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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 4, 2000
REGISTRATION NO. 333-92989
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CORNERSTONE PROPERTIES INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
NEVADA 74-2170858
(State or Other Jurisdiction TOWER 56, 126 EAST 56TH STREET (I.R.S. Employer
of Incorporation or NEW YORK, NEW YORK 10022 Identification Number)
Organization) (212) 605-7100
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(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
JOHN S. MOODY
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)
Copy to:
JOHN J. KELLEY III
KING & SPALDING
191 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30303-1763
(404) 572-4600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
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 securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT ISSUE THESE SECURITIES UNTIL THE REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE
COMMISSION. THIS PROSPECTUS IS NEITHER AN OFFER TO SELL NOR AN SOLICITATION OF
AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE SUCH OFFER OR SALE IS
UNLAWFUL.
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SUBJECT TO COMPLETION, DATED JANUARY 4, 2000
16,187,724 SHARES
CORNERSTONE PROPERTIES INC.
COMMON STOCK
Cornerstone Properties Inc., a Nevada corporation, is a self-administered
equity real estate investment trust that manages and conducts its business
through Cornerstone Properties Limited Partnership, a Delaware limited
partnership. We may issue from time to time up to 16,187,724 shares of our
common stock to the holders of up to 16,187,724 Class A units of limited partner
interest in Cornerstone Properties Limited Partnership upon tender of such units
for redemption. Cornerstone Properties Inc. is the sole general partner of
Cornerstone Properties Limited Partnership and owns approximately 87.1% of the
outstanding units.
The 16,187,724 units that may be redeemed were issued in December 1998 in
connection with our acquisition of 69 Class A office properties from William
Wilson & Associates and related entities. We will acquire units from the
redeeming unit holders in exchange for any shares of common stock that we issue.
Upon any redemption, we may elect to pay cash for the units tendered rather than
issue shares of common stock. Although we will incur expenses in connection with
the registration of the 16,187,724 shares of common stock, we will not receive
any cash proceeds upon their issuance.
Our common stock is listed on the New York Stock Exchange under the ticker
symbol "CPP."
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK, INCLUDING SPECIAL RISKS APPLICABLE TO REDEEMING
UNIT HOLDERS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR HAS DETERMINED
IF THIS PROSPECTUS IS ADEQUATE OR ACCURATE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY , 2000.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). You
may read and copy any document we file at the Commission's public reference room
located at 450 Fifth Street, N.W., Washington, D.C. 20549, or at its Regional
Offices located at 7 World Trade Center, Suite 1300, New York, New York 10048,
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of
such materials can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. You may call the Commission at 1-800-732-0330 for further information on
the operation of such public reference rooms. You also can request copies of
such documents, upon payment of a duplicating fee, by writing to the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, or obtain copies of such
documents from the Commission's web site at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information we incorporate by reference is
considered to be part of this prospectus and information that we file later with
the Commission automatically will update and supersede such information. We
incorporate by reference the documents listed below and any future filings we
make with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended. These documents contain important
business information about our company and its financial condition.
1. Annual Report on Form 10-K, as amended, for the year ended December 31,
1998.
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30, and
September 30, 1999.
3. Current Report on Form 8-K/A as filed with the Commission on March 1, 1999.
4. Current Report on Form 8-K as filed with the Commission on March 24, 1999.
5. Registration Statement on Form 8-A, which incorporates by reference a
description of our common stock from the final prospectus included in our
Registration Statement on Form S-3 (File No. 333-18303), as filed with the
Commission on March 11, 1997.
You may request a copy of these filings (including exhibits to such filings
that we have specifically incorporated by reference in such filings), at no
cost, by writing or telephoning our executive offices at the following address:
Cornerstone Properties Inc.
Tower 56, 126 East 56th Street
New York, New York 10022
Attention: Secretary
(212) 605-7100
You should rely only on the information provided or incorporated by reference in
this prospectus or any related supplement. We have not authorized anyone else to
provide you with different information. We will not make an offer of these
shares in any state that prohibits such an offer. You should not assume that the
information in this prospectus or any supplement is accurate as of any date
other than the date on the cover page of such documents. ALL REFERENCES IN THIS
PROSPECTUS TO "COMMON STOCK" REFER TO OUR COMMON STOCK, WITHOUT PAR VALUE. ALL
REFERENCES IN THIS PROSPECTUS TO "UNITS" REFER TO THE CLASS A UNITS OF LIMITED
PARTNER INTEREST IN CORNERSTONE PROPERTIES LIMITED PARTNERSHIP.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information contained in or incorporated by reference into this prospectus
and any accompanying prospectus supplement contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act. We intend the
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in Section 27A of the Securities Act. These
forward-looking statements relate to, without limitation, future economic
performance, our plans and objectives for future operations and projections of
revenue and other financial items, and can be identified by the use of
forward-looking terminology such as "may," "will," "should," "expect,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. The cautionary statements
incorporated by reference from our Annual Report on Form 10-K under the caption
"Risk Factors" and other similar statements contained in this prospectus or any
accompanying prospectus supplement identify important factors with respect to
such forward-looking statements, including certain risks and uncertainties, that
could cause actual results to differ materially from those in such
forward-looking statements.
SECURITIES TO BE OFFERED
This prospectus relates to the possible issuance from time to time of up to
16,187,724 shares of common stock if, and to the extent that, holders of up to
16,187,724 units in Cornerstone Properties Limited Partnership exercise their
rights to redeem such units for cash or, at our election, shares of common
stock. We will not receive any cash proceeds from the issuance of the common
stock, but will acquire units in exchange for any of the shares of common stock
that we issue.
Pursuant to the Partnership Agreement of Cornerstone Properties Limited
Partnership, each unit may be tendered for redemption for cash equal to the fair
market value of a share of common stock at the time of the redemption.
Cornerstone Properties Inc. has the right to elect to acquire directly each unit
tendered for redemption in exchange for one share of common stock, rather than
causing Cornerstone Properties Limited Partnership to redeem such units for
cash. We will make the determination whether to pay cash or issue common stock
at the time units are tendered for redemption. With each redemption of units,
our percentage interest in Cornerstone Properties Limited Partnership will
increase.
If you want more detailed information about how units may be redeemed in
exchange for shares of common stock, please review the section of this
prospectus entitled "Exercise of Redemption Rights."
INFORMATION ABOUT THE COMPANY
We, Cornerstone Properties Inc., a Nevada corporation, are a
self-administered equity real estate investment trust, or "REIT." We own
Class A office properties in prime locations in major suburban markets and prime
central business districts. Cornerstone owns all of its properties and conducts
all of its business through Cornerstone Properties Limited Partnership, a
Delaware limited partnership. Cornerstone, through its subsidiaries, at
December 31, 1999, owned 83 Class A office properties throughout the United
States totaling nearly 17 million square feet.
Cornerstone Properties Inc. was incorporated under the laws of the State of
Nevada in May 1981. Our executive offices are located at 126 East 56th Street,
New York, NY 10022. Our general information telephone number is (212) 605-7100.
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RISK FACTORS
An investment in our common stock or in units of Cornerstone Properties
Limited Partnership involves various risks. Unit holders should carefully
consider the following material risks in conjunction with the other information
contained in this prospectus and incorporated herein by reference, including,
without limitation, the risks of an investment in our company set forth under
the caption "Item 1. Business--Risk Factors" in our Annual Report on Form 10-K
for the year ended December 31, 1998, before making a determination to redeem
units.
SPECIAL CONSIDERATIONS APPLICABLE TO REDEEMING UNIT HOLDERS
TAX CONSEQUENCES OF REDEMPTION OF UNITS
Your exercise of your redemption rights will be treated for tax purposes as
a sale of the units you redeem. Such a sale will be fully taxable to you in an
amount equal to the cash or the value of the common stock received in the
redemption plus the amount of Cornerstone Properties Limited Partnership's
liabilities allocable to the redeemed units at the time of the redemption. It is
possible that the amount of gain you will be required to recognize, or even the
tax liability resulting from such gain, could exceed the amount of cash or the
value of the common stock you receive upon such redemption. See "Exercise of
Redemption Rights--Federal Income Tax Consequences of Exercise of Redemption
Rights." In addition, because the price of common stock fluctuates, the price
you receive when you sell your common stock may not equal the value of your
units at the time of redemption.
POTENTIAL CHANGE IN INVESTMENT UPON REDEMPTION OF UNITS
If you exercise your redemption rights, we will determine whether you
receive cash or common stock in exchange for your units. If you receive common
stock, you will become a stockholder of Cornerstone Properties Inc. rather than
a holder of units in Cornerstone Properties Limited Partnership. Although an
investment in common stock is substantially equivalent to an investment in units
in Cornerstone Properties Limited Partnership, there are some differences
between ownership of units and ownership of common stock. These differences
include form of organization, management structure, investor rights and federal
income tax consequences. These differences, some of which may be material to
you, are discussed in "Exercise of Redemption Rights--Comparison of Ownership of
Units and Common Stock."
EXERCISE OF REDEMPTION RIGHTS
GENERAL
Each unit holder may, subject to certain limitations, elect to exercise the
redemption rights with respect to all or a portion of the units held by such
person at any time, by delivering a redemption exercise notice to Cornerstone.
Once delivered, the redemption exercise notice is irrevocable. Upon exercise of
the redemption rights, such unit holder will receive, at our option, either
(i) a number of shares of common stock equal to the number of units tendered for
redemption (subject to certain anti-dilution adjustments), (ii) cash in an
amount equal to the market value of the number of shares of common stock he
would have received pursuant to (i) above or (iii) shares of common stock for
part of the units redeemed and cash in such amount for the remainder of the
units redeemed. The market value of the common stock for this purpose is equal
to the average of the closing trading prices of the common stock for the ten
consecutive trading days before the day on which the redemption exercise notice
was received by Cornerstone.
We have the right, in our sole discretion to assume and directly satisfy the
redemption right of a unit holder by either issuing such unit holder shares of
common stock or causing the partnership to pay the cash described in the
preceding paragraph. If a unit holder receives shares of common stock in
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exchange for tendered units, Cornerstone will become the owner of the units.
Such an acquisition by Cornerstone will be treated as a sale of the units to
Cornerstone for federal income tax purposes. See "--Federal Income Tax
Consequences of Exercise of Redemption Rights" below. Upon redemption, such unit
holder's right to receive distributions with respect to the units will cease,
and the unit holder will have rights as a stockholder of Cornerstone from the
time of his acquisition of the shares of common stock issued in exchange for the
tendered units.
You must notify us of your desire to exercise the redemption rights by
sending the redemption exercise notice in the form attached as an exhibit to the
Partnership Agreement, a copy of which is available from Cornerstone. A unit
holder must request the redemption of at least 1,000 units (or all of the units
held by such holder, if less than 1,000). The redemption generally will occur
within 10 days after the redemption exercise notice is received by us. No
redemption or exchange can occur if delivery of common stock therefor would be
prohibited either under the provisions of the Partnership Agreement designed to
protect Cornerstone's REIT qualification or under applicable federal or state
securities laws. We will at all times reserve and keep available out of our
authorized but unissued common stock, solely for the purpose of effecting the
issuance of common stock pursuant to the redemption rights, a sufficient number
of shares of common stock as shall from time to time be sufficient for the
redemption of all outstanding units not owned by Cornerstone.
FEDERAL INCOME TAX CONSEQUENCES OF EXERCISE OF REDEMPTION RIGHTS
The following discussion summarizes certain federal income tax
considerations applicable to a unit holder in connection with the exercise of
the redemption rights. King & Spalding, which has acted as tax counsel to
Cornerstone, is of the opinion that the following discussion fairly summarizes
the federal income tax consequences that are likely to be material to a unit
holder who so exercises his redemption rights.
The following discussion is not exhaustive of all possible tax
considerations and does not give a detailed discussion of any state, local or
foreign tax considerations. Nor does it discuss all of the aspects of federal
income taxation that may be relevant to a unit holder exercising his redemption
rights in light of his particular circumstances or to certain types of unit
holders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) who are subject to special treatment
under the federal income tax laws.
EACH UNIT HOLDER IS ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES TO HIM OF EXERCISING THE REDEMPTION RIGHTS,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH
EXERCISE.
TAX TREATMENT OF EXERCISE OF REDEMPTION RIGHTS. If Cornerstone assumes and
performs the partnership's obligations under the redemption rights, the
Partnership Agreement provides that the redemption will be treated by
Cornerstone, the partnership and the unit holder exercising his redemption
rights as a sale of units by such unit holder to Cornerstone at the time of such
redemption. In that event, such sale will be fully taxable to the unit holder
exercising his redemption rights and such unit holder will be treated as
realizing for tax purposes an amount equal to the sum of the cash or the fair
market value of the common stock received in the redemption plus the amount of
any partnership liabilities allocable to the redeemed units at the time of the
redemption. The determination of the amount of gain or loss is discussed more
fully below. If Cornerstone does not elect to assume the partnership's
obligations under the redemption rights and the partnership redeems such units
for cash, the redemption likely would be treated for tax purposes as a sale of
such units to Cornerstone in a fully taxable transaction, although the matter is
not free from doubt. In that event, the unit holder exercising his redemption
rights would be treated as realizing an amount equal to the sum of the cash
received in
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the redemption plus the amount of any partnership liabilities allocable to the
redeemed units at the time of the redemption. The determination of the amount of
gain or loss in the event of sale treatment is discussed more fully below.
If the partnership chooses to redeem a unit holder's units for cash that is
not contributed by Cornerstone to effect the exchange, the tax consequences
would be the same as described in the previous paragraph, except that if the
partnership redeemed less than all of a unit holder's units, the unit holder
would not be permitted to recognize any loss occurring on the transaction and
would recognize taxable gain only to the extent that the cash, plus the amount
of any partnership liabilities allocable to the redeemed units, exceeded the
unit holder's adjusted basis in all of such unit holder's units immediately
before the redemption.
TAX TREATMENT OF DISPOSITION OF UNITS BY UNIT HOLDER GENERALLY. If a unit
is redeemed in a manner that is treated as a sale of the unit, or a unit holder
otherwise disposes of a unit, the determination of gain or loss from the sale or
other disposition will be based on the difference between the amount considered
realized for tax purposes and the tax basis in such unit. See "--BASIS OF UNITS"
below. Upon the sale of a unit, the "amount realized" will be measured by the
sum of the cash and fair market value of other property (e.g., shares of common
stock) received plus the amount of any partnership liabilities allocable to the
unit sold. To the extent the amount of cash or property received plus the
allocable share of any partnership liabilities exceeds the unit holder's basis
for the unit disposed of, such unit holder will recognize gain. It is possible
that the amount of gain recognized or even the tax liability resulting from such
gain could exceed the amount of cash and the value of any other property (e.g.,
shares of common stock) received upon such disposition.
Except as described below, any gain recognized upon a sale or other
disposition of units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount realized
upon the sale of a unit attributable to a unit holder's share of "unrealized
receivables" of the partnership (as defined in Section 751 of the Internal
Revenue Code of 1986, as amended (the "Code")) exceeds the basis attributable to
those assets, such excess will be treated as ordinary income. Unrealized
receivables include, to the extent not previously included in partnership
income, any rights to payment for services rendered or to be rendered.
Unrealized receivables also include amounts that would be subject to recapture
as ordinary income if the partnership had sold its assets at their fair market
value at the time of the transfer of a unit.
BASIS OF UNITS. In general, a unit holder who was deemed to have received
his units upon liquidation of a partnership had an initial tax basis in his
units ("Initial Basis") equal to his basis in his partnership interest at the
time of such liquidation. Similarly, in general, a unit holder who contributed a
partnership interest in exchange for his units had an Initial Basis in the units
equal to his basis in the contributed partnership interest. A unit holder's
Initial Basis in his units generally is increased by (i) such unit holder's
share of partnership income and (ii) increases in his share of liabilities of
the partnership. Generally, such unit holder's basis in his units is decreased
(but not below zero) by (i) his share of partnership distributions,
(ii) decreases in his share of liabilities of the partnership, (iii) his share
of losses of the partnership and (iv) his share of nondeductible expenditures of
the partnership that are not chargeable to capital.
POTENTIAL APPLICATION OF THE DISGUISED SALE REGULATIONS TO A REDEMPTION OF
UNITS. There is a risk that the exercise by a unit holder of his redemption
rights may cause the original transfer of property to the partnership in
exchange for units to be treated as a "disguised sale" of property. The Code and
the Treasury Regulations thereunder (the "Disguised Sale Regulations") generally
provide that, unless one of the prescribed exceptions is applicable, a partner's
contribution of property to a partnership and a simultaneous or subsequent
transfer of money or other consideration (including the assumption of or taking
subject to a liability) from the partnership to the partner will be presumed to
be a sale, in whole or in part, of such property by the partner to the
partnership. Further, the Disguised Sale Regulations
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provide generally that, in the absence of an applicable exception, if money or
other consideration is transferred by a partnership to a partner within two
years of the partner's contribution of property, the transactions are presumed
to be a sale of the contributed property unless the facts and circumstances
clearly establish that the transfers do not constitute a sale. The Disguised
Sale Regulations also provide that if two years have passed between the transfer
of money or other consideration and the contribution of property, the
transactions will be presumed not to be a sale unless the facts and
circumstances clearly establish that the transfers constitute a sale.
Accordingly, if a unit holder exercises his redemption rights within two
years of such holder's contribution of property to Cornerstone Properties
Limited Partnership, the Internal Revenue Service ("IRS") could contend that the
Disguised Sale Regulations apply because the unit holder will thus receive cash
or shares of common stock subsequent to his previous contribution of property to
the partnership. In that event, the IRS could contend that such contribution
transactions themselves were taxable as a disguised sale under the Disguised
Sale Regulations. Any gain recognized thereby may be eligible for installment
reporting under Section 453 of the Code, subject to certain limitations. In
addition, other tax principles applicable in the case of installment sales would
apply. For example, interest income could be inputed to the unit holder, and
such unit holder may be required (under Section 453A of the Code) to pay
interest to the IRS on the amount of deferred tax attributable to such deemed
installment sale.
COMPARISON OF OWNERSHIP OF UNITS AND COMMON STOCK
Generally, an investment in shares of our common stock is substantially
equivalent economically to an investment in units in the partnership. A holder
of a share of common stock receives the same distribution that a holder of a
unit receives, and stockholders and unit holders generally share in the risks
and rewards of ownership in the enterprise being conducted by Cornerstone
(through the partnership). However, there are some differences between ownership
of units and ownership of shares of common stock, some of which may be material
to investors.
The information below highlights a number of the significant differences
between Cornerstone Properties Limited Partnership and Cornerstone
Properties Inc. relating to, among other things, form of organization, permitted
investments, policies and restrictions, management structure, compensation and
fees, investor rights and federal income taxation, and compares certain legal
rights associated with the ownership of units and common stock, respectively.
These comparisons are intended to assist unit holders in understanding how their
investment will be changed if their units are exchanged for common stock. This
discussion is summary in nature and does not constitute a complete discussion of
these matters, and holders of units should carefully review the balance of this
prospectus and the registration statement of which this prospectus is a part and
the documents incorporated by reference herein for additional important
information about Cornerstone.
FORM OF ORGANIZATION. Cornerstone Properties Limited Partnership is
organized as a Delaware limited partnership. Cornerstone Properties Inc. is a
Nevada corporation. Cornerstone has elected to be taxed as a REIT and intends to
maintain its qualification as a REIT.
LENGTH OF INVESTMENT. The partnership has a stated termination date of
December 31, 2096, although it may be terminated earlier under certain
circumstances. Cornerstone has a perpetual term and intends to continue its
operations for an indefinite time period.
PURPOSE AND PERMITTED INVESTMENTS. The purpose of the partnership is the
conduct of any business that may be lawfully conducted by a limited partnership
formed under Delaware law, except that the Partnership Agreement requires the
business of the partnership to be conducted in such a manner that will permit
Cornerstone to be classified as a REIT under Section 856 of the Code, unless
Cornerstone elects not to qualify as a REIT or ceases to qualify as a REIT for
reasons other than the conduct of
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the business of the partnership. The partnership may, subject to the foregoing
limitation, enter into partnerships, joint ventures or similar arrangements and
may own interests in any other entity.
Under the Cornerstone Articles of Incorporation, the purpose of Cornerstone
is to engage in the business of making real estate investments (directly or as a
partner), including, without limitation, the acquisition, development,
encumbrance and disposal of real estate or interests in real estate and all
activities related thereto, either on the corporation's own behalf or on behalf
of other persons or entities, to do all acts and things in furtherance of such
purposes and to engage in any lawful activity. However, under the Partnership
Agreement, the general partner may not directly or indirectly conduct any
business other than the ownership, acquisition and disposition of interests in
the partnership and the management of the business of the partnership, and such
activities as are incidental thereto.
ADDITIONAL EQUITY. The partnership is authorized to issue units and other
partnership interests to the partners or to other persons for such consideration
and on such terms and conditions as the general partner, in its sole discretion,
may deem appropriate. In addition, the general partner may cause the partnership
to issue to Cornerstone additional units, or other partnership interests in
different series or classes which may be senior to the units, in conjunction
with the offering of securities of Cornerstone having substantially similar
rights, in which the proceeds thereof are contributed to the partnership.
Consideration for additional partnership interests may be cash or other property
or other assets permitted by Delaware law.
The Cornerstone Board of Directors may issue, in its discretion, additional
equity securities consisting of common stock or preferred stock; provided, that
the total number of shares issued does not exceed the authorized number of
shares of capital stock set forth in the Articles of Incorporation. As long as
the partnership is in existence, the proceeds of all equity capital raised by
Cornerstone will be contributed to the partnership in exchange for units or
other interests in the partnership.
BORROWING POLICIES. Under the Partnership Agreement, the partnership has no
restrictions on borrowings, and the general partner has full power and authority
to borrow money on behalf of the partnership. Cornerstone is not restricted
under its governing instruments from incurring borrowings. Both Cornerstone and
the partnership are subject to contractual limitations on indebtedness.
OTHER INVESTMENT RESTRICTIONS. Other than restrictions precluding
investments by the partnership that (i) would adversely affect the qualification
of Cornerstone as a REIT, (ii) could subject Cornerstone to any additional taxes
under Section 857 or Section 4981 of the Code, or (iii) could violate any law or
regulation of any governmental body or agency having jurisdiction over
Cornerstone or its securities, unless such action (or inaction) will have been
specifically consented to by the general partner in writing, there are no
restrictions upon the partnership's authority to enter into certain
transactions, including among others, making investments, lending partnership
funds, or reinvesting the partnership's cash flow and net sale or refinancing
proceeds.
The Cornerstone Articles of Incorporation and Bylaws do not impose any
restrictions upon the types of investments made by Cornerstone.
MANAGEMENT CONTROL. All management powers over the business and affairs of
the partnership are vested in Cornerstone as the general partner of the
partnership, and no unit holder has any right to participate in or exercise
control or management power over the business and affairs of the partnership,
except that the general partner of the partnership may not, without the prior
consent of the unit holders, engage in (i) certain "Extraordinary Transactions"
(as defined in the Partnership Agreement), (ii) an act in contravention of the
Partnership Agreement or (iii) certain amendments to the Partnership Agreement.
The general partner may not be removed by the unit holders with or without good
cause.
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The Cornerstone Board of Directors has exclusive control over Cornerstone's
business and affairs subject only to the restrictions in the Articles of
Incorporation and Bylaws and the Partnership Agreement. Accordingly, except for
their vote in the elections of directors and other matters requiring stockholder
approval under Nevada law, stockholders have no control over the ordinary
business policies of Cornerstone.
FIDUCIARY DUTIES. Under Delaware law, Cornerstone, as general partner, is
required to exercise good faith in all dealings with respect to partnership
affairs. Under the Partnership Agreement, however, the general partner is under
no obligation to take into account the tax consequences to any partner of any
action taken (or not taken) by it, and the general partner will have no
liability to a unit holder under any circumstances, as a result of any tax
liability incurred (or tax benefit not derived) by such unit holder as a result
of an action (or inaction) by the general partner taken pursuant to its
authority under the Partnership Agreement, which action (or inaction) is not in
violation of any provision of the Partnership Agreement.
Under Nevada law, the directors must perform their duties in good faith, in
a manner that they believe in good faith to be in the best interests of
Cornerstone and with the care an ordinarily prudent person in a like position
would exercise under similar circumstances. Directors of Cornerstone who act in
such a manner generally will not be liable to Cornerstone for monetary damages
arising from their activities.
MANAGEMENT LIABILITY AND INDEMNIFICATION. The Partnership Agreement
generally provides that the general partner will incur no liability to the
partnership or any unit holder for losses sustained or liabilities incurred as a
result of errors in judgement or of any act or omission if the general partner
acted in good faith. In addition, the general partner is not responsible for any
misconduct or negligence on the part of its agents, provided the general partner
appointed such agents in good faith. The general partner may consult with legal
counsel, accountants, appraisers, management consultants, investment bankers and
other consultants and advisors, and any action it takes or omits to take in
reliance upon the opinion of such persons, as to matters which the general
partner reasonably believes to be within their professional or expert
competence, shall be conclusively presumed to have been done or omitted in good
faith and in accordance with such opinion.
The Partnership Agreement also provides for indemnification of the general
partner, the directors, trustees, or officers of the general partner and the
partnership and such other persons as the general partner may from time to time
designate, against any and all losses, claims, damages, liabilities, expenses,
judgements, fines, settlements (including, but not limited to, reasonable
attorneys' fees and expenses), and other amounts arising from any and all
claims, demands, actions, suits or proceedings that relate to the operations of
the partnership in which such person may be involved, or is threatened to be
involved, provided that the partnership shall not indemnify any such person
(i) for acts or omissions material to the matter giving rise to the proceeding
that were committed in bad faith or as the result of active and deliberate
dishonesty, (ii) who actually received an improper personal benefit in money,
property or services or (iii) who, in the case of criminal proceedings, had
reasonable cause to believe that the act or omission was unlawful.
The Cornerstone Bylaws provide that Cornerstone will indemnify any person
against expenses, judgements, fines and amounts paid or reasonably incurred in
connection with any pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, which such person is made a
party to by reason of the fact that he is or was a director, officer, employee
or agent of Cornerstone, or is or was serving at the request of Cornerstone as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, as along as such person acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of Cornerstone and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. Cornerstone will
not indemnify any person in an action by
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or in the right of Cornerstone, however, if such person is adjudged liable to
Cornerstone for amounts paid in settlement to Cornerstone, unless a court shall
further determine upon application that, in view of all the circumstances of the
case, such person is entitled to indemnity.
ANTI-TAKEOVER PROVISIONS. Except in limited circumstances, the general
partner of the partnership has exclusive management power over the business and
affairs of the partnership. The general partner may not be removed by the unit
holders with or without good cause. Under the Partnership Agreement, a unit
holder may, subject to certain restrictions, transfer all or portion of its
partnership interests or the economic attributes of such unit holder's
partnership interest to any person, upon notice to Cornerstone and upon
providing to Cornerstone an opinion of counsel reasonably acceptable to
Cornerstone to the effect that such transfer may be effected without violation
of any federal or state securities laws and would not require registration under
the Securities Act. Such transferee, however, will not be admitted as a
substitute unit holder unless the general partner consents and the transferee
agrees to assume the obligations of the transferor under the Partnership
Agreement.
The Cornerstone Articles of Incorporation and the Bylaws contain a number of
provisions that may have the effect of delaying, deferring or preventing a
change in control of Cornerstone even if a change in control were in the
shareholders interest. These provisions include, among others: (i) authorized
capital stock that may be issued as preferred stock at the discretion of the
Board of Directors and (ii) provisions designed to avoid concentration of share
ownership in a manner that would jeopardize Cornerstone's status as a REIT under
the Code.
VOTING RIGHTS. Under the Partnership Agreement, the unit holders have
voting rights only as to (i) certain Extraordinary Transactions, (ii) actions by
the general partner in contravention of the Partnership Agreement and
(iii) certain amendments to the Partnership Agreement. Otherwise, all decisions
relating to the operation and management of the partnership are made by the
general partner. As of December 31, 1999, Cornerstone held approximately 87.1%
of the outstanding units. As units are redeemed by unit holders, Cornerstone's
percentage ownership of the units will increase. If additional units are issued
to third parties, Cornerstone's percentage ownership of the units will decrease.
Stockholders of Cornerstone have the right to vote on, among other things, a
merger or share exchange or sale of substantially all of the assets of
Cornerstone, certain amendments to the Articles of Incorporation and the
dissolution of Cornerstone. Each share of common stock has one vote, and the
Articles of Incorporation permit the Board of Directors to designate and issue
preferred stock in one or more series having voting power which may differ from
that of the common stock.
EXTRAORDINARY TRANSACTIONS. The general partner may not transfer any of its
interests except in connection with an "Extraordinary Transaction," which is
generally defined as a merger or sale of all or substantially all of
Cornerstone's assets. The general partner may not engage in an Extraordinary
Transaction unless partners holding at least three-fourths of the outstanding
common units (other than units held by Cornerstone) consent to such transaction.
No such consent by unit holders is required, however, in the case of
Extraordinary Transactions (i) in which all unit holders receive for each unit
cash, securities or other property equal to that which a holder of one share of
common stock will receive under the terms of such Extraordinary Transaction or
(ii) involving a merger with another entity if (a) immediately after the
Extraordinary Transaction, the assets of the surviving entity (other than units
held by the general partner) are owned directly or indirectly by the partnership
or by the surviving entity of the merger (in any case the "Surviving
Partnership"), (b) the unit holders own a percentage interest in the Surviving
Partnership commensurate with the relative net assets of the partnership and the
other assets of the Surviving Partnership prior to the transaction, (c) the
rights and privileges of the unit holders in the Surviving Partnership are at
least as favorable as those in effect immediately prior to the transaction and
as those applicable to other unit holders of the Surviving Partnership, and
(d) such rights of the unit holders include the right to exchange their
interests in the
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Surviving Partnership for the consideration described in clause (i) above or, if
the parent of the Surviving Partnership has publicly traded common equity
securities, shares of such common equity securities. Notwithstanding the
foregoing sentence, however, if the general partner conducts a vote of its
stockholders in connection with an Extraordinary Transaction, the general
partner must also conduct a vote of the partners in which (1) the same notice is
given to partners as is given to stockholders, (2) the same proxy or other
materials are given to partners as are given to stockholders, including a
description of the tax effects of the transaction on unit holders, (3) the
general partner votes all units (general and limited partnership) in proportion
to the vote of stockholders and (4) the total votes cast in such manner by the
partners would be sufficient, if such vote were a vote by the stockholders, to
approve the Extraordinary Transaction.
Under Nevada law, the sale of all or substantially all of the assets of
Cornerstone or any merger or consolidation of Cornerstone requires the approval
of the Board of Directors and holders of a majority of the outstanding shares of
common stock. No approval of the stockholders is required for the sale of less
than all or substantially all of Cornerstone's assets.
COMPENSATION, FEES AND DISTRIBUTIONS. The general partner does not receive
any compensation for its services as general partner of the partnership. As a
partner in the partnership, however, the general partner has the same right to
allocations and distributions as other partners of the partnership. The
directors and officers of Cornerstone receive compensation for their services.
LIABILITY OF INVESTORS. Under the Partnership Agreement and applicable
state law, the liability of the unit holders for the partnership's debts and
obligations is generally limited to the amount of their investment in the
partnership. Under Nevada law, stockholders are not personally liable for the
debts or obligations of Cornerstone.
NATURE OF INVESTMENT. The units constitute equity interests entitling each
unit holder to, among other things, his pro rata share of cash distributions
made to the unit holders of the partnership. The partnership generally intends
to retain and reinvest proceeds of the sale of property or excess refinancing
proceeds in its business.
The shares of common stock constitute equity interests in Cornerstone.
Cornerstone is entitled to receive its pro rata share of distributions made by
the partnership with respect to the units, and each stockholder will be entitled
to his pro rata share of any dividends or distributions paid with respect to the
common stock. The dividends payable to the stockholders are not fixed in amount
and are only paid if, when and as declared by the Board of Directors. In order
to qualify as a REIT, Cornerstone must distribute at least 95% of its taxable
income (excluding capital gains), and any taxable income (including capital
gains) not distributed will be subject to corporate income tax.
POTENTIAL DILUTION OF RIGHTS. The general partner of the partnership is
authorized, in its sole discretion and without unit holder approval, except in
connection with certain Extraordinary Transactions, to cause the partnership to
issue additional limited partnership interests and other equity securities for
any partnership purpose at any time to the unit holders or to other persons on
terms established by the general partner.
The Board of Directors of Cornerstone may issue, in its discretion,
additional shares of common stock and has the authority to issue from the
authorized capital stock a variety of other equity securities of Cornerstone
with such preferences, limitations and relative rights as the Board of Directors
may designate at the time. The issuance of additional shares of either common
stock or other similar equity securities may result in the dilution of the
interests of the stockholders.
LIQUIDITY. A unit holder may transfer the economic attributes of his
partnership interest subject to certain exceptions and conditions, including,
transfers (i) if in the judgment of the general partner such transfer might
subject the partnership, the general partner or any other person to liability
under any
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federal or state securities laws, (ii) if such transfer would cause, or in the
judgment of the general partner such transfer might cause, the general partner
to cease to qualify as a REIT, (iii) if such transfer would cause a termination
of the partnership for federal income tax purposes, (iv) if such transfer would,
in the opinion of counsel to the partnership, cause the partnership to cease to
be classified as a partnership for federal income tax purposes, or (v) if such
transfer is made to a lender to the partnership or any person who is related to
any lender to the partnership whose loan constitutes a non-recourse liability
without the consent of the general partner. There is no established trading
market for the units.
The shares of common stock issued by Cornerstone to unit holders upon
redemption of units will be freely transferable as registered securities under
the Securities Act, except by unitholders that are affiliates of Cornerstone.
The common stock is listed on the NYSE. The breadth and strength of this
secondary market will depend, among other things, upon the number of shares
outstanding, Cornerstone's financial results and prospects, the general interest
in Cornerstone and other real estate investments, and Cornerstone's dividend
yield compared to that of other debt and equity securities.
FEDERAL INCOME TAXATION. The partnership is not subject to federal income
taxes. Instead, each holder of units includes its allocable share of the
partnership's taxable income or loss in determining its individual federal
income tax liability. Income and loss from the partnership generally is subject
to the "passive activity" limitations under the Code. Under the "passive
activity" rules, income and loss from the partnership that is considered
"passive" income or loss generally can be offset against income and loss
(including passive loss carry forwards from prior years) from other investments
that constitute "passive activities" (unless the partnership is considered a
"publicly traded partnership" within the meaning of Section 7704 of the Code and
applicable Treasury Regulations, in which case income and loss from the
partnership can only be offset against other income and loss from the
partnership). Income of the partnership, however, that is attributable to
dividends or interest received from certain taxable subsidiaries does not
qualify as passive income and cannot be offset with losses and deductions from a
"passive activity." Cash distributions from the partnership are not taxable to a
holder of units except to the extent they exceed such holder's basis in his
interest in the partnership (which will include such holder's allocable share of
the partnership's debt). Each year, holders of units receive a Schedule K-1 tax
form containing detailed tax information for inclusion in preparing their
federal income tax returns. Holders of units are required, in some cases, to
file state income tax returns and/or pay state income taxes in the states in
which the partnership owns property, even if they are not residents of those
states, and in some such states the partnership is required to remit a
withholding tax with respect to such nonresidents.
The federal income tax consequences of owning shares of common stock of
Cornerstone Properties Inc. are discussed below under the heading "Certain
United States Federal Income Tax Considerations--Taxation of U.S. Stockholders."
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING IS A GENERAL SUMMARY OF THE MATERIAL FEDERAL INCOME TAX
CONSIDERATIONS ASSOCIATED WITH AN INVESTMENT IN OUR COMMON STOCK. KING &
SPALDING, COUNSEL TO CORNERSTONE, 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 ENTIRELY BY THE APPLICABLE CODE PROVISIONS, RULES
AND TREASURY REGULATIONS PROMULGATED THEREUNDER, AND ADMINISTRATIVE AND JUDICIAL
INTERPRETATIONS THEREOF. THE FOLLOWING DISCUSSION AND THE OPINIONS OF KING &
SPALDING 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
CORNERSTONE.
FEDERAL INCOME TAXATION OF CORNERSTONE
Cornerstone has made an election to be taxed as a REIT under the Code and
believes that it has met the requirements for qualification and taxation as a
REIT. Cornerstone intends to continue to operate in such a manner as to continue
to so qualify, but no assurance can be given that it has qualified or will
remain qualified as a REIT. Cornerstone has not requested and does not intend to
request a ruling from the IRS as to its status as a REIT. However, in the
opinion of King & Spalding, counsel to Cornerstone, Cornerstone's organization
and method of operation are such that it met the requirements for qualification
and taxation as a REIT since its taxable year ended December 31, 1993 (which
counsel believes is the earliest taxable year which is within the normal period
for federal tax audit), and Cornerstone's method of operation should enable it
to continue to so qualify in subsequent taxable years. Investors should be
aware, however, that opinions of counsel are not binding upon the IRS or any
court. King & Spalding's opinion as to Cornerstone's REIT status is based on
various assumptions and is conditioned upon certain representations made by
Cornerstone as to factual matters, including representations regarding the
nature of Cornerstone's properties and the future conduct and method of
operation of its business, and it cannot be relied upon if those assumptions and
representations later prove incorrect.
It must be emphasized that Cornerstone's qualification and taxation as a
REIT depend upon its ability to meet, on a continuing basis through actual
annual operating results, distribution levels, and stock ownership, the various
qualification tests imposed under the Code that are discussed below. No
assurance can be given that the actual results of Cornerstone's operations for
any particular taxable year will satisfy such requirements, and King & Spalding
will not review Cornerstone's compliance with such requirements on a continuing
basis. For a discussion of the tax consequences of failing to qualify as a REIT,
see "--Failure to Qualify," below.
If Cornerstone qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income tax on net income that it currently
distributes to stockholders. This treatment substantially eliminates the "double
taxation" (i.e., taxation at both the corporate and shareholder levels) that
generally results from investment in a corporation. Notwithstanding its REIT
election, however, Cornerstone will be subject to federal income tax in the
following circumstances. First, Cornerstone will be taxed at regular corporate
rates on any undistributed taxable income, including undistributed net capital
gains. Second, under certain circumstances, Cornerstone may be subject to the
"alternative minimum tax" on its undistributed items of tax preference. Third,
if Cornerstone has (i) net income
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from the sale or other disposition of "foreclosure property" (which is, in
general, property acquired by foreclosure or otherwise on default of a loan
secured by the property) that is held primarily for sale to customers in the
ordinary course of business or (ii) other non-qualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if Cornerstone 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
Cornerstone should fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), and 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 product of (a) the gross income
attributable to the greater of the amount by which Cornerstone fails the 75% or
95% test, and (b) a fraction intended to reflect Cornerstone's profitability.
Sixth, if Cornerstone should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain net income for such year (other than retained long-term
capital gain Cornerstone elects to treat as having been distributed to
stockholders), and (iii) any undistributed taxable income from prior years,
Cornerstone would be subject to a non-deductible 4% excise tax on the excess of
such required distribution over the amounts actually distributed. Seventh, if
Cornerstone acquires any asset from a C corporation (i.e., a corporation
generally subject to full corporate level tax) in a transaction in which the
basis of the asset in Cornerstone's hands is determined by reference to the
basis of the asset (or any other asset) in the hands of the C corporation, and
Cornerstone recognizes gain on the disposition of such asset during the 10-year
period (the "Recognition Period") beginning on the date on which such asset was
acquired by Cornerstone, then, to the extent of such asset's "Built-in Gain"
(i.e. the excess of the fair market value of such property at the time of
acquisition by Cornerstone over the adjusted basis of such asset at such time),
such gain will be subject to tax at the highest regular corporate rate
applicable (as provided in Regulations that have been announced but not yet
promulgated (the "Built-in Gain Rules")).
REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, Cornerstone must elect to be so treated and must meet
the requirements, discussed below, relating to Cornerstone'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 during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a shorter taxable year (the "100 Shareholder Rule"); (vi) not more than 50% in
value of the outstanding stock of which is owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of each taxable year (the "5/50 Rule"); (vii) that makes an
election to be a REIT (or has made such election for a previous taxable year)
and satisfies all relevant filing and other administrative requirements
established by the IRS that must be met in order to elect and to maintain REIT
status; (viii) that uses a calendar year for federal income tax purposes; and
(ix) that meets certain other tests, described below, regarding the nature of
its income and assets.
For purposes of the 5/50 Rule, an unemployment compensation benefits plan, a
private foundation or a portion of a trust permanently set aside or used
exclusively for charitable purposes generally is considered an individual. A
trust that is a qualified trust under Section 401(a) of the Code, however,
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generally is not considered an individual and the beneficiaries of such trust
are treated as holding shares of a REIT in proportion to their actuarial
interests in such trust for purposes of the 5/50 Rule. For taxable years
beginning on or after January 1, 1998, a REIT will be treated as having
satisfied the 5/50 Rule if it complies with certain Regulations for ascertaining
the ownership of its stock and if it did not know (or after the exercise of
reasonable diligence would not have known) that its stock was sufficiently
closely held to cause it to violate the 5/50 Rule. See "ANNUAL RECORD KEEPING
REQUIREMENTS," below.
In order to protect Cornerstone from a concentration of ownership of its
stock that would cause Cornerstone to fail the 5/50 Rule or the 100 Shareholder
Rule, Cornerstone's 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% (in value) of the aggregate
outstanding shares of all classes of stock of Cornerstone (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 Cornerstone's stock if such ownership would cause more than 50% in
value of Cornerstone's outstanding stock to be owned by five or fewer
individuals or would result in Cornerstone's stock being beneficially owned by
fewer than 100 persons (determined without reference to any rule of
attribution).
OPERATING ENTITIES
Cornerstone has owned and operated a number of properties through wholly
owned corporate subsidiaries. Section 856(i) of the Code provides that a
corporation that is a "qualified REIT subsidiary" shall not be treated as a
separate corporation, and all assets, liabilities and items of income, deduction
and credit of a "qualified REIT subsidiary" shall be treated as assets,
liabilities and items of income, deduction and credit of the REIT. A "qualified
REIT subsidiary" is a corporation, all of the capital stock of which is owned by
the REIT. Thus, in applying the requirements described herein, Cornerstone'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 income, deduction and credit of Cornerstone.
All of Cornerstone's assets are held by, and all of its operations are
conducted through, Cornerstone Properties Limited Partnership (the "Operating
Partnership"). Cornerstone is the sole general partner of the Operating
Partnership, and as of December 31, 1999, Cornerstone directly or indirectly
owned in the aggregate approximately 87.1% of the outstanding common units in
its capacity both as the sole general partner and as a limited partner, and
Cornerstone owned all of the preferred partnership units. The remaining units
are held by other limited partners. In the case of a REIT that is a partner in a
partnership, the Regulations provide that the REIT will be deemed to own its
proportionate share of the assets of the partnership (based on the REIT's
capital interest in the partnership) and will be deemed to be entitled to the
gross income of the partnership attributable to such share. In addition, the
character of the assets and gross income of the partnership will retain the same
character in the hands of the REIT for purposes of Section 856 of the Code,
including satisfying the gross income and asset tests (as discussed below).
Thus, Cornerstone's proportionate share of the assets, liabilities and items of
income of the Operating Partnership, and any other partnerships Cornerstone may
hold an interest in directly or indirectly through the Operating Partnership,
shall be treated as assets, liabilities and items of Cornerstone for purposes of
applying the requirements described herein.
INCOME TESTS
To maintain its qualification as a REIT, Cornerstone must satisfy certain
annual gross income requirements. First, at least 75% of Cornerstone's gross
income (excluding gross income from prohibited transactions) for each taxable
year must consist of defined types of income derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents
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from real property" and, in certain circumstances, interest) or certain types of
temporary investment income. Second, at least 95% of Cornerstone's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property or temporary investments, dividends, interest
and gain from the sale or disposition of stock or securities, or from any
combination of the foregoing. Third, for Cornerstone's taxable years beginning
prior to January 1, 1998, not more than 30% of Cornerstone's gross income
(including gross income from prohibited transactions) for each taxable year may
be gain from the sale or other disposition of (i) stock or securities held for
less than one year, (ii) dealer property that is not foreclosure property and
(iii) certain real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property).
Rents received or deemed received by Cornerstone will qualify as "rents from
real property" in satisfying the gross income requirements 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, amounts received from a tenant will
not qualify as "rents from real property" if Cornerstone, or an owner of 10% or
more of Cornerstone, directly or constructively is deemed to own 10% or more of
the ownership interests in the 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 such personal property will not qualify as
"rents from real property." Finally, for rents received to qualify as "rents
from real property," Cornerstone generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an "independent contractor" who is adequately compensated and from
whom Cornerstone derives no income. The "independent contractor" requirement,
however, does not apply to the extent that the services provided by Cornerstone
are "usually or customarily rendered in connection with the rental of space for
occupancy only," which are services of a type that a tax-exempt organization can
provide to its tenants without causing its rental income to be unrelated
business taxable income ("UBTI"). In addition, beginning with Cornerstone's 1998
taxable year, the "independent contractor" requirement no longer applies to
non-customary services provided by Cornerstone where the annual value of such
services does not exceed 1% of the gross income derived from the property with
respect to which the services are provided (the "1% DE MINIMIS exception"). For
this purpose, such services may not be valued at less than 150% of Cornerstone's
direct cost of providing the services.
Cornerstone 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, (iii) derive rent attributable to a Related
Party Tenant, or (iv) provide any non-customary services to tenants other than
through qualifying independent contractors, except as permitted by the 1% DE
MINIMIS exception or to the extent that the amount of resulting non-qualifying
income would not cause Cornerstone to fail to satisfy the 95% and 75% gross
income tests.
The Operating Partnership acquired a hotel in California in December 1998,
and the gross income from the operation of the hotel constitutes non-qualifying
income for purposes of the 95% and 75% gross income tests. Cornerstone currently
intends to continue to derive income from the operation of the hotel (rather
than lease it to a third-party lessee) to the extent the gross income therefrom
will not cause Cornerstone to fail the 95% or 75% gross income test. Cornerstone
may determine, however, to lease the hotel to a third-party lessee in order to
derive qualifying "rents from real property" from the hotel. Alternatively,
Cornerstone may decide to contribute the hotel to a corporate subsidiary of the
Operating Partnership, subject to the limits imposed by the 5% asset test and
the 10% voting securities test (which tests are described below). The net income
from the hotel derived by the corporate subsidiary would be subject to
corporate-level tax (to the extent not sheltered by deductions or losses),
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but the gross income from the hotel would no longer be taken into account in
determining whether Cornerstone meets the 95% or 75% gross income test (although
any dividends received by the Operating Partnership from the corporate
subsidiary would be qualifying income under the 95% gross income test, but not
under the 75% gross income test).
If Cornerstone 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 such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if Cornerstone's failure to meet such
tests was due to reasonable cause and not due to willful neglect, Cornerstone
attaches a schedule of the sources of its income to its return and any incorrect
information on the schedules was not due to fraud with intent to evade tax. It
is not possible, however, to state whether in all circumstances Cornerstone
would be entitled to the benefit of these relief provisions. Even if these
relief provisions were to apply, a tax would be imposed with respect to the
excess net income.
ASSET TESTS
At the close of each quarter of its taxable year, Cornerstone must satisfy
two tests relating to the nature of its assets. First, at least 75% of the value
of Cornerstone's total assets must be represented by cash or cash items
(including certain receivables), government securities, "real estate assets" or,
in cases where Cornerstone raises new capital through stock or long-term (at
least five years) debt offerings, temporary investments in stock or debt
instruments during the one-year period following Cornerstone's receipt of such
capital (the "75% asset test"). The term "real estate asset" includes interests
in real property, interests in mortgages on real property to the extent the
mortgage balance does not exceed the value of the associated real property, and
shares of other REITs. For purposes of the 75% asset test, the term "interest in
real property" includes an interest in land and improvements thereon, such as
buildings or other inherently permanent structures (including items that are
structural components of such buildings or structures), a leasehold in real
property and an option to acquire real property (or a leasehold in real
property). Second, of the investments not included in the 75% asset class, the
value of any one issuer's debt and equity securities owned by Cornerstone (other
than Cornerstone's interest in the Operating Partnership, any other entity
classified as a partnership for federal income tax purposes, or the stock of a
qualified REIT subsidiary) may not exceed 5% of the value of Cornerstone's total
assets (the "5% asset test"), and Cornerstone may not own more than 10% of any
one issuer's outstanding voting securities (except for Cornerstone's ownership
interest in the Operating Partnership, any other entity that is classified as a
partnership for federal income tax purposes, or the stock of a qualified REIT
subsidiary) (the "10% voting securities test").
The Operating Partnership owns 100% of the nonvoting stock and 1% of the
voting stock of WCP Services, Inc. ("WCP Services"), representing 95% of the
equity value of the stock of WCP Services. WCP Services was formed in December
1998 to engage in certain management and construction activities with respect to
properties owned by unrelated third parties and to perform certain services with
respect to tenant build-out work at Cornerstone's properties. Cornerstone's
indirect interest in the securities of WCP Services will not violate the 10%
voting securities test because the Operating Partnership owns less than 10% of
the voting stock of WCP Services. Further, Cornerstone believes that its
ownership of an indirect interest in the securities of WCP Services will not
violate the 5% asset test because the value of Cornerstone's interest in WCP
Services is substantially less than 5% of the value of Cornerstone's total
assets. No independent appraisals have been or will be obtained of the value of
the stock of WCP Services. Although Cornerstone plans to take steps to ensure
that it satisfies the 5% asset test for any quarter in which it acquires
securities of WCP Services or other property, there can be no assurance that
such steps always will be successful or will not require a reduction in the
Operating Partnership's overall interest in WCP Services.
If Cornerstone should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied all of the asset tests at the close of the
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preceding calendar quarter and (ii) the discrepancy between the value of
Cornerstone's assets and the asset test requirements arose from changes in the
market values of its assets and was not wholly or partly caused by an
acquisition of non-qualifying assets. If the condition described in clause (ii)
of the preceding sentence were not satisfied, Cornerstone still could avoid
disqualification by eliminating any discrepancy within 30 days after the close
of the calendar quarter in which it arose. Cornerstone 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 as may
be required to comply with those tests.
Certain changes to the REIT asset tests have been approved by Congress and
are awaiting the President's signature. These changes are discussed below under
the heading "--TAX RELIEF EXTENSION ACT OF 1999."
ANNUAL DISTRIBUTION REQUIREMENTS
In order to be taxed as a REIT, Cornerstone is required to distribute
dividends (other than capital gain dividends) to its stockholders in an amount
at least equal to (i) the sum of (A) 95% of Cornerstone's "REIT taxable income"
(computed without regard to the dividends paid deduction and its net capital
gain) and (B) 95% of the net income (after tax), if any, from foreclosure
property, minus (ii) the sum of certain items of non-cash income. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before Cornerstone timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent that Cornerstone does not distribute all
of its net capital gain or distributes at least 95%, but less than 100%, of its
"REIT taxable income," as adjusted, it will be subject to tax on the
undistributed amount at regular capital gains and ordinary corporate tax rates.
Furthermore, if Cornerstone should fail to distribute during each calendar year
at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95%
of its REIT capital gain net income for such year (other than long-term capital
gain Cornerstone elects to retain and treat as having been distributed to
stockholders), and (iii) any undistributed taxable income from prior periods,
Cornerstone will be subject to a 4% nondeductible excise tax on the excess of
such required distribution over the amounts actually distributed. In addition,
during its Recognition Period, if Cornerstone disposes of any assets subject to
the Built-in Gain Rules, Cornerstone 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 Cornerstone's REIT taxable income will be less than its
cash flow due to the allowance of depreciation and other non-cash deductions in
computing REIT taxable income. Accordingly, Cornerstone anticipates that it
generally will have sufficient cash or liquid assets to enable it to satisfy the
95% distribution requirement. In this regard, the Partnership Agreement of the
Operating Partnership authorizes Cornerstone, as general partner, to take such
steps as may be necessary to cause the Operating Partnership to make
distributions in an amount sufficient to permit Cornerstone to meet these
distribution requirements. It is possible, however, that Cornerstone, 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 Cornerstone's taxable income, or as a result of nondeductible
expenses such as principal amortization or repayments, or capital expenditures
in excess of noncash deductions. In the event that such timing differences
occur, Cornerstone may find it necessary to borrow funds (or to cause the
Operating Partnership to borrow funds) or to issue 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 REIT distribution requirements.
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Under certain circumstances, Cornerstone 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 Cornerstone's deduction
for dividends paid for the earlier year. Although Cornerstone may be able to
avoid being taxed on amounts distributed as deficiency dividends, it will be
required to pay interest to the IRS based upon the amount of any deduction taken
for deficiency dividends.
Certain changes to the REIT distribution requirement have been approved by
Congress and are awaiting the President's signature. These changes are discussed
below under the heading "--TAX RELIEF EXTENSION ACT OF 1999."
ANNUAL RECORD KEEPING REQUIREMENTS
Cornerstone is required to maintain certain records and request on an annual
basis certain information from its stockholders designed to disclose the actual
ownership of its outstanding shares. Cornerstone has complied with these
requirements in the past and intends to continue to comply with these
requirements. Failure to comply with the record-keeping requirements in taxable
years beginning prior to January 1, 1998 could lead to disqualification as a
REIT. Beginning with Cornerstone's 1998 taxable year, however, the
record-keeping rules have been modified such that for any year in which
Cornerstone may fail to comply with the rules, an intermediate penalty will
apply instead of REIT disqualification. The penalty is $25,000 ($50,000 for
intentional violations) for any year in which a REIT does not comply with the
rules.
TAX RELIEF EXTENSION ACT OF 1999
On November 19, 1999, the U.S. Congress approved H.R. 1180, the Tax Relief
Extension Act of 1999 (the "Act"), which would modify several provisions of the
Code relating to REITs. The Act is currently expected to be signed by the
President on or about December 17, 1999. Some of the REIT-related modifications
that would affect Cornerstone are described briefly below.
The Act would amend the 10% voting securities test by prohibiting a REIT
from owning more than 10% of the voting power OR VALUE of the equity securities
of any issuer other than a qualified REIT subsidiary, another REIT, or an entity
classified as a partnership for federal income tax purposes. In determining
whether the REIT owns more than 10% of the total value of the outstanding
securities of an issuer, certain "straight debt" would be disregarded, but only
if issued by (i) an individual, (ii) an issuer in which the REIT or a "taxable
REIT subsidiary" of the REIT owns no securities other than such straight debt,
or (iii) a partnership in which the REIT holds at least a 20% profits interest.
The proposal would provide an exception to the new 10% vote-or-value test, and
also to the 5% asset test under current law, for entities that make a joint
election with the REIT to be treated as "taxable REIT subsidiaries." A taxable
REIT subsidiary would be allowed to perform non-customary and other currently
prohibited services with respect to a REIT's tenants without causing the rent
paid by such tenants to be disqualified as "rents from real property" for
purposes of the 75% and 95% gross income tests described above. In addition, a
taxable REIT subsidiary would be allowed to undertake non-tenant related
activities that would generate nonqualifying income for a REIT, such as
third-party management and development.
A number of constraints would be imposed on the REIT and on the taxable REIT
subsidiary to ensure that the REIT could not, through the taxable REIT
subsidiary, engage in substantial non-real estate activities and also to ensure
that the taxable REIT subsidiary pays a corporate-level tax on its income.
First, the value of the securities of all taxable REIT subsidiaries owned by a
REIT could not represent more than 20% of the value of the REIT's total assets.
Second, a taxable REIT subsidiary would be subject to the "earnings stripping"
rules of Section 163(j) of the Code, which could limit deductions for interest
paid to the REIT under certain circumstances. Third, a 100% excise tax would be
imposed on the REIT with respect to certain "redetermined rents, redetermined
deductions, and excess interest" to ensure arm's length (i) pricing for services
provided by the taxable REIT subsidiary
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to REIT tenants and (ii) allocation of shared expenses between the REIT and the
taxable REIT subsidiary. Certain additional limitations also would apply.
The change to the REIT asset tests described above generally would apply to
taxable years beginning after December 31, 2000. Under a transition rule,
however, the new 10% vote-or-value test would not apply to a REIT's ownership of
the securities of a corporation held on July 12, 1999. The transition rule would
cease to apply, however, to securities of a corporation as of the first day
after July 12, 1999 on which such corporation were to engage in a "substantial
new line of business" or to acquire "any substantial asset" (with certain
exceptions). In Cornerstone's case, the securities of WCP Services would be
eligible for the transition rule unless WCP Services were to add a "substantial
new line of business" or to acquire "any substantial asset" after July 12, 1999.
Cornerstone currently anticipates, however, that an election would be made,
effective January 1, 2001, for WCP Services to be treated as a taxable REIT
subsidiary.
In addition to the changes to the REIT asset tests described above, the Act
would modify the annual distribution requirements applicable to REITs. Under the
Act, for taxable years beginning after December 31, 2000, a REIT would be
required to distribute only 90% (rather than 95%) of its net taxable income.
FAILURE TO QUALIFY
If Cornerstone fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, Cornerstone will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which
Cornerstone fails to qualify will not be deductible by Cornerstone, nor will
they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate stockholders may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, Cornerstone also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which Cornerstone ceased to qualify as a REIT. It is
not possible to state whether in all circumstances Cornerstone would be entitled
to such statutory relief.
TAXATION OF U.S. STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a holder of Cornerstone
common stock that for U.S. federal income tax purposes is (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate whose income from sources without
the United States is included in gross income for U.S. federal income tax
purposes regardless of its connection with the conduct of a trade or business
within the United States or (iv) any trust with respect to which (A) a U.S.
court is able to exercise primary supervision over the administration of such
trust and (B) one or more U.S. persons have the authority to control all
substantial decisions of the trust.
As long as Cornerstone qualifies as a REIT, distributions made to
Cornerstone's taxable U.S. Stockholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by such U.S. Stockholders as ordinary income and will not be eligible
for the dividends received deduction generally available to corporations. For
purposes of determining whether distributions are out of earnings and profits,
the earnings and profits of Cornerstone will be allocated first to Cornerstone's
preferred stock (to the extent of distributions made in respect thereof), and
then to the Cornerstone common stock. Distributions that are designated as
capital gain dividends will be taxed as a capital gain (to the extent such
distributions do not exceed Cornerstone's actual net capital gain for the
taxable year) without regard to the period for which the stockholder has held
its shares. The tax rates applicable to such capital gains are discussed below.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends
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as ordinary income. Distributions in excess of current and accumulated earnings
and profits will not be taxable to a stockholder to the extent that they do not
exceed the adjusted basis of the stockholder's shares, but rather will reduce
the adjusted basis of such shares. To the extent that distributions in excess of
current and accumulated earnings and profits exceed the adjusted basis of a
stockholder's shares, such distributions will be included in income as capital
gains assuming the shares are capital assets in the hands of the stockholder.
The tax rate applicable to such capital gain will depend on the stockholder's
holding period for the shares. In addition, any distribution declared by
Cornerstone in October, November or December of any year and payable to a
stockholder of record on a specified date in any such month shall be treated as
both paid by Cornerstone and received by the stockholder on December 31 of such
year, provided that the distribution is actually paid by Cornerstone during
January of the following calendar year.
Cornerstone may elect to treat all or a part of its undistributed net
capital gain as if it had been distributed to its stockholders (including for
purposes of the 4% excise tax discussed above under "Requirements for
Qualification--ANNUAL DISTRIBUTION REQUIREMENTS," above). If Cornerstone should
make such an election, Cornerstone's stockholders would be required to include
in their income as long-term capital gain their proportionate share of
Cornerstone's undistributed net capital gain, as designated by Cornerstone. Each
such stockholder would be deemed to have paid its proportionate share of the
income tax imposed on Cornerstone with respect to such undistributed net capital
gain, and this amount would be credited or refunded to the stockholder. In
addition, the tax basis of the stockholder's shares would be increased by its
proportionate share of undistributed net capital gains included in its income,
less its proportionate share of the income tax imposed on Cornerstone with
respect to such gains.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of Cornerstone. Instead, such losses would be
carried over by Cornerstone for potential offset against its future income
(subject to certain limitations). Taxable distributions from Cornerstone and
gain from the disposition of Cornerstone common stock will not be treated as
passive activity income and, therefore, stockholders generally will not be able
to apply any "passive activity losses" (such as losses from certain types of
limited partnerships in which the stockholder is a limited partner) against such
income. In addition, taxable distributions from Cornerstone generally will be
treated as investment income for purposes of the investment interest
limitations. Capital gains from the disposition of the shares (or distributions
treated as such) will be treated as investment income only if the stockholder so
elects, in which case such capital gains will be taxed at ordinary income rates.
Cornerstone will notify stockholders after the close of Cornerstone's taxable
year as to the portions of the distributions attributable to that year that
constitute ordinary income, return of capital and capital gain.
In general, any gain or loss realized upon a taxable disposition of
Cornerstone common stock by a stockholder who is not a dealer in securities will
be treated as capital gain or loss. Lower marginal tax rates for individuals may
apply in the case of capital gains, depending on the holding period of the
shares that are sold. However, any loss upon a sale or exchange of shares by a
stockholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss to the
extent of distributions from Cornerstone required to be treated by such
stockholder as long-term capital gain. All or a portion of any loss realized
upon a taxable disposition of shares may be disallowed if other shares are
purchased within 30 days before or after the disposition.
For non-corporate taxpayers, the tax rate differential between capital gain
and ordinary income may be significant. The highest marginal individual income
tax rate applicable to ordinary income is 39.6%. Any capital gain generally will
be taxed to a non-corporate taxpayer at a maximum rate of 20% with respect to
capital assets held for more than one year. The tax rates applicable to ordinary
income apply to gain attributable to the sale or exchange of capital assets held
for one year or less. In the case of capital gain attributable to the sale or
exchange of certain real property held for more than one
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year, an amount of such gain equal to the amount of all prior depreciation
deductions not otherwise required to be taxed as ordinary depreciation recapture
income will be taxed at a maximum rate of 25%. With respect to distributions
designated by a REIT as capital gain dividends (including deemed distributions
of retained capital gains), the REIT also may designate (subject to certain
limits) whether the dividend is taxable to non-corporate stockholders as a 20%
rate gain distribution or an unrecaptured depreciation distribution taxed at a
25% rate.
The characterization of income as capital or ordinary may affect the
deductibility of capital losses. Capital losses not offset by capital gains may
be deducted against a non-corporate taxpayer's ordinary income only up to a
maximum annual amount of $3,000. Non-corporate taxpayers may carry forward their
unused capital losses. All net capital gain of a corporate taxpayer is subject
to tax at ordinary corporate rates. A corporate taxpayer can deduct capital
losses only to the extent of capital gains, with unused losses being carried
back three years and forward five years.
TREATMENT OF TAX-EXEMPT STOCKHOLDERS
Tax-exempt organizations, including qualified employee pension and profit
sharing trusts and individual retirement accounts, (collectively, "Exempt
Organizations") generally are exempt from federal income taxation. However, they
are subject to taxation on their UBTI. While many investments in real estate
generate UBTI, the IRS has issued a published ruling that dividend distributions
by a REIT to an exempt employee pension trust do not constitute UBTI, provided
that the shares of the REIT are not otherwise used in an unrelated trade or
business of the exempt employee pension trust. Based on that ruling, and subject
to the exceptions discussed below, amounts distributed by Cornerstone to Exempt
Organizations generally should not constitute UBTI. However, if an Exempt
Organization finances its acquisition of Cornerstone common stock with debt, a
portion of its income from Cornerstone will constitute UBTI pursuant to the
"debt-financed property" rules. Furthermore, social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts and qualified
group legal services plans that are exempt from taxation under paragraphs (7),
(9), (17) and (20), respectively, of Section 501(c) of the Code are subject to
different UBTI rules, which generally will require them to characterize
distributions from Cornerstone as UBTI. In addition, in certain circumstances, a
pension trust that owns more than 10% of Cornerstone's stock is required to
treat a percentage of the dividends from Cornerstone as UBTI (the "UBTI
Percentage"). The UBTI Percentage is the gross income, less related direct
expenses, derived by Cornerstone from an unrelated trade or business (determined
as if Cornerstone were a pension trust) divided by the gross income, less
related direct expenses, of Cornerstone for the year in which the dividends are
paid. The UBTI rule applies to a pension trust holding more than 10% of
Cornerstone's stock only if (i) the UBTI Percentage is at least 5%,
(ii) Cornerstone qualifies as a REIT by reason of the modification of the 5/50
Rule that allows the beneficiaries of the pension trust to be treated as holding
shares of Cornerstone in proportion to their actuarial interests in the pension
trust and (iii) either (A) one pension trust owns more than 25% of the value of
Cornerstone's stock or (B) a group of pension trusts individually holding more
than 10% of the value of Cornerstone's stock collectively own more than 50% of
the value of Cornerstone's stock.
SPECIAL TAX CONSIDERATIONS FOR NON-U.S. STOCKHOLDERS
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex, and no attempt
will be made herein to provide more than a summary of such 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 WITH REGARD TO AN
INVESTMENT IN THE SHARES, INCLUDING ANY REPORTING REQUIREMENTS.
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For purposes of this discussion, the term "Non-U.S. Stockholder" does not
include any foreign stockholder whose investment in Cornerstone common stock is
"effectively connected" with the conduct of a trade or business in the United
States. Such a foreign stockholder, in general, will be subject to United States
federal income tax with respect to its investment in the Cornerstone common
stock in the same manner as a U.S. Stockholder is taxed (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals). In addition, a foreign corporation receiving
income that is treated as effectively connected with a U.S. trade or business
also may be subject to an additional 30% "branch profits tax," unless an
applicable tax treaty provides a lower rate or an exemption. Certain
certification requirements must be satisfied in order for effectively connected
income to be exempt from withholding.
Distributions to Non-U.S. Stockholders that are not attributable to gain
from sales or exchanges by Cornerstone of U.S. real property interests and are
not designated by Cornerstone as capital gain dividends (or deemed distributions
of retained capital gains) will be treated as dividends of ordinary income to
the extent that they are made out of current or accumulated earnings and profits
of Cornerstone. Such distributions ordinarily will be subject to a withholding
tax equal to 30% of the gross amount of the distribution unless an applicable
tax treaty reduces or eliminates that tax. Distributions in excess of current
and accumulated earnings and profits of Cornerstone will not be taxable to a
stockholder to the extent that such distributions do not exceed the adjusted
basis of the stockholder's shares, but rather will reduce the adjusted basis of
such shares. To the extent that distributions in excess of current and
accumulated earnings and profits exceed the adjusted basis of a Non-U.S.
Stockholder's shares, such distributions will give rise to tax liability if the
Non-U.S. Stockholder would otherwise be subject to tax on any gain from the sale
or disposition of its shares, as described below.
For any year in which Cornerstone qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by Cornerstone of U.S. real
property interests will be taxed to a Non-U.S. Stockholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, distributions attributable to gain from sales of U.S. real property
interests are taxed to a Non-U.S. Stockholder as if such gain were effectively
connected with a U.S. business. Non-U.S. Stockholders thus would be taxed at the
normal capital gain rates applicable to U.S. Stockholders (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals). Distributions subject to FIRPTA also may be
subject to a 30% branch profits tax in the hands of a foreign corporate
stockholder not entitled to treaty relief or exemption.
Unless a reduced rate of withholding applies under an applicable tax treaty,
Cornerstone generally will withhold from distributions to Non-U.S. Stockholders,
and remit to the IRS, 30% of all distributions out of current or accumulated
earnings and profits, subject to the application of FIRPTA withholding rules
discussed below. In addition, Cornerstone is required to withhold 10% of any
distribution in excess of its current and accumulated earnings and profits.
Because Cornerstone generally cannot determine at the time a distribution is
made whether or not it will be in excess of earnings and profits, Cornerstone
intends to withhold 30% of the entire amount of any distribution (other than
distributions subject to the 35% withholding discussed below). Generally,
however, a Non-U.S. Stockholder 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. tockholder.
Under FIRPTA, Cornerstone is required to withhold 35% of any distribution
that is designated as a capital gain dividend or which could be designated as a
capital gain dividend. Thus, if Cornerstone designates previously made
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 FIRPTA withholding.
Under Regulations that are currently in effect, dividends paid to an address
in a country outside the United States generally are presumed to be paid to a
resident of such country for purposes of
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determining the applicability of withholding discussed above and the
applicability of a tax treaty rate. Regulations issued in October 1997, however,
provide that a Non-U.S. Stockholder who wishes to claim the benefit of an
applicable treaty rate must satisfy certain certification and other
requirements. Such Regulations generally will be effective for distributions
made after December 31, 2000.
For so long as Cornerstone common stock continues to be regularly traded on
an established securities market, the sale of Cornerstone common stock by any
Non-U.S. Stockholder who is not a Five Percent Non-U.S. Stockholder (as defined
below) generally will not be subject to United States federal income tax (unless
the Non-U.S. Stockholder is a nonresident alien individual who was present in
the United States for more than 182 days during the taxable year of the sale and
certain other conditions apply, in which case such gain will be subject to a 30%
tax on a gross basis). In general, the sale or other taxable disposition of
Cornerstone common stock by a Five Percent Non-U.S. Stockholder (as defined
below) is subject to United States federal income tax unless and until
Cornerstone becomes a "domestically controlled REIT." 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 or disposition, beneficially owned (including under
certain attribution rules) more than 5% of the total fair market value of
Cornerstone common stock (as outstanding from time to time) or owned shares of
another class of stock of Cornerstone that represented value greater than 5% of
the Cornerstone common stock (measured at the time such shares were acquired). 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 Cornerstone's dividends in income for United
States federal income tax purposes). Currently, Cornerstone believes that more
than 50% in value of its shares is held directly or indirectly by Non-U.S.
Stockholders, and Cornerstone will not qualify as a domestically controlled REIT
for at least five years following the date when less than 50% is so held.
Further, in part because the Cornerstone common stock is publicly traded in the
United States and in Germany, no assurance can be given that Cornerstone will
qualify as a domestically controlled REIT at any time in the future.
So long as Cornerstone 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 Cornerstone common stock (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals).
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Cornerstone will report to its U.S. Stockholders and to the IRS the amount
of distributions paid during each calendar year, and the amount of tax withheld,
if any. Under the backup withholding rules, a stockholder may be subject to
backup withholding at the rate of 31% with respect to distributions paid unless
such holder (i) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (ii) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with the applicable requirements of the
backup withholding rules. A stockholder who does not provide Cornerstone with
its correct taxpayer identification number also may be subject to penalties
imposed by the IRS. In addition, Cornerstone may be required to withhold a
portion of capital gain distributions to any stockholders who fail to certify
their non-foreign status to Cornerstone.
U.S. Stockholders should consult their own tax advisors regarding their
qualifications for an 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.
24
<PAGE>
Backup withholding tax and information reporting generally will 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 gain dividends or (iii) distributions
attributable to gain from the sale or exchange by Cornerstone of U.S. 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 Cornerstone
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 Cornerstone common stock by a foreign office of a broker
that (i) is a United States person, (ii) derives 50% or more of its gross income
for certain periods from the conduct of a trade or business in the United
States, or (iii) is a "controlled foreign corporation" 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 satisfied, 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 Cornerstone common
stock is subject to both backup withholding and information reporting unless the
stockholder certifies under penalties 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 a refund with the IRS.
The Treasury Department issued final Regulations in October 1997 concerning
the withholding of tax and information reporting for certain amounts paid to
non-resident alien individuals and foreign corporations. These new withholding
rules alter the current withholding regime, and generally will be effective for
distributions made after December 31, 2000. Investors should consult their tax
advisors concerning the impact, if any, of these new Regulations on an
investment in the common stock.
OTHER TAX CONSIDERATIONS
TAX STATUS OF THE OPERATING PARTNERSHIP
An entity classified as a partnership for federal income tax purposes
generally is not a taxable entity and incurs no federal income tax liability.
Each partner in the partnership is required to take into account in computing
its federal income tax liability its allocable share of income, gains, losses,
deductions and credits of the partnership, regardless of whether cash
distributions are made. Distributions of money by a partnership to a partner are
generally not taxable unless the amount of the distribution is in excess of the
partner's adjusted basis in its partnership interest.
Elective entity classification Regulations under Section 7701 of the Code
became effective on January 1, 1997. Under these Regulations, a domestic entity
that has at least two members and that is organized as a state law partnership
on or after January 1, 1997, automatically will be classified as a partnership
for federal income tax purposes unless the entity elects otherwise. The
Operating Partnership was organized on December 23, 1997 and therefore is
properly classified as a partnership for federal income tax purposes unless it
makes a contrary election.
Notwithstanding the Operating Partnership's classification as a partnership,
the Operating Partnership could be treated as a corporation for federal income
tax purposes if it were a "publicly traded partnership" ("PTP") within the
meaning of Section 7704 of the Code. Under Section 7704 of the Code, a
partnership is classified as a PTP if interests in the partnership are traded on
an established securities market or are readily tradable on a secondary market
or the substantial equivalent thereof. If so classified, the PTP is taxable as a
corporation unless it qualifies for a special "90% qualifying income exception"
under Section 7704(c) of the Code. Under that exception, a PTP is not subject to
corporate-level tax if 90% or more of its gross income consists of dividends,
interest, "rents from real property" (as that term is defined for purposes of
the REIT rules, with certain modifications), gain from the sale or other
disposition of real property, and certain other types of income. An amount will
not qualify as rents from real property if the partnership is deemed to own,
actually or constructively, 10% or more of the ownership interests in a tenant
(a "Related Party
25
<PAGE>
Tenant"). For this purpose, any interests in a tenant that are owned by a
partner of the partnership will be treated as constructively owned by the
partnership if the partner owns, actually or constructively, 5% or more of the
value of the outstanding interests in the partnership.
If a PTP fails to meet the 90% qualifying income exception for a taxable
year, and (i) the IRS determines that the failure was inadvertent, (ii) the
partnership takes steps to once again comply with the 90% qualifying income
exception, and (iii) the partnership makes such adjustments or payments
(including with respect to the partners) as may be required by the IRS, then the
partnership will be treated as continuing to satisfy the 90% qualifying income
exception.
The Regulations under Section 7704 (the "PTP Regulations") provide rules for
determining whether a partnership is a PTP and provide certain safe harbors
which, if satisfied, preclude a partnership from being so classified. The
"private placement" safe harbor of such regulations requires, among other
things, that the partnership have no more than 100 partners. Because the
Operating Partnership currently has more than 100 partners, it does not satisfy
the private placement safe harbor and may not be able to satisfy any other safe
harbors of the PTP Regulations. Consequently, there is a risk that the ability
of the holders of units to exchange or the actual exchange of their units for
shares of common stock (after expiration of any applicable lock-out
restrictions) could cause the interests in the Operating Partnership to be
viewed as readily tradable on a secondary market or the substantial equivalent
thereof. In that event, although the Operating Partnership would be classified
as a PTP, Cornerstone believes that the Operating Partnership would satisfy the
90% qualifying income exception and therefore be exempt from corporate-level
tax. In this regard, the partnership agreement of the Operating Partnership
provides that no partner will be permitted to hold or acquire units if such
acquisition would result in the Operating Partnership being unable to satisfy
the 90% qualifying income exception.
Although the Operating Partnership would satisfy the 90% qualifying income
exception and therefore would not be subject to corporate-level tax if
classified as a PTP, under Section 469(k) of the Code, the partners in the
Operating Partnership would nevertheless be required to apply the passive loss
limitations of Section 469 separately to the income and loss from the Operating
Partnership.
If the Operating Partnership were treated as an association taxable as a
corporation, Cornerstone would fail the 75% asset test (in addition to the 5%
asset test and, likely, the 10% voting securities test) and therefore would fail
to qualify as a REIT. See "Failure to Qualify," above.
DEPRECIATION
The Operating Partnership's initial income tax basis in the properties
acquired in exchange for units generally is the same as the transferor's basis
in such property on the date of the acquisition by the Operating Partnership,
except to the extent that gain is recognized by the transferor in connection
with the transfer. The Operating Partnership's tax depreciation deductions will
be allocated among the partners in accordance with their respective percentage
interests in the Operating Partnership, except as otherwise required pursuant to
Section 704(c) of the Code.
STATE AND LOCAL TAX
Cornerstone 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 Cornerstone 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 Cornerstone.
26
<PAGE>
PLAN OF DISTRIBUTION
This prospectus relates to the possible issuance from time to time by
Cornerstone of up to 16,187,724 shares of common stock if, and to the extent
that, Cornerstone elects to issue such common stock to the holders of up to
16,187,724 units, upon the tender of such units for redemption. Cornerstone has
registered the issuance of the common stock in accordance with a registration
rights agreement entered into with the holders of the units in connection with
the Wilson Acquisition in December 1998, but registration of the issuance of
such shares does not necessarily mean that any holders will elect to redeem
their units or that we will issue any common stock upon any redemption.
Cornerstone will acquire one unit from a tendering unit holder in exchange for
each share of common stock that Cornerstone issues. Consequently, with each
redemption, Cornerstone's percentage interest in Cornerstone Properties Limited
Partnership will increase.
EXPERTS
The financial statements of Cornerstone Properties Inc. and subsidiaries
incorporated in this prospectus by reference to the Annual Report on Form 10-K
for the year ended December 31, 1998 have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
27
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF CORNERSTONE SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Where You Can Find More Information... 2
Incorporation of Certain Documents by
Reference........................... 2
Special Note Regarding Forward-Looking
Statements.......................... 3
Securities to Be Offered.............. 3
Information About the Company......... 3
Risk Factors.......................... 4
Exercise of Redemption Rights......... 4
Certain United States Federal Income
Tax Considerations.................. 13
Experts............................... 27
</TABLE>
16,187,724 SHARES
CORNERSTONE
PROPERTIES INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
JANUARY , 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder, all of
which are being paid by the Registrant. Except for the SEC registration fee, all
amounts are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 56,358
Transfer agent's fees....................................... 2,500
Printing and engraving expenses............................. 10,000
Legal fees and expenses..................................... 25,000
Accounting fees and expenses................................ 5,000
Miscellaneous............................................... 1,142
--------
Total....................................................... $100,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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 or
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.
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 expect 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 positions, and to their heirs,
II-1
<PAGE>
executors and administrators. Section 78.752 empowers the corporation to
purchase and maintain insurance on behalf of a director, officer, employee or
agent of the corporation against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such whether or not
the corporation would have the power to indemnify him against such liabilities
under Section 78.7502.
Article IX of the Bylaws of the Registrant provides for indemnification of
its officers and Directors, substantially identical in scope to that permitted
under Section 78.7502 of the NRS. The Bylaws provide, pursuant to Subsection 2
of Section 78.7502 of the NRS, that the expenses of officers and Directors
incurred in defending any action, suit or proceeding, whether civil, criminal,
administrative or investigative, must be paid by the Registrant as they are
incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of any undertaking by or on behalf of the Director or
Officer to repay such amounts unless it shall ultimately be determined that he
is entitled to be indemnified by the Registrant pursuant to Article IX of the
Bylaws.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
4.1 --Restated Articles of Incorporation of Cornerstone
(incorporated by reference from Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995)
4.1(a) --Certificate of Amendment of Restated Articles of
Incorporation, dated October 27, 1997 (incorporated by
reference from Exhibit 4.2(b) to the Registrant's
Registration Statement on Form S-3, File No. 333-47149, as
filed with the Commission on March 2, 1998)
4.1(b) --Certificate of Amendment of Restated Articles of
Incorporation of Cornerstone, dated July 10, 1998
(incorporated by reference from Exhibit 4.2(c) to the
Registrant's Registration Statement on Form S-3, File No.
333-59259, as filed with the Commission on July 16, 1998)
4.2 --Amended and Restated Bylaws of Cornerstone (incorporated
by reference from Exhibit 3.1 to the Registrant's Current
Report on Form 8-K dated December 16, 1998)
4.3 --Specimen Stock Certificate (incorporated by reference from
Exhibit 3.1 to the Registrant's Registration Statement on
Form S-1, File No. 333-47149, as filed with the Commission
on March 2, 1998)
*5.1 --Opinion of Lionel, Sawyer & Collins
*8.1 --Opinion of King & Spalding
23.1 --Consent of PricewaterhouseCoopers LLP
*23.2 --Consent of Lionel, Sawyer & Collins (included in Exhibit
5.1)
*23.3 --Consent of King & Spalding (included in Exhibit 8.1)
*24.1 --Power of Attorney (included on Page II-4)
</TABLE>
- ------------------------
* Previously filed.
ITEM 17. UNDERTAKINGS
(a) 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.
(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
II-2
<PAGE>
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) above 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 the 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 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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.
(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.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) 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.
(c) The undersigned registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)
(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post- effective amendment that contains a form of
prospectus 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.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions in Item 15 above, or otherwise, the
registrant has been advised that 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. 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>
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 Amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of New York, State of New York on January 4, 2000.
CORNERSTONE PROPERTIES INC.
BY: /S/ JOHN S. MOODY
-----------------------------------------
John S. Moody
CHIEF EXECUTIVE OFFICER AND PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated on this 4th day of January, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
Chairman of the Board and Director
- --------------------------------------------
William Wilson III
/s/ JOHN S. MOODY Chief Executive Officer, President and
- -------------------------------------------- Director
John S. Moody (Principal Executive Officer)
* Executive Vice President and Director
- --------------------------------------------
Rodney C. Dimock
/s/ KEVIN P. MAHONEY Chief Financial Officer
- -------------------------------------------- (Principal Financial and Accounting Officer)
Kevin P. Mahoney
* Director
- --------------------------------------------
Cecil D. Conlee
* Director
- --------------------------------------------
Blake Eagle
* Director
- --------------------------------------------
Dr. Karl-Ludwig Hermann
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- ---------------------------------------------
<S> <C>
* Director
- --------------------------------------------
Hans C. Mautner
* Director
- --------------------------------------------
Dr. Lutz Mellinger
* Director
- --------------------------------------------
Craig R. Stapleton
Director
- --------------------------------------------
Michael J. G. Topham
Director
- --------------------------------------------
Dick van den Bos
Director
- --------------------------------------------
Jan van der Vlist
Director
- --------------------------------------------
Donald G. Fisher
* Director
- --------------------------------------------
Randall A. Hack
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ JOHN S. MOODY
-------------------------
John S. Moody
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
Exhibit 23.1
(LOGO)
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated February 24, 1999, except for Notes 8
and 20 for which the date is February 26, 1999, relating to the financial
statements and financial statement schedules, which appears in Cornerstone
Properties Inc.'s Annual Report on Form 10-K for the year ended December 31,
1998. We also consent to the references to us under the heading "Experts" in
such Registration Statement.
/s/ PricewaterhouseCoopers LLP
New York, New York
January 3, 2000
