______________________________________________________________________________
(Please Print of Typewrite Name and Address, Including Zip Code of Assignee)
______________________________________________________________________________
________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated __________________________
______________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER
SIGNATURE(S) GUARANTEED
______________________________________________________
THE SIGNATURES(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAMS), PURSUANT TO S.E.C. RULE 17Ad-15
<PAGE> 1
EXHIBIT 4.2(B)
CERTIFICATE OF AMENDMENT OF RESTATED ARTICLES OF INCORPORATION
OF
CORNERSTONE PROPERTIES INC.
The undersigned, being the Executive Vice President and the Assistant
Secretary of CORNERSTONE PROPERTIES INC., a Nevada corporation, do hereby
certify as follows:
1. That on August 13, 1997, the Directors of the corporation by a vote
taken adopted and consented to the adoption of resolutions setting forth
proposed amendments 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 amendments.
2. Said resolution calling for the following amendments to said 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 Two Hundred Sixty-Five Million
(265,000,000) shares of Capital Stock consisting of Fifteen Million
(15,000,000) 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.
II. ARTICLE 9 is hereby added to the Restated Articles of Incorporation as
follows:
ARTICLE 9
RESTRICTIONS ON TRANSFER -- DOMESTICALLY CONTROLLED REIT STATUS
SECTION 9.01. All shares of stock of the Corporation shall be subject to
the following restrictions on transfer which are intended to limit the ownership
of the Corporation's shares by Non-U.S. Persons and thereby assist the
Corporation in becoming, and thereafter remaining as, a "domestically controlled
REIT" within the meaning of Section 897(h)(4)(B) of the Code:
(a) Shares of a class of stock of the Corporation shall not be
transferred by any U.S. Person to any person if such transfer would cause a
Non-U.S. Person to Beneficially Own (taking into account any other shares
of such class Beneficially Owned by such Non-U.S. Person) more than the
Non-U.S. Ownership Limit with respect to such class of stock, and the
intended transferee of such shares
<PAGE> 2
shall acquire no rights in such shares.
(b) To the extent any purported transfer of shares by any U.S. Person
would cause a Non-U.S. Person to Beneficially Own shares of a class of
stock of the Corporation in excess of the Non-U.S. Ownership Limit, those
shares of the Corporation as to which the Non-U.S. Person has most recently
acquired Beneficial Ownership shall constitute "Excess Shares" under this
Article 9. Excess Shares shall have the following characteristics;
(1) The holder of Excess Shares shall be deemed to have transferred
those shares to the Corporation as trustee (the "Trustee") for the
benefit of such person to whom such holder shall later transfer such
shares provided that such shares shall not be Excess Shares in the hands
of such person;
(2) An interest in the trust holding such Excess Shares shall be
freely transferable by the holder thereof at a price not in excess of
the price paid by such holder for the Excess Shares;
(3) Holders of Excess Shares shall not be entitled to exercise any
voting rights with respect to such Excess Shares;
(4) Excess Shares shall not be deemed to be outstanding for the
purpose of determining a quorum at the annual meeting or any special
meeting of stockholders;
(5) Any dividends or other distributions with respect to Excess
Shares which would have been payable in respect of shares of the
Corporation had they not constituted "Excess Shares" shall be
accumulated by the Trustee and deposited in a savings account in a New
York bank (which may be the Corporation's dividend disbursing agent) for
the benefit of, and be payable to, the holder or holders of such shares
of the Corporation at such time as such Excess Shares shall cease to be
Excess Shares; and
(6) Excess Shares shall be deemed to have been offered for sale to
the Corporation or its designee at their fair market value for a period
of ninety (90) days from the date of (i) the transfer of stock which
made the shares Excess Shares if the Corporation has actual knowledge
that such transfer creates Excess Shares as of the date of transfer or
(ii) if such transfer is not actually known to the Corporation, the
determination by the Board of Directors in good faith by resolution duly
adopted that a transfer creating Excess Shares has taken place. Fair
market value shall be determined as of the date of (i) or (ii) above, as
appropriate, and shall be the closing price on the New York Stock
Exchange or any other national stock exchange in the United States; but
if the shares are not listed on the New York Stock Exchange or any other
national stock exchange in the United States, then the closing price on
the Frankfurt, Luxembourg, or Dusseldorf stock exchanges, shares are not
listed on the Frankfurt, Luxembourg, or Dusseldorf stock, then the bid
price on the over-the-counter market; but if the shares are not traded
in the over-the-counter market, then the price determined in good faith
by the Board of Directors.
<PAGE> 3
(c) The following transfers by any U.S. Person (or by any person
through whom such U.S. Person has Beneficial Ownership of the shares) shall
be exempt from the limitation imposed by this Section 9.01(a): (i) any
transfer pursuant to the death of such U.S. Person or distribution pursuant
to the terms of a decedent's will, trust or similar instrument, (ii) any
transfer pursuant to a merger or sale of substantially all of the assets of
the U.S. person, if such U.S. person is an entity; provided, however, that
the exception in this clause (ii) shall not apply to any such transfer if
the shares of the Corporation conveyed represent twenty percent or more of
the aggregate value of all assets conveyed by the U.S. Person in such
merger or sale, (iii) any transfer to a trustee or receiver in a bankruptcy
or similar proceeding, and (iv) any involuntary transfer that occurs by
operation of law.
(d) If the Board of Directors shall at any time determine in good
faith, by resolution duly adopted, that a transfer has taken place in
violation of Section 9.01(a), the Board of Directors may, but shall not be
obligated to, take such action as it deems advisable to prevent or refuse
to give effect to such transfer, including, but not limited to, refusing to
give effect to such transfer on the books of the Corporation or instituting
proceedings to enjoin such transfer.
(e) Any Non-U.S. Person to whom a transfer of shares is made in
violation of Section 9.01(a) is obliged immediately to give or cause to be
given written notice thereof to the Corporation and such other information
as the Corporation may reasonably require of such Non-U.S. Person relating
to such person's status as a Non-U.S. Person and the shares Beneficially
Owned or purported to be Beneficially Owned by such Non-U.S. Person.
(f) All certificates evidencing ownership of shares of the Corporation
shall bear a conspicuous legend describing the restrictions set forth in
this Article.
SECTION 9.02. For purposes of this Article 9,
(a) "Non-U.S. Person" shall mean (i) a nonresident alien individual
(as defined in Section 7701(b) of 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 Section 1.897-9T(c) of the Treasury Regulations
under the Code (or any corresponding provision of successor regulations).
(b) "U.S. Person" shall mean any person other than a Non-U.S. Person.
(c) "Non-U.S. Ownership Limit" shall mean, as to any class of stock of
the Corporation, three percent (3%) of the outstanding shares of such
class. The number of outstanding shares of a class of stock shall be
determined as of the time of the transfer in question.
(d) A Non-U.S. Person shall be considered to "Beneficially Own," be
the "Beneficial Owner," or have "Beneficial Ownership" of shares if such
Non-U.S. Person is (i) the holder of record of such shares (other than a
broker, nominee, transfer agent, depository or similar intermediary) or
<PAGE> 4
(ii) the person required to include dividends with respect to such shares
in income for U.S. federal income tax purposes under Section 1.857-8 of the
Treasury Regulations.
SECTION 9.03. Nothing contained in this Article shall be construed as
imposing any affirmative obligation on the Corporation or its Board of Directors
to ensure that the Corporation becomes a domestically controlled REIT or that it
maintains such status once attained, other than the obligation to enforce the
transfer restrictions imposed by this Article 9 in good faith.
SECTION 9.04. If any provision of this Article or any application of such
provision is determined to be invalid by any federal or state court having
jurisdiction over the issues, the validity of the remaining provisions shall not
be affected and other applications of such provision shall be affected only to
the extent necessary to comply with the determination of such court.
SECTION 9.05. The Corporation shall, within 30 days after December 31 of
each year, request each record owner holding more than 3% of the outstanding
shares of any class of its stock on December 31 of such year to state whether
such holder is a Non-U.S. Person and to identify any other Non-U.S. Persons that
Beneficially Own such shares.
SECTION 9.06. The Board may, in its sole but good faith discretion, except
any purported transfer of shares from the limitations contained in this Article
9 if the Board determines that such transfer will not materially affect the
Corporation's ability to become a domestically controlled REIT or to continue
such status once attained, and is otherwise in the best interest of the
Corporation and its shareholders.
III. ARTICLE 10 is hereby added to the Restated Articles of Incorporation as
follows:
ARTICLE 10
NEW YORK STOCK EXCHANGE TRANSACTIONS
Notwithstanding any provision contained herein to the contrary, nothing in
these Restated Articles of Incorporation shall preclude the settlement of any
transaction entered into through the facilities of the New York Stock Exchange.
3. That at a special meeting of the shareholders of the corporation held on
October 27, 1997, of a total 40,878,644 votes cast at such special meeting,
shareholders holding 32,713,113 shares of the corporation, which constituted a
majority of shares entitled to vote at the special meeting, cast votes in favor
and adopted and consented to the adoption of a resolution setting forth the
proposed amendments to the corporations Restated Articles of Incorporation as
hereinabove set forth.
<PAGE> 5
4. That the Restated Articles of Incorporation of CORNERSTONE PROPERTIES
INC. are hereby amended and set forth above and the undersigned make this
certificate pursuant to Sections 78.385 and 78.390 of the Nevada Revised
Statutes.
CORNERSTONE PROPERTIES INC.
By:/s/Rodney C. Dimock
Name: Rodney C. Dimock
Its: Executive Vice President
By:/s/Kevin P. Mahoney
Name: Kevin P. Mahoney
Its: Assistant Secretary
State of New York
County of Richmond
This instrument was acknowledged before me on October 27, 1997 by Rodney C.
Dimock, as Executive Vice President of CORNERSTONE PROPERTIES INC.
/s/Barbara E. Beitz
Notary Public
(Seal, if any) My Commission expires 1-18-99
BARBARA E. BEITZ
Notary Public, State of New York
NO. 02 825033864
State of New York Qualified in Richmond County
County of Richmond Commission Expires January 18, 1999
This instrument was acknowledged before me on October 27, 1997 by Kevin P.
Mahoney as Assistant Secretary of CORNERSTONE PROPERTIES INC.
/s/Barbara E/ Beitz
Notary Public
(Seal, if any) My Commission expires 1-18-99
BARBARA E. BEITZ
Notary Public, State of New York
NO. 02 825033864
State of New York Qualified in Richmond County
County of Richmond Commission Expires January 18, 1999
<PAGE> 1
5.1
LIONEL SAWYER & COLLINS
ATTORNEYS AT LAW
1700 BANK OF AMERICA PLAZA
300 SOUTH FOURTH STREET
LAS VEGAS, NEVADA 69101
FEBRUARY 27, 1998
(702) 383-8888
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 34,493,192 shares ("Shares") of Common Stock, no
par value per share ("the Common Stock"), for the account of Dutch Institutional
Holding Company, Inc. ("DIHC"), Stichting Pensioenfonds Voor de Gezondheid
Geestelijke en Maatschappelijke Belangen ("PGGM"), Larry Jay Wyman, Timothy P.
Carden and Mazal American Partners (collectively, the "Selling Stockholders")
such Shares to be offered from time to time in amounts and prices per share to
be determined at the time of such offering, and, if required by law, set forth
in one or more prospectus supplements to the Registration Statement. The Company
has provided us with a draft prospectus ("Prospectus"), which is a 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.
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 previously been delivered 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, fully paid and are
nonassessable.
<PAGE> 2
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 this 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.
/s/ Lionel Sawyer & Collins
2
<PAGE> 1
8.1
SHEARMAN & STERLING
599 LEXINGTON AVENUE
NEW YORK, N.Y. 10022
(212) 848-4000
MARCH 2, 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 34,493,192 shares of
the Company's Common Stock, without par value, for the account of Dutch
Institutional Holding Company, Inc., Stichting Pensioenfonds Voor de Gezondheid
Geestelijke en Maatschappelijke Belangen, Larry Jay Wyman, Timothy P. Carden and
Mazal American Partners (collectively, the "Selling Stockholders"). This 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.
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.
Qualification 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.
<PAGE> 2
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
2
<PAGE> 1
23.3
COOPERS & LYBRAND, L.L.P.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
on Form S-3 of our report dated February 20, 1997, on our audits of the
consolidated financial statements and financial statement schedules of
Cornerstone Properties Inc. as of December 31, 1996 and 1995, and for the years
ended December 31, 1996, 1995 and 1994, which report is included in Cornerstone
Properties Inc.'s 1996 Annual Report on Form 10-K. We also consent to the
reference to our Firm under the caption "Experts" in the Prospectus which is
part of this Registration Statement.
/s/ Coopers & Lybrand L.L.P.
New York, New York
February 27, 1998
<PAGE> 1
23.4
ERNST & YOUNG
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
on Form S-3 of our report dated February 23, 1996, with respect to the Statement
of Revenues and Certain Expenses of Tower 56 (the Property) for the year ended
December 31, 1995, included in the Current Report on Form 8-K Amendment No. 1
dated January 22, 1997, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
New York, New York
February 27, 1998
<PAGE> 1
23.5
ERNST & YOUNG
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
and related Prospectus of Cornerstone Properties, Inc. of our report dated
December 13, 1996, with respect to the Statement of Revenue and Certain Expenses
of One Lincoln Centre for the year ended December 31, 1995, included in the
Current Report on Form 8-K/A Amendment No. 1 dated January 22, 1997, both filed
with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Chicago, Illinois
February 27, 1998
<PAGE> 1
23.6
ERNST & YOUNG
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
on Form S-3 of our report dated February 14, 1997, with respect to the Statement
of Revenue and Certain Expenses of 527 Madison Avenue for the year ended
December 31, 1996, included in the Current Report on Form 8-K/A Amendment No. 2
dated March 10, 1997, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young
Stanford, Connecticut
February 27, 1998
<PAGE> 1
Exhibit 23.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
on Form S-3 of our report dated January 8, 1998, with respect to the Statement
of Revenue and Certain Expenses of Corporate 500 Centre, Phase I and II for
the year ended December 31, 1996, included in the Current Report on Form 8-K
dated January 14, 1998, both filed with the Securities and Exchange Commission.
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
Chicago, Illinois
February 24, 1998
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement on Form S-3 of Cornerstone
Properties Inc. of our report dated January 7, 1998, with respect to the
Statement of Revenue and Certain Expenses of 60 State Street Associates Limited
Partnership for the year ended December 31, 1996, included in the Current
Reports on Form 8-K, dated January 14, 1998, filed with the Securities and
Exchange Commission.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 27, 1998
<PAGE> 1
Exhibit 23.9
Coopers & Lybrand Letterhead
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Cornerstone Properties Inc. on Form S-3 of our report dated February 22,
1997, with respect to the Statement of Revenue and Certain Expenses of ten
properties ("Property Acquisition") for the year ended December 31, 1996,
included in the Current Report on Form 8-K Amendment No. 1 dated August 21,
1997.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
February 26, 1998
