As Filed With The Securities and Exchange Commission on August 30, 1996
Registration No. 33-72974
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE
AMENDMENT NO. 2 TO FORM S-11
ON FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CARRAMERICA REALTY CORPORATION
(Exact name of Registrant as specified in its charter)
Maryland 52-1796339
(State of Incorporation) (I.R.S. Employer
Identification No.)
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
President
CarrAmerica Realty Corporation
1700 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
(202) 624-7500
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
Copies to:
J. Warren Gorrell, Jr., Esq.
David W. Bonser, Esq.
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004-1109
(202) 637-5600
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: From time to time after this Registration Statement becomes effective,
as determined by market conditions.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. | |
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an Offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act Registration Statement number of the earlier effective
Registration Statement for the same Offering. | |
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering.| |
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. | |
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT 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>
PROSPECTUS
5,623,855 SHARES
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 August 23, 1996,
the Company owned interests in a portfolio of 84 operating office properties
containing approximately 9.9 million square feet of space.
This Prospectus relates to (i) the possible issuance by the Company of
up to 5,009,217 shares (the "Redemption Shares") of common stock, par value $.01
per share ("Common Stock"), of the Company if, and to the extent that, holders
of up to 5,009,217 units (the "Original Units") of limited partnership interest
("Units") in Carr Realty, L.P., of which the Company is the sole general partner
and owns a controlling limited partner interest, tender such Original Units for
redemption, (ii) the offer and sale from time to time of up to 614,638 shares of
outstanding Common Stock of the Company (the "Original Shares") by the holders
thereof, and (iii) the offer and sale from time to time of any Redemption Shares
that may be issued to persons who may be affiliates of the Company (such
persons, together with the holders of the Original Shares, the "Selling
Stockholders") by such persons. The Original Shares and the Original Units were
issued (or reserved for issuance) in connection with the formation of the
Company. The Company has registered the Redemption Shares and Original Shares to
provide the holders thereof with freely tradable securities, but the
registration of such shares does not necessarily mean that any of such shares
will be offered or sold by the holders thereof. See "The Company" and
"Registration Rights."
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "CRE." To ensure that the Company maintains its qualification
as a REIT, ownership by any person of more than 5% of the Common Stock is
restricted, with certain exceptions. See "Capital Stock of the Company."
The Selling Stockholders from time to time may offer and sell shares of
Common Stock held by them (the "Secondary Shares") directly or through agents or
broker-dealers on terms to be determined at the time of sale. To the extent
required, the names of any agent or broker-dealer and applicable commissions or
discounts and any other required information with respect to any particular
offer will be set forth in an accompanying Prospectus Supplement. See "Plan of
Distribution." Each of the Selling Stockholders reserves the sole right to
accept or reject, in whole or in part, any proposed purchase of the Secondary
Shares to be made directly or through agents.
The Selling Stockholders and any agents or broker-dealers that
participate with the Selling Stockholders in the distribution of Secondary
Shares may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended (the "Securities Act"), and any commissions received by
them and any profit on the resale of the Secondary Shares may be deemed to be
underwriting commissions or discounts under the Securities Act. See
"Registration Rights" for indemnification arrangements between the Company and
the Selling Stockholders.
The Company will not receive any of the proceeds from the issuance of
the Redemption Shares or the sale of any Secondary Shares by the Selling
Stockholders but has agreed to bear certain expenses of registration of the
Secondary Shares under Federal and state securities laws, other than commissions
and discounts of agents or broker-dealers and transfer taxes, if any. The
Company will acquire Units in Carr Realty, L.P. in exchange for any Redemption
Shares that the Company may issue to Unit holders pursuant to this Prospectus.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS 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. 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.
___________, 1996
<PAGE>
PROSPECTUS SUMMARY
This Summary is qualified in its entirety by the more detailed
information and financial statements, including the Notes thereto, appearing
elsewhere in this Prospectus or incorporated herein by reference. The offering
of the Common Stock pursuant to this Prospectus is referred to herein as the
"Offering." As used herein, the term "Company" includes CarrAmerica Realty
Corporation, and/or one or more of its subsidiaries, as appropriate.
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 August 23, 1996, the Company owned interests in a
portfolio of 84 operating office properties (collectively, the "Properties")
containing approximately 9.9 million square feet of space. As of August 23,
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 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 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 August 23, 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 7 1,290,000
Northern California 6 1,082,000
Southeast Denver 10 919,000
Suburban Chicago 2 514,000
Suburban Seattle 10 396,000
Southern California 22 814,000
Suburban Maryland 1 205,000
Austin, Texas 11 1,013,000
-- ---------
Total 84 9,937,000
== =========
2
<PAGE>
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 65
office properties through August 23, 1996 across the country for an aggregate
purchase price of approximately $539 million. At any time, the Company also may
enter into contracts to acquire additional office properties, though there can
be no assurance that these transactions will be consummated.
The following table sets forth a summary of the Company's 1996
acquisition activity as of August 23, 1996:
<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
Plaza PacifiCare Building Southern California June 1996 1 104,000
Parkway One Northern Virginia June 1996 1 88,000
Norwood Tower Austin, Texas June 1996 1 119,000
Katella Corporate Center Southern California July 1996 1 80,000
Greenwood Centre Southeast Denver July 1996 1 75,000
Warner Center Business Park Southern California July 1996 12 343,000
Littlefield Portfolio Austin, Texas August 1996 10 894,000
Quebec Centre Southeast Denver August 1996 3 107,000
- -------
Total 65 5,087,000
== =========
</TABLE>
Financing Activity. In May 1996, the Company obtained a line of credit
which is syndicated and led by 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. The Line of Credit 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. As of August 23,
1996, approximately $188 million was available for draw under the Line of
Credit, of which $56.0 million has been drawn by the Company. The Line of Credit
bore interest at the rate of 7.13% as of August 23, 1996.
Equity Offering. In July 1996, the Company raised approximately $216.2
million of net proceeds through the issuance and sale of (i) 7,475,000 shares of
common stock in a public offering and (ii) 2,785,714 shares of common stock to a
wholly-owned subsidiary of Security Capital U. S. Realty in a private
transaction. These proceeds were used to repay outstanding indebtedness under
the Line of Credit and to fund acquisitions.
U.S. Realty Transaction. On February 26, 1996, the stockholders of the
Company approved the investment by a wholly-owned subsidiary of Security Capital
U.S. Realty (collectively, "U.S. Realty") of approximately $250 million in the
Company (the "U.S. Realty Transaction"). The sale and issuance of 11,627,907
shares of Common Stock to U.S. Realty in a private sale transaction was
consummated on April 30, 1996. As of April 30, 1996, U.S. Realty's shares
represented a 39% ownership interest in the Company on a fully diluted basis
(after giving effect to the conversion of all
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<PAGE>
outstanding Units (as defined herein) into shares of Common Stock). Concurrently
with the closing of the U.S. Realty Transaction, the Company changed its name
from Carr Realty Corporation to CarrAmerica Realty Corporation.
RISK FACTORS
Prospective investors and Unit holders should carefully consider the
matters discussed under "Risk Factors" prior to making an investment decision
regarding the Common Stock offered hereby.
TAX STATUS OF THE COMPANY
The Company believes that it has operated so as to qualify 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 continue to so
operate. No assurance, however, can be given that the Company has so qualified
or will be able to remain so qualified. To obtain the favorable tax treatment
associated with qualifying as a REIT under the Code, the Company is subject to a
number of organizational and operational requirements, including a requirement
that it generally distribute each year to its stockholders at least 95% of its
net taxable income. Even if the Company qualifies as a REIT, it will be subject
to certain Federal, state and local taxes on its income and property and to
Federal income and excise tax on its undistributed income. See "Federal Income
Tax Considerations" and "Risk Factors--Certain Tax Risks."
SECURITIES TO BE OFFERED
This Prospectus relates to (i) the possible issuance by the Company of
up to 5,009,217 shares of Common Stock (the "Redemption Shares") if, and to the
extent that, holders of up to 5,009,217 Units (the "Original Units") tender such
Units for redemption, (ii) the offer and sale from time to time of up to 614,638
shares of Common Stock (the "Original Shares") by the holders thereof and (iii)
the offer and sale from time to time of any Redemption Shares that may be issued
to persons who may be affiliates of the Company (such persons, together with the
holders of the Original Shares, the "Selling Stockholders") by such persons.
(Redemption Shares held by persons who may be affiliates of the Company,
together with the Original Shares, are referred to herein as the "Secondary
Shares.")
The Original Shares and the Original Units were issued (or reserved for
issuance) in connection with the formation of the Company, the Company's initial
public offering (the "Initial Offering") and the acquisition by the Company of
its assets in February 1993 (collectively, the "Formation Transactions"). At
that time, the Operating Partnership issued to participants in the Formation
Transactions a total of 3,555,433 Original Units (exclusive of Units that
subsequently have been redeemed for shares of Common Stock) and the Company
issued to participants in the Formation Transactions an aggregate of 614,638
Original Shares (exclusive of 500,000 shares issued to OCCO that were sold in
the Initial Offering and shares that subsequently have been resold). The Company
also adopted option plans (the "Employee Unit Option Plans") authorizing the
issuance of up to 1,266,900 Original Units to executive officers and other key
employees of the Company and its subsidiaries. In February 1994, the Operating
Partnership issued an additional 186,884 Original Units upon exercise of an
option to acquire interests in one of the Properties granted in February 1993.
Pursuant to the agreement of limited partnership of the Operating
Partnership, as amended (the "Partnership Agreement"), each Unit (including the
Original Units) may be tendered by its holder to the Operating Partnership for
redemption for cash equal to the fair market value of a share
4
<PAGE>
of Common Stock at the time of the redemption (subject to certain adjustments).
The Operating Partnership, at its option, may exchange one share of Common Stock
for each Unit tendered for redemption, rather than pay cash. In addition, the
Company has the right to elect to acquire directly any Units tendered to the
Operating Partnership for redemption, rather than causing the Operating
Partnership to redeem such Units. The Company anticipates that it generally will
elect to acquire directly Original Units tendered for redemption and to issue
shares of Common Stock pursuant to this Prospectus in exchange therefor rather
than paying cash. As a result, the Company may from time to time issue up to
5,009,217 Redemption Shares (taking into account Redemption Shares that have
been issued prior to the date hereof) upon the acquisition of Original Units
tendered for redemption. With each such acquisition, the Company's interest in
the Operating Partnership will increase.
The Company will not receive any proceeds from the issuance of any
Redemption Shares or the sale of any Secondary Shares, but will acquire Units
tendered for redemption for which it elects to issue Redemption Shares. The
Company is registering the Redemption Shares and Original Shares for sale to
provide the holders thereof with freely tradable securities, but the
registration of such shares does not necessarily mean that any of such shares
will be offered or sold by the holders thereof.
5
<PAGE>
RISK FACTORS
Prospective investors and Unit holders should carefully consider, among
other factors, the matters described below.
SPECIAL CONSIDERATIONS APPLICABLE TO REDEEMING UNIT HOLDERS
Tax Consequences of Redemption of Units. The exercise by a Unit holder
of his or her right to require the redemption of his or her Units will be
treated for tax purposes as a sale of such Units by the Unit holder. Such a sale
will be fully taxable to the redeeming Unit holder and such redeeming Unit
holder will be treated as realizing for tax purposes an amount equal to the sum
of the cash or the value of the Common Stock received in the exchange plus the
amount of the Operating Partnership nonrecourse liabilities allocable to the
redeemed Units at the time of the redemption. It is possible that the amount of
gain recognized or even the tax liability resulting from such gain could exceed
the amount of cash and the value of other property (e.g., Redemption Shares)
received upon such disposition. See "Redemption of Units--Tax Consequences of
Redemption." In addition, the ability of the Unit holder to sell a substantial
number of Redemption Shares in order to raise cash to pay tax liabilities
associated with redemption of Units may be restricted due to the Company's
relatively low trading volume, and, as a result of fluctuations in the stock
price, the price the Unit holder receives for such shares may not equal the
value of his or her Units at the time of redemption. See "--Common Stock Price
Fluctuations and Trading Volume" below.
Change in Investment Upon Redemption of Units. If a Unit holder
exercises the right to require the redemption of his or her Units, such Unit
holder may receive cash or, if the Company so elects, shares of Common Stock. If
the Unit holder receives cash, the Unit holder will no longer have any interest
in the Company and will not benefit from any subsequent increases in share price
and will not receive any future distributions from the Company (unless the Unit
holder currently owns or acquires in the future additional shares of Common
Stock or Units). If the Unit holder receives shares of Common Stock, the Unit
holder will become a stockholder of the Company rather than a holder of Units in
the Operating Partnership. As a result of the Transaction and the conversion of
the Company to a "DownREIT" structure, the nature of an investment in shares of
Common Stock is no longer economically equivalent, as a practical matter, to an
investment in Units in the Operating Partnership (and is likely to become less
so over time). See "Redemption of Units--Comparison of Ownership of Units and
Common Stock."
Units of the Operating Partnership May Outperform Shares of Common
Stock of the Company. Units, which represent undivided interests in all of the
assets of the Operating Partnership, may, over time, outperform shares of Common
Stock, which represent undivided interests in all of the assets of the Company,
including the Company's interest in the Operating Partnership.
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
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<PAGE>
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
August 23, 1996, the Company's two largest tenants leased space representing
approximately 13% and 5%, respectively, of the total square footage of the
Properties pursuant to leases that expire in 1998, 1999 and 2002. 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 notified 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.
7
<PAGE>
CONFLICTS OF INTEREST
Certain members of the Company's board of directors (the "Board") and
officers own 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 U.S. Realty 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 properties in 1996, acquiring 65 office properties for an
aggregate purchase price of $539 million through August 23, 1996. These
properties have a relatively short operating history under the Company's
management
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<PAGE>
and they may have characteristics or deficiencies unknown to the Company
affecting their valuation or revenue potential.
DEPENDENCE ON DOWNTOWN WASHINGTON, D.C. MARKET
Although the Company's business strategy is to move toward a more
national business focus, at August 23, 1996, the Company's Consolidated
Properties located in downtown Washington, D.C. represented approximately 28.6%
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 downtown Washington, D.C. that are
beyond the control of the Company.
SUBSTANTIAL OWNERSHIP OF COMMON STOCK
As of July 31, 1996, U.S. Realty owned 43.3% of the outstanding shares
of the Company's common stock and U.S. Realty 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, U.S. Realty 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 U.S. Realty from increasing its
percentage interest above 45% 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 U.S. Realty agreed to
certain limitations on its voting rights with respect to its shares of Common
Stock, U.S. Realty nonetheless has a substantial influence over the affairs of
the Company as a result of the U.S. Realty Transaction. This concentration of
ownership in one stockholder could potentially be disadvantageous to other
stockholders' interests. In addition, so long as U.S. Realty owns at least 25%
of the outstanding Common Stock of the Company on a fully diluted basis, U.S.
Realty 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 of Common Stock or Preferred Stock, as applicable, proposed to
be issued by the Company.
LIMITATIONS ON CORPORATE ACTIONS
In conjunction with the U.S. Realty 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 U.S. Realty.
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 U.S. Realty 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.
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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
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 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
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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
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 Carr Realty, L.P. to be Treated as a
Partnership. The Company believes that 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
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Other Partnerships on REIT Qualification)." 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 U.S. Realty 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 Income Tax Considerations--Taxation
of Stockholders (Taxation of Non-U.S. Stockholders)." Accordingly, an
acquisition of the Company's capital stock would not likely be a suitable
investment for Non-U.S. Stockholders other than U.S. Realty.
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 U.S. Realty
Transaction, the Company granted U.S. Realty the right to require the Company to
file, at any time requested by U.S. Realty, a Registration Statement under the
Securities Act of 1933 covering all or any of the shares of Common Stock held by
U.S. Realty. 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 Company's Articles of Incorporation, as amended (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 U.S. Realty and its affiliates). The
Board could waive this restriction if it were satisfied that ownership in excess
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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 "Capital Stock of the Company--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 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.
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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 August 23,
1996, the Company owned interests in a portfolio of 84 operating office
properties containing approximately 9.9 million square feet of space. As of
August 23, 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 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 500 employees, including
350 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 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 in the Company's target
markets approach those of new office development, the Company will consider
developing value office properties in select suburban growth markets. Of the
Company's 84 Properties, 65 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 also
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.
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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 and are approved by the Board of Directors.
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.
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RECENT DEVELOPMENTS
NEW ACQUISITIONS
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 65 office
properties across the country for an aggregate purchase price of approximately
$539 million. At any time in the future, the Company also may enter into
contracts to acquire additional office properties, though there can be no
assurance that these transactions will be consummated
FINANCING ACTIVITY
In May 1996, the Company obtained an line of credit which is syndicated
and led by 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. The Line of Credit 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. As of August 23, 1996, approximately $188
million was available for draw under the Line of Credit, of which $56.0 million
had been drawn by the Company. The Line of Credit bore interest at the rate of
7.13% as of August 23, 1996.
EQUITY OFFERING
In July 1996, the Company raised approximately $216.2 million of net
proceeds through the issuance and sale of (i) 7,475,000 shares of common stock
in a public offering and (ii) 2,785,714 shares of common stock to Security
Capital U.S. Realty in a private transaction. These proceeds were used to repay
outstanding indebtedness under the Line of Credit and to fund acquisitions.
SECURITY CAPITAL U.S. REALTY TRANSACTION
On February 26, 1996, the stockholders of the Company approved the
investment by U.S. Realty 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 U.S. Realty in a private sale transaction that was consummated
on April 30, 1996. As of April 30, 1996, U.S. Realty owned approximately 39% of
the outstanding Common Stock of the Company on a fully-diluted basis (after
giving effect to the conversion of all outstanding Units into shares of Common
Stock). In connection with the U.S. Realty 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 U.S. Realty
Transaction, the Company changed its name from Carr Realty Corporation to
CarrAmerica Realty Corporation.
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CAPITAL STOCK OF THE COMPANY
GENERAL
The authorized capital stock of the Company consists of 105,000,000
shares of capital stock, $.01 par value, of which 90,000,000 shares are
classified as Common Stock and 15,000,000 shares are classified as preferred
stock ("Preferred Stock"). The following description of the terms and provisions
of the shares of capital stock of the Company and certain other matters does not
purport to be complete and is subject to and qualified in its entirety by
reference to the applicable provisions of Maryland law and the Company's
Articles of Incorporation and By-Laws, as amended (the "By-Laws").
COMMON STOCK
Each holder of Common Stock is entitled to one vote at stockholder
meetings for each share of Common Stock held. Neither the Articles of
Incorporation nor the By-Laws provide for cumulative voting for the election of
directors. Subject to the prior rights of any series of Preferred Stock that may
be classified and issued, holders of Common Stock are entitled to receive,
pro-rata, such dividends as may be declared by the board of directors out of
funds legally available therefor, and also are entitled to share, pro-rata, in
any other distributions to stockholders. The Company currently pays regular
quarterly dividends to holders of Common Stock.
There are no redemption or sinking fund provisions and no direct
limitations in any indenture or agreement on the payment of dividends. Holders
of Common Stock do not have any preemptive rights or other rights to subscribe
for additional shares.
PREFERRED STOCK
No Preferred Stock is currently issued or outstanding. Under the
Company's Articles of Incorporation, the board of directors may issue, without
any further action by the stockholders, shares of capital stock in one or more
series having such preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as the board of directors may determine and as may be
evidenced by Articles Supplementary to the Articles of Incorporation adopted by
the board of directors.
Through its power to establish the preferences and rights of additional
series of capital stock without further stockholder vote, the board of directors
may afford the holders of any series of senior capital stock preferences, powers
and rights, voting or otherwise, senior to the rights of holders of Common
Stock. The issuance of any such senior capital stock could have the effect of
delaying or preventing a change in control of the Company.
CLASSIFICATION OF BOARD OF DIRECTORS; U.S. REALTY; REMOVAL OF DIRECTORS; OTHER
PROVISIONS
The Company's Articles of Incorporation provide for the board of
directors to be divided into three classes of directors, with each class to
consist as nearly as possible of an equal number of directors. At each annual
meeting of stockholders, the class of directors to be elected at such meeting
will be elected for a three-year term, and the directors in the other two
classes will continue in office. Because holders of Common Stock will have no
right to cumulative voting for the election of directors, at each annual meeting
of stockholders, the holders of a majority of the shares of Common Stock will be
able to elect all of the successors of the class of directors whose term expires
at that meeting. However, pursuant to the Stockholders Agreement among the
Company, Carr Realty, L.P. and U.S. Realty (the "U.S. Realty Stockholders
Agreement"), U.S. Realty is entitled, under certain circumstances, to nominate
for election by stockholders a certain number of directors to the board of
directors. See "Risk Factors--Substantial Ownership of Common Stock."
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The Articles of Incorporation also provide that, except for any
directors who may be elected by holders of a class or series of capital stock
other than Common Stock, directors may be removed only for cause and only by the
affirmative vote of stockholders holding at least a majority of all the votes
entitled to be cast for the election of directors. Vacancies on the board of
directors may be filled by the affirmative vote of the remaining directors.
These provisions may make it more difficult and time-consuming to
change majority control of the board of directors of the Company and, thus, may
reduce the vulnerability of the Company to an unsolicited proposal for the
takeover of the Company or the removal of incumbent management. The Company's
officers and directors are and will be indemnified under Maryland and Delaware
law, the Articles of Incorporation of the Company and the Partnership Agreement
against certain liabilities, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
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 Stockholder Limit, and the Non U.S.
Stockholder Limit, all as defined below, are referred to collectively herein as
the "Ownership Limits.") Certain holders are not subject to the Common Stock
Ownership Limit, but they are subject to special ownership limitations (the
"Existing Holder Limit"). In addition, U.S. Realty 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 Stockholder 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. Stockholder, as defined below (other than
U.S. Realty 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 U.S.
Realty owns the maximum percentage of the Company's capital stock that it is
permitted to own under the Special Stockholder Limit) ("Non-U.S. Stockholder
Limit"). A Non-U.S. Stockholder is a nonresident alien individual, foreign
corporation, foreign partnership and any other foreign stockholder. For a
discussion of the taxation of a Non-U.S. Stockholder and the requirements for
the Company to qualify as a "domestically controlled REIT," see "Federal Income
Tax Considerations--Taxation of Stockholders (Taxation of Non-U.S.
Stockholders)." The Company is
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unlikely to be able to advise a prospective Non-U.S. Stockholder that its
purchase of any shares of the Company's capital stock would not violate this
prohibition, thereby subjecting such prospective Non-U.S. Stockholder 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. Stockholders other than U.S. Realty.
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 Company's 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 transferee to hold shares in excess of the applicable
Ownership Limit (including the Non-U.S. Stockholder 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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent, Registrar and Dividend Disbursing Agent for the
Common Stock of the Company is Boston Equiserve (formerly known as Bank of
Boston).
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<PAGE>
DESCRIPTION OF UNITS
In connection with the U.S. Realty Transaction, Unit holders approved
certain amendments (the "Amendments") to the Partnership Agreement. The
Amendments generally were designed to effect a change in the operational
structure of the Company from an "UPREIT," which is an operating structure where
all assets are held and all activities are conducted through an "operating
partnership," to a structure that permits the Company to hold future investments
directly and through other affiliated partnerships or limited liability
companies. In the negotiations regarding the structure and terms of the U.S.
Realty Transaction, U.S. Realty's advisors indicated that U.S. Realty was
unwilling to invest in the Company if it were to continue to function as an
UPREIT. U.S. Realty also recognized, however, the benefit from a tax perspective
of the existing partnership structure for Unit holders. Accordingly, U.S. Realty
agreed that it would invest in the Company so long as the Partnership Agreement
was amended to permit the Company to acquire assets directly and to engage in
operations outside of the Operating Partnership. Pursuant to a Consent
Solicitation Statement distributed to Unit holders on December 7, 1995, Unit
holders approved the execution and delivery of the Amendments by the Company, as
the sole general partner of the Operating Partnership, immediately prior to the
closing of the U.S. Realty Transaction.
As a result of the Amendments, the Company's assets are no longer held
exclusively by, and all of its operations are no longer conducted exclusively
through, the Operating Partnership. See "The Company." The Company is the sole
general partner of the Operating Partnership and, as of August 23, 1996, held
approximately 75% of the Units therein. The material terms of the Units,
including a summary of certain provisions of the Partnership Agreement, are set
forth below. The following description of the terms and provisions of the Units
and certain other matters does not purport to be complete and is subject to and
qualified in its entirety by reference to applicable provisions of Delaware law
and the Partnership Agreement. A copy of the Partnership Agreement is included
as an exhibit to the Registration Statement of which this Prospectus is a part.
For a comparison of the voting and other rights of holders of Units and the
Company's stockholders, see "Redemption of Units--Comparison of Ownership of
Units and Common Stock."
GENERAL
Holders of Units (other than the Company in its capacity as general
partner) hold limited partner interests in the Operating Partnership, and all
holders of Units (including the Company in its capacity as general partner) are
entitled to share in cash distributions from, and in the profits and losses of,
the Operating Partnership. One percentage point (1%) of the interest held by the
Company is in the form of Units as the general partner of the Operating
Partnership. The balance of the interest held by the Company is in the form of
Units as a limited partner of the Operating Partnership. As a result of the
Amendments, each Unit may not receive distributions in the same amount as paid
on each share of Common Stock.
Holders of Units have the rights to which limited partners are entitled
under the Partnership Agreement and the Delaware Revised Uniform Limited
Partnership Act (the "Act"). The Units have not been registered pursuant to the
Federal or state securities laws and have not been listed on any exchange or
quoted on any national market system. As a result of the U.S. Realty
Transaction, the Partnership Agreement no longer restricts the transfer of
Units, except in the very limited circumstances described below.
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<PAGE>
PURPOSES, BUSINESS AND MANAGEMENT
The purpose of the Operating Partnership includes the conduct of any
business that may be conducted lawfully by a limited partnership formed under
the Act, except that the Partnership Agreement requires the business of the
Operating Partnership to be conducted in such a manner that will permit the
Company to be classified as a REIT under Section 856 of the Code, unless the
Company ceases to qualify as a REIT for reasons other than the conduct of the
business of the Operating Partnership. Subject to the foregoing limitation, the
Operating Partnership may enter into partnerships, joint ventures or similar
arrangements and may own interests in any other entity.
The Company, as general partner of the Operating Partnership, has the
exclusive power and authority to conduct the business of the Operating
Partnership subject to the consent of the limited partners in certain limited
circumstances discussed below. No limited partner may take part in the
operation, management or control of the business of the Operating Partnership by
virtue of being a holder of Units.
ABILITY TO ENGAGE IN OTHER BUSINESSES; CONFLICTS OF INTEREST
As a result of the Amendments, the general partner may now acquire
assets directly and engage in activities outside of the Operating Partnership,
including activities direct or indirect competition with the Operating
Partnership. Other persons (including officers, directors, employees, agents and
other affiliates of the Company) are not prohibited under the Partnership
Agreement from engaging in other business activities and will not be required to
present any business opportunities to the Operating Partnership. However, the
Company, on behalf of the Operating Partnership, has adopted certain policies
and entered into certain agreements with affiliates of the Company and the
Operating Partnership regarding rights of first opportunity and avoidance of
conflicts of interest.
DISTRIBUTIONS; ALLOCATIONS OF INCOME AND LOSS
The Partnership Agreement provides for the quarterly distribution of
Available Cash, as determined in the manner provided in the Partnership
Agreement, to the Company and the limited partners in proportion to their
percentage interests in the Operating Partnership. "Available Cash" is generally
defined as net income plus depreciation and other adjustments and minus
reserves, principal payments on debt and capital expenditures and other
adjustments. Neither the Company nor the limited partners are entitled to any
preferential or disproportionate distributions of Available Cash. The
Partnership Agreement generally provides for the allocation to the general
partner and the limited partners of items of Operating Partnership income and
loss in accordance with their representative percentage interests in the
Operating Partnership.
BORROWING BY THE PARTNERSHIP
The Company is authorized to cause the Operating Partnership to borrow
money and to issue and guarantee debt (including from or to the Company) as it
deems necessary for the conduct of the activities of the Operating Partnership.
Such debt may be secured by mortgages, deeds of trust, liens or encumbrances on
properties of the Operating Partnership or its subsidiaries. The Company also
may cause the Operating Partnership to borrow money to enable the Partnership to
make distributions in an amount sufficient to permit the Company, so long as it
qualifies as a REIT, to avoid the payment of any Federal income tax. As a result
of the U.S. Realty Transaction, the Company is no longer required to incur all
of its indebtedness through the Operating Partnership.
REIMBURSEMENT OF COMPANY; TRANSACTIONS WITH THE GENERAL PARTNER AND ITS
AFFILIATES
The Company does not receive any compensation for its services as
general partner of the Operating Partnership. The Company, however, as a partner
in the Operating Partnership, has the
21
<PAGE>
same right to allocations and distributions as other partners of the Operating
Partnership. In addition, the Operating Partnership will reimburse the Company
for all expenses incurred by it related to the operation of, or for the benefit
of, the Operating Partnership. In the event that certain expenses are incurred
for the benefit of the Operating Partnership and other entities (including the
Company), such expenses are allocated by the Company, as general partner of the
Operating Partnership, to the Operating Partnership and such other entities in a
manner as the Company, as general partner of the Operating Partnership, in its
sole and absolute discretion deems fair and reasonable. The Operating
Partnership will reimburse the Company for all expenses incurred by it relating
to any other offering of additional Units or capital stock (in such case based
on the percentage of the net proceeds therefrom contributed to or otherwise made
available to the Operating Partnership). The Operating Partnership also will
reimburse the Company for all expenses it incurs in connection with the
Registration Statement of which this Prospectus is a part.
Except as expressly permitted by the Partnership Agreement, the Company
and its affiliates may not engage in any transactions with the Operating
Partnership except on terms that are fair and reasonable and no less favorable
to the Operating Partnership than would be obtained from an unaffiliated third
party.
LIABILITY OF GENERAL PARTNER AND LIMITED PARTNERS
The Company, as general partner of the Operating Partnership, is liable
for all general recourse obligations of the Operating Partnership to the extent
not paid by the Operating Partnership. The Company is not liable for the
nonrecourse obligations of the Operating Partnership.
The limited partners of the Operating Partnership are not required to
make additional contributions to the Operating Partnership. Assuming that a
limited partner does not take part in the control of the business of the
Operating Partnership and otherwise acts in conformity with the provisions of
the Partnership Agreement, the liability of the limited partner for obligations
of the Operating Partnership under the Partnership Agreement and the Act is
limited, subject to certain limited exceptions, generally to the loss of the
limited partner's investment in the Operating Partnership represented by his or
her Units. The Operating Partnership will operate in a manner the general
partner deems reasonable, necessary and appropriate to preserve the limited
liability of the limited partners.
EXCULPATION AND INDEMNIFICATION OF THE GENERAL PARTNER
The Partnership Agreement generally provides that the Company, as
general partner of the Operating Partnership, will incur no liability to the
Operating Partnership or any limited partner for losses sustained or liabilities
incurred as a result of errors in judgment or of any act or omission if the
Company carried out its duties in good faith. In addition, the Company is not
responsible for any misconduct or negligence on the part of its agents, provided
the Company appointed such agents in good faith. The Company may consult with
legal counsel, accountants, appraisers, management consultants, investment
bankers and other consultants and advisors, and any action it takes or omits to
take in reliance upon the opinion of such persons, as to matters that the
Company reasonably believes to be within their professional or expert
competence, shall be conclusively presumed to have been done or omitted in good
faith and in accordance with such opinion.
The Partnership Agreement also provides for indemnification of the
Company, the directors and officers of the Company, and such other persons as
the Company may from time to time designate against any judgments, penalties,
fines, settlements and reasonable expenses actually incurred by such person in
connection with the proceeding unless it is established that: (1) the act or
omission of the indemnified person was material to the matter giving rise to the
proceeding and either was committed in bad faith or was the result of active and
deliberate dishonesty; (2) the indemnified person actually received an improper
personal benefit in money, property or services; or (3) in the case of any
criminal
22
<PAGE>
proceeding, the indemnified person had reasonable cause to believe that the act
or omission was unlawful.
SALES OF ASSETS
Under the Partnership Agreement, the Company generally has the
exclusive authority to determine whether, when and on what terms the assets of
the Operating Partnership will be sold. The Operating Partnership, however, is
prohibited under the Partnership Agreement and certain contractual agreements
from selling certain assets, except in certain limited circumstances. A sale of
all or substantially all of the assets of the Operating Partnership (or a merger
of the Operating Partnership with another entity), requires an affirmative vote
of two-thirds of the outstanding Units (including Units held by the Company).
REMOVAL OF THE GENERAL PARTNER; TRANSFER OF THE GENERAL PARTNER'S INTEREST
The Partnership Agreement provides that the limited partners may not
remove the Company as general partner of the Operating Partnership. The Company
may not transfer any of its interests as general or limited partner in the
Operating Partnership except in connection with a merger or sale of all or
substantially all of its assets. The Company also may not sell all or
substantially all of its assets, or enter into a merger, unless the sale or
merger includes the sale or all or substantially all of the assets of, or the
merger of, the Operating Partnership with partners of the Operating Partnership
receiving substantially the same consideration as holders of Common Stock.
RESTRICTIONS ON TRANSFER OF UNITS BY LIMITED PARTNERS
As a result of the Amendments, Unit holders now may transfer, subject
to certain limitations, the economic rights associated with their Units without
the consent of the general partner, thereby eliminating the ability of the
general partner to block, except in very limited circumstances, such
assignments. However, a transferee will not be admitted to the Operating
Partnership as a substituted limited partner without the consent of the general
partner. In addition, Unit holders may dispose of their Units by exercising
their rights to have their Units redeemed for cash or for Common Stock, at the
option of the Company. See "Redemption of Units" below.
REDEMPTION OF UNITS
Subject to certain limitations, Unit holders may require that the
Operating Partnership redeem their Units, by providing the Operating Partnership
with a notice of redemption. Unless the Company elects to assume and perform the
Operating Partnership's redemption obligation, the redeeming Unit holder will
receive cash in an amount equal to the market value of the Units to be redeemed.
See "Redemption of Units."
ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS
The Company is authorized, without the consent of the limited partners,
to cause the Operating Partnership to issue additional Units to itself, to the
limited partners or to other persons for such consideration and on such terms
and conditions as the Company deems appropriate. As a result of the Amendments,
the Company as general partner now may, in its sole and absolute discretion,
make a capital contribution to the Operating Partnership in exchange for
additional Units without a corresponding issuance of shares of Common Stock by
the Company. In addition, the Company may cause the Operating Partnership to
issue to the Company additional partnership interests in different series or
classes, which may be senior to the Units. Consideration for additional
partnership interests may be cash or any property or other assets permitted by
the Act. The Company also will cause the Operating Partnership to issue
additional Units upon the exercise of the options granted pursuant to the Option
Plans. No limited partner has preemptive, preferential or similar rights with
respect to
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<PAGE>
additional capital contributions to the Operating Partnership or the issuance or
sale of any partnership interests therein.
MEETINGS; VOTING
Meetings of the limited partners may be called only by the Company, on
its own motion, or upon written request of limited partners owning at least 25%
of the Units. Limited partners may vote either in person or by proxy at
meetings. Any action that is required or permitted to be taken by the limited
partners of the Operating Partnership may be taken either at a meeting of the
limited partners or without a meeting if consents in writing setting forth the
action so taken are signed by limited partners owning not less than the minimum
Units that would be necessary to authorize or take such action at a meeting of
the limited partners at which all limited partners entitled to vote on such
action were present. On matters in which limited partners are entitled to vote,
each limited partner (including the Company to the extent it holds Units) will
have a vote equal to the number of Units he or she holds in the Operating
Partnership. The Partnership Agreement does not provide for annual meetings of
the limited partners, and the Company does not anticipate calling such meetings.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed by the Company
or by limited partners owning at least 25% of the Units. Generally, the
Partnership Agreement may be amended with the approval of the Company, as
general partner, and limited partners (including the Company) holding a majority
of the Units. Certain amendments that affect the fundamental rights of a limited
partner (e.g., the limited liability of a limited partner, or the right to
receive any distributions) must be approved by the Company and each limited
partner that would be adversely affected by such amendment. Notwithstanding the
foregoing, the Company, as general partner, has the power, without the consent
of the limited partners, to amend the Partnership Agreement in certain limited
circumstances. Certain provisions affecting the rights and duties of the Company
as general partner may not be amended without the approval of a majority of the
Units not held by the Company.
DISSOLUTION, WINDING UP AND TERMINATION
The Operating Partnership will continue until December 31, 2091, unless
sooner dissolved and terminated. The Operating Partnership will be dissolved
prior to the expiration of its term, and its affairs wound up upon the
occurrence of the earliest of: (1) the withdrawal of the Company as general
partner without the permitted transfer of the Company's interest to a successor
general partner (except in certain limited circumstances); (2) the sale of all
or substantially all of the Operating Partnership's assets and properties; (3)
the entry of a decree of judicial dissolution of the Operating Partnership
pursuant to the provisions of the Act or the entry of a final order for relief
in a bankruptcy proceeding of the general partner; (4) the entry of a final
judgment ruling that the general partner is bankrupt or insolvent; or (5) (i)
through December 31, 2012, an election by the Company, unless any limited
partner who became a limited partner at the time of the Formation Transactions
and who holds Units issued at the time of the Formation Transactions objects to
such dissolution, (ii) from and after January 1, 2013 through December 31, 2042,
an election by the Company, unless limited partners who became limited partners
at the time of the Formation Transactions and who hold at least five percent
(5%) of the Units issued at the time of the Formation Transactions object to
such dissolution and (iii) on or after January 1, 2043, an election by the
Company, in its sole and absolute discretion. Upon dissolution, the Company, as
general partner, or any liquidator will proceed to liquidate the assets of the
Operating Partnership and apply the proceeds therefrom in the order of priority
set forth in the Partnership Agreement.
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<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
As of July 31, 1996, the Company had outstanding 35,462,183 shares of
Common Stock and had reserved for possible issuance upon redemption of Units an
additional 5,009,217 shares of Common Stock. All of the shares of Common Stock
and any shares of Common Stock issued upon redemption of Units are tradable
without restriction under the Securities Act (unless such shares are held by
affiliates of the Company), either pursuant to the Registration Statement of
which this Prospectus is a part, pursuant to registration rights granted by the
Company or otherwise. See "Registration Rights." The Company also has filed a
registration statement with the Securities and Exchange Commission for the
possible offer and sale from time to time of up to $600,000,000 worth of its
debt securities, Preferred Stock, Common Stock and/or Common Stock warrants. The
Company also has established the Option Plans for the purpose of attracting and
retaining executive officers and other key employees. As of July 31, 1996,
options to purchase 951,347 Units have been granted or authorized to be granted
to executive officers and certain key employees and 315,553 additional Units
were reserved for future issuance under the Option Plans. In addition, the
Company has established a Non-Employee Director Stock Option Plan for the
purpose of attracting and retaining non-employee directors. As of July 31, 1996,
options to purchase 72,000 shares of Common Stock have been granted or
authorized to be granted to non-employee directors. All of the 14,413,621 shares
of Common Stock issued to U.S. Realty in connection with the U.S. Realty
Transaction and the July 1996 private placement may be tradable without
restriction under the Securities Act pursuant to a registration statement that
the Company is obligated to file upon notice.
No prediction can be made as to the effect, if any, that future sales
of shares of Common Stock, or the availability of shares for future sale, will
have on the market price prevailing from time to time. Sales of substantial
amounts of shares of Common Stock (including shares issued upon the redemption
of Units or the exercise of options), or the perception that such sales could
occur, could adversely affect prevailing market price of the shares.
REGISTRATION RIGHTS
The Company has filed the Registration Statement of which this
Prospectus is a part pursuant to its obligations under a Registration Rights and
Lock-Up Agreement dated February 16, 1993 by and among the Company and certain
holders of Original Shares and Original Units (the "Registration Rights
Agreement"). The following summary does not purport to be complete and is
qualified in its entirety by reference to the Registration Rights Agreement. A
copy of the Registration Rights Agreement is filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
Under the Registration Rights Agreement, the Company is obligated to
use its reasonable efforts to keep the Registration Statement continuously
effective for a period expiring on the date on which all of the Common Stock
covered by the Registration Rights Agreement have been sold pursuant to the
Registration Statement or Rule 144(k) of the Securities Act. The Registration
Rights Agreement grants these rights to holders of Common Stock and Units
specified therein. Any shares that have been sold pursuant to the Registration
Rights Agreement, or have been otherwise transferred and new certificates for
them have been issued without legal restriction on further transfer of such
shares, will no longer be entitled to the benefits of the Registration Rights
Agreement.
The Company has no obligation under the Registration Rights Agreement
to retain any underwriter to effect the sale of the shares covered thereby and
the Registration Statement shall not be available for use for an underwritten
public offering of the such shares.
Pursuant to the Registration Rights Agreement, the Company agreed to
pay all expenses of effecting the registration of the Secondary Shares (other
than underwriting discounts and commissions,
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<PAGE>
fees and disbursements of counsel, and transfer taxes, if any) pursuant to the
Registration Statement. The Company also agreed to indemnify each holder of
Secondary Shares and its officers and directors and any person who controls any
holder against certain losses, claims, damages and expenses arising under the
securities laws. In addition, each holder of Secondary Shares agreed to
indemnify the Company and the other holders of Secondary Shares, and each of
their respective directors and officers (including each director and officer of
the Company who signed the Registration Statement), and any person who controls
the Company or any holder against other losses, claims damages and expenses
arising under the securities laws with respect to written information furnished
to the Company by such holder.
SELLING STOCKHOLDERS
As described elsewhere herein, "Selling Stockholders" are only (i)
those persons who received Original Shares in the Formation Transactions and
(ii) those persons who may receive Redemption Shares upon redemption of Original
Units and who may be affiliates of the Company. Persons who may receive
Redemption Shares upon redemption of Original Units they received in the
Formation Transactions and who are not now or at the time of redemption
affiliates of the Company are not considered "Selling Stockholders" because
resale by them of any Redemption Shares received upon redemption of Units will
not be restricted under the Securities Act.
The following table provides the names of and the number of shares of
Common Stock owned by each Selling Stockholder. Since the Selling Stockholders
may sell all, or some or none of their Secondary Shares, no estimate can be made
of the aggregate number of Secondary Shares that are to be offered hereby or
that will be owned by each Selling Stockholder upon completion of the offering
to which this Prospectus relates. In addition to the Common Stock they currently
own, certain Selling Stockholders also may offer the Redemption Shares they will
own if the Units they hold are redeemed for shares. The number of shares in the
following table represents the number of shares of Common Stock the person holds
plus the number of Redemption Shares into which Units held by the person are
redeemable (if the Company elects to issue shares rather than pay cash upon such
redemption). The extent to which the person holds Units as opposed to shares of
Common Stock (if known) is set forth in the notes.
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<PAGE>
The Secondary Shares offered by this Prospectus may be offered from
time to time by the Selling Stockholders named below (based on Common Stock or
Units held at July 31, 1996):
<TABLE>
<CAPTION>
Number of Shares
Name Owned and Offered Hereby
---- ------------------------
<S> <C>
Oliver T. Carr, Jr. (1).............................. 1,615,856
The Oliver Carr Company (2).......................... 1,061,184
A. James Clark (3)................................... 928,575
Clark Enterprises, Inc. (4).......................... 569,979
Thomas A. Carr (5)................................... 152,422
Brian K. Fields (6).................................. 72,060
Joseph D. Wallace (7)................................ 78,182
Robert O. Carr (8)................................... 110,919
William S. Janes (9)................................. 29,287
John J. Donovan, Jr. (10)............................ 86,336
Steven N. Bralower (11).............................. 83,187
David Bonderman (12)................................. 37,083
Richard W. Greninger (13)............................ 60,000
Andrea F. Bradley (13)............................... 60,000
Philip L. Hawkins (13)............................... 20,000
Robert G. Stuckey (13)............................... 20,000
Estate of Edwin Warner............................... 11,357
Leonard Carulli Trust................................ 8,088
Susan Carr........................................... 633
Ronald Goode......................................... 434
Anna Hawkins......................................... 332
Judy Myerson......................................... 256
Raymond Mocarski..................................... 232
Thomas L. Haynes..................................... 155
Robert R. Reuter..................................... 155
</TABLE>
- -------------------------
(1) The aggregate amount of shares of Common Stock beneficially owned by
Oliver T. Carr, Jr. includes 434,672 Units owned directly by him, the
1,061,184 shares and Units owned by OCCO, of which Mr. Carr is a
director, Chairman of the Board and trustee of the majority
stockholder, and Mr. Carr's options to purchase 120,000 Units. Of the
amount shown, Mr. Carr and OCCO hold 1,205,133 Units and 410,723 shares
of Common Stock.
(2) OCCO holds 410,723 shares of Common Stock and 650,461 Units.
(3) The aggregate amount of shares of Common Stock beneficially owned by A.
James Clark consists of 358,596 Units owned directly by him and 569,979
Units owned by Clark Enterprises, Inc., of which Mr. Clark is chairman,
president, a director and the majority stockholder.
(4) Clark Enterprises, Inc. holds 569,979 Units.
(5) Thomas A. Carr is a director of OCCO. Mr. Carr disclaims beneficial
ownership of the shares held by OCCO and the amount reported for him
does not include such shares. Mr. Carr beneficially owns 32,422 Units
and has options to purchase 120,000 Units.
(6) Brian K. Fields holds 12,060 shares of Common Stock and has options to
purchase 60,000 Units.
(7) Joseph D. Wallace holds 18,182 shares of Common Stock and has options
to purchase 60,000 Units.
(8) Robert O. Carr is a director of OCCO. Mr. Carr disclaims beneficial
ownership of the shares held by OCCO and the amount reported for him
does not include such shares. Mr. Carr holds 14,083 shares of Common
Stock and 6,836 Units and has options to purchase 90,000 Units.
(9) William S. Janes holds 29,287 Units.
(10) John J. Donovan, Jr. holds 16,336 shares of Common Stock and has
options to purchase 70,000 Units.
(11) Steven N. Bralower holds 23,187 shares of Common Stock and has options
to purchase 60,000 Units.
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<PAGE>
(12) The aggregate amount of shares of Common Stock beneficially owned by
Mr. Bonderman consists of 22,176 Units and 8,084 shares owned directly
by him and the 6,823 shares and Units owned by Group Management, Inc.,
which Mr. Bonderman controls.
(13) All of the Selling Stockholder's interest in the Company is in the form
of options to purchase Units.
REDEMPTION OF UNITS
GENERAL
Each Unit holder may, subject to certain limitations, require that the
Operating Partnership redeem his or her Units, by delivering a notice to the
Operating Partnership. Upon redemption, such Unit holder will receive, at the
option of the Operating Partnership, with respect to each Unit tendered, either
(i) cash in an amount equal to the market value of one share of Common Stock
(subject to certain anti-dilution adjustments) or (ii) one share of Common
Stock. The market value of the Common Stock for this purpose will be equal to
the average of the closing trading price of the Common Stock (or substitute
information, if no such closing price is available) for the ten trading days
before the day on which the redemption notice was received by the Operating
Partnership.
In lieu of the Operating Partnership redeeming Units for cash, the
Company, as general partner, has the right to assume directly and satisfy the
redemption right of a Unit holder described in the preceding paragraph. The
Company currently anticipates that it generally will elect to assume directly
and satisfy any redemption right exercised by a Unit holder through the issuance
of shares of Common Stock (the Redemption Shares) pursuant to this Prospectus,
whereupon the Company will acquire the Units being redeemed and will become the
owner of the Units. However, the determination whether to pay cash or issue
shares of Common Stock upon redemption of Units will be made by the Company at
the time Units are tendered for redemption. Such an acquisition of Units by the
Company will be treated as a sale of the Units to the Company for Federal income
tax purposes. See "--Tax Consequences of Redemption" below. Upon redemption,
such Unit holder's right to receive distributions with respect to the Units
redeemed will cease (but if such right is exchanged for Redemption Shares, the
Unit holder will have rights as a stockholder of the Company from the time of
its acquisition of the Redemption Shares).
A Unit holder must notify the Company, as the general partner of the
Operating Partnership, of his or her desire to require the Operating Partnership
to redeem Units by sending a notice in the form attached as an exhibit to the
Partnership Agreement, a copy of which is available from the Company. A Unit
holder must request the redemption of at least 1,000 Units (or all of the Units
held by such holder, if less). The redemption generally will occur on the tenth
business day after the notice is delivered by the Unit holder, except that no
redemption can occur if the delivery of Redemption Shares would be prohibited
under the provisions of the Articles of Incorporation designed to protect the
Company's qualification as a REIT. Furthermore, if the Company combines its
outstanding shares of Common Stock into a smaller number of shares, redemption
will not occur prior to the effectiveness of the combination.
TAX CONSEQUENCES OF REDEMPTION
The following discussion summarizes certain Federal income tax
considerations that may be relevant to a Limited Partner who exercises his right
to require the redemption of his Units.
Tax Treatment of Redemption of Units. If the Company assumes and
performs the redemption obligation, the Partnership Agreement provides that the
redemption will be treated by the Company, the Operating Partnership and the
redeeming Limited Partner as a sale of Units by such Limited Partner to the
Company at the time of such redemption. (A Limited Partner's right to require
the
28
<PAGE>
redemption of Units is referred to as the "Redemption Right.") In that event,
such sale will be fully taxable to the redeeming Limited Partner and such
redeeming Limited Partner will be treated as realizing for tax purposes an
amount equal to the sum of the cash or the value of the Common Stock received in
the exchange plus the amount of Operating Partnership nonrecourse liabilities
allocable to the redeemed Units at the time of the redemption. The determination
of the amount of gain or loss is discussed more fully below.
If the Company does not elect to assume the obligation to redeem a
Limited Partner's Units, the Operating Partnership will redeem such Units for
cash. If the Operating Partnership redeems Units for cash that the Company
contributes to the Operating Partnership to effect such redemption, the
redemption likely would be treated for tax purposes as a sale of such Units to
the Company in a fully taxable transaction, although the matter is not free from
doubt. In that event, the redeeming Partner would be treated as realizing an
amount equal to the sum of the cash received in the exchange plus the amount of
Operating Partnership nonrecourse liabilities allocable to the redeemed Units at
the time of the redemption. The determination of the amount of gain or loss in
the event of sale treatment is discussed more fully below.
If, instead, the Operating Partnership chooses to redeem a Limited
Partner's Units for cash that is not contributed by the Company to effect the
redemption, the tax consequences would be the same as described in the previous
paragraph, except that if the Operating Partnership redeems less than all of a
Limited Partner's Units, the Limited Partner would not be permitted to recognize
any loss occurring on the transaction and would recognize taxable gain only to
the extent that the cash, plus the share of Operating Partnership nonrecourse
liabilities allocable to the redeemed Units, exceeded the Limited Partner's
adjusted basis in all of such Limited Partner's Units immediately before the
redemption.
Tax Treatment of Disposition of Units by Limited Partner Generally. If
a Unit is redeemed in a manner that is treated as a sale of the Unit, or a
Limited Partner otherwise disposes of a Unit, the determination of gain or loss
from the sale or other disposition will be based on the difference between the
amount considered realized for tax purposes and the tax basis in such Unit. See
"Basis of Units" below. Upon the sale of a Unit, the "amount realized" will be
measured by the sum of the cash and fair market value of other property received
(e.g., Redemption Shares) plus the portion of the Operating Partnership's
nonrecourse liabilities allocable to the Unit sold. To the extent that the
amount of cash or property received plus the allocable share of the Operating
Partnership's nonrecourse liabilities exceeds the Limited Partner's basis for
the Unit disposed of, such Limited Partner will recognize gain. It is possible
that the amount of gain recognized or even the tax liability resulting from such
gain could exceed the amount of cash and the value of any other property (e.g.,
Redemption Shares) received upon such disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount realized
upon the sale of a Unit attributable to a Limited Partner's share of "unrealized
receivables" of the Operating Partnership (as defined in Section 751 of the
Code) exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Unrealized receivables include, to the extent not
previously included in Operating Partnership income, any rights to payment for
services rendered or to be rendered. Unrealized receivables also include amounts
that would be subject to recapture as ordinary income if the Operating
Partnership had sold its assets at their fair market value at the time of the
transfer of a Unit.
Basis of Units. In general, a Limited Partner who was deemed at the
time of the Formation Transactions or a subsequent acquisition to have received
his Units upon liquidation of a partnership had an initial tax basis in his
Units ("Initial Basis") equal to his basis in his partnership interest at the
time of such liquidation. Similarly, in general, a Limited Partner who at the
time of the Formation Transactions contributed property in exchange for his
Units had an Initial Basis in the Units equal to his basis in the contributed
property. A Limited Partner who acquired Units as the result of the
29
<PAGE>
exercise of an option granted pursuant to one of the Option Plans generally will
have an Initial Basis in such Units equal to the fair market value of such Units
at the time the option was exercised. A Limited Partner's Initial Basis in his
Units generally is increased by (a) such Limited Partner's share of Operating
Partnership taxable income and (b) increases in his share of liabilities of the
Operating Partnership (including any increase in his share of nonrecourse
liabilities occurring in connection with the Formation Transactions or
subsequently). Generally, such Partner's basis in his Units is decreased (but
not below zero) by (i) his share of Operating Partnership distributions, (ii)
decreases in his share of liabilities of the Operating Partnership (including
any decrease in his share of nonrecourse liabilities of the Operating
Partnership occurring in connection with the Formation Transactions or
subsequently), (iii) his share of losses of the Operating Partnership, and (iv)
his share of nondeductible expenditures of the Operating Partnership that are
not chargeable to capital.
Potential Application of the Disguised Sale Regulations to a Redemption
of Units. There is a risk that a redemption of Units issued in the Formation
Transactions or a subsequent acquisition may cause the original transfer of
property to the Operating Partnership in exchange for Units in connection with
the Formation Transactions or a subsequent acquisition to be treated as a
"disguised sale" of property. The Code and the Treasury Regulations thereunder
(the "Disguised Sale Regulations") generally provide that, unless one of the
prescribed exceptions is applicable, a partner's contribution of property to a
partnership and a simultaneous or subsequent transfer of money or other
consideration (including the assumption of or taking subject to a liability)
from the partnership to the partner will be presumed to be a sale, in whole or
in part, of such property by the partner to the partnership. Further, the
Disguised Sale Regulations provide generally that in the absence of an
applicable exception, if money or other consideration is transferred by a
partnership to a partner within two years of the partner's contribution of
property, the transactions are presumed to be a sale of the contributed property
unless the facts and circumstances clearly establish that the transfers do not
constitute a sale. The Disguised Sale Regulations also provide that if two years
have passed between the transfer of money or other consideration and the
contribution of property, the transactions will not be presumed to be a sale
unless the facts and circumstances clearly establish that the transfers
constitute a sale.
If a Unit is redeemed, the IRS could contend that the Disguised Sale
Regulations apply because as a result of the redemption a Limited Partner
receives cash or shares of Common Stock subsequent to the Limited Partner's
previous contribution of property to the Operating Partnership. In that event,
the IRS would contend that the Formation Transactions or a subsequent
acquisition themselves were taxable as a disguised sale under the Disguised Sale
Regulations.
COMPARISON OF OWNERSHIP OF UNITS AND COMMON STOCK
As a result of the Amendments, the nature of an investment in shares of
Common Stock of the Company is no longer substantially equivalent economically
to an investment in Units in the Operating Partnership (and is likely to become
less so over time). A holder of a share of Common Stock is no longer required to
receive the same distribution that a holder of a Unit receives, although the
general partner is required under the Partnership Agreement to act in good faith
to use reasonable efforts to maintain a distribution rate per Unit that is equal
to the distribution rate per share. In addition, stockholders and Unit holders
no longer generally share in a substantially equivalent fashion in the risks and
rewards of ownership in the enterprise being conducted by the Company because
the Company intends to conduct substantial business other than the business of
the Operating Partnership.
The information below highlights a number of the significant
differences between the Operating Partnership and the Company relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, investor rights and
Federal income taxation, and compares certain legal rights associated with the
ownership of Units and Common Stock, respectively. These comparisons are
intended to assist Unit holders of the Operating Partnership in understanding
how their investment will be changed if their Units are redeemed for Common
Stock. This discussion is summary in nature and does not constitute a
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<PAGE>
complete discussion of these matters, and Units holders should carefully review
the balance of this Prospectus and the registration statement of which this
Prospectus is a part for additional important information about the Company.
- --------------------------------------------------------------------------------
OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
FORM OF ORGANIZATION AND ASSETS OWNED
-------------------------------------
The Operating Partnership is The Company is a Maryland
organized as a Delaware limited corporation. The Company believes that
partnership. The Operating it has operated so as to qualify as a
Partnership owns interests REIT under the Code, commencing with
(directly through subsidiaries) in its taxable year ended December 31,
20 Properties and, through three of 1993, and intends to continue to so
its subsidiaries, conducts the operate. The Company's interest in the
Company's management and leasing Operating Partnership gives the
business. See "The Company." Company an indirect investment in the
20 properties owned by the Operating
Partnership. In addition, as a result
of the U.S. Realty Transaction, the
Company owns (either directly or
through interests in sudsidiaries
other than the Operating Partnership)
interests in the other Properties and,
through one of its subsidiaries,
conducts the Company's development
business.
LENGTH OF INVESTMENT
--------------------
The Operating Partnership has The Company has a perpetual
a stated term of 99 years. term and intends to continue its
operations for an indefinite time
period.
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<PAGE>
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OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
PURPOSE AND PERMITTED INVESTMENTS
---------------------------------
The Operating Partnership's Under its Articles of
purpose is to conduct any business Incorporation, the Company may engage
that may be lawfully conducted by a in any lawful activity permitted by
limited partnership organized the General Corporation Law of
pursuant to the Act, provided that Maryland. As a result of the
such business is to be conducted in Amendments, the Company is now
a manner that permits the Company permitted by the Partnership
to be qualified as a REIT unless permitted by the Partnership
the Company ceases to qualify as a Agreement to engage in activities not
REIT. The Operating Partnership is related to the business of the
authorized to perform any and all Operating Partnership, including
acts for the furtherance of the activities in direct or indirect
purposes and business of the competition with the Operating
Operating Partnership, provided Partnership, and may now own assets
that the Operating Partnership may other than its interest in the
not take, or refrain from taking, Operating Partnership and such other
any action which, in the judgment assets necessary to carry out its
of the general partner (i) could responsibilities under the
adversely affect the ability of the Partnership Agreement and its
general partner to continue to Articles of Incorporation. In
qualify as a REIT, (ii) could addition, as a result of the
subject the general partner to any Amendments, the Company has no
additional taxes under Section 857 obligation to present opportunities
or Section 4981 of the Code, or to the Operating Partnership and the
(iii) could violate any law or Unit holders have no rights by virtue
regulation of any governmental body of the Partnership Agreement in any
(unless such action, or inaction, outside business ventures of the
is specifically consented to by the Company.
general partner).
ADDITIONAL EQUITY
-----------------
The Operating Partnership is The board of directors may
authorized to issue Units and other issue, in its discretion, additional
partnership interests (including equity securities consisting of
partnership interests of different Common Stock or Preferred Stock;
series or classes that may be provided, that the total number of
senior to Units) as determined by shares issued does not exceed the
the Company as its general partner, authorized number of shares of
in its sole discretion. As a result capital stock set forth in the
of the Amendments, the Company, as Company's Articles of Incorporation.
general partner, now may, in its As a result of the Amendments, the
sole and absolute discretion, make proceeds of equity capital raised by
a capital contribution to the the Company is no longer required to
Operating Partnership in exchange be contributed to the Operating
for additional Units without a Partnership in exchange for Units in
corresponding issuance of shares of the Operating Partnership.
Common Stock by the Company. In
addition, the Operating Partnership
may issue up to 1,266,900
additional Units upon exercise of
the options granted pursuant to the
Option Plans.
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<PAGE>
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OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
BORROWING POLICIES
------------------
The Operating Partnership has The Company is not restricted
no restrictions on borrowings, and under its governing instrument from
the Company as general partner has incurring borrowings. As a result of
full power and authority to borrow Amendments, the Company, as general
money on behalf of the Operating partner, is now permitted by the
Partnership. Partnership Agreement to incur debts
other than those for which it may be
liable as general partner of the
Operating Partnership. Therefore, the
Company no longer is required to
incur all of its indebtedness through
the Operating Partnership. The
Company has adopted a policy that
currently limits total borrowings to
50% of the total market
capitalization of the Company and the
Operating Partnership, but this
policy may be altered at any time by
the board of directors. However,
pursuant to the U.S. Realty
Stockholders Agreement, the Company
may not, subject to the terms
thereof, incur total indebtedness in
an amount exceeding 65% of the
Company's total market capitalization
(equity and debt) as of November 5,
1995, adjusted for the acquisition
cost of properties acquired
thereafter and the distribution to
stockholders of any proceeds of
property dispositions.
OTHER INVESTMENT RESTRICTIONS
-----------------------------
Other than restrictions Neither the Company's
precluding investments by the Articles of Incorporation nor its
Operating Partnership that would By-laws impose any restrictions upon
adversely affect the qualification the types of investments made by the
of the Company as a REIT, there are Company except that under the
no restrictions upon the Operating Articles of Incorporation the board
Partnership's authority to enter of directors is prohibited from
into certain transactions, taking any action that would
including among others, making terminate the Company's REIT status,
investments, lending Operating unless a majority of the stockholders
Partnership funds, or reinvesting vote to terminate such REIT status.
the Operating Partnership's cash As a result of the Amendments, the
flow and net sale or refinancing Company has terminated its prior
proceeds. policy that it must conduct its
investment activities through the
Operating Partnership for so long as
the Operating Partnership exists.
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<PAGE>
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OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
MANAGEMENT CONTROL
------------------
All management powers over the The board of directors has
business and affairs of the exclusive control over the Company's
Operating Partnership are vested in business and affairs subject only to
the general partner of the the restrictions in the Articles of
Operating Partnership, and no Incorporation, the By-laws and the
limited partner of the Operating Partnership Agreement. The board of
Partnership has any right to directors is classified into three
participate in or exercise control classes of directors. At each annual
or management power over the meeting of the stockholders, the
business and affairs of the successors of the class of directors
Operating Partnership except (1) whose terms expire at that meeting
the general partner of the will be elected. The policies adopted
Operating Partnership may not by the board of directors may be
dispose of all or substantially all altered or eliminated without a vote
of the Operating Partnership's of the stockholders. Accordingly,
assets without the consent of the except for their vote in the
holders of two-thirds of the elections of directors, stockholders
outstanding Units, and (2) there have no control over the ordinary
are certain limitations on the business policies of the Company. The
ability of the general partner of board of directors cannot change the
the Operating Partnership to cause Company's policy of maintaining its
or permit the Operating Partnership status as a REIT, however, without
to dissolve. See "--Vote Required the approval of holders a majority of
to Dissolve the Operating the outstanding shares of Common
Partnership or the Company" below. Stock.
The general partner may not be
removed by the limited partners of
the Operating Partnership with or
without cause.
FIDUCIARY DUTIES
----------------
Under Delaware law, the Under Maryland law, the
general partner of the Operating directors must perform their duties
Partnership is accountable to the in good faith, in a manner that they
Operating Partnership as a reasonably believe to be in the best
fiduciary and, consequently, is interests of the Company and with the
required to exercise good faith and care of an ordinarily prudent person
integrity in all of its dealings in a like position. Directors of the
with respect to partnership Company who act in such a manner
affairs. However, under the generally will not be liable to the
Partnership Agreement, the general Company for monetary damages arising
partner is under no obligation to from their activities.
take into account the tax
consequences to any partner of any
action taken by it, and the general
partner is not liable for monetary
damages for losses sustained or
liabilities incurred by partners as
a result of errors of judgment or
of any act or omission, provided
that the general partner has acted
in good faith.
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<PAGE>
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OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
MANAGEMENT LIABILITY AND INDEMNIFICATION
----------------------------------------
As a matter of Delaware law, The Company's Articles of
the general partner has liability Incorporation provide that the
for the payment of the obligations liability of the Company's directors
and debts of the Operating and officers to the Company and its
Partnership unless limitations upon stockholders for money damages is
such liability are stated in the limited to the fullest extent
document or instrument evidencing permitted under Maryland law. The
the obligation. Under the Articles of Incorporation and state
Partnership Agreement, the law provide indemnification to
Operating Partnership has agreed to directors and officers to the same
indemnify the general partner and extent that such directors and
any director or officer of the officers have indemnification rights
general partner from and against under the Partnership Agreement (as
all losses, claims, damages, officers and directors of the general
liabilities (joint or several) partner).
expenses (including legal fees and
expenses), judgments, fines,
settlements and other amounts
incurred in connection with any
actions relating to the operations
of the Operating Partnership in
which the general partner or such
director or officer is involved,
unless: (1) the act was in bad
faith and was material to the
action; (2) such party received an
improper personal benefit; or (3)
in the case of any criminal
proceeding, such party had
reasonable cause to believe the act
was unlawful. The reasonable
expenses incurred by an indemnitee
may be reimbursed by the Operating
Partnership in advance of the final
disposition of the proceeding upon
receipt by the Operating
Partnership of an affirmation by
such indemnitee of his, her or its
good faith belief that the standard
of conduct necessary for
indemnification has been met and an
undertaking by such indemnitee to
repay the amount if it is
determined that such standard was
not met.
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<PAGE>
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OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
ANTITAKEOVER PROVISIONS
-----------------------
Except in limited The Articles of Incorporation
circumstances (See "Voting Rights" and By-laws of the Company contain a
below), the general partner of the number of provisions that may have
Operating Partnership has exclusive the effect of delaying or
management power over the business discouraging an unsolicited proposal
and affairs of the Operating for the acquisition of the Company or
Partnership. The general partner the removal of incumbent management.
may not be removed by the limited These provisions include, among
partners with or without cause. As others: (1) a staggered board of
a result of the Amendments, under directors; (2) authorized capital
the Partnership Agreement, a stock that may be issued as Preferred
limited partner may now transfer Stock in the discretion of the board
his or her interest as a limited of directors, with superior voting
partner (subject to certain limited rights to the Common Stock; (3) a
exceptions set forth in the requirement that directors may be
Partnership Agreement), without removed only for cause and only by a
obtaining the approval of the vote of holders of at least a
general partner except that the majority of the outstanding Common
general partner may, in its sole Stock; and (4) provisions designed to
discretion, prevent the admission avoid concentration of share
to the Operating Partnership of ownership in a manner that would
substituted limited partners. The jeopardize the Company's status as a
general partner may exercise this REIT under the Code. See "Capital
right of approval to deter, delay Stock of the Company."
or hamper attempts by persons to
acquire a controlling interest in
the Operating Partnership. See
"Description of Units."
36
<PAGE>
- ----------------------------------------- --------------------------------------
OPERATING PARTNERSHIP COMPANY
- ----------------------------------------- --------------------------------------
VOTING RIGHTS
-------------
Under the Partnership The Company is managed and
Agreement, the limited partners controlled by a board of directors
have voting rights only as to the consisting of three classes having
dissolution of the Operating staggered terms of office. Each class
Partnership, the sale of all or is to be elected by the stockholders
substantially all of the assets or at annual meetings of the Company.
merger of the Operating Maryland law requires that certain
Partnership, and amendments of the major corporate transactions,
Partnership Agreement, as described including most amendments to the
more fully below. Otherwise, all Articles of Incorporation, may not be
decisions relating to the operation consummated without the approval of
and management of the Operating stockholders as set forth below. All
Partnership are made by the general shares of Common Stock have one vote,
partner. See "Description of and the Articles of Incorporation
Units." As of August 23, 1996, the permit the board of directors to
Company held approximately 75% of classify and issue Preferred Stock in
the outstanding Units. As Units are one or more series having voting
redeemed by partners, the Company's power which may differ from that of
percentage ownership of the Units the Common Stock. See "Capital Stock
will increase. If additional Units of the Company." As a result of the
are issued to third parties, which Amendments, U.S. Realty has the right
is permitted but not anticipated by to nominate a certain number of
the Company, the Company's nominees for election to the
percentage ownership of the Units Company's board of directors.
will decrease.
The following is a comparison of the voting rights of the limited partners
of the Operating Partnership and the stockholders of the Company as they relate
to certain major transactions:
A. AMENDMENT OF THE PARTNERSHIP AGREEMENT OR THE ARTICLES OF INCORPORATION.
------------------------------------------------------------------------
The Partnership Agreement may Amendments to the Company's
be amended through a proposal by Articles of Incorporation must be
the general partner or any limited approved by the board of directors
partner holding 25% or more of the and generally by at least two-thirds
Units. Such proposal, in order to of the votes entitled to be cast at a
be effective, must be approved by meeting of stockholders.
the general partner and by the
written vote holders of at least a
majority of the outstanding Units.
Certain amendments that affect the
fundamental rights of a limited
partner must be approved by each
affected limited partner. In
addition, the general partner may,
without the consent of the limited
partners, amend the Partnership
Agreement as to certain ministerial
matters.
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<PAGE>
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OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
B. VOTE REQUIRED TO DISSOLVE THE OPERATING PARTNERSHIP OR THE COMPANY.
-------------------------------------------------------------------
From February 16, 1993 through Under Maryland law, the board
December 31, 2012, the general of directors must obtain approval of
partner of the Operating holders of at least two-thirds of the
Partnership may not elect to outstanding Common Stock in order to
dissolve the Operating Partnership dissolve the Company.
if any limited partner who became a
limited partner in the Formation
Transactions holding Units issued
at such time objects to such
dissolution. From January 1, 2013
through December 31, 2042, the
general partner may not elect to
dissolve the Operating Partnership
if any limited partners who became
limited partners at the time of the
Formation Transactions and who hold
at least 5% of the Units object to
such dissolution. On or after
January 1, 2043, the general
partner may, in sole discretion,
dissolve the Operating Partnership
without the consent of the limited
partners.
C. VOTE REQUIRED TO SELL ASSETS OR MERGE.
-------------------------------------
Under the Partnership Under Maryland law, the sale
Agreement, the sale, exchange, of all or substantially all of the
transfer or other disposition of assets of the Company or merger or
all or substantially all of the consolidation of the Company requires
Operting Partnership's assets or the approval of the board of director
merger or consolidation of the and holders of two-thirds of the
Operating Partnership requires the outstanding Common Stock. No approval
consent of the general partner and of the stockholders is required for
holders of two-thirds of the the sale of less than all or
outstanding Units (including Units substantially all of the Company's
held by the general partner). The assets.
General Partner of the Operating
Partnership has the exclusive
authority the sell individual
assets of the Operating
Partnership.
38
<PAGE>
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OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
COMPENSATION, FEES AND DISTRIBUTIONS
------------------------------------
The general partner does not The directors and officers of
receive any compensation for its the Company receive compensation for
services as general partner of the their services.
Operating Partnership. As a partner
in the Operating Partnership,
however, the general partner has
the same right to allocations and
distributions as other partners of
the Operating Partnership. In
addition, the Operating Partnership
will reimburse the general partner
for all expenses incurred relating
to the ongoing operation of the
Company and any other offering of
additional partnership interests in
the Operating Partnership or
capital stock of the Company.
39
<PAGE>
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OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
LIABILITY OF INVESTORS
----------------------
Under the Partnership Under Maryland law, stock-
Agreement and applicable state law, holders are not personally liable
the liability of the limited for the debts or obligations of the
partners for the Operating Company.
Partnerships's debts and
obligations is generally limited to
the amount of their investment in
the Operating Partnership.
REVIEW OF INVESTOR LISTS
------------------------
Under the Partnership Under Maryland law, a
Agreement, limited partners of the stockholder holding at least 5% of
Operating Partnership, upon written the outstanding stock of a
demand with a statement of the corporation may upon written
purpose of such demand and at the request obtain a list of the
limited partner's expense, are stockholders of such corporation.
entitled to obtain a current list
of the name and last known
business, residence or mailing
address of each limited partner of
the Operating Partnership.
NATURE OF INVESTMENT
--------------------
The Units constitute equity Shares of Comoon Stock
interests entitling each limited constitutes equity interests in the
partner to his pro rata share of Company. The Company is entitled to
cash distributions made to the receive its pro rata share of
limited partners of the Operating distributions made by the Operating
Partnership. The Operating Partnership with respect to the
Partnership generally intends to Units, and the distributions made by
retain and reinvest proceeds of the the other direct subsidiaries of the
sale of the property or excess Company. Each stockholder will be
refinancing proceeds in its entitled to his pro rata share of any
business. dividends or distributions paid with
respect to the Common Stock. The
dividends payable to the stockholders
are not fixed in amount and are only
paid if, when and as declared by the
Board of Directors. In order to
qualify as a REIT, the Company
generally must distribute at least
95% of its net taxable income
(excluding capital gains), and any
taxable income (including capital
gains) not distributed will be
subject to corporate income tax.
40
<PAGE>
- --------------------------------------------------------------------------------
OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
POTENTIAL DILUTION OF RIGHTS
----------------------------
The general partner of the The Board of Directors may
Operating Partnership is issue, in its discretion, additional
authorized, in its sole discretion shares, and has the authority to
and without limited partner issue from the authorized capital
approval, to cause the Operating stock a variety of other equity
Partnership to issue additional securities of the Company with such
limited partnership interests and powers, preferences and rights as the
other equity securities for any board of directors may designate at
partnership purpose at any time to the time. The issuance of additional
the limited partners or to other shares of either Common Stock or
persons (including the general other similar equity securities may
partner on terms established by the result in the dilution of the
general partner. interests of the stockholders. For so
long as U.S. Realty owns at least 25%
of the outstanding Common Stock of
the Company on a fully diluted basis,
U.S. Realty 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 of Common Stock or
Preferred Stock, as applicable,
proposed to be issued by the Company.
LIQUIDITY
---------
As a result of the Amendments, The Redemption Shares will be
limited partners may generally freely transferable as registered
transfer their Units without the securities under the Securities Act.
general partner's consent, except The Common Stock is listed on the
that the general partner may, in NYSE. The breadth and strength of
its sole discretion, prevent the this secondary market will depend,
admission to the Operating among other things, upon the number
Partnership of substituted limited of shares outstanding, the Company's
partners. financial results and prospects, the
general interest in the Company's and
Each limited partner has the other real estate investments, and
right to tender his or her Units the Company's dividend yield compared
for redemption by the Operating to that of other debt and equity
Partnership. See "General" above. securities.
41
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OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXATION
-----------------------
The Operating Partnership is The Company has elected to be
not subject to Federal income taxed as a REIT. So long as it
taxes. Instead, each holder of qualifies as REIT, the Company will
Units includes its allocable share be permitted to deduct
of the Operating Partnership's distributions paid to its
taxable income or loss in stockholders, which effectively
determining its individual federal will reduce the "double taxation"
income tax liability. The maximum that typically results when a
federal income tax rate for corporation earns income and
individuals under current law is distributes that income to its
39.6%. stockholders in the form of
dividends. A qualified REIT,
Income and loss from the however, is subject to federal
Operating Partnership generally is income tax on income that is not
subject to the "passive activity" distrubuted and also may be subject
limitations. Under the "passive to Federal income and excise taxes
activity" rules, income and loss in certain circumstances. The
from the Operating Partnership that maximum federal income tax rate for
is considered "passive income" corporations under current law is
generally can be offset against 35%.
income and loss from other
investments that constitute Dividends paid by the Company
"passive activities" (unless the will be treated as "portfolio"
Operating Partnership is considered income and cannot be offset with
a "publicly traded partnership," in losses from "passive activities."
which case income and loss from the The maximum federal income tax rate
Operating Partnership can only be for individuals under current law
offset against other income and is 39.6%.
loss from the Operating
Partnership). Income of the
Operating Partnership, however,
attributable to dividends from Carr
Services, Inc. or CRESNOVA (or
interest paid by Carr Services,
Inc. or CRESNOVA) does not qualify
as passive income and cannot be
offset with losses and deductions
from a "passive activity."
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- --------------------------------------------------------------------------------
OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
Cash distributions from the Distributions made by the
Operating Partnership are not Company to its taxable domestic
taxable to a holder of Units except stockholders out of current or
to the extent they exceed such accumulated earnings and profits
holder's basis in its interest in will be taken into account by them
the Operating Partnership (which as ordinary income. Distributions
will include such holder's that are designated as capital gain
allocable share of the Operating dividends generally will be taxed
Partnership's nonrecourse debt). as long-term capital gain, subject
to certain limitations.
Each year, holders of Units Distributions in excess of current
will receive a Schedule K-1 tax or accumulated earnings and profits
form containing detailed tax will be treated as a non-taxable
information for inclusion in return of basis to the extent of a
preparing their federal income tax stockholder's adjusted basis in its
returns. Common Stock, with the excess taxed
as capital gain.
Holders of Units are required, Each year, stockholders will
in some cases, to file state income receive Form 1099 used by
tax returns and/or pay state income corporations to report dividends
taxes in the states in which the paid to their stockholders.
Operating Partnership owns
property, even if they are not Stockholders who are
residents of those states. individuals generally will not be
required to file state income tax
returns and/or pay state income
taxes outside of their state of
residence with respect to the
Company's operations and
distributions. The Company may be
required to pay state income taxes
in certain states.
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FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes certain Federal income tax
considerations that may be relevant to a prospective holder of shares of Common
Stock. The following discussion, which is not exhaustive of all possible tax
considerations, does not include 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 stockholder in light of
its particular circumstances or to certain types of stockholders (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 discussion, the term "Company" refers
only to CarrAmerica Realty Corporation, and not to any other entities.
EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS ADVISED TO CONSULT WITH
ITS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE
PURCHASE, OWNERSHIP AND SALE OF COMMON 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 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 RElT, 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
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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 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 market, 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
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<PAGE>
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 and Construction are referred to
collectively 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.
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 Stockholders
Taxation of Taxable Domestic Stockholders. As long as the Company
qualifies as a REIT, distributions made to the Company's taxable domestic
stockholders 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 stockholders 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
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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 stockholder has held its stock. However,
corporate stockholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. Distributions in excess of current and
accumulated earnings and profits will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder'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
stockholder'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 stockholder. 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 stockholder 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 stockholder's adjusted basis of such shares of Common
Stock. Such gain or loss generally will constitute long-term capital gain or
loss if the stockholder has held such shares for more than one year. Loss upon a
sale or exchange of shares of Common Stock by a stockholder 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 stockholder as
long-term capital gain.
Backup Withholding. The Company will report to its domestic
stockholders 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 stockholder 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 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 stockholders who fail to certify their
non-foreign status to the Company. See "--Taxation of Non-U.S. Stockholders"
below. The Company will report to its domestic stockholders and the IRS the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any, with respect thereto. In addition, the Company may be required
to withhold a portion of capital gain distributions made to any stockholders who
fail to certify their non-foreign status to the Company. See "--Taxation of
Non-U.S. Stockholders" below. Additional issues may arise pertaining to
information reporting and backup withholding with respect to Non-U.S.
Stockholders (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. Stockholders 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
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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 Stockholders. 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. Stockholders. The rules governing U.S. Federal
income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. Prospective Non-U.S. Stockholders 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.
Stockholder to the extent that they do not exceed the adjusted basis of the
stockholder'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. Stockholder's Common Stock, they will give rise to tax liability if
the Non-U.S. Stockholder would otherwise be subject to tax on any gain from the
sale or disposition of his Common Stock as described below (in which case they
also may be subject to a 30% branch profits tax if the stockholder 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
earnings and profits, the entire distribution will be subject to withholding at
the rate applicable to dividends. However, the Non-U.S. Stockholder 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. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA")
at the normal capital gain rates applicable to U.S. stockholders (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien
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individuals). Also, distributions subject to FIRPTA may be subject to a 30%
branch profits tax in the hands of a corporate Non-U.S. Stockholder 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. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder 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. As of July 31, 1996, U.S. Realty, a Luxembourg
corporation, holds approximately 43.3% in value of the securities of the
Company. In the event that U.S. Realty and other stockholders of the Company who
are Non-U.S. Stockholders 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. Stockholder'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. Stockholder 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.
Stockholder (other than U.S. Realty) 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. Stockholder (other than U.S. Realty 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 U.S. Realty owns the maximum percentage
of the Company's capital stock that it is permitted to own under the Special
Stockholder Limit). The Company is unlikely to be able to advise a prospective
Non-U.S. Stockholder that its purchase of any shares of the Company's capital
stock would not violate this prohibition, thereby subjecting such prospective
Non-U.S. Stockholder 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. Stockholders other than U.S. Realty.
If the gain on the sale of Common Stock were to be subject to tax under
FIRPTA, the Non-U.S. Stockholder would be subject to the same treatment as U.S.
stockholders 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.
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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. 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, Carr 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 pays 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 case 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 9.975%, 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 "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,
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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
This Prospectus relates to (i) the possible issuance by the Company of
the Redemption Shares if, and to the extent that, holders of Original Units
tender such Original Units for redemption, (ii) the offer and sale from time to
time of the Original Shares by the holders thereof and (iii) the offer and sale
from time to time of any Redemption Shares that may be issued to persons who may
be affiliates of the Company by such persons. The Company has registered the
Redemption Shares and Original Shares for sale to provide the holders thereof
with freely tradable securities, but registration of such shares does not
necessarily mean that any of such shares will be offered or sold by the holders
thereof.
The Company will not receive any proceeds from the offering by the
Selling Stockholders or from the issuance of the Redemption Shares to holders of
Original Units upon receiving a notice of redemption (but it may acquire from
such holders the Units tendered for redemption). The Secondary Shares may be
sold from time to time to purchasers directly by any of the Selling
Stockholders. Alternatively, the Selling Stockholders may from time to time
offer the Secondary Shares through dealers or agents, who may receive
compensation in the form of commissions from the Selling Stockholders and/or the
purchasers of Secondary Shares for whom they may act as agent. The Selling
Stockholders and any dealers or agents that participate in the distribution of
Secondary Shares may be deemed to be "underwriters" within the meaning of the
Securities Act and any profit on the sale of Secondary Shares by them and any
commissions received by any such dealers or agents might be deemed to be
underwriting commissions under the Securities Act.
At a time a particular offer of Secondary Shares is made, a Prospectus
Supplement, if required, will be distributed that will set forth the names of
any dealers or agents and any commissions and other terms constituting
compensation from the Selling Stockholders and any other required information.
The Secondary Shares may be sold from time to time at varying prices determined
at the time of sale or at negotiated prices.
In order to comply with the securities laws of certain states, if
applicable, the Secondary Shares may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the Secondary Shares may not
be sold unless they have been registered or qualified for sale in such state or
an exemption from such registration or qualification requirement is available
and is complied with.
The Company may from time to time issue up to 5,009,217 Redemption
Shares upon the acquisition of the Original Units tendered for redemption. The
Company will acquire from each exchanging Limited Partner an Original Unit in
exchange for each Redemption Share that the Company issues in connection with
these acquisitions. Consequently, with each redemption, the Company's interest
in the Operating Partnership will increase.
EXPERTS
The financial statements of CarrAmerica Realty Corporation and certain
other entities incorporated by reference herein and elsewhere in the
Registration Statement have been incorporated by reference in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference or appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
51
<PAGE>
LEGAL MATTERS
The legality of the issuance of the Common Stock has been passed upon
for the Company by Hogan & Hartson L.L.P., Washington, D.C.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part) on
Form S-3 under the Securities Act with respect to the securities offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus as to the content of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules hereto. For further information regarding the Company and
the Common Stock offered hereby, reference is hereby made to the Registration
Statement and such exhibits and schedules.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company
has filed reports and other information with the Commission and is subject to
the periodic reporting and informational requirements of the Exchange Act. The
Registration Statement, the exhibits and schedules forming a part thereof as
well as such reports and other information filed by the Company with the
Commission can be inspected and copies obtained from the Commission at Room
1204, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: 7 World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. 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 Common Stock
is listed on the NYSE and similar information concerning the Company can be
inspected and copied at the offices of the NYSE, 20 Broad Street, New York, New
York 10005.
INCORPORATION 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 on April 10, 1996, and a Form 8-K/A related thereto and filed
on May 14, 1996;
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 on May 16, 1996;
5. The Company's Current Report on Form 8-K dated May
24, 1996 and filed on May 24, 1996;
6. The Company's Current Report on Form 8-K dated June
26, 1996 and filed on June 27, 1996, and an 8-K/A related thereto dated July 16,
1996 and filed on July 16, 1996;
52
<PAGE>
7. The Company's Current Report on Form 8-K dated July
10, 1996 and filed on July 10, 1996;
8. The Company's Current Report on Form 8-K dated July
11, 1996 and filed on July 11, 1996;
9. The Company's Current Report on Form 8-K dated July
24, 1996 and filed on July 25, 1996; and
10. The Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the securities offered hereby shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company undertakes to provide without charge to each person to whom
a copy of this Prospectus has been delivered, upon the written or oral request
of any such person, a copy of any or all of the documents incorporated by
reference in this Prospectus (other than exhibits and schedules thereto, unless
such exhibits or schedules are specifically incorporated by reference into the
information that this Prospectus incorporates). Written or telephonic requests
for copies should be directed to CarrAmerica Realty Corporation, 1700
Pennsylvania Avenue, N.W., Washington, D.C. 20006, Attention: General Counsel
(telephone: (202) 624-7509).
53
<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 IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDERS. NEITHER THE DELIVERY OF THIS 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 DOES 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 Summary................................. 2
Risk Factors....................................... 6
The Company........................................ 14
Recent Developments................................ 16
Capital Stock of the Company....................... 17
Description of Units............................... 20
Shares Available for Future Sale................... 25
Registration Rights................................ 25
Selling Stockholders............................... 26
Redemption of Units................................ 28
Federal Income Tax Considerations.................. 44
Plan of Distribution............................... 51
Experts............................................ 51
Legal Matters...................................... 52
Available Information.............................. 52
Incorporation of Certain Documents by
Reference....................................... 52
<PAGE>
5,623,855 SHARES
CARRAMERICA REALTY CORPORATION
COMMON STOCK
.........
PROSPECTUS
.........
__________ ____, 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:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee...............................................................$ 61,639
Printing and Duplicating Expenses.................................................. 10,000
Legal Fees and Expenses............................................................ 250,000
Accounting Fees and Expenses....................................................... 90,000
Miscellaneous...................................................................... 13,361
--------
Total..........................................................................$ 425,000
===========
</TABLE>
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
II-1
<PAGE>
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
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
3.1 * - Articles of Amendment and Restatement of
Incorporation of the Company
3.2 * - By-laws of the Company
5.1 + - Opinion of Hogan & Hartson L.L.P.
8.1 + - Opinion of Hogan & Hartson L.L.P. regarding
certain tax matters
23.1 - Consent of KPMG 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
-----------------
* Incorporated by reference to the same numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996.
+ 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 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
11-2
<PAGE>
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) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in 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 August 30, 1996.
CARRAMERICA REALTY
CORPORATION,
a Maryland corporation
By: /s/ BRIAN K. FIELDS
----------------------------
Brian K. Fields
Chief Financial Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
below on August 30, 1996:
Name Title
---- -----
*
_______________________________ Chairman of the Board, Chief Executive
Oliver T. Carr, Jr. Officer and Director
*
_______________________________ President, Chief Operating Officer and
Thomas A. Carr Director
/s/ BRIAN K. FIELDS Chief Financial Officer
_______________________________
Brian K. Fields
*
_______________________________ Director
Andrew F. Brimmer
*
_______________________________ Director
George R. Puskar
*
_______________________________ Director
Robert O. Carr
II-4
<PAGE>
*
_______________________________ Director
A. James Clark
*
_______________________________ Director
Wesley S. Williams
_______________________________ Director
William D. Sanders
_______________________________ Director
Anthony R. Manno, Jr
_______________________________ Director
J. Marshall Peck
_______________________________ Director
Caroline McBride
*By: /s/ ANDREA F. BRADLEY
__________________________
Andrea F. Bradley
As Attorney-in-Fact
(See Exhibit 24.1)
II-5
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Exhibit Sequentially
Number Description of Exhibit Numbered Page
- ------ ---------------------- -------------
<S> <C> <C> <C>
3.1 * - Articles of Amendment and Restatement of
Incorporation of the Company
3.2 * - By-laws of the Company
5.1 + - Opinion of Hogan & Hartson L.L.P.
8.1 + - Opinion of Hogan & Hartson L.L.P. regarding certain
tax matters
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
-----------------
* Incorporated by reference to the same numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996.
+ Previously filed.
</TABLE>
Accountants' 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 post-effective
amendment No. 2 to Form S-11 on Form S-3.
/s/ KPMG Peat Marwick LLP
Washington, D.C.
August 30, 1996.
