AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1998
REGISTRATION NO. 333-34441
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------
CORNERSTONE REALTY INCOME TRUST, INC.
VIRGINIA 54-1589139
(State of Incorporation) (I.R.S. Employer Identification No.)
---------
306 East Main Street
Richmond, Virginia 23219
---------
(804) 643-1761
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
GLADE M. KNIGHT
306 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
(804) 643-1761
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------
with a copy to:
LESLIE A. GRANDIS, ESQ.
MCGUIRE, WOODS, BATTLE & BOOTHE, L.L.P.
ONE JAMES CENTER, 901 EAST CARY STREET
RICHMOND, VIRGINIA 23219
(804) 775-4322
---------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC. From time to
time after the effective date of this registration statement in light of market
conditions and other factors.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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 BECOMES EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 26, 1998
$200,000,000
CORNERSTONE REALTY INCOME TRUST, INC.
DEBT SECURITIES
COMMON SHARES
PREFERRED SHARES
------------------
Cornerstone Realty Income Trust, Inc. (the "Company") may issue from time
to time its (i) unsecured senior or subordinated debt securities (the "Debt
Securities"), (ii) Common Shares, no par value ("Common Shares"), or (iii)
Preferred Shares, no par value ("Preferred Shares"), having an aggregate initial
public offering price not to exceed $200,000,000 or the equivalent thereof in
one or more foreign currencies or composite currencies, including European
Currency Units, on terms to be determined at the time of sale. The Debt
Securities, the Common Shares and the Preferred Shares offered hereby
(collectively, the "Offered Securities") may be offered, separately or as units
with other Offered Securities, in separate series in amounts, at prices and on
terms to be determined at the time of sale and to be set forth in a supplement
to this Prospectus (a "Prospectus Supplement").
The Debt Securities will be direct unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Securities") or subordinated Debt
Securities ("Subordinated Securities"). The Senior Securities will rank equally
with all other unsecured and unsubordinated indebtedness of the Company. The
Subordinated Securities will be subordinated to all existing and future Senior
Debt of the Company, as defined. See "Description of Debt Securities."
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable, (i) in the case of Debt
Securities, the specific designation, aggregate principal amount, currency,
denominations, maturity, priority, interest rate, time of payment of principal
and interest, terms of redemption at the option of the Company or repayment at
the option of the holder or for sinking fund payments, terms for conversion into
or exchange for other Offered Securities and the initial public offering price;
(ii) in the case of Common Shares, the number of Common Shares and the initial
public offering price; (iii) in the case of Preferred Shares, the series
designation and number of shares and the dividend, liquidation, redemption,
conversion, voting and other rights and the initial public offering price; and
(iv) in the case of all Offered Securities, whether such Offered Securities will
be offered separately or as a unit with other Offered Securities. In addition,
such specific terms may include limitations on direct or beneficial ownership
and restrictions on transfer of the Offered Securities, in each case as may be
appropriate to preserve the status of the Company as a qualified real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code").
The applicable Prospectus Supplement will also contain information, where
applicable, concerning certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered thereby.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company or to or through underwriters or dealers. If
any designated agents or any underwriters are involved in the sale of Offered
Securities, they will be identified and their compensation will be described in
the applicable Prospectus Supplement. See "Plan of Distribution." No Offered
Securities may be sold without delivery of the applicable Prospectus Supplement
describing such Offered Securities and the method and terms of the offering
thereof.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECU-
RITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES
OF SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT
------------------
THE DATE OF THIS PROSPECTUS IS JANUARY , 1998.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
AVAILABLE INFORMATION
The Company, with principal executive offices at 306 East Main Street,
Richmond, Virginia 23219, telephone number (804) 643-1761, is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Reports, proxy statements and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: Seven World Trade Center, Suite 1300, New York, New York, 10048; and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Such documents can
also be inspected and copied at the offices of the New York Stock Exchange (the
"NYSE"), 20 Broad Street, New York, New York 10005 and also from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Company files reports, proxy
statements and other information with the Commission electronically. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the Web site is: http://www.sec.gov.
The Company has filed with the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
securities offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement, certain items of which are contained in
schedules and exhibits to the Registration Statement as permitted by the rules
and regulations of the Commission. For further information, reference is hereby
made to the Registration Statement, including the schedules and exhibits filed
as a part thereof, which may be obtained from the Commission upon payment of the
fees prescribed by the Commission.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1996, the Company's Current Reports on Form 8-K dated October 31, 1996
(including Amendment No. 1 thereto on Form 8-K/A), March 27, 1997 (including
Amendment No. 1 and Amendment No. 2 thereto on Form 8-K/A), May 14, 1997
(including Amendment No. 1 thereto on Form 8-K/A), August 28, 1997 (including
Amendment No. 1 thereto on Form 8-K/A), September 30, 1997 (including Amendment
No. 1 thereto on Form 8-K/A), October 31, 1997 (including Amendment No. 1
thereto on Form 8-K/A), December 30, 1997, and January 13, 1998, the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997, June 30,
1997 and September 30, 1997, and the Company's Registration Statements on Form
8-A under the Exchange Act, each of which has been filed by the Company with the
Commission, are incorporated herein by reference.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the Offering shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained herein or in a document incorporated
or deemed to be incorporated by reference in this Prospectus shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
Information relating to the Company contained in this Prospectus
summarizes, is based upon, or refers to, information and financial statements
contained in one or more of the documents incorporated by reference herein;
accordingly, such information contained herein is qualified in its entirety by
reference to such documents and should be read in conjunction therewith.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any document incorporated by reference in this Prospectus, other than exhibits
to any such document unless such exhibits are specifically incorporated by
reference into the information in this Prospectus. Requests for such documents
should be directed to Cornerstone Realty Income Trust, Inc., 306 East Main
Street, Richmond, Virginia 23219, Attention: Investor Relations (telephone
number (804) 643-1761)).
2
<PAGE>
THE COMPANY
Cornerstone Realty Income Trust, Inc. (the "Company"), a self-administered
and self-managed equity real estate investment trust ("REIT") headquartered in
Richmond, Virginia, is a fully integrated real estate organization with
expertise in the acquisition, renovation and management of apartment
communities. The Company focuses on the ownership of apartment communities
located in growing markets in Virginia, North Carolina, South Carolina and
Georgia. On December 31, 1997, the Company owned 51 apartment complexes
comprising 11,922 apartment units.
The Company's executive offices are located at 306 East Main Street,
Richmond, Virginia 23219 and its telephone number is (804) 643-1761. The Company
has seven regional property management offices, located in Blacksburg and
Virginia Beach, Virginia; Raleigh, Charlotte and Wilmington, North Carolina;
Columbia, South Carolina; and Atlanta, Georgia. The Company currently has
approximately 400 employees, including specialists in acquisition, management,
marketing, leasing, development, accounting and information systems.
OPERATING STRATEGIES
The Company maintains an intense focus on the operations of its Properties
to generate consistent, sustained growth in net operating income, which it
believes is the key to growing funds from operations.
The Company seeks to grow net operating income and increase Company value
through active property management, which includes keeping rents at or above
market levels, maintaining high economic occupancy through tenant retention,
creating a property identity and effectively marketing each property, and
controlling operating expenses at the property level.
The Company also seeks to generate growth in net operating income and
Company value through acquisitions by acquiring under-performing assets at less
than replacement cost, correcting operational problems, and making selected
renovations. The Company undertakes such activities with a view toward raising
rents while maintaining or increasing economic occupancy at its properties. In
markets that it targets for acquisition opportunities, the Company attempts to
gain a significant local presence in order to achieve operating efficiencies. In
analyzing acquisition opportunities, the Company considers acquisitions of
property portfolios as well as individual properties.
FINANCING POLICY
The Company's objective is to seek capital as needed at the lowest possible
cost. The Company may seek capital through the issuance of Debt Securities,
Common Shares, Preferred Shares, some combination of the foregoing, and in other
ways. Historically, the Company has obtained capital principally through the
public issuance of Common Shares and through unsecured lines of credit from a
bank. The Company is not precluded from engaging in secured borrowings, although
its current policy is to hold its properties on an unmortgaged basis, and as of
the date of this Prospectus, it has no secured debt.
The Company's current unsecured line of credit (the "Unsecured Line of
Credit") was closed on October 30, 1997 and is in a principal amount of up to
$175 million. The lenders are a consortium of banks with First Union National
Bank as agent. The Unsecured Line of Credit currently bears interest equal to
one-month LIBOR plus 1.20%. The formula for determination of the interest rate
can change based on changes in financial condition and debt level of the
Company. The entire balance of the Unsecured Line of Credit is due on October
30, 2000.
The Company has also obtained from First Union National Bank of Virginia a
$7.5 million unsecured line of credit for general corporate purposes (the
"General Corporate Line"). This line of credit also bears interest at LIBOR plus
1.60%, adjusted monthly, and is due on March 31, 1998.
In connection with the acquisition of the Trolley Square East Apartments in
1996, the Company issued the seller a $5.5 million unsecured promissory note
(the "Trolley Square Note"), which bears interest at an effective rate of 6.65%
per annum and is due on June 1, 1999.
3
<PAGE>
The Company intends to maintain a debt policy (the "Debt Limitation")
limiting the Company's total combined indebtedness plus its pro rata share of
indebtedness of any unconsolidated investments ("Joint Venture Debt") to 40% of
the Company's total equity market capitalization plus its combined indebtedness
(including its pro rata share of Joint Venture Debt) ("Total Market
Capitalization").
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement, the net
proceeds from the sale of the Offered Securities will be used for general
corporate purposes, which may include repayment of indebtedness, making
improvements to properties, and the acquisition and development of additional
properties.
CERTAIN RATIOS
The following table sets forth the Company's ratios of earnings to fixed
charges for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, -------------------------------------
1997 1996 1995 1994 1993
-------------- ------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges
Actual 3.72 (a) 17.77 188.36 203.56
Supplemental Pro Forma(b) 3.03 (a)
</TABLE>
- ----------
(a) Actual and Supplemental Pro Forma earnings for the year ended December 31,
1996 were inadequate to cover fixed charges. The amounts of coverage
deficiency were $4,169,849 and $1,102,351, respectively, for the year ended
December 31, 1996.
(b) To give effect to the 20 of the 21 property acquisitions in 1996 and 11 of
the 13 property acquisitions in 1997 for the period of time not owned by the
Company as reflected in the pro forma statements of operations filed with
the Company's Report on Form 8-K/A dated October 31, 1997.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Senior Securities, if and when issued, will be issued under an
indenture (the "Senior Indenture"), between the Company and one or more trustees
meeting the requirements of a trustee under the Trust Indenture Act of 1939, as
amended (the "TIA") (the "Senior Indenture Trustee"), and the Subordinated
Securities, if and when issued, will be issued under an indenture (the
"Subordinated Indenture"), between the Company and one or more trustees meeting
the requirements of a trustee under the TIA (the "Subordinated Indenture
Trustee"). The term "Trustee," as used herein, shall refer to the Senior
Indenture Trustee or the Subordinated Indenture Trustee, as appropriate. The
forms of the Senior Indenture and the Subordinated Indenture (being sometimes
referred to herein collectively as the "Indentures" and individually as an
"Indenture") are filed as exhibits to the Registration Statement and will be
available for inspection at the respective Corporate Trust Office (as such term
is defined in the Indentures) of the Senior Indenture Trustee and the
Subordinated Indenture Trustee, or as described under "Available Information."
The Indentures will be subject to, qualified under, and governed by, the TIA.
The statements made herein relating to the Indentures and the Debt Securities
are summaries of certain provisions thereof, do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all
provisions of the Indentures and the Debt Securities. All section references
appearing herein are to sections of the Indentures, and capitalized terms used
but not defined herein have the respective meanings set forth in the Indentures
and the Debt Securities.
4
<PAGE>
TERMS
The Debt Securities will be direct, unsecured obligations of the Company.
The indebtedness represented by the Senior Securities will rank equally with all
other unsecured and unsubordinated indebtedness of the Company. The indebtedness
represented by the Subordinated Securities will be subordinated in right of
payment to the prior payment in full of the Senior Debt of the Company, as
described under "Subordination."
Each Indenture provides that the Debt Securities may be issued without
limit as to aggregate principal amount, in one or more series, in each case as
established from time to time in or pursuant to authority granted by a
resolution of the Board of Directors of the Company or as established in one or
more indentures supplemental to such Indenture. Debt Securities may be issued
with terms different from those of Debt Securities previously issued. All Debt
Securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the Holders
of the Debt Securities of such series, for issuances of additional Debt
Securities of such series (Section 301 of each Indenture).
Each Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
either Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect to
such series (Section 608 of each Indenture). In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a Trustee of a trust under the applicable
Indenture separate and apart from the trust administered by any other Trustee
(Sections 101 and 609 of each Indenture), and, except as otherwise indicated
herein, any action described herein to be taken by the Company may be taken by
each such Trustee with respect to, and only with respect to, the one or more
series of Debt Securities for which it is Trustee under the applicable
Indenture.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities and whether such Debt Securities
are Senior Securities or Subordinated Securities;
(2) the aggregate principal amount of such Debt Securities and any limit
on such principal amount;
(3) the percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the portion
of the principal amount payable upon declaration of acceleration of the
maturity thereof, or (if applicable) the portion of the principal amount of
such Debt Securities that is convertible into Capital Shares of the Company,
or the method by which any such portion will be determined;
(4) if convertible, in connection with the preservation of the Company's
status as a REIT, any applicable limitations on the ownership or
transferability of the Capital Shares of the Company into which such Debt
Securities are convertible;
(5) the date or dates, or the method by which such date or dates will be
determined, on which the principal of such Debt Securities will be payable
and the amount of principal payable thereon;
(6) The rate or rates (which may be fixed or variable) at which such Debt
Securities will bear interest, if any, or the method by which such rate or
rates will be determined, the date or dates from which such interest will
accrue or the method by which such date or dates will be determined, the
Interest Payment Dates on which any such interest will be payable and the
Regular Record Dates for such Interest Payment Dates or the method by which
such Dates will be determined, and the basis upon which interest will be
calculated if other than that of a 360-day year consisting of twelve 30-day
months;
5
<PAGE>
(7) the place or places where the principal of (and premium or Make-
Whole Amount (as defined in each Indenture), if any), interest, if any, on,
and Additional Amounts, if any, payable in respect of, such Debt Securities
will be payable, where such Debt Securities may be surrendered for
registration of transfer or exchange and where notices or demands to or upon
the Company in respect of such Debt Securities and the applicable Indenture
may be served;
(8) the period or periods within which, the price or prices (including
premium or Make-Whole Amount, if any) at which, the currency or currencies,
currency unit or units or composite currency or currencies in which, and
other terms and conditions upon which, such Debt Securities may be redeemed
in whole or in part, at the option of the Company, if the Company is to have
the option;
(9) the obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision or
at the option of a Holder thereof, and the period or periods within which or
the date or dates on which, the price or process at which, the currency or
currencies, currency unit or units or composite currency or currencies in
which, and other terms and conditions upon which such Debt Securities will be
redeemed, repaid or purchased, in whole or in part, pursuant to such
obligation;
(10) whether such Debt Securities will be in registered or bearer form
and terms and conditions relating thereto, and, if other than $1,000 and any
integral multiple thereof, the denominations in which any registered Debt
Securities will be issuable and, if other than $5,000, the denomination or
denominations in which any bearer Debt Securities will be issuable;
(11) if other than United States dollars, the currency or currencies in
which such Debt Securities will be denominated and payable, which may be a
foreign currency or units of two or more foreign currencies or a composite
currency or currencies;
(12) whether the amount of payments of principal of (and premium or Make-
Whole Amount, if any) or interest, if any, on such Debt Securities may be
determined with reference to an index, formula or other method (which index,
formula or method may be based, without limitation, on one or more
currencies, currency units, composite currencies, commodities, equity indices
or other indices), and the manner in which such amounts will be determined;
(13) whether the principal of (and premium or Make-Whole Amount, if any)
or interest or Additional Amounts, if any, on such Debt Securities are to be
payable, at the election of the Company or a Holder thereof, in a currency or
currencies, currency unit or units or composite currency or currencies other
than that in which such Debt Securities are denominated or stated to be
payable, the period or periods within which, and the terms and conditions
upon which, such election may be made, and the time and manner of, and
identity of the exchange rate agent with responsibility for, determining the
exchange rate between the currency or currencies, currency unit or units or
composite currency or currencies in which such Debt Securities are
denominated or stated to be payable and the currency or currencies, currency
unit or units or composite currency or currencies in which such Debt
Securities are to be so payable;
(14) provisions, if any, granting special rights to the Holders of such
Debt Securities upon the occurrence of such events as may be specified;
(15) any deletions from, modifications of or additions to the Events of
Default or covenants of the Company with respect to such Debt Securities,
whether or not such Events of Default or covenants are consistent with the
Events of Default or covenants set forth in the applicable Indenture;
(16) whether such Debt Securities will be issued in certificated or book-
entry form;
(17) the applicability, if any, of the defeasance and covenant defeasance
provisions of Article Fourteen of the applicable Indenture;
(18) whether and under what circumstances the Company will pay Additional
Amounts as contemplated in the applicable Indenture on such Debt Securities
in respect of any tax, assessment or governmental charge and, if so, whether
the Company will have the option to redeem such Debt Securities rather than
pay such Additional Amounts (and the terms of any such option);
6
<PAGE>
(19) the obligation, if any, of the Company to permit the conversion of
the Debt Securities of such series into Common or Preferred Shares of the
Company and the terms and conditions upon which such conversion shall be
effected; and
(20) any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301 of each Indenture).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities") (Section 502 of each Indenture). Special
United States federal income tax, accounting and other considerations applicable
to Original Issue Discount Securities will be described in the applicable
Prospectus Supplement.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise specified in the applicable Prospectus Supplement, the
Debt Securities of any series issued in registered form will be issuable in
denominations of $1,000 and integral multiples thereof. Unless otherwise
specified in the applicable Prospectus Supplement, the Debt Securities of any
series issued in bearer form will be issuable in denominations of $5,000
(Section 302 of each Indenture).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium or Make-Whole Amount, if any) and interest on any
series of Senior Securities will be payable at the corporate trust office of the
Senior Indenture Trustee and the principal of (and premium or Make-Whole Amount,
if any) and interest on any series of Subordinated Securities will be payable at
the corporate trust office of the Subordinated Indenture Trustee; provided that
at the option of the Company payment of interest on any series of Debt
Securities may be made by check mailed to the address of the Person entitled
thereto as it appears in the Security Register for such series or by wire
transfer of funds to such Person at an account maintained within the United
States (Sections 301, 305, 306, 307 and 1002 of each Indenture).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the Person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Company, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the applicable
Indenture (Section 307 of each Indenture).
Subject to certain limitations imposed upon Debt Securities issued in book
- -entry form, the Debt Securities of any series will be exchangeable for other
Debt Securities of the same series and of a like aggregate principal amount and
tenor of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the applicable Trustee referred to
above. In addition, subject to certain limitations imposed upon Debt Securities
issued in book-entry form, the Debt Securities of any series may be surrendered
for conversion or registration of transfer thereof at the corporate trust office
of the applicable Trustee referred to above. Every Debt Security surrendered for
conversion, registration of transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer. No service charge will be made
for any registration or transfer or exchange of any Debt Securities, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith (Section 305 of each
Indenture). If the applicable Prospectus Supplement refers to any transfer agent
(in addition to the applicable Trustee) initially designated by the Company with
respect to any series of Debt Securities, the Company may at any time rescind
the designation of any such transfer agent or approve a change in the location
through which such transfer agent acts, except that the Company will be required
to maintain a transfer agent in each Place of Payment for such series. The
Company may at any time designate additional transfer agents with respect to any
series of Debt Securities (Section 1002 of each Indenture).
Neither the Company nor either Trustee shall be required to (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business
7
<PAGE>
on the day of mailing of the relevant notice or redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) issue, register the transfer of or exchange any Debt Security
which has been surrendered for repayment at the option of the Holder, except the
portion, if any, of such Debt Security not to be so repaid (Section 305 of each
Indenture).
MERGER, CONSOLIDATION OR SALE
The Company may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into, any other entity,
provided that (a) either the Company shall be the continuing entity, or the
successor entity (if other than the Company) formed by or resulting from any
such consolidation or merger or which shall have received the transfer of such
assets is a Person organized and existing under the laws of the United States or
any State thereof and shall expressly assume payment of the principal of (and
premium or Make-Whole Amount, if any) and interest on all of the Debt Securities
and the due and punctual performance and observance of all of the covenants and
conditions contained in each Indenture; (b) immediately after giving effect to
such transaction and treating any indebtedness which becomes an obligation of
the Company or any Subsidiary as a result thereof as having been incurred by the
Company or such Subsidiary at the time of such transaction, no Event of Default
under an Indenture, and no event which, after notice or the lapse of time, or
both, would become such an Event of Default, shall have occurred and be
continuing; and (c) an Officers' Certificate and legal opinion covering such
conditions shall be delivered to the Company (Sections 801 and 803 of each
Indenture).
CERTAIN COVENANTS
The Indentures do not contain any provisions that would limit the ability
of the Company to incur indebtedness or that would afford Holders of the Debt
Securities protection in the event of a highly leveraged or similar transaction
involving the Company or in the event of a change of control. However, the
Bylaws of the Company include provisions for redemption and stopping transfer of
its Common Shares designed to preserve the Company's status as a REIT. The Code
provides that concentration of more than 50% in value of direct or indirect
ownership of Common Shares in five or fewer individual shareholders during the
last six months of any year will result in disqualification of the Company as a
REIT. Enforcement of the provisions of the Company's Bylaws would prevent such
concentration and, therefore, prevent or hinder a change of control. Reference
is made to the applicable Prospectus Supplement for information with respect to
any deletions from, modifications of or additions to the Events of Default or
covenants of the Company that are described herein, including any addition of a
covenant or other provision providing event risk or similar protection.
Existence. Except as described above under "- Merger, Consolidation or
Sale," the Company will do or cause to be done all things necessary to preserve
and keep in full force and effect the existence, rights (charter and statutory)
and franchises of the Company and its Subsidiaries; provided, however, that the
Company shall not be required to preserve any right or franchise if it
determines that the preservation thereof is no longer desirable in the conduct
of the business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders of the
Debt Securities of any series (Section 1005 of each Indenture).
Maintenance of Properties. The Company will cause all of its properties
used or useful in the conduct of its business or the business of any Subsidiary
to be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that the Company and its Subsidiaries shall not be prevented
from selling or otherwise disposing of for value their properties in the
ordinary course of business (Section 1006 of each Indenture).
Insurance. The Company will, and will cause each of its Subsidiaries to,
keep all of its insurable properties insured against loss or damage in an amount
at least equal to their then full insurable value with financially sound and
reputable insurance companies (Section 1007 of each Indenture).
8
<PAGE>
Payment of Taxes and Other Claims. The Company will pay or discharge or
cause to be paid or discharged, before the same become delinquent, (ii) all
taxes, assessments and governmental charges levied or imposed upon it or any
Subsidiary or upon the income, profits or property of the Company or any
Subsidiary, and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Company or any
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings (Section 1008 of each Indenture).
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture provides that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (a) default for
30 days in the payment of any installment of interest or Additional Amounts
payable on any Debt Security of such series; (b) default in the payment of the
principal of (or premium or Make-Whole Amount, if any, on) any Debt Security of
such series at its Maturity; (c) default in making any sinking fund payment as
required for any Debt Security of such series; (d) default in the performance of
any other covenant of the Company contained in the Indenture (other than a
covenant added to the Indenture solely for the benefit of a series of Debt
Securities issued thereunder other than such series), continued for 60 days
after written notice as provided in the Indenture; (e) default under any bond,
debenture, note, mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for money
borrowed by the Company (or by any Subsidiary, the repayment of which the
Company has guaranteed or for which the Company is directly responsible or
liable as obligor or guarantor) having an aggregate principal amount outstanding
of at least $10,000,000, whether such indebtedness now exists or shall hereafter
be created, which default shall have resulted in such indebtedness being
declared due and payable prior to the date on which it would otherwise have
become due and payable, without such acceleration having been rescinded or
annulled within 10 days after written notice as provided in the Indenture; (f)
the entry by a court of competent jurisdiction of one or more judgments, orders
or decrees against the Company or any Subsidiary in an aggregate amount
(excluding amounts fully covered by insurance) in excess of $10,000,000 and such
judgments, orders or decrees remain undischarged, unstayed and unsatisfied in an
aggregate amount (excluding amounts fully covered by insurance) in excess of
$10,000,000 for a period of 30 consecutive days; (g) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Company or any Significant Subsidiary or for all or
substantially all of either of its property; and (h) any other Event of Default
provided with respect to such series of Debt Securities (Section 501 of each
Indenture). The term "Significant Subsidiary" means each significant subsidiary
(as defined in Regulation S-X promulgated under the Securities Act) of the
Company.
If an Event of Default under either Indenture with respect to Debt
Securities of any series at the time Outstanding occurs and is continuing, then
in every such case the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Debt Securities of that series may declare the
principal amount (or, if the Debt Securities of that series are Original Issue
Discount Securities or Indexed Securities, such portion of the principal amount
as may be specified in the terms thereof) of, and premium or Make-Whole Amount,
if any, on, all of the Debt Securities of that series to be due and payable
immediately by written notice thereof to the Company. However, at any time after
such declaration of acceleration with respect to Debt Securities of such series
(or of all Debt Securities then Outstanding under the applicable Indenture, as
the case may be) has been made, but before a judgment or decree for payment of
the money due has been obtained by the Trustee, the Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of such series
(or of all Debt Securities then Outstanding under the applicable Indenture, as
the case may be) may rescind and annul such declaration and its consequences if
(a) the Company shall have deposited with the Trustee all required payments of
the principal of (and premium or Make-Whole Amount, if any) and interest, and
any Additional Amounts, on the Debt Securities of such series (or of all Debt
Securities then Outstanding under the applicable Indenture, as the case may be),
plus certain fees, expenses, disbursements and advances of the Trustee and (b)
all Events of Default, other than the nonpayment of accelerated principal (or
specified
9
<PAGE>
portion thereof and the premium or Make-Whole Amount, if any) or interest, with
respect to the Debt Securities of such series (or of all Debt Securities then
Outstanding under the applicable Indenture, as the case may be) have been cured
or waived as provided in the Indenture (Section 502 of each Indenture). Each
Indenture also provides that the Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of any series (or of all
Debt Securities then Outstanding under the applicable Indenture, as the case may
be) may waive any past default with respect to such series and its consequences,
except a default (x) in the payment of the principal of (or premium or Make
- -Whole Amount, if any) or interest or Additional Amounts payable on any Debt
Security of such series or (y) in respect of a covenant or provision contained
in the applicable Indenture that cannot be modified or amended without the
consent of the Holder of each Outstanding Debt Security affected thereby
(Section 513 of each Indenture).
Each Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the applicable Indenture; provided, however,
that such Trustee may withhold notice to the Holders of any series of Debt
Securities of any default with respect to such series (except a default in the
payment of the principal of (or premium or Make-Whole Amount, if any) or
interest or Additional Amounts payable on any Debt Security of such series or in
the payment of any sinking fund installment in respect of any Debt Security of
such series) if the Responsible Officers of such Trustee consider such
withholding to be in the interest of such Holders (Section 601 of each
Indenture).
Each Indenture provides that no Holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the case of failure of the
Trustee, for 60 days, to act after it has received a written request to
institute proceedings in respect of an Event of Default from the Holders of not
less than 25% in principal amount of the Outstanding Debt Securities of such
series, as well as an offer of reasonable indemnity (Section 507 of each
Indenture). This provision will not prevent, however, any Holder of Debt
Securities from instituting suit for the enforcement of payment of the principal
of (and premium of Make-Whole Amount, if any), interest on and Additional
Amounts payable with respect to, such Debt Securities at the respective due
dates thereof (Section 508 of each Indenture).
MODIFICATION OF THE INDENTURES
Modifications and amendments of either Indenture may be made with the
consent of the Holders of not less than a majority in principal amount of all
Outstanding Debt Securities issued under such Indenture that are affected by
such modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the Holder of each such Debt Security
affected thereby, (a) change the Stated Maturity of the principal of (or premium
or Make-Whole Amount, if any), or any installment of principal of or interest or
Additional Amounts payable on, any such Debt Security; (b) reduce the principal
amount of, or the rate or amount of interest on, or any premium or Make-Whole
Amount payable on redemption of, or any Additional Amounts payable with respect
to, any such Debt Security, or reduce the amount of principal of an Original
Issue Discount Security or Make-Whole Amount, if any, that would be due and
payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the Holder
of any such Debt Security; (c) change the Place of Payment, or the coin or
currency, for payment of principal of (and premium or Make-Whole Amount, if
any), or interest on, or any Additional Amounts payable with respect to, any
such Debt Security; (d) impair the right to institute suit for the enforcement
of any payment on or with respect to any such Debt Security; (e) reduce the
percentage of Outstanding Debt Securities of any series necessary to modify or
amend the applicable Indenture, to waive compliance with certain provisions
thereof or certain defaults and consequences thereunder or to reduce the quorum
or voting requirements set forth in the Indenture; or (f) modify any of the
foregoing provisions or any of the provisions relating to the waiver of certain
past defaults or certain covenants, except to increase the required percentage
to effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the Holder of such Debt Security
(Section 902 of each Indenture).
10
<PAGE>
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities issued under either Indenture have the right to waive compliance
by the Company with certain covenants in such Indenture (Section 1012 of each
Indenture).
SUBORDINATION
Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
the Subordinated Securities will be subordinated to the extent provided in the
Subordinated Indenture in right of payment to the prior payment in full of all
Senior Debt (Sections 1601 and 1602 of the Subordinated Indenture), but the
obligation of the Company to make payment of the principal and interest on the
Subordinated Securities will not otherwise be affected (Section 1608 of the
Subordinated Indenture). No payment of principal or interest may be made on the
Subordinated Securities at any time if a default on Senior Debt exists that
permits the holders of such Senior Debt to accelerate its maturity and the
default is the subject of judicial proceedings or the Company receives notice of
the default (Section 1603 of the Subordinated Indenture). After all Senior Debt
is paid in full and until the Subordinated Securities are paid in full, holders
will be subrogated to the rights of holders of Senior Debt to the extent that
distributions otherwise payable to holders have been applied to the payment of
Senior Debt (Section 1607 of the Subordinated Indenture). By reason of such
subordination, in the event of a distribution of assets upon insolvency, certain
general creditors of the Company may recover more, ratably, than holders of the
Subordinated Securities.
Senior Debt is defined in the Subordinated Indenture as the principal of
and interest on, or substantially similar payments to be made by the Company in
respect of, the following, whether outstanding at the date of execution of the
Subordinated Indenture or thereafter incurred, created or assumed: (a)
indebtedness of the Company for money borrowed or represented by purchase-money
obligations, (b) indebtedness of the Company evidenced by notes, debentures, or
bonds, or other securities issued under the provisions of an indenture, fiscal
agency agreement or other instrument, (c) obligations of the Company as lessee
under leases of property either made as part of any sale and leaseback
transaction to which the Company is a party or otherwise, (d) indebtedness of
partnerships and joint ventures that is included in the consolidated financial
statements of the Company, (e) indebtedness, obligations and liabilities of
others in respect of which the Company is liable contingently or otherwise to
pay or advance money or property or as guarantor, endorser or otherwise or which
the Company has agreed to purchase or otherwise acquire, and (f) any binding
commitment of the Company to fund any real estate investment or to fund any
investment in any entity making such real estate investment, in each case other
than (1) any such indebtedness, obligation or liability referred to in clauses
(a) through (f) above as to which, in the instrument creating or evidencing the
same pursuant to which the same is outstanding, it is provided that such
indebtedness, obligation or liability is not superior in right of payment to the
Subordinated Securities or ranks pari passu with the Subordinated Securities,
(2) any such indebtedness, obligation or liability which is subordinated to
indebtedness of the Company to substantially the same extent as or to a greater
extent than the Subordinated Securities are subordinated and (3) the
Subordinated Securities (Section 101 of the Subordinated Indenture). There are
no restrictions in the Senior Indenture or the Subordinated Indenture upon the
creation of additional Senior Debt.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Under each Indenture, the Company may discharge certain obligations to
Holders of any series of Debt Securities issued thereunder that have not already
been delivered to the applicable Trustee for cancellation and that either have
become due and payable or will become due and payable within one year (or
scheduled for redemption within one year) by irrevocably depositing with the
applicable Trustee, in trust, funds in such currency or currencies, currency
unit or units or composite currency or currencies in which such Debt Securities
are payable in an amount sufficient to pay the entire indebtedness on such Debt
Securities in respect of principal (and premium or Make-Whole Amount, if any)
and interest and any Additional Amounts payable to the date of such deposit (if
such Debt Securities have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be (Section 401 of each Indenture).
11
<PAGE>
Each Indenture provides that, if the provisions of Article Fourteen thereof
are made applicable to the Debt Securities of or within any series pursuant to
Section 301 of such Indenture, the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay Additional Amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 1402 of each Indenture) or (b) to be released from its
obligations with respect to such Debt Securities under provisions of each
Indenture described under "- Certain Covenants," or, if provided pursuant to
Section 301 of each Indenture, its obligations with respect to any other
covenant, and any omission to comply with such obligations shall not constitute
a default or an Event or Default with respect to such Debt Securities ("covenant
defeasance") (Section 1403 of each Indenture), in either case upon the
irrevocable deposit by the Company with the applicable Trustee, in trust, of an
amount, in such currency or currencies, currency unit or currency units or
composite currency or currencies in which such Debt Securities are payable at
Stated Maturity, or Government Obligations (as defined below), or both,
applicable to such Debt Securities which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium or Make-Whole Amount, if
any) and interest on such Debt Securities, and any mandatory sinking fund or
analogous payments thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Company
has delivered to the applicable Trustee an Opinion of Counsel (as specified in
each Indenture) to the effect that the Holders of such Debt Securities will not
recognize income, gain or loss for United States federal income tax purposes as
a result of such defeasance or covenant defeasance and will be subject to United
States federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance or covenant defeasance
had not occurred, and such Opinion of Counsel, in the case of defeasance, must
refer to and be based upon a ruling of the Internal Revenue Service or a change
in applicable United States federal income tax laws occurring after the date of
such Indenture (Section 1404 of each Indenture).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a Person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or the government which issued the Foreign
Currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101 of each Indenture).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to Section 301 of either Indenture or the terms of such Debt Security
to receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium or Make-Whole Amount, if
12
<PAGE>
any) and interest on such Debt Security as they become due out of the proceeds
yielded by converting the amount so deposited in respect of such Debt Security
into the currency, currency unit or composite currency in which such Debt
Security becomes payable as a result of such election or such cessation of usage
based on the applicable market exchange rate (Section 1405 of each Indenture).
"Conversion Event" means the cessation of use of (i) a currency, currency unit
or composite currency (other than the ECU or other currency unit) both by the
government of the country that issued such currency and for the settlement of
transactions by a central bank or other public institutions of or within the
international banking community, (ii) the ECU both within the European Monetary
System and for the settlement of transactions by public institutions of or
within the European Communities or (iii) any currency unit or composite currency
other than the ECU for the purposes for which it was established. Unless
otherwise provided in the applicable Prospectus Supplement, all payments of
principal of (and premium or Make-Whole Amount, if any) and interest on any Debt
Security that is payable in a Foreign Currency that ceases to be used by its
government of issuance shall be made in United States dollars (Section 101 of
each Indenture).
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default described
in clause (d) under "- Events of Default, Notice and Waiver" with respect to
Sections 1004 to 1009, inclusive, of either Indenture (which Sections would no
longer be applicable to such Debt Securities) or described in clause (g) under
"- Events of Default, Notice and Waiver" with respect to a covenant as to which
there has been covenant defeasance, the amount in such currency, currency unit
or composite currency in which such Debt Securities are payable, and Government
Obligations on deposit with the Company, will be sufficient to pay amounts due
on such Debt Securities at the time of their Stated Maturity but may not be
sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Event of Default. However, the Company would
remain liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Capital Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include whether such Debt
Securities are convertible into Capital Stock of the Company, the conversion
price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at the option of the Holders or the Company, the
events requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such Debt Securities.
BOOK-ENTRY SYSTEM
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities ("Global Securities") that will be
deposited with, or on behalf of a depository (the "Depository") identified in
the Prospectus Supplement relating to such series. Global Securities, if any,
are expected to be deposited with The Depository Trust Company, as Depository.
Global Securities may be issued in fully registered form and may be issued in
either temporary or permanent form. Unless and until it is exchanged in whole or
in part for the individual Debt Securities represented thereby, a Global
Security may not be transferred except as a whole by the Depository for such
Global Security to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository or by such
Depository or any nominee of such Depository to a successor Depository or any
nominee of such successor.
The specific terms of the depository arrangement with respect to a series
of Debt Securities will be described in the Prospectus Supplement relating to
such series. The Company expects that unless otherwise indicated in the
applicable Prospectus Supplement the following provisions will apply to
depository arrangements.
13
<PAGE>
Upon the issuance of a Global Security, the Depository for such Global
Security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual Debt Securities
represented by such Global Security to the accounts of persons that have
accounts with such Depository ("Participants"). Such accounts shall be
designated by the underwriters, dealers or agents with respect to such Debt
Securities or by the Company if such Debt Securities are offered directly by the
Company. Ownership of beneficial interests in such Global Security will be
limited to Participants or persons that may hold interests through Participants.
Ownership of beneficial interests in such Global Security will be shown on, and
the transfer of that ownership will be effected only through, records maintained
by the Depository for such Global Security or its nominee (with respect to
beneficial interests of Participants) and records of Participants (with respect
to beneficial interests of persons who hold through Participants). The laws of
some states require that certain purchasers of securities take physical delivery
of such securities in definitive form. Such limits and laws may impair the
ability to own, pledge or transfer beneficial interest in a Global Security.
So long as the Depository for a Global Security or its nominee is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
applicable Indenture. Except as described below or in the applicable Prospectus
Supplement, owners of beneficial interest in a Global Security will not be
entitled to have any of the individual Debt Securities represented by such
Global Security registered in their names, will not receive or be entitled to
receive physical delivery of any such Debt Securities in definitive form and
will not be considered the owners or holders thereof under the applicable
Indenture.
Payments of principal of, any premium or Make-Whole Amount and any interest
on, or any Additional Amount payable with respect to, individual Debt Securities
represented by a Global Security registered in the name of a Depository or its
nominee will be made to the Depository or its nominee, as the case may be, as
the registered owner of the Global Security. None of the Company, the Trustee,
any Paying Agent or the Security Registrar for such debt Securities will have
any responsibility or liability for any aspect of the records relating to or
payment made on account of beneficial ownership interests in the Global Security
for such Debt Securities or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The Company expects that the Depository for any Debt Securities or its
nominee, upon receipt of any payment of principal, premium, Make-Whole Amount,
interest or Additional Amounts in respect of the Global Security representing
such Debt Securities will immediately credit Participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Security as shown on the records of such
Depository or its nominee. The Company also expects that payments by
Participants to owners of beneficial interests in such Global Security held
through such Participants will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in street name. Such payments will be the
responsibility of such Participants.
If a Depository for any Debt Securities is at any time unwilling, unable or
ineligible to continue as depository and a successor depository is not appointed
by the Company within 90 days, the Company will issue individual Debt Securities
in exchange for the Global Security representing such Debt Securities. In
addition, the Company may at any time and in its sole discretion, subject to any
limitations described in the Prospectus Supplement relating to such Debt
Securities, determine not to have any of such Debt Securities represented by one
or more Global Securities and in such event will issue individual Debt
Securities in exchange for the Global Security or Securities representing such
Debt Securities. Individual Debt Securities so issued will be issued in
denominations of $1,000 and integral multiples thereof.
14
<PAGE>
DESCRIPTION OF CAPITAL SHARES
GENERAL
The Company is authorized to issue 50,000,000 Common Shares, no par value.
At December 31, 1997, there were outstanding 35,510,327 Common Shares.
Management of the Company currently plans to submit to its shareholders at the
1998 Annual Meeting of Shareholders proposed amendments to the Company's Amended
and Restated Articles of Incorporation, as amended (the "Articles") amendments
that would increase the number of authorized Common Shares to 100,000,000 and
that would authorize the issuance of up to 25,000,000 Preferred Shares. There
can be no assurance that such proposals, or similar or other proposals submitted
to the shareholders, would be approved by the shareholders.
The following statements with respect to the capital stock of the Company
are subject to the detailed provisions of the Company's Articles, and bylaws
(the "Bylaws") as currently in effect. These statements do not purport to be
complete, or to give full effect to the terms of the provisions of statutory or
common law, and are subject to, and are qualified in their entirety by reference
to, the terms of the Articles and Bylaws, which are filed as exhibits to the
Registration Statement.
COMMON SHARES
Holders of Common Shares are entitled to receive dividends when and as
declared by the Board of Directors. Holders of Common Shares have one vote per
share and non-cumulative voting rights, which means that holders of more than
50% of the shares voting at a meeting of shareholders at which a quorum is
present can elect all of the directors if they choose to do so, and, in such
event, the holders of the remaining shares will not be able to elect any
directors. In the event of any voluntary or involuntary liquidation or
dissolution of the Company, holders of Common Shares are entitled to share
ratably in the distributable assets of the Company remaining after satisfaction
of all debts and liabilities of the Company. Holders of Common Shares do not
have preemptive rights. When issued, the Common Shares are fully paid and non
- -assessable.
The dividend and liquidation rights of holders of the Common Shares would
be subordinate to the interests of holders of Preferred Shares if, subsequent to
the date of this Prospectus, the Articles are amended to permit the issuance of
Preferred Shares and Preferred Shares are issued.
The transfer agent for the Common Shares is First Union National Bank of
North Carolina, Charlotte, North Carolina. The Common Shares are traded on the
NYSE under the symbol "TCR".
REPURCHASE OF COMMON SHARES AND RESTRICTIONS ON TRANSFER
Two of the requirements for qualification for the tax benefits accorded a
REIT under the Code are that (i) at no time during the last half of each taxable
year may more than 50% in value of the outstanding Common Shares be owned,
directly or indirectly, by or for five or fewer individuals, and (ii) there must
be at least 100 shareholders for at least 335 days in any taxable year, or
proportionate part of any shorter taxable year, after its first taxable year.
See "Certain Federal Income Tax Considerations."
In order that the Company may meet these requirements at all times, the
Bylaws prohibit any person from acquiring or holding, directly or indirectly,
ownership of a number of Common Shares in excess of 9.8% of all the outstanding
Common Shares. Common Shares owned by a person in excess of such amounts will be
referred to in the Bylaws and herein as "Excess Shares." For this purpose the
term "ownership" is defined in accordance with the constructive ownership
provisions of Section 544 of the Code (as modified by Section 856(h) of the
Code). Accordingly, Common Shares owned or deemed to be owned by a person who
individually owns less than 9.8% of the Common Shares outstanding nevertheless
may be Excess Shares.
Holders of Excess Shares are not entitled to voting rights, dividends or
distributions with respect to the Excess Shares. If, after the purported
transfer or other event resulting in an exchange of Common Shares for Excess
Shares and before discovery by the Company of such exchange, dividends or
distributions are paid with respect to Common Shares that were exchanged for
Excess Shares, then such dividends or distributions are to be repaid to the
Company upon demand.
15
<PAGE>
The Bylaws also provide that in the event any person acquires Excess
Shares, such Excess Shares may be redeemed by the Company, at the discretion of
the Board of Directors. Except as set forth below, the redemption price for
redeemed Excess Shares shall be the lesser of (i) the price paid for the Excess
Shares (or if no notice of such purchase price is given, at a price to be
determined by the Board of Directors, in its sole discretion, but no lower than
the lowest market price for the Common Shares during the year prior to the date
the Company exercises its purchase option) and (ii) the fair market value of
such Excess Shares, which shall be the fair market value of the Common Shares as
determined in good faith by the Board of Directors or, if the Common Shares are
listed on a national securities exchange, the closing price (average of closing
bid and asked prices if the Shares are quoted on the NASDAQ National Market
System) on the last business day prior to the redemption date. To redeem Excess
Shares, the Board of Directors must give a notice of redemption to the holder of
such Excess Shares not less than one week prior to the date fixed by the Board
of Directors for redemption. The holder may sell such Excess Shares before the
date fixed for redemption. If he does not, the redemption price for such Excess
Shares shall be paid on the redemption date fixed by the Board of Directors and
included in such notice. From and after the date fixed for redemption of Excess
Shares, such Common Shares shall cease to be entitled to any distributions and
other benefits, other than the right to payment of the redemption price for such
Common Shares. Under certain circumstances, the proceeds of redemption might be
taxed as a distribution to the recipient.
The constructive ownership provisions applicable under Section 544 of the
Code (as modified by Section 856(h) of the Code) attribute ownership of
securities by a corporation, partnership, estate or trust proportionately to its
shareholders, partners or beneficiaries, attribute ownership of securities owned
by family members to other members of the same family, treat securities with
respect to which a person has an option to purchase as actually owned by that
person, and set forth rules as to when securities constructively owned by a
person are considered to be actually owned for the application of such
attribution provisions (i.e., "reattribution"). Thus, for purposes of
determining whether a person holds Excess Shares, a person will be treated as
owning not only Common Shares actually or beneficially owned, but also any
Common Shares attributed to such person under the attribution rules described
above. Ownership of Common Shares through such attribution is generally referred
to as constructive ownership.
Under the Bylaws any acquisition of Common Shares of the Company that would
result in the disqualification of the Company as a REIT under the Code is void
to the fullest extent permitted by law, and the Board of Directors is authorized
to refuse to transfer Common Shares to a person if, as a result of the transfer,
that person would own Excess Shares. Prior to any transfer or transaction which,
if consummated, would cause a shareholder to own Excess Shares, and in any event
upon demand by the Board of Directors, a shareholder is required to file with
the Company an affidavit setting forth, as to that shareholder, the information
required to be reported in returns filed by shareholders under Treasury
Regulation Section 1.857-9 and in reports filed under Section 13(d) of the
Exchange Act. Additionally, each proposed transferee of Common Shares, upon
demand of the Board of Directors, also may be required to file a statement or
affidavit with the Company setting forth the number of Common Shares already
owned by the transferee and any person to or from whom Common Shares may be
attributed by or to the transferee.
Any certificates evidencing Common Shares will bear a legend referring to
the restrictions described herein. The ownership limitations described above may
have the effect of precluding changes in control of the Company, or preventing a
transaction in which some or all shareholders might receive a premium for sale
of a large or control block of Common Shares.
PREFERRED SHARES
As of the date of this Prospectus, the Articles do not authorize the
issuance of any Preferred Shares. If deemed to be in the best interests of the
Company, the Company may propose amendments to the Articles permitting the
issuance of Preferred Shares. Any such amendments would require the approval of
the holders of a majority of the outstanding Common Shares. There can be no
assurance that the Company will propose amendments to the Articles authorizing
the issuance of Preferred Shares or that
16
<PAGE>
such amendments, if proposed, would be adopted. However, management of the
Company currently intends to submit to the shareholders at the 1998 Annual
Meeting of Shareholders a proposed amendment to the Articles that would
authorize the issuance of up to 25,000,000 Preferred Shares as well as (as
described above) increase the number of authorized Common Shares.
The following description of the terms of Preferred Shares sets forth
certain general terms and provisions of Preferred Shares to which a Prospectus
Supplement may relate. Specific terms of any series of Preferred Shares offered
by a Prospectus Supplement will be described in that Prospectus Supplement. The
description set forth below is subject to and qualified in its entirety by
reference to the Articles of Amendment to the Articles, if any, fixing the
preferences, limitations and relative rights of a particular series of Preferred
Shares.
General. It is expected that Preferred Shares will have the dividend,
liquidation, redemption, conversion and voting rights set forth below unless
otherwise provided in the Prospectus Supplement relating to a particular series
of Preferred Shares. Reference is made to the Prospectus Supplement relating to
the particular series of Preferred Shares offered thereby for specific terms,
including: (i) the title and liquidation preference per share of such Preferred
Shares and the number offered; (ii) the price at which such series will be
issued; (iii) the dividend rate (or method of calculation), the dates on which
dividends shall be payable and the dates from which dividends shall commence to
accumulate; (iv) any redemption or sinking fund provisions of such series; (v)
any conversion provisions of such series; and (vi) any additional dividend,
liquidation, redemption, sinking fund and other rights, preferences, privileges,
limitations and restrictions of such series.
The Preferred Shares will have no preemptive rights. The Preferred Shares
will, when issued, be fully paid and nonassessable. Unless otherwise specified
in the Prospectus Supplement relating to a particular series of Preferred
Shares, each series will rank on a parity as to dividends and distributions in
the event of a liquidation with each other series of Preferred Shares and, in
all cases, will be senior to the Common Shares.
Dividend Rights. Holders of Preferred Shares of each series will be
entitled to receive, when, as and if declared by the Board of Directors, out of
assets of the Company legally available therefor, cash dividends at such rates
and on such dates as are set forth in the Prospectus Supplement relating to such
series of Preferred Shares. Such rate may be fixed or variable or both and may
be cumulative, noncumulative or partially cumulative.
If the applicable Prospectus Supplement so provides, as long as any
Preferred Shares are outstanding, no dividends will be declared or paid or any
distributions be made on the Common Shares, other than a dividend payable in
Common Shares, unless the accrued dividends on each series of Preferred Shares
have been fully paid or declared and set apart for payment and the Company shall
have set apart all amounts, if any required to be set apart for all sinking
funds, if any, for each series of Preferred Shares.
If the applicable Prospectus Supplement so provides, when dividends are not
paid in full upon any series of Preferred Shares and any other series of
Preferred Shares, ranking on a parity as to dividends with such series of
Preferred Shares, all dividends declared upon such series of Preferred Shares
and any other series of Preferred Shares ranking on a parity as to dividends
will be declared pro rata so that the amount of dividends declared per share on
such series of Preferred Shares and such other series will in all cases bear to
each other the same ratio that accrued dividends per share on such series of
Preferred Shares and such other series bear to each other.
Each series of Preferred Shares will be entitled to dividends as described
in the Prospectus Supplement relating to such series, which may be based upon
one or more methods of determination. Different series of Preferred Shares may
be entitled to dividends at different dividend rates or based upon different
methods of determination. Except as provided in the applicable Prospectus
Supplement, no series of Preferred Shares will be entitled to participate in the
earnings or assets of the Company.
Rights Upon Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of each
series of Preferred Shares will be entitled to receive out of the assets of the
Company available for distribution to shareholders the amount stated or
determined
17
<PAGE>
on the basis set forth in the Prospectus Supplement relating to such series,
which may include accrued dividends, if such liquidation, dissolution or winding
up is involuntary or may equal the current redemption price per share (otherwise
than for the sinking fund, if any, provided for such series) provided for such
series set forth in such Prospectus Supplement, if such liquidation, dissolution
or winding up is voluntary, and on such preferential basis as is set forth in
such Prospectus Supplement. If, upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the amounts payable with respect to
Preferred Shares of any series and any other shares of stock of the Company
ranking as to any such distribution on a parity with such series of Preferred
Shares are not paid in full, the holders of Preferred Shares of such series and
of such other shares will share ratably in any such distribution of assets of
the Company in proportion to the full respective preferential amounts to which
they are entitled or on such other basis as is set forth in the applicable
Prospectus Supplement. The rights, if any, of the holders of any series of
Preferred Shares to participate in the assets of the Company remaining after the
holders of other series of Preferred Shares have been paid their respective
specified liquidation preferences upon any liquidation, dissolution or winding
up of the Company will be described in the Prospectus Supplement relating to
such series.
Redemption. A series of Preferred Shares may be redeemable, in whole or in
part, at the option of the Company, and may be subject to mandatory redemption
pursuant to a sinking fund, in each case upon terms, at the times, the
redemption prices and for the types of consideration set forth in the Prospectus
Supplement relating to such series. The Prospectus Supplement relating to a
series of Preferred Shares which is subject to mandatory redemption shall
specify the number of shares of such series that shall be redeemed by the
Company in each year commencing after a date to be specified, at a redemption
price per share to be specified, together with an amount equal to any accrued
and unpaid dividends thereon to the date of redemption.
If, after giving notice of redemption to the holders of a series of
Preferred Shares the Company deposits with a designated bank funds sufficient to
redeem such Preferred Shares, then from and after such deposit, all shares
called for redemption will no longer be outstanding for any purpose, other than
the right to receive the redemption price and the right, if any, to convert such
shares into other classes of capital stock of the Company. The redemption price
will be stated in the Prospectus Supplement relating to a particular series of
Preferred Shares.
Except as indicated in the applicable Prospectus Supplement, the Preferred
Shares will not be subject to any mandatory redemption at the option of the
holder.
Sinking Fund. The Prospectus Supplement for any series of Preferred Shares
will state the terms, if any, of a sinking fund for the purchase or redemption
of that series.
Conversion Rights. The Prospectus Supplement for any series of Preferred
Shares will state the terms, if any, on which shares of that series are
convertible into Common Shares or another series of Preferred Shares. The
Preferred Shares will have no preemptive rights.
Voting Rights. Except as indicated in the Prospectus Supplement relating to
a particular series of Preferred Shares, or except as expressly required by
Virginia law, a holder of Preferred Shares will not be entitled to vote. Except
as indicated in the Prospectus Supplement relating to a particular series of
Preferred Shares, in the event the Company issues full shares of any series of
Preferred Shares, each such share will be entitled to one vote on matters on
which holders of such series of Preferred Shares are entitled to vote.
Under Virginia law, the affirmative vote of the holders of a majority of
the outstanding shares of all series of Preferred Shares, voting as a separate
voting group, will be required for any amendment to the Articles if the
amendment would:
(1) Increase or decrease the aggregate number of authorized Preferred
Shares, provided that the vote of the class as a separate voting group is not
required to decrease the number of authorized Preferred Shares, but not below
the number of Preferred Shares then outstanding and required to be reserved
for issuance;
18
<PAGE>
(2) Effect an exchange or reclassification of all or part of the
Preferred Shares into shares of another class;
(3) Effect an exchange or reclassification, or create the right of
exchange, of all or part of the shares of another class into Preferred
Shares;
(4) Change the designation, rights, preferences, or limitations of all or
part of the Preferred Shares, but the Preferred Shares shall not be entitled
to vote as a separate voting group on an amendment increasing the number of
authorized shares of a subordinate class solely because both such classes
vote on some or all matters as a single voting group;
(5) Change the Preferred Shares into a different number of Preferred
Shares;
(6) Create a new class of shares, or change a class with subordinate and
inferior rights into a class of shares, having rights or preferences with
respect to distributions or to dissolution that are prior, superior, or
substantially equal to the Preferred Shares, or increase the rights,
preferences, or number of authorized shares of any class having rights or
preferences with respect to distributions or to dissolution that are prior,
superior, or substantially equal to the Preferred Shares;
(7) Divide the shares into a series, designate the series, and determine,
or, unless authority was conferred at the time the class was created,
authorize the Board of Directors to determine, variations in the rights, or
preferences and limitations among the shares of the respective series; or
(8) Cancel or otherwise affect rights to distributions or dividends that
have accumulated but not yet been declared on all or part of the Preferred
Shares.
If a proposed amendment would affect a series of Preferred Shares in one or
more of the ways described above, the shares of that series are entitled to vote
as a separate voting group on the proposed amendment. If a proposed amendment
that entitled two or more series of Preferred Shares to vote as separate voting
groups under this section would affect those two or more series in the same or a
substantially similar way, the shares of all the series so affected would vote
together as a single voting group on the proposed amendment. Preferred Shares
that are convertible into shares of another class or series do not have any
right, prior to conversion, to vote on any matter because it affects the class
or series into which such shares are convertible.
Transfer Agent and Registrar. The transfer agent, registrar and dividend
disbursement agent for a series of Preferred Shares will be selected by the
Company and be identified in the applicable Prospectus Supplement. The registrar
for Preferred Shares will send notices to shareholders of any meetings at which
holders of Preferred Shares have the right to vote on any matter.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain material United States federal income tax
considerations is based upon current law which is subject to change, that may be
retroactively applied and alter significantly the tax considerations described
herein. The United Stated federal income tax considerations applicable to
ownership of the Company's Debt Securities will be discussed in an applicable
Prospectus Supplement. The following discussion is for general information only,
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 prospective shareholder in light of his or her particular circumstances or to
certain types of shareholders (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.
The discussion set forth below assumes the Company qualifies as a REIT
under the Internal Revenue Code of 1986, as amended (the "Code"). If the Company
fails to qualify as a REIT for any taxable year, and certain relief provisions
do not apply, it will be subject to federal income tax (including any
19
<PAGE>
applicable alternative minimum tax) at regular corporate rates and will not
receive deductions for distributions paid to shareholders. As a result the
amount of after-tax earnings available for distribution to shareholders would
decrease substantially.
EACH PROSPECTIVE PURCHASER OF SHARES OF THE COMPANY IS ADVISED TO CONSULT
WITH HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO SUCH
PURCHASER OF THE PURCHASE, OWNERSHIP, AND SALE OF SHARES OF THE COMPANY,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP AND SALE, AND WITH RESPECT TO POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
GENERAL
The Company has elected to be treated for federal income tax purposes as a
REIT and intends to conduct its operations in a manner that will permit it to
continue so to qualify. While the Board of Directors intends to cause the
Company to operate in a manner that will enable it to comply with the REIT
requirements, there can be no certainty that such intention will be realized.
Moreover, relevant law may change so as to make compliance with one or more of
the REIT requirements difficult or impracticable. Failure to meet any of the
REIT requirements with respect to a particular taxable year could result in
termination of the Company's election to be a REIT, effective for the year of
such failure and at least the four succeeding taxable years.
The continued qualification of the Company as a REIT will depend on its
continuing to meet various requirements concerning, among other things, its
organization, the ownership of its shares, the nature of its assets, the sources
of its income and the amount of its distributions to shareholders. No assurance
can be given that the actual results of the Company's operation for any taxable
year will satisfy the REIT requirements. As long as the Company qualifies as a
REIT for federal income tax purposes, it generally will not be subject to
federal income tax on any taxable income or gain that is distributed currently
to shareholders. However, any undistributed taxable income or gain will be taxed
to the Company at regular corporate rates. In addition, under certain
circumstances, the Company may be subject to additional taxes.
FEDERAL INCOME TAXATION OF U.S. SHAREHOLDERS
While the Company qualifies for taxation as a REIT, distributions made to
the Company's shareholders from current or accumulated earnings and profits (and
not designated as capital gain dividends) will be includible by U.S.
Shareholders as ordinary income for federal income tax purposes. A "U.S.
Shareholder" means a holder of Common Shares that (for United States 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, or (iii) an
estate or trust, the income of which is subject to United States federal income
taxation regardless of its source (except, with respect to the tax year of any
trust that begins after December 31, 1996, a trust whose administration is
subject to the primary supervision of a United States court and which has one or
more United States fiduciaries who have authority to control all substantial
decisions of the trust). None of these distributions will be eligible for the
dividends-received deduction for corporate shareholders. Distributions that are
designated as capital gain dividends will be taxed as long-term capital gains
(to the extent they do not exceed the Company's actual net capital gain for the
taxable year) without regard to the period for which the shareholder has held
his or her shares in the Company. Corporate shareholders, however, may be
required to treat up to 20% of certain capital gain dividends as ordinary
income.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a U.S. Shareholder to the extent that they do not exceed
the adjusted basis of the shareholder's shares. U.S. Shareholders will be
required to reduce the tax basis of their shares by the amount of such
distributions until such basis has been reduced to zero, after which such
distributions will be taxable as capital gain (ordinary income in the case of a
shareholder who holds its shares as a dealer). The tax basis as so reduced will
be used in computing the capital gain or loss, if any, realized upon sale of the
shares. Any loss upon a sale or exchange of shares by a U.S. Shareholder who
held such shares for six months or less (after applying certain holding period
rules) generally will be treated as a long-term capital loss to the extent that
such shareholder previously received capital gain distributions with respect to
such shares.
20
<PAGE>
All or a portion of any loss realized upon a taxable disposition of shares of
the Company may be disallowed if other shares of the Company are purchased
(under a dividend reinvestment plan or otherwise) within 30 days before or after
the disposition.
Shareholders may not include in their individual federal income tax returns
any net operating losses or capital losses of the Company. In addition, any
distribution declared by the Company in October, November, or December of any
year and payable to a shareholder of record on a specified date in any such
month shall be treated as both paid by the Company and received by the
shareholder on December 31 of such year, provided that the distribution is
actually paid by the Company no later than January 31 of the following year. The
Company may be required to withhold a portion of capital gain distributions to
any shareholders who fail to certify their non-foreign status to the Company.
BACKUP WITHHOLDING
The Company will report to its U.S. Shareholders and the Internal Revenue
Service the amount of distributions paid during each calendar year and the
amount of tax withheld, if any. Under the backup withholding rules, a
shareholder 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) has provided a correct taxpayer identification number, certifies as to no
loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A shareholder that does
not provide the Company with a correct taxpayer identification number may also
be subject to penalties imposed by the Internal Revenue Service. Any amount paid
as backup withholding will be creditable against the shareholder's income tax
liability.
STATE AND LOCAL TAXES
Even if the Company qualifies on a continuing basis as a REIT for federal
income tax purposes, the Company and its shareholders may be subject to certain
state and local taxes. This Prospectus does not purport to describe any state or
local tax consequences of an investment in the Company. State and local tax
treatment of the Company and the shareholders may differ substantially from the
federal income tax treatment described in this summary. CONSEQUENTLY, EACH
PROSPECTIVE SHAREHOLDER SHOULD CONSULT WITH HIS OR ITS OWN TAX ADVISOR WITH
REGARD TO THE STATE AND LOCAL TAX CONSEQUENCES OF AN INVESTMENT IN THE COMPANY.
PLAN OF DISTRIBUTION
The Company may offer and sell Offered Securities to or through
underwriters or may offer and sell Offered Securities to investors directly or
through designated agents. Any such underwriter or agent involved in the offer
and sale of the Offered Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, or from time to time at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Company also may, from time to time, authorize
underwriters acting as agents to offer and sell the Offered Securities upon the
terms and conditions set forth in any Prospectus Supplement. In connection with
the sale of Offered Securities, underwriters may be deemed to have received
compensation from the Company in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of Offered
Securities for whom they may act as agent. Underwriters may sell Offered
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions (which may be changed from
time to time) from the underwriters and/or from the purchasers for whom they may
act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities and any discounts,
concessions or commissions allowed by underwriters to participating dealers will
be set forth in the applicable Prospectus Supplement. Underwriters, dealers and
agents participating in the distribution of the Offered Securities may be deemed
to be underwriters, and any discounts and commissions received by them and any
profit realized by them on
21
<PAGE>
resale of the Offered Securities may be deemed to be underwriting discounts and
commissions under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements entered into with the Company, to indemnification
against and contribution toward certain civil liabilities, including liabilities
under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the principal amount of Offered Securities sold
pursuant to Contracts shall not be less nor more than, the respective amounts
stated in such Prospectus Supplement. Institutions with which Contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and other institutions, but will in all cases be subject to the
approval of the Company. Contracts will not be subject to any conditions except
(i) the purchase by an institution of the Offered Securities covered by its
Contract shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject and (ii)
the Company shall have sold to such underwriters the total principal amount of
the Offered Securities less the principal amount thereof covered by Contracts. A
commission indicated in the Prospectus Supplement will be paid to agents and
underwriters soliciting purchases of Offered Securities pursuant to Contracts
accepted by the Company. Agents and underwriters shall have no responsibility in
respect of the delivery or performance of Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company in the ordinary
course of business.
LEGAL OPINIONS
The validity of the Offered Securities will be passed upon for the Company
by McGuire, Woods, Battle & Boothe LLP, Richmond, Virginia.
EXPERTS
The financial statements of Cornerstone Realty Income Trust, Inc.
incorporated by reference in Cornerstone Realty Income Trust, Inc.'s Annual
Report (Form 10-K) for the year ended December 31, 1996, and the related
financial statement schedule included therein, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon included
and incorporated by reference therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The Statement of Income and Direct Operating Expenses Exclusive of Items
not Comparable to the Proposed Future Operations of the Property Greenbrier
Apartments for the Twelve Month Period Ended September 30, 1996, the Statement
of Income and Direct Operating Expenses Exclusive of Items not Comparable to the
Proposed Future Operations of the Property Deerfield Apartments for the Twelve
Months Ended October 31, 1996, the Statement of Income and Direct Operating
Expenses Exclusive of Items not Comparable to the Proposed Future Operations of
the Property Franklin Towers Apartments for the Twelve Months Ended December 31,
1996, the Statement of Income and Direct Operating Expenses Exclusive of Items
not Comparable to the Proposed Future Operations of the Property Westchase
Apartments for the Twelve Months Ended December 31, 1996, the Statement of
Income and Direct Operating Expenses Exclusive of Items not Comparable to the
Proposed Future Operations of the Property Paces Arbor Apartments for the Twelve
Month Period Ended February 28, 1997, the Statement of Income and Direct
Operating Expenses Exclusive of Items not Comparable to the Proposed Future
Operations of the Property Paces Forest Apartments for the Twelve Month Period
Ended February 28, 1997, the Statement of Income and Direct Operating Expenses
Exclusive of Items
22
<PAGE>
not Comparable to the Proposed Future Operations of the Property Carlyle Club
Apartments for the Twelve Month Period Ended March 31, 1997, the Statement of
Income and Direct Operating Expenses Exclusive of Items not Comparable to the
Proposed Future Operations of the Property Ashley Run Apartments for the Twelve
Month Period Ended March 31, 1997, the Statement of Income and Direct Operating
Expenses Exclusive of Items not Comparable to the Proposed Future Operations of
the Property Summit Charleston Apartments for the Twelve Month Period Ended
April 30, 1997, the Statement of Income and Direct Operating Expenses Exclusive
of Items not Comparable to the Proposed Future Operations of the Property
Dunwoody Springs Apartments For the Twelve Month Period Ended June 30, 1997, the
Statement of Income and Direct Operating Expenses Exclusive of Items not
Comparable to the Proposed Future Operations of the Property Italian Village
Apartments and Villa Marina Apartments for the Twelve Month Period Ended July
31, 1997, the Statement of Income and Direct Operating Expenses Exclusive of
Items not Comparable to the Proposed Future Operations of the Property Clarion
Crossing Apartments for the Twelve Month Period Ended August 31, 1997, the
Statement of Income and Direct Operating Expenses Exclusive of Items not
Comparable to the Proposed Future Operations of the Property Barrington Parc
Apartments for the Twelve Month Period Ended September 30, 1997, the Statement
of Income and Direct Operating Expenses Exclusive of Items not Comparable to the
Proposed Future Operations of the Property Sterling Arbor Apartments for the
Twelve Months Ended September 30, 1997, and the Statement of Income and Direct
Operating Expenses Exclusive of Items not Comparable to the Proposed Future
Operations of the Property Sterling Place Apartments for the Twelve Months Ended
September 30, 1997, incorporated by reference herein, have been incorporated
herein in reliance on the reports of L.P. Martin & Company, P.C., independent
certified public accountants, also incorporated by reference herein, and upon
the authority of said firm as experts in accounting and auditing.
Any financial statements and schedules hereafter filed by the Company
pursuant to Sections 13(a), 14 or 15(d) of the Exchange Act and incorporated by
reference in the Prospectus that have been examined and are the subject of a
report by independent accountants will be so incorporated herein by reference in
reliance upon such reports given and upon the authority of such firms as experts
in accounting and auditing to the extent covered by consents filed with the
Commission.
23
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are estimates of the expenses (other than underwriting
commissions and discounts) to be incurred in connection with the issuance and
distribution of the securities to be registered:
<TABLE>
<S> <C>
SEC registration fee ............... $ 68,966
Printing and engraving fees ...... 200,000
Legal fees and expenses ............ 400,000
Accounting fees and expenses ...... 250,000
Trustees' fees and expense ......... 50,000
Miscellaneous ..................... 50,000
----------
Total ........................... $1,018,966
==========
</TABLE>
- ----------
* To be provided by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has obtained, and pays the cost of, directors' and officers'
liability insurance coverage in the amount of $5 million (subject to a retention
or "deductible" of $250,000). Directors' and officers' insurance insures (i) the
directors and officers of the Company from any claim arising out of an alleged
wrongful act by the directors and officers of the Company in their respective
capacities as directors and officers of the Company, and (ii) the Company to the
extent that the Company has indemnified the directors and officers for such
loss.
The Virginia Stock Corporation Act (the "Virginia Act") permits, and the
Registrant's Articles of Incorporation require, indemnification of the
Registrant's directors and officers in a variety of circumstances, which may
include liabilities under the Securities Act of 1933. Under Section 13.1-697 of
the Virginia Act, a Virginia corporation generally is authorized to indemnify
its directors in civil or criminal actions if they acted in good faith and
believed their conduct to be in the best interests of the corporation and, in
the case of criminal actions, had no reasonable cause to believe that the
conduct was unlawful. The Registrant's Articles of Incorporation require
indemnification of officers and directors with respect to any action if the
directors (other than the indemnified party) determine in good faith that the
indemnified party's course of conduct was undertaken in good faith within what
the indemnified party reasonably believed to be the scope of his authority and
for a purpose he reasonably believed to be in the best interests of the
Registrant or its shareholders, except in the case of misconduct, bad faith,
negligence, reckless disregard of duties or violation of the criminal law. In
addition, the Registrant may carry insurance on behalf of directors, officers,
employees or agents that may cover liabilities under the Securities Act of 1933.
The Registrant's Articles of Incorporation, as permitted by the Virginia Act,
eliminate the damages that may be assessed against a director or officer of the
Registrant in a shareholder or derivative proceeding. This limit on liability
will not apply in the event of willful misconduct or a knowing violation of the
criminal law or of federal or state securities laws. Reference also is made to
the indemnification provisions set forth in the forms of Underwriting Agreement
filed as Exhibit 1 hereto.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
*1.1 Form of Underwriting Agreement for Debt Securities.
*1.2 Form of Underwriting Agreement for Common Shares and
Preferred Shares.
*4.1 Amended and Restated Articles of Incorporation of Cornerstone
Realty Income Trust, Inc., as amended (Incorporated by
reference to Exhibit 3.1 included in the Registrant's Report
on Form 10-Q for the Quarter ended June 30, 1995; File No. 0-
23954).
*4.2 Bylaws of Cornerstone Realty Income Trust, Inc. (Amended
through March 31, 1997) (Incorporated by reference to Exhibit
4.2 included in the Registrant's Registration Statement on
Form S-3; File No. 333-23693).
*4.3(a) Credit Agreement dated as of October 30, 1997, by and among
Cornerstone Realty Income Trust, Inc., and any Additional
Borrowers party thereto, as Borrowers, the Lenders referred
to therein, and First Union National Bank, as Agent
(Incorporated by reference to Exhibit 4.1 included in the
Registrant's Report on Form 8-K dated December 30, 1997;
File No. 0-23954).
*4.3(b) Joinder Agreement dated as of December 31, 1997 to the Credit
Agreement dated as of October 30, 1997, by and among
Cornerstone Realty Income Trust, Inc., each Additional
Borrower party thereto, CRIT-NC, LLC, the lenders party
thereto, and First Union National Bank, as Agent
(Incorporated by reference to Exhibit 4.2 included in the
Registrant's Report on Form 8-K dated December 30, 1997; File
No. 0-23954).
*4.4 (1) Amended and Restated Revolving Credit Note dated December
31, 1997 in the principal amount of up to $65,000,000 made
payable by Cornerstone Realty Income Trust, Inc. and CRIT-
NC, LLC to the order of First Union National Bank, and (2)
Amended and Restated Revolving Credit Note dated December 31,
1997 in the principal amount of up to $35,000,000 made
payable by Cornerstone Realty Income Trust, Inc. and CRIT-
NC, LLC to the order of AmSouth Bank, and (3) Amended and
Restated Revolving Credit Note dated December 31, 1997 in the
principal amount of up to $25,000,000 made payable by
Cornerstone Realty Income Trust, Inc. and CRIT-NC, LLC to
the order of Crestar Bank, and (4) Amended and Restated
Revolving Credit Note dated December 31, 1997 in the
principal amount of up to $20,000,000 made payable by
Cornerstone Realty Income Trust, Inc. and CRIT-NC, LLC to
the order of Fleet National Bank, and (5) Amended and
Restated Revolving Credit Note dated December 31, 1997 in the
principal amount of up to $30,000,000 made payable by
Cornerstone Realty Income Trust, Inc. and CRIT-NC, LLC to
the order of Guaranty Federal Bank, F.S.B. (Incorporated by
reference to Exhibit 4.3 included in the Registrant's
Report on Form 8-K dated December 30, 1997; File No. 0-
23954).
*4.5 Form of Senior Indenture.
*4.6 Form of Subordinated Indenture.
*4.7 Form of Senior Security.
*4.8 Form of Subordinated Security.
**5 Opinion of McGuire, Woods, Battle & Boothe, L.L.P.
**12 Statement regarding computation of ratios
**23.1 Consent of Ernst & Young LLP
**23.2 Consent of L.P. Martin & Company, P.C.
23.3 Consent of McGuire, Woods, Battle & Boothe, L.L.P. (included
in Exhibit 5)
24 Powers of Attorney (included on signature page)
***25.1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 on Form T -1, filed by Senior Trustee,
as Trustee under the Senior Indenture (to be filed in
accordance with Rule 305 (b)(2) of the Trust Indenture Act of
1939).
***25.2 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 on Form T -1, filed by Subordinated
Trustee, as Trustee under the Subordinated Indenture (to be
filed in accordance with Rule 305 (b)(2) of the Trust
Indenture Act of 1939).
</TABLE>
- ----------
* Previously filed, or Incorporated by reference herein.
** Filed herewith.
*** To be filed by amendment or incorporated by reference when required in
connection with the offering of the Offered Securities.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
registration statement.
(ii) 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; provided, however, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the 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 20 percent
change in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee' table in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided,
however, that the undertakings set forth in subparagraphs (i) and (ii) above
do not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in
this 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.
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 this 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; and
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 described under Item 15 above or
otherwise, the registrant has been advised that the in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the 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 against the registrant 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 Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as a part of
this registration statement in reliance upon Rule 430A and contained in the 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.
II-3
<PAGE>
(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.
The undersigned registrant hereby undertakes to file an application for
purposes of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
II-4
<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 No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Richmond, Commonwealth of Virginia on
the 23rd day of January, 1998.
CORNERSTONE REALTY INCOME TRUST, INC.
By /s/ STANLEY J. OLANDER, JR.
---------------------------------------
STANLEY J. OLANDER, JR.
Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- -------------------------------- -----------------
<S> <C> <C>
* Director and Chief Executive January 23, 1998
- ------------------------- Officer
Glade M. Knight
* Director, Vice President, Chief January 23, 1998
- ------------------------- Financial Officer and Secretary
Stanley J. Olander, Jr.
* Director January 23, 1998
- -------------------------
Martin Zuckerbrod
Director January 23, 1998
*
- -------------------------
Harry S. Taubenfeld
Director
* January 23, 1998
- -------------------------
Leslie A. Grandis
* Director January 23, 1998
- -------------------------
Glenn W. Bunting, Jr.
Director January , 1998
- -------------------------
Penelope W. Kyle
</TABLE>
*By /s/ Stanley J. Olander, Jr.
---------------------
Stanley J. Olander, Jr., as
attorney-in-fact for the above
named persons
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
- -------
<TABLE>
<S> <C>
*1.1 Form of Underwriting Agreement for Debt Securities.
*1.2 Form of Underwriting Agreement for Common Shares and
Preferred Shares.
*4.1 Amended and Restated Articles of Incorporation of Cornerstone
Realty Income Trust, Inc., as amended (Incorporated by
reference to Exhibit 3.1 included in the Registrant's Report
on Form 10-Q for the Quarter ended June 30, 1995; File No. 0-
23954).
*4.2 Bylaws of Cornerstone Realty Income Trust, Inc. (Amended
through March 31, 1997) (Incorporated by reference to Exhibit
4.2 included in the Registrant's Registration Statement on
Form S-3; File No. 333-23693).
*4.3(a) Credit Agreement dated as of October 30, 1997, by and among
Cornerstone Realty Income Trust, Inc., and any Additional
Borrowers party thereto, as Borrowers, the Lenders referred
to therein, and First Union National Bank, as Agent
(Incorporated by reference to Exhibit 4.1 included in the
Registrant's Report on Form 8-K dated December 30, 1997;
File No. 0-23954).
*4.3(b) Joinder Agreement dated as of December 31, 1997 to the Credit
Agreement dated as of October 30, 1997, by and among
Cornerstone Realty Income Trust, Inc., each Additional
Borrower party thereto, CRIT-NC, LLC, the lenders party
thereto, and First Union National Bank, as Agent
(Incorporated by reference to Exhibit 4.2 included in the
Registrant's Report on Form 8-K dated December 30, 1997;
File No. 0-23954).
*4.4 (1) Amended and Restated Revolving Credit Note dated December
31, 1997 in the principal amount of up to $65,000,000 made
payable by Cornerstone Realty Income Trust, Inc. and CRIT-NC,
LLC to the order of First Union National Bank, and (2)
Amended and Restated Revolving Credit Note dated December 31,
1997 in the principal amount of up to $35,000,000 made
payable by Cornerstone Realty Income Trust, Inc. and CRIT-NC,
LLC to the order of AmSouth Bank, and (3) Amended and
Restated Revolving Credit Note dated December 31, 1997 in the
principal amount of up to $25,000,000 made payable by
Cornerstone Realty Income Trust, Inc. and CRIT-NC, LLC to the
order of Crestar Bank, and (4) Amended and Restated Revolving
Credit Note dated December 31, 1997 in the principal amount
of up to $20,000,000 made payable by Cornerstone Realty
Income Trust, Inc. and CRIT-NC, LLC to the order of Fleet Na-
tional Bank, and (5) Amended and Restated Revolving Credit
Note dated December 31, 1997 in the principal amount of up to
$30,000,000 made payable by Cornerstone Realty Income Trust,
Inc. and CRIT-NC, LLC to the order of Guaranty Federal Bank,
F.S.B. (Incorporated by reference to Exhibit 4.3 included
in the Registrant's Report on Form 8-K dated December 30,
1997; File No. 0-23954).
*4.5 Form of Senior Indenture.
*4.6 Form of Subordinated Indenture.
*4.7 Form of Senior Security.
*4.8 Form of Subordinated Security.
**5 Opinion of McGuire, Woods, Battle & Boothe, L.L.P.
**12 Statement regarding computation of ratios
**23.1 Consent of Ernst & Young LLP
**23.2 Consent of L.P. Martin & Company, P.C.
23.3 Consent of McGuire, Woods, Battle & Boothe, L.L.P. (included
in Exhibit 5)
24 Powers of Attorney (included on signature page)
***25.1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 on Form T-1, filed by Senior Trustee,
as Trustee under the Senior Indenture (to be filed in
accordance with Rule 305 (b)(2) of the Trust Indenture Act of
1939).
***25.2 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 on Form T-1, filed by Subordinated
Trustee, as Trustee under the Subordinated Indenture (to be
filed in accordance with Rule 305 (b)(2) of the Trust
Indenture Act of 1939).
</TABLE>
- ----------
* Previously filed, or Incorporated by reference herein.
** Filed herewith.
*** To be filed by amendment or incorporated by reference when required in
connection with the offering of the Offered Securities.
EXHIBIT 5
MCGUIRE WOODS BATTLE & BOOTHE LLP
ONE JAMES CENTER
901 EAST CARY STREET
RICHMOND, VIRGINIA 23219-4030
January 26, 1998
Board of Directors
Cornerstone Realty Income Trust, Inc.
306 East Main Street
Richmond, Virginia 23219
Registration Statement on Form S-3
$200,000,000 of Offered Securities
Gentlemen:
We are acting as counsel for Cornerstone Realty Income Trust, Inc. (the
"Company") in connection with the registration under the Securities Act of 1933
of debt securities ("Debt Securities"), Common Shares, no par value ("Common
Shares"), and Preferred Shares, no par value ("Preferred Shares"), of the
Company having an aggregate maximum public offering price of $200,000,000 (the
"Offered Securities"). The Offered Securities are described in the Registration
Statement on Form S-3 of the Company, File No. 333-34441 (the "Registration
Statement") filed with the Securities and Exchange Commission (the "Commission")
on August 27, 1997, as amended by Amendment No. 1 filed on January 26, 1998. In
connection with the filing of the Registration Statement you have requested our
opinion concerning certain corporate matters.
We are of the opinion that:
1. The Company is a corporation duly organized and validly existing under
the laws of the Commonwealth of Virginia.
2. When the Offered Securities have been sold as described in the
Registration Statement, the Offered Securities (to the extent consisting of
Common Shares and/or Preferred Shares) will be legally issued, fully paid and
nonassessable and (to the extent consisting of Debt Securities) will be legally
issued, fully paid and nonassessable and will be binding obligations of the
Company. We expressly note that, as stated in the Registration Statement, as of
the date hereof, the Company's Articles of Incorporation have not been amended
to permit the issuance of Preferred Shares.
We consent to the filing of this opinion with the Commission as an exhibit
to the Registration Statement and to the reference to us in the Prospectus
included therein.
Very truly yours,
/s/ McGuire Woods Battle & Boothe LLP
EXHIBIT 12
CORNERSTONE REALTY INCOME TRUST, INC.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED DECEMBER 31,
ENDED _______________________________________________________
9/30/97 1996 1995 1994 1993
------------- ------------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Net income (loss) ............ $13,867,888 $(4,169,849) $5,229,715 $2,386,303 $496,646
ADD:
Fixed Charges ............ 5,104,536 1,470,414 311,824 12,737 2,452
----------- ----------- ---------- ---------- --------
Earnings ..................... 18,972,424 (2,699,435) 5,541,539 2,399,040 499,098
Fixed Charges:
Interest on indebtedness ...... 4,840,391 1,332,190 248,120 - -
Amortization of loan costs .... 191,664 91,592 43,983 - -
Portion of rents representa-
tive of interest factor 72,481 46,632 19,721 12,737 2,452
Capitalized interest ......... - - - - -
----------- ----------- ---------- ---------- --------
Fixed Charges .................. 5,104,536 1,470,414 311,824 12,737 2,452
----------- ----------- ---------- ---------- --------
Ratio of Earnings to Fixed
Charges ..................... 3.72 (a) 17.77 188.36 203.56
=========== ============== ========== ========== ========
<CAPTION>
SUPPLEMENTAL PRO FORMA (B)
--------------------------------
NINE MONTHS YEAR
ENDED ENDED
9/30/97 12/31/96
------------- --------------
<S> <C> <C>
Net income (loss) ............ $14,996,989 $(1,102,351)
ADD:
Fixed Charges ............ 7,370,128 9,068,570
----------- -----------
Earnings ..................... 22,367,117 7,966,219
Fixed Charges:
Interest on indebtedness ...... 7,105,983 8,930,346
Amortization of loan costs .... 191,664 91,592
Portion of rents representa-
tive of interest factor 72,481 46,632
Capitalized interest ......... - -
----------- -----------
Fixed Charges .................. 7,370,128 9,068,570
----------- -----------
Ratio of Earnings to Fixed
Charges ..................... 3.03 (a)
=========== ============
</TABLE>
(a) Earnings and Supplemental Pro Forma Earnings for the year ended December 31,
1996 were inadequate to cover fixed charges. The amounts of coverage
deficiency were $4,169,849 and $1,102,351, respectively, for the year ended
December 31, 1996.
(b) To give effect to the 20 of the 21 property acquisitions in 1996 and 11 of
the 13 property acquisitions in 1997 for the period of time not owned by the
Company as reflected in the pro forma statements of operations filed with
the Company's Report on Form 8-K/A dated October 31, 1997.
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-3 No. 333-34441) and
related Prospectus of Cornerstone Realty Income Trust, Inc. for the registration
of $200,000,000 of debt securities, common shares or preferred shares and to the
incorporation by reference therein of our reports dated January 24, 1997, with
respect to the financial statements of Cornerstone Realty Income Trust, Inc.
incorporated by reference in its Annual Report (Form 10-K) for the year ended
December 31, 1996 and the related financial statement schedule included therein,
filed with the Securities and Exchange Commission.
Ernst & Young LLP
Richmond, Virginia
January 22, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
Board of Directors
Cornerstone Realty Income Trust, Inc.
Richmond, Virginia
We consent to the use of the following reports prepared by us to be
incorporated into a Registration Statement on Form S-3 to be filed with the
Securities and Exchange Commission by Cornerstone Realty Income Trust, Inc., and
to the references to our firm under the heading "Experts" in the Prospectus
included in such Registration Statement:
(1) The Statement of Income and Direct Operating Expenses Exclusive of
Items not Comparable to the Proposed Future Operations of the Property
Greenbrier Apartments for the Twelve Month Period Ended September 30, 1996, (2)
the Statement of Income and Direct Operating Expenses Exclusive of Items not
Comparable to the Proposed Future Operations of the Property Deerfield
Apartments for the Twelve Months Ended October 31, 1996, (3) the Statement of
Income and Direct Operating Expenses Exclusive of Items not Comparable to the
Proposed Future Operations of the Property Franklin Towers Apartments for the
Twelve Months Ended December 31, 1996, (4) the Statement of Income and Direct
Operating Expenses Exclusive of Items not Comparable to the Proposed Future
Operations of the Property Westchase Apartments for the Twelve Months Ended
December 31, 1996, (5) the Statement of Income and Direct Operating Expenses
Exclusive of Items not Comparable to the Proposed Future Operations of the
Property Paces Arbor Apartments for the Twelve Month Period Ended February 28,
1997, (6) the Statement of Income and Direct Operating Expenses Exclusive of
Items not Comparable to the Proposed Future Operations of the Property Paces
Forest Apartments for the Twelve Month Period Ended February 28, 1997, (7) the
Statement of Income and Direct Operating Expenses Exclusive of Items not
Comparable to the Proposed Future Operations of the Property Carlyle Club
Apartments for the Twelve Month Period Ended March 31, 1997, (8) the Statement
of Income and Direct Operating Expenses Exclusive of Items not Comparable to the
Proposed Future Operations of the Property Ashley Run Apartments for the Twelve
Month Period Ended March 31, 1997, (9) the Statement of Income and Direct
Operating Expenses Exclusive of Items not Comparable to the Proposed Future
Operations of the Property Summit Charleston Apartments for the Twelve Month
Period Ended April 30, 1997, (10) the Statement of Income and Direct Operating
Expenses Exclusive of Items not Comparable to the Proposed Future Operations of
the Property Dunwoody Springs Apartments For the Twelve Month Period Ended June
30, 1997, (11) the Statement of Income and Direct Operating Expenses Exclusive
of Items not Comparable to the Proposed Future Operations of the Property
Italian Village Apartments and Villa Marina Apartments for the Twelve Month
Period Ended July 31, 1997, (12) the Statement of Income and Direct Operating
Expenses Exclusive of Items not Comparable to the Proposed Future Operations of
the Property Clarion Crossing Apartments for the Twelve Month Period Ended
August 31, 1997, (13) the Statement of Income and Direct Operating Expenses
Exclusive of Items not Comparable to the Proposed Future Operations of the
Property Barrington Parc Apartments for the Twelve Month Period Ended September
30, 1997, (14) the Statement of Income and Direct Operating Expenses Exclusive
of Items not Comparable to the Proposed Future Operations of the Property
Sterling Arbor Apartments for the Twelve Months Ended September 30, 1997, and
(15) the Statement of Income and Direct Operating Expenses Exclusive of Items
not Comparable to the Proposed Future Operations of the Property Sterling Place
Apartments for the Twelve Months Ended September 30, 1997.
Richmond, Virginia
January 22, 1998
/s/ L. P. Martin & Company, P.C.
<PAGE>
MCGUIRE WOODS
BATTLE & BOOTHE LLP
ONE JAMES CENTER
901 EAST CARY STREET
RICHMOND, VIRGINIA 23219-4030
TELEPHONE/TDD (804)775-1000 FAX (804)775-1061
Martin B. Richards Direct Dial: 804/775-1029
January 26, 1998
VIA EDGAR
- ---------
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Cornerstone Realty Income Trust, Inc.
Registration Statement on Form S-3
File No. 333-34441
Gentlemen:
On behalf of Cornerstone Realty Income Trust, Inc. (the "Company"), I
enclose for filing via the EDGAR system and pursuant to the requirements of the
Securities Act of 1933 (the "Act") and the applicable rules and regulations
under the Act, Amendment No. 1 to the Company's Registration Statement on Form
S-3, File No. 333-34441 (the "Registration Statement").
If you have any questions or require any further information with respect
to the Registration Statement or any matters relating to this filing, please
call Martin B. Richards, collect, at (804) 775-1029.
Very truly yours,
/s/ Martin B. Richards
----------------------
Martin B. Richards
MBR/mno
Enclosure
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
306 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
January 26, 1998
VIA EDGAR
- ---------
Securities and Exchange Commission
Division of Corporation Finance
450 5th Street, N.W.
Washington, D.C. 20549
Cornerstone Realty Income Trust, Inc.
File No. 333-34441
Ladies and Gentlemen:
Pursuant to Rule 461 under the Securities Act of 1933, the undersigned
registrant (the "Registrant") requests acceleration of the Registrant's
Registration Statement on Form S-3, File No. 333-34441 (a shelf registration
pursuant to Rule 415 under the Act), to Tuesday, January 27th, 1998 at 12:00
p.m., or as soon thereafter as practicable. Questions concerning this request
can be directed to the Registrant's counsel, by telephoning, collect, Martin B.
Richards at 804-775-1029.
The disclosure in the Registrant's filing is the responsibility of the
Registrant. The Registrant acknowledges that staff comments or changes in
response to staff comments in the proposed disclosure in the Registration
Statement may not be asserted as a defense in any proceeding which may be
brought by any person with respect to this matter. The Registrant also
represents to the Commission that should the Commission, or the staff acting
pursuant to delegated authority, declare the filing effective, it does not
foreclose the Commission from taking any action with respect to the filing, and
the Registrant represents that it will not assert this action as a defense in
any proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
The Registrant further acknowledges that the action of the Commission, or
the staff acting pursuant to delegated authority, in declaring the filing
effective does not relieve the Registrant from its full responsibility for the
adequacy or accuracy of the disclosures in the filing.
Sincerely,
CORNERSTONE REALTY INCOME
TRUST, INC.
By: /s/ Stanley J. Olander, Jr.
----------------------------
Title: Vice President and
Chief Financial Officer
--------------------------
