<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1996
REGISTRATION NO. 333-04519
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-3/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CARRAMERICA REALTY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Maryland 52-1796339
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
1700 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20006
(202) 624-7500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
THOMAS A. CARR
1700 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20006
(202) 624-7500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPIES TO:
J. WARREN GORRELL, JR.
DAVID W. BONSER
HOGAN & HARTSON L.L.P.
COLUMBIA SQUARE
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004-1109
Approximate date of commencement of proposed sale to the public: As soon as
possible after the effective date of this Registration Statement and from time
to time as determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE AGGREGATE PRICE PER AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED (1) SECURITY (2) PRICE (2) FEE
- --------------------------- --------------- -------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Debt Securities
Preferred Stock
Common Stock
Common Stock Warrants $600,000,000 (3) $600,000,000 $206,897 (4)
-----------------------------------------------------------------------------
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(Footnotes on the following page)
The Registrant hereby amends the Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
(Footnotes continued from previous page)
(1) This Registration Statement also covers contracts which may be issued by
the Registrant under which the counterparty may be required to purchase
Debt Securities, Preferred Stock, Common Stock or Common Stock Warrants.
Such contracts would be issued with the Debt Securities, Preferred Stock,
Common Stock and/or Common Stock Warrants covered hereby. In addition,
Securities registered hereunder may be sold separately, together or as
units with other Securities registered hereunder.
(2) Estimated solely for purposes of calculating the registration fee. No
separate consideration will be received for Common Stock or Preferred
Stock issued upon conversion of Debt Securities or Preferred Stock or upon
exercise of Common Stock Warrants registered hereunder, as the case may
be. The aggregate maximum offering price of all Securities issued pursuant
to this Registration Statement will not exceed $600,000,000.
(3) Omitted pursuant to General Instruction II.D of Form S-3 under the
Securities Act of 1993, as amended.
(4) Previously paid.
</TABLE>
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED JUNE 26, 1996
PROSPECTUS SUPPLEMENT
- ------------------------
(TO PROSPECTUS DATED , 1996)
8,400,000 SHARES
[LOGO]
CARRAMERICA REALTY CORPORATION
COMMON STOCK
-------------
CarrAmerica Realty Corporation (the "Company") is a publicly-traded real
estate investment trust (a "REIT") that focuses primarily on the acquisition,
development, ownership and operation of value office properties in select
suburban growth markets across the United States. As of June 14, 1996, the
Company owned interests in a portfolio of 54 operating office properties
containing approximately 8.1 million square feet of space.
All of the shares of common stock, par value $.01 per share ("Common Stock"),
offered hereby (the "Offering") are being sold by the Company. The Common Stock
is listed on the New York Stock Exchange ("NYSE") under the symbol "CRE." The
last reported sale price for the Common Stock on the NYSE on June 21, 1996 was
$24 5/8 per share. Subject to certain limited exceptions, ownership of more than
5% of the Common Stock is restricted in order to preserve the Company's status
as a REIT for federal income tax purposes. See "Description of Common Stock --
Restrictions on Transfer" in the accompanying Prospectus.
A wholly owned subsidiary of Security Capital U.S. Realty (collectively,
"USRealty") currently owns 39.0% of the outstanding shares of Common Stock on a
fully diluted basis. The Company expects that USRealty will purchase 3,600,000
shares of Common Stock directly from the Company at the public offering price
simultaneously with the closing of the Offering. In addition, USRealty has
expressed an interest in purchasing up to 1,076,446 shares of Common Stock in
the Offering at the public offering price (which, combined with the direct
purchase from the Company, would result in an additional total investment by
USRealty in the Company of up to $115.2 million, assuming a public offering
price of $24.625) in order to maintain its 39.0% ownership interest in the
Company on a fully diluted basis. No underwriting discount will be applied to
any shares purchased by USRealty directly from the Company or in the Offering.
See "Risk Factors" beginning on page 3 of the accompanying Prospectus for a
discussion of certain factors relating to an investment in the Common Stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------------------------------------------------------
Price to Underwriting Proceeds to
Public Discount(1) Company(2)(3)
Per Share.............. $ $ $
Total(2)(4)............ $ $ $
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(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) No underwriting discount will be applied to any of the 1,076,446 shares
that USRealty may purchase in the Offering; therefore, all of the proceeds
therefrom will be retained by the Company. Total Underwriting Discount and
Proceeds to Company assumes USRealty purchases all such shares.
(3) Before deducting expenses payable by the Company estimated at $ .
(4) The Company has granted the several Underwriters a 30-day option to
purchase up to 1,260,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively.
--------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
The Common Stock is offered by the several Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made in New York, New York on or about ,
1996.
--------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
J.P. MORGAN & CO.
PRUDENTIAL SECURITIES INCORPORATED
LEGG MASON WOOD WALKER
Incorporated
WHEAT FIRST BUTCHER SINGER
--------------------
The date of this Prospectus Supplement is , 1996.
<PAGE>
[INSIDE FRONT COVER MAP SHOWING LOCATION/PICTURES SHOWING OFFICE BUILDING]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus Supplement and the accompanying Prospectus or
incorporated herein and therein by reference. Unless indicated otherwise, the
information contained in this Prospectus Supplement assumes that the
Underwriters' over-allotment option is not exercised. As used herein, the term
"Company" includes CarrAmerica Realty Corporation, a Maryland corporation,
and/or one or more of its subsidiaries, as appropriate, and "Common Stock"
refers to the common stock, par value $.01 per share, of the Company.
THE COMPANY
The Company is a publicly-traded real estate investment trust (a "REIT") that
focuses primarily on the acquisition, development, ownership and operation of
value office properties in select suburban growth markets across the United
States. "Value office" property describes office space which combines the
elements of affordability, accessibility and flexibility with regard to customer
needs. As of June 14, 1996, the Company owned interests in a portfolio of 54
operating office properties (collectively, the "Properties") containing
approximately 8.1 million square feet of space. The Company also has entered
into agreements to acquire 14 additional office properties containing
approximately 535,000 square feet of space. The Company expects to close these
transactions within 60 days. As of May 31, 1996, the Company also provided
fee-based real estate services for properties containing in excess of 7.5
million square feet of office space that are owned by third parties.
On February 26, 1996, the stockholders of the Company approved the investment
by a wholly-owned subsidiary of Security Capital U.S. Realty (collectively,
"USRealty") of approximately $250 million in the Company (the "USRealty
Transaction"). The sale and issuance of 11,627,907 shares of Common Stock to
USRealty in a private sale transaction was consummated on April 30, 1996. As of
May 31, 1996, these shares represented a 39.0% ownership interest in the Company
on a fully diluted basis (after giving effect to the conversion of all
outstanding Units (as defined herein) into shares of Common Stock). Concurrently
with the closing of the USRealty Transaction, the Company changed its name from
Carr Realty Corporation to CarrAmerica Realty Corporation. The Company is the
exclusive strategic investment of USRealty in the commercial office property
business in the United States.
The Company and its predecessor, The Oliver Carr Company ("OCCO"), have
traditionally focused on the acquisition, development, ownership and operation
of office properties in the Washington, D.C. metropolitan area. In connection
with the USRealty Transaction, the Company is implementing a national business
strategy that includes acquiring, developing, owning and operating value office
properties throughout the United States in select suburban growth markets. The
Company seeks to provide value office space on a national scale to meet the
changing needs of corporate users of office space.
The Company's business strategy is responsive to the growing trend among
corporate office space users toward relocating their operations from central
business districts to suburban markets in order to reduce operating costs and to
improve their employees' quality of life. The resulting increase in demand for
suburban office space has not been met by a corresponding increase in supply;
rather, the volume of new office construction in suburban markets has declined
dramatically from the end of 1986 to the end of 1995. Office vacancy rates in
the national suburban office market have declined from 23.8% at the end of 1986
to 13.4% at the end of 1995, according to CB Commercial/Torto Wheaton Research,
while central business district vacancy rates have not similarly declined. The
Company is pursuing its business strategy initially by acquiring office
properties in suburban growth markets at what the Company believes are
attractive discounts to replacement cost. In the future, if acquisition costs
approach those of new office development, the Company will consider developing
value office properties in select suburban growth markets. Of the Company's 54
Properties, 35 have been acquired thus far in 1996 as part of the Company's
business strategy.
S-3
<PAGE>
The Company's objective is to achieve long-term sustainable growth by
acquiring and developing value office properties in suburban markets throughout
the United States that exhibit strong growth characteristics. In particular, the
Company seeks markets in which operating costs for businesses are relatively
low, long-term population and job growth are expected to exceed the national
average, and barriers to entry exist for new supply of office space. In
analyzing property acquisitions within target markets, the Company looks for
physical property characteristics that appeal to value office users, including
flexible floor plates, ample parking and proximity to major transportation
arteries. The Company believes that this approach enables it to acquire office
properties that offer customers affordability, accessibility and flexibility.
The following table provides an overview of the Properties owned by the
Company as of June 14, 1996 and the markets in which they are located.
NUMBER OF APPROXIMATE
MARKET AREA PROPERTIES SQUARE FEET
- ------------------ ------------ --------------
Washington, D.C. 15 3,704,000
Northern Virginia 6 1,202,000
Northern California 6 1,082,000
Southeast Denver 6 737,000
Suburban Chicago 2 514,000
Suburban Seattle 10 396,000
Southern California 8 287,000
Suburban Maryland 1 205,000
- ---------
Total 54 8,127,000
== =========
RECENT DEVELOPMENTS
Acquisitions Activity. Consistent with the Company's strategy of acquiring
value office properties in suburban growth markets, the Company has
significantly expanded its portfolio of office properties in 1996, acquiring
thus far 35 office properties across the country for an aggregate purchase price
of approximately $344 million. In addition, the Company has entered into binding
contracts (subject to customary conditions) to acquire an additional 14 office
properties for an aggregate purchase price of approximately $69 million. The
Company expects to close these transactions within 60 days, although there can
be no assurance that any such acquisitions will be consummated. The 35
Properties were purchased at an average capitalization rate of 10.9% (calculated
by dividing the net operating income generated by these Properties on a pro
forma basis for the year ended December 31, 1995, including a deduction for
management fees, by the consideration paid for these Properties). This
capitalization rate is not necessarily indicative of the actual capitalization
rate the Company will realize from these properties. In addition, there can be
no assurance that the capitalization rate with respect to these property
acquisitions will be attained with respect to future acquisitions.
The following table sets forth a summary of the Company's 1996 acquisition
activity to date:
<TABLE>
<CAPTION>
DATE OF NUMBER OF APPROXIMATE
ACQUISITIONS TARGET MARKET ACQUISITION PROPERTIES SQUARE FEET
- ------------ ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Scenic Business Park Southern California March 1996 4 138,000
Harbor Corporate Park Southern California March 1996 4 149,000
AT&T Center Northern California March 1996 6 1,082,000
Reston Quadrangle Northern Virginia March 1996 3 261,000
Harlequin Plaza and Quebec Court Southeast Denver May 1996 4 613,000
The Quorum Southeast Denver June 1996 2 124,000
Parkway North Center Suburban Chicago June 1996 2 514,000
Redmond East Business Campus Suburban Seattle June 1996 10 396,000
Warner Center Business Park Southern California Pending 12 343,000
Plaza PacifiCare Building Southern California Pending 1 104,000
Parkway One Northern Virginia Pending 1 88,000
-- ---------
Total 49 3,812,000
== =========
</TABLE>
S-4
<PAGE>
Financing Activity. In May 1996, the Company obtained an unsecured line of
credit from Morgan Guaranty Trust Company of New York in the amount of up to
$215 million (the "Line of Credit"). The Line of Credit, which has been utilized
to fund a portion of the Company's recent acquisitions, will be used to fund
future acquisitions. In addition, funds from the Line of Credit will be
available to finance future office property development and capital expenditures
and for working capital purposes. A portion of the proceeds of the Offering will
be used to repay amounts previously advanced under the Line of Credit, making
the full amount of the Line of Credit available immediately following the
Offering. Upon consummation of the Offering, the Company will have a
debt-to-total market capitalization ratio of 23.2% (assuming a Common Stock
price of $24.625 per share).
THE OFFERING
Common Stock Offered Hereby (1)............. 8,400,000
Common Stock Offered in Concurrent
USRealty Purchase (2)....................... 3,600,000
Common Stock Outstanding After the Offering
and the Concurrent USRealty Purchase ....... 37,200,469
Common Stock and Units Outstanding After
the Offering and the Concurrent USRealty
Purchase (3)................................ 41,837,805
Use of Proceeds............................. To repay outstanding indebtedness
under the Line of Credit, to fund
acquisitions and for general
corporate purposes.
- ----------
(1) See "Price Range of Common Stock and Dividend History" herein and
"Description of Common Stock" in the accompanying Prospectus. USRealty has
expressed an interest in purchasing up to 1,076,446 shares of Common Stock
in the Offering at the public offering price in order to maintain its
39.0% ownership interest in the Company. See "Underwriting."
(2) The Company expects that USRealty will purchase 3,600,000 shares of Common
Stock directly from the Company at the public offering price
simultaneously with the closing of the Offering (the "Concurrent USRealty
Purchase"). See "Underwriting."
(3) "Units" are units of partnership interest in Carr Realty, L.P. and
CarrAmerica Realty, L.P. (the "Carr Partnerships") that are redeemable for
cash or, at the option of the Company, shares of Common Stock on a
one-for-one basis.
SUMMARY SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial and operating information
for the Company as of and for the three months ended March 31, 1996 and 1995 and
as of and for the years ended December 31, 1995 and 1994. The selected financial
information as of and for the years ended December 31, 1995 and 1994 is derived
from the audited financial statements of the Company incorporated by reference
in the accompanying Prospectus. The selected financial information as of and for
the three months ended March 31, 1996 and 1995 is derived from unaudited
financial statements that, in the opinion of management, include all material
adjustments considered necessary for a fair presentation of the results of the
interim periods.
The following table also sets forth pro forma financial information for the
Company as of and for the three months ended March 31, 1996 and for the year
ended December 31, 1995, giving effect to (i) completion of the Offering and the
Concurrent USRealty Purchase, (ii) the closing of the USRealty Transaction
(which closed on April 30, 1996), (iii) the acquisition of office properties
that have been consummated since the beginning of each period presented and the
acquisition of 14 office properties that the Company expects to consummate in
the near future, and (iv) the repayment of $235 million of indebtedness
outstanding as of March 31, 1996. The pro forma financial information does not
reflect any earnings from the investment of approximately $110 million of the
net proceeds expected to be received from the Offering and the Concurrent
USRealty Purchase. See "Pro Forma Financial Information."
S-5
<PAGE>
The following selected financial and operating information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------------------------- ---------------------------------
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
----------- ---------------- ----------- -----------------
1996 1996 1995 1995 1995 1994
---- ---- ---- ---- ---- ----
(In thousands, except share and property data)
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Real estate operating revenue:
Rental revenue ....................... $ 39,565 $ 25,350 $ 21,796 $ 156,406 $ 89,539 $ 82,665
Real estate service revenue........... 2,726 2,726 2,480 11,315 11,315 8,890
Real estate operating expenses:
Property operating expenses........... 12,495 8,991 7,519 49,296 31,579 29,707
Interest expense...................... 6,600 6,532 5,257 26,252 21,873 21,366
General and administrative
expenses............................. 3,124 2,748 2,609 11,982 10,711 9,535
Depreciation and amortization......... 9,456 5,484 4,385 36,993 18,495 14,419
Net income............................. 9,621 3,335 3,257 37,162 12,067 (1) 12,097
Dividends paid to stockholders......... N/A 5,914 5,803 N/A 23,344 20,204
Per Share Data:
Net income............................. $ .26 $ .25 $ .25 $ 1.00 $ 0.90 $ 1.06
Dividends paid to stockholders......... N/A .4375 .4375 N/A 1.75 1.75
Weighted average shares outstanding ... 37,214,074 13,523,628 13,269,334 36,977,439 13,338,080 11,387,030
Balance sheet data (at period end):
Real estate, before accumulated
depreciation.......................... $ 892,210 $ 647,825 $ 431,728 $ 480,589 $ 429,537
Total assets........................... 988,764 635,358 411,265 458,860 407,948
Mortgages payable...................... 319,474 324,957 261,208 317,374 254,933
Other indebtedness..................... 0 172,000 0 0 0
Minority interest...................... 35,156 34,876 37,930 34,850 38,644
Total stockholders' equity............. 623,157 93,507 103,791 95,543 106,042
Other Data:
Net cash provided by operating
activities............................ $ 9,001 $ 7,972 $ 35,277 $ 29,908
Net cash used by investing activities.. (169,496) (14,307) (81,635) (67,046)
Net cash provided (used) by financing
activities............................ 171,511 (1,437) 37,113 32,652
Funds from operations before minority
interest of the unitholders of carr
partnerships (2)...................... 19,822 9,501 8,382 76,983 33,190 (1) 30,640
Weighted average shares and units
outstanding (3)....................... 41,822,869 18,183,510 18,156,537 41,795,896 18,156,537 15,878,780
Number of properties (at period end)... 68 36 16 68 18 16
Square footage (at period end)......... 8,662,000 6,479,000 4,006,000 8,662,000 4,626,000 4,006,000
- ----------
<FN>
(1) Includes a non-recurring deduction of approximately $1.9 million related
to the termination of an agreement to acquire the development business of
The Evans Company.
(2) The Company believes that funds from operations is an appropriate measure
of the performance of an equity REIT because industry analysts have
accepted it as a performance measure of equity REITs. In accordance with
the final National Association of Real Estate Investment Trusts (NAREIT)
White Paper on Funds From Operations as approved by the Board of Governors
of NAREIT on March 3, 1995, funds from operations represents net income
(loss) (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring or sales
of property, plus depreciation and amortization of assets uniquely
significant to the real estate industry and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures are calculated to reflect
funds from operations on the same basis. The Company's funds from
operations in 1994 and for the three months ended March 31, 1995 have been
restated to conform to the new NAREIT definition of funds from operations.
Funds from operations does not represent net income or cash flow generated
from operating activities in accordance with generally accepted accounting
principles and should not be considered an alternative to net income as an
indication of the Company's performance or to cash flows as a measure of
liquidity or the Company's ability to make distributions.
(3) Includes shares of Common Stock outstanding plus Units that are redeemable
for cash or, at the option of the Company, shares of Common Stock on a
one-for-one basis.
</FN>
</TABLE>
S-6
<PAGE>
THE COMPANY
The Company is a publicly-traded REIT that focuses primarily on the
acquisition, development, ownership and operation of value office properties in
select suburban growth markets across the United States. "Value office" property
describes office space which combines the elements of affordability,
accessibility and flexibility with regard to customer needs. As of June 14,
1996, the Company owned interests in a portfolio of 54 operating office
properties containing approximately 8.1 million square feet of space. The
Company has also entered into agreements to acquire 14 additional office
properties containing approximately 535,000 square feet of space. The Company
expects to close these transactions within 60 days. As of May 31, 1996, the
Company also provided fee-based real estate services for properties containing
in excess of 7.5 million square feet of office space that are owned by third
parties.
The Company and its predecessor, OCCO, have traditionally focused on the
acquisition, development, ownership and operation of office properties in the
Washington, D.C. metropolitan area. In connection with the USRealty Transaction,
the Company is implementing a national business strategy that includes
acquiring, developing, owning and operating value office properties throughout
the United States in select suburban growth markets. See "-Business Strategy"
below.
The Company's experienced staff of approximately 450 employees, including 320
on-site building employees, provides a full range of real estate services. The
Company's principal executive offices are located at 1700 Pennsylvania Avenue,
N.W., Washington, D.C. 20006, and its telephone number is (202) 624-7500. The
Company was organized as a Maryland corporation on July 9, 1992.
Business Strategy
National Suburban Office Strategy. The Company believes that the office
sector of the real estate industry has been unable to effectively meet the needs
of a dynamically changing corporate America. The office sector has been
characterized, at the local level, by highly fragmented ownership and merchant
builders with a short-term investment horizon, and, at the national level, by
passive institutional investors who are not familiar with local markets. The
Company is implementing a national business strategy that includes acquiring,
developing, owning and operating value office properties throughout the United
States in select suburban growth markets. The Company seeks to provide value
office space on a national scale to meet the changing needs of corporate users
of office space.
The Company's business strategy is responsive to the growing trend among
corporate office space users toward relocating their operations from central
business districts to suburban markets in order to reduce operating costs and to
improve their employees' quality of life. The resulting increase in demand for
suburban office space has not been met by a corresponding increase in supply;
rather, the volume of new office construction in suburban markets has declined
dramatically from the end of 1986 to the end of 1995. Over the last several
years, positive net absorption has resulted in a decline in national office
vacancy rates in suburban markets from 23.8% at the end of 1986 to 13.4% at the
end of 1995. Vacancy rates in central business districts have not similarly
declined. The Company believes that the demand for suburban office space will
continue.
S-7
<PAGE>
The charts below show national office vacancy rates in suburban markets and
central business districts over the last 10 years and new construction starts
and net absorption in suburban markets over the last 10 years.
CENTRAL BUSINESS DISTRICT (CBD) VS. SUBURBAN OFFICE NEW CONSTRUCTION
SUBURBAN OFFICE VACANCY RATES AND NET ABSORPTION
IMAGE OMITTED
Although positive net absorption declined in 1995 as compared to 1994, the
Company believes that this decline is attributable to, among other things,
severely constrained supply, leaving suburban office space users in certain
markets with little or no vacant space from which to select.
The Company is pursuing its business strategy initially by acquiring office
properties in suburban growth markets at what the Company believes are
attractive discounts to replacement cost. In the future, if acquisition costs
approach those of new office development, the Company will consider developing
value office properties in select suburban growth markets. Of the Company's 54
Properties, 35 have been acquired thus far in 1996 as part of the Company's
business strategy.
Target Market Selection. The Company's objective is to achieve long-term
sustainable growth by acquiring and developing value office properties in
suburban markets throughout the United States that exhibit strong growth
characteristics. In the office sector, the Company believes a key growth factor
is the projected employment growth within a particular market. The Company
generally is focusing its acquisition efforts in the Pacific, Mountain, Central
and Southeast regions of the country. In these regions, employment growth for
the years 1994 to 2004 is projected to be 18.4% (Pacific region), 33.6%
(Mountain region), 19.8% (Central region), and 34.8% (Southeast region), as
compared to the national average of 19.8%. (Source: Cognetics, Inc.)
Within these general regions, the Company seeks markets in which operating
costs for businesses are relatively low, long-term population and job growth are
expected to exceed the national average, and barriers to entry exist for new
supply of office space. In addition, the Company targets markets that will
enable it to maintain an economically diverse tenant base to reduce the risk
that the Company's operations will be adversely affected by a single industry
recession. It also is important that a target market be large enough to permit
the Company to acquire a critical mass of properties in order to benefit from
certain operational economies of scale resulting from the geographic clustering
of properties. The Company analyzes its target markets on a quarterly basis to
determine if new office supply, or vacating office space, will materially impact
the supply/demand characteristics in the given markets.
Since commencing the implementation of its national business strategy, the
Company has acquired properties in the following markets: Northern California;
suburban Chicago; Southeast Denver; suburban Seattle; Southern California; and
Northern Virginia. These markets fit within the Company's identified parameters
for target market selection and the Company's acquisitions in these markets fall
within its general acquisition guidelines. For a discussion of each of these
markets, see "Recent Developments."
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General Acquisition Guidelines. The Company has established a set of general
guidelines and physical characteristics to evaluate the acquisition
opportunities available to the Company within the Company's identified target
markets. These guidelines include (i) the purchase price of an office property
typically should be at a discount to the replacement cost of a comparable office
property, (ii) rents of existing tenants in the office property typically should
be at or below the current market rents for the given target market, and (iii)
an office property generally should be low-rise, with flexible floor plates that
are conducive to accommodating a variety of office space user needs. The Company
looks for office properties that have ample parking and that are
conveniently-located near amenities and major transportation arteries. The
Company uses its market officers, local brokers and real estate professionals
within its specific target markets to identify the best available locations
within a particular market. The Company believes that use of these guidelines
enables it to more efficiently identify, analyze and act upon acquisition
opportunities.
National Operating System. To execute its national office strategy, the
Company is creating a national operating system consisting of a network of
market officers and a national service and development program.
A key component of the Company's national operating system includes the
creation of a network of market officers in the Company's target markets where
office properties have been or will be acquired. The Company's market officers
are and will be seasoned real estate professionals knowledgeable about the local
real estate conditions in the target market where they are employed. Market
officers are primarily responsible for maximizing the performance of the
Company's office properties in their markets and ensuring that the needs of the
Company's customers are being met. Additionally, market officers are responsible
for identifying new investments in their market, although they do not commit or
deploy the Company's capital. All capital allocation decisions are made by the
Company's management investment committee. The Company recently hired market
officers for its suburban target markets in Southern California, suburban
Seattle and suburban Chicago.
The Company's national service program will provide uniform customer service
and performance standards for all of the Company's Properties. In addition, the
national service program will focus on building on the Company's established
relationships with corporate office space users to understand and be better able
to address the national real estate needs of major corporations. The Company's
national development program will identify build-to-suit and inventory
development opportunities where market conditions warrant such activities. The
Company's goal is to allocate approximately 5% of its capital to be invested in
land suitable for development; however, that percentage may change based on
market conditions.
To create and implement its national operating system, the Company has hired
several real estate professionals with national operational experience. The
Company expects to augment its management team with additional experienced
professionals to meet the requirements of its business strategy and growth
plans. On an interim basis, Security Capital Investment Research Incorporated,
an affiliate of Security Capital Group Incorporated (which is a substantial
shareholder of USRealty), is assisting the Company in sourcing acquisitions in
selected target markets as well as from national institutional owners and by
providing national and market-specific research support, including some of the
market data referred to in this Prospectus Supplement. The Company believes that
its agreement with Security Capital Investment Research Incorporated, which
provides for payment at specified hourly rates for services actually rendered,
is on terms at least as favorable as the Company could obtain from an unrelated
third party. As its national operating system matures, the Company expects that
all acquisition sourcing services will be provided by employees of the Company.
Real Estate Services
Historically, the Company has provided operational services for its
properties, and the Company intends, in the long term, to continue to do so.
Certain facts or circumstances, however, may require that the Company use
third-party real estate service providers for certain properties. In particular,
during a transitional period immediately following the acquisition of a
property, the Company may use a third-party real estate service provider. As of
June 14, 1996, the Company provided its own operational
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services for 38 of the Properties. Fourteen of the 16 Properties for which the
Company did not provide operational services as of June 14, 1996 were recently
acquired. The Company, through certain management subsidiaries, provides
fee-based real estate services for more than 35 office buildings in the
Washington, D.C. metropolitan area for related and unrelated parties.
RECENT DEVELOPMENTS
Security Capital U.S. Realty Transaction
On February 26, 1996, the stockholders of the Company approved the investment
by USRealty of approximately $250 million in the Company. The transaction was
effected through the sale and issuance of 11,627,907 shares of Common Stock to
USRealty in a private sale transaction that was consummated on April 30, 1996.
As of May 31, 1996, USRealty owned approximately 46.1% of the outstanding Common
Stock of the Company (39.0% on a fully diluted basis after giving effect to the
conversion of all outstanding Units into shares of Common Stock). In connection
with the USRealty Transaction, the Company also acquired substantially all of
the economic interest in the development business of OCCO, providing the Company
with resources to enable it to implement its national development program.
Concurrently with the closing of the USRealty Transaction, the Company changed
its name from Carr Realty Corporation to CarrAmerica Realty Corporation.
The Company believes that it has derived a number of significant benefits
from the USRealty Transaction. The capital provided by USRealty enabled the
Company to pursue its national business strategy, as described above in "The
Company -- Business Strategy." In addition, the USRealty Transaction
substantially increased the Company's equity capitalization and reduced its
leverage, which the Company believes will enable it to have greater access to
the capital markets, enhancing the Company's ability to grow. The Company also
believes that it will benefit from its indirect affiliation with Security
Capital Group Incorporated and the access (through USRealty's representatives on
the Company's board of directors) to the market knowledge, operating experience
and research capabilities of Securital Capital Group Incorporated and its
affiliates. The Company is the exclusive strategic investment of USRealty in the
commercial office property business in the United States.
New Acquisitions
Consistent with the Company's strategy of acquiring office properties in
suburban growth markets, the Company has significantly expanded its portfolio of
office properties in 1996, acquiring thus far 35 office properties across the
country for an aggregate purchase price of approximately $344 million. These
Properties were purchased at an average capitalization rate of 10.9% (calculated
by dividing the net operating income generated by these Properties on a pro
forma basis for the year ended December 31, 1995, including a deduction for
management fees, by the consideration paid for these Properties). This
capitalization rate is not necessarily indicative of the actual capitalization
rate the Company will realize from these properties. In addition, there can be
no assurance that the capitalization rate with respect to these property
acquisitions will be attained with respect to future acquisitions. The acquired
properties satisfy the Company's general acquisition guidelines as described in
"The Company -- Business Strategy" above. These properties have been acquired in
six target markets, as described below. Information set forth below with respect
to market data has been provided by CB Commercial/Torto Wheaton Research.
Northern California
AT&T Center. In March 1996, the Company acquired six office buildings in San
Francisco's East Bay Area for an aggregate purchase price of approximately $109
million in cash. The six buildings, which are known as the AT&T Center and were
built in 1988, contain approximately 1,082,000 square feet of space. The entire
portfolio is leased to AT&T. AT&T presently subleases 39% of the space of the
property to other users, including PeopleSoft, a human resources software
producer (181,000 square feet or 17% of the total space), GTE (71,000 square
feet or 8% of the total space) and Pacific Bell
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Mobile Systems (145,000 square feet or 13% of the total space). The lease with
AT&T expires on various dates in 1998 and 1999.
The Company has entered into a letter of intent with AT&T to modify the
existing lease and to enter into a new lease for approximately 463,000 square
feet of office space and 26,000 square feet of storage space. The new AT&T
lease, if executed, would provide for the lease with respect to 213,000 square
feet to expire in December 2008, 140,000 square feet to expire in June 2006 and
110,000 square feet to expire in December 2003. The base office rental rate of
the proposed new lease would be $13.20 per square foot, triple net, which rental
rate would be increased at the end of each three-year period during the term of
the lease by the sum of 6% plus 200% of the consumer price index increase for
the prior three years (with the total not to exceed 12%). The initial base
storage rental rate of the proposed lease would be $6.60 per square foot. In
addition to the new AT&T lease, AT&T and the Company would modify their existing
lease, reducing the square footage covered by this lease to approximately
430,000 square feet. The lease would continue to expire on various dates in 1998
and 1999. All of this space is currently subleased by AT&T to sub-tenants, and
AT&T would assign the existing subleases to the Company. The sub-tenants' base
rental rates with respect to this space average approximately $5.66 per square
foot, triple net. In addition, AT&T would make a supplemental base rental rate
payment with respect to this space equal to approximately $6.40 per square foot,
triple net, over the life of the lease, resulting in a total rent payment with
respect to this space of approximately $12.06 per square foot. The existing
lease by AT&T of the remaining portion of the buildings (approximately 163,000
square feet, which includes the conference center facility and the cafeteria)
would be terminated. There can be no assurance that a binding agreement will be
reached with AT&T regarding a new lease or that, if a binding agreement is
reached, that it will be on the terms set forth above.
Market Description. San Francisco's East Bay has long been an area of strong
population and employment growth because of its diverse economy, relatively
affordable housing, and high quality transportation system. In addition, office
demand in the East Bay area has been strong because occupancy costs and taxes
are reasonable and a highly educated and diversified employment base resides in
the East Bay area. The San Francisco East Bay area office market contains
approximately 39 million square feet. Vacancy rates in this market were 16.4%,
16.0%, 14.2%, 12.3% and 11.2% as of December 31 in each of 1991 through 1995,
respectively. AT&T Center is located in the Pleasanton sub-market within the
East Bay area. This sub-market contains approximately 5 million square feet of
office space. Vacancy rates in this sub-market were 21.0%, 21.0%, 17.7%, 9.4%
and 5.6% as of December 31 in each of 1991 through 1995, respectively. The
Company believes the acquisition of AT&T Center positions the Company to take
advantage of the strategic growth opportunities in this dynamic market.
Suburban Chicago
Parkway North Center. In June 1996, the Company acquired Parkway North
Center, an office park located in suburban Chicago, Illinois, for an aggregate
purchase price of approximately $80 million. The property currently includes two
office buildings, which were built in 1986 to 1989, containing approximately
514,000 square feet of office space. The Company also acquired additional land
which will support the development of up to 900,000 square feet of office space.
As part of the purchase price, the Company assumed approximately $29 million of
mortgage indebtedness that bears interest at an annual rate of 7.96% and matures
in December 2003. The office park was 93.7% leased as of May 31, 1996. The major
tenants at Parkway North Center include Alliant Foodservice, a food products
distributor (107,000 square feet or 21% of the total space), Fujisawa USA, a
pharmaceutical company (135,000 square feet or 26% of the total space), and
Clintec Nutrition Company, a manufacturer of dietary products (80,000 square
feet or 16% of the total space).
Market Description. Chicago is a proven corporate location with over fifty
Fortune 500 companies located in its downtown and suburban markets. Chicago is
expected to continue to attract office users due to its central location in the
United States, its diverse economy and strong infrastructure. The metropolitan
Chicago area office market contains approximately 187 million square feet.
Vacancy rates in this market were 17.6%, 19.3%, 18.8%, 16.9% and 15.2% as of
December 31 in each of 1991 through 1995, respectively. Parkway North Center is
located in Lake County, which has a significantly lower tax rate than
neighboring Cook County, and as a result the Lake County sub-market has
attracted a number
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of large corporate users. The Lake County sub-market contains approximately 6
million square feet of office space. Vacancy rates in this sub-market were
15.3%, 13.5%, 12.0%, 12.3% and 9.6% as of December 31 in each of 1991 through
1995, respectively. The Company believes it is important and consistent with its
national office strategy that it has a presence in the Chicago market because of
the prevalence of corporate headquarters of major national companies in the
area.
Southeast Denver
Harlequin Plaza and Quebec Court. In May 1996, the Company acquired four
office properties located in suburban southeast Denver, Colorado for aggregate
consideration of approximately $47 million. The four properties, known as
Harlequin Plaza North and South and Quebec Court I and II, contain approximately
613,000 square feet of office space. Harlequin Plaza was built in 1981 and
Quebec Court was built in 1979 and 1980. The consideration for these properties
was paid through a combination of cash and the issuance of Units. The properties
were 96.0% leased to 30 tenants as of May 31, 1996. The major tenants of the
portfolio include Intelligent Electronics, a reseller of computer products,
which leases the entire space at Quebec Court I (130,000 square feet), and Alert
Centre, a security monitoring company, which leases 106,000 square feet (or 68%
of the total space) at Quebec Court II.
The Quorum. In June 1996, the Company acquired two buildings known as The
Quorum in southeast Denver, Colorado for an aggregate purchase price of
approximately $10 million in cash. The properties, which were built in 1975,
contain an aggregate of approximately 124,000 square feet of office space. The
Company also acquired additional land which will support the development of up
to 100,000 square feet of office space. Of the 19 tenants in the two buildings,
the major tenants are Chatfield Dean & Company, a stock brokerage firm (27,000
square feet or 21% of the total space), and JRMK Company, Inc., a mortgage
brokerage firm (18,000 square feet or 15% of the total space). The buildings
were 80.8% leased as of May 31, 1996.
Market Description. Denver has experienced rapid population growth over the
past five years, primarily in the southern and western counties of Douglas,
Arapahoe and Jefferson because of their reasonable cost of living and housing.
The metropolitan Denver area office market contains approximately 64 million
square feet. Vacancy rates in this market were 21.1%, 19.1%, 15.9%, 12.8% and
11.8% as of December 31 in each of 1991 through 1995, respectively. Denver's
largest office sub-markets are its Central Business District and the Southeast
I-25 Corridor, which includes major office concentrations in the Denver Tech
Center, Inverness, Meridian and Greenwood Village. The Southeast I-25 Corridor
area office market contains approximately 20 million square feet of office
space. Vacancy rates in this sub-market were 18.2%, 16.9%, 12.4%, 9.7% and 6.1%
as of December 31 in each of 1991 through 1995, respectively. Harlequin Plaza
North and South and Quebec Court I and II are located in Greenwood Village. The
Quorum is located in the Denver Tech Center, across I-25 from Greenwood Village.
With the acquisition of The Quorum, in combination with Harlequin Plaza and
Quebec Court, the Company has made significant progress toward its objective of
obtaining critical mass in one of its target markets.
Suburban Seattle
Redmond East Business Campus. In June 1996, the Company acquired Redmond East
Business Campus, an office park comprised of ten office properties in suburban
Seattle, Washington, for an aggregate purchase price of approximately $40
million in cash. As part of the purchase price, the Company assumed
approximately $28 million in debt that bears interest at an annual rate of
8.375% and matures in January 2006. The properties, which were built from 1988
to 1992, contain an aggregate of approximately 396,000 square feet of office
space. The buildings were 100% leased as of May 31, 1996 to 12 tenants. The two
largest tenants of the office park are Digital Systems International, a provider
of call center software (83,000 square feet or 21% of the total space), and
Incontrol Inc., a medical products company (65,000 square feet or 16% of the
total space).
Market Description. The Seattle metropolitan area has been dominated,
historically, by the aerospace, forest products, defense and international trade
industries. In the 1990's, however, the software, biotechnology, services and
tourism industries have provided growth for the Seattle metropolitan area,
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primarily in the eastern suburban area of King County. The Seattle metropolitan
area office market contains approximately 51 million square feet. Vacancy rates
in this market were 13.8%, 13.2%, 13.0%, 12.3% and 9.3% as of December 31 in
each of 1991 through 1995, respectively. Of Seattle's largest sub-markets, the
Bellevue sub-market has the lowest vacancy rate and has experienced the most
growth in recent years. This sub-market, where the Redmond East Business Campus
is located, is home to such large corporate users as Microsoft, Nintendo and
Eddie Bauer, and contains approximately 16 million square feet of office space.
Vacancy rates in this sub-market were 13.5%, 11.7%, 8.9%, 7.3% and 6.2% as of
December 31 in each of 1991 through 1995, respectively. The Company's
acquisition of Redmond East Business Campus will allow the Company to capitalize
on the growing and diversifying suburban Seattle market.
Southern California
Scenic Business Park and Harbor Corporate Park. In March 1996, the Company
acquired eight office properties in Orange County, California for an aggregate
purchase price of approximately $15 million in cash. The four properties
comprising the Scenic Business Park were built in 1985 and contain a total of
138,000 square feet of office space and the four properties that comprise the
Harbor Corporate Park were built in 1987 and contain a total of 149,000 square
feet of office space. All eight buildings are well-located within a short
distance of Orange County's John Wayne Airport. The two office parks, located
five minutes apart, provide the Company with a strong presence in the Greater
Airport Area sub-market and provide excellent operating management economies of
scale. Scenic Business Park is 89.7% leased to six tenants, including FHP, Inc.,
a regional health maintenance organization that leases 70,000 square feet, or
51% of the total space. Harbor Corporate Park is 49.2% leased to 13 tenants,
including Infotech Development, a software developer (15,000 square feet or 10%
of the total space), and Texaco (17,000 square feet or 12% of the total space).
Market Description. Orange County has rapidly evolved from a rural,
agricultural region to an urbanized high-technology center primarily because of
its strategic location and attractive quality of life. Orange County's office
market contains approximately 48 million square feet, with a vacancy rate of
21.5%, 18.7%, 16.1%, 16.6% and 14.6% as of December 31 in each of 1991 through
1995, respectively. Scenic Business Park and Harbor Corporate Park are located
in the Greater Airport Area sub-market, which is the largest office sub-market
in Orange County. This particular sub-market contains approximately 26 million
square feet of office space. Vacancy rates in this sub-market were 22.4%, 17.9%,
14.7%, 14.3% and 11.5% as of December 31 in each of 1991 through 1995,
respectively. The Company believes that its investments in Orange County will
position the Company to enjoy the benefits of the improving office supply/demand
characteristics in Southern California.
The Los Angeles metropolitan area office market contains approximately 158
million square feet of space and had a vacancy rate of 21.1%, 21.6%, 20.8%,
20.3% and 19.3% as of December 31 in each of 1991 through 1995, respectively.
The Warner Center Business Park, a probable acquisition described below, is
located in the Greater San Fernando Valley sub-market of Los Angeles, which
contains approximately 22 million square feet of office space. Vacancy rates in
this sub-market were 18.3%, 16.6%, 16.7%, 15.1% and 16.4% as of December 31 in
each of 1991 through 1995, respectively. Corporate office users in this
sub-market are heavily concentrated in the insurance and health care industries.
Additionally, while this sub-market historically has not had a heavy
concentration of tenants from the entertainment industry, an entertainment
company has recently leased a large block of space in this sub-market.
Northern Virginia
Reston Quadrangle. In March 1996, the Company acquired three office
properties located in Reston, Virginia (a suburb of Washington, D.C.) and known
as Reston Quadrangle. These properties, which contain approximately 261,000
square feet of office space, were acquired for an aggregate purchase price of
approximately $43 million in cash. The properties, which were built from 1987 to
1989, are located in a mature and established area along the Dulles Airport Toll
Road. The buildings were 99.8% leased to nine tenants as of May 31, 1996.
Software AG of North America, Inc., a developer of software for mainframe
applications, is the largest tenant, occupying 173,000 square feet (or 66.4% of
the total space) at the property.
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Market Description. The Washington, D.C. metropolitan area office market
contains approximately 214 million square feet, with a vacancy rate of 9.6% as
of December 31, 1995. The Company has focused its recent acquisition efforts in
this area in the Northern Virginia sub-market of Washington, D.C., which
includes Tysons Corner, Reston and Herndon. This sub-market contains
approximately 88 million square feet of office space. Vacancy rates in this
sub-market were 18.4%, 15.7%, 13.1%, 10.3% and 7.1% as of December 31 in each of
1991 through 1995, respectively. Demand in Northern Virginia has been fueled by
high-technology government contractors, professional service firms, and the
telecommunications industry.
Probable Acquisitions
The Company has entered into agreements to acquire an additional 14 office
properties containing a total of 535,000 square feet of office space for an
aggregate purchase price of approximately $69 million. Each of these properties
currently is subject to a binding contract that is subject to customary closing
conditions and under which the Company has posted a nonrefundable deposit,
although there can be no assurance that any of these properties will be
acquired.
Southern California
Warner Center Business Park. The Company has entered into a contract to
acquire the 12 buildings which comprise the Warner Center Business Park in
Woodland Hills, California, a suburb of Los Angeles, for an aggregate purchase
price of approximately $52 million in cash. As part of the purchase price, the
Company may assume approximately $26 million in debt that bears interest at an
annual rate of 7.4% and matures in December 2000. The properties, which are
located in the Greater San Fernando Valley sub-market and were built from 1981
to 1985, contain an aggregate of approximately 343,000 square feet of office
space. Closing of the transaction is currently scheduled for July 1996. Warner
Center Business Park is strategically located near the Ventura Freeway and the
405 Freeway, major transportation arteries in the San Fernando Valley area. As
part of the Warner Center mixed-use development, the project is well-served by
retail amenities and is located near affordable and executive housing. The
project is expected to be 95.3% leased at closing to major health care and
insurance companies in addition to other tenants. The United States Bankruptcy
Court is scheduled to commence occupancy of approximately 60,000 square feet, or
17% of the office space, in early July 1996.
Plaza PacifiCare Building. The Company has entered into a contract to acquire
the Plaza PacifiCare Building, located in Cypress, California, for a purchase
price of approximately $10 million in cash. The building, which is in Orange
County, was built in 1986, and contains approximately 104,000 square feet of
office space. Closing of the transaction is currently scheduled for late June
1996. The building is 100% leased to PacifiCare Health Systems, Inc., the ninth
largest HMO in the United States, under a long-term lease.
Northern Virginia
Parkway One. The Company has entered into a contract to acquire Parkway One,
a building located in Herndon, Virginia, for a purchase price of approximately
$7 million in cash. The building contains approximately 88,000 square feet of
office space and was built in 1985. Closing of the transaction is currently
scheduled for late June 1996. Parkway One has excellent access to the Dulles
Toll Road and Dulles International Airport. The two-story brick structure is
84.5% leased, with commitments to lease the remainder of the space. The major
tenant is EIS International, Inc., a provider of call center software and
systems, which occupies 63,000 square feet or 71% of the total office space. The
acquisition of Parkway One, in combination with the Company's other properties
in outer Northern Virginia, should result in operational economies of scale for
the Company.
The Company is continuing to aggressively pursue acquisitions in target
markets that meet the Company's general acquisition guidelines for property
quality, market strength and investment return.
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Downtown Washington, D.C. Real Estate Market
Ten of the Company's consolidated properties (containing 2.4 million square
feet or 43% of the Company's portfolio as of May 31, 1996) are located in the
downtown Washington, D.C. office market. This office market, which is comprised
of 75 million square feet, had a vacancy rate of 10.6%, 10.3%, 9.3%, 8.4%, and
9.8% as of December 31 in each of 1991 through 1995, respectively. The Company's
downtown Washington, D.C. properties are generally considered to be Class A/B+
properties. The Class A vacancy rate in Washington, D.C. was 8.9% at December
31, 1995.
In 1993 and 1994, the Washington, D.C. market had positive net absorption of
895,000 square feet and 669,000 square feet, respectively. In 1995, however,
Washington, D.C. experienced negative net absorption of 741,000 square feet
primarily as a result of the delivery of approximately 510,000 square feet of
new office space and the addition to availability of large and medium-sized
blocks of space. The Washington, D.C. office market is currently experiencing
healthy demand from law firms, professional service firms and associations;
however, the federal government continues to adhere to a moratorium established
in 1995 on leasing new space. Notwithstanding the Washington, D.C. market's
performance in the past year, the Company believes that the supply/demand
characteristics of the Washington, D.C. market will improve and that its
long-term growth prospects are strong.
Financing Activity
In May 1996, the Company entered into a revolving credit agreement with
Morgan Guaranty Trust Company of New York providing for unsecured borrowings of
up to $215 million. The Line of Credit, which has been utilized to fund a
portion of the Company's recent acquisitions, will be used to fund future
acquistions. In addition, funds from the Line of Credit will be available to
finance future office property development and capital expenditures and for
working capital purposes. The facility is scheduled to mature on July 30, 1998,
subject to a one-year extension if requested by the Company and approved by the
lenders. The Company is subject to a number of financial covenants under the
terms of the Line of Credit. See "Properties -- Debt Financing -- Line of
Credit." As of May 31, 1996, approximately $188 million was available for draw
under the Line of Credit, of which $49.0 million had been drawn by the Company.
The Line of Credit bore interest at the rate of 7.19% as of May 31, 1996.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby and the Concurrent USRealty Purchase are estimated to be
approximately $_____ million ($____ million if the Underwriters' over-allotment
option is exercised in full), assuming that USRealty purchases 1,076,446 shares
in the Offering, as to which no underwriting discounts will be applied. The
Company intends to use $190 million of the net proceeds to fund acquisitions,
either through direct purchase or repayment of Line of Credit borrowings
incurred to fund acquisitions, and to use the remainder of the net proceeds to
fund acquisition activities and for general corporate purposes. Pending such
uses, the net proceeds may be invested in short-term, income-producing
investments such as commercial paper, government securities or money market
funds that invest in government securities.
Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan
Securities Inc., currently is the sole lender under the Line of Credit and is
expected to receive up to $190 million of the net proceeds from the Offering and
the Concurrent USRealty Purchase to repay acquisition-related indebtedness. See
"Underwriting." Thereafter, the Company expects the Line of Credit to be
available primarily to facilitate future acquisitions.
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PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY
The shares of Common Stock have been traded on the NYSE under the symbol
"CRE" since February 1993. As of June 20, 1996 there were 401 stockholders of
record. The following table sets forth the high and low sales prices per share
for the periods indicated as reported on the NYSE and the dividends per share
paid by the Company with respect to the periods noted.
CALENDAR PERIOD HIGH LOW DIVIDENDS
--------------- ---- --- ---------
1994:
First Quarter........................ $ 24 1/2 $ 22 1/8 $.4375
Second Quarter....................... $ 23 7/8 $ 21 1/2 $.4375
Third Quarter........................ $ 21 5/8 $ 19 3/4 $.4375
Fourth Quarter....................... $ 20 3/8 $ 17 3/8 $.4375
1995:
First Quarter........................ $ 18 1/4 $ 17 1/8 $.4375
Second Quarter....................... $ 19 3/4 $ 16 3/4 $.4375
Third Quarter........................ $ 19 3/4 $ 17 1/4 $.4375
Fourth Quarter....................... $ 24 5/8 $ 18 1/2 $.4375
1996:
First Quarter........................ $ 24 3/4 $ 23 7/8 $.4375
April 1, 1996 to June 21, 1996....... $ 25 1/4 $ 23 3/4 (1)
- ----------
(1) The dividend for the second quarter has not yet been declared.
The Company, in order to qualify as a REIT, is required to make distributions
(other than capital gain distributions) to its stockholders in amounts at least
equal to (i) the sum of (A) 95% of its "REIT taxable income" (computed without
regard to the dividends paid deduction and its net capital gain) and (B) 95% of
the net income (after tax), if any, from foreclosure property, minus (ii) the
sum of certain items of non-cash income. The Company's distribution strategy is
to distribute what it believes is a conservative percentage of its cash flow,
permitting the Company to retain funds for capital improvements and other
investments while funding its distributions.
For Federal income tax purposes, distributions may consist of ordinary
income, capital gains, nontaxable return of capital or a combination thereof.
Distributions that exceed the Company's current and accumulated earnings and
profits (calculated for tax purposes) constitute a return of capital rather than
a dividend and reduce the stockholder's basis in his or her shares of Common
Stock. To the extent that a distribution exceeds both current and accumulated
earnings and profits and the stockholder's basis in his or her shares, it will
generally be treated as gain from the sale or exchange of that stockholder's
shares. The Company annually notifies stockholders of the taxability of
distributions paid during the preceding year. The following table sets forth the
taxability of distributions paid in 1995, 1994 and 1993:
1995 1994 1993
------ ------ -------
Ordinary income ............. 85% 75% 60%
Capital gain................. -- -- --
Return of capital............ 15% 25% 40%
S-16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 on an historical basis and on a pro forma basis, giving effect to (i)
completion of the Offering and the Concurrent USRealty Purchase, (ii) the
closing of the USRealty Transaction (which closed on April 30, 1996), (iii) the
acquisition of office properties that have been consummated since March 31, 1996
and the acquisition of 14 office properties that the Company expects to
consummate in the near future, and (iv) the repayment of $235 million of
indebtedness outstanding as of March 31, 1996.
March 31, 1996
------------------------
Historical Pro Forma
---------- ---------
(In thousands)
Debt ................................................. $496,957 $319,474
Other liabilities..................................... 10,018 10,977
Minority interest..................................... 34,876 35,156
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares
authorized; none issued and outstanding (1)......... 0 0
Common Stock, $.01 par value, 30,000,000 shares
authorized; 13,547,492 issued and outstanding
(2)(3).............................................. 136 372
Additional paid-in capital........................... 127,376 657,408
Cumulative dividends paid in excess of net income ... (34,005) (34,623)
------- -------
Total stockholders' equity........................... 93,507 623,157
------ -------
Total capitalization................................ $635,358 $988,764
======== ========
- -------------
(1) On a pro forma basis, the number of authorized shares of Preferred Stock
increased to 15,000,000 effective April 29, 1996 in connection with the
USRealty Transaction.
(2) Does not include 4,649,954 shares of Common Stock reserved for possible
issuance upon redemption of issued and outstanding Units as of March 31,
1996, respectively.
(3) On a pro forma basis, the number of authorized shares of Common Stock
increased to 90,000,000 effective April 29, 1996 in connection with the
USRealty Transaction, and the number of shares of Common Stock issued and
outstanding increased to 37,175,399.
S-17
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following tables set forth pro forma financial information for the
Company as of and for the three months ended March 31, 1996 and for the year
ended December 31, 1995, after giving effect to (i) completion of the Offering
and the Concurrent USRealty Purchase, (ii) the closing of the USRealty
Transaction (which closed on April 30, 1996), (iii) the acquisition of office
properties that have been consummated since the beginning of the periods
presented and the acquisition of 14 office properties that the Company expects
to consummate in the near future, and (iv) the repayment of $235 million of
indebtedness outstanding as of March 31, 1996.
The unaudited Pro Forma Condensed Consolidated Balance Sheet is presented as
if the following transactions had been consummated on March 31, 1996: (a) the
purchase of the four office properties known as Harlequin Plaza North and South
and Quebec Court I and II; (b) the purchase of the two office buildings and
additional land which will support the development of up to 100,000 square feet
of office space comprising The Quorum; (c) the purchase of the two office
buildings and additional land which will support the development of up to
900,000 square feet of additional office space comprising the Parkway North
Center; (d) the purchase of the ten office properties comprising the Redmond
East Business Campus; (e) the purchase of the 12 office buildings comprising the
Warner Center Business Park; (f) the purchase of the office building known as
the Plaza PacifiCare Building; (g) the purchase of the office building known as
Parkway One; (h) the USRealty Transaction; and (i) the Offering and the
Concurrent USRealty Purchase.
The unaudited Pro Forma Condensed Consolidated Statements of Operations are
presented as if the following transactions had been consummated as of the
beginning of the respective periods: (a) the purchase of the office building
known as One Rock Spring Plaza; (b) the purchase of the office building known as
Tycon Courthouse; (c) the purchase of an additional 7.58% ownership interest in
Square 24 Associates, the partnership owning the office property located at 2445
M Street, Washington, D.C.; (d) the purchase of the four office properties
comprising the Scenic Business Park; (e) the purchase of the four office
properties comprising the Harbor Corporate Park; (f) the purchase of the six
office properties known as the AT&T Center; (g) the purchase of the three office
properties known as Reston Quadrangle; (h) the purchase of the four office
properties known as Harlequin Plaza North and South and Quebec Court I and II;
(i) the purchase of the two office buildings and additional land which will
support the development of up to 100,000 square feet of office space comprising
The Quorum; (j) the purchase of the two office buildings and additional land
which will support the development of up to 900,000 square feet of additional
office space comprising the Parkway North Center; (k) the purchase of the ten
office properties comprising the Redmond East Business Campus; (l) the purchase
of the 12 office buildings comprising the Warner Center Business Park; (m) the
purchase of the office building known as the Plaza PacifiCare Building; (n) the
purchase of the office building known as Parkway One; (o) the USRealty
Transaction; and (p) the Offering and the Concurrent USRealty Purchase.
In management's opinion, all material adjustments necessary to reflect the
transactions described above are presented in the pro forma adjustments columns,
which are further described in the notes to the unaudited pro forma financial
information.
The unaudited Pro Forma Condensed Consolidated Balance Sheet and the
unaudited Pro Forma Condensed Consolidated Statements of Operations should be
read in conjunction with the Consolidated Financial Statements of the Company
and Notes thereto incorporated by reference in the accompanying Prospectus. The
unaudited Pro Forma Condensed Consolidated Balance Sheet is not necessarily
indicative of what the actual financial position would have been at March 31,
1996, nor does it purport to represent the future financial position of the
Company. The unaudited Pro Forma Condensed Consolidated Statements of Operations
are not necessarily indicative of what actual results of operations of the
Company would have been assuming the transactions described above had been
consummated as of the beginning of the respective periods, nor do they purport
to represent the results of operations for future periods.
S-18
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------------------------------------------
OFFERING AND
CONCURRENT
ACQUIRED PROBABLE USREALTY USREALTY PRO FORMA
HISTORICAL(A) PROPERTIES(B) ACQUISITIONS(C) TRANSACTION(D) PURCHASE(E) CONSOLIDATED
------------- --------------- --------------- -------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Rental property, net.......... $546,543 $ 175,855 (1) $ 68,530 (7) $ -- $ -- $790,928
Restricted and unrestricted
cash ......................... 22,289 (117,401)(2) (68,530)(8) 10,106 285,733 132,197
Other assets ................. 66,526 302 (3) -- (1,189) -- 65,639
-------- ------------ ----------- ------------ ---------- ---------
Total assets................ $635,358 $ 58,756 $ -- $ 8,917 $285,733 $988,764
======== ============ ========== =========== ========== =========
LIABILITIES
Debt ......................... $496,957 $ 57,517 (4) $ -- $ (235,000) $ -- $319,474
Other liabilities ............ 10,018 959 (5) -- -- -- 10,977
-------- ------------ ---------- ------------ ---------- ---------
Total liabilities........... 506,975 58,476 -- (235,000) -- 330,451
-------- ------------ ---------- ------------ ---------- ---------
Minority interest ............ 34,876 280 (6) -- -- -- 35,156
-------- ------------ ---------- ------------ ---------- ---------
STOCKHOLDERS' EQUITY
Common stock ................. 136 -- -- 116 120 372
Additional paid-in capital .. 127,376 -- -- 244,419 285,613 657,408
Cumulative dividends paid in
excess of net income ......... (34,005) -- -- (618) -- (34,623)
--------- ------------ ---------- ------------ ----------- ----------
Total stockholders' equity.. 93,507 -- -- 243,917 285,733 623,157
--------- ------------ ---------- ------------ ----------- ----------
Total liabilities and stock-
holders' equity............ $635,358 $ 58,756 $ -- $ 8,917 $285,733 $988,764
========= ============ ========== ============ =========== =========
</TABLE>
S-19
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
Adjustments (dollars in thousands):
(A) Reflects the Company's historical consolidated balance sheet as of March
31, 1996.
(B) Reflects the acquisition of: (i) the four office properties known as
Harlequin Plaza North and South and Quebec Court I and II; (ii) the two
office buildings and additional land which will support the development of
up to 100,000 square feet of office space comprising The Quorum; (iii) the
two office buildings and additional land which will support the
development of up to 900,000 square feet of additional office space
comprising Parkway North Center; and (iv) the ten office properties known
as Redmond East Business Campus. Pro forma adjustments reflect:
(1) total acquisition costs of $175,855 ($46,951 related to Harlequin
Plaza North and South and Quebec Court I and II, $9,618 related to
The Quorum, $79,632 related to Parkway North Center, and $39,654
related to Redmond East Business Campus);
(2) cash payment of $117,401 for acquisition of properties;
(3) prepaid assets acquired ($702 related to the acquisition of Parkway
North Center) offset by the transfer of previously capitalized
acquisition costs ($400 related to the acquisition of Redmond East
Business Campus);
(4) the assumption of existing debt ($28,183 related to the acquisition
of Redmond East Business Campus and $29,334 related to the
acquisition of Parkway North Center);
(5) the assumption of accounts payable and accrued expenses existing at
the time of acquisition ($230 related to Redmond East Business
Campus, $487 related to Parkway North Center, and $242 related to
The Quorum); and
(6) the value of 11,452 Units of CarrAmerica Realty, L.P. issued in
connection with the purchase of Harlequin Plaza North and South and
Quebec Court I and II.
(C) Reflects anticipated effects of probable acquisitions of: (i) the 12
office buildings comprising the Warner Center Business Park; (ii) the
office building known as the Plaza PacifiCare Building; and (iii) the
office building known as Parkway One. Pro forma adjustments reflect:
(7) anticipated total acquisition costs of $68,530 ($52,005 related to
Warner Center Business Park, $9,875 related to Plaza PacifiCare, and
$6,650 related to Parkway One); and
(8) anticipated cash payment of $68,530 for acquisition of properties.
(D) Reflects the issuance of 11,627,907 shares of Common Stock to USRealty in
exchange for cash of $249,614, reduced by fees and other costs related to
the transaction of $5,079 ($571 previously capitalized). The Company used
$235,000 of the proceeds to repay debt incurred related to recent
acquisitions. Also reflects the effect of the write-off of deferred
financing costs ($618) of the debt subsequently repaid.
(E) Reflects the effects of the Offering and the Concurrent USRealty Purchase
and the issuance of 8,400,000 and 3,600,000 shares of Common Stock,
respectively, in connection therewith at a price of $24.625 per share.
Transaction costs of $9,767 assume no underwriting discount with respect
to the 1,076,446 shares of Common Stock that USRealty has expressed an
interest in purchasing in the Offering.
S-20
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND THE YEAR ENDED DECEMBER 31,
1995
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------------------------------------------
PRO FORMA ADJUSTMENTS
-------------------------------------------------------------
OFFERING AND
CONCURRENT
ACQUIRED PROBABLE USREALTY USREALTY PRO FORMA
HISTORICAL(A) PROPERTIES(B) ACQUISITIONS(C) TRANSACTION(D) PURCHASE(E) CONSOLIDATED
------------- -------------- ---------------- --------------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REAL ESTATE OPERATING
REVENUE:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RENTAL REVENUE .............. $25,350 $12,377 (1) $1,838 (7) $ -- $ -- $39,565
REAL ESTATE SERVICE INCOME .. 2,726 -- -- -- -- 2,726
----- ------ ----- ------ ----- -------
TOTAL REVENUE .............. 28,076 12,377 1,838 -- -- 42,291
------ ------ ----- ------ ----- ------
REAL ESTATE OPERATING
EXPENSES:
PROPERTY OPERATING EXPENSES . 8,991 2,981 (2) 523 (8) -- -- 12,495
INTEREST EXPENSE ............ 6,532 1,179 (3) --- (1,111)(10) -- (12) 6,600
GENERAL AND ADMINISTRATIVE .. 2,748 321 (1) 55 (7) -- -- 3,124
DEPRECIATION AND AMORTIZATION 5,484 3,622 (4) 400 (9) (50)(11) -- 9,456
----- ----- -- --- ------ ----- -----
TOTAL OPERATING EXPENSES ... 23,755 8,103 978 (1,161) -- 31,675
------ ----- --- ------ ----- ------
REAL ESTATE OPERATING INCOME 4,321 4,274 860 1,161 -- 10,616
OTHER OPERATING INCOME ....... 404 4 (1) -- -- -- (13) 408
------ ----- --- ------ ----- ------
NET OPERATING INCOME BEFORE
MINORITY INTEREST ......... 4,725 4,278 860 1,161 -- 11,024
MINORITY INTEREST ............ (1,390) (13) (5) -- -- -- (1,403)
------ ----- --- ------ ----- ------
NET INCOME ................. $ 3,335 $ 4,265 $ 860 $ 1,161 $ -- $ 9,621
====== ===== === ===== ===== ======
NET INCOME PER COMMON SHARE
(F).......................... $ 0.25 $ 0.26
====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------------------------------------------
PRO FORMA ADJUSTMENTS
-------------------------------------------------------------
OFFERING AND
CONCURRENT
ACQUIRED PROBABLE USREALTY USREALTY PRO FORMA
HISTORICAL(A) PROPERTIES(B) ACQUISITIONS(C) TRANSACTION(D) PURCHASE(E) CONSOLIDATED
------------- -------------- ---------------- --------------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REAL ESTATE OPERATING REVENUE:
RENTAL REVENUE ................. $ 89,539 $59,476 (1) $7,391 (7) $ -- $ -- $156,406
REAL ESTATE SERVICE INCOME ..... 11,315 -- -- -- -- 11,315
-------- ------- ------ ------- -------- --------
TOTAL REVENUE ................. 100,854 59,476 7,391 -- -- 167,721
-------- ------- ------ ------- -------- --------
REAL ESTATE OPERATING EXPENSES:
PROPERTY OPERATING EXPENSES..... 31,579 15,466 (2) 2,251 (8) -- -- 49,296
INTEREST EXPENSE ............... 21,873 8,207 (3) -- (3,828)(10) -- (12) 26,252
GENERAL AND ADMINISTRATIVE...... 10,711 946 (1) 325 (7) -- -- 11,982
DEPRECIATION AND AMORTIZATION... 18,495 17,101 (4) 1,597 (9) (200)(11) -- 36,993
-------- ------- ------ ------- -------- --------
TOTAL OPERATING EXPENSES....... 82,658 41,720 4,173 (4,028) -- 124,523
-------- ------- ------ ------- -------- --------
REAL ESTATE OPERATING INCOME... 18,196 17,756 3,218 4,028 -- 43,198
OTHER OPERATING INCOME
(EXPENSES) ..................... (912) 19 (1) -- -- -- (13) (893)
-------- ------- ------ ------- -------- --------
NET OPERATING INCOME BEFORE
MINORITY INTEREST ............ 17,284 17,775 3,218 4,028 -- 42,305
MINORITY INTEREST ............... (5,217) 74 (5)(6) -- -- -- (5,143)
-------- ------- ------ ------- -------- --------
NET INCOME .................... $12,067 $17,849 $3,218 $ 4,028 $ -- $ 37,162
======== ======= ====== ======= ======== ========
NET INCOME PER COMMON SHARE (F) . $ 0.90 $ 1.00
======= ========
</TABLE>
S-21
<PAGE>
CARRAMERICA REALTY CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND THE YEAR ENDED DECEMBER 31,
1995
(Unaudited)
Adjustments (dollars in thousands):
(A) Reflects the Company's historical consolidated statements of operations
for the three months ended March 31, 1996 and the year ended December 31,
1995.
(B) Pro forma adjustments for the purchases of the acquired properties
reflect:
(1) the historical operating activity of the properties acquired;
(2) the historical operating activity of the rental properties acquired
($3,266 for the three months ended March 31, 1996 and $16,861 in
1995) reduced by the elimination of management fee expenses that
will not be incurred by the Company upon purchase of the properties
($285 for the three months ended March 31, 1996 and $1,395 in 1995);
(3) the additional interest expense on the debt and Line of Credit and
interest expense on the assumed debt;
(4) the depreciation expense for the acquisitions based on the new
accounting basis for the rental properties acquired;
(5) the minority interest share of earnings of Harlequin Plaza North and
South and Quebec Court I and II; and
(6) the impact of the additional ownership interest acquired in Square
24 Associates, offset by the minority interest share of earnings of
acquired properties.
(C) Pro forma adjustments for the probable acquisitions reflect:
(7) the historical operating activity of the properties to be acquired;
(8) the historical operating activity of the rental properties to be
acquired ($578 for the three months ended March 31, 1996 and $2,466
in 1995) reduced by the elimination of management fee expenses that
will not be incurred by the Company upon purchase of the properties
($55 for the three months ended March 31, 1996 and $215 in 1995);
and
(9) the depreciation expense for the probable acquisitions based on the
anticipated accounting basis for the rental properties to be
acquired.
(D) In connection with the repayment of debt related to recent acquisitions
with proceeds of the USRealty Transaction, the Company incurred a loss on
write-off of deferred financing costs of $618. This nonrecurring cost was
charged to operations when incurred. This cost has not been included in
the condensed consolidated pro forma statements of operations for the
three months ended March 31, 1996 or for the year ended December 31, 1995.
Pro forma adjustments for the USRealty Transaction reflect:
(10) the reduction in interest expense associated with the subsequent
repayment of certain notes and lines of credit with the proceeds of
the USRealty Transaction; and
(11) the reduction in amortization expense resulting from the write-off
of deferred financing costs of the debt subsequently repaid.
(E) Pro forma adjustments for the Offering and the Concurrent USRealty
Purchase reflect:
(12) no adjustment with respect to interest expense because the interest
expense associated with debt to be repaid with a portion of the
proceeds of the Offering and the Concurrent USRealty Purchase was
incurred after March 31, 1996; and
(13) no adjustment reflecting the investment of $109,878 of the net
proceeds of the Offering and the Concurrent USRealty Purchase.
(F) Based upon 37,214,074 and 36,977,439 pro forma shares of Common Stock
outstanding on a weighted average basis during the three months ended
March 31, 1996 and the year ended December 31, 1995, respectively.
S-22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the consolidated financial condition
and results of operations should be read in conjunction with the Consolidated
and Combined Financial Statements of the Company and Notes thereto incorporated
by reference in the accompanying Prospectus.
General
The following discussion is based primarily on the Consolidated Financial
Statements of the Company as of March 31, 1996, December 31, 1995 and December
31, 1994 and for the three months ended March 31, 1996 and 1995 and the years
ended December 31, 1995 and 1994.
Results of Operations--Three Months Ended March 31, 1996 and 1995
Real Estate Operating Revenue. Total real estate operating revenue increased
$3.8 million, or 15.7%, to $28.1 million for the three months ended March 31,
1996 as compared to $24.3 million for the three months ended March 31, 1995. The
increase in revenue was primarily attributable to a $3.6 million and a $.2
million increase in rental revenue and real estate service revenue,
respectively. The Company experienced net growth in its rental revenue as a
result of its acquisitions since the first quarter of 1995 which contributed
approximately $3.6 million of additional rental revenue in the three month
period ended March 31, 1996. Rental revenue contributed by properties that were
fully operating throughout both periods remained constant at approximately $21.8
million. Real estate service revenues from the Company's core service contracts
increased by $.2 million, or 9.9%, for the three months ended March 31, 1996 to
$2.7 million as compared to $2.5 million for the three months ended March 31,
1995. The increase was primarily as a result of an increase in leasing
commissions earned in the first quarter of 1996.
Real Estate Operating Expenses. Total real estate operating expenses
increased $4.0 million for the three months ended March 31, 1996, or 20.2%, to
$23.8 million as compared to $19.8 million for the three months ended March 31,
1995. The net increase in operating expenses was attributable to a $1.5 million
increase in property operating expenses, a $1.3 million increase in interest
expense, a $.1 million increase in general and administrative expenses, and a
$1.1 million increase in depreciation and amortization. The increase in property
operating expenses was primarily attributable to $1.2 million in operating
expenses associated with property acquisitions since the first quarter of 1995.
Exclusive of operating expenses attributable to new property acquisitions,
property operating expenses increased $.3 million, or 3.7%, for the three months
ended March 31, 1996 predominately as a result of higher real estate tax
assessments. The increase in the Company's interest expense is primarily related
to borrowings for acquisitions. The increase in general and administrative
expenses is predominately a result of the addition of new staff to implement the
Company's new business strategy and inflation. The increase in depreciation and
amortization is predominately a result of additional depreciation and
amortization on the Company's real estate acquisitions.
Other Operating Income (Expense). Other operating income increased $.2
million for the three months ended March 31, 1996 to $.4 million as compared to
$.2 million for the three months ended March 31, 1995, primarily due to the
addition of equity in earnings of CC-JM II Associates. The Company is a 50%
venturer in this entity that constructed the Booz-Allen & Hamilton Building,
which was placed in service in January 1996.
Net Income. Net income of $3.3 million was earned for the three months ended
March 31, 1996 as compared to $3.3 million during the three month period ended
March 31, 1995. The comparability of net income between the two periods is
impacted by the acquisitions the Company made and the other changes described
above.
Cash Flows. Net cash provided by operating activities increased $1.0 million,
or 12.9%, to $9.0 million for the three months ended March 31, 1996 as compared
to $8.0 million for the three months ended March 31, 1995, primarily as a result
of the acquisitions made by the Company. Net cash used by
S-23
<PAGE>
investing activities increased $155.2 million, to $169.5 million for the three
months ended March 31, 1996 as compared to $14.3 million for the three months
ended March 31, 1995, primarily as a result of capital deployed by the Company
for acquisitions of office properties. Net cash provided by financing activities
increased $172.9 million to $171.5 million provided for the three months ended
March 31, 1996 as compared to $1.4 million used for the three months ended March
31, 1995, primarily as a result of the net borrowings necessary for the
Company's acquisitions.
Results of Operations--1995 and 1994
Revenue. Total real estate operating revenue increased $9.3 million, or
10.2%, to $100.9 million in 1995 as compared to $91.6 million in 1994. The
increase in revenue was primarily attributable to a $6.9 million and a $2.4
million increase in rental revenue and real estate service revenue,
respectively. The Company experienced net growth in its rental revenue as a
result of its acquisitions which contributed approximately $8.1 million of
additional rental revenue in 1995. Rental revenue contributed by properties that
were fully operating throughout both periods declined by approximately $1.2
million, or 1.5%. These properties, all of which were located in downtown
Washington, D.C., experienced lower rental revenue in the aggregate during 1995
as a result of (a) lower occupancy rates, (b) the renegotiation of certain
tenants' leases resulting in lower rental rates, and (c) new leases entered into
by the Company at rates lower than the expiring leases' rental rates. The
Company experienced growth in its real estate service income of $1.7 million as
a result of its acquisition of real estate service contracts in 1995. In
addition, real estate service revenues from the Company's core service contracts
increased by $.7 million, or 8.2%, in 1995.
Operating Expenses. Total real estate operating expenses increased $7.7
million, or 10.2%, to $82.7 million as compared to $75.0 million in 1994. The
net increase in operating expenses was attributable to a $1.9 million increase
in property operating expenses, a $.5 million increase in interest expense, a
$1.2 million increase in general and administrative expenses, and a $4.1 million
increase in depreciation and amortization. The increase in property operating
expenses was primarily attributable to $2.4 million in operating expenses
associated with property acquisitions. Exclusive of operating expenses
attributable to new property acquisitions, property operating expenses decreased
$.5 million, or 1.9%, in 1995 predominately as a result of lower real estate tax
assessments. The increase in the Company's interest expense is primarily related
to borrowings for acquisitions. The increase in general and administrative
expenses is predominately a result of general and administrative expenses
associated with the real estate service contracts acquired in 1995 and
inflation. The increase in depreciation and amortization is predominately a
result of additional depreciation and amortization on the Company's real estate
and real estate service contract acquisitions.
Other Operating Income (Expense). In January 1996, the Company terminated an
agreement to acquire the development business of The Evans Company and, as a
result, recognized a $1.9 million non-recurring charge to its earnings in the
fourth quarter of 1995. The Company took this action in order to focus on
implementing its national growth strategy, focusing on value office properties.
Net Income. Net income of $12.1 million was earned during 1995 as compared to
$12.1 million during 1994. The comparability of net income between the two
periods is impacted by the acquisitions the Company made and the other changes
described above.
Cash Flows. Net cash provided by operating activities increased $5.4 million,
or 18.0%, to $35.3 million in 1995 as compared to $29.9 million in 1994,
primarily as a result of the acquisitions made by the Company. Net cash used by
investing activities increased $14.6 million, or 21.8%, to $81.6 million in 1995
as compared to $67.0 million in 1994, primarily as a result of capital deployed
by the Company for acquisitions of office properties and real estate service
contracts. Net cash provided by financing activities increased $4.5 million, or
13.7%, to $37.1 million in 1995 as compared to $32.6 million in 1994, primarily
as a result of the net borrowings for the Company's acquisitions.
Pro Forma Information
Balance Sheet at March 31, 1996. On a pro forma basis, the Company's total
assets increased $353.4 million to $988.8 million. The increase resulted from
the acquisition and probable acquisition of
S-24
<PAGE>
$244.4 million of office properties and the addition of $109.9 million of cash
from the Offering and the Concurrent USRealty Purchase. The Company will use
this cash for future acquisitions and for general corporate purposes.
Results of Operations for the Three Months Ended March 31, 1996. On a pro
forma basis, the Company's net income for the three months ended March 31, 1996
increased $6.3 million to $9.6 million. The pro forma adjustments reflect a $4.3
million increase in net income from the acquisition of office properties, a $.9
million increase in net income from probable acquisitions, and a $1.1 million
increase in net income from reduced interest and amortization expenses resulting
from the repayment of debt. The pro forma operating statement for the three
months ended March 31, 1996 does not reflect any earnings from the investment of
approximately $109.9 million in net proceeds of the Offering and the Concurrent
USRealty Purchase. Earnings per share of Common Stock for the three months ended
March 31, 1996, on a pro forma basis, were $.26 per share, which was $.01 per
share greater than the historical amount.
Results of Operations for the Year Ended December 31, 1995. On a pro forma
basis, the Company's net income for the year ended December 31, 1995 increased
$25.1 million to $37.2 million. The pro forma adjustments reflect a $17.9
million increase in net income from the acquisition of office properties, a $3.2
million increase in net income from probable acquisitions, and a $4.0 million
increase in net income from reduced interest and amortization expenses resulting
from the repayment of debt. The pro forma operating statement for the year ended
December 31, 1995 does not reflect any earnings from the investment of
approximately $109.9 million in net proceeds of the Offering and the Concurrent
USRealty Purchase. Earnings per share of Common Stock for the year ended
December 31, 1995, on a pro forma basis, were $1.00 per share, which was $.10
per share greater than the historical amount.
Pro Forma Indebtedness at March 31, 1996. On a pro forma basis, the Company's
consolidated indebtedness at March 31, 1996 was $319.5 million at a weighted
average interest rate of 8.4% and a weighted average term to maturity of 7.0
years. Based upon the Company's pro forma total market capitalization at March
31, 1996 of $1,323.6 million (based on a Common Stock price at that date of
$24.00 per share), the Company's pro forma debt at March 31, 1996 represented
24.1% of its pro forma total market capitalization. On a pro forma basis, the
Company's consolidated net indebtedness (indebtedness less existing cash) at
March 31, 1996 was $187.3 million and the Company's net total market
capitalization (total market capitalization less cash) at March 31, 1996 was
$1,191.4 million. The Company's pro forma ratio of net indebtedness to net total
market capitalization at March 31, 1996 was 15.7%.
Liquidity and Capital Resources
The Company's total indebtedness at May 31 and March 31, 1996 was $310.7 and
$497.0 million, respectively, of which $49.0 million and $235.0 million, or
15.8% and 47.3%, respectively, bore a LIBOR-based floating interest rate. The
decline in the indebtedness was attributable to the repayment of interim
indebtedness from the proceeds of the USRealty Transaction. Based upon the
Company's total market capitalization at May 31 and March 31, 1996 of $1,064.1
million and $933.7 million, respectively (the Common Stock price was $25.25 and
$24.00 per share, respectively, and the total shares/Units outstanding were
29,837,805 and 18,197,446, respectively), the Company's debt at May 31 and March
31, 1996 represented 29.2% and 53.2%, respectively, of its total market
capitalization.
On May 22, 1996, the Company obtained a $215 million unsecured credit
facility from Morgan Guaranty Trust Company of New York. The Company intends to
use the Line of Credit to finance acquisitions and development activities, for
capital expenditures and for working capital purposes. As of May 31, 1996,
approximately $49.0 million had been advanced under the Line of Credit. Once the
outstanding amount of the Line of Credit has been repaid out of the net proceeds
of the Offering and the Concurrent USRealty Purchase, the Company will have
access to the maximum amount available under the Line of Credit. See "Properties
- -- Debt Financing -- Line of Credit."
The Company's operating properties require periodic investments of capital
for tenant-related capital expenditures and for general capital improvement
projects. Since 1993, the Company's capital investments in its properties have
been $37.14, $22.70, $19.19 and $11.68 per square foot leased for the
S-25
<PAGE>
period from February 16, 1993 (inception of operations) to December 31, 1993,
the years ended December 31, 1994 and 1995, and the three months ended March 31,
1996, respectively, for tenant-related capital expenditures for new leases and
$5.00, $2.09, $.65 and $.11 per square foot for general capital projects for the
period from February 16, 1993 (inception of operations) to December 31, 1993,
the years ended December 31, 1994 and 1995, and the three months ended March 31,
1996, respectively. As a result of large-scale renovations of certain of the
Company's Washington, D.C. properties, the Company's general capital
expenditures during this time were greater than what the Company expects to
spend in the future on a normalized basis. These renovations were undertaken to
improve these properties' market position and to bring the properties into
compliance with certain new local and federal laws. The Company expects that
general capital expenditures for its Washington, D.C. properties will decline in
the future primarily because most of the properties recently have been
extensively renovated. The Company has recently begun renovating several garages
at its Washington, D.C. properties at an estimated total cost of approximately
$3.5 million, or $1.45 per square foot of the Company's Washington, D.C.
properties, to be spent over the next two years. Exclusive of the garage
renovations, general capital expenditures for the Company's Washington, D.C.
properties are expected to be approximately $1.0 million or less annually, or
$.40 or less per square foot. With respect to the Company's recent acquisitions
in select suburban growth markets, the Company expects that the annual capital
expenditures for these properties will be substantially less than the Company
has incurred for its Washington, D.C. properties. Based on current conditions in
its target markets, the Company expects that tenant-related capital expenditures
for its recent acquisitions will be approximately $7.75 to $8.25 per square foot
leased for leases entered into in the next 12 months. The Company expects that
this amount should decline if market conditions in its target markets continue
to improve. The Company believes that general capital expenditures will average
approximately $.30 per square foot owned on an annual basis for its recent
acquisitions. The Company anticipates funding the capital requirements of its
Washington, D.C. properties and of its new acquisitions with cash flow from
operations and, if necessary, with proceeds from the Line of Credit.
The Company's estimates regarding capital expenditures set forth above
are forward-looking information representing the Company's best estimates based
on currently available information. As with any estimates, they are based on a
number of assumptions, any of which, if unrealized, could adversely affect the
accurancy of the estimates.
Net cash provided by operating activities was $9.0 million for the three
months ended March 31, 1996, compared to $8.0 million for the three months ended
March 31, 1995. The increase in net cash provided by operating activities was
primarily as a result of acquisitions made by the Company.
The Company's investing activities used approximately $169.5 million and
$14.3 million for the three months ended March 31, 1996 and 1995, respectively.
The Company's investment activities included the acquisitions of office
buildings for approximately $168.2 million for the three months ended March 31,
1996, as compared to no acquisition activity in the first quarter of 1995.
Additionally, the Company invested approximately $1.0 million and $2.8 million
in its existing real estate assets for the three months ended March 31, 1996 and
1995, respectively.
Net of distributions to the Company's shareholders, the Company's financing
activities provided net cash of $177.4 million and $4.4 million for the three
months ended March 31, 1996 and 1995, respectively. For the three months ended
March 31, 1996, the Company borrowed approximately $180.0 million to provide
adequate capital for the Company's investing activities, as compared to
approximately $6.7 million for the three months ended March 31, 1995.
Rental revenue and real estate service revenue have been the principal
sources of capital to fund the Company's operating expenses, debt service and
capital expenditures, excluding non-recurring capital expenditures. The Company
believes that rental revenue and real estate service revenue will continue to
provide the necessary funds for its operating expenses and debt service. As
discussed above, the Company expects to fund capital expenditures from cash flow
from operations and the Line of Credit. If these sources of funds are
insufficient, the Company's ability to make expected distributions may be
adversely impacted. At March 31, 1996, the Company had cash of $22.3 million, of
which $2.1 million was restricted.
The Company's dividends are paid quarterly. Amounts accumulated for
distribution are predominantly invested by the Company in short-term investments
that are collateralized by securities of the United States Government or any of
its agencies.
Management believes that the Company will have access to the capital
resources necessary to expand and develop its business. Accordingly, the Company
may seek to obtain funds through additional equity offerings or debt financing
in a manner consistent with its intention to operate with a
S-26
<PAGE>
conservative borrowing policy. The Company anticipates that adequate cash will
be available to fund its operating and administrative expenses, continuing debt
service obligations, the payment of dividends in accordance with REIT
requirements in both the short-term and long-term, and the funding of future
acquisitions and development of rental properties and capital expenditures.
The Company believes that funds from operations is an appropriate measure of
the performance of an equity REIT because industry analysts have accepted it as
a performance measure of equity REITs. In accordance with the final NAREIT White
Paper on Funds From Operations as approved by the Board of Governors of NAREIT
on March 3, 1995, funds from operations represents net income (loss) (computed
in accordance with generally accepted accounting principles), excluding gains
(losses) from debt restructuring or sales of property, plus depreciation and
amortization of assets uniquely significant to the real estate industry and
after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures are calculated to
reflect funds from operations on the same basis. The Company's funds from
operations presented below conform to the new NAREIT definition of funds from
operations. Funds from operations does not represent net income or cash flows
generated from operating activities in accordance with generally accepted
accounting principles and should not be considered an alternative to net income
as an indication of the Company's performance or to cash flows as a measure of
liquidity or the Company's ability to make distributions.
The following table provides the calculation of the Company's funds from
operations on a pro forma and historical basis for the three months ended March
31, 1996 and for the year ended December 31, 1995:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1995
---------------------- ---------------------
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
--------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income before minority interest............ $11,024 $ 4,725 $42,305 $17,284
Adjustments to derive funds from operations:
Add: Depreciation and amortization............ 9,193 5,171 36,262 17,564
Deduct: Minority interests' (non-Unitholders)
share of depreciation, amortization and net
income....................................... (395) (395) (1,584) (1,658)
---- ---- ------ ------
Funds from operations before allocation to the
minority Unitholders ........................ 19,822 9,501 76,983 33,190
------ ----- ------ ------
Less: Funds from operations allocable to the
minority Unitholders ........................ (2,175) (2,164) (8,469) (7,876)
------ ------ ------ ------
Funds from operations allocable to CarrAmerica
Realty Corporation............................ $17,647 $ 7,337 $68,514 $25,314
======= ======= ======= =======
</TABLE>
Changes in funds from operations are largely attributable to changes in net
income between the periods as previously discussed.
S-27
<PAGE>
PROPERTIES
GENERAL
The following table sets forth certain lease-related information about each
Property as of May 31, 1996. For a discussion of the Properties acquired by the
Company in June 1996, see "Recent Developments."
<TABLE>
<CAPTION>
NET AVERAGE
COMPANY'S RENTABLE BASE RENT
NUMBER DATE BUILT EFFECTIVE AREA PER LEASED
OF OR PROPERTY (SQUARE PERCENT SQUARE
PROPERTY PROPERTIES REDEVELOPED OWNERSHIP FEET)(1) LEASED(2) FOOT(3)
-------- ---------- ----------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Properties
Washington, DC:
International Square......................... 3
1850 K Street .............................. 1977 100.0% 375,897 86.6% $33.40
1825 Eye Street ............................ 1982 100.0 374,321 96.5 33.45
1875 Eye Street ............................ 1979 100.0 267,328 84.1 32.83
1730 Pennsylvania Avenue..................... 1 1972 100.0 229,429 96.4 37.90
2550 M Street................................ 1 1978 100.0 187,931 100.0 30.82
1775 Pennsylvania Avenue..................... 1 1975 100.0 143,981 99.1 22.03
900 19th Street.............................. 1 1986 100.0 101,186 84.2 34.91
1747 Pennsylvania Avenue..................... 1 1970 89.7 152,396 78.0 31.00
1255 23rd Street............................. 1 1983 75.0 304,433 70.1 (4) 28.41
2445 M Street................................ 1 1986 74.0 266,902 90.9 28.06
Suburban Maryland:
One Rock Spring Plaza........................ 1 1989 100.0 205,298 94.7 22.23
Northern Virginia:
Tycon Courthouse............................. 1 1983 100.0 415,158 96.4 19.14
Three Ballston Plaza......................... 1 1991 100.0 302,797 99.1 22.94
Reston Quadrangle............................ 3 1987-89 100.0 261,175 99.8 20.48
Southern California:
Scenic Business Park......................... 4 1985 100.0 137,436 89.7 10.50
Harbor Corporate Park........................ 4 1987 100.0 149,382 49.2 12.75
Northern California:
AT&T Center.................................. 6 1988 100.0 1,082,032 100.0 14.95
Southeast Denver:
Harlequin Plaza.............................. 2 1981 100.0 327,623 92.5 12.63
Quebec Court................................. 2 1979/1980 100.0 285,829 100.0 9.43
-- ------- ----- ----
Total Consolidated Properties/Weighted
Average ..................................... 34 5,570,534 92.4 $22.60
-- ------- ----- ----
MAJOR TENANTS (20% OR MORE OF SQUARE FEET)
PROPERTY --------------------------------------------
--------
<S> <C>
Consolidated Properties
Washington, DC:
International Square.........................
1850 K Street .............................. International Monetary Fund (25%)
1825 Eye Street ............................ International Monetary Fund (63%)
1875 Eye Street ............................ International Monetary Fund (39%)
1730 Pennsylvania Avenue..................... Federal Deposit Insurance Corporation (52%);
King & Spalding (26%)
2550 M Street................................ Patton Boggs (86%)
1775 Pennsylvania Avenue..................... Citibank, F.S.B. (81%)
900 19th Street.............................. Potomac Capital Investment Corporation (42%)
1747 Pennsylvania Avenue..................... None occupying 20% or more
1255 23rd Street............................. Seabury & Smith (20%)
2445 M Street................................ Wilmer,Cutler & Pickering (77%)
Suburban Maryland:
One Rock Spring Plaza........................ Sybase (27%); Caterair (22%)
Northern Virginia:
Tycon Courthouse............................. None occupying 20% or more
Three Ballston Plaza......................... CACI (50%); Eastman Kodak (20%)
Reston Quadrangle............................ Software AG (66%)
Southern California:
Scenic Business Park......................... FHP, Inc. (51%)
Harbor Corporate Park........................ None occupying 20% or more
Northern California:
AT&T Center.................................. AT&T (100%)
Southeast Denver:
Harlequin Plaza.............................. None occupying 20% or more
Quebec Court................................. Intelligent Electronics (45%);
Alert Centre (37%)
Total Consolidated Properties/Weighted
Average .....................................
</TABLE>
S-28
<PAGE>
<TABLE>
<CAPTION>
NET AVERAGE
COMPANY'S RENTABLE BASE RENT
NUMBER DATE BUILT EFFECTIVE AREA PER LEASED
OF OR PROPERTY (SQUARE PERCENT SQUARE
PROPERTY BUILDINGS REDEVELOPED OWNERSHIP FEET)(1) LEASED(2) FOOT(3)
- -------- --------- ---------- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Unconsolidated Properties
Washington, DC(5):
AARP Headquarters.............................. 1 1991 24.0 477,187 99.1 34.99
Bond Building.................................. 1 1986 15.0 162,097 100.0 29.08
1776 Eye Street................................ 1 1988 5.0 212,738 97.2 35.15
Willard Office/Hotel........................... 1 1901/1986 5.0 242,787 97.5 39.55
1575 Eye Street................................ 1 1978 2.0 205,441 94.2 23.52
Northern Virginia:
Booz-Allen & Hamilton Building................. 1 1996 50.0 222,989 100.0% 14.40
- ---- ---- ------- ----- -----
Total Unconsolidated Properties/Weighted
Average....................................... 6 1,523,239 98.2% $30.54
- --------- ---- ------
Total All Properties/Weighted Average ......... 40 (6) 7,093,773 93.6% $24.39
== ========= ==== ======
MAJOR TENANTS (20% OR MORE OF SQUARE FEET)
-------------------------------------------
American Association of Retired Persons (98%)
General Services Administration Department
of Justice (93%)
None occupying 20% or more Vinson & Elkins (27%) McKenna & Cuneo (60%)
Booz-Allen & Hamilton (100%)
- ----------
<FN>
(1) Includes office and retail space but excludes storage space.
(2) Includes space for leases that have been executed and have commenced as of
May 31, 1996.
(3) Average base rent is based on executed and commenced leases as of May 31,
1996 and is the original base rent, including historical contractual
increases and excluding (i) percentage rents, (ii) additional rent payable
by tenants such as common area maintenance, real estate taxes and other
expense reimbursements, (iii) future contractual or contingent rent
escalations, and (iv) parking rents.
(4) As of May 31, 1996, a tenant vacated 80,000 square feet under an expiring
lease. The Company is in final negotiations to lease 53,000 square feet to
a new tenant with a lease commencement date of October 4, 1996.
(5) Excludes the Company's 50% interest in 1717 Pennsylvania Avenue, N.W., a
property undergoing redevelopment. The renovation at this property is
substantially complete, and the property is currently in lease-up. The
Company contemplates placing the property in service in the fall of 1996.
(6) Excludes 14 properties acquired subsequent to May 31, 1996.
</FN>
</TABLE>
S-29
<PAGE>
TENANT INFORMATION
Lease Expirations. The following table sets forth a schedule of lease
expirations for executed leases as of May 31, 1996, for each of the 10 years
beginning with 1996, for each of the 34 Properties owned by the Company as of
May 31, 1996 and consolidated for financial statement purposes, assuming that no
tenants exercise renewal or early termination options:
<TABLE>
<CAPTION>
2006 and
There-
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 after
-------- --------- --------- --------- --------- -------- --------- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Downtown Washington, DC:
International Square
Square Feet Expiring..... 8,605 159,672 365,894 121,321 26,258 4,833 186,594 2,388 8,665 24,990 2,181
Current Base Rent Per Sq.
Ft...................... $ 27.32 $ 33.06 $ 34.66 $ 32.43 $ 30.89 $ 41.37 $ 31.81 $ 41.00 $ 31.93 $ 31.55 $40.28
1730 Pennsylvania Avenue
Square Feet Expiring..... -- 3,951 128,804 3,528 5,048 -- 10,575 58,821 928 9,575 --
Current Base Rent Per Sq.
Ft...................... $ 0.00 $ 40.93 $ 37.84 $ 31.97 $ 31.00 $ 0.00 $ 41.07 $ 39.69 $ 32.00 $ 29.36 $ 0.00
2550 M Street
Square Feet Expiring..... -- -- 20,375 5,324 -- 1,004 161,228 -- -- -- --
Current Base Rent Per Sq.
Ft...................... $ 0.00 $ 0.00 $ 21.77 $ 23.48 $ 0.00 $ 38.40 $ 32.16 $ 0.00 $ 0.00 $ 0.00 $ 0.00
1775 Pennsylvania
Square Feet Expiring..... -- 23,584 2,112 137 -- -- -- -- -- -- 116,834
Current Base Rent Per Sq.
Ft...................... $ 0.00 $ 15.17 $ 40.29 $ 93.60 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 23.00
900 19th Street
Square Feet Expiring..... 55,857 997 1,332 2,420 -- -- 4,764 -- -- 9,852 9,984
Current Base Rent Per Sq.
Ft...................... $ 36.49 $ 35.00 $ 30.01 $ 22.67 $ 0.00 $ 0.00 $ 27.00 $ 0.00 $ 0.00 $ 33.66 $ 34.75
1747 Pennsylvania Avenue
Square Feet Expiring..... 19,420 12,366 17,511 6,440 12,366 13,343 2,579 -- -- -- 34,907
Current Base Rent Per Sq.
Ft...................... $ 29.90 $ 29.88 $ 24.42 $ 29.97 $ 36.60 $ 32.44 $ 26.08 $ 0.00 $ 0.00 $ 0.00 $ 33.33
1255 23rd Street
Square Feet Expiring..... -- 2,764 6,911 -- 72,254 -- 4,479 -- 126,296 -- 783
Current Base Rent Per Sq.
Ft...................... $ 0.00 $ 22.00 $ 22.83 $ 0.00 $ 28.09 $ 0.00 $ 22.50 $ 0.00 $ 29.43 $ 0.00 $ 0.00
2445 M Street
Square Feet Expiring..... 4,392 17,503 7,363 2,078 -- 5,336 -- -- -- -- 205,816
Current Base Rent Per Sq.
Ft...................... $ 30.59 $ 38.77 $ 28.59 $ 26.38 $ 0.00 $ 31.86 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 27.00
Total for Downtown
Washington, DC:
Square Feet Expiring..... 88,274 220,837 550,302 141,248 115,926 24,516 370,219 61,209 135,889 44,417 370,505
Current Weighted Average
Base Rent Per Sq. Ft.... $ 33.85 $ 31.43 $ 34.38 $ 31.77 $ 29.76 $ 34.32 $ 32.01 $ 39.74 $ 29.61 $ 31.55 $ 26.56
Suburban Maryland:
One Rock Spring Plaza
Square Feet Expiring..... 9,477 12,636 10,444 57,736 15,750 3,884 -- 5,733 69,769 9,025 --
Current Base Rent Per Sq.
Ft...................... $ 22.01 $ 21.73 $ 20.96 $ 24.26 $ 22.16 $ 21.00 $ 0.00 $ 22.29 $ 21.07 $ 21.15 $ 0.00
Northern Virginia:
Tycon Courthouse
Square Feet Expiring..... 2,427 7,088 21,485 87,781 8,634 25,092 17,002 118,090 10,020 29,940 72,633
Current Base Rent Per Sq.
Ft...................... $ 19.79 $ 14.32 $ 20.43 $ 23.56 $ 15.90 $ 16.26 $ 24.13 $ 18.35 $ 18.02 $ 18.50 $ 15.79
S-30
<PAGE>
<CAPTION>
1996 1997 1998 1999 2000 2001 2002 2003
--------- --------- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Three Ballston Plaza
Square Feet Expiring.......... -- 47,385 9,497 3,347 3,578 71,092 122,132 --
Current Base Rent Per Sq. Ft.. $ 0.00 $ 19.81 19.97 $ 21.50 $ 18.50 $ 28.74 $ 20.12 $ 0.00
Reston Quadrangle
Square Feet Expiring.......... -- -- -- 2,590 46,645 29,561 1,749 --
Current Base Rent Per Sq. Ft.. $ 0.00 $ 0.00 $ 0.00 $ 18.65 $ 24.57 $ 25.78 $ 18.50 $ 0.00
Total for Northern Virginia:
Square Feet Expiring.......... 2,427 54,473 30,982 93,718 58,857 125,745 140,883 118,090
Current Weighted Average Base
Rent Per Sq. Ft.............. $ 19.79 $ 19.10 $ 20.29 $ 23.35 $ 22.93 $ 25.55 $ 20.58 $ 18.35
Southern California:
Scenic Business Park
Square Feet Expiring.......... -- -- 3,629 30,619 62,157 10,331 -- 16,596
Current Base Rent Per Sq. Ft.. $ 0.00 $ 0.00 $ 9.00 $ 11.06 $ 11.64 $ 8.78 $ 0.00 $ 6.60
Harbor Corporate Park
Square Feet Expiring.......... 5,843 24,216 7,443 13,102 2,634 20,205 -- --
Current Base Rent Per Sq. Ft.. $ 15.07 $ 13.21 $ 11.74 $ 13.83 $ 0.00 $ 12.87 $ 0.00 $ 0.00
Total for Southern California:
Square Feet Expiring.......... 5,843 24,216 11,072 43,721 64,791 30,536 -- 16,596
Current Weighted Average Base
Rent Per Sq. Ft.............. $ 15.07 $ 13.21 $ 10.84 $ 11.89 $ 11.17 $ 11.49 $ 0.00 $ 6.60
Northern California:
AT&T Center
Square Feet Expiring.......... -- -- 827,209 254,823 -- -- -- --
Current Base Rent Per Sq. Ft.. $ 0.00 $ 0.00 $ 14.79 $ 15.48 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Southeast Denver:
Harlequin Plaza
Square Feet Expiring.......... 5,694 62,193 16,801 104,536 4,041 52,868 -- 56,987
Current Base Rent Per Sq. Ft.. $ 11.00 $ 10.29 $ 12.70 $ 12.47 $ 11.55 $ 16.62 $ 0.00 $ 11.97
Quebec Court
Square Feet Expiring.......... -- -- -- -- -- 285,829 -- --
Current Base Rent Per Sq. Ft.. $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 9.43 $ 0.00 $ 0.00
Total for Southeast Denver:
Square Feet Expiring.......... 5,694 62,193 16,801 104,536 4,041 338,697 -- 56,987
Current Weighted Average Base
Rent Per Sq. Ft.............. $ 11.00 $ 10.29 $ 12.70 $ 12.47 $ 11.55 $ 10.55 $ 0.00 $ 11.97
Total for Consolidated
Portfolio:
Square Feet Expiring.......... 111,715 374,355 1,446,810 695,782 259,365 523,378 511,102 258,615
Percent of Total Square
Footage...................... 2.2% 7.3% 28.1% 13.5% 5.0% 10.2% 9.9% 5.0%
Current Weighted Average Base
Rent Per Sq. Ft.............. $ 30.39 $ 24.62 $ 22.35 $ 19.90 $ 22.82 $ 15.40 $ 28.86 $ 21.34
Total Annual Base Rent
Expiring (in thousands)...... $ 3,395 $ 9,216 $ 32,339 $ 13,845 $ 5,919 $ 8,061 $ 14,750 $ 5,519
Percentage of Annual Base Rent
Expiring..................... 2.9% 7.9% 27.8% 11.9% 5.1% 6.9% 12.7% 4.7%
2006 AND
2004 2005 THEREAFTER
--------- --------- ------------
Three Ballston Plaza
Square Feet Expiring.......... -- 13,582 29,402
Current Base Rent Per Sq. Ft.. $ 0.00 $ 16.25 $ 30.43
Reston Quadrangle
Square Feet Expiring.......... -- 170,829 9,336
Current Base Rent Per Sq. Ft.. $ 0.00 $ 18.64 $ 17.72
Total for Northern Virginia:
Square Feet Expiring.......... 10,020 214,351 111,371
Current Weighted Average Base
Rent Per Sq. Ft.............. $ 18.02 $ 18.47 $ 19.82
Southern California:
Scenic Business Park
Square Feet Expiring.......... -- -- --
Current Base Rent Per Sq. Ft.. $ 0.00 $ 0.00 $ 0.00
Harbor Corporate Park
Square Feet Expiring.......... -- -- --
Current Base Rent Per Sq. Ft.. $ 0.00 $ 0.00 $ 0.00
Total for Southern California:
Square Feet Expiring.......... -- -- --
Current Weighted Average Base
Rent Per Sq. Ft.............. $ 0.00 $ 0.00 $ 0.00
Northern California:
AT&T Center
Square Feet Expiring.......... -- -- --
Current Base Rent Per Sq. Ft.. $ 0.00 $ 0.00 $ 0.00
Southeast Denver:
Harlequin Plaza
Square Feet Expiring.......... -- -- --
Current Base Rent Per Sq. Ft.. $ 0.00 $ 0.00 $ 0.00
Quebec Court
Square Feet Expiring.......... -- -- --
Current Base Rent Per Sq. Ft.. $ 0.00 $ 0.00 $ 0.00
Total for Southeast Denver:
Square Feet Expiring.......... -- -- --
Current Weighted Average Base
Rent Per Sq. Ft.............. $ 0.00 $ 0.00 $ 0.00
Total for Consolidated
Portfolio:
Square Feet Expiring.......... 215,678 267,793 481,876
Percent of Total Square
Footage...................... 4.2% 5.2% 9.4%
Current Weighted Average Base
Rent Per Sq. Ft.............. $ 26.31 $ 20.73 $ 25.00
Total Annual Base Rent
Expiring (in thousands)...... $ 5,674 $ 5,552 $ 12,049
Percentage of Annual Base Rent
Expiring..................... 4.9% 4.8% 10.4%
</TABLE>
S-31
<PAGE>
Tenants by Industry. The following table breaks down by industry the tenants
at the 34 Properties that were owned by the Company as of May 31, 1996 and
consolidated for financial statement purposes:
PERCENT ANNUALIZED PERCENT
OF TOTAL BASE RENT OF TOTAL
SQUARE SQUARE (IN ANNUALIZED
INDUSTRY NAME FOOTAGE(1) FOOTAGE THOUSANDS) BASE RENT
- --------------------------- ----------- ---------- -------------- -------------
Technology &
Communications............. 1,672,736 32.5% $27,148 23.2%
Professional Services ..... 1,016,635 19.8 28,802 24.6
Financial Services......... 597,479 11.6 12,751 10.9
Quasi-Governmental......... 446,815 8.7 14,917 12.7
Government Contractors .... 228,441 4.4 4,783 4.1
Government (Federal &
State)..................... 197,057 3.8 6,169 5.3
Not-For-Profit............. 131,474 2.6 3,138 2.6
Retail..................... 120,681 2.3 3,451 2.9
Other...................... 735,151 14.3 16,059 13.7
- --------------
(1) Excludes vacant space of 424,065 square feet.
Ten Largest Tenants. The following table sets forth the ten largest tenants
at the 34 Properties that were owned by the Company as of May 31, 1996 and
consolidated for financial statement purposes:
<TABLE>
<CAPTION>
PERCENT PERCENT
OF TOTAL TOTAL OF TOTAL
PROPERTY SQUARE SQUARE ANNUALIZED ANNUALIZED
TENANT NAME NAME FOOTAGE FOOTAGE BASE RENT(1) BASE RENT
- ----------- ---- ------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C>
AT&T................................ AT&T Center 1,082,032 19.4% $16,180,627 13.6%
International Monetary Fund......... International Square 432,310 7.8 14,627,148 12.2
Wilmer, Cutler & Pickering.......... 2445 M Street 205,816 3.7 5,557,041 4.7
Software AG......................... Reston Quadrangle 173,419 3.1 3,233,287 2.7
Patton Boggs........................ 2550 M Street 161,228 2.9 5,184,420 4.3
CACI................................ Three Ballston Plaza 152,720 2.7 3,072,728 2.6
Intelligent Electronics............. Quebec Court 130,000 2.3 1,495,000 1.3
Federal Deposit Insurance 1730 Pennsylvania
Corporation......................... Avenue 119,731 2.1 4,623,648 3.9
1775 Pennsylvania
Citibank............................ Avenue 116,834 2.1 2,686,921 2.3
Alert Centre........................ Quebec Court 105,820 1.9 952,380 0.8
- ----------
<FN>
(1) Total annualized base rent is based on executed and commenced leases as of
May 31, 1996. Total annualized base rent equals total original base rent,
including historical contractual increases and excluding (i) percentage
rents, (ii) additional rent payable by tenants such as common area
maintenance, real estate taxes, and other expense reimbursements, (iii)
future contractual or contingent rent escalations, and (iv) parking rents.
</FN>
</TABLE>
S-32
<PAGE>
UNCONSOLIDATED PROPERTIES
The following table sets forth certain information related to the seven
Properties in which the Company has an equity investment (in thousands):
SELECTED OPERATING STATEMENT INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
FUNDS FROM
DEPRECIATION NET OPERATIONS
COMPANY'S RENTAL & INTEREST AND OTHER INCOME CONTRIBUTION TO
PROPERTY OWNERSHIP OTHER REVENUE EXPENSE AMORTIZATION EXPENSES (LOSS) THE COMPANY(1)
- ------------------------------ ----------- --------------- ---------- -------------- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
AARP Headquarters............. 24% $21,371 $12,593 $3,334 $ 6,114 $ (670) $ 639
1776 Eye Street............... 5 7,943 4,456 1,393 2,599 (504) 30
Willard Office/Hotel.......... 5 43,530 8,315 4,440 28,642 2,132 --
1575 Eye Street............... 2 5,759 2,329 538 2,239 652 --
Bond Building................. 15 5,281 3,620 1,643 1,592 (1,574) --
Booz-Allen & Hamilton
Building...................... 50 (2) (2) (2) (2) (2) --
1717 Pennsylvania Avenue ..... 50 (2) (2) (2) (2) (2) --
</TABLE>
SELECTED BALANCE SHEET INFORMATION
AS OF MARCH 31, 1996
<TABLE>
<CAPTION>
MATURITY OF
COMPANY'S RENTAL TOTAL MORTGAGE INTEREST MORTGAGE
PROPERTY OWNERSHIP PROPERTY, NET CASH ASSETS PAYABLE RATE PAYABLE
- ------------------------------ ----------- --------------- ------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AARP Headquarters............. 24% $112,792 $ 767 $136,291 $145,506 8.07% 7/31/02
1776 Eye Street............... 5 35,872 1,155 40,049 44,400 10.00 10/1/23
Willard Office/Hotel.......... 5 68,288 6,417 78,006 88,388 9.40 11/1/01
1575 Eye Street............... 2 8,684 3,319 12,839 22,861 10.15 9/10/21
Bond Building................. 15 9,344 261 16,669 37,934 9.53 11/1/96
Booz-Allen & Hamilton
Building...................... 50 26,833 3,039 33,596 24,675 7.00 8/1/13
1717 Pennsylvania Avenue ..... 50 (2) (2) 29,550 -- -- --
- ---------------
<FN>
(1) Represents the Funds from Operations Contribution to the Company from each
property included in funds from operations before minority interest of
holders of Units as set forth in "Summary -- Summary Selected Financial
Information."
(2) Property was under development.
</FN>
</TABLE>
S-33
<PAGE>
Historical Recurring Capital Expenditures, Tenant Improvement Costs and Tenant
Leasing Costs
The following table sets forth annual and per square foot recurring capital
expenditures, tenant improvement costs and tenant leasing costs to retain
revenues attributable to existing leased space for the period from February 16,
1993 (inception of operations) to December 31, 1993, the years ended December
31, 1994 and 1995, and the quarter ended March 31, 1996 for the Properties
consolidated in the Company's financial statements during the periods presented.
In light of the Company's change in business strategy away from downtown office
buildings and toward suburban office buildings, the Company believes that the
historical capital expenditures, tenant improvement costs and tenant leasing
costs set forth below are not indicative of the Company's future recurring
capital expenditures, tenant improvement costs and tenant leasing costs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
1st Quarter
1993 1994 1995 1996
---- ---- ---- ----
Capital Expenditures:
Capital Expenditures (in thousands)......... $9,964 5,177 1,615 378
Per square foot............................. $ 5.00 2.09 .65 .11
Tenant Improvement Costs and Tenant Leasing
Costs:
Tenant Improvement Costs (in thousands)..... $8,510 5,524 2,582 681
Per square foot leased...................... $32.22 19.65 15.72 8.01
Tenant Leasing Costs (in thousands) ........ $1,757 856 570 312
Per square foot leased...................... $ 4.92 3.05 3.47 3.67
Total per square foot...................... $37.14 22.70 19.19 11.68
Debt Financing
As of May 31, 1996, the Company had outstanding existing long-term
indebtedness in an aggregate principal amount of $310.7 million, of which $49.0
million (all of which represents draws under the Line of Credit), or 15.8%, bore
interest at a floating interest rate. At that date, the Company's fixed rate
debt bore a weighted average interest rate of 8.4% and had a weighted average
maturity of 6.9 years (assuming loans callable before maturity are called as
early as possible).
Mortgage Debt. The existing mortgage indebtedness on the 34 Properties that
were owned by the Company as of May 31, 1996 and consolidated for financial
statement purposes is set forth in the table below:
<TABLE>
<CAPTION>
PRINCIPAL
BALANCE ESTIMATED
AS OF ANNUAL DEBT BALANCE
5/31/96 SERVICE DUE AT
INTEREST (IN (IN MATURITY MATURITY
PROPERTY RATE THOUSANDS) THOUSANDS) DATE (IN THOUSANDS)
- -------- ---- ---------- ---------- ---- --------------
<S> <C> <C> <C> <C> <C>
International Square, 1730 Pennsylvania
Avenue and 1255 23rd Street (1) ..... 8.25% $183,500 $15,148 2/1/03 $170,169
900 19th Street....................... 8.25 17,102 1,656 7/15/19 (3) (3)
1747 Pennsylvania Ave ................ 9.50 15,752 1,730 7/10/17 (2) (2)
2445 M Street......................... 8.90 38,903 4,646 6/1/02 26,925
1775 Pennsylvania Ave ................ 7.50 6,408 586 2/1/99 6,109
-------- -------
Total (4)............................ $261,665 $23,766
======== =======
- ---------------
<FN>
(1) Consists of four loans secured by these three Properties. Interest Rate
represents the weighted average interest rate on the four loans.
(2) Note is callable by the lender after June 30, 2002. The estimated
principal balance at June 30, 2002 will be $13,840,000.
(3) Note is callable by the lender after July 1, 2004. The estimated principal
balance at July 1, 2004 will be $14,262,000.
(4) Excludes debt assumed in connection with the acquisitions of Parkway North
Center and Redmond East Business Campus. The Parkway North loan is in the
principal amount of approximately $29.3 million, bears interest at a rate
of 7.96% per annum and matures in December 2003. The Redmond loan is in
the principal amount of approximately $28.2 million, bears interest at a
rate of 8.38% per annum and matures in January 2006.
</FN>
</TABLE>
S-34
<PAGE>
Line of Credit. In May 1996, the Company entered into a revolving credit
agreement with Morgan Guaranty Trust Company of New York providing for unsecured
borrowings of up to $215 million. Availability under the Line of Credit is
limited to 50% of the Borrowing Base Properties, as defined in the credit
agreement. As of May 31, 1996, $188 million was available to be drawn under the
Line of Credit. Of that available amount, as of May 31, 1996, $49.0 million was
drawn under the Line of Credit.
Borrowings under the Line of Credit bear interest at a floating rate of 175
basis points over LIBOR (which rate will be reduced in the event the Company
obtains an investment grade rating on senior, long-term unsecured debt). The
Line of Credit contains a number of financial and other covenants with which the
Company must comply, including, but not limited to, covenants relating to ratios
of annual EBITDA (earnings before interest, taxes, depreciation and
amortization) to interest expense, annual EBITDA to debt service, and total debt
to tangible fair market value of the Company's assets, and restrictions on the
ability of the Company to make dividend distributions in excess of 90% of funds
from operations. On June 12, 1996, the Company drew down an additional $66
million under the Line of Credit.
S-35
<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors, executive officers and key employees of the Company and their
positions and offices are set forth in the following table:
NAME AGE POSITIONS AND OFFICES HELD
---- --- --------------------------
Oliver T. Carr, Jr. .. 71 Chairman of the Board and Chief Executive Officer
Thomas A. Carr........ 37 President, Chief Operating Officer and Director
President of Carr Real Estate Services, Inc. and
Robert O. Carr........ 46 Director
David Bonderman....... 53 Director
Andrew F. Brimmer..... 69 Director
A. James Clark........ 45 Director
Douglas T. Healy...... 45 Director
Anthony R. Manno, Jr. 43 Director
J. Marshall Peck...... 44 Director
George R. Puskar...... 52 Director
William D. Sanders ... 54 Director
Wesley S. Williams,
Jr.................... 53 Director
Brian K. Fields....... 36 Chief Financial Officer
Philip L. Hawkins..... 40 Managing Director of Asset Management
Robert G. Stuckey..... 34 Managing Director of Acquisitions and Development
Paul R. Adkins........ 37 Vice President -- Acquisitions
Andrea F. Bradley..... 36 Vice President, Secretary and General Counsel
Karen B. Dorigan...... 31 Vice President -- Land Due Diligence
Debra A. Volpicelli .. 32 Treasurer and Controller
Joseph D. Wallace..... 32 Vice President -- Building Due Diligence
Senior Vice President of Carr Development &
Matthew L. Richardson 36 Construction, Inc.
Steven N. Bralower ... 46 Senior Vice President of Carr Realty, L.P.
Senior Vice President of Carr Real Estate Services,
John J. Donovan, Jr. . 52 Inc.
Senior Vice President of Carr Real Estate Services,
Richard W. Greninger . 44 Inc.
S-36
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the purchase agreement (the
"Purchase Agreement"), the Company has agreed to sell to the Underwriters named
below, and each of the Underwriters for whom Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), Dean Witter Reynolds Inc., J.P. Morgan
Securities Inc., Prudential Securities Incorporated, Legg Mason Wood Walker,
Incorporated and Wheat, First Securities, Inc. are acting as representatives
(the "Representatives") has severally agreed to purchase, the respective number
of shares of Common Stock set forth below opposite their respective names. The
Purchase Agreement provides that the obligations of the Underwriters are subject
to certain conditions precedent and that the Underwriters will be obligated to
purchase all of the shares of Common Stock if any are purchased.
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................
Dean Witter Reynolds Inc................
J. P. Morgan Securities Inc.............
Prudential Securities Incorporated .....
Legg Mason Wood Walker, Incorporated ...
Wheat, First Securities, Inc............
--------------
Total............................. 8,400,000
==============
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such price less a concession not in excess of $per share. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share on sales to certain other dealers. After the Offering, the public
offering price, concession and discounts may be changed.
The Company has granted an option to the Underwriters, exercisable during the
30-day period after the date of this Prospectus Supplement, to purchase up to an
aggregate of 1,260,000 additional shares of Common Stock at the price to the
public set forth on the cover page of this Prospectus Supplement, less the
underwriting discount. The Underwriters may exercise this option only to cover
over-allotments, if any. To the extent that the Underwriters exercise this
option, each Underwriter will be obligated, subject to certain conditions, to
purchase the number of additional shares of Common Stock proportionate to such
Underwriter's initial amount reflected in the foregoing table.
The Company and USRealty have agreed that for a period of 90 days from the
date of this Prospectus Supplement they will not, without prior and written
consent of the Representatives, offer, sell or otherwise dispose of any
securities or any security convertible into or exercisable for Common Stock
(except for issuances by the Company pursuant to stock option or dividend
reinvestment plans and certain other agreements).
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriters may be required to make in respect
thereof.
The Company expects that USRealty will purchase 3,600,000 shares of Common
Stock from the Company at the public offering price simultaneously with the
closing of the Offering. In addition, USRealty has expressed an interest in
purchasing 1,076,446 shares of Common Stock in the Offering at the public
offering price (which, combined with the direct purchase from the Company, would
result in an additional total investment by USRealty in the Company of up to
$115.2 million, assuming a public offering price of $24.625) in order to
maintain its 39.0% ownership interest in the Company (on a fully-diluted basis).
Management of USRealty has indicated that it intends to recommend such purchases
for approval by its board of directors, although there can be no assurance that
either of such
S-37
<PAGE>
purchases will occur. No underwriting discounts will be applied to the
Concurrent USRealty Purchase or any purchases of Common Stock by USRealty in the
Offering, and the Company will retain the entire proceeds therefrom. Following
the Offering (and assuming each of the foregoing purchases is consummated),
USRealty will own approximately 43.8% of the outstanding shares of Common Stock
(39.0% on a fully diluted basis).
Certain of the Underwriters and their affiliates have from time to time
performed, and may continue to perform in the future, various investment banking
and commercial banking services for the Company, for which customary
compensation has been received. Morgan Guaranty Trust Company of New York
("MGT"), as lender under the Line of Credit, is expected to receive up to $190
million of the net proceeds of the Offering and the Concurrent USRealty Purchase
(as described under "Use of Proceeds"). MGT is an affiliate of J.P.
Morgan Securities Inc.
Merrill Lynch from time to time provides investment banking and financial
advisory services to the Company. Merrill Lynch was paid a fee of $3.75 million
by the Company in April 1996 for financial advisory services provided by Merrill
Lynch to the Company in connection with the USRealty Transaction.
The Common Stock is listed on the NYSE under the symbol "CRE."
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock pursuant to this
Prospectus Supplement will be passed upon for the Company by Hogan & Hartson
L.L.P., Washington, D.C. Certain legal matters will be passed upon for the
Underwriters by Rogers & Wells, New York, New York.
S-38
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 26, 1996
PROSPECTUS
$600,000,000
CARRAMERICA REALTY CORPORATION
DEBT SECURITIES, PREFERRED STOCK, COMMON STOCK AND COMMON STOCK WARRANTS
--------------
CarrAmerica Realty Corporation (the "Company") may from time to time offer in
one or more series its (i) unsecured debt securities ("Debt Securities"), (ii)
preferred stock ("Preferred Stock"), (iii) common stock, $.01 par value ("Common
Stock"), and (iv) warrants exercisable for Common Stock ("Common Stock
Warrants"), with an aggregate public offering price of up to $600,000,000 (or
its equivalent based on the exchange rate at the time of sale) in amounts, at
prices and on terms to be determined at the time of offering. The Debt
Securities, Preferred Stock, Common Stock and Common Stock Warrants
(collectively, the "Offered Securities") may be offered, separately or together,
in separate series, in amounts, at prices and on terms to be described in one or
more supplements to this Prospectus (each a "Prospectus Supplement").
The specific terms of the 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
title, aggregate principal amount, currency, form (which may be registered or
bearer, or certificated or global), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, any terms for
redemption at the option of the Company or repayment at the option of the
holder, any terms for any sinking fund payments, any terms for conversion into
Preferred Stock or Common Stock of the Company, covenants and any public
offering price; (ii) in the case of Preferred Stock, the specific title and
stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and any public offering price; (iii) in the case of Common Stock,
any public offering price; and (iv) in the case of Common Stock Warrants, the
specific title and aggregate number, the issue price and the exercise price. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Securities, in each case as may be
appropriate to preserve the status of the Company as a real estate investment
trust for federal income tax purposes.
The applicable Prospectus Supplement also will contain information, where
applicable, about certain U.S. federal income tax considerations relating to,
and any listing on a securities exchange of, the Securities covered by such
Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by the Company, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Securities, their names,
and any applicable purchase price, fee, commission or discount arrangement with,
between or among them, will be set forth, or will be calculable from the
information set forth, in an accompanying Prospectus Supplement. See "Plan of
Distribution." No Securities may be sold without delivery of a Prospectus
Supplement describing the method and terms of the offering of such Securities.
See "Risk Factors" beginning on page 3 for certain factors relating to an
investment in the Securities.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Prospectus is , 1996
<PAGE>
THE COMPANY
CarrAmerica Realty Corporation (the "Company") is a publicly-traded real
estate investment trust (a "REIT") that focuses primarily on the acquisition,
development, ownership and operation of value office properties in select
suburban growth markets across the United States. The Company and its
predecessor, The Oliver Carr Company ("OCCO"), have traditionally focused on the
acquisition, development, ownership and operation of office properties in the
Washington, D.C. metropolitan area. In connection with the USRealty Transaction,
described below, the Company is implementing a national business strategy that
includes acquiring, developing, owning and operating value office properties
throughout the United States in select suburban growth markets. As of June 14,
1996, the Company owned interests in a portfolio of 54 operating office
properties (collectively, the "Properties") containing approximately 8.1 million
square feet of space.
On February 26, 1996, the stockholders of the Company approved the investment
by a wholly-owned subsidiary of Security Capital U.S. Realty (collectively,
"USRealty") of approximately $250 million in the Company (the "USRealty
Transaction"). The sale and issuance of 11,627,907 shares of the Company's
common stock, par value $.01 per share ("Common Stock"), to USRealty in a
private sale transaction was consummated on April 30, 1996.
The Company employed approximately 450 employees, including 320 on-site
building employees, as of June 14, 1996.
The Company is a Maryland corporation that was formed in July 1992. The
principal executive offices of the Company are located at 1700 Pennsylvania
Avenue, Washington, D.C. 20006, and its telephone number is (202) 624-7500.
2
<PAGE>
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below.
Real Estate Investment Risks
General. Real property investments are subject to varying degrees of risk.
The yields available from equity investments in real estate and the Company's
ability to service debt will depend in large part on the amount of income
generated, expenses incurred and capital expenditures required. The Company's
income from office properties may be adversely affected by a number of factors,
including the general economic climate and local real estate conditions, such as
an oversupply of, or a reduction in demand for, office space in the area and the
attractiveness of the properties to tenants. In addition, income from properties
and real estate values also are affected by such factors as the cost of
compliance with government regulation, including zoning and tax laws, the
potential for liability under applicable laws, interest rate levels and the
availability of financing. Certain significant expenditures associated with each
equity investment by the Company in a property (such as mortgage payments, if
any, real estate taxes and maintenance costs) also are generally not reduced
when circumstances cause a reduction in income from the property.
Debt Financing. The Company is subject to the risks associated with debt
financing, including the risk that the cash provided by the Company's operating
activities will be insufficient to meet required payments of principal and
interest, the risk of rising interest rates on the Company's floating rate debt,
the risk that the Company will not be able to prepay or refinance existing
indebtedness on its properties (which generally will not have been fully
amortized at maturity) or that the terms of such refinancing will not be as
favorable as the terms of existing indebtedness. In the event the Company is
unable to secure refinancing of such indebtedness on acceptable terms, the
Company might be forced to dispose of properties upon disadvantageous terms,
which might result in losses to the Company and might adversely affect the cash
flow available for distribution to equity holders or debt service. In addition,
if a property or properties are mortgaged to secure payment of indebtedness and
the Company is unable to meet mortgage payments, the mortgage securing the
property could be foreclosed upon by, or the property could be otherwise
transferred to, the mortgagee with a consequent loss of income and asset value
to the Company.
Renewal of Leases and Reletting of Space. The Company is subject to the risks
that upon expiration of leases for space located at its properties, the leases
may not be renewed, the space may not be relet or the terms of the renewal or
reletting (including the cost of required renovations or concessions to tenants)
may be less favorable than current lease terms. In particular, as of May 31,
1996, two of the Company's tenants leased space representing approximately 19%
and 8%, respectively, of the total square footage of the Properties pursuant to
leases that expire beginning in 1998. Although the Company has established an
annual budget for renovation and reletting costs that it believes are reasonable
in light of each property's situation, no assurance can be given that this
budget will be sufficient to cover these costs. If the Company is unable to
promptly relet or renew leases for all or substantially all of the space at its
properties, if the rental rates upon such renewal or reletting are significantly
lower than expected, or if the Company's reserves for these purposes prove
inadequate, then the Company's cash provided by operating activities and ability
to make expected distributions to shareholders or debt service payments could be
adversely affected.
Possible Environmental Liabilities. Under various Federal, state and local
laws, ordinances and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up certain hazardous
substances released at the property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and cleanup
costs incurred by such parties in connection with the contamination. In
addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs it incurs in connection with the
contamination. The presence of contamination or the failure to remediate
contamination may adversely affect the owner's ability to sell or lease real
estate or to borrow using the real estate as collateral. The owner or operator
of a site may be liable under common law to third parties for damages and
injuries resulting from environmental contamination emanating from the site. The
Company has not been noti
3
<PAGE>
fied by any governmental authority of any material non-compliance, liability or
other claim in connection with any of its properties and the Company is not
aware of any other material environmental condition with respect to any of its
properties. No assurance, however, can be given that no prior owner created any
material environmental condition not known to the Company, that no material
environmental condition with respect to any property has occurred during the
Company's ownership thereof, or that future uses or conditions (including,
without limitation, changes in applicable environmental laws and regulations)
will not result in imposition of environmental liability.
Conflicts of Interest
Certain members of the Company's board of directors (the "Board") and
officers own limited partnership interests ("Units") of Carr Realty, L.P. and,
thus, may have interests that conflict with shareholders with respect to
business decisions affecting the Company and Carr Realty, L.P. In particular, a
holder of Units may suffer different and/or more adverse tax consequences than
the Company upon the sale or refinancing of some of the properties as a result
of unrealized gain attributable to certain properties. These Unit holders and
the Company, therefore, may have different objectives regarding the appropriate
pricing and timing of any sale or refinancing of properties. Although the
Company, as the sole general partner of Carr Realty, L.P., has the exclusive
authority as to whether and on what terms to sell or refinance an individual
property, these Unit holders might seek to influence the Company not to sell or
refinance the properties, even though such sale might otherwise be financially
advantageous to the Company, or may seek to influence the Company to refinance a
property with a higher level of debt than would be in the best interests of the
Company. Although the Company believes that the change in operational structure
from an "UPREIT" to a "DownREIT" should reduce, over time, these potential
conflicts of interest, assets will continue to be owned by Carr Realty, L.P.,
diminishing the effects of this structural modification.
Acquisition and Development Risks
The Company intends to continue acquiring and developing office properties in
markets where it believes that such acquisition or development is consistent
with the business strategies of the Company. Acquisitions entail risks that
investments will fail to perform in accordance with expectations and that
judgments with respect to the costs of improvements to bring an acquired
property up to standards established for the market position intended for that
property will prove inaccurate, as well as general investment risks associated
with any new real estate investment. See "Real Estate Investment Risks" above.
New office development also is subject to a number of risks, including
construction delays or cost overruns that may increase project costs, financing
risks as described above, the failure to meet anticipated occupancy or rent
levels, failure to receive required zoning, occupancy and other governmental
permits and authorizations and changes in applicable zoning and land use laws,
which may result in the incurrence of development costs in connection with
projects that are not pursued to completion. In addition, because the Company
must distribute 95% of its taxable income in order to maintain its qualification
as a REIT, the Company anticipates that new acquisitions and developments will
be financed primarily through periodic equity offerings, lines of credit or
other forms of secured or unsecured construction financing. If permanent debt or
equity financing is not available on acceptable terms to refinance such new
acquisitions or developments are undertaken without permanent financing, further
acquisitions or development activities may be curtailed or cash available for
distribution to shareholders or to meet debt service obligations may be
adversely affected.
Change in Business Strategy; Risks Associated with the Acquisition of
Substantial New Properties
The Company's move toward a more national business focus represents a
significant shift in the business strategy of the Company. Although the Board
believes that such a shift in strategy is warranted in light of the
opportunities that the USRealty Transaction represents, there is no assurance
that the Company's efforts to establish a national office REIT will be
successful.
Consistent with the Company's strategy of acquiring value office properties
in suburban growth markets, the Company has significantly expanded its portfolio
of office properties in 1996, acquiring thus
4
<PAGE>
far 35 office properties across the country for an aggregate purchase price of
approximately $344 million. These properties have a relatively short operating
history under the Company's management and they may have characteristics or
deficiencies unknown to the Company affecting their valuation or revenue
potential.
Dependence on Washington, D.C. Market
Although the Company's business strategy is to move toward a more national
business focus, at June 14, 1996, the Company's Properties located in the
metropolitan Washington, D.C. area represented approximately 46% of the
Properties in terms of square footage. The Company's performance and its ability
to make expected distributions to stockholders could be adversely affected by
economic or other conditions in the Washington, D.C. metropolitan area that are
beyond the control of the Company.
Substantial Ownership of Common Stock
As of May 31, 1996, USRealty owned 46.1% of the outstanding shares of the
Company's common stock (39.0% of the common stock on a fully-diluted basis), and
USRealty has the right to nominate a proportionate number of the directors of
the Board based upon its ownership of stock on a fully-diluted basis, rounded
down to the nearest whole number (but in no event more than 40% of the
directors). As a result, USRealty is the largest single stockholder of the
Company, while no other stockholder is permitted to own more than 5% of the
Company's common stock, subject to certain exceptions set forth in the Articles
of Incorporation or approved by the Board. Although certain standstill
provisions preclude USRealty from increasing its percentage interest in the
Company for a period of at least five years (subject to certain exceptions) and
the Articles of Incorporation preclude it from increasing such percentage
interest thereafter, and USRealty agreed to certain limitations on its voting
rights with respect to its shares of Common Stock, USRealty nonetheless has a
substantial influence over the affairs of the Company as a result of the
USRealty Transaction. This concentration of ownership in one stockholder could
potentially be disadvantageous to other stockholders' interests. In addition, so
long as USRealty owns at least 25% of the outstanding Common Stock of the
Company on a fully diluted basis, USRealty will be entitled (except in certain
limited circumstances), upon compliance with certain specified conditions, to a
participation right to purchase or subscribe for, either as part of such
issuance or in a concurrent issuance, a total number of shares of Common Stock
or Preferred Stock, as the case may be, equal to up to 30% (or 35% in certain
circumstances) of the total number of shares or of Common Stock or Preferred
Stock, as applicable, proposed to be issued by the Company.
Limitations on Corporate Actions
In conjunction with the USRealty Transaction, the Company agreed to certain
limitations on its operations, including restrictions relating to incurrence of
additional indebtedness, retention of third-party managers for the Company's
properties, investments in properties other than office buildings, issuances of
Units by Carr Realty, L.P., and certain other matters. The Company may take
actions relating to these matters only with the consent of USRealty. In
addition, the Company has agreed to certain limitations on the amount of assets
that it owns indirectly through other entities and the manner in which it
conducts its business (including the types of assets that it can acquire and own
and the manner in which such assets are operated). These limitations, which are
intended to permit USRealty to comply with certain requirements of the Internal
Revenue Code and other countries' tax laws applicable to foreign investors,
limit somewhat the flexibility of the Company to structure transactions that
might otherwise be advantageous to the Company. Although the Company does not
believe that the limitations imposed on the Company's activities will materially
impair the Company's ability to conduct its business, there can be no assurance
that these limitations will not adversely affect the Company's operations in the
future. Management, Leasing and Brokerage Risks
The Company is subject to the risks associated with the property management,
leasing and brokerage businesses. These risks include the risk that management
contracts or service agreements with third-party owners will be lost to
competitors, that a property will be sold and the Company will lose the
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contract, that contracts will not be renewed upon expiration or will not be
renewed on terms consistent with current terms and that leasing and brokerage
activity generally may decline. Each of these developments could adversely
affect the ability of the Company to make expected distributions to shareholders
or debt service payments. Lack of Voting Control of Operating Subsidiaries
The Company does not have voting control of Carr Real Estate Services, Inc.
("Carr Services, Inc."), Carr Real Estate Services of Northern Virginia, Inc.
("CRESNOVA") or Carr Development & Construction, Inc. ("Carr Development &
Construction") (collectively, the "Operating Subsidiaries"). The capital stock
of Carr Services, Inc., which conducts fee-based management and leasing in the
Washington, D.C. metropolitan area, is divided into two classes: voting common
stock, approximately 92% and 8% of which is held by The Oliver Carr Company
("OCCO") and Carr Realty, L.P., respectively, and nonvoting preferred stock,
approximately 95% and 5% of which is held by Carr Realty, L.P. and OCCO,
respectively. OCCO, as the holder of 92% of the voting common stock, has the
ability to elect the board of directors of Carr Services, Inc.
The capital stock of CRESNOVA, which conducts fee-based management and
leasing in northern Virginia, is divided into two classes: voting common stock,
92% and 8% of which is held by OCCO and Carr Realty, L.P., respectively, and
nonvoting common stock, 100% of which is held by Carr Realty, L.P. OCCO, as the
holder of 92% of the voting common stock, has the ability to elect the board of
directors of CRESNOVA.
The capital stock of Carr Development & Construction, Inc. which conducts
fee-based development, is divided into two classes: voting common stock, 99% and
1% of which is held by OCCO and the Company, respectively, and nonvoting common
stock, 96% and 4% of which is held by the Company and OCCO, respectively. OCCO,
as the holder of 99% of the voting common stock, has the ability to elect the
board of directors of Carr Development & Construction after the terms of the
initial directors expire.
Oliver T. Carr, Jr., who is Chairman of the Board and Chief Executive Officer
and a significant stockholder of the Company, beneficially owns a majority of
the voting stock of OCCO, which will control the election of directors of the
Operating Subsidiaries. Although neither the Company's right to receive
preferred distributions with respect to its preferred stock of Carr Services,
Inc. nor the terms of the promissory notes made by each of the Operating
Subsidiaries and held by Carr Realty, L.P. or the Company, as applicable, can be
changed by OCCO, the Company will not be able to elect directors of each of the
Operating Subsidiaries, and its ability to influence the day-to-day decisions of
the Operating Subsidiaries is limited. As a result, the board of directors and
management of each of the Operating Subsidiaries may implement business policies
or decisions that might not have been implemented by persons elected by the
Company and that are adverse to the interests of the Company or that lead to
adverse financial results, which could adversely impact the Company's operating
income and funds from operations.
Changes in Policies
The major policies of the Company, including its policies with respect to
development, acquisitions, financing, growth, operations, debt capitalization
and distributions, are determined by its Board. Although it has no present
intention to do so, the board may amend or revise these and other policies from
time to time without a vote of the shareholders of the Company. A change in
these policies could adversely affect the Company's financial condition, results
of operations, funds available for distributions to shareholders, debt service
or the market price of the Securities. The Company cannot change its policy of
seeking to maintain its qualification as a REIT without the approval of the
holders of a majority of the Common Stock.
Certain Tax Risks
Tax Liabilities as a Consequence of the Failure to Qualify as a REIT. The
Company believes that it has operated so as to qualify and has qualified as a
REIT under the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ended December 31, 1993, and intends to
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continue to so operate. No assurance, however, can be given that the Company has
so qualified or will be able to remain so qualified. Qualification as a REIT
involves the application of highly technical and complex Code provisions as to
which there are only limited judicial and administrative interpretations.
Certain facts and circumstances that may be wholly beyond the Company's control
may affect its ability to qualify or to continue to qualify as a REIT. In
addition, no assurance can be given that new legislation, Treasury Regulations,
administrative interpretations or court decisions will not significantly change
the tax laws with respect to the qualification as a REIT or the Federal income
consequences of such qualification to the Company. If the Company fails to
qualify as a REIT, it will be subject to Federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. In addition, unless entitled to relief under certain statutory
provisions, the Company would be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification is lost. The
additional tax incurred in such event would significantly reduce the cash flow
available for distribution to shareholders and to meet debt service obligations.
See "Federal Income Tax Considerations -- Taxation of the Company."
REIT Distribution Requirements and Potential Impact of Borrowings. To obtain
the favorable tax treatment associated with qualifying as a REIT under the Code,
the Company generally is required each year to distribute to its shareholders at
least 95% of its net taxable income. See "Federal Income Tax
Considerations-Taxation of the Company (Annual Distribution Requirements)." In
addition, the Company will be subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions paid by it with respect to any
calendar year are less than the sum of 85% of its ordinary income, 95% of its
capital gain net income and 100% of its undistributed income from prior years.
Differences in timing between the receipt of income, the payment of expenses and
the inclusion of such income and the deduction of such expenses in arriving at
taxable income (of the Company or Carr Realty, L.P.), or the effect of
nondeductible capital expenditures, the creation of reserves or required debt or
amortization payments, could require the Company, directly or through Carr
Realty, L.P., to borrow funds on a short-term basis to meet the distribution
requirements that are necessary to achieve the tax benefits associated with
qualifying as a REIT. In such instances, the Company might need to borrow funds
in order to avoid adverse tax consequences even if management believed that then
prevailing market conditions were not generally favorable for such borrowings.
Other Tax Liabilities. Even if the Company qualifies as a REIT, the Company
and certain of its subsidiaries will be subject to certain Federal, state and
local taxes on its income and property. See "Federal Income Tax Considerations
- -- Taxation of the Company and Other Tax Considerations."
Consequences of Failure of the Carr Realty, L.P. to be Treated as a
Partnership. The Company believes that the Carr Realty, L.P. and each other
partnership and limited liability company in which it holds an interest are
properly treated as partnerships for Federal income tax purposes. See "Federal
Income Tax Considerations -- Other Tax Considerations (Effect of Tax Status of
Carr Realty, L.P. and Other Partnerships on REIT Status)." If the Internal
Revenue Service (the "IRS") were to challenge successfully the tax status of
Carr Realty, L.P., or any other partnership in which the Company holds an
interest, as a partnership for Federal income tax purposes, Carr Realty, L.P. or
the affected partnership would be taxable as a corporation. In such event, since
the value of the Company's ownership interest in Carr Realty, L.P. exceeds, and
the value of Carr Realty, L.P.'s ownership interest in the affected partnership
could exceed, 5% of the Company's assets, the Company could cease to qualify as
a REIT. See "Federal Income Tax Considerations -- Taxation of the Company (Asset
Tests)." In addition, the imposition of a corporate tax on Carr Realty, L.P. or
any of the other partnerships in which it holds an interest would reduce the
amount of funds available for distribution to the Company and its stockholders.
Special Considerations for Foreign Investors
In order to assist the Company in qualifying as a "domestically controlled
REIT," the Articles of Incorporation contain certain provisions generally
preventing foreign investors (other than USRealty and its affiliates) from
acquiring additional shares of the Company's capital stock if, as a result of
such acquisition, the Company would fail to qualify as a "domestically
controlled REIT." See "Federal In
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come Tax Considerations -- Taxation of Holders of Common Stock -- Taxation of
Non-U.S. Shareholders." Accordingly, an acquisition of the Company's capital
stock would not likely be a suitable investment for Non-U.S. Shareholders
other than USRealty.
Price Fluctuations of the Common Stock and Trading Volume; Shares Available for
Future Sale
A number of factors may adversely influence the price of the Company's Common
Stock in the public markets, many of which are beyond the control of the
Company. These factors include possible increases in market interest rates,
which may lead purchasers of Common Stock to demand a higher annual yield from
distributions by the Company in relation to the price paid for Common Stock, the
relatively low daily trading volume of REITs in general, including the Common
Stock, and any inability of the Company to invest the proceeds of a future
offering of Securities in a manner that will increase earnings per share. Sales
of a substantial number of shares of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for shares.
The Company also may issue shares of Common Stock (subject to the Ownership
Limit, as defined below) upon redemption of Units issued in connection with the
formation of the Company and subsequent acquisitions. In addition, 1,416,900
shares of Common Stock of the Company have been issued or reserved for issuance
pursuant to stock and unit options, and these shares will be available for sale
in the public markets from time to time pursuant to exemptions from registration
requirements or upon registration. In connection with the USRealty Transaction,
the Company granted USRealty the right to require the Company to file, at any
time requested by USRealty, a registration statement under the Securities Act of
1933 covering all or any of the shares of Common Stock acquired by USRealty. No
prediction can be made about the effect that future sales of Common Stock will
have on the market prices of shares. Possible Adverse Consequences of
Limits on Ownership of Shares
In order to assist the Company in maintaining its qualification as a REIT,
the Articles of Incorporation contain certain provisions generally limiting the
ownership of shares of capital stock by any single shareholder to 5% of the
outstanding Common Stock and/or 5% of any class or series of Preferred Stock
(with exceptions for persons who received more than 5% of the equity of the
Company pursuant to the contribution of assets to the Company in connection with
the initial public offering of the Company and USRealty and its affiliates). The
Board could waive this restriction if it were satisfied that ownership in excess
of the above ownership limit would not jeopardize the Company's status as a REIT
and the Board otherwise decided such action would be in the best interests of
the Company. Capital stock acquired or transferred in breach of the limitation
will be automatically transferred to a trust for the benefit of a designated
charitable beneficiary. See "Description of Common Stock -- Restrictions on
Transfer" for additional information regarding the limits on ownership of shares
of capital stock.
Restrictions on Acquisition and Change in Control
Various provisions of the Company's Articles of Incorporation, as amended
(the "Articles of Incorporation"), restrict the possibility for acquisition or
change in control of the Company, even if such acquisition or change in control
were in the shareholders' interest, including the Ownership Limit, the staggered
terms of the Company's directors and the ability of the Board to authorize the
issuance of preferred stock without stockholder approval.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the net
proceeds from the sale of the Offered Securities will be used for the
acquisition and development of additional office properties, as suitable
opportunities arise, for the repayment of certain outstanding indebtedness at
such time, for capital improvements to property and for working capital and
other general corporate purposes.
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RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the three months ending
March 31, 1996 was 1.64, and for the period from February 16, 1993 (commencement
of operations) to December 31, 1993 and for the years ended December 31, 1994
and 1995 was 1.75, 1.81, and 1.91 respectively.
The ratios of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, earnings consist of income (loss) before gains
from sales of property and extraordinary items plus fixed charges. Fixed charges
consist of interest expense (including interest costs capitalized), the
amortization of debt issuance costs and rental expense deemed to represent
interest expense. There was no preferred stock outstanding for any of the
periods shown above. Accordingly, the ratio of earnings to combined fixed
charges and preferred stock dividends is identical to the ratio of earnings to
fixed charges.
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DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the Debt Securities to which this Prospectus and any applicable Prospectus
Supplement may relate. The particular terms of the Debt Securities being offered
and the extent to which such general provisions may apply will be set forth in
the applicable indenture or in one or more indentures supplemental thereto and
described in a Prospectus Supplement relating to such Debt Securities. The forms
of the Senior Indenture (as defined herein) and the Subordinated Indenture (as
defined herein) have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.
General
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 Debt Securities will be issued under
one or more indentures (the "Indentures"). Senior Securities and Subordinated
Securities will be issued pursuant to separate indentures (respectively, a
"Senior Indenture" and a "Subordinated Indenture"), in each case between the
Company and a trustee (a "Trustee"). The Indentures will be subject to and
governed by the Trust Indenture Act of 1939, as amended (the "TIA"). The
statements made under this heading relating to the Debt Securities and the
Indentures are summaries of the anticipated provisions thereof, do not purport
to be complete and are qualified in their entirety by reference to the
Indentures and such Debt Securities. All section references appearing herein are
to sections of each Indenture unless otherwise indicated and capitalized terms
used but not defined below shall have the respective meanings set forth in each
Indenture.
The indebtedness represented by 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."
Except as set forth in the applicable Indenture or in one or more indentures
supplemental thereto and described in a Prospectus Supplement relating thereto,
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 the Company or
as established in the applicable Indenture or in one or more indentures
supplemental to such Indenture. All Debt Securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the Holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series.
It is anticipated that each Indenture will provide that there may be more
than one Trustee thereunder, each with respect to one or more series of Debt
Securities. Any Trustee under an Indenture may resign or be removed with respect
to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a director of a trust under the
applicable Indenture separate and apart from the trust administered by any other
Trustee, and, except as otherwise indicated herein, any action described herein
to be taken by each Trustee may be taken by each such Trustee with respect to,
and only with respect to, the one or more series of Debt Securities for which it
is Trustee under the applicable Indenture.
The Prospectus Supplement relating to any series of Debt Securities being
offered will contain the specific terms thereof, including, without limitation:
(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 aggregate 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 thereof payable upon declaration of acceleration of the
maturity thereof;
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(4) If convertible in whole or in part into Common Stock or Preferred Stock,
the terms on which such Debt Securities are convertible, including the initial
conversion price or rate (or method for determining the same), the portion that
is convertible and the conversion period, and any applicable limitations on the
ownership or transferability of the Common Stock or Preferred Stock receivable
on conversion;
(5) The date or dates, or the method for determining such date or dates, on
which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt Securities will
bear interest, if any;
(7) The date or dates, or the method for determining such date or dates, from
which any such interest will accrue, the dates on which any such interest will
be payable, the regular record dates for such interest payment dates, or the
method by which such dates shall be determined, the persons to whom such
interest shall be payable, and the basis upon which interest shall be calculated
if other than that of a 360-day year of twelve 30-day months;
(8) The place or places where the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, where such Debt
Securities may be surrendered for conversion or registration of transfer or
exchange and where notices or demands to or upon the Company in respect of such
Debt Securities and the applicable Indenture may be served;
(9) The period or periods within which, the price or prices at which and the
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 such
an option;
(10) The obligation, if any, of the Company to redeem, repay or purchase such
Debt Securities pursuant to any sinking fund or analogous provision or at the
option of a Holder thereof, and the period or periods within which or the date
and dates on which, the price or prices at which and the other terms and
conditions upon which such Debt Securities will be redeemed, repaid or
purchased, in whole or in part, pursuant to such obligation;
(11) If other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign currency or
units of two or more foreign currencies or a composite currency or currencies,
and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium, if any) or
interest, if any, on such Debt Securities may be determined with reference to an
index, formula or other method (which index, formula or method may, but need not
be, based on a currency, currencies, currency unit or units or composite
currency or currencies) and the manner in which such amounts shall be
determined;
(13) Any additions to, modifications of or deletions from the terms of such
Debt Securities with respect to Events of Default or covenants set forth in the
applicable Indenture;
(14) Whether such Debt Securities will be issued in certificate or book-entry
form;
(15) Whether such Debt Securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000 and any
integral multiple thereof and, if in bearer form, the denominations thereof and
terms and conditions relating thereto;
(16) The applicability, if any, of the defeasance and covenant defeasance
provisions of Article Fourteen of the applicable Indenture;
(17) Whether and under what circumstances the Company will pay any additional
amounts on such Debt Securities in respect of any tax, assessment or
governmental charge and, if so, whether the Company will have the option to
redeem such Debt Securities in lieu of making such payment; and
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(18) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301).
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"). Special federal income tax, accounting
and other considerations applicable to Original Issue Discount Securities will
be described in the applicable Prospectus Supplement.
Except as set forth in the applicable Indenture or in one or more indentures
supplemental thereto, the applicable Indenture will not contain any provisions
that would limit the ability of the Company to incur indebtedness or that would
afford Holders of Debt Securities protection in the event of a highly leveraged
or similar transaction involving the Company or in the event of a change of
control. Restrictions on ownership and transfers of the Company's Common Stock
and Preferred Stock are designed to preserve its status as a REIT and,
therefore, may act to prevent or hinder a change of control. See "Description of
Preferred Stock -- Restrictions on Ownership" and "Description of Common Stock
- -- Restrictions on Transfer." Reference is made to the applicable Prospectus
Supplement for information with respect to any deletions from, modifications of
or additions to the Events of Default or covenants of the Company that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
Denomination, Interest, Registration and Transfer
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of Debt
Securities will be payable at the corporate trust office of the Trustee, the
address of which will be stated in the applicable Prospectus Supplement;
provided that, at the option of the Company, payment of interest may be made by
check mailed to the address of the person entitled thereto as it appears in the
applicable register for such Debt Securities or by wire transfer of funds to
such person at an account maintained within the United States (Sections 301,
305, 306, 307 and 1002).
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 Trustee, notice whereof
shall be given to the Holder of such Debt Security not less than ten 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 Indenture (Section 307).
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 or exchange thereof at
the corporate trust office of the applicable Trustee. Every Debt Security
surrendered for conversion, registration of transfer or exchange must be duly
endorsed or accompanied by a written instrument of transfer. No service charge
will be made for any registration of transfer or exchange of any Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. If the
applicable Prospectus Supplement refers to any transfer agent (in addition to
the applicable Trustee) initially designated by the Company with respect to any
series of Debt Securities, the Company may at any time rescind the designation
of any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that the Company will be required to maintain a
transfer agent in each place of payment for such series. The Company may at any
time designate additional transfer agents with respect to any series of Debt
Securities (Section 1002).
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Neither the Company nor any 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 on
the day of mailing of the relevant notice of 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
that has been surrendered for repayment at the option of the Holder, except the
portion, if any, of such Debt Security not to be so repaid (Section 305).
Merger, Consolidation or Sale
The Company will be permitted to 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 shall expressly assume payment of the principal of (and premium, 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 that becomes an obligation of the Company or any Subsidiary as
a result thereof as having been incurred by the Company or Subsidiary at the
time of such transaction, no Event of Default under the Indentures, and no event
which, after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing; and (c) an officer's certificate
and legal opinion covering such conditions shall be delivered to each Trustee
(Sections 801 and 803).
Certain Covenants
Existence. Except as described above under "Merger, Consolidation or Sale",
the Company will be required to do or cause to be done all things necessary to
preserve and keep in full force and effect its existence, rights (by articles of
incorporation, by-laws and statute) and franchises; provided, however, that the
Company shall not be required to preserve any right or franchise if it
determines that the preservation thereof is no longer desirable in the conduct
of its business and that the loss thereof is not disadvantageous in any material
respect to the Holders of the Debt Securities.
Maintenance of Properties. The Company will be required to cause all of its
material properties used or useful in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times (Section 1007); provided, however, that the Company shall
not be prevented from selling or otherwise disposing for value its properties in
the ordinary course of business.
Insurance. The Company will be required to, and will be required to cause
each of its Subsidiaries, defined below, to keep all of its insurable properties
insured against loss or damage at least equal to their then full insurable value
with insurers of recognized responsibility and, if described in the applicable
Prospectus Supplement, having a specified rating from a recognized insurance
rating service (Section 1008).
Payment of Taxes and Other Claims. The Company will be required to pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of the
Company or any Subsidiary, and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any Subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings (Section 1009).
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Provision of Financial Information. Whether or not the Company is subject to
Section 13 or 15(d) of the Exchange Act, the Company will be required, to the
extent permitted under the Exchange Act, to file with the Commission the annual
reports, quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to such Sections 13 or 15(d) if
the Company were so subject (the "Financial Information"), such documents to be
filed with the Commission on or prior to the respective dates (the "Required
Filing Dates") by which the Company would have been required so to file such
documents if the Company were so subject. The Company also will in any event (x)
within 15 days of each Required Filing Date (i) transmit by mail to all Holders
of Debt Securities, as their names and addresses appear in the Security
Register, without cost to such Holders, copies of the Financial Information and
(ii) file with the Trustee copies of the Financial Information, and (y) if
filing such documents by the Company with the Commission is not permitted under
the Exchange Act, promptly upon written request and payment of the reasonable
cost of duplication and delivery, supply copies of such documents to any
prospective Holder (Section 1010).
Additional Covenants and/or Modifications to the Covenants Described Above
Any additional covenants of the Company and/or modifications to the covenants
described above with respect to any Debt Securities or series thereof, including
any covenants relating to limitations on incurrence of indebtedness or other
financial covenants, will be set forth in the applicable Indenture or an
indenture supplemental thereto and described in the Prospectus Supplement
relating thereto.
Events of Default, Notice and Waiver
Each Indenture will provide that the following events are "Events of Default"
with respect to any series of Debt Securities issued thereunder: (i) default for
30 days in the payment of any installment of interest on any Debt Security of
such series; (ii) default in the payment of principal of (or premium, if any,
on) any Debt Security of such series at its maturity; (iii) default in making
any sinking fund payment as required for any Debt Security of such series; (iv)
default in the performance or breach of any other covenant or warranty of the
Company contained in the applicable 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 applicable Indenture; (v) default in the payment of an
aggregate principal amount exceeding $10,000,000 of any indebtedness of the
Company or any mortgage, indenture or other instrument under which such
indebtedness is issued or by which such indebtedness is secured, such default
having occurred after the expiration of any applicable grace period and having
resulted in the acceleration of the maturity of such indebtedness, but only if
such indebtedness is not discharged or such acceleration is not rescinded or
annulled; (vi) certain events of bankruptcy, insolvency or reorganization, or
court appointment of a receiver, liquidator or trustee of the Company or any
Significant Subsidiary, as defined below, or either of its property; and (vii)
any other Event of Default provided with respect to a particular series of Debt
Securities (Section 501).
"Significant Subsidiary" means any Subsidiary that is a "significant
subsidiary" (within the meaning of Regulation S-X promulgated under the
Securities Act) of the Company.
"Subsidiary" means a corporation, partnership or entity such as a limited
liability company, in which a majority of the outstanding voting stock or
partnership interests, as the case may be, is owned or controlled, directly or
indirectly, by the Company or by one or more other Subsidiaries of the Company.
For the purposes of this definition, "voting stock" means stock having voting
power for the election of directors, or managers or other voting members of the
governing body of such entities, whether at all times or only so long as no
senior class of stock has such voting power by reason of any contingency. The
term "Subsidiary" does not include Carr Services, Inc., CRESNOVA, or Carr
Development & Construction as the Company does not own or control a majority of
the outstanding voting stock of such entities.
If an Event of Default under any Indenture with respect to Debt Securities of
any series at the time outstanding occurs and is continuing, then in every such
case the applicable Trustee or the Holders of not less than 25% of the principal
amount of the Outstanding Debt Securities of that series will have the
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right to declare the principal amount (or, if the Debt Securities of that series
are Original Issue Discount Securities or indexed securities, such portion of
the principal amount as may be specified in the terms thereof) of all the Debt
Securities of that series to be due and payable immediately by written notice
thereof to the Company (and to the applicable Trustee if given by the Holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then Outstanding under
any 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 applicable Trustee,
the Holders of not less than a majority in principal amount of 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 applicable
Trustee all required payments of the principal of (and premium, if any) and
interest 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 applicable Trustee and (b) all
events of default, other than the non-payment of accelerated principal (or
specified portion thereof), with respect to 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 such Indenture (Section
502). Each Indenture also will provide 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, if any) or interest 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).
Each Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default shall have been cured or waived; provided, however, that such
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if specified responsible officers of such Trustee
consider such withholding to be in the interest of such Holders (Section 601).
Each Indenture will provide that no Holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the cases of failure of the
applicable Trustee, for 60 days, to act after it has received a written request
to institute proceedings in respect of an Event of Default from the Holders of
not less than 25% in principal amount of the Outstanding Debt Securities of such
series, as well as an offer of indemnity reasonably satisfactory to it (Section
507). 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, if any) and interest on such Debt Securities at the respective due
dates thereof (Section 508).
Subject to provisions in each Indenture relating to its duties in case of
default, no Trustee will be under any obligation to exercise any of its rights
or powers under an Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under such Indenture, unless such
Holders shall have offered to the Trustee thereunder reasonable security or
indemnity (Section 602). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series (or of all Debt
Securities then Outstanding under an Indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the applicable Trustee, or of exercising any trust or
power conferred upon such Trustee. However, a Trustee may refuse to follow any
direction which is in conflict with any law or the applicable Indenture, which
may involve such Trustee in personal liability or which may be unduly
prejudicial to the Holders of Debt Securities of such series not joining therein
(Section 512).
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the applicable Indenture and, if so, specifying each such default
and the nature and status thereof (Section 1011).
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Modification of the Indentures
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities issued under such Indenture which 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 any installment of interest (or premium, if any) on, any such Debt
Security; (b) reduce the principal amount of, or the rate or amount of interest
on, or any premium payable on redemption of, any such Debt Security, or reduce
the amount of principal of an Original Issue Discount Security that would be due
and payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the Holder
of any such Debt Security; (c) change the place of payment, or the coin or
currency, for payment of principal or premium, if any, or interest on any such
Debt Security; (d) impair the right to institute suit for the enforcement of any
payment on or with respect to any such Debt Security; (e) reduce the
above-stated percentage of Outstanding Debt Securities of any series necessary
to modify or amend the applicable Indenture, to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder or to reduce
the quorum or voting requirements set forth in the applicable Indenture; 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).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of each series affected thereby will have the right to waive
compliance by the Company with certain covenants in such Indenture (Section
1013).
Modifications and amendments of an Indenture will be permitted to be made by
the Company and the respective Trustee thereunder without the consent of any
Holder of Debt Securities for any of the following purposes: (i) to evidence the
succession of another person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Company in the Indenture; (iii) to add Events of Default for
the benefit of the Holders of all or any series of Debt Securities; (iv) to add
or change any provisions of an Indenture to facilitate the issuance of, or to
liberalize certain terms of, Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form, provided that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect; (v) to change or eliminate any
provisions of an Indenture, provided that any such change or elimination shall
become effective only when there are no Debt Securities Outstanding of any
series created prior thereto which are entitled to the benefit of such
provision; (vi) to secure the Debt Securities; (vii) to establish the form or
terms of Debt Securities of any series, including the provisions and procedures,
if applicable, for the conversion of such Debt Securities into Common Stock or
Preferred Stock of the Company; (viii) to provide for the acceptance of
appointment by a successor Trustee or facilitate the administration of the
trusts under an Indenture by more than one Trustee; (ix) to cure any ambiguity,
defect or inconsistency in an Indenture, provided that such action shall not
adversely affect the interests of Holders of Debt Securities of any series
issued under such Indenture in any material respect; or (x) to supplement any of
the provisions of an Indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such Debt Securities, provided that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect (Section 901).
Each Indenture will provide that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of any Debt Security denominated in a foreign currency that shall be deemed
Outstanding shall
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be the U.S. dollar equivalent, determined on the issue date for such Debt
Security, of the principal amount (or, in the case of an Original Issue Discount
Security, the U.S. dollar equivalent on the issue date of such Debt Security of
the amount determined as provided in (i) above), (iii) the principal amount of
an indexed security that shall be deemed Outstanding shall be the principal face
amount of such indexed security at original issuance, unless otherwise provided
with respect to such indexed security pursuant to the applicable Indenture, and
(iv) Debt Securities owned by the Company or any other obligor upon the Debt
Securities or any affiliate of the Company or of such other obligor shall be
disregarded.
Each Indenture will contain provisions for convening meetings of the Holders
of Debt Securities of a series (Section 501). A meeting will be permitted to be
called at any time by the applicable Trustee, and also, upon request, by the
Company or the Holders of at least 10% in principal amount of the Outstanding
Debt Securities of such series, in any such case upon notice given as provided
in the Indenture. Except for any consent that must be given by the Holder of
each Debt Security affected by certain modifications and amendments of an
Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the Holders of a majority in principal amount of the Outstanding Debt
Securities of that series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specified percentage, which is less than a majority, in principal
amount of the Outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting or adjourned meeting duly reconvened at which a
quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of Holders of
Debt Securities of any series duly held in accordance with an Indenture will be
binding on all Holders of Debt Securities of that series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
persons holding or representing a majority in principal amount of the
Outstanding Debt Securities of a series; provided, however, that if any action
is to be taken at such meeting with respect to a consent or waiver which may be
given by the Holders of not less than a specified percentage in principal amount
of the Outstanding Debt Securities of a series, the persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum.
Notwithstanding the foregoing provisions, each Indenture will provide that if
any action is to be taken at a meeting of Holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the Holders of a specified percentage in principal
amount of all Outstanding Debt Securities affected thereby, or the Holders of
such series and one or more additional series: (i) there shall be no minimum
quorum requirement for such meeting, and (ii) the principal amount of the
Outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture.
Subordination
The terms and conditions, if any, upon which the Debt Securities are
subordinated to other indebtedness of the Company will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include a
description of the indebtedness ranking senior to the Debt Securities, the
restrictions on payments to the Holders of such Debt Securities while a default
with respect to such senior indebtedness in continuing, the restrictions, if
any, on payments to the Holders of such Debt Securities following an Event of
Default, and provisions requiring Holders of such Debt Securities to remit
certain payments to holders of senior indebtedness.
Discharge, Defeasance and Covenant Defeasance
The Company may be permitted under the applicable Indenture to 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
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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, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the stated maturity or redemption
date, as the case may be.
Each Indenture will provide that, if the provisions of Article Fourteen 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) or (b) to be released from its obligations with
respect to such Debt Securities under certain specified sections of Article Ten
of such Indenture as specified in the applicable Prospectus Supplement and any
omission to comply with such obligations shall not constitute an Event of
Default with respect to such Debt Securities ("covenant defeasance") (Section
1403), in either case upon the irrevocable deposit by the Company with the
applicable Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at stated maturity, or Government Obligations (as defined
below), or both, applicable to such Debt Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient without reinvestment to pay the principal of (and
premium, if any) and interest on such Debt Securities, and any mandatory sinking
fund or analogous payments thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other things,
the Company has delivered to the applicable Trustee an opinion of counsel (as
specified in the applicable Indenture) to the effect that the Holders of such
Debt Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance or covenant defeasance
had not occurred, and such opinion of counsel, in the case of defeasance, will
be required to refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable U.S. federal income tax law occurring after
the date of the Indenture (Section 1404).
"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 such government which issued the foreign currency in
which the Debt Securities of such series are payable, the timely payment of
which is unconditionally guaranteed as a full faith and credit obligation of the
United States of America or such 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).
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
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does, elect pursuant to the applicable Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite currency
other than that in which such deposit has been made in respect of such Debt
Security, or (b) a Conversion Event (as defined below) occurs in respect of the
currency, currency unit or composite currency in which such deposit has been
made, the indebtedness represented by such Debt Security will be deemed to have
been, and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest on such Debt Security as they
become due out of the proceeds yielded by converting the amount so deposited in
respect of such Debt Security into the currency, currency unit or composite
currency in which such Debt Security becomes payable as a result of such
election or such cessation of usage based on the applicable market exchange
rate. "Conversion Event" means the cessation of use of (i) a currency, currency
unit or composite currency both by the government of the country which issued
such currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community, (ii) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Communities or
(iii) any currency unit or composite currency other than the ECU for the
purposes for which it was established. Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium, if
any) and interest on any Debt Security that is payable in a foreign currency
that ceases to be used by its government of issuance shall be made in U.S.
dollars.
In the event the Company effects covenant defeasance with respect to any Debt
Securities and such Debt Securities are declared due and payable because of the
occurrence of any Event of Default other than the Event of Default described in
clause (iv) under "Events of Default, Notice and Waiver" with respect to certain
specified sections of Article Ten of each Indenture (which sections would no
longer be applicable to such Debt Securities as a result of such covenant
defeasance) or described in clause (vii) under "Events of Default, Notice and
Waiver" with respect to any other covenant as to which there has been covenant
defeasance, the amount in such currency, currency unit or composite currency in
which such Debt Securities are payable, and Government Obligations on deposit
with the applicable Trustee, will be sufficient to pay amounts due on such Debt
Securities at the time of their stated maturity but may not be sufficient to pay
amounts due on such Debt Securities at the time of the acceleration resulting
from such Default. However, the Company would remain liable to make payment of
such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
Conversion Rights
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Stock or Preferred
Stock, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the Holders
or the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities and any restrictions on conversion, including restrictions directed
at maintaining the Company's REIT status.
Redemption of Securities
The Indenture provides that the Debt Securities may be redeemed at any time
at the option of the Company, in whole or in part, at the redemption price,
except as may otherwise be provided in connection with any Debt Securities or
series thereof.
From and after notice has been given as provided in the Indenture, if funds
for the redemption of any Debt Securities called for redemption shall have been
made available on such redemption date, such Debt Securities will cease to bear
interest on the date fixed for such redemption specified in such notice, and the
only right of the Holders of the Debt Securities will be to receive payment of
the redemption price.
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Notice of any optional redemption of any Debt Securities will be given to
Holders at their addresses, as shown in the Company's books and records, not
more than 60 nor less than 30 days prior to the date fixed for redemption. The
notice of redemption will specify, among other items, the redemption price and
the principal amount of the Debt Securities held by such Holder to be redeemed.
If the Company elects to redeem Debt Securities, it will notify the Trustee
at least 45 days prior to the redemption date (or such shorter period as
satisfactory to the Trustee) of the aggregate principal amount of Debt
Securities to be redeemed and the redemption date. If less than all the Debt
Securities are to be redeemed, the Trustee shall select the Debt Securities to
be redeemed pro rata, by lot or in such manner as it shall deem fair and
appropriate.
Global Securities
The Debt Securities of a series may be issued in whole or in part in the form
of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depository identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depository arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series.
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DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 15,000,000 shares of Preferred Stock. As
of May 31, 1996, there were no shares of Preferred Stock outstanding.
Under the Company's Articles of Incorporation, the Board may from time to
time establish and issue one or more series of Preferred Stock. The Board may
classify or reclassify any unissued Preferred Stock by setting or changing the
number, designation, preference, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption of such series (a "Designating Amendment").
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation and the
Company's bylaws (the "Bylaws").
General
The Board is empowered by the Company's Articles of Incorporation to
designate and issue from time to time one or more series of Preferred Stock
without shareholder approval. The Board may determine the relative rights,
preferences and privileges of each series of Preferred Stock so issued. Because
the Board has the power to establish the preferences and rights of each series
of Preferred Stock, it may afford the holders of any series of Preferred Stock
preferences, powers and rights, voting or otherwise, senior to the rights of
holders of Common Stock. The Preferred Stock will, when issued, be fully paid
and nonassessable.
The Prospectus Supplement relating to any Preferred Stock offered thereby
will contain the specific terms thereof, including, without limitation:
(1) The title and stated value of such Preferred Stock;
(2) The number of such shares of Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock will accumulate, if
applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) The provision for a sinking fund, if any, for such Preferred Stock;
(7) The provision for redemption, if applicable, of such Preferred Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred Stock
will be convertible into Common Stock of the Company, including the conversion
price (or manner of calculation thereof);
(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(11) A discussion of federal income tax considerations applicable to such
Preferred Stock;
(12) The relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company;
(13) Any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to dividend
rights and rights upon liquidation, dissolution or winding up of the affairs of
the Company; and
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(14) Any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of the
Company as a REIT.
Rank
Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all classes or series of Common
Stock of the Company, and to all equity securities ranking junior to such
Preferred Stock; (ii) on a parity with all equity securities issued by the
Company the terms of which specifically provide that such equity securities rank
on a parity with the Preferred Stock; and (iii) junior to all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank senior to the Preferred Stock. The term "equity securities" does
not include convertible debt securities.
Dividends
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board, out of assets of the Company legally
available for payment, cash dividends (or dividends in kind or in other property
if expressly permitted and described in the applicable Prospectus Supplement) at
such rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Each such dividend will be payable to holders of record as they
appear on the stock transfer books of the Company on such record dates as are
fixed by the Board.
Dividends on any series of Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board fails to declare a dividend
payable on a dividend payment date on any series of the Preferred Stock for
which dividends are non-cumulative, then the holders of such series of the
Preferred Stock will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and the Company will have
no obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.
Unless otherwise specified in the Prospectus Supplement, if any shares of
Preferred Stock of any series are outstanding, no full dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such series. When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon Preferred Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Preferred Stock of
such series, all dividends declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock will be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock will in all cases bear to each other the same ratio that accrued
dividends per share on the Preferred Stock of such series (which will not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock do not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum of money
in lieu of interest, will be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if such
series of Preferred Stock has a cumulative dividend, full cumulative dividends
on the Preferred Stock of such series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment
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thereof set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in Common Stock or other capital stock ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation) will be declared or paid or set aside for payment or other
distribution upon the Common Stock, or any other capital stock of the Company
ranking junior to or on a parity with the Preferred Stock of such series as to
dividends or upon liquidation, nor will any Common Stock, or any other capital
stock of the Company ranking junior to or on a parity with the Preferred Stock
of such series as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such stock) by the
Company (except by conversion into or exchange for other capital stock of the
Company ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation).
If for any taxable year, the Company elects to designate as "capital gains
dividends" (as defined in Section 857 of the Code) any portion (the "Capital
Gains Amount") of the dividends (within the meaning of the Code) paid or made
available for the year to holders of all classes of shares of beneficial
interest (the "Total Dividends"), then the portion of the Capital Gains Amount
that will be allocable to the holders of shares of Preferred Stock will be the
Capital Gains Amount multiplied by a fraction, the numerator of which shall be
the total dividends (within the meaning of the Code) paid or made available to
the holders of shares of Preferred Stock for the year and the denominator of
which shall be the Total Dividends.
Redemption
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of the
Company, in whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that will be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
will not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital stock of the Company, the terms of such
Preferred Stock may provide that, if no such capital stock shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock will
automatically and mandatorily be converted into the applicable capital stock of
the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all Preferred Stock of
any series shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the current dividend period and (ii) if such
series of Preferred Stock does not have a cumulative dividend, full dividends of
the Preferred Stock of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no Preferred Stock of any series
shall be redeemed unless all outstanding Preferred Stock of such series are
simultaneously redeemed; provided, however, that the foregoing shall not prevent
the purchase or acquisition of Preferred Stock of such series to preserve the
REIT status of the Company or pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding Preferred Stock of such series. In
addition, unless (i) if such series of Preferred Stock has a cumulative
dividend, full cumulative dividends on all outstanding shares of any series of
Preferred Stock have been or contemporaneously are declared and paid or declared
and
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a sum sufficient for the payment thereof set apart for payment for all past
dividends periods and the then current dividend period, and (ii) if such series
of Preferred Stock does not have a cumulative dividend, full dividends on the
Preferred Stock of any series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, the Company will not purchase or
otherwise acquire directly or indirectly any Preferred Stock of such series
(except by conversion into or exchange for capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation); provided, however, that the foregoing will not prevent the
purchase or acquisition of Preferred Stock of such series to preserve the REIT
status of the Company or pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by
the Company and such shares may be redeemed pro rata from the holders of record
of such shares in proportion to the number of such shares held or for which
redemption is requested by such holder (with adjustments to avoid redemption of
fractional shares) or by lot in a manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice will state: (i) the redemption date; (ii) the number of
shares and series of Preferred Stock to be redeemed; (iii) the redemption price;
(iv) the place or places where certificates for such Preferred Stock are to be
surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all of the Preferred Stock of any series are to be
redeemed, the notice mailed to each such holder thereof will also specify the
number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Stock, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment is made to
the holders of any Common Stock or any other class or series of capital stock of
the Company ranking junior to the Preferred Stock in the distribution of assets
upon any liquidation, dissolution or winding up of the Company, the holders of
each series of Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to stockholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which will not include any accumulation in respect
of unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Stock will
have no right or claim to any of the remaining assets of the Company. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of the Company are insufficient to pay the
amount of the liquidating distributions on all outstanding Preferred Stock and
the corresponding amounts payable on all shares of other classes or series of
capital stock of the Company ranking on a parity with the Preferred Stock in the
distribution of assets, then the holders of the Preferred Stock and all other
such classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company will be distributed among
the holders of any other classes or series of capital stock ranking junior to
the Preferred Stock upon liquidation, dissolution or winding up, accord
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ing to their respective rights and preferences and in each case according to
their respective number of shares. For such purposes, the consolidation or
merger of the Company with or into any other corporation, trust or entity, or
the sale, lease or conveyance of all or substantially all of the property or
business of the Company, will not be deemed to constitute a liquidation,
dissolution or winding up of the Company.
Voting Rights
Holders of Preferred Stock will not have any voting rights, except as set
forth below or as otherwise from time to time required by law or as indicated in
the applicable Prospectus Supplement.
Whenever dividends on any Preferred Stock shall be in arrears for six or more
consecutive quarterly periods, the holders of such Preferred Stock (voting
separately as a class with all other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of two additional directors of the Company at a special meeting
called by the holders of record of at least ten percent (10%) of any series of
Preferred Stock so in arrears (unless such request is received less than 90 days
before the date fixed for the next annual or special meeting of the
shareholders) or at the next annual meeting of shareholders, and at each
subsequent annual meeting until (i) if such series of Preferred Stock has a
cumulative dividend, all dividends accumulated on such shares of Preferred Stock
for the past dividend periods and the then current dividend period shall have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment or (ii) if such series of Preferred Stock do not have a
cumulative dividend, four consecutive quarterly dividends shall have been fully
paid or declared and a sum sufficient for the payment thereof set aside for
payment. In such case, the entire Board will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of each series
of shares of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking prior to such series of Preferred
Stock with respect to the payment of dividends or the distribution of assets
upon liquidation, dissolution or winding up or reclassify any authorized capital
stock of the Company into such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such shares; or (ii) amend, alter or repeal the provisions of the Company's
Articles of Incorporation or the Designating Amendment for such series of
Preferred Stock, whether by merger, consolidation or otherwise (an "Event"), so
as to materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Stock or the holders thereof; provided,
however, with respect to the occurrence of any of the Events set forth in (ii)
above, so long as the shares of Preferred Stock remain outstanding with the
terms thereof materially unchanged, taking into account that upon the occurrence
of an Event, the Company may not be the surviving entity, the occurrence of any
such Event will not be deemed to materially and adversely affect such rights,
preferences, privileges or voting power of holders of Preferred Stock and
provided further that (x) any increase in the amount of the authorized Preferred
Stock or the creation or issuance of any other series of Preferred Stock, or (y)
any increase in the amount of authorized shares of such series or any other
series of Preferred Stock, in each case ranking on a parity with or junior to
the Preferred Stock of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, will not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of Preferred Stock of such series shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
Conversion Rights
The terms and conditions, if any, upon which any series of Preferred Stock is
convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of shares of
Common Stock into which the Preferred Stock are convertible, the
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conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such series of Preferred Stock.
Restrictions on Ownership
As discussed below under "Description of Common Stock -- Restrictions on
Transfer -- Ownership Limits," for the Company to qualify as a REIT under the
Code, not more than 50% in value of its outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year. To assist the
Company in meeting this requirement, the Articles of Incorporation provide that
no holder of Preferred Stock may own, or be deemed to own by virtue of certain
attribution provisions of the Code, more than 5% of any class or series of
Preferred Stock and/or more than 5% of the issued and outstanding shares of
Common Stock, subject to certain exceptions specified in the Articles of
Incorporation. See "Description of Common Stock -- Restrictions on Transfer --
Ownership Limits."
Registrar and Transfer Agent
The Registrar and Transfer Agent for the Preferred Stock will be set forth in
the applicable Prospectus Supplement.
DESCRIPTION OF COMMON STOCK
General
The Company is authorized to issue 90,000,000 shares of Common Stock. The
outstanding Common Stock entitles the holder to one vote on all matters
presented to shareholders for a vote. Holders of Common Stock have no preemptive
rights. At May 31, 1996, there were 25,200,469 shares of Common Stock
outstanding.
Shares of Common Stock currently outstanding are listed for trading on the
New York Stock Exchange (the "NYSE"). The Company will apply to the NYSE to list
the additional Common Stock to be sold pursuant to any Prospectus Supplement,
and the Company anticipates that such shares will be so listed.
Subject to such preferential rights as may be granted by the Board in
connection with the future issuance of Preferred Stock, holders of Common Stock
are entitled to one vote per share on all matters to be voted on by stockholders
and are entitled to receive ratably such dividends as may be declared on the
Common Stock by the Board in its discretion from funds legally available
therefor. In the event of the liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of all debts and other liabilities and any liquidation
preference of the holders of Preferred Stock. Holders of Common Stock have no
subscription, redemption, conversion or preemptive rights. Matters submitted for
stockholder approval generally require a majority vote of the shares present and
voting thereon.
Advance Notice of Director Nominations and New Business. The Bylaws of the
Company provide that, with respect to an annual meeting of stockholders, the
proposal of business to be considered by stockholders may be made only (i) by or
at the direction of the Board or (ii) by a stockholder who is entitled to vote
at the meeting and who has complied with the advance notice procedures set forth
in the Bylaws. In addition, with respect to any meeting of stockholders,
nominations of persons for election to the Board may be made only (i) by or at
the direction of the Board or (ii) by any stockholder of the Company who is
entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
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Restrictions on Transfer
Ownership Limits. The Company's Articles of Incorporation contain certain
restrictions on the number of shares of Common Stock that individual
shareholders may own. For the Company to qualify as a REIT under the Code, no
more than 50% in value of its outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year) or during a proportionate part of a shorter taxable year. The capital
stock also must be beneficially owned by 100 or more persons during at least 335
days of a taxable year or during a proportionate part of a shorter taxable year.
Because the Company intends to maintain its qualification as a REIT, the
Company's Articles of Incorporation contain certain restrictions on the
ownership and transfer of capital stock, including Common Stock, intended to
ensure compliance with these requirements.
Subject to certain exceptions specified in the Articles of Incorporation, no
holder may own, or be deemed to own by virtue of certain attribution provisions
of the Code, more than (A) 5% of the issued and outstanding shares of Common
Stock ("Common Stock Ownership Limit") and/or (B) more than 5% of any class or
series of Preferred Stock. (This limit, in addition to the Existing Holder
Limit, the Special Shareholder Limit, and the Non U.S. Shareholder Limit, all as
defined below, are referred to collectively herein as the "Ownership Limits.")
Existing Holders, including Clark Enterprises Inc., The Equitable Life Assurance
Society of the United States, Equitable Variable Life Insurance Company, FW
REIT, L.P., The Oliver Carr Company, Oliver T. Carr, Jr., or A. James Clark, are
not subject to the Common Stock Ownership Limit, but they are subject to special
ownership limitations (the "Existing Holder Limit"). Furthermore, USRealty and
its affiliates are not subject to the Common Stock Ownership Limit, but are
subject to a special ownership limit of 48% of the outstanding shares of Common
Stock and 48% of the outstanding shares of each class or series of preferred
stock of the Company (the "Special Shareholder Limit"). Furthermore, all holders
are prohibited from acquiring any capital stock if such acquisition would cause
five beneficial owners of capital stock to beneficially own in the aggregate
more than 50% in value of the outstanding capital stock.
In addition to the above restrictions on ownership of shares of capital stock
of the Company, in order to assist the Company in qualifying as a "domestically
controlled REIT," the Articles of Incorporation contain certain provisions
preventing any Non-U.S. Shareholder, as defined below (other than USRealty and
its affiliates), from acquiring additional shares of the Company's capital stock
if, as a result of such acquisition, the Company would fail to qualify as a
"domestically controlled REIT" (computed assuming that USRealty owns the maximum
percentage of the Company's capital stock that it is permitted to own under the
Special Shareholder Limit) ("Non-U.S. Shareholder Limit"). A Non-U.S.
Shareholder is a nonresident alien individual, foreign corporation, foreign
partnership and any other foreign shareholder. For a discussion of the taxation
of a Non-U.S. Shareholder and the requirements for the Company to qualify as a
"domestically controlled REIT, see "Federal Income Tax Considerations--Taxation
of Holders of Common Stock--Taxation of Non-U.S. Shareholders." The Company is
unlikely to be able to advise a prospective Non-U.S. Shareholder that its
purchase of any shares of the Company's capital stock would not violate this
prohibition, thereby subjecting such prospective Non-U.S. Shareholder to the
adverse consequences described below under "Violation of Ownership Limitations."
Accordingly, an acquisition of the Company's capital stock would not likely be a
suitable investment for Non-U.S. Shareholders other than USRealty.
The Board may increase the Ownership Limits from time to time, but may not do
so to the extent that after giving effect to such increase five beneficial
owners of shares of capital stock could beneficially own in the aggregate more
than 49.5% of the Company's outstanding shares of capital stock. The Board, in
its sole discretion, may waive the Ownership Limits with respect to a holder if
such holder's ownership will not then or in the future jeopardize the Company's
status as a REIT.
Violation of Ownership Limits. The Articles of Incorporation provide that, if
any holder of capital stock of the Company purports to transfer shares to a
person or there is a change in the capital structure of the Company and either
the transfer or the change in capital structure would result in the Company
failing to qualify as a REIT, or such transfer or the change in capital
structure would cause the trans
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feree to hold shares in excess of the applicable Ownership Limit (including the
Non-U.S. Shareholder Limit), then the capital stock being transferred (or in the
case of an event other than a transfer, the capital stock beneficially owned)
that would cause one or more of the restrictions on ownership or transfer to be
violated will be automatically transferred to a trust for the benefit of a
designated charitable beneficiary. The purported transferee of such shares shall
have no right to receive dividends or other distributions with respect to such
shares and shall have no right to vote such shares. Any dividends or other
distributions paid to such purported transferee prior to the discovery by the
Company that the shares have been transferred to a trust shall be paid upon
demand to the trustee of the trust for the benefit of the charitable
beneficiary. The trustee of the trust will have all rights to dividends with
respect to the shares of capital stock held in trust, which rights will be
exercised for the exclusive benefit of the charitable beneficiary. Any dividends
or distributions paid over to the trustee will be held in trust for the
charitable beneficiary. The trustee shall designate a transferee of such stock
so long as such shares of stock would not violate the Ownership Limitations in
the hands of such designated transferee. Upon the sale of such shares, the
purported transferee shall receive the lesser of (A) (i) the price per share
such purported transferee paid for the capital stock in the purported transfer
that resulted in the transfer of shares of capital stock to the trust, or (ii)
if the transfer or other event that resulted in the transfer of shares of
capital stock to the trust was not a transaction in which the purported record
transferee of shares of capital stock gave full value for such shares, a price
per share equal to the market price on the date of the purported transfer or
other event that resulted in the transfer of the shares to the trust, and (B)
the price per share received by the trustee from the sale or disposition of the
shares held in the trust.
All certificates representing Common Stock will bear a legend referring to
the restrictions described above.
Every owner of more than 5% (or such lower percentage as required by the Code
or regulations thereunder) of the issued and outstanding shares of Common Stock
must file a written notice with the Company containing the information specified
in the Articles of Incorporation no later than December 31 of each year. In
addition, each shareholder shall upon demand be required to disclose to the
Company in writing such information as the Company may request in good faith in
order to determine the Company's status as a REIT.
Registrar and Transfer Agent
The Registrar and Transfer Agent for the Common Stock is Boston EquiServe.
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DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common Stock.
Common Stock Warrants may be issued independently or together with any other
Securities offered by any Prospectus Supplement and may be attached to or
separate from such Securities. Each series of Common Stock Warrants will be
issued under a separate warrant agreement (each, a "Warrant Agreement") to be
entered into between the Company and a warrant agent specified in the applicable
Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will act solely
as an agent of the Company in connection with the Common Stock Warrants of such
series and will not assume any obligation or relationship of agency or trust for
or with any holders or beneficial owners of Common Stock Warrants. The following
sets forth certain general terms and provisions of the Common Stock Warrants
offered hereby. Further terms of the Common Stock Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Common
Stock Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following: (1) the title of such Common Stock
Warrants; (2) the aggregate number of such Common Stock Warrants; (3) the price
or prices at which such Common Stock Warrants will be issued; (4) the
designation, number and terms of the shares of Common Stock purchasable upon
exercise of such Common Stock Warrants; (5) the designation and terms of the
other Securities offered thereby with which such Common Stock Warrants are
issued and the number of such Common Stock Warrants issued with each such
Security offered thereby; (6) the date, if any, on and after which such Common
Stock Warrants and the related Common Stock will be separately transferable; (7)
the price at which each of the shares of Common Stock purchasable upon exercise
of such Common Stock Warrants may be purchased; (8) the date on which the right
to exercise such Common Stock Warrants shall commence and the date on which such
right shall expire; (9) the minimum or maximum number of such Common Stock
Warrants which may be exercised at any one time; (10) information with respect
to book entry procedures, if any; (11) a discussion of certain federal income
tax considerations; and (12) any other terms of such Common Stock Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Common Stock Warrants.
FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a description of certain Federal income tax consequences to
the Company and the holders of Common Stock, Preferred Stock and Common Stock
Warrants of the treatment of the Company as a REIT under applicable provisions
of the Code. The following discussion, which is not exhaustive of all possible
tax considerations, 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. As used in this section, the term "Company" refers
solely to CarrAmerica Realty Corporation.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF STOCK IN AN ENTITY ELECTING TO BE TAXED AS A REIT,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
Taxation of the Company
General. The Company, which is considered a corporation for Federal income
tax purposes, has elected to be taxed as a REIT under Sections 856 through 860
of the Code effective as of its taxable year ended December 31, 1993. The
Company believes that it is organized and has operated in such a manner
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so as to qualify for taxation as a REIT under the Code, and the Company intends
to continue to operate in such a manner. No assurance, however, can be given
that the Company has operated in a manner so as to qualify as a REIT or that it
will continue to operate in such a manner in the future. Qualification and
taxation as a REIT depends upon the Company's ability to meet on a continuing
basis, through actual annual operating results, distribution levels and
diversity of stock ownership, the various qualification tests imposed under the
Code on REITs, some of which are summarized below. While the Company intends to
operate so that it qualifies as a REIT, given the highly complex nature of the
rules governing REITs, the ongoing importance of factual determinations, and the
possibility of future changes in circumstances of the Company, no assurance can
be given that the Company satisfies such tests or will continue to do so. See
"Failure to Qualify" below.
The following is a general summary of the Code provisions that govern the
Federal income tax treatment of a REIT and its shareholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations and
administrative and judicial interpretations thereof.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income taxes on net income that it distributes
currently to shareholders. However, the Company will be subject to Federal
income tax on any income that it does not distribute and will be subject to
Federal income tax in certain circumstances on certain types of income even
though that income is distributed.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares of
stock, or by transferable certificates of beneficial interest; (3) that would be
taxable as a domestic corporation, but for Sections 856 through 859 of the Code;
(4) that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (5) the beneficial ownership of which is held by
100 or more persons; (6) that during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities); and (7) that meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(l) through (4), inclusive, must be met during the entire taxable year and that
condition (5) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
The Company's Articles of Incorporation contain restrictions regarding the
transfer of its capital stock that are intended to assist the Company in
continuing to satisfy the stock ownership requirements described in (5) and (6)
above. See "Description of Common Stock-Restrictions on Transfer."
Income Tests. In order to maintain qualification as a REIT, there are three
gross income requirements that must be satisfied annually. First, at least 75%
of the REIT's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the REIT's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from the same items which qualify under the 75% income test, and from
dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Third, short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions and gain on the sale or other disposition of real property held for
less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the REIT's gross income
(including gross income from prohibited transactions) for each taxable year.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions (related to the identity of the tenant, the computation of
the rent payable, and the nature of the property leased) are met. The Company
does not anticipate receiving rents in excess of 1% of gross revenue that fail
to meet these
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conditions. In addition, for rents received to qualify as "rents from real
property," the Company generally must not operate or manage the property or
furnish or render services to tenants, other than through an "independent
contractor" from whom the Company derives no revenue. The "independent
contractor" requirement, however, does not apply to the extent the services
provided by the Company are "usually or customarily rendered" in connection with
the rental space for occupancy only and are not otherwise considered "rendered
to the occupant." The Company will provide certain services with respect to the
properties through entities that do not satisfy the "independent contractor"
requirements described above. The Company has received a ruling from the IRS
that the provision of certain services will not cause the rents received with
respect to the properties to fail to qualify as "rents from real property."
Based upon the IRS ruling and its experience in the office rental markets in
which the Company's properties are located, the Company believes that all
services provided to tenants will be considered "usually or customarily
rendered" in connection with the rental of office space for occupancy, although
there is no assurance that the IRS will not contend otherwise. If the Company
contemplates providing services, either directly, or through another entity, in
the future that reasonably might be expected not to meet the "usual or
customary" standard, it will arrange to have such services provided by an
independent contractor from which the Company will receive no income.
The Company may receive fees in consideration of the performance of
management and administrative services with respect to properties that are not
owned entirely by the Company. A portion of such management and administrative
fees (corresponding to that portion of a property owned by a third party)
generally will not qualify under the 75% or 95% gross income tests. The Company
also may receive other types of income with respect to the properties that it
owns that will not qualify for the 75% or 95% gross income tests. The Company
believes, however, that the aggregate amount of such fees and other
non-qualifying income in any taxable year will not cause the Company to exceed
the limits on non-qualifying income under the 75% and 95% gross income tests.
If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code. It
is not possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of these relief provisions. Even if these
relief provisions were to apply, however, a tax would be imposed with respect to
the "excess net income"' attributable to the failure to satisfy the 75% and 95%
gross income tests.
Asset Tests. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets: (i) at least
75% of the value of the Company's total assets must be represented by "real
estate assets," cash, cash items and government securities; (ii) not more than
25% of the Company's total assets may be represented by securities other than
those in the 75% asset class; and (iii) of the investments included in the 25%
asset class, the value of any one issuer's securities (other than an interest in
a partnership, shares of a "qualified REIT subsidiary" or another REIT, but
including any unsecured debt of Carr Realty, L.P.) owned by the Company may not
exceed 5% of the value of the Company's total assets, and the Company may not
own more than 10% of any one issuer's outstanding voting securities (other than
an interest in a partnership, shares of a "qualified REIT subsidiary" or another
REIT). By virtue of its ownership of Units, the Company will be considered to
own its pro rata share of the assets of Carr Realty, L.P., including the
securities of Carr Services, Inc., and CRESNOVA. (Carr Services, Inc., CRESNOVA
and Carr Development & Construction are referred to collectively herein as the
"Non-qualified REIT Subsidiaries.") Neither Carr Realty, L.P. nor the Company
will own more than 10% of the voting securities of any Non-qualified REIT
Subsidiary. In addition, the Company and its senior management believe that the
Company's pro rata share of the value of the securities of each of such
Non-qualified REIT Subsidiary and of any unsecured debt of Carr Realty, L.P.
owned by the Company will not exceed 5% of the total value of the Company's
assets. There can be no assurance, however, that the IRS might not contend
otherwise. Although the Company plans to take steps to ensure that it continues
to satisfy the 5% test, there can be no assurance that such steps will be
successful or will not require a reduction in the Company's overall interest in
one or more of the Non-qualified REIT Subsidiaries.
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Annual Distribution Requirements. To qualify as a REIT, the Company generally
must distribute to its shareholders at least 95% of its income each year. In
addition, the Company will be subject to tax on the undistributed amount at
regular capital gains and ordinary corporate tax rates and also may be subject
to a 4% excise tax on undistributed income in certain events.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT in
any taxable year, the Company will be subject to tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Unless entitled to relief under specific statutory provisions, the Company also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances the Company would be entitled to such
statutory relief.
Taxation of Holders of Common Stock
Taxation of Taxable Domestic Shareholders. As long as the Company qualifies
as a REIT, distributions made to the Company's taxable domestic shareholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by them as ordinary income, and
corporate shareholders will not be eligible for the dividends received deduction
as to such amounts. For purposes of determining whether distributions on the
shares of Common Stock are out of current or accumulated earnings and profits,
the earnings and profits of the Company will be allocated first to shares of
Preferred Stock, if any, and second to the shares of Common Stock. There can be
no assurance that the Company will have sufficient earnings and profits to cover
distributions on any shares of Preferred Stock. 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
its stock. However, corporate shareholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. Distributions in excess of
current or accumulated earnings and profits will not be taxable to a shareholder
to the extent that they do not exceed the adjusted basis of the shareholder's
shares of Common Stock, but rather will reduce the adjusted basis of such shares
of Common Stock. To the extent that such distributions exceed the adjusted basis
of a shareholder's shares of Common Stock, they will be included in income as
long-term capital gain (or short-term capital gain if the shares of Common Stock
have been held for one year or less), assuming the shares of Common Stock are a
capital asset in the hands of the shareholder. In addition, any dividend
declared by the Company in October, November or December of any year payable to
a stockholder of record on a specific date in any such month shall be treated as
both paid by the Company and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by the Company during January
of the following calendar year. Stockholders may not include in their individual
income tax returns any net operating losses or capital losses of the Company.
In addition, distributions from the Company and gain from the disposition of
shares of Common Stock will not be treated as "passive activity" income and
therefore stockholders will not be able to apply losses from "passive
activities" to offset such income.
In general, a domestic shareholder will realize capital gain or loss on the
disposition of shares of Common Stock equal to the difference between (i) the
amount of cash and the fair market value of any property received on such
disposition and (ii) the shareholder's adjusted basis of such shares of Common
Stock. Such gain or loss generally will constitute long-term capital gain or
loss if the shareholder has held such shares for more than one year. Loss upon a
sale or exchange of shares of Common Stock by a shareholder who has held such
shares of Common Stock for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such shareholder as
long-term capital gain.
Backup Withholding. The Company will report to its domestic shareholders and
the IRS the amount of dividends paid during each calendar year, and the amount
of tax withheld, if any, with respect thereto. Under the backup withholding
rules, a shareholder may be subject to backup withholding at the rate of 31%
with respect to dividends paid unless such holder (a) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact, or (b) provides a taxpayer identification
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number and certifies as to no loss of exemption from backup withholding. Amounts
withheld as backup withholding will be creditable against the stockholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions made to any shareholders who fail to
certify their non-foreign status to the Company. See "--Taxation of Non-U.S.
Shareholders" below. Additional issues may arise pertaining to information
reporting and backup withholding with respect to Non-U.S. Shareholders (persons
other than (i) citizens or residents of the United States, (ii) corporations,
partnerships or other entities created or organized under the laws of the United
States or any political subdivision thereof, and (iii) estates or trusts the
income of which is subject to United States Federal income taxation regardless
of its source) and Non-U.S. Shareholders should consult their tax advisors with
respect to any such information reporting and backup withholding requirements.
The Treasury Department has recently issued proposed regulations regarding
the withholding and information reporting rules discussed above. In general, the
proposed regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify and modify reliance standards. If finalized in their current form, the
proposed regulations would generally be effective for payments made after
December 31, 1997, subject to certain transition rules.
Taxation of Tax-Exempt Shareholders. As a general rule, amounts distributed
to a tax-exempt entity do not constitute "unrelated business taxable income"
("UBTI"), and thus distributions by the Company to a stockholder that is a
tax-exempt entity should also not constitute UBTI, provided that the tax-exempt
entity has not financed the acquisition of its shares of Common Stock with
"acquisition indebtedness" within the meaning of the Code and the shares of
Common Stock is not otherwise used in an unrelated trade or business of the
tax-exempt entity. However, under the Revenue Reconciliation Act of 1993,
distributions by a REIT to a tax-exempt employee's pension trust that owns more
than 10 percent of the REIT will be treated as UBTI in an amount equal to the
percentage of gross income of the REIT that is derived from an "unrelated trade
or business" (determined as if the REIT were a pension trust) divided by the
gross income of the REIT for the year in which the dividends are paid. This rule
only applies, however, if (i) the percentage of gross income of the REIT that is
derived from an unrelated trade or business for the year in which the dividends
are paid is at least five percent, (ii) the REIT qualifies as a REIT only
because the pension trust is not treated as a single individual for purposes of
the "five-or-fewer rule" (see "--Taxation of the Company (Requirements for
Qualification)" above), and (iii) (A) one pension trust owns more than 25
percent of the value of the REIT or, (B) a group of pension trusts individually
holding more than 10 percent of the value of the REIT collectively own more than
50 percent of the value of the REIT. The Company currently does not expect that
this rule will apply.
Taxation of Non-U.S. Shareholders. The rules governing U.S. Federal income
taxation of Non-U.S. Shareholders are complex, and no attempt will be made
herein to provide more than a limited summary of such rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of U.S. Federal, state and local income tax laws with regard to an
investment in Common Stock, including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
the Company of U.S. real property interests and not designated by the Company as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions, ordinarily, will be subject to a withholding
tax equal to 30% of the gross amount of the distribution unless an applicable
tax treaty reduces that tax. Distributions in excess of current and accumulated
earnings and profits of the Company will not be taxable to a Non-U.S.
Shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's Common Stock, but rather will reduce the adjusted basis of such
Common Stock. To the extent that such distributions exceed the adjusted basis of
a Non-U.S. Shareholder's Common Stock, they will give rise to tax liability if
the Non-U.S. Shareholder would otherwise be subject to tax on any gain from the
sale or disposition of his Common Stock as described below (in which case they
also may be subject to a 30% branch profits tax if the shareholder is a foreign
corporation). If it cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of current or accumulated
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earnings and profits, the entire distribution will be subject to withholding at
the rate applicable to dividends. However, the Non-U.S. Shareholder may seek a
refund of such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of current or accumulated earnings and
profits of the Company.
For any year in which the Company qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA") at the
normal capital gain rates applicable to domestic shareholders (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). Also, distributions subject to FIRPTA
may be subject to a 30% branch profits tax in the hands of a corporate Non-U.S.
Shareholder not entitled to treaty relief or exemption. The Company is required
by applicable Treasury Regulations to withhold 35% of any distribution that is
or could be designated by the Company as a capital gain dividend. The amount
withheld is creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of Common Stock
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. Following the USRealty Transaction, USRealty,
a Luxembourg corporation, holds approximately 46.5% in value of the securities
of the Company. In the event that USRealty and other stockholders of the Company
who are Non-U.S. Shareholders own collectively 50% or more, in value, of the
outstanding stock of the Company, the Company would cease to be a "domestically
controlled REIT."
If the Company does not qualify as a "domestically controlled REIT," a
Non-U.S. Shareholder's sale of securities of the Company generally still will
not be subject to U.S. tax under FIRPTA as a sale of a U.S. real property
interest, provided that (i) the securities are "regularly traded" (as defined by
the applicable Treasury regulations) on an established securities market, and
(ii) the selling Non-U.S. Shareholder held 5% or less of the Company's
outstanding securities at all times during a specified testing period. The
Company believes the Common Stock would be considered to be "regularly traded"
for this purpose, and the Company has no actual knowledge of any Non-U.S.
Shareholder (other than USRealty) that holds in excess of 5% of the Company's
stock. In order to assist the Company in qualifying as a "domestically
controlled REIT," the Articles of Incorporation contain certain provisions
preventing any Non-U.S. Shareholder (other than USRealty and its affiliates)
from acquiring additional shares of the Company's capital stock if, as a result
of such acquisition, the Company would fail to qualify as a "domestically
controlled REIT" (computed assuming that USRealty owns the maximum percentage of
the Company's capital stock that it is permitted to own under the Special
Shareholder Limit). The Company is unlikely to be able to advise a prospective
Non-U.S. Shareholder that its purchase of any shares of the Company's capital
stock would not violate this prohibition, thereby subjecting such prospective
Non-U.S. Shareholder to the adverse consequences described under "Description of
Common Stock--Restrictions on Transfer--Violation of Ownership Limitations."
Accordingly, an acquisition of the Company's capital stock would not likely be a
suitable investment for Non-U.S. Shareholders other than USRealty.
If the gain on the sale of Common Stock were to be subject to tax under
FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as
domestic shareholders with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals), and the purchaser of the Common Stock would be
required to withhold and remit to the IRS 10% of the purchase price.
Finally, Congress is considering legislation that could require the Company,
if it were not to qualify as a "domestically controlled REIT," to withhold and
remit to the IRS 10% of all distributions that are not treated either as
ordinary dividends or "capital gain dividends" and that are made to Non-U.S.
Shareholders who hold more than 5% of the Company's stock. The applicable
Non-U.S. Shareholder could seek a refund of such withheld amounts to the extent
the Non-U.S. Shareholder did not recognize taxable gain as a result of such
distribution.
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Taxation of Holders of Preferred Stock or Common Stock Warrants
Additional Tax Consequences for Holders of Preferred Stock or Common Stock
Warrants. If the Company offers one or more series of Preferred Stock or Common
Stock Warrants, then there may be tax consequences for the holders of such
Securities not discussed herein. For a discussion of any such additional
consequences, see the applicable Prospectus Supplement.
Other Tax Considerations
Effect of Tax Status of Carr Realty, L.P. and Other Partnerships on REIT
Qualification. The Company believes that Carr Realty, L.P., CarrAmerica Realty,
L.P., and each other partnership and limited liability company in which it holds
an interest are properly treated as partnerships for tax purposes (and not as
associations taxable as corporations). If, however, either Carr Realty, L.P. or
CarrAmerica Realty, L.P. were treated as an association taxable as a
corporation, the Company would cease to qualify as a REIT. If any of the other
partnerships were treated as an association taxable as a corporation and the
Company's interest in such partnership exceeded 10% of the partnership's voting
interests or the value of such interest exceeded 5% of the value of the
Company's assets, the Company would cease to qualify as a REIT. Furthermore, in
such a situation, any partnership treated as a corporation would be subject to
corporate income taxes, and distributions from any such partnership to the
Company would be treated as dividends, which are not taken into account in
satisfying the 75% gross income test described above and which therefore could
make it more difficult for the Company to meet the 75% asset test described
above. Finally, in such a situation, the Company would not be able to deduct its
shares of any losses generated by any such partnership in computing its taxable
income.
Tax Allocations with Respect to the Properties. Carr Realty, L.P. was formed
by way of contributions of appreciated property. When property is contributed to
a partnership in exchange for an interest in the partnership, the partnership
generally takes a carryover basis in that property for tax purposes equal to the
adjusted basis of the contributing partner in the property, rather than a basis
equal to the fair market value of the property at the time of contribution (this
difference is referred to as "Book-Tax Difference"). The Carr Realty, L.P.
partnership agreement requires allocations of income, gain, loss and deduction
with respect to the contributed Property be made in a manner consistent with the
special rules in 704(c) of the Code and the regulations thereunder, which will
tend to eliminate the Book-Tax Differences with respect to the contributed
Properties over the life of Carr Realty, L.P. However, because of certain
technical limitations, the special allocation rules of Section 704(c) may not
always entirely eliminate the Book-Tax Difference on an annual basis or with
respect to a specific taxable transaction such as a sale. Thus, the carryover
basis of the contributed Properties in the hands of Carr Realty, L.P. could
cause the Company (i) to be allocated lower amounts of depreciation and other
deductions for tax purposes than would be allocated to the Company if all
Properties were to have a tax basis equal to their fair market value at the time
the Properties were contributed to Carr Realty, L.P., and (ii) possibly to be
allocated taxable gain in the event of a sale of such contributed Properties in
excess of the economic or book income allocated to the Company as a result of
such sale.
Non-Qualified REIT Subsidiaries. The Non-qualified REIT Subsidiaries do not
qualify as REITs and thus pay Federal, state and local income taxes (including
District of Columbia franchise tax) on their net income at normal corporate
rates. To the extent the Non-qualified REIT Subsidiaries are required to pay
Federal, state and local income taxes, the cash available for distribution to
stockholders will be reduced accordingly.
State and Local Taxes; District of Columbia Unincorporated Business Tax. The
Company and its stockholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the Federal income tax consequences
discussed above. In this regard, the District of Columbia imposes an
unincorporated business income tax, at the rate of 10.25%, on the "District of
Columbia taxable income" of partnerships doing business in the District of
Columbia. Because many of the Properties owned by Carr Realty, L.P. are located
in the District of Columbia, the Company's share of the "District of Columbia
taxable income" of Carr Realty, L.P. will be subject to this tax. Carr Realty,
L.P. has taken steps to attempt to reduce the amount of income that is
considered
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"District of Columbia taxable income," but it is likely that at least some
portion of the income attributable to the Properties located in the District of
Columbia will be subject to the District of Columbia tax. To the extent Carr
Realty, L.P. is required to pay the District of Columbia unincorporated business
income tax, the cash available for distribution to the Company and, therefore,
to its stockholders as dividends will be reduced accordingly. This tax would not
apply if the Company were to own and operate its assets directly, rather than
through Carr Realty, L.P.; however, the Company's ability to eliminate Carr
Realty, L.P. and thus own directly the assets currently owned by Carr Realty,
L.P. is severely limited.
PLAN OF DISTRIBUTION
General
The Company may sell Securities in or through underwriters for public offer
and sale by them, and also may sell Securities offered hereby to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer and sell
Securities upon terms and conditions set forth in the applicable Prospectus
Supplement. In connection with the sale of the 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 the Securities for whom they may act as agent. Underwriters may
sell Securities to or through dealers, and such dealers may receive compensation
in the form of discounts, concessions or commissions from the underwriters
and/or commissions 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 the 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 Securities may be deemed to
be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements to be 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 underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase 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 aggregate principal amount of Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Securities covered by its
Contracts shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and (ii)
if the Securities are being sold to underwriters, the Company shall have sold to
such underwriters the total principal amount of the Securities less the
principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and its Subsidiaries
in the ordinary course of business.
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Participation Rights
In conjunction with the USRealty Transaction, so long as USRealty owns at
least 25% of the outstanding Common Stock of the Company on a fully diluted
basis, USRealty will be entitled (except in certain limited circumstances), upon
compliance with certain specified conditions, to a participation right to
purchase or subscribe for, either as part of such issuance or in a concurrent
issuance, a total number of shares of Common Stock or Preferred Stock, as the
case may be, equal to up to 30% (or 35% in certain circumstances) of the total
number of shares or of Common Stock or Preferred Stock, as applicable, proposed
to be issued by the Company pursuant hereto. All purchases pursuant to such
participation rights will be at the same price and on the same terms and
conditions as are applicable to other purchasers hereunder. The Company also may
permit USRealty to purchase additional shares of Common Stock if approved by the
Board.
LEGAL MATTERS
The legality of the Debt Securities, the Preferred Stock, the Common Stock
and the Common Stock Warrants offered hereby will be passed upon for the Company
by Hogan & Hartson L.L.P., Washington, D.C. Certain federal tax matters will be
passed upon for the Company by Hogan & Hartson L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements and financial statement schedule of the
Company and the combined financial statements of the Carr Group, each
incorporated herein by reference, have been incorporated in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected at the Public Reference Section maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and the
following regional offices of the Commission: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Company's Common Stock are listed
on the New York Stock Exchange and such reports, proxy statements and other
information concerning the Company can be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement"), of which this Prospectus is a part, under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other documents are not necessarily complete, and in each instance, reference is
made to the copy of such contract or documents filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Securities, reference is hereby made to the
Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission.
37
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the Exchange
Act with the Commission and are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1995;
2. The Company's Current Report on Form 8-K dated March 29, 1996 and filed
with the Commission on April 10, 1996 pursuant to the Exchange Act, and a Form
8-K/A related thereto and filed with the Commission on May 14, 1996, relating to
the purchase of AT&T Center located in Alameda County, California;
3. The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996;
4. The Company's Current Report on Form 8-K dated April 30, 1996 and filed
with the Commission on May 16, 1996 pursuant to the Exchange Act, relating to
the closing of the USRealty Transaction;
5. The Company's Current Report on Form 8-K dated May 24, 1996 and filed with
the Commission on May 24, 1996 pursuant to the Exchange Act, relating to certain
pro forma financial information; and
6. The Company's Current Report on Form 8-K dated June 26, 1996 and filed
with the Commission on June 26, 1996 pursuant to the Exchange Act, relating to
the purchase of certain properties and the presentation of certain historical
and pro forma financial information.
All documents filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of all Securities to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and shall be part
hereof from the date of filing of such document.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in this
Prospectus (in the case of a statement in a previously filed document
incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of Securities
or in any other subsequently filed document that is also incorporated or 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 or any
accompanying Prospectus Supplement. Subject to the foregoing, all information
appearing in this Prospectus and each accompanying Prospectus Supplement is
qualified in its entirety by the information appearing in the documents
incorporated by reference.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon their
written or oral request, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents). Written requests
for such copies should be addressed to Secretary, CarrAmerica Realty
Corporation, 1700 Pennsylvania Ave., N.W., Washington, D.C. 20006, telephone
number (202) 624-7500.
38
<PAGE>
================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus Supplement or the Prospectus in
connection with the offer made by this Prospectus Supplement and the Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or the Underwriters. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder and thereunder shall under any circumstance create an implication that
there has been no change in the affairs of the Company since the date hereof.
This Prospectus Supplement and the Prospectus do not constitute an offer or
solicitation by anyone in any state in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
--------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Prospectus Supplement Summary........... S-3
The Company............................. S-7
Recent Developments..................... S-10
Use of Proceeds......................... S-15
Price Range of Common Stock and
Dividend History...................... S-16
Capitalization.......................... S-17
Pro Forma Financial Information......... S-18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ S-23
Properties.............................. S-28
Management.............................. S-36
Underwriting............................ S-37
Legal Matters........................... S-38
Prospectus
The Company ............................ 2
Risk Factors ........................... 3
Use of Proceeds ........................ 8
Ratios of Earnings to Fixed Charges ... 9
Description of Debt Securities ......... 10
Description of Preferred Stock ......... 21
Description of Common Stock ............ 26
Description of Common Stock Warrants .. 29
Federal Income Tax Considerations ...... 29
Plan of Distribution ................... 36
Legal Matters .......................... 37
Experts ................................ 37
Available Information .................. 37
Incorporation of Certain Documents by
Reference............................... 38
================================================================================
<PAGE>
================================================================================
8,400,000 SHARES
[LOGO]
CARRAMERICA REALTY CORPORATION
COMMON STOCK
------------------
PROSPECTUS SUPPLEMENT
------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
J.P. MORGAN & CO.
PRUDENTIAL SECURITIES INCORPORATED
LEGG MASON WOOD WALKER
Incorporated
WHEAT FIRST BUTCHER SINGER
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the estimated fees and expenses payable by the
Company in connection with the issuance and distribution of the securities being
registered:
SEC Registration Fee.............. $206,897
NASD filing fee .................. 30,500
Printing and Duplicating Expenses *
Legal Fees and Expenses .......... *
Accounting Fees and Expenses .... *
Blue Sky Fees and Expenses ...... *
Miscellaneous .................... *
--------
Total........................... $ *
========
- -------------
*To be supplied by amendment
Item 15. Indemnification of Directors and Officers
The Company's officers and directors are and will be indemnified under
Maryland and Delaware law, the charter and by-laws of the Company, the
partnership agreement of Carr Realty, L.P. and the partnership agreement of
CarrAmerica Realty, L.P.
The charter and by-laws of the Company require that the Company shall, to the
fullest extent permitted by Section 2-418 of the Maryland General Corporation
Law (the "MGCL") as in effect from time to time, indemnify any person who is or
was, or is the personal representative of a deceased person who was, a director
or officer of the Company against any judgments, penalties, fines, settlements
and reasonable expenses and any other liabilities; provided, that, unless
applicable law otherwise requires, indemnification shall be contingent upon a
determination, by the Board by a majority vote of a quorum consisting of
directors not, at the time, parties to the proceeding, or, if such a quorum
cannot be obtained, then by a majority vote of a committee of the Board
consisting solely of two or more directors not, at the time, parties to such
proceeding and who were duly designated to act in the matter by a majority vote
of the full Board in which the designated directors who are parties may
participate or by special legal counsel selected by and if directed by the Board
as set forth above, that indemnification is proper in the circumstances because
such director, officer, employee, or agent has met the applicable standard of
conduct prescribed by Section 2-418(b) of the MGCL.
Under Maryland law, a corporation formed in Maryland is permitted to limit,
by provision in its charter, the liability of directors and officers so that no
director or officer of the Company shall be liable to the Company or to any
shareholder for money damages except to the extent that (i) the director or
officer actually received an improper benefit in money, property or services,
for the amount of the benefit or profit in money, property or services actually
received, or (ii) a judgment or other final adjudication adverse to the director
or officer is entered in a proceeding based on a finding in a proceeding that
the director's or officer's action was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding.
The partnership agreements of Carr Realty, L.P. and CarrAmerica Realty, L.P.
also provide for indemnification of the Company and their officers and directors
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees and expenses), judgments, fines, settlements, and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the partnership as set forth in the partnership agreements in
which any indemnitee may be involved, or is threatened to be involved, unless it
is established that (i) the act or mission of the indemnitee was material to the
matter giving rise
II-1
<PAGE>
to the proceeding and either was committed in bad faith or was the result of
active and deliberate dishonesty, (ii) the indemnitee actually received an
improper personal benefit in money, property or services, or (iii) in the case
of a criminal proceeding, the indemnitee had cause to believe that the act or
omission was unlawful. The termination of any proceeding by judgment, order or
settlement does not create a presumption that the indemnitee did not meet the
requisite standard of conduct set forth in the respective partnership agreement
section on indemnification. The termination of any proceeding by conviction or
upon a plea of nolo contendere or its equivalent, or an entry of an order of
probation prior to judgment creates a rebuttable presumption that the indemnitee
acted in a manner contrary to that specified in the indemnification section of
the partnership agreements. Any indemnification pursuant to one of the
partnership agreements may only be made out of the assets of that respective
partnership.
Item 16. Exhibits
1.1+ -- Purchase Agreement by and among CarrAmerica Realty Corporation,
CarrAmerica Realty L.P., Carr Realty L.P. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated
3.1* -- Articles of Amendment and Restatement of Incorporation of the
Company, as amended
3.2* -- Amendment and Restatement of By-laws of the Company, as amended
4.1+ -- Form of Senior Indenture between the Company and Trustee
4.2+ -- Form of Subordinate Indenture between the Company and Trustee
5.1** -- Opinion of Hogan & Hartson L.L.P.
8.1** -- Opinion of Hogan & Hartson L.L.P. regarding certain tax matters
10.1 -- Credit Agreement between the Company and Morgan Guaranty Trust
Company of New York
12.1** -- Computation of Ratio of Earnings to Fixed Charges
23.1 -- Consent of KMPG Peat Marwick, LLP
23.2** -- Consent of Hogan & Hartson L.L.P. (included in Exhibit 5)
23.3** -- Consent of Hogan & Hartson L.L.P. (included in Exhibit 8.1)
24.1+ -- Powers of Attorney
25.1** -- Statement of Eligibility of Trustee on Form T-1
- ---------------
* Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
** To be filed by amendment.
+ Previously filed.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered
II-2
<PAGE>
would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) Toinclude 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 this
registration statement; provided, however, that subparagraphs
(i) and (ii) above do not apply if the registration statement
is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in 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 Offered Securities offered herein, and
the offering of such Offered 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 Offered Securities being registered which remain unsold at the termination
of the offering.
The undersigned registrant hereby undertakes that, for the 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 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 Offered Securities offered therein, and the offering of such
Offered Securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to existing provisions or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Washington, D.C., on June 27, 1996.
CARRAMERICA REALTY CORPORATION,
a Maryland corporation
By: /s/ Oliver T. Carr, Jr.
---------------------------------
Oliver T. Carr, Jr.
Chairman of the Board of
Directors, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
below on June 27, 1996:
Name Title
/s/Oliver T. Carr, Jr.
- --------------------- Chairman of the Board, Chief Executive Officer and
Oliver T. Carr, Jr. Director (principal executive officer)
/s/Thomas A. Carr
- --------------------- President, Chief Operating Officer and
Thomas A. Carr Director
/s/ Brian K. Fields
- --------------------- Chief Financial Officer (principal financial officer
Brian K. Fields and principal accounting officer)
- ---------------------
David Bonderman Director
*
- ---------------------
Andrew F. Brimmer Director
*
- ---------------------
Robert O. Carr Director
*
- ---------------------
A. James Clark Director
*
- ---------------------
Douglas T. Healy Director
<PAGE>
*
- ----------------------
Anthony R. Manno, Jr. Director
- ----------------------
J. Marshall Peck Director
*
- ----------------------
George R. Puskar Director
*
- ----------------------
William D. Sanders Director
*
- ----------------------
Wesley S. Williams Director
*By: /s/ Andrea F. Bradley
---------------------
Andrea F. Bradley
As Attorney-in-Fact
(See Exhibit 24.1)
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibit Numbered Page
- ------ ---------------------- -------------
<S> <C>
1.1+ -- Purchase Agreement by and among CarrAmerica Realty Corporation,
CarrAmerica Realty L.P., Carr Realty L.P. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated
3.1* -- Articles of Incorporation of the Company, as amended
3.2* -- Amendment and Restatement of By-laws of the Company, as amended
4.1+ -- Form of Senior Indenture between the Company and the Trustee
4.2+ -- Form of Subordinate Indenture between the Company and Trustee
5.1** -- Opinion of Hogan & Hartson L.L.P.
8.1** -- Opinion of Hogan & Hartson L.L.P. regarding certain tax matters
10.1 -- Credit Agreement between the Company and Morgan Guaranty Trust
Company of New York
12.1** -- Computation of Ratios of Earnings to Fixed Charges
23.1 -- Consent of KMPG Peat Marwick, LLP
23.2** -- Consent of Hogan & Hartson L.L.P. (included in Exhibit 5)
23.3** -- Consent of Hogan & Hartson L.L.P. (included in Exhibit 8.1)
24.1+ -- Powers of Attorney
25.1** -- Statement of Eligibility of Trustee on Form T-1
- --------------------
<FN>
* Incorporated by reference to the same numbered exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995,
as filed with the Commission on April 1, 1996.
** To be filed by amendment.
+ Previously filed.
</FN>
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REVOLVING CREDIT AGREEMENT
dated as of May 23, 1996
among
CARRAMERICA REALTY CORPORATION
and
CARR REALTY, L.P.
collectively, Borrowers
and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Bank and as Agent for the Banks
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions........................................... 1
SECTION 1.2. Accounting Terms and Determinations................... 23
SECTION 1.3. Types of Borrowings................................... 24
ARTICLE II
THE CREDITS
SECTION 2.1. Commitments to Lend................................... 24
SECTION 2.2. Notice of Borrowing................................... 25
SECTION 2.3. Notice to Banks; Funding of Loans..................... 27
SECTION 2.4. Notes................................................. 28
SECTION 2.5. Maturity of Loans..................................... 29
SECTION 2.6. Interest Rates........................................ 29
SECTION 2.7. Fees.................................................. 31
SECTION 2.8. Mandatory Termination; Extension Option............... 32
SECTION 2.9. Mandatory Prepayment.................................. 33
SECTION 2.10. Optional Prepayments.................................. 34
SECTION 2.11. General Provisions as to Payments..................... 36
SECTION 2.12. Funding Losses........................................ 37
SECTION 2.13. Computation of Interest and Fees...................... 37
SECTION 2.14. Method of Electing Interest Rates..................... 37
SECTION 2.15 Letters of Credit..................................... 39
SECTION 2.16 Letter of Credit Usage Absolute........................42
ARTICLE III
CONDITIONS
SECTION 3.1. Closing................................................ 44
SECTION 3.2. Borrowings............................................. 47
SECTION 3.3. Conditions Precedent to New Acquisitions
and Additional Real Property Assets.......... 48
ARTICLE IV
BORROWERS' REPRESENTATIONS AND WARRANTIES
SECTION 4.1. Existence and Power of Carr........................... 50
SECTION 4.2. Existence and Power of Carr LP.........................50
SECTION 4.3. Power and Authority of Carr........................... 50
SECTION 4.4. Power and Authority of Carr LP.........................50
SECTION 4.5. No Violation.......................................... 51
SECTION 4.6. Financial Information................................. 51
SECTION 4.7. Litigation............................................ 52
SECTION 4.8. Compliance with ERISA................................. 52
SECTION 4.9. Environmental Matters................................. 53
SECTION 4.10. Taxes................................................. 53
SECTION 4.11. Full Disclosure....................................... 54
<PAGE>
Page
0129100.10-01S4a
v
SECTION 4.12. Solvency.............................................. 54
SECTION 4.13. Use of Proceeds; Margin Regulations................... 54
SECTION 4.14. Governmental Approvals................................ 54
SECTION 4.15. Investment Company Act; Public Utility
Holding Company Act.......................... 54
SECTION 4.16. Closing Date Transactions............................. 55
SECTION 4.17. Representations and Warranties in Loan
Documents............................................. 55
SECTION 4.18. Patents, Trademarks, etc.............................. 55
SECTION 4.19. No Default............................................ 55
SECTION 4.20. Licenses, etc......................................... 56
SECTION 4.21. Compliance With Law................................... 56
SECTION 4.22. No Burdensome Restrictions............................ 56
SECTION 4.23. Brokers' Fees......................................... 56
SECTION 4.24. Labor Matters......................................... 56
SECTION 4.25. Organizational Documents.............................. 57
SECTION 4.26. Principal Offices..................................... 57
SECTION 4.27. REIT Status............................................57
SECTION 4.28. Ownership of Property..................................57
SECTION 4.29. Insurance..............................................57
SECTION 4.30. Surveys................................................58
ARTICLE V
AFFIRMATIVE AND NEGATIVE COVENANTS
SECTION 5.1. Information........................................... 58
SECTION 5.2. Payment of Obligations................................ 62
SECTION 5.3. Maintenance of Property; Insurance.................... 62
SECTION 5.4. Conduct of Business................................... 63
SECTION 5.5. Compliance with Laws.................................. 63
SECTION 5.6. Inspection of Property, Books and Records............. 63
SECTION 5.7. Existence............................................. 63
SECTION 5.8. Financial Covenants................................... 63
SECTION 5.9. Restriction on Fundamental Changes;
Operation and Control....................... 65
SECTION 5.10. Changes in Business................................... 65
SECTION 5.11. Fiscal Year; Fiscal Quarter........................... 65
SECTION 5.12. Margin Stock.......................................... 66
SECTION 5.13. Sale of Borrowing Base Properties......................66
SECTION 5.14. Liens; Release of Liens................................66
SECTION 5.15. Use of Proceeds........................................66
SECTION 5.16. Development Activities.................................67
SECTION 5.17. Restrictions on Recourse Debt..........................67
SECTION 5.18. Carr's Status..........................................67
SECTION 5.19. Certain Requirements for the
Borrowing Base Properties..................68
SECTION 5.20. Hedging Requirements .................................68
<PAGE>
ARTICLE VI
DEFAULTS
SECTION 6.1. Events of Default..................................... 68
SECTION 6.2. Rights and Remedies................................... 72
SECTION 6.3. Notice of Default..................................... 72
SECTION 6.3. Actions in Respect of Letters of Credit............... 72
ARTICLE VII
THE AGENT
SECTION 7.1. Appointment and Authorization......................... 75
SECTION 7.2. Agent and Affiliates.................................. 75
SECTION 7.3. Action by Agent....................................... 75
SECTION 7.4. Consultation with Experts............................. 76
SECTION 7.5. Liability of Agent.................................... 76
SECTION 7.6. Indemnification....................................... 76
SECTION 7.7. Credit Decision....................................... 76
SECTION 7.8. Successor Agent....................................... 77
SECTION 7.9. Agent's Fee........................................... 77
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.1. Basis for Determining Interest Rate Inadequate or
Unfair................................................ 77
SECTION 8.2. Illegality............................................ 78
SECTION 8.3. Increased Cost and Reduced Return..................... 79
SECTION 8.4. Taxes................................................. 80
SECTION 8.5. Base Rate Loans Substituted
for Affected Euro-Dollar Loans............. 83
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Notices............................................... 84
SECTION 9.2. No Waivers............................................ 84
SECTION 9.3. Expenses; Indemnification............................. 84
SECTION 9.4. Sharing of Set-Offs................................... 86
SECTION 9.5. Amendments and Waivers................................ 87
SECTION 9.6. Successors and Assigns................................ 88
SECTION 9.7. Governing Law; Submission to
Jurisdiction............................... 90
SECTION 9.8. Marshalling; Recapture................................ 90
SECTION 9.9. Counterparts; Integration; Effectiveness...............91
SECTION 9.10. WAIVER OF JURY TRIAL.................................. 91
SECTION 9.11. Survival.............................................. 91
SECTION 9.12. Domicile of Loans..................................... 91
SECTION 9.13. Limitation of Liability............................... 92
SECTION 9.14 Confidentiality........................................92
Schedule 4.28 - Ownership of Property
<PAGE>
0129100.10-01S4a
iv
Exhibit A-1 - Form of Tranche A Note
Exhibit A-2 - Form of Tranche B Note
Exhibit B - Borrowing Base Properties
Exhibit C - Assignment and Assumption Agreement
<PAGE>
REVOLVING CREDIT AGREEMENT
REVOLVING CREDIT AGREEMENT, dated as of May 23, 1996, among CARRAMERICA
REALTY CORPORATION ("Carr"), CARR REALTY, L.P. ("Carr LP"; Carr and Carr LP
each, a "Borrower" and collectively, the "Borrowers:) and MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Bank and as Agent for the Banks.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein,
have the following meanings:
"Adjusted London Interbank Offered Rate" has the meaning set
forth in Section 2.6(b).
"Administrative Questionnaire" means, with respect to each
Bank, an administrative questionnaire in the form prepared by the Agent and
submitted to the Agent (with a copy to the Borrowers) duly completed by such
Bank.
"Agent" means Morgan Guaranty Trust Company of New York in its
capacity as agent for the Banks hereunder, and its successors in such capacity.
"Agreement" means this Revolving Credit Agreement as the same
may from time to time hereafter be modified, supplemented or amended.
"Allocated Borrowing Base Property Loan Amount" means as to
any Borrowing Base Property, an amount equal
<PAGE>
to the product from time to time of (x) the outstanding principal balance of the
Loans at the time in question, and (y) a fraction, the numerator of which is the
amount (the "Numerator Amount") indicated next to such Borrowing Base Property
listed on Exhibit B attached hereto and made a part hereof and such other
amounts hereafter determined as hereinafter set forth upon the addition of any
New Acquisition or Real Property Asset to the Borrowing Base Properties, and the
denominator of which is the aggregate of the Numerator Amounts with respect to
all the Borrowing Base Properties at the time in question. Effective upon the
release of any Borrowing Base Property in accordance with the terms of this
Agreement, "Allocated Borrowing Base Property Loan Amount" shall no longer be
deemed to include the amount corresponding to such released Borrowing Base
Property. Upon the addition of any New Acquisition or Real Property Asset to the
Borrowing Base Properties, the amount with respect thereto for purposes of
determining the numerator and the denominator in clause (y), shall be equal to
the purchase price thereof if the same shall have been purchased within one year
of such addition.
"Annual EBITDA" means, measured as of the last day of each
calendar quarter, an amount derived from (i) total revenues relating to all Real
Property Assets of the Borrowers and their Consolidated Subsidiaries or to the
Borrowers' interest in Minority Holdings for the previous four consecutive
calendar quarters including the quarter then ended, on a cash basis, plus (ii)
interest and other income of the Borrowers and their Consolidated Subsidiaries,
including, without limitation, real estate service revenues, for such period,
less (iii) total operating expenses and other expenses relating to such Real
Property Assets and to the Borrowers' interest in Minority Holdings for such
period (other than interest, taxes, depreciation, amortization, and other
non-cash items), less (iv) total corporate operating expenses (including
general overhead expenses) and other expenses of the Borrowers, their
Consolidated Subsidiaries and the Borrowers' interest in Minority Holdings
(other than interest, taxes, depreciation, amortization and other non-cash
items), for such period.
"Applicable Interest Rate" means the lesser of (x) the rate at
which the interest rate applicable to any floating rate Indebtedness could be
fixed, at the time of calculation, by the applicable Borrower entering into an
unsecured interest rate swap agreement (or, if such rate is incapable of being
fixed by entering into an unsecured interest rate swap agreement at the time of
calculation, a reasonably determined fixed rate equivalent), and (y) the rate at
which the interest rate applicable to such floating rate Indebtedness is
actually capped, at the time of calculation, if such Borrower has entered into
an interest rate cap agreement with respect thereto.
"Applicable Lending Office" means, with respect to any Bank,
(i) in the case of its Base Rate Loans, its Domestic Lending Office and (ii) in
the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office.
3
<PAGE>
"Applicable Margin" means, with respect to each Loan, the
respective percentages per annum determined, at any time from and after the
receipt by Carr of two (2) Investment Grade Ratings, based on the range into
which the rating or "shadow" rating on Carr's senior long-term unsecured debt
then falls, in accordance with the following table. Any change in Carr's
Investment Grade Rating causing it to move to a different range on the table
shall effect an immediate change in the Applicable Margin. In the event that
Carr receives two (2) Investment Grade Ratings that are not equivalent, the
Applicable Margin shall be determined by the lower of such two (2) Investment
Grade Ratings, at least one of which shall be an Investment Grade Rating from
S&P or Moody's. In the event Carr receives more than two (2) ratings (from S&P,
Moody's, Duff & Phelps or Fitch) and such ratings are not equivalent, the
Applicable Margin shall be determined by the lower of the two highest ratings;
provided that each of said two (2) highest ratings shall be Investment Grade
Ratings and at least one of which shall be an Investment Grade Rating from S&P
or Moody's.
Range of Applicable
Carr's Margin for Applicable
Credit Rating Base Rate Margin for Euro
(S&P/Moody's Loans Dollar Loans
Ratings) (% per annum) (% per annum)
-------- ------------- -------------
BBB-/Baa3 .125 1.625
BBB/Baa2 0 1.50
The Applicable Margin for so long as Carr shall not have
obtained two Investment Grade Ratings (at least one of which shall be from S&P
or Moody's) or after Borrower loses its Investment Grade Rating, shall be as
follows:
Applicable
Margin for Applicable
4
<PAGE>
Base Rate Margin for Euro
Loans Dollar Loans
(% per annum) (% per annum)
------------- -------------
.25 1.75
"Assignee" has the meaning set forth in Section 9.6(c).
"Bank" means Morgan and each Assignee which becomes a Bank
pursuant to Section 9.6(c), and their respective successors.
"Bankruptcy Code" means Title 11 of the United States Code,
entitled "Bankruptcy", as amended from time to time, and any successor statute
or statutes.
"Base Rate" means, for any day, a rate per annum equal to the
higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
"Base Rate Loan" means a Loan to be made by a Bank as a Base
Rate Loan in accordance with the applicable Notice of Borrowing or pursuant to
Article VIII.
"Benefit Arrangement" means at any time an employee benefit
plan within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means either (i) Carr and its successors or (ii)
Carr LP and its successors, and, collectively, "Borrowers" shall mean both
Borrowers.
"Borrowing" means a borrowing hereunder consisting of Loans
made to the Borrower at the same time by the Banks pursuant to Article II. A
Borrowing is a "Domestic Borrow-
5
<PAGE>
ing" if such Loans are Base Rate Loans or a "Euro-Dollar Borrowing" if such
Loans are Euro-Dollar Loans.
"Borrowing Base Net Operating Cash Flow" means as of any date
of determination with respect to the Borrowing Base Properties, Property Income
for the previous four consecutive quarters including the quarter then ended, but
less (x) Property Expenses with respect to the Borrowing Base Properties for the
previous four consecutive quarters including the quarter then ended and (y) the
greater of (i) Capital Expenditures which are not related to new construction
for the previous four consecutive quarters including the quarter then ended and
(ii) appropriate reserves for replacements of not less than $2.29 per square
foot per annum for each Borrowing Base Property. For purposes of Section 5.1(m)
hereof, the calculation of Borrowing Base Net Operating Cash Flow shall be made
separately as to each Borrowing Base Property.
"Borrowing Base Properties" means, as of any date, the Real
Property Assets listed in Exhibit B attached hereto and made a part hereof, each
of which is 100% owned in fee (or leasehold in the case of assets listed as such
on Exhibit B) by Carr or Carr LP or any Consolidated Subsidiary of Carr or Carr
LP and each of which is not subject to any Lien (other than Permitted Liens),
subject to adjustment as set forth herein, together with all New Acquisitions or
Real Property Assets which have become part of the Borrowing Base Properties as
of such date in accordance with Section 3.3 and excluding any Borrowing Base
Properties which have been released from this Agreement and the other Loan
Documents as of such date in accordance with Sections 5.13 and 5.14 and all
other terms of this Agreement.
"Borrowing Base Properties Minimum Debt Service Coverage"
means as of the last day of each calendar quarter, Borrowing Base Net Operating
Cash Flow equal to or greater than 200% of Pro-Forma Debt Service.
6
<PAGE>
"Borrowing Base Properties Value" means the aggregate of (i)
with respect to the Borrowing Base Properties acquired (A) on or before January
1, 1996 or (B) after January 1, 1996 and on or after the first anniversary of
the date of acquisition of such Borrowing Base Property, the quotient of (x) Net
Operating Income with respect to the Borrowing Base Properties less appropriate
reserves for replacements of not less than $.50 per square foot per annum for
each Borrowing Base Property and (y) 11% and (ii) with respect to the Borrowing
Base Properties acquired after January 1, 1996 and prior to the first
anniversary of the date of acquisition of each such Borrowing Base Property, the
lesser of (A) the quotient of (x) Net Operating Income with respect to the
Borrowing Base Properties less appropriate reserves for replacements of not less
than $.50 per square foot per annum for each Borrowing Base Property and (y) 11%
and (B) the purchase price of such Borrowing Base Property.
"Capital Expenditures" means, for any period, the sum of all
expenditures (whether paid in cash or accrued as a liability) by Carr or Carr
LP, as applicable, which are capitalized on the consolidated balance sheet of
such Borrower in conformity with GAAP, but less all expenditures made with
respect to the acquisition by Carr or Carr LP and their Consolidated
Subsidiaries of any interest in real property within nine months after the date
such interest in real property is acquired.
"Cash or Cash Equivalents" means (i) cash, (ii) direct
obligations of the United States Government, including, without limitation,
treasury bills, notes and bonds, (iii) interest bearing or discounted
obligations of Federal agencies and Government sponsored entities or pools of
such instruments offered by banks rated AA or better by S&P or Aa2 by Moody's
and dealers, including, without limitation, Federal Home Loan Mortgage
Corporation participation sale certificates, Government National Mortgage
Association modified pass-through certificates, Federal National Mortgage
Association bonds and notes, Federal Farm Credit System securities, (iv) time
deposits, domestic and Eurodollar certificates of deposit, bankers acceptances,
commercial paper rated at least A-1 by S&P and P-1 by Moody's, and/or guaranteed
by an Aa rating by Moody's, an AA rating by S&P,
7
<PAGE>
or better rated credit, floating rate notes, other money market instruments and
letters of credit each issued by banks which have a long-term debt rating of at
least AA by S&P or Aa2 by Moody's, (v) obligations of domestic corporations,
including, without limitation, commercial paper, bonds, debentures, and loan
participations, each of which is rated at least AA by S&P, and/or Aa2 by
Moody's, and/or unconditionally guaranteed by an AA rating by S&P, an Aa2 rating
by Moody's, or better rated credit, (vi) obligations issued by states and local
governments or their agencies, rated at least MIG-1 by Moody's and/or SP-1 by
S&P and/or guaranteed by an irrevocable letter of credit of a bank with a
long-term debt rating of at least AA by S&P or Aa2 by Moody's, (vii) repurchase
agreements with major banks and primary government securities dealers fully
secured by U.S. Government or agency collateral equal to or exceeding the
principal amount on a daily basis and held in safekeeping, and (viii) real
estate loan pool participations, guaranteed by an entity with an AA rating given
by S&P or an Aa2 rating given by Moody's, or better rated credit.
"Closing Date" means the date on which the Agent shall have
received the documents specified in or pursuant to Section 3.1.
"Commitment" means, collectively, the Tranche A Commitment and
the Tranche B Commitment with respect to each Bank.
"Consolidated Subsidiary" means at any date any Subsidiary or
other entity which is consolidated with either Borrower in accordance with GAAP.
"Consolidated Tangible Net Worth" means at any date the
consolidated stockholders' equity of Carr (determined on a book basis), less its
consolidated Intangible Assets, all determined as of such date. For purposes of
this definition "Intangible Assets" means with respect to any such intangible
assets, the amount (to the extent reflected in determining such consolidated
stockholders' equity) of all write-ups subsequent to December 31, 1995 in the
book value of any asset owned by either Borrower or a Consolidated Subsidiary
and (ii) goodwill, patents, trade-
8
<PAGE>
marks, service marks, trade names, anticipated future benefit of tax loss carry
forwards, copyrights, organization or developmental expenses and other
intangible assets.
"Contingent Obligation" as to any Person means, without
duplication, (i) any contingent obligation of such Person required to be shown
on such Person's balance sheet in accordance with GAAP, and (ii) any obligation
required to be disclosed in the footnotes to such Person's financial statements,
guaranteeing partially or in whole any non-recourse Debt, lease, dividend or
other obligation, exclusive of contractual indemnities (including, without
limitation, any indemnity or price-adjustment provision relating to the purchase
or sale of securities or other assets) and guarantees of non-monetary
obligations (other than guarantees of completion) which have not yet been called
on or quantified, of such Person or of any other Person. The amount of any
Contingent Obligation described in clause (ii) shall be deemed to be (a) with
respect to a guaranty of interest or interest and principal, or operating income
guaranty, the sum of all payments required to be made thereunder (which in the
case of an operating income guaranty shall be deemed to be equal to the debt
service for the note secured thereby), calculated at the Applicable Interest
Rate, through (i) in the case of an interest or interest and principal guaranty,
the stated date of maturity of the obligation (and commencing on the date
interest could first be payable thereunder), or (ii) in the case of an operating
income guaranty, the date through which such guaranty will remain in effect, and
(b) with respect to all guarantees not covered by the preceding clause (a), an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such guaranty is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof (assuming such
Person is required to perform thereunder) as recorded on the balance sheet and
on the footnotes to the most recent financial statements of the applicable
Borrower required to be delivered pursuant to Section 4.6 hereof.
Notwithstanding anything contained herein to the contrary, guarantees of
completion shall not be deemed to be Contingent Obligations unless and until a
claim for payment or performance has been made thereunder, at which time any
such guaranty of completion shall be
9
<PAGE>
deemed to be a Contingent Obligation in an amount equal to any such claim.
Subject to the preceding sentence, (i) in the case of a joint and several
guaranty given by such Person and another Person (but only to the extent such
guaranty is recourse, directly or indirectly to the applicable Borrower), the
amount of the guaranty shall be deemed to be 100% thereof unless and only to the
extent that such other Person has delivered Cash or Cash Equivalents to secure
all or any part of such Person's guaranteed obligations, (ii) in the case of
joint and several guarantees given by a Person in whom the applicable Borrower
owns an interest (which guarantees are non-recourse to the applicable Borrower),
to the extent the guarantees, in the aggregate, exceed 15% of total real estate
investments, the amount in excess of 15% shall be deemed to be a Contingent
Obligation of the applicable Borrower, and (iii) in the case of a guaranty
(whether or not joint and several) of an obligation otherwise constituting Debt
of such Person, the amount of such guaranty shall be deemed to be only that
amount in excess of the amount of the obligation constituting Debt of such
Person. Notwithstanding anything contained herein to the contrary, "Contingent
Obligations" shall not be deemed to include guarantees of Unused Commitments or
of construction loans to the extent the same have not been drawn.
"Debt" of any Person means, without duplication, (A) as shown
on such Person's consolidated balance sheet (i) all indebtedness of such Person
for borrowed money or for the deferred purchase price of property and, (ii) all
indebtedness of such Person evidenced by a note, bond, debenture or similar
instrument (whether or not disbursed in full in the case of a construction
loan), (B) the face amount of all letters of credit issued for the account of
such Person and, without duplication, all unreimbursed amounts drawn thereunder,
(C) all Contingent Obligations of such Person, (D) all payment obligations of
such Person under any interest rate protection agreement (including, without
limita-
10
<PAGE>
tion, any interest rate swaps, caps, floors, collars and similar agreements) and
currency swaps and similar agreements which were not entered into specifically
in connection with Debt set forth in clauses (A), (B) or (C) hereof. For
purposes of this Agreement, Debt (other than Contingent Obligations) of the
applicable Borrower shall be deemed to include only the applicable Borrower's
pro rata share (such share being based upon the applicable Borrower's percentage
ownership interest as shown on the applicable Borrower's annual audited
financial statements) of the Debt of any Person in which the applicable
Borrower, directly or indirectly, owns an interest, provided that such Debt is
nonrecourse, both directly and indirectly, to the applicable Borrower.
"Debt Service" shall mean, measured as of the last day of each
calendar quarter, an amount equal to the sum of (i) interest (whether accrued,
paid or capitalized) actually payable by either Borrower or the Borrowers on its
Debt for the previous four consecutive quarters including the quarter then
ended, plus (ii) scheduled payments of principal on such Debt, whether or not
paid by either Borrower or the Borrowers (excluding balloon payments) for the
previous four consecutive quarters including the quarter then ended.
"Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.
"Domestic Business Day" means any day except a Saturday,
Sunday or other day on which commercial banks in New York City are authorized by
law to close.
"Domestic Lending Office" means, as to each Bank, its office
located within the United States at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its Domestic
Lending
11
<PAGE>
Office) or such other office within the United States as such Bank may hereafter
designate as its Domestic Lending Office by notice to the Borrowers and the
Agent.
"Due Diligence Package" has the meaning provided in Section
3.3.
"Duff & Phelps" means Duff & Phelps Credit Rating Co. or any
successor thereto.
"Environmental Affiliate" means any partnership, or joint
venture, trust or corporation in which an equity interest is owned by either
Borrower, either directly or indirectly.
"Environmental Approvals" means any permit, license, approval,
ruling, variance, exemption or other authorization required under applicable
Environmental Laws.
"Environmental Claim" means, with respect to any Person, any
notice, claim, demand or similar communication (written or oral) by any other
Person alleging potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damage, property damages,
personal injuries, fines or penalties arising out of, based on or resulting from
(i) the presence, or release into the environment, of any Material of
Environmental Concern at any location, whether or not owned by such Person or
(ii) circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law, in each case as to which there is a reasonable likelihood
of an adverse determination with respect thereto and which, if adversely
determined, would have a Material Adverse Effect.
"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchis-
12
<PAGE>
es, licenses, agreements and other governmental restrictions relating to the
environment, the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances or
hazardous wastes into the environment including, without limitation, ambient
air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, Hazardous Substances or
hazardous wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any successor statute.
"ERISA Group" means the Borrowers, any Subsidiary and all
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which, together with the
Borrowers or any Subsidiary, are treated as a single employer under Section 414
of the Internal Revenue Code.
"Euro-Dollar Borrowing" has the meaning set forth in Section
1.3.
"Euro-Dollar Business Day" means any Domestic Business Day on
which commercial banks are open for international business (including dealings
in dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its
office, branch or affiliate located at its address set forth in its
Administrative Questionnaire (or identified in its Administrative Questionnaire
as its Euro-Dollar Lending Office) or such other office, branch or affiliate of
such Bank as it may hereafter designate as its Euro-Dollar Lending Office by
notice to the Borrowers and the Agent.
13
<PAGE>
"Euro-Dollar Loan" means a Loan to be made by a Bank as a
Euro-Dollar Loan in accordance with the applicable Notice of Borrowing.
"Euro-Dollar Reserve Percentage" has the meaning set forth in
Section 2.6(b).
"Event of Default" has the meaning set forth in Section 6.1.
"Extension Date" has the meaning set forth in Section 2.8.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Domestic
Business Day next succeeding such day, provided that (i) if such day is not a
Domestic Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Domestic Business Day as so published on
the next succeeding Domestic Business Day, and (ii) if no such rate is so
published on such next succeeding Domestic Business Day, the Federal Funds Rate
for such day shall be the average rate quoted to Morgan Guaranty Trust Company
of New York on such day on such transactions as determined by the Agent.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System as constituted from time to time.
"FFO" means "funds from operations," defined to mean net
income (loss) (computed in accordance with GAAP), excluding gains (or losses)
from debt restructurings and sales of properties, plus depreciation and
amortization,
14
<PAGE>
after adjustments for Minority Holdings. Adjustments for Minority Holdings will
be calculated to reflect FFO on the same basis.
"Fitch" means Fitch Investors Services, L.P. or any successor
thereto.
"FMV Cap Rate" means, prior to the Extension Date, 11% and
from and after the Extension Date, at the rate at which Agent shall determine,
in its sole discretion, to be the market capitalization rate.
"Fronting Bank" shall mean Morgan or such other Bank which
Borrower is notified by the Agent may be a Fronting Bank and which is designated
by Borrower in its Notice Of Borrowing as the Bank which shall issue a Letter of
Credit with respect to such Notice of Borrowing.
"GAAP" means generally accepted accounting principles
recognized as such in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and
Board or in such other statements by such other entity as may be approved by a
significant segment of the accounting profession, which are applicable to the
circumstances as of the date of determination.
"Group of Loans" means, at any time, a group of Loans
consisting of (i) all Loans which are Base Rate Loans at such time, or (ii) all
Loans which are Euro-Dollar Loans having the same Interest Period at such time;
provided that, if a Loan of any particular Bank is converted to or made as a
Base Rate Loan pursuant to Section 8.2 or 8.4, such Loan shall be included in
the same Group or Groups of Loans from time to time as it would have been in if
it had not been so converted or made.
15
<PAGE>
"Hazardous Substances" means any toxic, radioactive, caustic
or otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics.
"Indemnitee" has the meaning set forth in Section 9.3(b).
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending one,
two, three or six months thereafter, as each Borrower may elect in the
applicable Notice of Borrowing; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case such Interest Period
shall end on the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) if any Interest Period includes a date on which a payment
of principal of the Loans is required to be made under Section 2.9 but
does not end on such date, then (i) the principal amount (if any) of
each Euro-Dollar Loan required to be repaid on such date shall have an
Interest Period ending on such date and (ii) the remainder (if any) of
each such Euro-Dollar
16
<PAGE>
Loan shall have an Interest Period determined as set forth above.
(2) with respect to each Base Rate Borrowing, the period commencing on the date
of such Borrowing and ending 30 days thereafter; provided that:
(a) any Interest Period (other than an Interest Period
determined pursuant to clause (c)(i) below) which would otherwise end
on a day which is not a Euro-Dollar Business Day shall be extended to
the next succeeding Euro-Dollar Business Day; and
(b) if any Interest Period includes a date on which a payment
of principal of the Loans is required to be made under Section 2.9 but
does not end on such date, then (i) the principal amount (if any) of
each Base Rate Loan required to be repaid on such date shall have an
Interest Period ending on such date and (ii) the remainder (if any) of
each such Base Rate Loan shall have an Interest Period determined as
set forth above.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, or any successor statute.
"Investment Grade Rating" means a rating for a Person's senior
long-term unsecured debt, or if no such rating has been issued, a "shadow"
rating, of BBB- or better from S&P, and a rating or "shadow" rating of Baa3 or
better from Moody's or a rating or "shadow" rating equivalent to the foregoing
from either Duff & Phelps or Fitch. Any such "shadow" rating shall be evidenced
by a letter from the applicable Rating Agency or by such other evidence as may
be reasonably acceptable to the Agent (as to any such other evidence, the Agent
shall present the same to, and discuss the same with, the Banks).
17
<PAGE>
"Letter(s) of Credit" has the meaning provided in Section
2.2(b).
"Letter of Credit Collateral" has the meaning provided in
Section 6.4.
"Letter of Credit Collateral Account" has the meaning provided
in Section 6.4.
"Letter of Credit Documents" has the meaning provided in
Section 2.16.
"Letter of Credit Usage" means at any time the sum of (i) the
aggregate maximum amount available to be drawn under the Letters of Credit then
outstanding, assuming compliance with all requirements for drawing referred to
therein, and (ii) the aggregate amount of the Borrowers' unpaid obligations
under this Agreement in respect of the Letters of Credit.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind, or any other type
of preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, each of
the Borrowers or any Subsidiary shall be deemed to own subject to a Lien any
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
"Loan" means a Base Rate Loan or a Euro-Dollar Loan and
"Loans" means Base Rate Loans or Euro-Dollar Loans or any combination of the
foregoing.
"Loan Documents" means this Agreement, the Notes, Letters of
Credit and Letter of Credit Documents.
18
<PAGE>
"London Interbank Offered Rate" has the meaning set forth in
Section 2.6(b).
"LTV Ratio" means the ratio, expressed as a percentage and
calculated on a quarterly basis by Carr, of the aggregate amount of the Loans
outstanding as of the date of determination, to the aggregate of the Borrowing
Base Properties Value as of the date of determination.
"Margin Stock" shall have the meaning provided such term in
Regulation U and Regulation G of the Federal Reserve Board.
"Material Adverse Effect" means a material adverse effect upon
(i) the business, operations, properties or assets of either Borrower or (ii)
the ability of either Borrower to perform its obligations hereunder in all
material respects, including to pay interest and principal.
"Material Plan" means at any time a Plan or Plans having
aggregate Unfunded Liabilities in excess of $5,000,000.
"Materials of Environmental Concern" means and includes
pollutants, contaminants, hazardous wastes, toxic and hazardous substances,
petroleum and petroleum by-products.
"Maturity Date" has the meaning set forth in Section 2.8.
"Maximum Total Debt Ratio" means the ratio as of the date of
determination of (i) the sum of (x) the aggregate Debt of the Borrowers and
their Consolidated Subsidiaries and (y) the Borrowers' pro rata share of the
Debt of any Subsidiaries of the Borrowers which are not Consolidated
Subsidiaries, at the time of determination to (ii) the
19
Tangible FMV of the Borrowers and their Consolidated Subsidiaries.
"Minority Holdings" means partnerships, limited liability
companies and corporations held or owned by either Borrower which are not
consolidated with such Borrower on such Borrower's financial statements, other
than Bond Texas Limited Partnership, The Greystone Square 127 Associates, Carr
Square 225 Associates and 1575 Eye Street Associates.
"Moody's" means Moody's Investors Service, Inc. or any
successor thereto.
"Morgan" means Morgan Guaranty Trust Company of New York, in
its individual capacity.
"Multiemployer Plan" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any
member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes any Person which ceased to be a member of the ERISA
Group during such five year period.
"Net Operating Cash Flow" means, as of any date of
determination, with respect to all Real Property Assets and Minority Holdings of
Carr and its Consolidated Subsidiaries, Property Income for the previous four
consecutive quarters including the quarter then ended, but less (x) Property
Expenses with respect to all such Real Property Assets and Minority Holdings for
the previous four consecutive quarters including the quarter then ended and (y)
the greater of (i) Capital Expenditures which are not related to new
construction for the previous four consecutive quarters including the quarter
then ended, and (ii) appropriate reserves for replacements of not less than
$2.29 per square foot per annum for each Real Property Asset.
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"Net Operating Income" means as of any date of determination
with respect to any Real Property Asset, Property Income for the previous four
consecutive quarters including the quarter then ended, but less Property
Expenses for the previous four consecutive quarters including the quarter then
ended.
"New Acquisition" has the meaning set forth in Section 5.15.
"Non-Recourse Debt" means Debt of either Borrower on a
consolidated basis for which the right of recovery of the obligee thereof is
limited to recourse against the Real Property Assets securing such Debt (subject
to such limited exceptions to the non-recourse nature of such Debt such as
fraud, misappropriation, misapplication and environmental indemnities, as are
usual and customary in like transactions at the time of the incurrence of such
Debt).
"Notes" means collectively, the Tranche A Notes and the
Tranche B Notes.
"Notice of Borrowing" means a Notice of Borrowing (as defined
in Section 2.2).
"Obligations" means all obligations, liabilities and
indebtedness of every nature of the Borrowers, from time to time owing to any
Bank under or in connection with this Agreement or any other Loan Document.
"Outstanding Balance" means the sum of (i) the aggregate
outstanding and unpaid principal balance of all Loans and (ii) the Letter of
Credit Usage.
"Parent" means, with respect to any Bank, any Person
controlling such Bank.
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"Participant" has the meaning set forth in Section 9.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permitted Liens" means (a) Liens on assets of the applicable
Borrowers or any Subsidiary thereof that secure Non-Recourse Debt; (b) Liens in
favor of either or both of the Borrowers on all or any part of the assets of
Subsidiaries of either Borrower; (c) Liens on property of a Person existing at
the time such Person is merged into or consolidated with either Borrower or any
Subsidiary thereof; provided, that such Liens were not incurred in contemplation
of such merger or consolidation and do not extend to any assets other than those
of the Person merged into or consolidated with either Borrower or any Subsidiary
thereof; (d) Liens on property existing at the time of acquisition thereof by
either Borrower or any Subsidiary thereof; provided, that such Liens were not
incurred in contemplation of such acquisition; (e) Liens to secure the
performance of statutory obligations, surety or appeal bonds, performance bonds,
completion bonds, government contracts or other obligations of a like nature,
including Liens in connection with workers' compensation, unemployment insurance
and other types of statutory obligations or to secure the performance of
tenders, bids, leases, contracts (other than for the repayment of Debt) and
other similar obligations incurred in the ordinary course of business; (f) Liens
for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded; provided, that any reserve or
other appropriate provision as shall be required in conformity with GAAP shall
have been made therefor; (g) Liens securing Debt of a Borrower to a Subsidiary
of such Borrower; (h) Liens on property of either Borrower or any Subsidiary
thereof in favor
22
<PAGE>
of the Federal or any state government to secure certain payments pursuant to
any contract, statute or regulation; (i) Liens securing Recourse Debt to the
extent permitted under Section 5.17 hereof; (j) easements (including, without
limitation, reciprocal easement agreements and utility agreements), rights of
way, covenants, consents, reservations, encroachments, variations and zoning and
other restrictions, charges or encumbrances (whether or not recorded), which do
not interfere materially with the ordinary conduct of the business of the
applicable Borrower or any Subsidiary thereof and which do not materially
detract from the value of the property to which they attach or materially impair
the use thereof by the applicable Borrower or Subsidiary; (k) statutory Liens of
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
Liens imposed by law and arising in the ordinary course of business, for sums
not then due and payable (or which, if due and payable are being contested in
good faith and with respect to which adequate reserves are being maintained to
the extent required by GAAP); (l) Liens not otherwise permitted by this
definition and incurred in the ordinary course of business of either of both of
the Borrowers or any Subsidiary with respect to obligations which do not exceed
$2,000,000 in principal amount in the aggregate at any one time outstanding; (m)
Liens existing on the date of the Agreement which have been disclosed on
Schedule 4.28; (n) the interests of lessees and lessors under leases of real or
personal property made in the ordinary course of business which would not have a
material adverse effect on the Borrowers and their Subsidiaries taken as a
whole; (o) judgment and attachment Liens not giving rise to an Event of Default
and (p) Liens to secure any extension or refinancing of any Debt secured by
Liens referred to in the foregoing clauses, provided that such Liens do not
extend to any other assets (other than improvements thereon) of the applicable
Borrower or Subsidiary and the Debt secured by such Liens is not increased other
than as a result of fees and expenses, including consent fees, incurred in
connection therewith.
23
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"Permitted LTV Ratio" means an LTV Ratio which is 50% or
lower.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Internal
Revenue Code and either (i) is maintained, or contributed to, by any member of
the ERISA Group for employees of any member of the ERISA Group or (ii) has at
any time within the preceding five years been maintained, or contributed to, by
any Person which was at such time a member of the ERISA Group for employees of
any Person which was at such time a member of the ERISA Group.
"Prime Rate" means the rate of interest publicly announced by
Morgan Guaranty Trust Company of New York in New York City from time to time as
its Prime Rate.
"Pro-Forma Debt Service" means the amount determined by
applying a 25 year mortgage style amortization schedule to the Loans outstanding
as of the last day of each calendar quarter, using an interest rate equal to the
greater of (i) the Treasury Rate plus 1.75%, and (ii) the actual rate of
interest in effect with respect to the Loans as of the last day of such quarter,
all determined on an annualized basis.
"Property Expenses" means, when used with respect to any Real
Property Asset, the costs of maintaining such Real Property Asset which are the
responsibility of the owner thereof and that are not paid directly by the tenant
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<PAGE>
thereof, including, without limitation, taxes, insurance, repairs and
maintenance, but provided that if such tenant is more than 60 days in arrears in
the payment of base or fixed rent, then such costs will also constitute
"Property Expenses", but excluding depreciation, amortization and interest
costs.
"Property Income" means, when used with respect to any Real
Property Asset, cash rents and other cash revenues received in the ordinary
course therefrom, including, without limitation, revenues from any parking
leases and lease termination fees amortized over the remaining term of the lease
for which such termination fee was received (other than the paid rents and
revenues and security deposits except to the extent applied in satisfaction of
tenants' obligations for rent).
"Rating Agencies" means, collectively, S&P, Moody's, Duff &
Phelps and Fitch.
"Real Property Assets" means as of any time, the real property
assets (including interests in participating mortgages in which either
Borrower's interest therein is characterized as equity according to GAAP) owned
directly or indirectly by either Borrower at such time.
"Recourse Debt" shall mean Debt of the Borrower or any
Consolidated Subsidiary that is not Non-Recourse Debt.
"Reference Bank" means the principal London offices of Morgan
Guaranty Trust Company of New York.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Request to Extend" shall have the meaning set forth in
Section 2.8.
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"Required Banks" means at any time Banks having at least 51%
of the aggregate amount of the Commitments or, if the Commitments shall have
been terminated, holding Notes evidencing at least 51% of the aggregate unpaid
principal amount of the Loans.
"Solvent" means, with respect to any Person, that the fair
saleable value of such Person's assets exceeds the Debts of such Person.
"S&P" means Standard & Poor's Ratings Group, or any successor
thereto.
"Subsidiary" means any corporation or other entity of which
securities or other ownership interests representing either (i) ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions or (ii) a majority of the economic interest therein, are at
the time directly or indirectly owned by Carr or Carr LP, including, without
limitation, Carr Real Estate Services, Inc., Carr Real Estate Services of
Northern Virginia, Inc., Carr Development and Construction, Inc. and CarrAmerica
Realty, L.P.
"Survey" means a survey (prepared in accordance with the ALTA
appropriate specifications) for each Borrowing Base Property, prepared or
re-certified on a date not earlier than June 30, 1995, by a land surveyor duly
licensed in the state in which such Borrowing Base Property or New Acquisition
is located.
"Tangible FMV" means the sum of (x) the quotient of Net
Operating Income with respect to the Real Property Assets determined as of the
last day of the previous calendar quarter, as divided by the FMV Cap Rate, and
(y) Cash or Cash Equivalents of the Borrowers as of the date of determination.
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"Term" has the meaning set forth in Section 2.8.
"Title Company" means, with respect to each Borrowing Base
Property, a title insurance company of recognized national standing.
"Title Commitment" means, for each Borrowing Base Property, an
ALTA fee or leasehold title commitment or title policy issued by the Title
Company.
"Tranche A Commitment" means, with respect to each Bank, the
amount committed by such Bank pursuant to this Agreement with respect to any
Tranche A Loans, as such amount may be reduced from time to time pursuant to
Sections 2.8 and 2.9.
"Tranche A Loan" means the loan or loans to be made to Carr
for the purposes set forth in Section 5.15 hereof which loan or loans shall
either be a Base Rate Loan or Loans or a Euro-Dollar Loan or Loans.
"Tranche A Loan Amount" has the meaning set forth in Section
2.1(a).
"Tranche A Notes" means the promissory notes of Carr, each
substantially in the form of Exhibit A-1 hereto, evidencing the obligation of
Carr to repay the Tranche A Loans, and "Tranche A Note" means any one of such
promissory notes issued hereunder.
"Tranche B Commitment" means, with respect to each Bank, the
amount committed by such Bank pursuant to this Agreement with respect to any
Tranche B Loans, as such amount may be reduced from time to time pursuant to
Sections 2.8 and 2.9.
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"Tranche B Loan" means the loan or loans to be made to Carr LP
for the purposes set forth in Section 5.15 hereof which loan or loans shall
either be a Base Rate Loan or Loans or a Euro-Dollar Loan or Loans.
"Tranche B Loan Amount" has the meaning set forth in Section
2.1(b).
"Tranche B Notes" means the promissory notes of Carr LP, each
substantially in the form of Exhibit A-2 hereto, evidencing the obligation of
Carr LP to repay the Tranche B Loans, and "Tranche B Note" means any one of such
promissory notes issued hereunder.
"Treasury Rate" means, as of any date, a rate equal to the
annual yield to maturity on the U.S. Treasury Constant Maturity Series with a
ten year maturity, as such yield is reported in Federal Reserve Statistical
Release H.15 -- Selected Interest Rates, published most recently prior to the
date the applicable Treasury Rate is being determined. Such yield shall be
determined by straight line linear interpolation between the yields reported in
Release H.15, if necessary. In the event Release H.15 is no longer published,
the Agent shall select, in its reasonable discretion, an alternate basis for the
determination of Treasury yield for U.S. Treasury Constant Maturity Series with
ten year maturities.
"Unfunded Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the value of all benefit liabilities
under such Plan, determined on a plan termination basis using the assumptions
prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the
fair market value of all Plan assets allocable to such liabilities under Title
IV of ERISA (excluding any accrued but unpaid contributions), all determined as
of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of
28
<PAGE>
a member of the ERISA Group to the PBGC or any other Person under Title IV of
ERISA.
"United States" means the United States of America, including
the States and the District of Columbia, but excluding its territories and
possessions.
"Unused Commitments" means an amount equal to all unadvanced
funds (other than unadvanced funds in connection with any construction loan)
which any third party is obligated to advance to either of the Borrowers or
otherwise, pursuant to any loan document, written instrument or otherwise.
SECTION 1.2. Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principles as in effect from time
to time, applied on a basis consistent (except for changes concurred in by the
Borrowers' independent public accountants) with the most recent audited
consolidated financial statements of Carr delivered to the Agent; provided that,
if Carr notifies the Agent that Carr wishes to amend any covenant in Article V
to eliminate the effect of any change in generally accepted accounting
principles on the operation of such covenant (or if the Agent notifies Carr that
the Required Banks wish to amend Article V for such purpose), then Carr's
compliance with such covenant shall be determined on the basis of generally
accepted accounting principles in effect immediately before the relevant change
in generally accepted accounting principles became effective, until either such
notice is withdrawn or such covenant is amended in a manner satisfactory to Carr
and the Required Banks.
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SECTION 1.3 Types of Borrowings. The term "Borrowing" denotes
the aggregation of Loans of one or more Banks to be made to the Borrowers
pursuant to Article II on a single date and for a single Interest Period.
Borrowings are classified for purposes of this Agreement by reference to the
pricing of Loans comprising such Borrowing (e.g., a "Euro-Dollar Borrowing" is a
Borrowing comprised of Euro-Dollar Loans).
ARTICLE II
THE CREDITS
SECTION 2.1. Commitments to Lend.
--------------------
(a) Each Bank severally agrees, on the terms and conditions
set forth in this Agreement, to make the Tranche A Loans to Carr and participate
in Letters of Credit issued by the Fronting Bank on behalf of Carr pursuant to
this Section from time to time, but, together with the Tranche B Loans, not more
frequently than twice monthly, during the Term in amounts such that the
aggregate principal amount of Tranche A Loans by such Bank at any one time
outstanding together with such Bank's pro rata share of Letter of Credit Usage
with respect to Carr shall not exceed the amount of its Tranche A Commitment.
The aggregate amount of Tranche A Loans to be made hereunder, together with the
Letter of Credit Usage with respect to Carr, shall not exceed One Hundred
Forty-One Million Dollars ($141,000,000) (the "Tranche A Loan Amount"). Each
Bank severally agrees, on the terms and conditions set forth in this Agreement,
to make the Tranche B Loans to Carr LP and participate in Letters of Credit
issued by the Fronting Bank on behalf of Carr LP pursuant to this Section from
time to time, but, together with the Tranche A Loans, not more frequently than
twice monthly, during the Term in amounts such that the aggregate principal
amount of Tranche B Loans by such Bank at any one
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time outstanding, together with such Bank's pro rata share of Letter of Credit
Usage with respect to Carr LP, shall not exceed the amount of its Tranche B
Commitment. The aggregate amount of Tranche B Loans to be made hereunder,
together with the Letter of Credit Usage with respect to Carr LP, shall not
exceed Seventy-Four Million Dollars ($74,000,000) (the "Tranche B Loan Amount").
Each Borrowing under this subsection (a) shall be in an aggregate principal
amount of at least $2,500,000, or an integral multiple of $1,000,000 in excess
thereof (except that any such Borrowing may be in the aggregate amount available
in accordance with Section 3.2(c)) and shall be made from the several Banks
ratably in proportion to their respective Commitments. Subject to the
limitations set forth herein, any amounts repaid may be reborrowed.
Notwithstanding anything to the contrary, the number of new Borrowings shall be
limited to two Borrowings per month.
SECTION 2.2. Notice of Borrowing. (a) The applicable Borrower
shall give the Agent notice (a "Notice of Borrowing") not later than 10:00 a.m.
(New York City time) (x) one Domestic Business Day before each Base Rate
Borrowing or (y) the third Euro-Dollar Business Day before each Euro-Dollar
Borrowing, specifying:
(i) the date of such Borrowing, which shall be a
Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar
Business Day in the case of a Euro-Dollar Borrowing,
(ii) the aggregate amount of such Borrowing,
(iii) whether the Loans comprising such Borrowing are
to be Base Rate Loans or Euro-Dollar Loans,
(iv) in the case of a Euro-Dollar Borrowing, the
duration of the Interest Period applicable thereto,
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subject to the provisions of the definition of Interest Period, and
(v) the intended use for the proceeds of such
Borrowing.
(b) Either Borrower shall give the Agent and the designated
Fronting Bank, written notice in the event that it desires to have Letters of
Credit (each, a "Letter of Credit") issued hereunder no later than 10:00 a.m.,
New York City time, at least four (4) Domestic Business Days prior to the date
of such issuance. Each such notice shall specify (i) the designated Fronting
Bank, (ii) the aggregate amount of the requested Letters of Credit, (iii) the
individual amount of each requested Letter of Credit and the number of Letters
of Credit to be issued, (iv) the date of such issuance (which shall be a
Domestic Business Day), (v) the name and address of the beneficiary, (vi) the
expiration date of the Letter of Credit (which in no event shall be later than
twelve (12) months after the issuance of such Letter of Credit or the
Termination Date, whichever is earlier), (vii) the purpose and circumstances for
which such Letter of Credit is being issued and (viii) the terms upon which each
such Letter of Credit may be drawn down (which terms shall not leave any
discretion to Fronting Bank). Each such notice may be revoked telephonically by
the applicable Borrower to the applicable Fronting Bank and the Agent any time
prior to the date of issuance of the Letter of Credit by the applicable Fronting
Bank, provided such revocation is confirmed in writing by such Borrower to the
Fronting Bank and the Agent within one (1) Domestic Business Day by facsimile.
No later than 10:00 a.m., New York City time, on the date that is four (4)
Domestic Business Days prior to the date of issuance, the applicable Borrower
shall specify a precise description of the documents and the verbatim text of
any certificate to be presented by the beneficiary of such Letter of Credit,
which if presented by such beneficiary prior to the expiration date of the
Letter of Credit
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would require the Fronting Bank to make a payment under the Letter of Credit;
provided that Fronting Bank may, in its reasonable judgment, require changes in
any such documents and certificates only in conformity with changes in customary
and commercially reasonable practice or law and provided further, that no Letter
of Credit shall require payment against a conforming draft to be made thereunder
on the following Domestic Business Day that such draft is presented if such
presentation is made later than 10:00 A.M. New York City time (except that if
the beneficiary of any Letter of Credit requests at the time of the issuance of
its Letter of Credit that payment be made on the same Domestic Business Day
against a conforming draft, such beneficiary shall be entitled to such a same
day draw, provided such draft is presented to the applicable Fronting Bank no
later than 10:00 A.M. New York City time and provided further that, prior to the
issuance of such Letter of Credit, Borrower shall have requested to Fronting
Bank and the Agent that such beneficiary shall be entitled to a same day draw).
In determining whether to pay on such Letter of Credit, the Fronting Bank shall
be responsible only to determine that the documents and certificates required to
be delivered under the Letter of Credit have been delivered and that they comply
on their face with the requirements of that Letter of Credit.
SECTION 2.3. Notice to Banks; Funding of Loans.
-----------------------------------
(a) Upon receipt of a Notice of Borrowing, the Agent shall
promptly notify each Bank of the contents thereof and of such Bank's share of
such Borrowing and such Notice of Borrowing shall not thereafter be revocable by
the applicable Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date
of each Borrowing, each Bank shall (except as provided in subsection (c) of this
Section) make available its share of such Borrowing, in Federal or other funds
33
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immediately available in New York City, to the Agent at its address referred to
in Section 9.1. Unless the Agent determines that any applicable condition
specified in Article III has not been satisfied, the Agent will make the funds
so received from the Banks available to the applicable Borrower at the Agent's
aforesaid address. If a Borrower has requested the issuance of a Letter of
Credit, no later than 12:00 Noon (New York City time) on the date of such
issuance as indicated in the notice delivered pursuant to Section 2.2(b), the
Fronting Bank shall issue such Letter of Credit in the amount so requested and
deliver the same to the applicable Borrower with a copy thereof to the Agent.
Immediately upon the issuance of each Letter of Credit by the Fronting Bank,
such Fronting Bank shall be deemed to have sold and transferred to each other
Bank, and each such other Bank shall be deemed to, and hereby agrees to, have
irrevocably and unconditionally purchased and received from Fronting Bank,
without recourse or warranty, an undivided interest and a participation in such
Letter of Credit, any drawing thereunder, and the obligations of the applicable
Borrower hereunder with respect thereto, and any security therefor or guaranty
pertaining thereto, in an amount equal to such Bank's ratable share thereof
(based upon the ratio its Commitment bears the aggregate of all Commitments).
Upon any change in any of the Commitments in accordance herewith, there shall be
an automatic adjustment to such participations to reflect such changed shares.
The Fronting Bank shall have the primary obligation to fund any and all draws
made with respect to such Letter of Credit notwithstanding any failure of a
participating Bank to fund its ratable share of any such draw. Unless the Agent
determines that any applicable condition specified in Article III has not been
satisfied, the Agent will instruct the Fronting Bank to make such Letter of
Credit available to such Borrower and the Fronting Bank shall make such Letter
of Credit available to the applicable Borrower at the applicable Borrower's
aforesaid address on the date of the Borrowing.
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(c) Unless the Agent shall have received notice from a Bank
prior to the date of any Borrowing that such Bank will not make available to the
Agent such Bank's share of such Borrowing, the Agent may assume that such Bank
has made such share available to the Agent on the date of such Borrowing in
accordance with subsection (b) of this Section 2.3 and the Agent may, in
reliance upon such assumption, make available to the applicable Borrower on such
date a corresponding amount. If and to the extent that such Bank shall not have
so made such share available to the Agent, such Bank and the applicable Borrower
severally agree to repay to the Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount is
made available to the applicable Borrower until the date such amount is repaid
to the Agent, at (i) in the case of either Borrower, a rate per annum equal to
the higher of the Federal Funds Rate and the interest rate applicable thereto
pursuant to Section 2.6 and (ii) in the case of such Bank, the Federal Funds
Rate. If such Bank shall repay to the Agent such corresponding amount, such
amount so repaid shall constitute such Bank's Loan included in such Borrowing
for purposes of this Agreement.
SECTION 2.4. Notes
-----
(a) The Tranche A Loans shall be evidenced by the Tranche A
Notes, each of which shall be payable to the order of each Bank for the account
of its Applicable Lending Office in an amount equal to each such Bank's Tranche
A Commitment.
(b) The Tranche B Loans shall be evidenced by the Tranche B
Notes, each of which shall be payable to the order of each Bank for the account
of its Applicable Lending Office in an amount equal to each such Bank's Tranche
B Commitment.
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(c) Each Bank may, by notice to the Borrowers and the Agent,
request that its Loans of a particular type be evidenced by a separate Note in
an amount equal to the aggregate unpaid principal amount of such Loans. Each
such Note shall be in substantially the form of Exhibit A-1 or Exhibit A-2
hereto, as applicable, with appropriate modifications to reflect the fact that
it evidences solely Loans of the relevant type. Each reference in this Agreement
to the "Note" of such Bank shall be deemed to refer to and include any or all of
such Notes, as the context may require.
(d) Upon receipt of each Bank's Note pursuant to Section
3.1(a) or (b), the Agent shall forward such Note to such Bank. Each Bank shall
record the date, amount, type and maturity of each Loan made by it and the date
and amount of each payment of principal made by the Borrower with respect
thereto, and may, if such Bank so elects in connection with any transfer or
enforcement of its Note, endorse on the schedule forming a part thereof
appropriate notations to evidence the foregoing information with respect to each
such Loan then outstanding; provided that the failure of any Bank to make any
such recordation or endorsement shall not affect the obligations of the
Borrowers hereunder or under the Notes. Each Bank is hereby irrevocably
authorized by the Borrowers so to endorse its Note and to attach to and make a
part of its Note a continuation of any such schedule as and when required.
(e) There shall be no more than five (5) Euro-Dollar
Borrowings outstanding at any one time.
SECTION 2.5. Maturity of Loans. The Loans shall mature, and
------------------
the principal amount thereof shall be due and payable, on the Maturity Date.
SECTION 2.6. Interest Rates
--------------
36
<PAGE>
(a) Each Base Rate Loan shall bear interest on the outstanding
principal amount thereof, for each day from the date such Loan is made until it
becomes due, at a rate per annum equal to the sum of the Applicable Margin for
Base Rate Loans for such day plus the Base Rate for such day. Such interest
shall be payable for each Interest Period on the last day thereof.
(b) Each Euro-Dollar Loan shall bear interest on the
outstanding principal amount thereof, for each day during the Interest Period
applicable thereto, at a rate per annum equal to the sum of the Applicable
Margin for Euro-Dollar Loans for such day plus the Adjusted London Interbank
Offered Rate applicable to such Interest Period. Such interest shall be payable
for each Interest Period on the last day thereof and, if such Interest Period is
longer than three months, at intervals of three months after the first day
thereof.
"Adjusted London Interbank Offered Rate" applicable to any
Interest Period means a rate per annum equal to the quotient obtained (rounded
upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the
applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar
Reserve Percentage.
"Euro-Dollar Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement for a member bank of
the Federal Reserve System in New York City with deposits exceeding five billion
dollars in respect of "Eurocurrency liabilities" (or in respect of any other
category of liabilities which includes deposits by reference to which the
interest rate on Euro-Dollar Loans is determined or any category of extensions
of credit or other assets which includes loans by a non-United States office of
any Bank to
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<PAGE>
United States residents). The Adjusted London Interbank Offered Rate shall be
adjusted automatically on and as of the effective date of any change in the
Euro-Dollar Reserve Percentage.
"London Interbank Offered Rate" applicable to any Interest
Period means the average (rounded upward, if necessary, to the next higher 1/16
of 1%) of the respective rates per annum at which deposits in dollars are
offered to the Reference Bank in the London interbank market at approximately
11:00 a.m. (London time) two Euro-Dollar Business Days before the first day of
such Interest Period in an amount approximately equal to the principal amount of
the Euro-Dollar Loan of such Reference Bank to which such Interest Period is to
apply and for a period of time comparable to such Interest Period.
(c) In the event that, and for so long as, any Event of
Default shall have occurred and be continuing, the outstanding principal amount
of the Loans, and, to the extent permitted by law, overdue interest in respect
of all Loans, shall bear interest at the annual rate of the sum of the Prime
Rate and four percent (4%).
(d) The Agent shall determine each interest rate applicable to
the Loans hereunder. The Agent shall give prompt notice to the Borrower and the
Banks of each rate of interest so determined, and its determination thereof
shall be conclusive in the absence of manifest error.
(e) The Reference Bank agrees to use its best efforts to
furnish quotations to the Agent as contemplated by this Section. If the
Reference Bank does not furnish a timely quotation, the provisions of Section
8.1 shall apply.
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SECTION 2.7. Fees.
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(a) Commitment Fee. During the Term, the Borrowers shall pay
Agent for the account of the Banks ratably in proportion to their respective
Commitments, a commitment fee at an annual rate of .25% on the daily average
undrawn Commitments in any given quarter, payable quarterly, in arrears.
(b) Letter of Credit Fee. During the Term, Borrowers shall pay
to the Agent, for the account of the Banks in proportion to their interests in
respective undrawn issued Letters of Credit, a fee (a "Letter of Credit Fee") in
an amount, provided that no Event of Default shall have occurred and be
continuing, equal to a rate per annum equal to the Applicable Margin for
Euro-Dollar Loans on the daily average of such issued and undrawn Letters of
Credit, which fee shall be payable, in arrears, on each January 1, April 1, July
1 and October 1 during the term. From the occurrence, and during the
continuance, of an Event of Default, such fee shall be increased to be equal to
four percent (4%) per annum on the daily average of such issued and undrawn
Letters of Credit.
(c) Fronting Bank Fee. The Borrower shall pay any Fronting
Bank, for its own account, a fee (a "Fronting Bank Fee") at a rate per annum
equal to .15% of the issued and undrawn amount of such Letter of Credit, which
fee shall be in addition to and not in lieu of, the Letter of Credit Fee. The
Fronting Bank Fee shall be payable in arrears on each January 1, April 1, July 1
and October 1 during the Term.
(d) Extension Fee. Within three (3) Domestic Business Days
after the Borrowers shall have received notice from the Agent that the Request
to Extend has been approved, the Borrowers shall pay to the Agent for the
account of the
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Banks ratably in proportion to their Commitments an extension fee of .25% of the
aggregate Commitments.
(e) Fees Non-Refundable. All fees set forth in this Section
2.7 shall be deemed to have been earned on the date payment is due in accordance
with the provisions hereof and shall be non-refundable. The obligation of the
Borrowers to pay such fees in accordance with the provisions hereof shall be
binding upon the Borrowers and shall inure to the benefit of the Agent and the
Banks regardless of whether any Loans are actually made.
SECTION 2.8. Mandatory Termination; Extension Option.
----------------------------------------------
(a) The term (the "Term") of the Commitments shall terminate
and expire on July 30, 1998 (the "Maturity Date"), except as provided in
subparagraph (b) below.
(b) Notwithstanding the foregoing, the Borrowers may request a
one-year extension of the Maturity Date by delivering a written request therefor
to the Agent (the "Request to Extend") on or before a date that is not more than
seven (7) months or less than four (4) months prior to the Maturity Date. The
Agent shall promptly notify the Banks of the receipt of the Request to Extend
and each Bank shall give notice in writing to the Agent not more than thirty
(30) days following its receipt of the Request to Extend of such Bank's
acceptance or rejection of such request. If all the Banks shall have notified
the Agent on or before the date which is thirty (30) days following the receipt
by the Banks of the Request to Extend that they accept such request, the
Maturity Date shall be extended for one year. If any Bank shall not have
notified the Agent on or prior to the date which is thirty (30) days following
the receipt by such Bank of the Request to Extend that it accepts such request,
the Maturity Date shall not be extended. The Agent shall notify the Borrowers in
writing whether the
40
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Request to Extend has been accepted or rejected. The Borrowers' right to request
an extension of the Maturity Date shall be subject to the following terms and
conditions: (i) no Event of Default shall have occurred and be continuing both
on the date the Borrowers deliver the Request to Extend to the Agent and on the
original Maturity Date (the "Extension Date"), (ii) the Borrowers shall pay to
the Agent, for the account of the Banks, the fee required pursuant to Section
2.7(d) on or before the day which is three (3) Domestic Business Days after the
Borrowers shall have received notice from Agent that the Request to Extend has
been approved and (iii) the Borrowers shall continue to be in compliance both on
the date of the delivery of the Request to Extend and on the Extension Date with
the provisions of Sections 5.8 through 5.20; provided, however, if Borrowers are
in compliance on the date of the delivery of the Request to Extend but not on
the Extension Date with the provisions of Sections 5.8 through 5.20, the
Borrowers shall be entitled to the return of the fee required pursuant to
Section 2.7(d). The Borrowers' delivery of the Request to Extend shall be
irrevocable. Upon the date of the termination of the Term, any Loans then
outstanding (together with accrued interest thereon) shall be due and payable on
such date, the Commitments shall terminate and the Borrowers shall return or
cause to be returned all Letters of Credit to the Fronting Bank.
SECTION 2.9. Mandatory Prepayment.
--------------------
(a) If as of the last day of any calendar quarter the LTV
Ratio exceeds the Permitted LTV Ratio, but the LTV Ratio is not greater than
52.5%, and provided that no Event of Default has occurred and is continuing,
either (i) Carr or Carr LP shall add additional Real Property Assets to the
Borrowing Base Properties within 90 days of the date the Loans exceeded the
Permitted LTV Ratio, in accordance with the provisions of Section 3.3, or (ii)
the Borrowers shall pay to the Agent, for the account of the Banks, within 90
41
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days of the date the Loans exceeded the Permitted LTV Ratio, an amount such that
the Loans outstanding subsequent to such payment are in compliance with the
Permitted LTV Ratio. In the event that the LTV Ratio exceeds the Permitted LTV
Ratio and is greater than or equal to 52.5%, then the Borrowers shall, within
twenty-five (5) days from the last day of any calendar quarter or the date of
any New Acquisition when the Permitted LTV Ratio is exceeded, pay to the Agent,
for the account of the Banks, an amount such that the Loans outstanding
subsequent to such payment are in compliance with the Permitted LTV Ratio.
(b) In the event that a Borrowing Base Property is sold or
released from the restrictions of Section 5.14 hereof, in accordance with this
Agreement, the applicable Borrower shall simultaneously with such sale or
release, prepay an amount equal to the greater of (x) the amount required such
that the Tranche A Loans or Tranche B Loans, as applicable, remain in compliance
with the Permitted LTV Ratio after such sale or release and (y) 100% of the
Allocated Borrowing Base Property Loan Amount for such Borrowing Base Property.
Notwithstanding the foregoing, a simultaneous like-kind exchange under Section
1031 of the Internal Revenue Code will not be subject to the provisions of this
Section 2.9(b) provided that the exchanged property has qualified as a New
Acquisition and any "boot" associated therewith shall be applied to prepayment
of the Tranche A Loans or Tranche B Loans, as applicable. Sale of a property in
violation of this Section 2.9 shall constitute an Event of Default.
(c) In the event that the Borrowing Base Properties Minimum
Debt Service Coverage is not maintained as of the last day of a calendar
quarter, either (i) the Borrowers will add a New Acquisition or a Real Property
Asset to the Borrowing Base Properties in accordance with this Agreement which,
on a pro forma basis (i.e. the Borrowing Base Properties Minimum Debt Service
Coverage shall be recalculated to
42
<PAGE>
include such New Acquisition or Real Property Asset as though the same had been
a Borrowing Base Property for the entire applicable period) would result in
compliance with the Borrowing Base Properties Minimum Debt Service Coverage or
(ii) the Borrowers shall prepay an amount necessary to cause the Borrowing Base
Properties Minimum Debt Service Coverage to be in compliance. Failure by the
Borrowers to comply with the Borrowing Base Properties Minimum Debt Service
Coverage within 90 days of the date of such non-compliance shall be an Event of
Default.
SECTION 2.10. Optional Prepayments.
--------------------
(a) The Borrowers may, upon at least one Domestic Business
Day's notice to the Agent, prepay any Base Rate Borrowing in whole at any time,
or from time to time in part in amounts aggregating One Million Dollars
($1,000,000), or an integral multiple of One Million Dollars ($1,000,000) in
excess thereof or, if less, the outstanding principal balance, by paying the
principal amount to be prepaid together with accrued interest thereon to the
date of prepayment. Each such optional prepayment shall be applied to prepay
ratably the Loans of the several Banks included in such Borrowing.
(b) Except as provided in Section 8.2, a Borrower may not
prepay all or any portion of the principal amount of any Euro-Dollar Loan prior
to the maturity thereof unless the applicable Borrower shall also pay any
applicable expenses pursuant to Section 2.12. Any such prepayment shall be upon
at least three (3) Euro-Dollar Business Days' notice to the Agent. Each such
optional prepayment shall be in the amounts set forth in Section 2.10(a) above
and shall be applied to prepay ratably the Loans of the Banks included.
(c) A Borrower may, upon at least one (1) Domestic Business
Day's notice to the Agent (by 11:00 a.m New York time on such Domestic Business
Day), reimburse the Agent on
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behalf of the Fronting Bank for the amount of any drawing under a Letter of
Credit in whole or in part in any amount.
(d) A Borrower may at any time return any undrawn Letters of
Credit to the Fronting Bank in whole, but not in part, and the Fronting Bank
shall endeavor to give the Agent and each of the Banks notice of such return.
(e) Either Borrower may at any time and from time to time
cancel all or any part of the Tranche A Commitments or Tranche B Commitments, as
applicable, in amounts aggregating One Million Dollars ($1,000,000), or an
integral multiple of One Million Dollars ($1,000,000) in excess thereof, by the
delivery to the Agent of a notice of cancellation upon at least three (3)
Domestic Business Days' notice to Agent, whereupon, in either event, all or such
portion of the Tranche A Commitments or Tranche B Commitments, as applicable,
shall terminate as to the Banks, pro rata on the date set forth in such notice
of cancellation, and, if there are any Loans then outstanding in an aggregate
amount which exceeds the aggregate Tranche A Commitments or Tranche B
Commitments, as applicable (after giving effect to any such reduction), the
applicable Borrower shall prepay, as applicable, all or such portion of Loans
outstanding on such date in accordance with the requirements of Sections 2.10(a)
and (b). In no event shall either Borrower be permitted to cancel Commitments
for which a Letter of Credit has been issued and is outstanding unless such
Borrower returns (or causes to be returned) such Letter of Credit to the
Fronting Bank. A Borrower shall be permitted to designate in its notice of
cancellation which Loans, if any, are to be prepaid.
(f) Upon receipt of a notice of prepayment or cancellation or
a return of a Letter of Credit pursuant to this Section, the Agent shall
promptly notify each Bank of the contents thereof and of such Bank's ratable
share (if any) of such prepayment or cancellation and such notice shall not
thereafter be revocable by the Borrowers.
(g) Any amounts so prepaid pursuant to this Section 2.10 may
be reborrowed. In the event either Borrower elects to cancel all or any portion
of the Commitments pursuant to Section 2.10(e) hereof, such amounts may not be
reborrowed.
SECTION 2.11 General Provisions as to Payments.
(a) The Borrowers shall make each payment of principal of, and
interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New
York City time) on the date when due, in Federal or other funds immediately
available in New York City, to the Agent at its address referred to in Section
9.1. The Agent will promptly distribute to each Bank its ratable share of each
such payment received by the Agent for the account of the Banks. Whenever any
payment of principal of, or interest on, the Base Rate Loans or of fees shall be
due on a day which is not a Domestic Business Day, the date for payment thereof
shall be extended to the next succeeding Domestic Business Day. Whenever any
payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a
day which is not a Euro-Dollar Business Day, the date for payment thereof shall
be extended to the next succeeding Euro-Dollar Business Day unless such
Euro-Dollar Business Day falls in another calendar month, in which case the date
for payment thereof shall be the next preceding Euro-Dollar Business Day. If the
date for any payment of principal is extended by operation of law or otherwise,
interest thereon shall be payable for such extended time.
(b) Unless the Agent shall have received notice from a
Borrower prior to the date on which any payment is due to the Banks hereunder
that such Borrower will not make such payment in full, the Agent may assume that
such Borrower has made such payment in full to the Agent on such date and the
Agent may, in reliance upon such assumption, cause to be distributed to each
Bank on such due date an amount equal to the amount then due such Bank. If and
to the extent that such Borrower shall not have so made such payment, each Bank
shall repay to the Agent forthwith on demand such amount distributed to such
Bank together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate.
SECTION 2.12 Funding Losses. If a Borrower makes any payment of principal with
respect to any Euro-Dollar Loan (pursuant to Article II, VI or VIII or
otherwise) on any day other than the last day of the Interest Period applicable
thereto, or the last day of an applicable period fixed pursuant to Section
2.6(b), or if a Borrower fails to borrow any Euro-Dollar Loans, after notice has
been given to any Bank in accordance with Section 2.3(a), such Borrower shall
reimburse each Bank within 15 days after demand for any resulting loss or
expense incurred by it (or by an existing Participant in the related Loan),
including (without limitation) any loss incurred in obtaining, liquidating or
employing deposits from third parties, but excluding loss of margin for the
period after any such payment or failure to borrow, provided that such Bank
shall have delivered to such Borrower a certificate as to the amount of such
loss or expense and the calculation thereof, which certificate shall be
conclusive in the absence of manifest error.
SECTION 2.12. Computation of Interest and Fees. Interest based on the Prime Rate
hereunder shall be computed on the basis of a year of 365 days (or 366 days in a
leap year) and paid for the actual number of days elapsed (including the first
day but excluding the last day). All other interest and fees shall be computed
on the basis of a year of 360 days and paid for the actual number of days
elapsed (including the first day but excluding the last day).
SECTION 2.14. Method of Electing Interest Rates.
(a) The Loans included in each Borrowing shall bear interest initially
at the type of rate specified by such Borrower in the applicable Notice of
Borrowing. Thereafter, such Borrower may from time to time elect to change or
continue the type of interest rate borne by each Group of Loans (subject in each
case to the provisions of Article VIII), as follows:
(i) if such Loans are Base Rate Loans, a Borrower may elect to
convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day;
(ii) if such Loans are Euro-Dollar Loans, a Borrower may elect
to convert such Loans to Base Rate Loans or elect to continue such Loans as
Euro-Dollar Loans for an additional Interest Period, in each case effective on
the last day of the then current Interest Period applicable to such Loans.
Each such election shall be made by delivering a notice (a "Notice of Interest
Rate Election") to the Agent at least three (3) Euro-Dollar Business Days before
the conversion or continuation selected in such notice is to be effective
(unless the relevant Loans are to be continued as Base Rate Loans, in which case
such notice shall be delivered to the Agent at least three (3) Domestic Business
Days before such continuation is to be effective). A Notice of Interest Rate
Election may, if it so specifies, apply to only a portion of the aggregate
principal amount of the relevant Group of Loans; provided that (i) such portion
is allocated ratably among the Loans comprising such Group, (ii) the portion to
which such notice applies, and the remaining portion to which it does not apply,
are each $1,000,000 or any larger multiple of $1,000,000, (iii) there shall be
no more than five (5) Borrowings comprised of Euro-Dollar Loans outstanding at
any time, (iv) no Loan may be continued as, or converted into, a Euro-Dollar
Loan when any Event of Default has occurred and is continuing, and (v) no
Interest Period shall extend beyond the Maturity Date.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such
notice applies;
(ii) the date on which the conversion or continuation selected
in such notice is to be effective, which shall comply with the applicable clause
of subsection (a) above;
(iii) if the Loans comprising such Group are to be converted,
the new type of Loans and, if such new Loans are Euro-Dollar Loans, the duration
of the initial Interest Period applicable thereto; and
(iv) if such Loans are to be continued as Euro-Dollar Loans
for an additional Interest Period, the duration of such additional Interest
Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election from a Borrower
pursuant to subsection (a) above, the Agent shall notify each Bank the same day
as it receives such Notice of Interest Rate Election of the contents thereof and
such notice shall not thereafter be revocable by such Borrower. If such Borrower
fails to deliver a timely Notice of Interest Rate Election to the Agent for any
Group of Euro-Dollar Loans, such Loans shall be converted into Base Rate Loans
on the last day of the then current Interest Period applicable thereto.
SECTION 2.15. Letters of Credit. (a).Subject to the terms contained in this
Agreement and the other Loan Documents, upon the receipt of a notice in
accordance with Section 2.2(b) requesting the issuance of a Letter of Credit,
the Fronting Bank shall issue a Letter of Credit or Letters of Credit in such
form as is reasonably acceptable to the applicable Borrower, in an amount or
amounts equal to the amount or amounts requested by the applicable Borrower.
(b) Each Letter of Credit shall be issued in the minimum
amount of One Million Dollars ($1,000,000).
(c) The Letter of Credit Usage shall be no more than
$10,000,000 at any one time.
(d) There shall be no more than five (5) Letters of Credit
outstanding at any one time.
(e) In the event of any request for a drawing under any Letter
of Credit by the beneficiary thereunder, the Fronting Bank shall endeavor to
notify the applicable Borrower and the Agent (and the Agent shall endeavor to
notify each Bank thereof) on or before the date on which the Fronting Bank
intends to honor such drawing, and, except as provided in this subsection (c),
the applicable Borrower shall reimburse the Fronting Bank, in immediately
available funds, on the same day on which such drawing is honored in an amount
equal to the amount of such drawing. Notwithstanding anything contained herein
to the contrary, however, unless such Borrower shall have notified the Agent and
the Fronting Bank prior to 11:00 a.m. (New York time) on the Domestic Business
Day immediately prior to the date of such drawing that such Borrower intends to
reimburse the Fronting Bank for the amount of such drawing with funds other than
the proceeds of the Loans, the applicable Borrower shall be
<PAGE>
deemed to have timely given a Notice of Borrowing pursuant to Section 2.2 to the
Agent, requesting a Borrowing of Base Rate Loans on the date on which such
drawing is honored and in an amount equal to the amount of such drawing. Each
Bank (other than the Fronting Bank) shall, in accordance with Section 2.3(b),
make available its share of such Borrowing to the Agent, the proceeds of which
shall be applied directly by the Agent to reimburse the Fronting Bank for the
amount of such draw. In the event that any such Bank fails to make available to
the Fronting Bank the amount of such Bank's participation on the date of a
drawing, the Fronting Bank shall be entitled to recover such amount on demand
from such Bank together with interest at the Federal Funds Rate commencing on
the date such drawing is honored.
(f) If, after the date hereof, any change in any law or
regulation or in the interpretation thereof by any court or administrative or
governmental authority charged with the administration thereof shall either (a)
impose, modify or deem applicable any reserve, special deposit or similar
requirement against letters of credit issued by, or assets held by, or deposits
in or for the account of, or participations in any letter of credit, upon any
Bank (including the Fronting Bank) or (b) impose on any Bank any other condition
regarding this Agreement or such Bank (including the Fronting Bank) as it
pertains to the Letters of Credit or any participation therein and the result of
any event referred to in the preceding clause (a) or (b) shall be to increase
the cost to the Fronting Bank or any Bank of issuing or maintaining any Letter
of Credit or participating therein then the applicable Borrower shall pay to the
Fronting Bank or such Bank, within 15 days after written demand by such Bank
(with a copy to the Agent), which demand shall be accompanied by a certificate
showing, in reasonable detail, the calculation of such amount or amounts, such
additional amounts as shall be required to compensate the Fronting Bank or such
Bank for such increased costs or reduction in amounts received or receivable
hereunder to-
<PAGE>
gether with interest thereon at the Base Rate. The amount specified in the
written demand shall, absent manifest error, be final and conclusive and binding
upon the Borrowers.
(g) The Borrowers hereby agree to protect, indemnify, pay and
save the Fronting Bank harmless from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
attorneys' fees and disbursements) which the Fronting Bank may incur or be
subject to as a result of (i) the issuance of the Letters of Credit, other than
as a result of the gross negligence or wilful misconduct of the Fronting Bank or
(ii) the failure of the Fronting Bank to honor a drawing under any Letter of
Credit as a result of any act or omission, whether rightful or wrongful, of any
present or future de jure or de facto government or Governmental Authority
(collectively, "Governmental Acts"), other than as a result of the gross
negligence or wilful misconduct of the Fronting Bank. As between the Borrowers
and the Fronting Bank, the Borrowers assume all risks of the acts and omissions
of, or misuses of, the Letters of Credit issued by the Fronting Bank, by the
beneficiaries of such Letters of Credit. In furtherance and not in limitation of
the foregoing, the Fronting Bank shall not be responsible (i) for the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for and issuance of
such Letters of Credit, even if it should in fact prove to be in any and all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the
validity or insufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (iii) for failure of the beneficiary
of any such Letter of Credit to comply fully with conditions required in order
to draw upon such Letter of Credit; (iv) for errors, omissions,
<PAGE>
interruptions or delays in transmission or delivery of any message, by mail,
cable, telegraph, telex, facsimile transmission, or otherwise; (v) for errors in
interpretation of any technical terms; (vi) for any loss or delay in the
transmission or otherwise of any documents required in order to make a drawing
under any such Letter of Credit or of the proceeds thereof; (vii) for the
misapplication by the beneficiary of any such Letter of Credit of the proceeds
of such Letter of Credit; and (viii) for any consequence arising from causes
beyond the control of the Fronting Bank, including any Government Acts, in each
case other than as a result of the gross negligence or willful misconduct of the
Fronting Bank. None of the above shall affect, impair or prevent the vesting of
the Fronting Bank's rights and powers hereunder. In furtherance and extension
and not in limitation of the specific provisions hereinabove set forth, any
action taken or omitted by the Fronting Bank under or in connection with the
Letters of Credit issued by it or the related certificates, if taken or omitted
in good faith, shall not put the Fronting Bank under any resulting liability to
the Borrowers.
(h) If the Fronting Bank or the Agent is required at any time,
pursuant to any bankruptcy, insolvency, liquidation or reorganization law or
otherwise, to return to the Borrowers any reimbursement by the Borrowers of any
drawing under any Letter of Credit, each Bank shall pay to the Fronting Bank or
the Agent, as the case may be, its share of such payment, but without interest
thereon unless the Fronting Bank or the Agent is required to pay interest on
such amounts to the person recovering such payment, in which case with interest
thereon, computed at the same rate, and on the same basis, as the interest that
the Fronting Bank or the Agent is required to pay.
<PAGE>
SECTION 2.16. Letter of Credit Usage Absolute. The obligations of the Borrowers
under this Agreement in respect of any Letter of Credit shall be unconditional
and irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement (as the same may be amended from time to time) and any Letter of
Credit Documents (as hereinafter defined) under all circumstances, including,
without limitation, to the extent permitted by law, the following circumstances:
(a) any lack of validity or enforceability of any Letter of Credit or
any other agreement or instrument relating thereto (collectively, the "Letter of
Credit Documents") or any Loan Document;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the obligations of either Borrower in respect of
the Letters of Credit or any other amendment or waiver of or any consent by
either Borrower to departure from all or any of the Letter of Credit Documents
or any Loan Document, provided that the Fronting Bank shall not consent to any
such change or amendment unless previously consented to in writing by either
Borrower;
(c) any exchange, release or non-perfection of any collateral, or any
release or amendment or waiver of or consent to departure from any guaranty, for
all or any of the obligations of either Borrower in respect of the Letters of
Credit;
(d) the existence of any claim, set-off, defense or other right that
either Borrower may have at any time against any beneficiary or any transferee
of a Letter of Credit (or any Persons for whom any such beneficiary or any such
transferee may be acting), the Agent, the Fronting Bank or any Bank (other than
a defense based on the gross negligence or wilful misconduct of the Agent, the
Fronting Bank or such Bank) or any other Person, whether in connection with the
Loan Documents, the transactions contemplated hereby or by the Letters of Credit
Documents or any unrelated transaction;
(e) any draft or any other document presented under or in connection
with any Letter of Credit or other Loan Document proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect; provided that payment by the Fronting
Bank under such Letter of Credit against presentation of such draft or document
shall not have constituted gross negli-
<PAGE>
gence or wilful misconduct of the Fronting Bank;
(f) payment by the Fronting Bank against presentation of a draft or
certificate that does not comply with the terms of the Letter of Credit;
provided that such payment shall not have constituted gross negligence or wilful
misconduct of the Fronting Bank; and
(g) any other circumstance or happening whatsoever other than the
payment in full of all obligations hereunder in respect of any Letter of Credit
or any agreement or instrument relating to any Letter of Credit, whether or not
similar to any of the foregoing, that might otherwise constitute a defense
available to, or a discharge of, the Borrower; provided that such other
circumstance or happening shall not have been the result of gross negligence or
wilful misconduct of the Fronting Bank.
<PAGE>
ARTICLE III
CONDITIONS
SECTION 3.1. Closing. The closing hereunder shall occur on the date (the
"Closing Date") when each of the following conditions is satisfied (or waived by
the Agent), each document to be dated the Closing Date unless otherwise
indicated:
(a) Carr shall have executed and delivered to the Agent a Tranche A
Note for the account of each Bank dated on or before the Closing Date complying
with the provisions of Section 2.4;
(b) Carr LP shall have executed and delivered to the Agent a Tranche B
Note for the account of each Bank dated on or before the Closing Date complying
with the provisions of Section 2.4;
(c) the Borrower shall have executed and delivered to the Agent a duly
executed original of this Agreement;
(d) Agent shall have received an opinion of Hogan & Hartson L.L.P.,
with respect to certain matters of New York and Maryland law, acceptable to the
Agent, the Banks and their counsel;
(e) the Agent shall have received all documents the Agent may
reasonably request relating to the existence of the Borrowers, the authority for
and the validity of this Agreement and the other Loan Documents, and any other
matters relevant hereto, all in form and substance reasonably satisfactory to
the Agent. Such documentation shall include, without limitation, the articles of
incorporation and
<PAGE>
by-laws of Carr and the partnership agreement and limited
partnership certificate of Carr LP, as amended, modified or supplemented to the
Closing Date, each certified to be true, correct and complete by a senior
officer of Carr or Carr LP, as applicable, as of a date not more than ten (10)
days prior to the Closing Date, together with a good standing certificate from
the Secretary of State (or the equivalent thereof) of Maryland with respect to
Carr and a good standing certificate from the Secretary of State (or the
equivalent thereof) of Delaware with respect to Carr LP and from the Secretary
of State (or the equivalent thereof) of each other State in which Carr or Carr
LP is required to be qualified to transact business, each to be dated not more
than ten (10) days prior to the Closing Date;
(f) the Agent shall have received all certificates, agreements and
other documents and papers referred to in this Section 3.1 and Section 3.2,
unless otherwise specified, in sufficient counterparts, satisfactory in form and
substance to the Agent in its sole discretion;
(g) the Borrowers shall have taken all actions required to authorize
the execution and delivery of this Agreement and the other Loan Documents and
the performance thereof by the Borrowers;
(h) the Agent shall have received an unaudited consolidated balance
sheet and income statement of Carr for the fiscal quarter ended March 31, 1996;
(i) the Agent shall have received wire transfer instructions in
connection with the Loans to be made on the Closing Date;
(j) the Agent shall have received, for its and any other Bank's
account, all fees due and payable pursuant to Section 2.7 hereof on or before
the Closing Date, and the
<PAGE>
reasonable fees and expenses accrued through the Closing Date of Skadden, Arps,
Slate, Meagher & Flom;
(k) the Agent shall have received copies of all consents, licenses and
approvals, if any, required in connection with the execution, delivery and
performance by the Borrower, and the validity and enforceability, of the Loan
Documents, or in connection with any of the transactions contemplated thereby,
and such consents, licenses and approvals shall be in full force and effect;
(l) the Agent shall have received satisfactory reports of Uniform
Commercial Code filing searches conducted by a search firm acceptable to the
Agent with respect to the Borrowers, such searches to be conducted in each of
the locations specified by the Agent;
(m) no material defaults or Events of Default (as defined therein)
shall exist under any existing agreement entered into by either Borrower in
connection with any Debt of such Borrower;
(n) the representations and warranties of the Borrowers contained in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date both before and after giving effect to the making of any Loans;
and
(o) the Agent shall have received certificates of insurance with
respect to each Borrowing Base Property demonstrating the coverages required
under this Agreement;
(p) the Agent shall have received with respect to each Borrowing Base
Property, a satisfactory Title Commitment;
(q) the Agent shall have received with respect to each Borrowing Base
Property, a satisfactory environmental report indicating that (A) the Borrowing
Base Property complies with all Environmental Laws in all material respects, (B)
is
<PAGE>
free of all Materials of Environmental Concern in all material respects and
(C) is not subject to any Environmental Claim, or if any of the foregoing is not
satisfied, Agent shall have received from the applicable Borrower either (i) a
satisfactory indemnification indemnifying the Agent and the Banks and
guaranteeing the remediation of the applicable Material of Environmental
Concern, from a tenant with an Investment Grade Rating or other party acceptable
to the Agent, (ii) evidence satisfactory to the Agent in its sole discretion
that the applicable Borrower has adequate rights as an indemnitee pursuant to an
environmental indemnity pursuant to which a tenant with an Investment Grade
Rating or other party acceptable to the Agent indemnifies the applicable
Borrower or which guarantees the remediation of Materials of Environmental
Concern or (iii) Cash or Cash Equivalents, letters of credit or evidence that
the applicable Borrower has access to such items, equal to an amount
satisfactory to the Agent to be used for remediation of the applicable Material
of Environmental Concern;
(r) the Agent shall have received with respect to each Borrowing Base
Property, a satisfactory engineer's inspection report;
(s) the Agent shall have received with respect to each Borrowing Base
Property, evidence of compliance with zoning and other local laws, together with
copies of the certificates of occupancy for each thereof (or evidence
satisfactory to the Agent as to why no certificate of occupancy is required);
and
(t) the Agent shall have received with respect to each Borrowing Base
Property, (i) a description of the Borrowing Base Property, (ii) two years of
historical cash flow operating statements, if available, (iii) five years of
cash flow projections (including capital expenditures), (iv) the credit history
of each existing tenant which occupies more than 15% of such Borrowing Base
Property, (v) a map and site
<PAGE>
plan, including an existing Survey of the property dated not more than twelve
(12) months prior to such submission, (vi) copies of all lease agreements with
each existing tenant which occupies more than 15% of such Borrowing Base
Property and lease abstracts thereof, (vii) an estoppel certificate from each
tenant which occupies 50% or more of such Borrowing Base Property and (viii) any
investment memorandum prepared by Carr in connection with the four most recent
acquisitions of Borrowing Base Properties by Carr.
The Agent shall promptly notify the Borrowers and the Banks of the Closing Date,
and such notice shall be conclusive and binding on all parties hereto.
SECTION 3.2. Borrowings. The obligation of any Bank to make a Loan on the
occasion of any Borrowing or to participate in any Letter of Credit issued by
the Fronting Bank and the obligation of the Fronting Bank to issue a Letter of
Credit on the occasion of any Borrowing is subject to the satisfaction of the
following conditions:
(a) the Closing Date shall have occurred on or prior May 31, 1996;
(b) receipt by the Agent of a Notice of Borrowing as required by
Section 2.2;
(c) with respect to any portion of the $20,000,000 of the proceeds of
the Loans solely available for the payment of Capital Expenditures in accordance
with Section 5.15, receipt by the Agent of a certificate of the chief financial
officer or the chief accounting officer of Carr certifying that the applicable
Borrower will use the proceeds of such Loan for Capital Expenditures and briefly
describing such Capital Expenditures;
(d) with respect to the next Notice of Borrowing delivered to Agent
after any delivery of a Notice of Borrow-
<PAGE>
ing and the certificate set forth in subsection (c) of this Section 3.2, receipt
by the Agent of a certificate of the chief financial officer or the chief
accounting officer of Carr certifying that the applicable Borrower has used the
proceeds of such Loan for Capital Expenditures;
(e) immediately after such Borrowing, the Outstanding Balance will not
exceed the aggregate amount of the Commitments and with respect to each Bank,
such Bank's pro rata portion of the Loans and Letter of Credit Usage will not
exceed such Bank's Commitment;
(f) immediately before and after such Borrowing, no Default or Event of
Default shall have occurred and be continuing both before and after giving
effect to the making of such Loans;
(g) the representations and warranties of the Borrowers contained in
this Agreement shall be true and correct in all material respects on and as of
the date of such Borrowing both before and after giving effect to the making of
such Loans;
(h) no law or regulation shall have been adopted, no order, judgment or
decree of any governmental authority shall have been issued, and no litigation
shall be pending or threatened, which does or, with respect to any threatened
litigation, seeks to enjoin, prohibit or restrain, the making or repayment of
the Loans, the issuance of any Letters of Credit or any participations therein
or the consummation of the transactions contemplated hereby; and
(i) no event, act or condition shall have occurred after the Closing
Date which, in the reasonable judgment of the Agent or the Required Banks, as
the case may be, has had or is likely to have a Material Adverse Effect.
<PAGE>
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in clauses
(c), (d) and (e) of this Section.
SECTION 3.3. Conditions Precedent to New Acquisitions and Additional Real
Property Assets.
(a) All New Acquisitions or Real Property Assets to be added
to the Borrowing Base Properties of Carr shall be approved by all the Banks.
(b) The Borrowers shall submit to the Agent the materials set
forth below (the "Due Diligence Package") relating to each potential New
Acquisition or Real Property Assets to be added to the Borrowing Base
Properties. The Due Diligence Package shall include (i) a description of the
Real Property Asset or New Acquisition, (ii) two years of historical cash flow
operating statements, if available, (iii) five years of cash flow projections
(including capital expenditures), (iv) the credit history of each existing
tenant which occupies more than 15% of such Real Property Asset or New
Acquisition, (v) a map and site plan, including an existing Survey of the
property dated not more than twelve (12) months prior to such submission, (vi)
copies of all lease agreements with each existing tenant which occupies more
than 15% of such Real Property Asset or New Acquisition and lease abstracts
thereof, (vii) an environmental report in compliance with Section 3.1(q), (viii)
a satisfactory engineer's inspection report, (ix) an estoppel certificate from
each tenant which occupies 50% or more of the Real Property Asset or New
Acquisition, (x) evidence of compliance with zoning and other local laws, (xi) a
satisfactory Title Commitment and (xii) a final investment memorandum prepared
by Carr in connection with the New Acquisition or Real Property Asset. The
applicable Borrower shall permit the Agent at all reasonable times and upon
reasonable prior
<PAGE>
notice to make an inspection of such New Acquisition or Real Property Asset.
(c) The Borrowers shall distribute a copy of each item
constituting the Due Diligence Package by overnight mail to each of the Banks
for their review and approval. Failure to respond to the Agent in writing by any
Bank within ten (10) Domestic Business Days after receipt of the Due Diligence
Package, shall be deemed to be an approval by such Bank of such potential New
Acquisition or Real Property Asset.
ARTICLE IV
BORROWERS' REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and each of the other Banks which may
become a party to this Agreement to make the Loans, the applicable Borrower
makes the following representations and warranties as of the Closing Date. Such
representations and warranties shall survive the effectiveness of this
Agreement, the execution and delivery of the other Loan Documents and the making
of the Loans.
SECTION 4.1. Existence and Power of Carr. Carr is duly organized, validly
existing and in good standing as a corporation under the laws of the State of
Maryland and has all powers and all material governmental licenses,
authorizations, consents and approvals required to own its property and assets
and carry on its business as now conducted or as it presently proposes to
conduct and has been duly qualified and is in good standing in every
jurisdiction in which the failure to be so qualified and/or in good standing is
likely to have a Material Adverse Effect.
Existence and Power of Carr LP. Carr LP is duly organized, validly
existing and in good standing as a limited partnership under the laws of the
State of Delaware and has all powers and all material governmental licenses,
authorizations, consents and approvals required to own its property and assets
and carry on its business as now conducted or as it presently proposes to
conduct and has been duly qualified and is in good standing in every
jurisdiction in which the failure to be so qualified and/or in good standing is
likely to have a Material Adverse Effect.
<PAGE>
SECTION 4.2. Power and Authority of Carr. Carr has the corporate power and
authority to execute, deliver and carry out the terms and provisions of each of
the Loan Documents to which it is a party and has taken all necessary action to
authorize the execution and delivery on behalf of Carr and the performance by
Carr of such Loan Documents. Carr has duly executed and delivered each Loan
Document to which it is a party, and each such Loan Document constitutes the
legal, valid and binding obligation of Carr, enforceable in accordance with its
terms, except as enforceability may be limited by applicable insolvency,
bankruptcy or other laws affecting creditors rights generally, or general
principles of equity, whether such enforceability is considered in a proceeding
in equity or at law.
SECTION 4.4. Power and Authority of Carr LP. Carr LP has the partnership power
and authority to execute, deliver and carry out the terms and provisions of each
of the Loan Documents to which it is a party and has taken all necessary action
to authorize the execution and delivery on behalf of Carr LP and the performance
by Carr LP of such Loan Documents. Carr LP has duly executed and delivered each
Loan Document to which it is a party, and each such Loan Document constitutes
the legal, valid and binding obligation of Carr LP, enforceable in accordance
with its terms, except as enforceability may be limited by applicable
insolvency, bankruptcy or other laws affecting creditors rights generally,
<PAGE>
or general principles of equity, whether such enforceability is considered in a
proceeding in equity or at law.
SECTION 4.5. No Violation. Neither the execution, delivery or performance by or
on behalf of the Borrowers of the Loan Documents, nor compliance by the
Borrowers with the terms and provisions thereof nor the consummation of the
transactions contemplated by the Loan Documents, (i) will contravene any
applicable provision of any law, statute, rule, regulation, order, writ,
injunction or decree of any court or governmental instrumentality or (ii) will
conflict with or result in any breach of, any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any of the property or assets of the Borrowers pursuant to the terms of any
indenture, mortgage, deed of trust, or other agreement or other instrument to
which the Borrowers (or of any partnership of which either Borrower is a
partner) is a party or by which it or any of its property or assets is bound or
to which it is subject or (iii) will cause a default by either Borrower under
any organizational document of any Subsidiary, or cause a default under Carr's
articles of incorporation or by-laws or Carr LP's agreement of limited
partnership.
SECTION 4.6. Financial Information.
(a) The unaudited consolidated balance sheet of Carr as of March 31,
1996, a copy of which has been delivered to the Agent, fairly presents, in
conformity with generally accepted accounting principles, the consolidated
financial position of Carr as of such date and its consolidated results of
operations for such fiscal year.
(b) Since March 31, 1996, (i) there has been no material adverse change
in the business, financial position or results of operations of the Borrowers
and (ii) except as
<PAGE>
previously disclosed to the Agent, the Borrowers have not incurred any material
indebtedness or guaranty.
SECTION 4.7. Litigation
(a) There is no action, suit or proceeding pending against, or
to the knowledge of the Borrowers, threatened against or affecting, (i) the
Borrowers or any of their Subsidiaries, (ii) the Loan Documents or any of the
transactions contemplated by the Loan Documents or (iii) any of their assets, in
any case before any court or arbitrator or any governmental body, agency or
official in which there is a reasonable likelihood of an adverse decision which
could, individually or in the aggregate, have a Material Adverse Effect or which
in any manner draws into question the validity of this Agreement or the other
Loan Documents.
(b) There are no final nonappealable judgments or decrees in
an aggregate amount of Five Million Dollars ($5,000,000) or more entered by a
court or courts of competent jurisdiction against the Borrowers or either
Borrower (other than any judgment as to which, and only to the extent, a
reputable insurance company has acknowledged coverage of such claim in writing).
SECTION 4.8. Compliance with ERISA.
(a) Except as previously disclosed to the Agent in writing, each member
of the ERISA Group has fulfilled its obligations under the minimum funding
standards of ERISA and the Internal Revenue Code with respect to each Plan and
is in compliance in all material respects with the presently applicable
provisions of ERISA and the Internal Revenue Code with respect to each Plan. No
member of the ERISA Group has (i) sought a waiver of the minimum funding
standard under Section 412 of the Internal Revenue Code in respect of any Plan,
(ii) failed to make any contribution or payment to any Plan or Multiemployer
Plan or in respect of any Benefit
<PAGE>
Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has
resulted or could result in the imposition of a Lien or the posting of a bond or
other security under ERISA or the Internal Revenue Code or (iii) incurred any
liability under Title IV of ERISA other than a liability to the PBGC for
premiums under Section 4007 of ERISA.
(b) The transactions contemplated by the Loan Documents will not
constitute a nonexempt prohibited transaction (as such term is defined in
Section 4975 of the Code or Section 406 of ERISA) that could subject the Agent
or the Banks to any tax or penalty or prohibited transactions imposed under
Section 4975 of the Code or Section 502(i) of ERISA.
SECTION 4.9. Environmental Matters. In the ordinary course of its business, the
Borrowers review the effect of Environmental Laws on the business, operations
and properties of the Borrowers and their subsidiaries, in the course of which
they identify and evaluate associated liabilities and costs (including, without
limitation, any capital or operating expenditures required for clean-up or
closure of properties presently or previously owned, any capital or operating
expenditures required to achieve or maintain compliance with environmental
protection standards imposed by law or as a condition of any license, permit or
contract, any related constraints on operating activities, including any
periodic or permanent shutdown of any facility or reduction in the level of or
change in the nature of operations conducted thereat, any costs or liabilities
in connection with off-site disposal of wastes or Hazardous Substances, and any
actual or potential liabilities to third parties, including employees, and any
related costs and expenses). On the basis of this review, the Borrowers have
reasonably concluded that such associated liabilities and costs, including the
costs of compliance with Environmental Laws, are unlikely to have a Material
Adverse Effect.
<PAGE>
SECTION 4.10. Taxes. The initial tax year of each Borrower for federal income
tax purposes was 1993. The federal income tax returns of the Borrowers are
currently under examination by the Internal Revenue Service. Although such
examination is not yet formally closed, the examining agent has delivered his
report to the Borrowers and such report does not propose any adjustments in
respect of such returns that would have a Material Adverse Effect and the
Borrowers currently do not anticipate that the Internal Revenue Service will
propose any such adjustments. The Borrowers and their subsidiaries have filed
all United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Borrowers or any
subsidiary. The charges, accruals and reserves on the books of the Borrowers and
their subsidiaries in respect of taxes or other governmental charges are, in the
opinion of the Borrowers, adequate.
SECTION 4.11. Full Disclosure. All information heretofore furnished by the
Borrowers to the Agent or any Bank for purposes of or in connection with this
Agreement or any transaction contemplated hereby is true and accurate in all
material respects on the date as of which such information is stated or
certified. The Borrowers have disclosed to the Banks in writing any and all
facts known to the Borrowers which materially and adversely affect or are likely
to materially and adversely affect (to the extent the Borrowers can now
reasonably foresee), the business, operations or financial condition of the
Borrowers considered as one enterprise or the ability of the Borrowers to
perform their obligations under this Agreement or the other Loan Documents.
SECTION 4.12. Solvency. On the Closing Date and after giving effect to the
transactions contemplated by the Loan
<PAGE>
Documents occurring on the Closing Date, each Borrower is Solvent.
SECTION 4.13. Use of Proceeds; Margin Regulations. All proceeds of the Loans
will be used by the Borrowers only in accordance with the provisions hereof. No
part of the proceeds of any Loan will be used by the Borrowers to purchase or
carry any Margin Stock or to extend credit to others for the purpose of
purchasing or carrying any Margin Stock. Neither the making of any Loan nor the
use of the proceeds thereof will violate or be inconsistent with the provisions
of Regulations G, T, U or X of the Federal Reserve Board.
SECTION 4.14. Governmental Approvals. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority, or any subdivision
thereof, is required to authorize, or is required in connection with the
execution, delivery and performance of any Loan Document or the consummation of
any of the transactions contemplated thereby other than those that have already
been duly made or obtained and remain in full force and effect.
SECTION 4.15. Investment Company Act; Public Utility Holding Company Act.
Neither Borrower is (x) an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended, (y) a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of either a "holding company" or a "subsidiary
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended, or (z) subject to any other federal or state law or regulation which
purports to restrict or regulate its ability to borrow money.
SECTION 4.16. Closing Date Transactions. On the Closing Date and immediately
prior to the making of the Loans,
<PAGE>
the transactions (other than the making of the Loans) intended to be consummated
on the Closing Date will have been consummated in accordance with all applicable
laws. All consents and approvals of, and filings and registrations with, and all
other actions by, any Person required in order to make or consummate such
transactions have been obtained, given, filed or taken and are in full force and
effect.
SECTION 4.17. Representations and Warranties in Loan Documents. All
representations and warranties made by the Borrowers in the Loan Documents are
true and correct in all material respects.
SECTION 4.18. Patents, Trademarks, etc. Each Borrower has obtained and hold in
full force and effect all patents, trademarks, service marks, trade names,
copyrights and other such rights, free from burdensome restrictions, which are
necessary for the operation of its business as presently conducted, the
impairment of which is likely to have a Material Adverse Effect. To the
Borrowers' knowledge, no material product, process, method, substance, part or
other material presently sold by or employed by the Borrowers in connection with
such business infringes any patent, trademark, service mark, trade name,
copyright, license or other such right owned by any other Person. There is not
pending or, to the Borrowers' knowledge, threatened any claim or litigation
against or affecting either Borrower contesting its right to sell or use any
such product, process, method, substance, part or other material.
SECTION 4.19. No Default. No Default or Event of Default exists under or with
respect to any Loan Document. Neither Borrower is in default in any material
respect beyond any applicable grace period under or with respect to any other
material agreement, instrument or undertaking to which it is a party or by which
it or any of its property is bound in any respect, the existence of which
default is
<PAGE>
likely (to the extent that the Borrowers can now reasonably foresee) to result
in a Material Adverse Effect.
SECTION 4.20. Licenses, etc. Each Borrower has obtained and holds in full force
and effect, all franchises, licenses, permits, certificates, authorizations,
qualifications, accreditations, easements, rights of way and other consents and
approvals which are necessary for the operation of its businesses as presently
conducted, the absence of which is likely (to the extent that the Borrowers can
now reasonably foresee) to have a Material Adverse Effect.
SECTION 4.21. Compliance With Law. Each Borrower is in compliance with all laws,
rules, regulations, orders, judgments, writs and decrees, including, without
limitation, all building and zoning ordinances and codes, the failure to comply
with which is likely (to the extent that the Borrowers can now reasonably
foresee) to have a Material Adverse Effect.
SECTION 4.22. No Burdensome Restrictions. Neither Borrower is a party to any
agreement or instrument or subject to any other obligation or any charter or
corporate or partnership restriction, as the case may be, which, individually or
in the aggregate, is likely (to the extent that the Borrowers can now reasonably
foresee) to have a Material Adverse Effect.
SECTION 4.23. Brokers' Fees. Neither Borrower has dealt with any broker or
finder with respect to the transactions contemplated by the Loan Documents
(except with respect to the acquisition or disposition of Real Property Assets)
or otherwise in connection with this Agreement, and neither Borrower has done
any acts, had any negotiations or conversation, or made any agreements or
promises which will in any way create or give rise to any obligation or
liability for the payment by the Borrower of any brokerage fee, charge,
commission or other compensation to any party with
<PAGE>
respect to the transactions contemplated by the Loan Documents (except with
respect to the acquisition or disposition of Real Property Assets), other than
the fees payable hereunder.
SECTION 4.24. Labor Matters. There are no collective bargaining agreements or
Multiemployer Plans covering the employees of the Borrowers and the Borrowers
have not suffered any strikes, walkouts, work stoppages or other material labor
difficulty within the last five (5) years.
SECTION 4.25. Organizational Documents. The documents delivered pursuant to
Section 3.1(e) constitute, as of the Closing Date, all of the organizational
documents (together with all amendments and modifications thereof) of the
Borrowers. The Borrowers represent that they have delivered to the Agent true,
correct and complete copies of each of the documents set forth in this Section
4.25.
SECTION 4.26. Principal Offices. The principal office, chief executive office
and principal place of business of each of the Borrowers is 1700 Pennsylvania
Avenue, N.W., Washington, D.C.
SECTION 4.27. REIT Status. For the fiscal year ended December 31, 1995, Carr
qualified and Carr intends to continue to qualify as a real estate investment
trust under the Code.
SECTION 4.28. Ownership of Property. Schedule 4.28 attached hereto and made a
part hereof sets forth all the real property owned or leased by the Borrowers
and Persons in which the Borrowers, directly or indirectly, own an interest as
of the Closing Date. As of the Closing Date, each Borrower and such Persons have
good and insurable fee simple title (or leasehold title if so designated on
Schedule 4.28) to all of such real property, subject to customary encumbrances
and liens as of the date of this Agreement.
<PAGE>
As of the date of this Agreement, there are no mortgages, deeds of trust,
indentures, debt instruments or other agreements creating a Lien against any of
the Real Property Assets except as disclosed on Schedule 4.28.
SECTION 4.29. Insurance. Each Borrower currently maintains, or
causes its tenants to maintain, insurance at 100% replacement cost insurance
coverage (subject to customary deductibles) in respect of each of the Real
Property Assets, as well as commercial general liability insurance (including
"builders' risk") against claims for personal, and bodily injury and/or death,
to one or more persons, or property damage, as well as workers' compensation
insurance, in each case with respect to the Real Property Assets with insurers
having an A.M. Best policyholders' rating of not less than A-IX in amounts that
prudent owner of assets such as the Real Property Assets would maintain.
SECTION 4.30. Surveys. As to any Survey dated prior to June
30, 1995, the Borrowers know of no material changes to the matters shown thereon
which have occurred since the date of each such Surveys. As to any Survey dated
prior to June 30, 1995, the Borrowers know of no material changes to the matters
shown thereon which have occurred since the date of each such Survey and which
have not been disclosed by the Borrowers in writing to the Agent.
ARTICLE V
AFFIRMATIVE AND NEGATIVE COVENANTS
Each Borrower covenants and agrees that, so long as any Bank has any
Commitment hereunder or any Obligations remain unpaid:
SECTION 5.1. Information. The applicable Borrower will
deliver to the Agent:
<PAGE>
(a) as soon as available and in any event within 105 days after the end
of each fiscal year of Carr, an audited consolidated balance sheet of Carr as of
the end of such fiscal year and the related consolidated statements of cash flow
and operations for such fiscal year, setting forth in each case in comparative
form the figures for the previous fiscal year, audited by KPMG Peat Marwick LLP
or other independent public accountants of similar standing;
(b) as soon as available and in any event within ninety (90) days after
the end of each quarter of each fiscal year of Carr, a statement of Carr,
prepared on a GAAP basis, setting forth the operating income and operating
expenses of Carr, in sufficient detail so as to calculate net operating cash
flow of Carr for the immediately preceding quarter;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the chief
financial officer or the chief accounting officer of Carr (i) setting forth in
reasonable detail the calculations required to establish whether the Borrowers
were in compliance with the requirements of Section 5.8 on the date of such
financial statements;(ii) stating whether any Default exists on the date of such
certificate and, if any Default then exists, setting forth the details thereof
and the action which the applicable Borrower is taking or proposes to take with
respect thereto; and (iii) certifying (x) that such financial statements fairly
present the financial condition and the results of operations of Carr as of the
dates and for the periods indicated, on the basis of generally accepted
accounting principles, subject, in the case of interim financial statements, to
normal year-end adjustments, and (y) that such officer has reviewed the terms of
the Loan Documents and has made, or caused to be made under his or her
supervision, a review in reasonable detail of the business and condition of the
applicable Borrower during the period beginning on the date
<PAGE>
through which the last such review was made pursuant to this Section 5.1(c) (or,
in the case of the first certification pursuant to this Section 5.1(c), the
Closing Date) and ending on a date not more than ten (10) Domestic Business Days
prior to the date of such delivery and that on the basis of such review of the
Loan Documents and the business and condition of the applicable Borrower, to the
best knowledge of such officer, no Default or Event of Default under any other
provision of Section 6.1 occurred or, if any such Default or Event of Default
has occurred, specifying the nature and extent thereof and, if continuing, the
action the applicable Borrower proposes to take in respect thereof;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements confirming the
calculations set forth in the officer's certificate delivered simultaneously
therewith pursuant to clause (c) above;
(e) (i) within five (5) days after the president, chief financial
officer, treasurer, controller or other executive officer of either Borrower
obtains knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer or the president of such Borrower
setting forth the details thereof and the action which such Borrower is taking
or proposes to take with respect thereto; (ii) promptly and in any event within
ten (10) days after either Borrower obtains knowledge thereof, notice of (x) any
litigation or governmental proceeding pending or threatened against the Borrower
as to which there is a reasonable likelihood of an adverse determination and
which, if adversely determined, is likely to individually or in the aggregate,
result in a Material Adverse Effect, and (y) any other event, act or condition
which is likely to result in a Material Adverse Effect;
<PAGE>
(f) if and when any member of the ERISA Group (i) gives or is required
to give notice to the PBGC of any "reportable event" (as defined in Section 4043
of ERISA) with respect to any Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any Multiemployer
Plan is in reorganization, is insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent
to terminate, impose liability (other than for premiums under Section 4007 of
ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of
such notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code, a copy of such application; (v) gives
notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of
such notice and other information filed with the PBGC; (vi) gives notice of
withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such
notice; or (vii) fails to make any payment or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which has resulted or could result
in the imposition of a Lien or the posting of a bond or other security, a
certificate of the chief financial officer or the chief accounting officer of
such Borrower setting forth details as to such occurrence and action, if any,
which such Borrower or applicable member of the ERISA Group is required or
proposes to take;
(g) promptly and in any event within five (5) Domestic Business Days
after either Borrower obtains actual knowledge of any of the following events, a
certificate of the applicable Borrower, executed by an officer of the applicable
Borrower, specifying the nature of such condition and such
<PAGE>
Borrower's or, if the applicable Borrower has actual knowledge thereof, the
Environmental Affiliate's proposed initial response thereto: (i) the receipt by
the applicable Borrower, or, if such Borrower has actual knowledge thereof, any
of the Environmental Affiliates, of any communication (written or oral), whether
from a governmental authority, citizens group, employee or otherwise, that
alleges that the applicable Borrower, or, if the applicable Borrower has actual
knowledge thereof, any of the Environmental Affiliates, is not in compliance
with applicable Environmental Laws, and such noncompliance is likely to have a
Material Adverse Effect, (ii) the applicable Borrower shall obtain actual
knowledge that there exists any Environmental Claim pending or threatened
against the applicable Borrower or any Environmental Affiliate or (iii) the
applicable Borrower obtains actual knowledge of any release, emission, discharge
or disposal of any Materials of Environmental Concern that are likely to form
the basis of any Environmental Claim against the applicable Borrower or any
Environmental Affiliate;
(h) promptly and in any event within five (5) Domestic Business Days
after receipt of any material notices or correspondence from any company or
agent for any company providing insurance coverage to either Borrower relating
to any material loss or loss in excess of $1,500,000 of the applicable Borrower,
copies of such notices and correspondence; and
(i) promptly upon the mailing thereof to the shareholders or partners
of either Borrower, copies of all financial statements, reports and proxy
statement so mailed;
(j) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equiva-
<PAGE>
lents) which either Borrower shall have filed with the Securities and
Exchange Commission;
(k) simultaneously with delivery of the certificate required pursuant
to Section 5.1(c), an updated Schedule 4.28, certified by the chief financial
officer or any senior vice president or executive vice president of Carr as
true, correct and complete as of the date such updated schedules are delivered;
(l) within 5 days after filing of the annual income tax return with the
Internal Revenue Service, a certificate of the chief financial officer or chief
accounting officer of Carr certifying that Carr is properly classified and
continues to qualify as a real estate investment trust under the Internal
Revenue Code and has taken all actions consistent with maintaining such status;
(m) simultaneously with delivery of the information required by
Sections 5.1(a) and (b), a statement of Borrowing Base Net Operating Cash Flow
with respect to each Borrowing Base Property and a list of all Borrowing Base
Properties; and
(n) from time to time such additional information regarding the
financial position or business of the Borrowers as the Agent, at the request of
any Bank, may reasonably request.
SECTION 5.2. Payment of Obligations. Each Borrower will pay and discharge, at or
before maturity, all its material obligations and liabilities including, without
limitation, any obligation pursuant to any agreement by which it or any of its
properties is bound and any tax liabilities, except where such tax liabilities
may be contested in good faith by appropriate proceedings, and will maintain in
accordance with generally accepted accounting principles, appropriate reserves
for the accrual of any of the same, in
<PAGE>
any case, where failure to do so will likely result in a Material Adverse
Effect.
SECTION 5.3. Maintenance of Property; Insurance.
(a) Each Borrower will keep, and will cause each of its Subsidiaries to
keep, all property useful and necessary in its business, including, without
limitation, the Real Property Assets, in good repair, working order and
condition, ordinary wear and tear and the provisions of any mortgage with
respect to casualty or condemnation events excepted.
(b) Each Borrower shall or shall cause the Subsidiaries to maintain
"all risk" insurance covering 100% replacement cost of its real property assets
with insurers having an A.M. Best policyholder's rating of not less than A-VIII,
which insurance shall in any event not provide for materially less coverage than
the insurance in effect on the Closing Date, and furnish to each Bank from time
to time, upon written request, copies of certificates of insurance under which
such insurance is issued and such other information relating to such insurance
as such Bank may reasonably request.
SECTION 5.4. Conduct of Business. Except as contemplated by the Proxy Statement
of Carr, dated January 22, 1996, each Borrower will continue to engage in
business of the same general type as now conducted by each Borrower.
SECTION 5.5. Compliance with Laws. Each Borrower will comply in all material
respects with all applicable laws, ordinances, rules, regulations, and
requirements of governmental authorities (including, without limitation,
Environmental Laws, all zoning and building codes and ERISA and the rules and
regulations thereunder) except where the necessity of compliance therewith is
contested in good faith by appropriate proceedings.
SECTION 5.6. Inspection of Property, Books and Records. The Borrowers will keep
proper books of record and account in which full, true and correct entries shall
be made of all dealings and transactions in relation to its business and
activities; and will permit representatives of any Bank at such Bank's expense
to visit and inspect any of its properties to examine and make abstracts from
any of its books and records and to discuss its affairs, finances and accounts
with its officers, employees and independent public accountants, all at such
reasonable times, upon reasonable notice, and as often as may reasonably be
desired.
SECTION 5.7.Existence. Each Borrower shall do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
or its partnership existence, as applicable, and its patents, trademarks,
servicemarks, tradenames, copyrights, franchises, licenses, permits,
certificates, authorizations, qualifications, accreditations, easements, rights
of way and other rights, consents and approvals the nonexistence of which is
likely to have a Material Adverse Effect.
SECTION 5.8. Financial Covenants.
(a) Debt Service Coverage. Measured as of the last day of each
calendar quarter, the ratio of (i) Annual EBITDA to (ii) the sum of (x) Debt
Service plus (y) appropriate reserves for replacements of not less than $2.29
per square foot per annum for each Borrowing Base Property, will not be less
than 1.5:1.
(b) Maximum Total Debt to Tangible FMV. As of the last day of
each calendar quarter, the Maximum Total Debt Ratio will not be greater than 55%
during the calendar year 1996, 50% during the calendar year 1997 and 45% during
the calendar year 1998.
<PAGE>
(c) EBITDA Interest Coverage. As of the last day of each
calendar quarter, the ratio of (x) Annual EBITDA to (y) interest (whether
accrued, paid or capitalized) actually payable by either Borrower or the
Borrowers on its Debt for the previous four consecutive quarters including the
quarter then ended, will not be less than 2.25:1.
(d) EBITDA Coverage. As of the last day of each calendar
quarter, the ratio of (x) Annual EBITDA to (y) the sum of (i) Debt Service plus
(ii) Capital Expenditures of the Borrowers for the previous four consecutive
quarters including the quarter then ended less a reserve of $20,000,000 for the
period commencing on the date hereof and ending on the first anniversary of the
date hereof, will not be less than 1.25:1.
(e) Dividends. Carr will not, as determined on an aggregate
annual basis, pay any dividends in excess of 90% of Carr's consolidated FFO for
such year. During the continuance of an Event of Default under Section 6.1(a),
Carr shall only pay those dividends necessary to maintain its status as a real
estate investment trust.
(f) LTV Ratio. As of the last day of each calendar quarter and
as of the date of any New Acquisition, the LTV Ratio shall not exceed 50%,
subject, however, to the Borrowers' rights to cure pursuant to Section 2.9(a).
Failure to restore compliance with this Section 5.8(f) in accordance with
Section 2.9(a) shall be an immediate Event of Default.
(g) Borrowing Base Properties Minimum Debt Service Coverage.
As of the last day of each calendar quarter, the Borrowers shall be in
compliance with the Borrowing Base Properties Minimum Debt Service Coverage,
subject, however, to the Borrowers' rights to cure pursuant to Section 2.9(c).
Failure to restore compliance with this Section 5.8(g) in
<PAGE>
accordance with Section 2.9(c) shall be an immediate Event of Default.
(h) Minimum Consolidated Tangible Net Worth. Consolidated
Tangible Net Worth of the Borrowers will at no time be less than 90% of the
Consolidated Tangible Net Worth of the Borrowers on the Closing Date.
SECTION 5.9. Restriction on Fundamental Changes; Operation and Control. (a) Carr
shall carry on its business operations through Carr and its Subsidiaries.
Neither Borrower shall enter into any merger or consolidation, unless such
Borrower is the surviving entity, or liquidate, wind-up or dissolve (or suffer
any liquidation or dissolution), discontinue its business or convey, lease,
sell, transfer or otherwise dispose of, in one transaction or series of
transactions, all or any substantial part of its business or property, whether
now or hereafter acquired, hold an interest in any subsidiary which is not
controlled by such Borrower or enter into other business lines, without the
prior written consent of the Agent, except for (i) joint ventures in which
Carr's ownership interest shall be less than 15% of the fair market value of the
Real Property Assets owned by Carr as of the date hereof and (ii) Carr Real
Estate Services, Inc., Carr Real Estate Services of Northern Virginia, Inc.,
Carr Development and Construction, Inc., CarrAmerica Realty, L.P. and any other
similar service company. For purposes hereof, "fair market value" shall mean the
quotient of (x) Net Operating Income with respect to the Real Property Assets
owned by Carr as of the date hereof and (y) 11%.
(b) Neither Borrower shall amend its articles of incorporation, by-laws
or agreement of limited partnership, as applicable, in any material respect,
without the Agent's consent, which shall not be unreasonably withheld, except as
contemplated by the Proxy Statement of Carr, dated January 22, 1996.
<PAGE>
SECTION 5.10.Changes in Business. The Borrowers shall not enter into any
business which is substantially different from that conducted by the Borrowers
on the Closing Date after giving effect to the transactions contemplated by the
Loan Documents or described in the Proxy Statement of Carr, dated January 22,
1996.
SECTION 5.11. Fiscal Year; Fiscal Quarter. The Borrowers shall not change their
fiscal year or any of their fiscal quarters.
SECTION 5.12. Margin Stock. None of the proceeds of the Loan will be used,
directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of buying or carrying any Margin Stock.
SECTION 5.13. Sale of Borrowing Base Properties. Prior to the sale or
transfer of any Borrowing Base Property, the applicable Borrower shall (i)
deliver prior written notice to the Agent, (ii) deliver to the Agent a
certificate from its Chief Financial Officer certifying that at the time of such
sale or other disposal (based on pro-forma calculations for the previous period
assuming that such Borrowing Base Property was not a Borrowing Base Property for
the relevant period) all of the covenants contained in Sections 5.8 through 5.14
and 5.16 through 5.20 are and after giving effect to the transaction shall
continue to be true and accurate in all respects, and (iii) pay to the Agent an
amount equal to that required pursuant to Section 2.9(b).
SECTION 5.14. Liens; Release of Liens. Neither Borrower nor any of their
Subsidiaries shall at any time during the Term directly or indirectly create,
incur, assume or permit to exist any Lien for borrowed monies or any other Lien
other than Permitted Liens unless the same is being contested in good faith or
the same is discharged, bonded off or paid within thirty (30) days of filing of
such Lien, on or with respect to any Borrowing Base Property. Notwith
<PAGE>
standing the foregoing, the Borrowers may obtain a release from the terms of
this Agreement of any Borrowing Base Property provided that such Borrower has
complied with Section 2.9(b) and prior to or simultaneously with such release
(i) such Borrower shall pay to the Agent any amounts due pursuant to Section
2.9(b), and (ii) such Borrower delivers to the Agent a certificate from its
Chief Financial Officer certifying that at the time of the release all of the
covenants contained in Sections 5.8 through 5.14 and 5.16 through 5.20 are and
after giving effect to the transaction shall continue to be true and accurate in
all respects.
SECTION 5.15. Use of Proceeds. The Borrowers shall use the proceeds of the Loans
solely (i) to facilitate the acquisition by Carr (either directly or indirectly
through Subsidiaries) of real properties (or interests therein) (the "New
Acquisitions") which are office buildings (it being understood that Carr LP may
distribute, lend or otherwise transfer the proceeds of a Tranche B Loan to Carr
for such purpose, and that Carr may distribute, lend or otherwise transfer the
proceeds of a Tranche A Loan (or the proceeds of a Tranche B Loan received from
Carr LP) to a Subsidiary for such purpose), (ii) for other purposes related to
the acquisition of office buildings (including, without limitation, the
acquisition of property service companies in connection therewith and the
payment of fees and other costs related to such acquisition), (iii) for working
capital purposes, not to exceed $15,000,000 outstanding at any one time or (iv)
for development and construction activities in accordance with Section 5.16
hereof. Notwithstanding the foregoing, the Borrowers may use $20,000,000 of the
proceeds of the Loans only for the payment of Capital Expenditures.
SECTION 5.16. Development Activities. The Borrowers shall not have invested more
than $25,000,000 in any current development and construction activities (which
limit shall be increased to $50,000,000 on the date which Carr shall
<PAGE>
have raised additional gross proceeds of at least $150,000,000 in private or
public equity capital after the date hereof), other than (i) development of
"build-to-suit" improvements pre-leased to the tenant (in connection with which
the Borrowers shall have no construction completion risk) or (ii) development in
connection with the expansion and/or repositioning or restoration following a
casualty or condemnation of existing improvements on Real Property Assets.
SECTION 5.7. Restrictions on Recourse Debt. Until such time as Carr shall
receive two (2) Investment Grade Ratings, one of which shall be an Investment
Grade Rating from S&P or Moody's, neither Borrower shall incur any additional
Recourse Debt, other than (i) Recourse Debt to any Subsidiary, (ii) Recourse
Debt in an amount outstanding at any one time not to exceed $5,000,000 and (iii)
the assumption of $28,300,000 of Recourse Debt in connection with Carr's planned
acquisition of office properties located in Redmond, Washington. Notwithstanding
the foregoing, the Borrowers shall be permitted to incur Non-Recourse Debt with
respect to any Real Property Asset which (i) has been released as a Borrowing
Base Property in accordance with the terms of this Agreement or (ii) is not
otherwise included in the Borrowing Base Properties.
SECTION 5.18. Carr's Status. Carr shall at all times (i) remain a
publicly traded company listed on the New York Stock Exchange, and (ii) maintain
its status as a self-directed and self-administered real estate investment trust
under the Internal Revenue Code.
SECTION 5.19. Certain Requirements for the Borrowing Base Properties. At all
times, (i) the Borrowing Base Properties Value of the Borrowing Base Properties
which are less than 85% leased to tenants (including as leased any space for
which a lease termination payment has been made to either Borrower but only for
the period for which such pay-
<PAGE>
ment shall cover the rental income for such space) shall not comprise more than
20% of the Borrowing Base Properties Value. In the event that the requirements
of this Section 5.19 are not satisfied, the Borrowers shall be prohibited from
further Borrowings unless such Borrower adds a New Acquisition or Real Property
Asset to the Borrowing Base Properties in accordance with this Agreement in
order to restore compliance with the requirements of this provision. Failure to
restore compliance with the requirements of this Section 5.19 within 90 days of
such non-compliance shall be an Event of Default.
SECTION 5.20. Hedging Requirements. The Borrowers shall maintain "Interest Rate
Hedges" (as defined below) on a notional amount of the Debt of the Borrowers and
their Subsidiaries which, when added to the aggregate principal amount of the
Debt of the Borrowers and their Subsidiaries which bears interest at a fixed
rate, equals or exceeds 75% of the aggregate principal amount of all Debt of the
Borrowers and their Subsidiaries. "Interest Rate Hedges" shall mean interest
rate exchange, collar, cap, swap, adjustable strike cap, adjustable strike
corridor or similar agreements having terms, conditions and tenors reasonably
acceptable to the Agent entered into by the Borrowers and/or their Subsidiaries
in order to provide protection to, or minimize the impact upon, the Borrowers
and/or such Subsidiaries of increasing floating rates of interest applicable to
Debt.
ARTICLE VI
DEFAULTS
SECTION 6.1. Events of Default. If one or more of the following events ("Events
of Default") shall have occurred and be continuing:
<PAGE>
(a) either Borrower shall fail to pay when due any principal of any
Loan, or either Borrower shall fail to pay when due any interest on any Loan,
provided, however, that a Borrower shall be entitled to a three (3) Domestic
Business Day grace period with respect thereto but only as to two (2) payments
of interest during the Term, or either Borrower shall fail to pay within three
(3) Domestic Business Days after the same is due any fees or other amounts
payable hereunder;
(b) either Borrower shall fail to observe or perform any covenant
contained in Sections 5.8 to 5.19, inclusive, subject to any applicable grace
periods set forth therein;
(c) either Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause (a) or
(b) above) for 30 days after written notice thereof has been given to such
Borrower by the Agent;
(d) any representation, warranty, certification or statement made by
either Borrower in this Agreement or in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made (or deemed made);
(e) Either Borrower shall default in the payment when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) of
any amount owing in respect of any Recourse Debt or Debt guaranteed by such
party (other than the Obligations and provided that such Debt is in an aggregate
amount of Five Million Dollars ($5,000,000) or more) and such default shall
continue beyond the giving of any required notice and the expiration of any
applicable grace period (as the same may be extended by the applicable lender)
and such default shall not be waived by
<PAGE>
the applicable lender (which waiver shall serve to reinstate the applicable
loan), or either Borrower shall default in the performance or observance of any
obligation or condition with respect to any such Debt or any other event shall
occur or condition exist beyond the giving of any required notice and the
expiration of any applicable grace period (as the same may be extended by the
applicable lender), if in any such case the effect of such default, event or
condition is to accelerate the maturity of any such Debt or to permit (without
any further requirement of notice or lapse of time) the holder or holders
thereof, or any trustee or agent for such holders, to accelerate the maturity of
any such Debt and such default shall not be waived by the applicable lender
(which waiver shall serve to reinstate the applicable loan), or any such Debt
shall become or be declared to be due and payable prior to its stated maturity
other than as a result of a regularly scheduled payment;
(f) either Borrower shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or hereafter
in effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, or shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become due, or shall
take any corporate action to authorize any of the foregoing;
(g) an involuntary case or other proceeding shall be commenced against
either Borrower seeking liquidation, reorganization or other relief with respect
to it or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of
<PAGE>
it or any substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60 days; or an
order for relief shall be entered against either Borrower under the federal
bankruptcy laws as now or hereafter in effect;
(h) either Borrower shall default in its obligations under any Loan
Document other than this Agreement beyond any applicable notice and grace
periods;
(i) any member of the ERISA Group shall fail to pay when due an amount
or amounts aggregating in excess of $1,000,000 which it shall have become liable
to pay under Title IV of ERISA, or notice of intent to terminate a Material Plan
shall be filed under Title IV of ERISA by any member of the ERISA Group, any
plan administrator or any combination of the foregoing, or the PBGC shall
institute proceedings under Title IV of ERISA to terminate, to impose liability
(other than for premiums under Section 4007 of ERISA) in respect of, or to cause
a trustee to be appointed to administer any Material Plan, or a condition shall
exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated, or there shall occur a
complete or partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which
could cause one or more members of the ERISA Group to incur a current payment
obligation in excess of $1,000,000;
(j) one or more final nonappealable judgments or decrees in an
aggregate amount of six percent (6%) or more of the Consolidated Tangible Net
Worth of Carr as of such date shall be entered by a court or courts of competent
jurisdiction against either Borrower (other than any judgment as to which, and
only to the extent, a reputable insurance company has acknowledged coverage of
such claim in writing) and (i) any such judgments or decrees shall not be
stayed, discharged, paid, bonded or vacated within thirty (30) days
<PAGE>
or (ii) enforcement proceedings shall be commenced by any creditor on any such
judgments or decrees;
(k) (i) any Environmental Claim shall have been asserted against either
Borrower or any Environmental Affiliate, (ii) any release, emission, discharge
or disposal of any Materials of Environmental Concern shall have occurred, and
such event is reasonably likely to form the basis of an Environmental Claim
against either Borrower or any Environmental Affiliate, or (iii) either Borrower
or the Environmental Affiliates shall have failed to obtain any Environmental
Approval necessary for the ownership, or operation of its business, property or
assets or any such Environmental Approval shall be revoked, terminated, or
otherwise cease to be in full force and effect, in the case of clauses (i), (ii)
or (iii) above, if the existence of such condition has had or is reasonably
likely to have a Material Adverse Effect;
(l) during any consecutive two year period commencing on or after the
date hereof, individuals who at the beginning of such period constituted the
Board of Directors of Carr (together with any new directors whose election by
the Board of Directors or whose nomination for election by Carr stockholders was
approved by a vote of at least a majority of the members of the Board of
Directors then in the office who either were members of the Board of Directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
members of the Board of Directors then in office; or
(k) Carr shall cease at any time to qualify as a real estate investment
trust under the Internal Revenue Code.
SECTION 6.2. Rights and Remedies. (a) Upon the occurrence of any Event of
Default described in Sections 6.1(f) or (g), the unpaid principal amount of, and
any and
<PAGE>
all accrued interest on, the Loans and any and all accrued fees and other
Obligations hereunder shall automatically become immediately due and payable,
with all additional interest from time to time accrued thereon and without
presentation, demand, or protest or other requirements of any kind (including,
without limitation, valuation and appraisement, diligence, presentment, notice
of intent to demand or accelerate and notice of acceleration), all of which are
hereby expressly waived by the Borrowers; and upon the occurrence and during the
continuance of any other Event of Default, the Agent may exercise any of its
rights and remedies hereunder and by written notice to the Borrowers, declare
the unpaid principal amount of and any and all accrued and unpaid interest on
the Loans and any and all accrued fees and other Obligations hereunder to be,
and the same shall thereupon be, immediately due and payable with all additional
interest from time to time accrued thereon and without presentation, demand, or
protest or other requirements of any kind other than as provided in the Loan
Documents (including, without limitation, valuation and appraisement, diligence,
presentment, and notice of intent to demand or accelerate), all of which are
hereby expressly waived by the Borrowers. Notwithstanding anything in this
Agreement to the contrary, Carr LP shall not be liable for any Borrowings made
by Carr pursuant to the terms hereof.
SECTION 6.3. Notice of Default. If the Agent shall not already have given any
notice to the Borrowers under Section 6.1, the Agent shall give notice to the
Borrowers under Section 6.1 promptly upon being requested to do so by the
Required Banks and shall thereupon notify all the Banks thereof.
SECTION 6.4. Actions in Respect of Letters of Credit. (a) If, at any
time and from time to time, any Letter of Credit shall have been issued
hereunder and an Event of Default shall have occurred and be continuing, then,
upon the occurrence and during the continuation thereof, the
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<PAGE>
Agent may, whether in addition to the taking by the Agent of any of the actions
described in this Article or otherwise, make a demand upon the Borrowers to, and
forthwith upon such demand (but in any event within ten (10) days after such
demand), the Borrowers shall, pay to the Agent, on behalf of the Banks, in same
day funds at the Agent's office designated in such demand, for deposit in a
special cash collateral account (the "Letter of Credit Collateral Account") to
be maintained in the name of the Agent (on behalf of the Banks) and under its
sole dominion and control at such place as shall be designated by the Agent, an
amount equal to the amount of the Letter of Credit Usage under the Letters of
Credit. Interest shall accrue on the Letter of Credit Collateral Account at a
rate equal to the rate on overnight funds.
(b) The Borrowers hereby pledge, assign and grant to the Agent, as
administrative agent for its benefit and the ratable benefit of the Banks a lien
on and a security interest in, the following collateral (the "Letter of Credit
Collateral"):
(i) the Letter of Credit Collateral Account, all cash
deposited therein and all certificates and instruments, if any, from time to
time representing or evidencing the Letter of Credit Collateral Account;
(ii) all notes, certificates of deposit and other
instruments from time to time hereafter delivered to or otherwise possessed by
the Agent for or on behalf of the Borrower in substitution for or in respect of
any or all of the then existing Letter of Credit Collateral;
(iii) all interest, dividends, cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the then existing Letter of Credit
Collateral; and
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<PAGE>
(iv) to the extent not covered by the above clauses, all
proceeds of any or all of the foregoing Letter of Credit Collateral.
The lien and security interest granted hereby secures the payment of all
obligations of the Borrowers now or hereafter existing hereunder and under any
other Loan Document.
(c) The Borrowers hereby authorize the Agent for the ratable benefit of
the Banks to apply, from time to time after funds are deposited in the Letter of
Credit Collateral Account, funds then held in the Letter of Credit Collateral
Account to the payment of any amounts, in such order as the Agent may elect, as
shall have become due and payable by the Borrowers to the Banks in respect of
the Letters of Credit.
(d) Neither Borrower nor any Person claiming or acting on behalf of or
through either Borrower shall have any right to withdraw any of the funds held
in the Letter of Credit Collateral Account, except as provided in Section 6.4(h)
hereof.
(e) Each Borrower agrees that it will not (i) sell or otherwise dispose
of any interest in the Letter of Credit Collateral or (ii) create or permit to
exist any lien, security interest or other charge or encumbrance upon or with
respect to any of the Letter of Credit Collateral, except for the security
interest created by this Section 6.4.
(f) If any Event of Default shall have occurred and be continuing:
(i) The Agent may, in its sole discretion, without notice to
the Borrowers except as required by law and at any time from time to time,
charge, set off or otherwise apply all or any part of first, (x) amounts
previously drawn on any Letter of Credit that have not been reimbursed by the
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Borrowers and (y) any Letter of Credit Usage described in clause (ii) of the
definition thereof that are then due and payable and second, any other unpaid
Obligations then due and payable against the Letter of Credit Collateral Account
or any part thereof, in such order as the Agent shall elect. The rights of the
Agent under this Section 6.4 are in addition to any rights and remedies which
any Bank may have.
(ii) The Agent may also exercise, in its sole discretion, in
respect of the Letter of Credit Collateral Account, in addition to the other
rights and remedies provided herein or otherwise available to it, all the rights
and remedies of a secured party upon default under the Uniform Commercial Code
in effect in the State of New York at that time.
(g) The Agent shall be deemed to have exercised reasonable care in the
custody and preservation of the Letter of Credit Collateral if the Letter of
Credit Collateral is accorded treatment substantially equal to that which the
Agent accords its own property, it being understood that, assuming such
treatment, the Agent shall not have any responsibility or liability with respect
thereto.
(h) At such time as all Events of Default have been cured or waived in
writing, all amounts remaining in the Letter of Credit Collateral Account shall
be promptly returned to the Borrowers. Absent such cure or written waiver, any
surplus of the funds held in the Letter of Credit Collateral Account and
remaining after payment in full of all of the Obligations of the Borrowers
hereunder and under any other Loan Document after the Maturity Date shall be
paid to the Borrowers or to whomsoever may be lawfully entitled to receive such
surplus.
ARTICLE VII
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THE AGENT
SECTION 7.1. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement and the other Loan Documents as are
delegated to the Agent by the terms hereof or thereof, together with all such
powers as are reasonably incidental thereto.
SECTION 7.2. Agent and Affiliates. Morgan shall have the same rights
and powers under this Agreement as any other Bank and may exercise or refrain
from exercising the same as though it were not the Agent, and Morgan and its
affiliates may accept deposits from, lend money to, and generally engage in any
kind of business with the Borrowers or any subsidiary or affiliate of the
Borrowers as if it were not the Agent hereunder, and the term "Bank" and "Banks"
shall include Morgan in its individual capacity.
SECTION 7.3. Action by Agent. The obligations of the Agent hereunder
are only those expressly set forth herein. Without limiting the generality of
the foregoing, the Agent shall not be required to take any action with respect
to any Default, except as expressly provided in Article VI.
SECTION 7.4. Consultation with Experts. The Agent may consult with
legal counsel (who may be counsel for the Borrowers), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 7.5. Liability of Agent. Neither the Agent nor any of its
affiliates nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or not taken by it in connection herewith
(i)
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with the consent or at the request of the Required Banks or (ii) in the
absence of its own gross negligence or willful misconduct. Neither the Agent nor
any of its directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into or verify (i) any statement, warranty
or representation made in connection with this Agreement or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of the Borrowers; (iii) the satisfaction of any condition specified
in Article III, except receipt of items required to be delivered to the Agent;
or (iv) the validity, effectiveness or genuineness of this Agreement, the other
Loan Documents or any other instrument or writing furnished in connection
herewith. The Agent shall not incur any liability by acting in reliance upon any
notice, consent, certificate, statement, or other writing (which may be a bank
wire, telex or similar writing) believed by it to be genuine or to be signed by
the proper party or parties.
SECTION 7.6. Indemnification. Each Bank shall, ratably in accordance
with its Commitment, indemnify the Agent, its affiliates and their respective
directors, officers, agents and employees (to the extent not reimbursed by the
Borrowers) against any cost, expense (including counsel fees and disbursements),
claim, demand, action, loss or liability (except such as result from such
indemnitees' gross negligence or willful misconduct) that such indemnitees may
suffer or incur in connection with this Agreement, the other Loan Documents or
any action taken or omitted by such indemnitees hereunder.
SECTION 7.7. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank, and based
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on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking any action
under this Agreement.
SECTION 7.8. Successor Agent. The Agent may resign at any time by
giving notice thereof to the Banks and the Borrowers. Upon any such resignation,
the Required Banks shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Required Banks, and shall
have accepted such appointment, within 30 days after the retiring Agent gives
notice of resignation, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a commercial bank organized or
licensed under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of at least $50,000,000. Upon the
acceptance of its appointment as the Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the rights
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
the Agent.
SECTION 7.9. Agent's Fee. The Borrowers shall pay to the Agent for its
own account fees in the amounts and at the times previously agreed upon between
the Borrowers and the Agent.
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ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.1. Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period for any Euro-Dollar
Borrowing:
(a) the Agent is advised by the Reference Bank that deposits in dollars
(in the applicable amounts) are not being offered to the Reference Bank in the
relevant market for such Interest Period, or
(b) Banks having 50% or more of the aggregate amount of the Commitments
advise the Agent that the Adjusted London Interbank Offered Rate as determined
by the Agent will not adequately and fairly reflect the cost to such Banks of
funding their Euro-Dollar Loans for such Interest Period, the Agent shall
forthwith give notice thereof to the Borrowers and the Banks, whereupon until
the Agent notifies the Borrowers that the circumstances giving rise to such
suspension no longer exist, the obligations of the Banks to make Euro-Dollar
Loans shall be suspended. Unless the applicable Borrower notifies the Agent at
least two Domestic Business Days before the date of any Euro-Dollar Borrowing
for which a Notice of Borrowing has previously been given that it elects not to
borrow on such date, such Borrowing shall instead be made as a Base Rate
Borrowing.
SECTION 8.2. Illegality. If, after the date of this Agreement, the
adoption of any applicable law, rule or regulation, or any change in any
existing applicable law, rule or regulation, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank
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(or its Euro-Dollar Lending Office) with any request or directive (whether or
not having the force of law) of any such authority, central bank or comparable
agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar
Lending Office) to make, maintain or fund its Euro-Dollar Loans or to
participate in any Letter of Credit issued by the Fronting Bank or, with respect
to the Fronting Bank, to issue any Letters of Credit, and such Bank shall so
notify the Agent, the Agent shall forthwith give notice thereof to the other
Banks and the Borrowers, whereupon until such Bank notifies the Borrowers and
the Agent that the circumstances giving rise to such suspension no longer exist,
the obligation of such Bank to make Euro-Dollar Loans or to participate in any
Letter of Credit issued by the Fronting Bank or, with respect to the Fronting
Bank, to issue any Letters of Credit, shall be suspended. Before giving any
notice to the Agent pursuant to this Section, such Bank shall designate a
different Euro-Dollar Lending Office if such designation will avoid the need for
giving such notice and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. If such Bank shall determine that it may not
lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans
to maturity and shall so specify in such notice, the Borrowers shall immediately
prepay in full the then outstanding principal amount of each such Euro-Dollar
Loan, together with accrued interest thereon. Concurrently with prepaying each
such Euro-Dollar Loan, the Borrowers shall borrow a Base Rate Loan in an equal
principal amount from such Bank (on which interest and principal shall be
payable contemporaneously with the related Euro-Dollar Loans of the other
Banks), and such Bank shall make such a Base Rate Loan.
SECTION 8.3. Increased Cost and Reduced Return.
(a) If, after the date hereof, the adoption of any applicable law, rule
or regulation, or any change in any applicable law, rule or regulation, or any
change in the
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interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or its Applicable Lending Office) with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency shall impose, modify or deem
applicable any reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System (but excluding
with respect to any Euro-Dollar Loan any such requirement reflected in an
applicable Euro-Dollar Reserve Percentage)), special deposit, insurance
assessment or similar requirement against assets of, deposits with or for the
account of, or credit extended by, any Bank (or its Applicable Lending Office)
or shall impose on any Bank (or its Applicable Lending Office) or on the London
interbank market any other condition affecting its Euro-Dollar Loans, its Note,
or its obligation to make Euro-Dollar Loans, and the result of any of the
foregoing is to increase the cost to such Bank (or its Applicable Lending
Office) of making or maintaining any Euro-Dollar Loan, or to reduce the amount
of any sum received or receivable by such Bank (or its Applicable Lending
Office) under this Agreement or under its Note with respect thereto, by an
amount deemed by such Bank to be material, then, within 15 days after demand by
such Bank (with a copy to the Agent), which demand shall be accompanied by a
certificate showing, in reasonable detail, the calculation of such amount or
amounts, the Borrowers shall pay to such Bank such additional amount or amounts
as will compensate such Bank for such increased cost or reduction.
(b) If any Bank shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change in any such law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or any request or
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directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on capital of such Bank (or its Parent) as
a consequence of such Bank's obligations hereunder to a level below that which
such Bank (or its Parent) could have achieved but for such adoption, change,
request or directive (taking into consideration its policies with respect to
capital adequacy) by an amount deemed by such Bank to be material, then from
time to time, within 15 days after demand by such Bank (with a copy to the
Agent), which demand shall be accompanied by a certificate showing, in
reasonable detail, the calculation of such amount or amounts, the Borrowers
shall pay to such Bank such additional amount or amounts as will compensate such
Bank (or its Parent) for such reduction.
(c) Each Bank will promptly notify the Borrowers and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section and will designate a
different Applicable Lending Office if such designation will avoid the need for,
or reduce the amount of, such compensation and will not, in the judgment of such
Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank
claiming compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error. In determining such amount, such Bank may use any reasonable
averaging and attribution methods.
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SECTION 8.4. Taxes
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(a) Any and all payments by the Borrowers to or for the account of any
Bank or the Agent hereunder or under any other Loan Document shall be made free
and clear of and without deduction for any and all present or future taxes,
duties, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Bank and the
Agent, taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which such Bank or the Agent (as the case may be)
is organized or any political subdivision thereof and, in the case of each Bank,
taxes imposed on its income, and franchise or similar taxes imposed on it, by
the jurisdiction of such Bank's Applicable Lending Office or any political
subdivision thereof (and, if different from the jurisdiction of such Bank's
Applicable Lending Office, the jurisdiction of the domicile of its Loans either
established by the Bank pursuant to Section 9.12 or determined by the applicable
taxing authorities)(all such non-excluded taxes, duties, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If the Borrowers shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder or under any Note or Letter of Credit
or participation therein to any Bank or the Agent, (i) the sum payable shall be
increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 8.4) such
Bank, the Fronting Bank or the Agent (as the case may be) receives an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Borrowers shall make such deductions, (iii) the Borrowers shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law and (iv) the Borrowers shall furnish to the
Agent, at its address referred to in Section 9.1, the original or a certified
copy of a receipt evidencing payment thereof.
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(b) In addition, the Borrowers agree to pay any present or future stamp
or documentary taxes and any other excise or property taxes, or charges or
similar levies which arise from any payment made hereunder or under any Note or
Letter of Credit or participation therein or from the execution or delivery of,
or otherwise with respect to, this Agreement or any Note or Letter of Credit or
participation therein (hereinafter referred to as "Other Taxes").
(c) The Borrowers agree to indemnify each Bank, the Fronting Bank and
the Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section 8.4) paid by such Bank, the Fronting Bank or
the Agent (as the case may be) and any liability (including penalties, interest
and expenses) arising therefrom or with respect thereto. This indemnification
shall be made within 15 days from the date such Bank, the Fronting Bank or the
Agent (as the case may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter if requested in writing by the Borrowers (but
only so long as such Bank remains lawfully able to do so), shall provide the
Borrowers with Internal Revenue Service form 1001 or 4224, as appropriate, or
any successor form prescribed by the Internal Revenue Service, certifying that
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such Bank is entitled to benefits under an income tax treaty to which the United
States is a party which reduces the rate of withholding tax on payments of
interest or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States. If the form provided by a Bank at the time such Bank first became a
party to this Agreement or at any time thereafter (other than solely by reason
of a change in United States law or a change in the terms of any treaty to which
the United States is a party after the date hereof) indicates a United States
interest withholding tax rate in excess of zero (or would have indicated such a
withholding tax rate if such form had been submitted and completed accurately
and completely and either was not submitted or was not completed accurately and
completely), or if a Bank otherwise is subject to United States interest
withholding tax at a rate in excess of zero at any time for any reason (other
than solely by reason of a change in United States law or regulation or a change
in any treaty to which the United States is a party after the date hereof),
withholding tax at such rate shall be considered excluded from "Taxes" as
defined in Section 8.4(a). In addition, any amount that otherwise would be
considered "Taxes" or "Other Taxes" for purposes of this Section 8.4 shall be
excluded therefrom if the Bank either has transferred the domicile of its Loans
pursuant to Section 9.12 or changed the Applicable Lending Office with respect
to such Loans and such amount would not have been incurred had such transfer or
change not been made.
(e) For any period with respect to which a Bank has failed to provide
the Borrowers with the appropriate form pursuant to Section 8.4(d) (unless such
failure is due to a change in treaty, law or regulation occurring subsequent to
the date on which a form originally was required to be provided), such Bank
shall not be entitled to indemnification under Section 8.4(a) with respect to
Taxes imposed by the United States; provided, however, that should a Bank, which
is otherwise exempt from or subject to a reduced rate of withholding tax, become
subject to Taxes because of its failure to deliver a form required hereunder,
the Borrowers shall take such steps as such Bank shall reasonably request to
assist such Bank to recover such Taxes.
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(f) If the Borrowers are required to pay additional amounts to or for
the account of any Bank pursuant to this Section 8.4, then such Bank will change
the jurisdiction of its Applicable Lending Office so as to eliminate or reduce
any such additional payment which may thereafter accrue if such change, in the
judgment of such Bank, is not otherwise disadvantageous to such Bank.
SECTION 8.5. Base Rate Loans Substituted for Affected Euro-Dollar
Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans has been
suspended pursuant to Sections 8.1 or 8.2 or (ii) any Bank has demanded
compensation under Section 8.3 or 8.4 with respect to its Euro-Dollar Loans and
the Borrowers shall, by at least five Euro-Dollar Business Days' prior notice to
such Bank through the Agent, have elected that the provisions of this Section
shall apply to such Bank, then, unless and until such Bank notifies the
Borrowers that the circumstances giving rise to such suspension or demand for
compensation no longer exist:
(a) all Loans which would otherwise be made by such Bank as Euro-Dollar
Loans shall be made instead as Base Rate Loans (on which interest and principal
shall be payable contemporaneously with the related Euro-Dollar Loans of the
other Banks), and
(b) after each of its Euro-Dollar Loans has been repaid, all payments
of principal which would otherwise be applied to repay such Euro-Dollar Loans
shall be applied to repay its Base Rate Loans instead.
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ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, telex, facsimile
transmission or similar writing) and shall be given to such party: (x) in the
case of the Borrowers or the Agent, at its address or telecopy number set forth
on the signature pages hereof, together with copies thereof, in the case of the
Borrowers, to Hogan & Hartson L.L.P., 555 13th Street, N.W., Washington, D.C.
20004, Attention: J. Warren Gorrell, Jr., Esq., Telephone: (202) 637-5600,
Telecopy: (202) 637-5910, and in the case of the Agent, to Skadden, Arps, Slate,
Meagher & Flom, 919 Third Avenue, New York, New York 10022, Attention: Martha
Feltenstein, Esq., Telephone: (212) 735-2272, Telecopy: (212) 735-2000, (y) in
the case of any Bank, at its address or telecopy number set forth in its
Administrative Questionnaire or (z) in the case of any party, such other address
or telecopy number as such party may hereafter specify for the purpose by notice
to the Agent and the Borrowers. Each such notice, request or other communication
shall be effective (i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified in this Section, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when delivered at the address specified in this Section; provided that notices
to the Agent under Article II or Article VIII shall not be effective until
received.
SECTION 9.2. No Waivers. No failure or delay by the Agent or any Bank
in exercising any right, power or privilege hereunder or under any Note shall
operate as a waiver thereof nor shall any single or partial exercise thereof
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preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.3. Espenses; Indemnification.
(a) The Borrowers shall pay (i) all reasonable out-of-pocket expenses
of the Agent (including, without limitation, reasonable fees and disbursements
of special counsel Skadden, Arps, Slate, Meagher & Flom, local counsel for the
Agent, and travel, environmental and engineering expenses), in connection with
the preparation and administration of this Agreement, the Loan Documents and the
documents and instruments referred to therein, the syndication of the Loans, any
waiver or consent hereunder or any amendment or modification hereof or any
Default or alleged Default hereunder and (ii) if an Event of Default occurs, all
out-of-pocket expenses incurred by the Agent and each Bank, including, without
limitation, reasonable fees and disbursements of counsel for the Agent, in
connection with the enforcement of the Loan Documents and the instruments
referred to therein and such Event of Default and collection, bankruptcy,
insolvency and other enforcement proceedings resulting therefrom.
(b) The Borrowers agree to indemnify the Agent and each Bank, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) that may at any time
(including, without limitation, at any time following the payment of the
Obligations) be imposed on, asserted against or incurred by any Indemnitee as a
result of, or arising out of, or in any way related to or by reason of, (i) any
of the transactions contemplated by the Loan Documents or the execution,
delivery or performance of any Loan Document, (ii) any violation by the
Borrowers or the Environmental Affiliates of any applicable Environmental Law,
(iii) any Environmental Claim arising out of the management, use, control,
ownership or operation of property or assets by the Borrowers or any of the
Environmental Affiliates, including, without limitation, all on-site and
off-site activities involving Materials of Environmental Concern, (iv) the
breach of any environmental representation or warranty set forth herein, (v) the
grant to the Agent and the Banks of any Lien in any property or assets of the
Borrowers or any stock or other equity interest in the Borrowers, and (vi) the
exercise by the Agent and the Banks of their rights and remedies (including,
without limitation, foreclosure) under any agreements creating any such Lien
(but excluding, as to any Indemnitee, any such losses, liabilities, claims,
damages, expenses, obligations, penalties, actions, judgments, suits, costs or
disbursements incurred solely by reason of (i) the gross negligence or willful
misconduct of such Indemnitee as finally determined by a court of competent
jurisdiction and (ii) any investigative, administrative or judicial proceeding
imposed or asserted against any Indemnitee by any bank regulatory agency or by
any equity holder of such Indemnitee). Notwithstanding the foregoing, Carr LP
shall not be liable for any Borrowings made by Carr pursuant to the terms
hereof. The Borrowers' obligations under this Section shall survive the
termination of this Agreement and the payment of the Obligations.
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(c) The Borrowers shall pay, and hold the Agent and each of the Banks
harmless from and against, any and all present and future U.S. stamp, recording,
transfer and other similar foreclosure related taxes with respect to the
foregoing matters and hold the Agent and each Bank harmless from and against any
and all liabilities with respect to or resulting from any delay or omission
(other than to the extent attributable to such Bank) to pay such taxes.
SECTION 9.4. Sharing of Set-Offs. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance of
any Event of Default, each Bank is hereby authorized at any time or from time to
time, without presentment, demand, protest or other notice of any kind to the
Borrowers or to any other Person, any such notice being hereby expressly waived,
to set off and to appropriate and apply any and all deposits (general or
special, time or demand, provisional or final), other than deposits held for the
benefit of third parties, and any other indebtedness at any time held or owing
by such Bank (including, without limitation, by branches and agencies of such
Bank wherever located) to or for the credit or the account of the Borrowers
against and on account of the Obligations of the Borrowers then due and payable
to such Bank under this Agreement or under any of the other Loan Documents,
including, without limitation, all interests in Obligations purchased by such
Bank. Each Bank agrees that if it shall, by exercising any right of set-off or
counterclaim or otherwise, receive payment of a proportion of the aggregate
amount of principal and interest due with respect to any Note held by it or
Letter of Credit participated in by it, or, in the case of the Fronting Bank,
Letter of Credit issued by it, which is greater than the proportion received by
any other Bank or Letter of Credit issued or participated in by such other Bank,
in respect of the aggregate amount of principal and interest due with respect to
any Note held by such other Bank, the Bank receiving such proportionately
greater payment shall purchase such participations in the Notes held by the
other Banks or Letter of Credit issued or participated in by such other Bank,
and such other adjustments shall be made, as may be required so that all such
payments of principal and interest with respect to the Notes held by the Banks
or Letter of Credit issued or participated in by such other Banks shall be
shared by the Banks pro rata; provided that nothing in this Section shall impair
the right of any Bank to exercise any right of set-off or counterclaim it may
have and to apply the amount subject to such exercise to the payment of
indebtedness of the Borrowers other than their indebtedness under the Notes or
the Letters of Credit. The Borrowers agree, to the fullest extent it may
effectively do so under applicable law, that any holder of a participation in a
Note or Letter of Credit, whether or not acquired pursuant to the foregoing
arrangements, may exercise rights of set-off or counterclaim and other rights
with respect to such participation as fully as if such holder of a participation
were a direct creditor of the Borrowers in the amount of such participation.
Notwithstanding the foregoing, any Bank shall not exercise any right of set-off
or counterclaim or any similar right it may have against any other indebtedness
at any time held or owing by such Bank (including, without limitation, by
branches and agencies of such Bank wherever located) to or for the credit or the
account of Carr LP against and on account of any Obligations of Carr (whether or
not then due and payable) or to apply the amount subject to such exercise to the
payment of indebtedness or other Obligations of Carr.
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SECTION 9.5. Amendments and Waivers. Any provision of this Agreement,
the Notes, the Letters of Credit or other Loan Documents may be amended or
waived if, but only if, such amendment or waiver is in writing and is signed by
the Borrowers and the Required Banks (and, if the rights or duties of the Agent
are affected thereby, by the Agent); provided that no such amendment or waiver
shall, unless signed by all the Banks, (i) increase or decrease the Commitment
of any Bank (except for a ratable decrease in the Commitments of all Banks) or
subject any Bank to any additional obligation, (ii) reduce the principal of or
rate of interest on any Loan or any fees specified herein, (iii) postpone the
date fixed for any payment of principal of or interest on any Loan or any fees
hereunder or for any reduction or termination of any Commitment or (iv) change
the percentage of the Commitments or of the aggregate unpaid principal amount of
the Notes, or the number of Banks, which shall be required for the Banks or any
of them to take any action under this Section or any other provision of this
Agreement.
SECTION 9.6. Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns,
except that the Borrowers may not assign or otherwise transfer any of their
rights under this Agreement or the other Loan Documents without the prior
written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrowers and the Agent, such Bank shall remain responsible for the performance
of its obligations hereunder, and the Borrowers and the Agent shall continue to
deal solely and directly with such Bank in connection with such Bank's rights
and obligations under this Agreement. Any agreement pursuant to which any Bank
may grant such a participating interest shall provide that such Bank shall
retain the sole right and responsibility to enforce the obligations of the
Borrowers hereunder including, without limitation, the right to approve any
amendment, modification or waiver of any provision of this Agreement; provided
that such participation agreement may provide that such Bank will not agree to
any modification, amendment or waiver of this Agreement described in clause (i),
(ii), (iii) or (iv) of Section 9.5 without the consent of the Participant. The
Borrowers agree that each Participant shall, to the extent provided in its
participation agreement, be entitled to the benefits of Article VIII with
respect to its participating interest. An assignment or other transfer which is
not permitted by subsection (c) or (d) below shall be given effect for purposes
of this Agreement only to the extent of a participating interest granted in
accordance with this subsection (b).
111
<PAGE>
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part of all, of its
rights and obligations under this Agreement, the Notes and the other Loan
Documents, and such Assignee shall assume such rights and obligations, pursuant
to an Assignment and Assumption Agreement in substantially the form of Exhibit C
attached hereto executed by such Assignee and such transferor Bank, with (and
subject to) the subscribed consent of the Agent and, provided no Event of
Default shall have occurred and be continuing, the Borrowers, which consent
shall not be unreasonably withheld or delayed. Upon execution and delivery of
such instrument and payment by such Assignee to such transferor Bank of an
amount equal to the purchase price agreed between such transferor Bank and such
Assignee, such Assignee shall be a Bank party to this Agreement and shall have
all the rights and obligations of a Bank with a Commitment as set forth in such
instrument of assumption, and the transferor Bank shall be released from its
obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required. Upon the consummation of any assignment
pursuant to this subsection (c), the transferor Bank, the Agent and the
Borrowers shall make appropriate arrangements so that, if required, a new Note
is issued to the Assignee. In connection with any such assignment, the
transferor Bank shall pay to the Agent an administrative fee for processing such
assignment in the amount of $2,500. If the Assignee is not incorporated under
the laws of the United States of America or a state thereof, it shall deliver to
the Borrowers and the Agent certification as to exemption from deduction or
withholding of any United States federal income taxes in accordance with Section
8.4.
112
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(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note and the Letters of Credit participated in by
such Bank (as a Fronting Bank) or, in the case of the Fronting Bank, issued by
it, to a Federal Reserve Bank. No such assignment shall release the transferor
Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 8.3 or 8.4 than
such Bank would have been entitled to receive with respect to the rights
transferred, unless such transfer is made with the Borrowers' prior written
consent or by reason of the provisions of Section 8.2, 8.3 or 8.4 requiring such
Bank to designate a different Applicable Lending Office under certain
circumstances or at a time when the circumstances giving rise to such greater
payment did not exist.
SECTION 9.7 Governing Law; Submission to Jurisdiction. sion to
Jurisdiction
(a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT
GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW).
(b) Any legal action or proceeding with respect to this
Agreement or any other Loan Document and any action for enforcement of any
judgment in respect thereof may be brought in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and, by execution and delivery of this Agreement, each Borrower hereby accepts
for itself and in respect of its property, generally and unconditionally, the
non-exclusive jurisdiction of the aforesaid courts and appellate courts from any
thereof. Each Borrower irrevocably consents to the service of process out of any
of the aforementioned courts in any such action or proceeding by the hand
delivery, or mailing of copies thereof by registered or certified mail, postage
prepaid, to the applicable Borrower at its address set forth below. Each
Borrower hereby irrevocably waives any objection which it may now or hereafter
have to the laying of venue of any of the aforesaid actions or proceedings
arising out of or in connection with this Agreement or any other Loan Document
brought in the courts referred to above and hereby further irrevocably waives
and agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
Nothing herein shall affect the right of the Agent, any Bank or any holder of a
Note to serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against the Borrowers in any other
jurisdiction.
113
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SECTION 9.8. Marshalling; Recapture. Neither the Agent nor any Bank
shall be under any obligation to marshall any assets in favor of the Borrowers
or any other party or against or in payment of any or all of the Obligations. To
the extent any Bank receives any payment by or on behalf of the Borrowers, which
payment or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to either
Borrower or its estate, trustee, receiver, custodian or any other party under
any bankruptcy law, state or federal law, common law or equitable cause, then to
the extent of such payment or repayment, the Obligation or part thereof which
has been paid, reduced or satisfied by the amount so repaid shall be reinstated
by the amount so repaid and shall be included within the liabilities of the
Borrowers to such Bank as of the date such initial payment, reduction or
satisfaction occurred.
114
<PAGE>
SECTION 9.9. Counterparts; Integration; Effectiveness. This Agreement
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof. This
Agreement shall become effective upon receipt by the Agent of counterparts
hereof signed by each of the parties hereto (or, in the case of any party as to
which an executed counterpart shall not have been received, receipt by the Agent
in form satisfactory to it of telegraphic, telex or other written confirmation
from such party of execution of a counterpart hereof by such party).
SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWERS, THE AGENT
AND THE BANKS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 9.11. Survival. All indemnities set forth herein shall survive
the execution and delivery of this Agreement and the other Loan Documents and
the making and repayment of the Loans hereunder.
SECTION 9.12. Domicile of Loans. Subject to the provisions of Article
VIII, each Bank may transfer and carry its Loans at, to or for the account of
any domestic or foreign branch office, subsidiary or affiliate of such Bank.
SECTION 9.13. Limitation of Liability.Lim(a) No claim may be made by
the Borrowers or any other Person against the Agent or any Bank or the
affiliates, directors, officers, employees, attorneys or agent of any of them
for any consequential or punitive damages in respect of any claim for breach of
contract or any other theory of liability arising out of or related to the
transactions contemplated by this Agreement or by the other Loan Documents, or
any act, omission or event occurring in connection therewith; and each Borrower
hereby waives, releases and agrees not to sue upon any claim for any such
damages, whether or not accrued and whether or not known or suspected to exist
in its favor. (b) The Agent or any Bank may look to all the assets of the
Borrowers in seeking to enforce the Borrowers' liability and obligations
hereunder, and the lien of any judgment against the Borrowers and any proceeding
instituted on, under or in connection with any Note or any of the other Loan
Documents shall extend to all property now or hereafter owned by the Borrowers,
except as set forth in Sections 6.2 and 9.3.
115
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SECTION 9.14. Confidentiality.
Prior to the occurrence and continuance of an Event of Default
and except in connection with the sale or assignment or potential sale or
assignment of any Bank's Commitment or portion of its Commitment pursuant to
Section 9.6, each Bank agrees that it will use reasonable efforts, consistent
with its customary policies for maintaining information as confidential, not to
disclose without the prior consent of the Borrowers (other than to its
subsidiaries, directors, agents, employees, auditors, counsel or other
professional consultants, provided that each such recipient shall either agree
to be bound by the terms of this Section 9.14 or is otherwise bound to keep such
information confidential on a similar basis pursuant to professional ethical
obligations) any information with respect to the Borrowers, any Subsidiary
thereof or any of their assets or properties which is furnished pursuant to this
Agreement or any Loan Documents and which is designated as confidential,
provided that any Bank may disclose any such information (a) that has become
generally available to the public (other than as a consequence of any Bank's
breach of this Section 9.14), (b) as may be required or appropriate in any
report, statement or testimony submitted to any local, state or federal
regulatory body having or claiming to have jurisdiction over such Bank, any
nationally recognized rating agency or similar organization, (c) as may be
required or appropriate in response to any summons or subpoena or in connection
with any litigation, or (d) in order to comply with any applicable law, order,
regulation or ruling; provided, further that in the case of the foregoing
clauses (b), (c) and (d), such Bank shall use reasonable efforts to give Carr
prior notice of any such disclosure.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
CARRAMERICA REALTY CORPORATION
By:_____________________________
Name:
Title:
1700 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Telecopy number: (202) 638-0102
CARR REALTY, L.P.
By:_____________________________
Name:
Title:
1700 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Telecopy number: (202) 638-0102
Commitments
$___________ MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:_____________________________
Name:
Title:
Total Commitments
$----------------
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
<PAGE>
By:__________________________
Name:
Title:
60 Wall Street
New York, New York 10260-0060
Attention: Michael Errichetti
Telephone number: (212) 648-8127
Telecopy number: (212) 648-5336
Domestic and Euro-Currency
Lending Office:
Nassau, Bahamas Office
c/o J.P. Morgan Services Inc.
500 Stanton Christiana Road
Newark, Delaware 19173-2107
Attention: Nancy K. Dunbar
Telecopy number: (302) 634-4222
<PAGE>
SCHEDULE 4.28
-------------
Ownership of Property
120
<PAGE>
EXHIBIT A-1
-----------
TRANCHE A NOTE
$__________ New York, New York
__________ , 1996
For value received, CarrAmerica Realty Corporation, a Maryland
corporation (the "Borrower"), promises to pay to the order of (the "Bank"), for
the account of its Applicable Lending Office, the unpaid principal amount of
each Loan made by the Bank to the Borrower pursuant to the Credit Agreement
referred to below on the Maturity Date. The Borrower promises to pay interest on
the unpaid principal amount of each such Loan on the dates and at the rate or
rates provided for in the Credit Agreement. All such payments of principal and
interest shall be made in lawful money of the United States in Federal or other
immediately available funds at the office of Morgan Guaranty Trust Company of
New York, 60 Wall Street, New York, New York.
All Loans made by the Bank, the respective types and
maturities thereof and all repayments of the principal thereof shall be recorded
by the Bank and, if the Bank so elects in connection with any transfer or
enforcement hereof, appropriate notations to evidence the foregoing information
with respect to each such Loan then outstanding may be endorsed by the Bank on
the schedule attached hereto, or on a continuation of such schedule attached to
and made a part hereof; provided that the failure of the Bank to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Credit Agreement.
This Note is one of the Tranche A Notes referred to in the
Revolving Credit Agreement, dated as of May __, 1996, among the Borrower, Carr
LP, the Banks parties thereto and Morgan Guaranty Trust Company of New York, as
Agent (as the same may be amended from time to time, the "Credit Agreement").
Terms defined in the Credit Agreement are used herein with the same meanings.
Reference is made to the Credit Agreement for provisions for the prepayment
hereof and the acceleration of the maturity hereof.
CARRAMERICA REALTY CORPORATION
By:______________________
Name:
Title:
A-1
<PAGE>
Tranche A Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
- ---------------------------------------------------------------
Amount of
Amount of Type of Principal Maturity Notation
Date Loan Loan Repaid Date Made By
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- --------------------------------------------------------------
- --------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
A-2
<PAGE>
EXHIBIT A-2
-----------
TRANCHE B NOTE
$__________________ New York, New York
____________, 1996
For value received, Carr Realty, L.P., a Delaware limited
partnership (the "Borrower"), promises to pay to the order of (the "Bank"), for
the account of its Applicable Lending Office, the unpaid principal amount of
each Loan made by the Bank to the Borrower pursuant to the Credit Agreement
referred to below on the Maturity Date. The Borrower promises to pay interest on
the unpaid principal amount of each such Loan on the dates and at the rate or
rates provided for in the Credit Agreement. All such payments of principal and
interest shall be made in lawful money of the United States in Federal or other
immediately available funds at the office of Morgan Guaranty Trust Company of
New York, 60 Wall Street, New York, New York.
All Loans made by the Bank, the respective types and
maturities thereof and all repayments of the principal thereof shall be recorded
by the Bank and, if the Bank so elects in connection with any transfer or
enforcement hereof, appropriate notations to evidence the foregoing information
with respect to each such Loan then outstanding may be endorsed by the Bank on
the schedule attached hereto, or on a continuation of such schedule attached to
and made a part hereof; provided that the failure of the Bank to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Credit Agreement.
This Note is one of the Tranche B Notes referred to in the
Revolving Credit Agreement, dated as of May __, 1996, among the Borrower,
CarrAmerica Realty Corporation, the Banks party thereto and Morgan Guaranty
Trust Company of New York, as Agent (as the same may be amended from time to
time, the "Credit Agreement"). Terms defined in the Credit Agreement are used
herein with the same meanings. Reference is made to the Credit Agreement for
provisions for the prepayment hereof and the acceleration of the maturity
hereof.
CARR REALTY, L.P.
By:______________________
Name:
Title:
A-3
<PAGE>
Tranche B Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
- ---------------------------------------------------------------
Amount of
Amount of Type of Principal Maturity Notation
Date Loan Loan Repaid Date Made By
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- --------------------------------------------------------------
- --------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
A-4
<PAGE>
EXHIBIT B
---------
BORROWING BASE PROPERTIES
A. CARR
- -------
B. CARR LP
- ----------
<PAGE>
EXHIBIT C
---------
FORM OF ASSIGNMENT AND ASSUMPTION
<PAGE>
0129100.10-01S4a
ii
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
CarrAmerica Realty Corporation:
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Washington, D.C.
June 27, 1996
<PAGE>
