PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED OCTOBER 30, 1997
6,000,000 DEPOSITARY SHARES
[LOGO]
CARRAMERICA REALTY CORPORATION
EACH REPRESENTING 1/10 OF A SHARE OF
8.55% SERIES C CUMULATIVE REDEEMABLE PREFERRED STOCK
(LIQUIDATION PREFERENCE EQUIVALENT TO $25.00 PER DEPOSITARY SHARE)
------------------------
CarrAmerica Realty Corporation (the 'Company') is a publicly traded real
estate investment trust that focuses primarily on the acquisition, development,
ownership and operation of office properties in select suburban markets across
the United States.
Each of the 6,000,000 Depositary Shares (the 'Depositary Shares') offered
hereby represents a 1/10 fractional interest in a share of 8.55% Series C
Cumulative Redeemable Preferred Stock, par value $.01 per share (a 'Series C
Preferred Share'), of the Company deposited with BankBoston, N.A., as Preferred
Stock Depositary, and entitles the holder to all proportional rights and
preferences of the Series C Preferred Shares (including dividend, voting,
redemption and liquidation rights and preferences). The liquidation preference
of each Series C Preferred Share is $250.00 (equivalent to $25.00 per Depositary
Share). See 'Description of the Series C Preferred Shares and Depositary
Shares.'
Dividends on the Series C Preferred Shares represented by the Depositary
Shares will be cumulative from the date of original issue and will be payable
quarterly in arrears on the last day of February, May, August and November of
each year (or, if such day is not a business day, the next business day),
commencing on November 30, 1997, at the rate of 8.55% of the liquidation
preference per annum (equal to $2.1375 per Depositary Share per annum). See
'Description of Series C Preferred Shares and Depositary Shares--Dividends.'
The Series C Preferred Shares represented by the Depositary Shares are not
redeemable prior to November 6, 2002. On and after such date, the Series C
Preferred Shares represented by the Depositary Shares may be redeemed, in whole
or in part, at the option of the Company, at a redemption price of $250 per
Series C Preferred Share (equal to $25.00 per Depositary Share), plus all
accrued and unpaid dividends. The Series C Preferred Shares represented by the
Depositary Shares will not be subject to any sinking fund or mandatory
redemption and will not be convertible into any other securities of the Company.
See 'Description of Series C Preferred Shares and Depositary
Shares--Redemption.' Subject to certain limited exceptions, ownership of more
than 5% of the Series C Preferred Shares represented by the Depositary Shares is
restricted in order to preserve the Company's status as a REIT for federal
income tax purposes. In addition, the Company's charter documents contain
certain restrictions on ownership of capital stock of the Company by foreign
investors. See 'Description of Preferred Stock--Restrictions on Ownership,'
'Description of Depositary Shares--General' and 'Risk Factors--Special
Considerations for Foreign Investors' in the accompanying Prospectus.
The Company intends to file an application to list the Depositary Shares on
the New York Stock Exchange, although there can be no assurance that the
Depositary Shares will be approved for listing.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) COMPANY(3)
------------------ ------------ --------------
<S> <C> <C> <C>
Per Depositary Share.......................... $25.00 $.7875 $24.2125
Total(4)...................................... $150,000,000 $4,725,000 $145,275,000
</TABLE>
- ------------------
(1) Plus accrued dividends, if any, from the date of original issue.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
'Underwriting.'
(3) Before deducting expenses payable by the Company estimated at $400,000.
(4) The Company has granted the several Underwriters an option for 30 days to
purchase up to 900,000 additional Depositary Shares at the initial public
offering price per share, less the underwriting discount, solely to cover
over-allotments, if any. If the option is exercised in full, the Initial
Public Offering Price, Underwriting Discount and Proceeds to Company will be
$172,500,000, $5,433,750 and $167,066,250, respectively. See 'Underwriting.'
------------------------
The Depositary Shares are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the
Depositary Shares will be ready for delivery in book-entry form only through the
facilities of DTC in New York, New York on or about November 6, 1997, against
payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
LEGG MASON WOOD WALKER
INCORPORATED
J.P. MORGAN & CO.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
------------------------
The date of this Prospectus Supplement is October 30, 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE DEPOSITARY SHARES,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE 'UNDERWRITING.'
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus Supplement or the accompanying Prospectus
or incorporated herein or therein by reference. Unless indicated otherwise, the
information contained in this Prospectus Supplement assumes that the
Underwriters' overallotment option is not exercised. As used herein, the term
(i) 'Company' includes CarrAmerica Realty Corporation, a Maryland corporation,
and/or one or more of its subsidiaries, as appropriate, (ii) 'Series C Preferred
Share' refers to a share of Series C Cumulative Redeemable Preferred Stock, par
value $.01 per share and liquidation preference $250.00 per share, of the
Company, (iii) 'Depositary Share' refers to a depositary share evidenced by a
depositary receipt representing a 1/10 fractitional interest in a Series C
Preferred Share deposited with BankBoston, N.A., as Preferred Stock Depositary,
and (iv) 'Common Stock' refers to the common stock, par value $.01 per share, of
the Company. All references to square footage herein are to rentable square feet
(excluding storage space).
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus Supplement and in the accompanying
Prospectus and the documents incorporated by reference therein, including those
set forth in 'Risk Factors' and 'Use of Proceeds' herein and therein, constitute
'forward-looking statements' within the meaning of the Private Securities
Litigation Reform Act of 1995 (the 'Reform Act'). Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company or
industry results to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: national and local economic,
business and real estate conditions that will, among other things, affect demand
for office properties, availability and creditworthiness of prospective tenants,
the level of lease rents and the availability of financing for both tenants and
the Company, adverse changes in the real estate markets including, among other
things, competition with other companies, risks of real estate acquisition and
development (including the failure of pending acquisitions to close and pending
developments to be completed on time and within budget), governmental actions
and initiatives, and environmental/safety requirements.
THE COMPANY
The Company is a publicly traded real estate investment trust ('REIT') that
focuses primarily on the acquisition, development, ownership and operation of
office properties in select suburban markets across the United States. As of
October 30, 1997, the Company owned interests in 232 operating properties
containing approximately 17.9 million square feet of office space located in 15
markets, 16 properties under construction that it intends to own and operate
that will contain approximately 2.7 million square feet of office space, and
land and options to acquire land that will support the development of up to 4.6
million square feet of office space. The operating properties owned by the
Company as of September 30, 1997 were 96.5% leased as of that date.
The Company has maintained a strategic alliance with Security Capital U.S.
Realty, a European real estate company (together with its wholly-owned
subsidiary, 'SC-USREALTY') since November 1995. As of September 30, 1997,
SC-USREALTY owned approximately 42.6% of the outstanding Common Stock of the
Company (38.2% on a fully diluted basis).
The Company and its predecessor, The Oliver Carr Company ('OCCO'), have
been in the real estate business in the Washington, D.C. metropolitan area for
more than 35 years. In late 1995, the Company shifted its focus from downtown
Washington, D.C. to a national business strategy. The Company provides a full
range of real estate services through a staff of over 1,000 employees located
throughout the United States.
S-3
<PAGE>
BUSINESS STRATEGY
The Company's primary business objective is to achieve long-term
sustainable cash flow growth through a strategy of (i) acquiring, developing,
owning and operating office properties primarily in suburban markets throughout
the United States that exhibit strong, long-term growth characteristics and (ii)
developing a national operating system that satisfies and capitalizes on the
financial and operational demands of corporate office space users. The Company
seeks to acquire or develop properties characterized by highly functional
physical environments, strategic suburban locations in close proximity to key
transportation arteries, residential areas and other amenities, and low initial
and long-term costs of occupancy.
PORTFOLIO BY MARKET
The Company's recent investments have provided it with a geographically
diverse portfolio of properties throughout the United States. The following
table provides an overview of the Company's portfolio by market as of October
30, 1997:
<TABLE>
<CAPTION>
SQUARE % OF TOTAL FUTURE
NUMBER OF FOOTAGE OF PORTFOLIO SQUARE BUILDABLE
OPERATING OPERATING SQUARE FOOTAGE UNDER SQUARE
MARKET PROPERTIES PROPERTIES FOOTAGE(1) CONSTRUCTION FOOTAGE(2)
- ---------------------------------------------- --------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Northern California
San Francisco Bay Area...................... 57 3,736,000 20.9% 726,000 --
Sacramento.................................. 8 314,000 1.7 -- --
Metropolitan Washington, D.C.
Downtown.................................... 10 2,404,000 13.4 -- 221,000
Suburban.................................... 7 1,273,000 7.1 -- --
Suburban Atlanta.............................. 43 1,891,000 10.6 204,000 216,000
Southern California
Orange County/Los Angeles................... 29 1,357,000 7.6 -- 181,000
San Diego................................... 4 250,000 1.4 -- --
Suburban Chicago.............................. 10 1,571,000 8.8 91,000 620,000
Southeast Denver.............................. 12 1,210,000 6.8 238,000 562,000
Suburban Dallas............................... 10 965,000 5.4 357,000 422,000
Suburban Seattle.............................. 17 741,000 4.1 376,000 278,000
Austin, Texas................................. 10 709,000 4.0 313,000 1,309,000
Suburban Salt Lake City....................... 8 463,000 2.6 -- 242,000
Suburban Phoenix.............................. 4 457,000 2.6 137,000 120,000
Florida....................................... 2 444,000 2.5 188,000 388,000
Suburban Portland, Oregon..................... 1 81,000 0.5 46,000 --
--------- ---------- ---------- ------------- ----------
Total....................................... 232 17,866,000 100.0% 2,676,000 4,559,000
--------- ---------- ---------- ------------- ----------
--------- ---------- ---------- ------------- ----------
</TABLE>
- ------------------
(1) Represents the percentage of total square footage of the consolidated
properties.
(2) Represents buildable square footage of land (including land subject to
options and excluding square footage under construction) that is held for
development.
S-4
<PAGE>
THE OFFERING
For a more complete description of the terms of the securities offered,
including definitions of capitalized terms used but not defined in this summary,
see 'Description of Series C Preferred Shares and Depositary Shares.'
<TABLE>
<S> <C>
Securities Offered........................ 6,000,000 Depositary Shares, each representing a 1/10 fractional
interest in a Series C Preferred Share.
Use of Proceeds........................... The net proceeds to the Company from the Offering (approximately
$144.9 million) will be used to fund acquisition and development
activities, either through direct payments or repayment of borrowings
under the Company's unsecured line of credit incurred to fund such
activities, and for general corporate purposes. See 'Use of
Proceeds.'
Ranking................................... With respect to the payment of dividends and amounts upon
liquidation, the Series C Preferred Shares represented by the
Depositary Shares will rank equally with the Company's Series A
Preferred Shares and Series B Preferred Shares, junior to all debt
securities and senior to the Common Stock. See 'Description of Series
C Preferred Shares and Depositary Shares--Ranking.'
Dividends................................. Dividends on the Series C Preferred Shares represented by the
Depositary Shares will be cumulative from the date of original issue
and will be payable quarterly in arrears on the last day of February,
May, August and November of each year (or, if such day is not a
business day, the next business day), commencing on November 30,
1997, at the rate of 8.55% of the liquidation preference per annum
(equivalent to $2.1375 per Depositary Share per annum). Dividends on
the Series C Preferred Shares will accrue whether or not the Company
has earnings, whether or not there are funds legally available for
the payment of such dividends and whether or not such dividends are
declared. See 'Description of Series C Preferred Shares and
Depositary Shares--Dividends.'
Liquidation Rights........................ The liquidation preference for each Series C Preferred Share is
$250.00 (equivalent to $25.00 per Depositary Share). Upon
liquidation, holders will be entitled to be paid the liquidation
preference plus an amount equal to accrued and unpaid dividends
thereon out of the assets available for such payment. See
'Description of Series C Preferred Shares and Depositary
Shares--Liquidation Rights.'
Redemption................................ The Series C Preferred Shares represented by the Depositary Shares
are not redeemable prior to November 6, 2002. On and after that date,
the Series C Preferred Shares represented by the Depositary Shares
will be redeemable at the option of the Company, in whole or in part,
at a redemption price of $250.00 per Series C Preferred Share (equal
to $25.00 per Depositary Share), plus accrued and unpaid dividends
thereon. The redemption price (other than the portion thereof
consisting of accrued and unpaid dividends) is payable solely out of
proceeds from the sale of other capital stock of the Company.
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
See 'Description of Series C Preferred Shares and Depositary
Shares--Redemption.'
Voting Rights............................. If dividends on the Series C Preferred Shares are in arrears for six
or more quarterly periods, whether or not such quarterly periods are
consecutive, holders of the Depositary Shares representing the Series
C Preferred Shares (voting separately as a class with all other
series of preferred stock upon which like voting rights have been
conferred and are exercisable) will be entitled to vote for the
election of two additional directors to serve on the Board of
Directors of the Company until all such dividend arrearages are
eliminated. See 'Description of Series C Preferred Shares and
Depositary Shares--Voting Rights.'
Conversion................................ The Series C Preferred Shares represented by Depositary Shares are
not convertible into or exchangeable for any other property or
securities of the Company.
Ownership Limits.......................... Ownership of more than 5% of the Series C Preferred Shares
represented by Depositary Shares is restricted in order to maintain
the Company's ability to qualify as a REIT for federal income tax
purposes. This ownership limit may be increased to a greater
percentage (but not greater than 9.8%) as may be determined by the
Company's Board of Directors. See 'Description of Series C Preferred
Shares and Depositary Shares--Restrictions on Transfer; Ownership
Limits.'
Trading................................... The Company intends to file an application to list the Depositary
Shares on the New York Stock Exchange, although there can be no
assurance that the Depositary Shares will be approved for listing.
</TABLE>
S-6
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial and operating information
for the Company as of and for the years ended December 31, 1996, 1995 and 1994.
This information is derived from and should be read in conjunction with the
audited financial statements of the Company, which statements have been audited
by KPMG Peat Marwick LLP, independent public accountants and incorporated by
reference herein. In addition, the following table sets forth selected financial
and operating information for the Company as of September 30, 1997 and for the
nine months ended September 30, 1997 and 1996, which information is derived from
the unaudited financial statements of the Company.
The following table also sets forth pro forma financial information for the
Company as of and for the nine months ended September 30, 1997 and for the year
ended December 31, 1996, giving effect to (i) the completion of the Offering and
the application of the net proceeds therefrom, (ii) the acquisitions of office
properties and land that have been consummated since the beginning of the
periods presented and the acquisitions of other office properties and land that
the Company expects to consummate in the near future, (iii) the sales of Common
Stock, preferred stock, and unsecured notes during 1996 and 1997, and (iv) the
repayment of certain outstanding indebtedness. In management's opinion, all
material adjustments necessary to reflect the transactions described above are
presented in the pro forma adjustments columns, which are further described in
the notes to the unaudited pro forma financial information incorporated by
reference herein.
The following selected financial and operating information should be read in
conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' incorporated herein by reference:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------------------------- -------------------------------------
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
---------- ------------------------- --------- -----------------------
1997 1997 1996 1996 1996 1995
---------- ---------- ---------- --------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Real estate operating revenue:
Rental revenue........................... $ 272,321 $ 231,832 $ 100,639 $334,927 $ 154,165 $ 89,539
Real estate service revenue.............. 11,512 11,512 9,265 12,512 12,512 11,315
OmniOffices Executive Suites Revenue..... 34,084 5,000 42,019
Real estate operating expenses:
Property operating expenses.............. 93,808 81,920 33,371 104,932 51,927 31,579
Interest expense......................... 40,774 37,266 21,857 54,281 31,630 21,873
Executive Suites Operating Expenses...... 28,697 4,124 36,718
General and administrative expenses...... 15,777 15,777 10,661 17,528 15,228 10,711
Depreciation and amortization............ 64,615 54,561 25,744 78,263 38,264 18,495
Net income................................ 69,346 50,663 15,744 78,217 24,318(1) 12,067(1)
Dividends paid to common stockholders..... 74,103 27,367 42,914 23,344
PER SHARE DATA:
Net income before extraordinary item...... $ 0.79 $ 0.87 $ 0.70 $ 0.81 $ 0.90 $ 0.90
Dividends paid to common stockholders..... 1.3125 1.3125 1.75 1.75
Weighted average shares outstanding(2).... 58,001 53,886 27,723 57,827 31,999 13,338
BALANCE SHEET DATA (AT PERIOD END):
Real estate, before accumulated
depreciation............................. $2,600,042 $2,309,069 $1,062,500 $1,539,998 $480,589
Real estate, after accumulated
depreciation............................. 2,432,580 2,141,607 946,791 1,420,341 381,716
Total assets.............................. 2,635,010 2,351,017 1,043,908 1,536,564 458,860
Mortgages payable......................... 574,699 481,058 354.069 440,449 317,374
Senior Unsecured Notes.................... 275,000 275,000
Other indebtedness........................ 133,678 147,000 72,000 215,000
Total indebtedness........................ 1,056,465 975,572 426,069 655,449 317,374
Minority interest......................... 120,444 67,331 51,611 50,597 34,850
Total stockholders' equity................ 1,458,101 1,308,114 545,748 787,478 95,543
OTHER DATA:
Net cash provided by operating
activities............................... $ 95,904 $ 47,352 $ 82,300 $ 35,277
Net cash used by investing activities..... (745,313) (484,623) (876,947) (81,635)
Net cash provided by financing
activities............................... 647,575 442,292 813,067 37,113
Funds from operations before minority
interest of the Unitholders of Carr
Partnerships(3).......................... $ 137,196 $ 107,592 $ 43,289 $160,098 $ 64,496(1) $ 33,190(1)
Weighted average shares and Units
outstanding(4)........................... 66,580 61,013 27,723 66,502 32,263 18,157
Number of properties (at period end)...... 243 230 87 243 159 13
Square footage (in thousands, at period
end)..................................... 18,973 17,628 10,043 18,973 12,430 3,326
Percent leased (at period end)............ 96.5% 92.0% 93.6% 93.5%
EBITDA(5)................................. $ 181,972 $ 148,856 $ 67,482 $217,681 $ 99,428 $ 57,652
Ratio of EBITDA to interest expense....... 4.46x 4.00x 3.09x 4.01 x 3.14x 2.64x
Ratio of earnings to combined fixed
charges and preferred stock dividends.... 1.45x 1.85x 1.74x 1.34 x 1.71x 1.91x(6)
<CAPTION>
1994
--------
<S> <C> <C>
OPERATING DATA:
Real estate operating revenue:
Rental revenue........................... $ 82,665
Real estate service revenue.............. 8,890
OmniOffices Executive Suites Revenue.....
Real estate operating expenses:
Property operating expenses.............. 29,707
Interest expense......................... 21,366
Executive Suites Operating Expenses......
General and administrative expenses...... 9,535
Depreciation and amortization............ 14,419
Net income................................ 12,097
Dividends paid to common stockholders..... 20,204
PER SHARE DATA:
Net income before extraordinary item...... $ 1.06
Dividends paid to common stockholders..... 1.75
Weighted average shares outstanding(2).... 11,387
BALANCE SHEET DATA (AT PERIOD END):
Real estate, before accumulated
depreciation............................. $429,537
Real estate, after accumulated
depreciation............................. 341,129
Total assets.............................. 407,948
Mortgages payable......................... 254,933
Senior Unsecured Notes....................
Other indebtedness........................
Total indebtedness........................ 254,933
Minority interest......................... 38,644
Total stockholders' equity................ 106,042
OTHER DATA:
Net cash provided by operating
activities............................... $ 29,908
Net cash used by investing activities..... (67,046)
Net cash provided by financing
activities............................... 32,652
Funds from operations before minority
interest of the Unitholders of Carr
Partnerships(3).......................... $ 30,640
Weighted average shares and Units
outstanding(4)........................... 15,878
Number of properties (at period end)...... 11
Square footage (in thousands, at period
end)..................................... 2,706
Percent leased (at period end)............ 95.9%
EBITDA(5)................................. $ 53,606
Ratio of EBITDA to interest expense....... 2.51x
Ratio of earnings to combined fixed
charges and preferred stock dividends.... 1.81 (6)
</TABLE>
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(1) Net income and funds from operations include non-recurring deductions of
approximately $2.3 million and $1.9 million in 1996 and 1995, respectively,
related to the write-off of the unamortized purchase price of certain third
party real estate service contracts that were terminated in 1996 and the
termination of an agreement to acquire the development business of The Evans
Company in 1995.
(2) Weighted average shares outstanding used in calculating net income (loss)
per share includes Common Stock and, when dilutive, stock equivalents, stock
options and units of partnership interest.
(3) The Company believes that funds from operations is helpful to investors as a
measure of the performance of an equity REIT because, along with cash flow
from operating activities, financing activities and investing activities, it
provides investors with an indication of the ability of the Company to incur
and service debt, to make capital expenditures and to fund other cash needs.
In accordance with the final National Association of Real Estate Investment
Trusts (NAREIT) White Paper on Funds From Operations as approved by the
Board of Governors of NAREIT on March 3, 1995, funds from operations
represents net income (loss) (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from debt restructuring
or sales of property, plus depreciation and amortization of assets uniquely
significant to the real estate industry and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures are calculated to reflect
funds from operations on the same basis. For purposes of calculating the
Company's funds from operations, the Company has added amortization expense
associated with goodwill amortization related to the purchase of the assets
of OmniOffices Inc., by an affiliate of the Company back to net income. The
Company computes funds from operations in accordance with standards
established by NAREIT, except for adding back goodwill amortization. The
Company's funds from operations may not be comparable to funds from
operations reported by other REITs that do not define the term in accordance
with the current NAREIT definition or that interpret the current NAREIT
definition differently than the Company. The Company's funds from operations
in 1994 have been restated to conform to the NAREIT definition of funds from
operations. Funds from operations does not represent net income or cash flow
generated from operating activities in accordance with generally accepted
accounting principles and, as such, should not be considered an alternative
to net income as an indication of the Company's performance or to cash flow
as a measure of liquidity or the Company's ability to make distributions.
(4) Includes shares of Common Stock and convertible preferred stock outstanding
plus units of partnership interest in the CarrAmerica Realty, L.P. and Carr
Realty, L.P. that the holders thereof have a right to have redeemed for cash
equal to the value of a share of Common Stock for each unit redeemed or, at
the option of the Company, for shares of Common Stock on a one-for-one
basis. Such units include non-dividend paying units.
(5) EBITDA is calculated as net operating income before minority and
extraordinary items, plus interest expense, depreciation and amortization,
and income taxes, if any.
(6) Prior to October 1996, the Company did not have any preferred stock issued
and outstanding. Therefore, the ratio of earnings to combined fixed charges
and preferred stock dividends for these periods was identical to the ratio
of earnings to fixed charges.
S-7
<PAGE>
THE COMPANY
The Company is a publicly traded REIT that focuses primarily on the
acquisition, development, ownership and operation of office properties in select
suburban markets across the United States. As of October 30, 1997, the Company
owned interests in 232 operating properties containing approximately 17.9
million square feet of office space located in 15 markets, sixteen properties
under construction that it intends to own and operate that will contain
approximately 2.7 million square feet of office space, and land and options to
acquire land that will support the development of up to 4.6 million square feet
of office space. The operating properties owned by the Company as of September
30, 1997 were 96.5% leased as of that date.
The Company has maintained a strategic alliance with SC-USREALTY since
November 1995. As of September 30, 1997, SC-USREALTY owned approximately 42.6%
of the outstanding Common Stock of the Company (38.2% on a fully diluted basis).
The Company and its predecessor, OCCO, have been in the real estate
business in the Washington, D.C. metropolitan area for more than 35 years. In
late 1995, the Company shifted its focus from downtown Washington, D.C. to a
national business strategy. The Company provides a full range of real estate
services through a staff of over 1,000 employees located throughout the United
States.
The Company is a Maryland corporation that was formed in July 1992. The
principal executive offices of the Company are located at 1700 Pennsylvania
Avenue, N.W., Washington, D.C. 20006, and its telephone number is (202)
624-7500.
BUSINESS STRATEGY
The Company's primary business objective is to achieve long-term
sustainable cash flow growth through a strategy of (i) acquiring, developing,
owning and operating office properties primarily in suburban markets throughout
the United States that exhibit strong, long-term growth characteristics and (ii)
developing a national operating system that satisfies and capitalizes on the
financial and operational demands of corporate office space users. The Company
believes that many growth-oriented companies are relocating to and expanding in
suburban locations that offer lower operating costs, greater convenience and a
higher quality of life than traditional central business districts. The Company
seeks to provide suburban office space that will meet the changing needs of
these corporate users of office space.
Target Markets. The Company has focused its acquisition and development
activity in the Pacific, Mountain, Central and Southeast regions of the United
States, regions which generally possess strong growth characteristics. Within
these regions, the Company is targeting specific submarkets in which operating
costs for businesses are relatively low, long-term population and job growth
generally are expected to exceed the national average, large, well-educated
employment pools exist, and barriers to entry exist for new supplies of office
space. The Company has established a local presence in each of its existing
target markets through its investment activity and through the relationships
established by its experienced market officers. The Company's target markets
include the following: San Francisco Bay Area; Sacramento; metropolitan
Washington, D.C.; suburban Atlanta; suburban Chicago; Southeast Denver; suburban
Dallas; suburban Seattle; Orange County/Los Angeles; San Diego; Austin, Texas;
suburban Salt Lake City; suburban Phoenix; Florida and suburban Portland,
Oregon; .
For each identified target market, the Company has established a set of
general guidelines and physical characteristics to evaluate investment
opportunities. All investment decisions are driven by real estate research,
focusing on variables such as economic base analysis, job growth and supply and
demand fundamentals. The Company's goal is to become one of the major owners and
operators of office space in each of its selected target markets. By achieving
such critical mass, the Company believes that it will be able to better serve
its customers' needs and realize certain operating efficiencies.
Acquisitions of Operating Properties. The Company has implemented a major
initiative to acquire operating properties in order to establish the operating
platform for its national business strategy. Between January 1, 1996 and October
30, 1997, the Company acquired 218 operating properties containing approximately
14.5 million square feet of office space, resulting in a more than 425% increase
in the total square footage of operating properties in which the Company has a
majority
S-8
<PAGE>
interest. These properties were acquired for an aggregate purchase price of
approximately $1.7 billion. See 'Recent Developments--Recent Acquisitions and
Development Activity.'
Development Program. The Company's development program is becoming an
increasingly important component of its growth strategy as a result of the
influx of capital into the office property market. The Company believes that
long-term investment returns resulting from developing office properties
generally will exceed those from acquiring office properties, and without the
Company assuming significantly increased investment risks. The Company minimizes
its development risk by employing extensively trained and experienced
development personnel, by not assuming significant entitlement risk in
conjunction with land acquisitions and by entering into guaranteed maximum price
(GMP) construction contracts with seasoned and credible contractors. Most
importantly, the Company carefully analyzes the supply and demand
characteristics of its target markets before commencing inventory development in
a given market. In general, the Company will only undertake inventory
development (which excludes properties under construction that have been
substantially pre-leased) in markets with strong real estate fundamentals, and
then the Company will construct prototypical office buildings attractive to a
wide range of office users. Furthermore, because the Company's inventory
development projects will typically be between 125,000 and 150,000 square feet
in size, these projects individually are not significant to the Company. The
Company does not intend to have concentrations of inventory development
exceeding 250,000 rentable square feet in any of its target markets at any given
time. Although the Company has no pre-set leasing guidelines for inventory
development, on average, the Company expects that its development projects, in
the aggregate, at any time will be between 60% and 75% leased or committed. The
Company's research-driven development program enables it to tailor its
development activities in each target market, from inventory development to
build-to-suit projects to holding raw land for future opportunities.
To implement its national development program, the Company acquired a
substantial economic interest in CarrAmerica Development & Construction, Inc.
and its experienced development staff in May 1996 and has since employed
additional development professionals in the Company's market offices where
development is taking place. The Company's development team currently consists
of approximately 40 persons who have an average of over 15 years of experience
in developing office properties across the United States. Since January 1, 1997,
the Company has placed in service two development properties containing
approximately 290,000 rentable square feet. In addition, as of October 30, 1997,
the Company had 16 office properties under construction (with an estimated
development cost of $372.9 million) that it intends to own and operate. The 16
properties will contain approximately 2.7 million rentable square feet. As of
October 30, 1997, these properties were 60% pre-leased. See 'Recent
Developments--Recent Acquisitions and Development Activity.'
Investments in Land for Future Development. Owning a sufficient inventory
of land for future development is critical to the Company's development program;
therefore, the Company will continue to invest in land for future development.
The Company's goal is to allocate approximately 5% of its invested capital to
investments in land. In addition to its portfolio of operating properties and
projects currently under development, the Company owned or controlled, as of
October 30, 1997, 238 acres of land for future development in ten of its target
markets. The Company also had, as of October 30, 1997, entered into binding
agreements (subject to certain conditions) and non-binding letters of intent to
acquire an additional 156 acres of land for future development in five of its
target markets. No assurance can be given that any of these potential land
acquisitions will be consummated. The Company believes that acquiring land to
support future development provides it with a competitive advantage in
responding to customers' needs for office space in markets with low vacancy
rates.
Asset Optimization. As a component of the Company's business strategy, it
may sell assets that are inconsistent with its long-term strategic or return
objectives or where market conditions for sale are favorable, and redeploy the
proceeds into other office properties (utilizing tax-deferred exchanges where
possible). Consistent with this strategy, the Company recently sold the First
State Bank Tower in Austin, Texas, its 2% interest in the limited partnership
that owned 1575 Eye Street, Washington, D.C. and its 5% interest in the limited
partnership that owns 1776 Eye Street, Washington, D.C. The Company also may
consider selling additional properties or interests in properties, some of which
may be significant.
National Operating System. As part of its business strategy, the Company
is implementing a national operating system to provide nationally coordinated
customer service, marketing and
S-9
<PAGE>
development. The Company's national operating system consists of three
components: (i) a Market Officer Group, currently consisting of ten market
officers focused on developing and maintaining strong local relationships with
the Company's customers and the brokerage community and identifying investment
opportunities for the Company; (ii) a National Marketing Group, which, is
dedicated to marketing the Company's products and services to a targeted list of
major corporate users of office space; and (iii) a National Development Group,
which is responsible for developing suburban office properties, build-to-suit
facilities and business parks. The Company's national operating system is
designed to satisfy and capitalize on the financial and operational demands of
corporate office space users. The Company believes that through its existing
portfolio of operating properties, property development opportunities and land
acquired for future development, the Company can generate incremental demand
through the relocation and expansion needs of many of its customers, both within
a target market and in multiple target markets.
FINANCING STRATEGY
In order to meet its capital requirements at a reasonable cost, the Company
will require access to diverse sources of capital, including the common and
preferred stock markets, the private market for operating partnership units, and
the public and private debt markets. In order to ensure access to these capital
sources, the Company's financial strategy is predicated on conservative
financial policies.
Common Stock, including operating partnership units that may be exchanged
for shares of Common Stock, is and will continue to be the largest component of
the Company's capital structure. Since January 1996, the Company has raised more
than $1.0 billion from the sale of shares of Common Stock (including
SC-USREALTY's initial $250 million investment in the Company) and $43.5 million
from the issuance of operating partnership units. Of the total Common Stock sold
since SC-USREALTY's initial investment in the Company, SC-USREALTY has purchased
$232 million, or 30.0%. The Company currently expects that SC-USREALTY will
continue to participate in future Common Stock offerings, although it is not
obligated to do so.
To date, preferred stock has been only a small component of the Company's
capital structure. As of October 30, 1997, the Company had approximately 780,000
shares of Series A Cumulative Convertible Redeemable Preferred Stock outstanding
(1,740,000 were issued originally) and 8,000,000 shares of 8.57% Series B
Cumulative Redeemable Preferred Stock issued and outstanding. The Company plans
to increase its preferred stock capitalization through this offering and through
future offerings; however, the Company currently does not expect that its
preferred stock capitalization will exceed 20% of its total equity market
capitalization.
Debt from the public and private debt markets is also a key component of
the Company's capital structure. In June 1997, the Company sold to institutional
investors unsecured notes for net proceeds of approximately $272 million. In
formulating its debt capitalization strategy, the Company considers a number of
factors, including the benefits of Company-based financings versus
asset-specific financings, floating rate debt exposure, debt maturity
management, coverage ratios and total debt outstanding as compared to asset
values. Although the Company may from time to time assume mortgage debt in
connection with property acquisitions, the Company, in accordance with its debt
capitalization strategy, plans to primarily utilize Company-based financings in
the form of long-term, unsecured, fixed rate bonds, rather than asset-specific
mortgage financings. The maturities of bonds issued will be staggered in order
to produce normalized maturities and therefore mitigate refinancing risk. For
short-term debt capitalization, the Company will continue to utilize its
unsecured, floating rate, revolving line of credit to provide the necessary
capital for acquisitions and development. With respect to floating rate debt
exposure, the Company plans to keep its average unhedged floating rate debt
outstanding to an amount less than 10% of total asset value. The Company expects
to continue operating with adequate debt service coverage ratios and to continue
maintaining a sufficient pool of unencumbered assets to service the Company's
unsecured debt.
The Company's financing strategy may be changed from time to time by its
Board of Directors without the consent of its stockholders or other
securityholders.
S-10
<PAGE>
REAL ESTATE SERVICES
The Company generally provides real estate operating services for its
properties. In certain circumstances, however, such as during a transitional
period following the acquisition of a property, the Company may use a
third-party real estate service provider. As of October 30, 1997, the Company
provided its own real estate operating services for approximately 17.5 million
square feet (or 98%) of its portfolio. The Company, through certain
subsidiaries, also provides fee-based real estate services for related and
unrelated parties.
RECENT DEVELOPMENTS
RECENT ACQUISITIONS AND DEVELOPMENT ACTIVITY
Operating Property Acquisitions. Between April 1 and October 30, 1997, the
Company acquired 53 operating office properties containing approximately 3.8
million square feet for an aggregate purchase price of approximately $450
million.
The following table provides summary information on these properties:
<TABLE>
<CAPTION>
PURCHASE PERCENT
MONTH OF PRICE RENTABLE LEASED AS OF
MARKET/PROPERTY SUBMARKET ACQUISITION (IN MILLIONS) SQUARE FEET SEPTEMBER 30, 1997
- ------------------------------------ ----------- ------------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Suburban Atlanta
2400 Lake Park Drive.............. Northwest April $ 7.4 103,000 98.2%
680 Engineering Drive............. Northwest April 4.3 62,000 100.0
Embassy Row....................... Central Perimeter April 45.9 466,000 99.1
Suburban Dallas
Tollhill East & West.............. LBJ/North Dallas April 21.7 238,000 87.0
Two Mission Park.................. Richardson/Plano July 5.1 77,000 89.1
Suburban Salt Lake City
Sorenson Research Park............ 5300 South & I-15 April 28.1 285,000 100.0
Draper Park North................. Draper June 18.7 178,000 100.0
Northern California
Foster City Technology
Center.......................... Silicon Valley May 9.7 67,000 100.0
150 River Oaks.................... North San Jose May 15.1 100,000 100.0
San Mateo Center II & III......... San Mateo July 25.3 141,000 97.9
3571 North First Street........... North San Jose July 15.1 116,000 100.0
Amador I/Rinconada................ Pleasanton August 11.0 134,000 100.0
Amador III........................ Pleasanton August 10.5 83,000 100.0
Arroya Center..................... Pleasanton August 11.5 105,000 100.0
1860 Howe Avenue.................. Sacramento August 11.8 98,000 97.2
University Park................... Sacramento August 13.6 121,000 84.1
Capital Corporate Center.......... Sacramento August 9.2 95,000 93.5
San Mateo Center I................ San Mateo October 15.0 70,000 100.0
Southern California
Westlake Corporate
Center.......................... Westlake/Thousand Oaks May 6.1 72,000 92.0
Lightspan......................... San Diego July 7.8 65,000 100.0
Von Karman........................ Irvine July 16.2 104,000 100.0
2600 W. Olive..................... Burbank October 28.5 145,000 100.0
Suburban Seattle
Willow Creek Corporate Center
(formerly Data I/O)............. Redmond May 8.7 96,000 100.0
Canyon Park....................... Botthel June 31.2 247,000 100.0
Suburban Phoenix
Highland Park..................... Scottsdale May 7.6 78,000 95.9
Suburban Chicago
Bannockburn IV.................... Northbrook/TriState June 14.3 109,000 98.7
Summit Oaks....................... Oakbrook June 8.4 92,000 89.8
Florida
Peninsula Circle.................. Hollywood October 42.2 284,000 87.0
------------- ----------- ------
Total/Weighted Averages $ 450.0 3,831,000 96.5%
------------- ----------- ------
------------- ----------- ------
</TABLE>
As of October 30, 1997, the Company had entered into four binding contracts
(subject to certain conditions) and one non-binding letter of intent to acquire
an additional eleven operating office properties containing approximately
1,108,000 rentable square feet for an aggregate purchase price of approximately
$157 million. The closing of these pending acquisitions is subject to the
Company's due diligence and
S-11
<PAGE>
certain other closing conditions. The Company expects to close the transactions
within 60 days, although there can be no assurance that any of these
transactions will be consummated.
Development. Since January 1, 1997, the Company placed in service two
development properties containing approximately 290,000 square feet. In
addition, as of October 30, 1997, the Company had 16 office properties under
construction (with an estimated development cost of $373 million) that it
intends to own and operate. Once completed, the sixteen properties will contain
approximately 2.7 million rentable square feet.
The following table sets forth certain information regarding the 16 office
properties under construction that the Company intends to own and operate, as of
October 30, 1997:
<TABLE>
<CAPTION>
EXPECTED
FIRST-YEAR
STABILIZED
UNLEVERAGED
ESTIMATED RETURN ON EXPECTED
RENTABLE COST (IN DEVELOPMENT PERCENT COMPLETION
PROPERTY UNDER CONSTRUCTION MARKET SQUARE FEET THOUSANDS) COSTS (1) LEASED DATE
- ----------------------------- ---------------------- ----------- ---------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Spalding Ridge............... Suburban Atlanta 128,000 $ 15,500 9.5% 84 % 4Q 1997
Panorama Corporate
Center II.................. Southeast Denver 101,000 11,900 10.5 80 4Q 1997
City View Centre............. Austin, Texas 129,000 18,200 10.3 100 4Q 1997
Baytech Business Park........ San Francisco Bay Area 300,000 38,600 12.7 100 4Q 1997
RadiSys...................... Suburban Portland 46,000 5,900 10.4 100 4Q 1997
Redmond Hilltop.............. Suburban Seattle 95,000 11,300 10.2 46 4Q 1997
Riata Building 5............. Austin, Texas 92,000 11,200 10.3 71 1Q 1998
Panorama Corporate
Center III................. Southeast Denver 137,000 17,100 10.1 100 1Q 1998
Riata Building 4............. Austin, Texas 92,000 11,200 10.3 81 2Q 1998
Gateway Plaza................ Suburban Phoenix 137,000 16,900 10.3 0 2Q 1998
Tollway Plaza I & II......... Suburban Dallas 357,000 53,400 10.4 28 3Q 1998
Willow Creek Corporate
Center (formerly Data
I/O)....................... Suburban Seattle 281,000 36,700 10.1 36 3Q 1998
Oakmead West................. San Francisco Bay Area 426,000 65,800 10.9 100 3Q 1998
Embassy Row.................. Suburban Atlanta 76,000 10,000 10.4 0 (2) 3Q 1998
Parkway North................ Suburban Chicago 91,000 14,400 10.1 0 (2) 3Q 1998
Peninsula Executive Center
(formerly Glades Site)..... Florida 188,000 34,800 9.6 0 (2) 4Q 1998
----------- ---------- ----- -------
Total/Weighted Average 2,676,000 $372,900 10.6% 60 %
----------- ---------- ----- -------
----------- ---------- ----- -------
</TABLE>
- ------------------
(1) Equals the expected net operating income of the project on a cash basis,
assuming 7% vacancy, divided by the total expected development costs,
including capitalized carrying costs during construction.
(2) The construction start date for the project was October 1997.
Land Held for Development. From January 1 to October 30, 1997, the Company
acquired 238 acres of land in ten of its target markets that will support future
development of up to 4.6 million rentable square feet of office space. The
Company also has entered into nine binding agreements (subject to certain
conditions) to acquire an additional 156 acres of land for future development in
seven of its target markets. No assurance can be given that any of these
potential acquisitions of developable land will be consummated.
The following table shows the land and options to acquire land that were
owned by the Company as of October 30, 1997 and land that the Company expects to
acquire within the next 60 days.
<TABLE>
<CAPTION>
OWNED OR PENDING LAND
CONTROLLED LAND ACQUISITIONS
------------------ ------------------
BUILDABLE BUILDABLE
SQUARE SQUARE
REGION/PROPERTY MARKET ACRES FOOTAGE ACRES FOOTAGE
- --------------------------------------------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
Pacific Region:
Willow Creek Corporate Centre
(formerly Data I/O)...................... Suburban Seattle 3 44,000 -- --
Eastgate Technology Park................... San Diego 8 181,000 -- --
Canyon Park................................ Suburban Seattle 11 234,000 -- --
Valley Technology Centre
(formerly Ferrara Site).................. San Francisco/Bay Area -- -- 21 333,000
Watkins Johnson............................ San Francisco/Bay Area -- -- 15 254,000
La Jolla Spectrum.......................... San Diego -- -- 14 156,000
Evergreen.................................. Suburban Portland, OR -- -- 29 444,000
----- --------- ----- ---------
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
OWNED OR PENDING LAND
CONTROLLED LAND ACQUISITIONS
------------------ ------------------
BUILDABLE BUILDABLE
SQUARE SQUARE
REGION/PROPERTY MARKET ACRES FOOTAGE ACRES FOOTAGE
- --------------------------------------------- ----- --------- ----- ---------
Subtotal............................... 22 459,000 79 1,187,000
<S> <C> <C> <C> <C> <C>
----- --------- ----- ---------
Mountain Region:
Panorama Corporate Center IV-VII........... Southeast Denver 28 462,000 -- --
Gateway Plaza.............................. Suburban Phoenix 3 120,000 -- --
Quorum..................................... Southeast Denver 9 100,000 -- --
Draper Park North.......................... Suburban Salt Lake City 9 120,000 -- --
Sorensen Research Park..................... Suburban Salt Lake City 8 122,000 -- --
Marriott Tract............................. Southeast Denver -- -- 5 128,000
----- --------- ----- ---------
Subtotal............................... 57 924,000 5 128,000
----- --------- ----- ---------
Central Region:
Mopac at Braker
(formerly Aubrey Smith).................. Austin, Texas 22 750,000 -- --
Riata...................................... Austin, Texas 38 559,000 -- --
Parkway North.............................. Suburban Chicago 27 620,000 -- --
Cedar Maple................................ Suburban Dallas 1 38,000 -- --
Tollway Plaza III.......................... Suburban Dallas 4 134,000 -- --
Royal Ridge................................ Suburban Dallas 19 250,000 -- --
The Commons at Las Colinas................. Suburban Dallas -- -- 7 201,000
----- --------- ----- ---------
Subtotal............................... 111 2,351,000 7 201,000
----- --------- ----- ---------
Southeast Region:
Embassy Row................................ Suburban Atlanta 7 120,000 -- --
Peninsula Corporate Center
(formerly Knight Site)................... Florida 26 388,000 -- --
1201 F Street.............................. Downtown Washington, D.C. 1 221,000 -- --
Preston Ridge.............................. Suburban Atlanta 14 96,000 -- --
Reston Crossing............................ Suburban Washington, D.C. -- -- 16 314,000
Southern Land.............................. Florida -- -- 42 750,000
Rocky Point................................ Florida -- -- 7 202,000
----- --------- ----- ---------
Subtotal............................... 48 825,000 65 1,266,000
----- --------- ----- ---------
Total................................ 238 4,559,000 156 2,782,000
----- --------- ----- ---------
----- --------- ----- ---------
</TABLE>
OmniOffices Acquisition. On August 25, 1997, an affiliate of the Company
('OmniOffices') acquired substantially all of the assets of OmniOffices, Inc.
and its subsidiaries for an aggregate purchase price of approximately $50
million in cash. OmniOffices is one of the nation's leading providers of
executive office suites to commercial customers throughout the United States,
operating 28 executive suites centers located in 14 markets. The Company
believes that there is significant potential for growth in this business because
the demand for executive office suites is likely to increase as corporations
seek greater flexibility and alternative workplace solutions for their staffing
and business plan requirements. The Company believes that this acquisition has
provided OmniOffices with the operating platform necessary to expand its
business and assist the Company in meeting the changing office space needs of
the Company's national customers. The Company expects that OmniOffices will
expand its business through development and acquisitions financed principally by
the Company until such expansion can be financed through third-party financing
sources. Because of limitations under the tax laws relating to REITs,
OmniOffices is structured as a taxable 'C' corporation in which the Company owns
95% of the economic interest, but none of the voting stock.
RECENT FINANCING ACTIVITY
Since June 1996, the Company has completed four separate offerings of
shares of Common Stock to the public and SC-USREALTY for aggregate net proceeds
of approximately $767 million. In October 1996, the Company sold shares of
preferred stock to institutional investors and SC-USREALTY for net proceeds of
approximately $43 million. In June 1997, the Company sold unsecured notes to
institutional investors for net proceeds of approximately $272 million. In
addition, in August 1997, the Company sold shares of Series B Cumulative
Redeemable preferred stock to the public for net proceeds of approximately
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<PAGE>
$193 million. The net proceeds of all of these offerings were used to pay down
indebtedness and to acquire operating office properties and land held for
development.
In September 1997, certain modifications were made to the Company's
unsecured line of credit and, as a result, the full commitment amount of $450
million became available to the Company. Additionally, on October 30, 1997, the
interest rate for advances under the Company's unsecured line of credit was
reduced to 1.000% over LIBOR. As of October 30, 1997, $194 million was
outstanding under the Company's line of credit.
USE OF PROCEEDS
The net proceeds to the Company from this offering are estimated to be
approximately $144.9 million ($166.7 million if the Underwriters' over-allotment
option is exercised in full). The Company intends to use the net proceeds of the
offering to fund acquisition and development activities, either through direct
payments or repayment of unsecured line of credit borrowings incurred to fund
acquisition or development activities, and for general corporate purposes. The
Company expects to make additional borrowings under its unsecured line of credit
following the offering. Pending such application, the net proceeds may be
invested in short-term, income-producing investments such as commercial paper,
government securities or money market funds that invest in government
securities. See 'Plan of Distribution.'
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 on an historical basis and on a pro forma basis, giving
effect to (i) the completion of this offering of Depositary Shares and the
application of the net proceeds therefrom, (ii) the acquisitions and sales of
office properties and land that the Company has consummated since September 30,
1997 and expects to consummate in the near future, and (iii) the repayment of
certain outstanding indebtedness.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
HISTORICAL PRO FORMA
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Mortgage debt....................................................................... $ 481,058 $ 574,699
Lines of credit..................................................................... 147,000 133,678
Senior Unsecured Notes due 2004 and 2007............................................ 275,000 275,000
Other liabilities................................................................... 72,514 73,088
---------- ----------
Total liabilities................................................................. 975,572 1,056,465
---------- ----------
Minority interest................................................................... 67,331 120,444
Stockholders' equity:
Preferred Stock, $.01 par value; 15,000,000 shares authorized:
Series A Preferred Shares; 780,000 issued and outstanding...................... 8 8
Series B Preferred Shares; 8,000,000 issued and outstanding.................... 80 80
Depositary Shares Representing Series C Preferred Shares; 6,000,000 shares
issued and outstanding on a pro forma basis................................... -- 60
Common Stock, $.01 par value, 90,000,000 shares authorized; 58,168,602 shares
issued and outstanding......................................................... 582 582
Additional paid-in capital.......................................................... 1,381,214 1,526,029
Cumulative dividends paid in excess of net income................................... (73,770) (68,658)
---------- ----------
Total stockholders' equity........................................................ 1,308,114 1,458,101
---------- ----------
Total capitalization.............................................................. $2,351,017 $2,635,010
---------- ----------
---------- ----------
</TABLE>
S-14
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to the
directors, executive officers and certain key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES HELD
- ------------------------------------------ --- ------------------------------------------------------------
<S> <C> <C>
Oliver T. Carr, Jr........................ 72 Chairman of the Board
Thomas A. Carr............................ 39 President, Chief Executive Officer and Director
Andrew F. Brimmer......................... 71 Director
A. James Clark............................ 69 Director
Caroline S. McBride....................... 44 Director
J. Marshall Peck.......................... 45 Director
William D. Sanders........................ 55 Director
Wesley S. Williams, Jr.................... 54 Director
Brian K. Fields........................... 38 Chief Financial Officer
Kent C. Gregory........................... 47 Managing Director
Philip L. Hawkins......................... 41 Managing Director--Operations
Robert E. Peterson........................ 45 Managing Director--Development
Robert G. Stuckey......................... 35 Chief Investment Officer
Paul R. Adkins............................ 39 Vice President, Market Officer--Washington, D.C.
Steven N. Bralower........................ 48 Senior Vice President of Carr Realty, L.P.
Robert L. Brumm........................... 46 Vice President, Human Resources and Administration
Robert O. Carr............................ 48 President of Carr Services, Inc.
Clete Casper.............................. 38 Vice President, Market Officer--Suburban Seattle
John J. Donovan, Jr....................... 53 Senior Vice President of Carr Services, Inc.
Karen B. Dorigan.......................... 32 Senior Vice President
J. Thad Ellis............................. 37 Vice President, Market Officer--Suburban Atlanta
Richard W. Greninger...................... 46 Senior Vice President of Carr Services, Inc.
John S. Herr.............................. 41 Vice President, Market Officer--Northern California
Austin W. Lehr............................ 36 Vice President, Market Officer--Southeast Denver
Dwight L. Merriman........................ 36 Vice President, Market Officer--Southern California
B. Thomas Miller, Jr...................... 35 Vice President--OmniOffices
Gerald J. O'Malley........................ 53 Vice President, Market Officer--Suburban Chicago
Jeffrey S. Pace........................... 34 Vice President, Market Officer--Austin, Texas
James D. Peterson......................... 50 Vice President, Market Officer--Florida
Howard L. Shaw............................ 57 President of OmniOffices
William H. Vanderstraaten................. 37 Vice President, Market Officer--Suburban Dallas
Debra A. Volpicelli....................... 33 Treasurer and Controller
Joseph D. Wallace......................... 34 Vice President--OmniOffices
James S. Williams......................... 40 Senior Vice President of CarrAmerica Development &
Construction
</TABLE>
S-15
<PAGE>
DESCRIPTION OF SERIES C PREFERRED SHARES AND DEPOSITARY SHARES
The following description of particular terms of the Series C Preferred
Shares and Depositary Shares supplements, and to the extent inconsistent
therewith, replaces, the description of the general terms of the Preferred Stock
and Depositary Shares set forth in the accompanying Prospectus, to which
description reference is hereby made. The following description is qualified in
its entirety by reference to the provisions of the Articles Supplementary
relating to the Series C Preferred Shares (the 'Articles Supplementary') and the
Company's Charter, which are incorporated by reference herein.
GENERAL
Subject to limitations prescribed by Maryland law and its Charter, the
Company is authorized to issue, from its authorized but unissued capital stock,
shares of Preferred Stock in one or more series, in such numbers of shares and
with such designations, preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as the Company's Board of Directors may authorize from
time to time. The Company currently has outstanding 780,000 shares of Series A
Cumulative Convertible Redeemable Preferred Stock (the 'Series A Preferred
Shares'), and 8,000,000 shares of 8.57% Series B Cumulative Redeemable Preferred
Stock (the 'Series B Preferred Shares'). The Board of Directors has authorized
the Company to designate and issue the Series C Preferred Shares. The Series C
Preferred Shares will rank on a parity with the Series A Preferred Shares and
the Series B Preferred Shares as to dividends and amounts payable upon
liquidation.
When issued, the Series C Preferred Shares and the Depositary Shares
representing them will be validly issued, fully paid and nonassessable. Unless
redeemed by the Company, the Series C Preferred Shares and the Depositary Shares
will have a perpetual term with no stated maturity date. The holders of the
Series C Preferred Shares will have no preemptive rights with respect to any
shares of the capital stock of the Company or any other securities of the
Company convertible into or carrying rights or options to purchase any such
shares. The Series C Preferred Shares and the Depositary Shares will not be
subject to any sinking fund or other obligation of the Company to redeem or
retire the Series C Preferred Shares.
The transfer agent, registrar and dividend disbursing agent for the Series
C Preferred Shares and the Depositary Shares will be BankBoston, N.A., which
will also serve as preferred stock depositary (the 'Preferred Stock
Depositary').
Each Depositary Share represents a 1/10 fractional interest in a Series C
Preferred Share. The Series C Preferred Shares will be deposited with the
Preferred Stock Depositary under a Deposit Agreement (the 'Deposit Agreement')
among the Company, the Preferred Stock Depositary and the holders from time to
time of depositary receipts (the 'Depositary Receipts') issued by the Preferred
Stock Depositary thereunder. The Depositary Receipts will evidence the
Depositary Shares. Subject to the terms of the Deposit Agreement, the holder of
each Depositary Receipt evidencing a Depositary Share will be entitled to all
rights and preferences of a 1/10 fractional interest in a Series C Preferred
Share (including dividend, voting, redemption and liquidation rights and
preferences). See 'Description of Depositary Shares' in the accompanying
Prospectus.
The Company intends to file an application to list the Depositary Shares on
the New York Stock Exchange. If the application is approved, trading of the
Depositary Shares on the Exchange is expected to commence within 30 days after
the date of this Prospectus Supplement. Although the Underwriters have advised
the Company that they intend to make a market in the Depositary Shares before
the commencement of trading on the New York Stock Exchange, they are under no
obligation to do so, and no assurance can be given that a market for the
Depositary Shares will exist before any commencement of trading on the New York
Stock Exchange. See 'Underwriting.' The Company does not expect that any trading
of the Series C Preferred Shares except as represented by the Depositary Shares
will develop. The Company does not intend to apply for a listing of the Series C
Preferred Shares on any exchange or to have them authorized for trading through
any inter-dealer quotation system.
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RANKING
With respect to payment of dividends and amounts upon liquidation,
dissolution or winding up, the Series C Preferred Shares will rank equally with
the Company's outstanding Series A Preferred Shares and Series B Preferred
Shares, junior to all debt securities and senior to the Common Stock.
While any Series C Preferred Shares are outstanding, the Company may not
authorize, create or increase the authorized amount of any class of security
that ranks senior to the Series C Preferred Shares with respect to the payment
of dividends or amounts payable upon liquidation, dissolution or winding up, or
any class of security convertible into shares of such a class, without the
consent of the holders of two-thirds of the outstanding Series C Preferred
Shares and Parity Shares (as defined below), voting as a single class. However,
the Company may create additional classes of other stock, increase the
authorized number of preferred shares or issue series of preferred shares
ranking on a parity with the Series C Preferred Shares with respect, in each
case, to the payment of dividends and amounts payable upon liquidation,
dissolution and winding up (a 'Parity Share') without the consent of any holder
of Series C Preferred Shares. See '--Voting Rights' below.
DIVIDENDS
Holders of Depositary Shares representing Series C Preferred Shares will be
entitled to receive, when and as declared by the Board of Directors, out of
funds legally available for the payment of dividends, cumulative preferential
cash dividends at the rate of 8.55% of the liquidation preference per annum
(equivalent to $2.1375 per Depositary Share per annum). Such dividends will be
cumulative from the date of original issue and payable quarterly in arrears on
the last calendar day (or, if such day is not a business day, the next business
day) of each February, May, August and November (each, a 'Dividend Payment
Date'). The first dividend, which will be paid on or about November 30, 1997,
will be for less than a full quarter. Such first dividend and any dividends
payable on the Series C Preferred Shares for any partial dividend period will be
computed on the basis of the actual number of days in such period. Dividends
will be payable to holders of record as they appear in the records of the
Company at the close of business on the applicable record date, which will be
the date designated as such by the Board of Directors of the Company that is not
more than 50 nor less than 10 days prior to such Dividend Payment Date (each, a
'Dividend Record Date'). Accrued and unpaid dividends for any past dividend
periods may be declared and paid at any time and for such interim periods to
holders of record on the applicable Dividend Record Date. Any dividend payment
made on the Series C Preferred Shares will first be credited against the
earliest accrued but unpaid dividend due with respect to the Series C Preferred
Shares that remains payable.
Dividends on Series C Preferred Shares will accrue whether or not the
Company has earnings, whether or not there are funds legally available for the
payment of such dividends and whether or not such dividends are declared. No
interest, or sum of money in lieu of interest, will be payable in respect of any
dividend payment or payments on the Series C Preferred Shares that may be in
arrears. Holders of Series C Preferred Shares will not be entitled to any
dividends, whether payable in cash, property or shares of stock, in excess of
the full cumulative dividends, as described herein, on the Series C Preferred
Shares.
If, for any taxable year, the Company elects to designate as 'capital gain
dividends' (as defined in Section 857 of the Internal Revenue Code of 1986, as
amended, or any successor revenue code or section (the 'Code')) any portion (the
'Capital Gains Amount') of the dividends (within the meaning of the Code) paid
or made available for the year to holders of all classes of capital stock (the
'Total Dividends'), then the portion of the Capital Gains Amount that will be
allocable to holders of Series C Preferred Shares will be in the same portion
that the Total Dividends paid or made available to the holders of Series C
Preferred Shares for the year bears to the Total Dividends.
Except as provided in the next sentence, no dividends will be declared or
paid on any Parity Shares unless full cumulative dividends have been declared
and paid or are contemporaneously declared and funds sufficient for the payment
thereof set aside for such payment on the Series C Preferred Shares for all
prior dividend periods. If accrued dividends on the Series C Preferred Shares
for all prior dividend
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periods have not been paid in full, then any dividend declared on the Series C
Preferred Shares and on any Parity Shares for any dividend period will be
declared ratably in proportion to accrued and unpaid dividends on the Series C
Preferred Shares and such Parity Shares.
The Company will not (i) declare, pay or set apart funds for the payment of
any dividend or other distribution with respect to any Junior Shares (as defined
below) or (ii) redeem, purchase or otherwise acquire for consideration any
Junior Shares through a sinking fund or otherwise (other than a redemption or
purchase or other acquisition of Common Stock made for purposes of any employee
incentive or benefit plan of the Company or any subsidiary), unless (A) all
cumulative dividends with respect to the Series C Preferred Shares and any
Parity Shares at the time such dividends are payable have been paid or declared
and funds have been set apart for payment of such dividends and (B) sufficient
funds have been paid or declared and set apart for the payment of the dividend
for the current dividend period with respect to the Series C Preferred Shares
and any Parity Shares.
As used herein, (i) the term 'dividend' does not include dividends or other
distributions payable solely in Fully Junior Shares, or in options, warrants or
rights to subscribe for or purchase any Fully Junior Shares, (ii) the term
'Junior Shares' means the Common Stock and any other class or series of shares
of capital stock of the Company now or hereafter issued and outstanding that
ranks junior to the Series C Preferred Shares as to the payment of dividends or
in the distribution of assets or amounts upon liquidation, dissolution and
winding up and (iii) the term 'Fully Junior Shares' means Junior Shares that
rank junior to the Series C Preferred Shares both as to the payment of dividends
and distribution of assets upon liquidation, dissolution and winding up.
LIQUIDATION RIGHTS
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Company, the holders of Series C Preferred Shares will be entitled to
receive out of assets of the Company legally available for distribution to
stockholders a liquidation preference of $250.00 per Series C Preferred Share
(equivalent to $25.00 per Depositary Share), plus an amount per Series C
Preferred Share equal to all dividends (whether or not earned or declared)
accrued and unpaid thereon to the date of final distribution to such holders,
and no more.
Until the holders of Series C Preferred Shares and Parity Shares have been
paid their liquidation preference in full, no payment will be made to any holder
of Junior Shares upon the liquidation, dissolution or winding up of the Company.
If upon any liquidation, dissolution or winding up of the Company, the assets of
the Company, or proceeds thereof, distributable among the holders of the Series
C Preferred Shares are insufficient to pay in full the amount payable upon
liquidation with respect to the Series C Preferred Shares and any other Parity
Shares, then such assets, or the proceeds thereof, will be distributed among the
holders of Series C Preferred Shares and any such Parity Shares ratably in
accordance with the respective amounts which would be payable on such Series C
Preferred Shares and any such Parity Shares if all amounts payable thereon were
paid in full. Neither a consolidation or merger of the Company with another
entity, a statutory share exchange by the Company nor a sale, lease or transfer
of all or substantially all of the Company's assets will be considered a
liquidation, dissolution or winding up, voluntary or involuntary, of the
Company.
REDEMPTION
The Series C Preferred Shares represented by the Depositary Shares are not
redeemable by the Company prior to November 6, 2002. On and after November 6,
2002, the Company, at its option, may redeem the Series C Preferred Shares, in
whole or in part, at any time or from time to time, for cash at a redemption
price of $250.00 per share (equivalent to $25.00 per Depositary Share), plus
accumulated, accrued and unpaid dividends thereon to the date fixed for
redemption, without interest. The redemption price of the Series C Preferred
Shares (other than the portion thereof consisting of accrued and unpaid
dividends) is payable solely out of proceeds from the sale of other capital
stock of the Company, which may include Common Stock, preferred stock,
depositary shares, interests, participations or other ownership interests in the
Company however designated (other than debt securities convertible into or
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exchangeable for capital stock), and any rights, warrants or options to purchase
any thereof. If fewer than all of the outstanding Depositary Shares are to be
redeemed, the number of shares to be redeemed will be determined by the Company
pro rata (as nearly as possible without creating fractional Depositary Shares),
by lot or by any other method determined by the Company in its sole discretion
to be equitable.
Unless full cumulative dividends on all Series C Preferred Shares and any
Parity Shares have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, no Series C Preferred
Shares or Parity Shares may be redeemed or purchased by the Company except
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding Series C Preferred Shares or Parity Shares, as the case may be.
Notice of a redemption of the Depositary Shares will be given by
publication in a newspaper of general circulation in the City of New York once a
week for two successive weeks not less than 30 nor more than 90 days before the
redemption date. Another notice of the redemption will be mailed at least 30 but
not more than 90 days before the redemption date to the holders of record of
Depositary Shares whose Depositary Shares are to be redeemed at their respective
addresses shown on the stock transfer books of the Company. Each notice shall
state: (i) the redemption date; (ii) the number of Depositary Shares to be
redeemed; (iii) the redemption price per Depositary Share; (iv) the place or
places where the Depositary Shares are to be surrendered for payment of the
redemption price; and (v) that dividends on the Depositary Shares to be redeemed
will cease to accrue on such redemption date. If fewer than all the Depositary
Shares are to be redeemed, the notice mailed to each such holder thereof will
also specify the number of Depositary Shares to be redeemed from such holder. If
notice of redemption of any Depositary Shares has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of the Depositary Shares so called for redemption,
then from and after the redemption date, dividends will cease to accrue on such
Depositary Shares, and such Depositary Shares shall no longer be deemed
outstanding and all rights of their holders will terminate, except the right to
receive the redemption price.
The holders of Depositary Shares at the close of business on a Dividend
Record Date will be entitled to receive the dividends payable with respect to
such Depositary Shares on the corresponding Dividend Payment Date
notwithstanding the redemption thereof between such Dividend Record Date and the
corresponding Dividend Payment Date or the Company's default in the payment of
the dividend due. Except as provided above, the Company will make no payment or
allowance for unpaid dividends, whether or not in arrears, on Depositary Shares
which have been called for redemption.
The Series C Preferred Shares represented by Depositary Shares have no
stated maturity and will not be subject to any sinking fund or mandatory
redemption provisions.
VOTING RIGHTS
Except as indicated below, or except as otherwise from time to time
required by applicable law, the holders of Series C Preferred Shares represented
by Depositary Shares will have no voting rights.
On any matter on which the Series C Preferred Shares are entitled to vote
(as expressly provided in the Articles Supplementary or as may be required by
law), including any action by written consent, each Series C Preferred Share
will be entitled to one vote, except that when shares of any other series of
Preferred Stock have the right to vote with the Series C Preferred Shares as a
single class on any matter, the Series C Preferred Shares and the shares of the
other series will have one vote for each $25.00 liquidation preference. As a
result, each Depositary Share will be entitled to one vote on such matters and
1/10 of a vote on other matters.
If dividends payable on the Series C Preferred Shares or any Parity Shares
are in arrears for six or more quarterly periods, whether or not earned or
declared and whether or not such quarterly periods are consecutive, the number
of directors then constituting the Board of Directors of the Company will be
increased by two, and the holders of the Depositary Shares representing the
Series C Preferred Shares,
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voting together as a class with the holders of any other series of Parity
Shares, will have the right to elect two additional directors to serve on the
Company's Board of Directors at any annual meeting of stockholders or at a
properly called special meeting of the holders of the voting Parity Shares until
all such dividends and dividends for the current quarterly period on the Series
C Preferred Shares and such other voting Parity Shares have been declared and
paid or set aside for payment. Such voting rights will terminate when all such
accrued and unpaid dividends have been declared and paid or set aside for
payment. The term of office of all directors so elected will terminate with the
termination of such voting rights.
The approval of two-thirds of the outstanding Depositary Shares
representing Series C Preferred Shares and all other Parity Shares similarly
affected, voting as a single class, is required in order to (i) amend the
Company's Charter to affect materially and adversely the rights, preferences or
voting power of the holders of the Series C Preferred Shares or the Parity
Shares; (ii) enter into a share exchange that affects the Series C Preferred
Shares, or consolidate the Company with or merge the Company with another
entity, unless in each such case each Series C Preferred Share remains
outstanding without a material adverse change to its terms and rights or is
converted into or exchanged for preferred stock of the surviving entity having
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption thereof identical to that of the Series C Preferred Shares (except
for changes that do not materially and adversely affect the holders of Series C
Preferred Shares), or (iii) authorize, reclassify, create or increase the
authorized amount of any shares of any class, or any security convertible into
shares of any class, having rights senior to the Series C Preferred Shares with
respect to the payment of dividends or amounts upon liquidation, dissolution or
winding up of the Company. However, the Company may create additional classes of
Parity Shares and Junior Shares, increase the authorized number of Parity Shares
and Junior Shares and issue additional series of Parity Shares and Junior Shares
without the consent of any holder of Depositary Shares representing Series C
Preferred Shares.
Except as provided above and as required by applicable law, the holders of
Depositary Shares representing Series C Preferred Shares are not entitled to
vote on any merger or consolidation involving the Company, on any share exchange
or on a sale of all or substantially all of the assets of the Company.
CONVERSION
The Series C Preferred Shares represented by Depositary Shares are not
convertible into or exchangeable for any other property or securities of the
Company at the option of the holder.
RESTRICTIONS ON TRANSFER; OWNERSHIP LIMITS
For the Company to qualify as a REIT under the Code, no more than 50% in
value of its outstanding stock may be owned, directly or indirectly, by five or
fewer 'individuals' during the last half of a full taxable year or during a
proportionate part of a shorter taxable year. Under the constructive ownership
provisions of the Code, stock owned by an entity, including a corporation, life
insurance company, mutual fund or pension trust, is treated as owned by the
ultimate individual beneficial owners of the entity. Because the Company intends
to maintain its qualification as a REIT, the Company's Charter contains certain
restrictions on the ownership and transfer of capital stock, including the
Series C Preferred Shares represented by Depositary Shares, intended to assist
the Company in complying with these requirements. For a complete description of
these restrictions, see 'Common Stock--Restrictions on Transfer' in the
accompanying Prospectus.
Subject to certain exceptions specified in the Company's Charter, no holder
may own, or be deemed to own by virtue of certain attribution provisions of the
Code, more than 5% of any class or series of Preferred Stock. The Board of
Directors of the Company has waived this restriction with respect to the
acquisition of Series C Preferred Shares for a holder who is not an 'individual'
within the meaning of Section 542(a)(2) of the Code, so long as, through such
holder's ownership of such Series C Preferred Shares, no 'individual' would be
considered the beneficial owner of more than 5% of the
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Series C Preferred Shares. If a holder were to acquire more than 5% of the
Series C Preferred Shares and such holder did not meet the criteria set forth in
the preceding sentence, such holder's shares of Series C Preferred Shares would
be subject to the provisions in the Charter relating to a violation of the
ownership limits as described in the accompanying Prospectus under the caption
'Description of Common Stock--Restrictions on Transfer--Violation of Ownership
Limits.'
In order to assist the Company in qualifying as a 'domestically controlled
REIT,' the Company's Charter contains certain provisions generally preventing
foreign investors (other than SC-USREALTY and its affiliates) from acquiring
additional shares of the Company's capital stock if, as a result of such
acquisition, the Company would fail to qualify as a 'domestically controlled
REIT.' Accordingly, an acquisition of the Company's capital stock (including the
Series C Preferred Shares) would not likely be a suitable investment for
non-U.S. shareholders other than SC-USREALTY. See 'Risk Factors-- Special
Considerations for Foreign Investors.'
BOOK-ENTRY ONLY SYSTEM
The Depositary Shares will be issued in book-entry form, meaning that
beneficial owners of the Depositary Shares will not receive physical delivery of
depositary receipts or certificates evidencing their ownership interests in the
Depositary Shares except in the event the book-entry system for the Depositary
Shares is discontinued. The Depository Trust Company ('DTC'), New York, New York
will act as securities depository for the Depositary Shares. The Depositary
Shares will be issued as fully-registered securities registered in the name of
Cede & Co., as DTC's nominee. One fully-registered depositary receipt will be
issued for the Depositary Shares, in the aggregate number of Depositary Shares
issued, and will be deposited with DTC.
DTC is a limited purpose trust company organized under the New York Banking
Law, a member of the Federal Reserve System, a 'clearing corporation' within the
meaning of the New York Uniform Commercial Code and a 'clearing agency'
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC holds securities that its participants
('Participants') deposit with it. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. DTC is owned by a number of its Direct Participants and by the
New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks, and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ('Indirect Participants'). The
Rules applicable to DTC and its Participants are on file with the Securities and
Exchange Commission.
Purchases of Depositary Shares under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Depositary
Shares on DTC's records. The ownership interest of each actual purchaser of each
Depositary Share (a 'Beneficial Owner') is in turn to be recorded on the
Participants' and Indirect Participants' records. Beneficial Owners will not
receive written confirmation from DTC of their purchase, but Beneficial Owners
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
Participant or Indirect Participant through which the Beneficial Owner entered
into the transaction. Transfers of ownership interests in the Depositary Shares
are to be accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners.
The deposit of Depositary Shares with DTC and their registration in the
name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Depositary Shares; DTC's
records reflect only the identity of the Participants to whose accounts such
Depositary Shares are credited, which may or may not be the Beneficial Owners.
The Participants will remain responsible for keeping account of their holdings
on behalf of their customers.
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Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
that may be in effect from time to time.
Redemption notices shall be sent to DTC. If fewer than all of the
Depositary Shares within an issue are being redeemed. DTC's practice is to
determine by lot the amount of the interest of each Direct Participant in such
issue to be redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to Depositary
Shares. Under its usual procedures, DTC would mail an Omnibus Proxy to the
issuer of securities deposited with it as soon as possible after the record
date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts the securities are credited on the
record date (identified in a listing attached to the Omnibus Proxy).
Dividend and redemption payments on the Depositary Shares will be made to
Cede & Co., as nominee of DTC. DTC's practice is to credit Direct Participants'
accounts upon its receipt of funds and corresponding detail information from the
issuer of the securities or its agent on the payable date in accordance with
their respective holdings shown on DTC's records. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in 'street name,' and will be the responsibility of
such Participants and not of DTC, the issuer or the issuer's agent, subject to
any statutory or regulatory requirements as may be in effect from time to time.
Remittance of dividend and redemption payments to Cede & Co. is the
responsibility of the issuer or agent, disbursement of such payments to Direct
Participants is the responsibility of Cede & Co., and disbursement of such
payments to the Beneficial Owners is the responsibility of the Direct and
Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Depositary Shares at any time by giving reasonable notice to the
Company. Under such circumstances, in the event that a successor securities
depository is not obtained, depositary receipts representing the Depositary
Shares are required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
depositary receipts representing the Depositary Shares will be printed and
delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company does not take responsibility for the accuracy thereof.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain federal income tax considerations
pertaining to the acquisition, ownership and disposition of Depositary Shares.
This discussion is general in nature and not exhaustive of all possible tax
considerations, nor does the discussion address any state, local or foreign tax
considerations. The discussion is based on current law and does not purport to
deal with all aspects of federal income taxation that may be relevant to a
prospective shareholder in light of its particular circumstance or to certain
types of shareholders (including insurance companies, financial institutions,
broker-dealers, tax exempt investors, foreign corporations and persons who are
not citizens or residents of the United States) subject to special treatment
under the federal income tax laws. The Company has not requested and will not
request a ruling from the Internal Revenue Service (the 'Service') with respect
to any of the federal income tax issues discussed below. This Prospectus
Supplement does not address the taxation of the Company or the impact on the
Company of its election to be taxed as a REIT. Such matters are addressed in the
accompanying Prospectus under the captions 'Federal Income Tax
Considerations--Taxation of the Company,' '--Recent Legislation' and '--Other
Tax Considerations.' Prospective investors should consult, and must depend on,
their own tax advisors
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regarding the federal, state, local, foreign and other tax consequences of
holding and disposing of Depositary Shares.
TAXATION OF HOLDERS OF DEPOSITARY SHARES
General. Owners of Depositary Shares will be treated for federal income tax
purposes as if they were owners of the Series C Preferred Shares represented by
such Depositary Shares. Accordingly, such owners will be entitled to take into
account, for federal income tax purposes, income and deductions to which they
would be entitled if they were direct holders of Series C Preferred Shares. In
addition, (i) no gain or loss will be recognized for federal income tax purposes
upon the withdrawal of certificates evidencing Series C Preferred Shares in
exchange for depositary receipts, (ii) the tax basis of each share of Series C
Preferred Shares to an exchanging owner of Depositary Shares will, upon such
exchange, be the same as the aggregate tax basis of the Depositary Shares
exchanged therefor, and (iii) the holding period for Series C Preferred Shares
in the hands of an exchanging owner of Depositary Shares will include the period
during which such person owned such Depositary Shares. For a discussion of the
withdrawal of Series C Preferred Shares generally, see 'Description of
Depositary Shares--Withdrawal of Stock' in the accompanying Prospectus.
Dividends and Other Distributions; Backup Withholding. For a discussion of
the taxation of the Company, the treatment of dividends and other distributions
with respect to shares of the Company, and the backup withholding rules, see the
captions 'Federal Income Tax Considerations--Taxation of the Company' and
'--Taxation of Holders of Common Stock' in the accompanying Prospectus. In
determining the extent to which a distribution on the Depositary Shares
constitutes a dividend for tax purposes, the earnings and profits of the Company
will be allocated, on a pro rata basis, first to distributions with respect to
the Series A, Series B and Series C Preferred Shares represented by Depositary
Shares and then to the Common Stock. In the event that the Company designates
any portion of a dividend as a 'capital gain dividend,' a holder's share of such
capital gain dividend would be an amount which bears the same ratio to the total
amount of dividends paid to such holder for the year as the aggregate amount
designated as a capital gain dividend bears to the aggregate amount of all
dividends paid on all classes of shares for the year.
Sale or Exchange of Depositary Shares. Upon the sale or exchange of
Depositary Shares to a party other than the Company, a holder of Depositary
Shares will realize a capital gain or loss measured by the difference between
the amount realized on the sale or other disposition and the holder's adjusted
tax basis in the Depositary Shares (provided the Depositary Shares are held as a
capital asset). Under the Taxpayer Relief Act of 1997, net capital gain (i.e.,
generally capital gain in excess of capital loss) recognized by an individual
upon the sale of capital assets held for more than 18 months generally will be
subject to tax at a rate not to exceed 20%. Net capital gain recognized by an
individual from the sale of capital assets held for more than 12 months but for
not more than 18 months will continue to be subject to tax at a rate not to
exceed 28%. Capital gain recognized from the sale of a capital asset held for 12
months or less will continue to be subject to tax at ordinary income rates. In
addition, capital gain recognized by a corporate taxpayer will continue to be
subject to tax at the oridinary income tax rates applicable to corporations. Any
loss on a sale of Depositary Shares which were held by the holder for six months
or less and with respect to which capital gain dividends were received will be
treated as a capital loss attributable to an asset held for more than 12 months,
up to the amount of the capital gain dividend received with respect to such
shares.
Redemption of Depositary Shares. Whenever the Company redeems any Series C
Preferred Shares held by the Depositary, the Depositary will redeem as of the
same redemption date the number of Depositary Shares representing the Series C
Preferred Stock so redeemed. The treatment to a holder of Depositary Shares
accorded to any redemption by the Company (as distinguished from a sale,
exchange or other disposition) of Series C Preferred Shares held by the
Depositary and corresponding redemption of Depositary Shares can only be
determined on the basis of particular facts as to each holder of Depositary
Shares at the time of redemption. In general, a holder of Depositary Shares will
recognize capital gain measured by the excess of the amount received by the
holder upon the redemption over such holder's adjusted tax basis in the
Depositary Shares redeemed (provided the
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<PAGE>
Depositary Shares are held as a capital asset) if such redemption (i) results in
a 'complete termination' of the holder's interest in all classes of stock of the
Company under Section 302(b)(3) of the Code, or (ii) is 'not essentially
equivalent to a dividend' with respect to the holder under Section 302(b)(1) of
the Code. In applying these tests, there must be taken into account not only any
Depositary Shares owned by the holder, but also such holder's ownership of
Common Stock, other series of stock and any other options (including stock
purchase rights) to acquire any of the foregoing. The holder also must take into
account any such securities (including options) which are considered to be owned
by such holder by reason of the constructive ownership rules set forth in
Sections 318 and 302(c) of the Code.
If a particular holder of Depositary Shares owns (actually or
constructively) no shares of Common Stock of the Company or an insubstantial
percentage of the outstanding shares of Common Stock of the Company, based upon
current law, it is probable that the redemption of Depositary Shares from such a
Holder would be considered 'not essentially equivalent to a dividend.' However,
whether a distribution is 'not essentially equivalent to a dividend' depends on
all of the facts and circumstances, and a holder intending to rely on any of
these tests at the time of redemption should consult its own tax adviser to
determine their application to its particular situation.
If the redemption does not meet any of the tests under Section 302 of the
Code, then the redemption proceeds received from the Depositary Shares will be
treated as a distribution on the Depositary Shares as described under 'Federal
Income Tax Considerations--Taxation of Holder's of Common Stock' in the
accompanying Prospectus. If the redemption is taxed as a dividend, the
Depositary Holder's adjusted tax basis in the Depositary Shares will be
transferred to any other stockholdings of the holder in the Company. If the
holder owns no other stockholdings in the Company, under certain circumstances,
such basis may be transferred to a related person, or it may be lost entirely.
SPECIAL CONSIDERATIONS FOR NON-U.S. SHAREHOLDERS
There are several special considerations for prospective purchasers of
Depositary Shares who would be non-U.S. shareholders (persons other than (i)
citizens or residents of the United States, (ii) corporations, partnerships or
other entities created or organized under the laws of the United States or any
political subdivision thereof, and (iii) estates or trusts the income of which
is subject to United States federal income taxation regardless of its source).
See also 'Federal Income Tax Considerations--Taxation of Holder's of Common
Stock--Taxation of Non-U.S. Shareholders' and 'Description of Common
Stock--Restrictions on Transfer' in the accompanying Prospectus.
A non-U.S. shareholder will be subject to tax under the Foreign Investment
in Real Property Tax Act ('FIRPTA') on the gain attributable to a disposition of
Depositary Shares if the Company does not qualify as a 'domestically controlled
REIT.' The Company will qualify as a 'domestically controlled REIT' with respect
to a sale by a Non-U.S. Shareholder only if throughout the five year period
ending on the date of the sale, less than 50%, by value, of the Company's
outstanding stock is owned by non-U.S. shareholders. As of September 30, 1997,
SC-USREALTY, a Luxembourg corporation, owned approximately 42.6% of the
outstanding Common Stock (38.2% on a fully diluted basis). In the event that
SC-REALTY and other shareholders of the Company who are non-U.S. shareholders
either currently, or at any time in the future, collectively own 50% or more of
the Company's stock, the Company would fail to qualify as a 'domestically
controlled REIT.' The Company does not have knowledge that there currently are
other non-U.S. shareholders that, when considered with SC-REALTY, would cause
the Company to fail the 50% test, but the vast majority of the Company's shares
are held in 'street name' and thus the Company is unable to advise a prospective
non-U.S. shareholder that the Company in fact qualifies as a 'domestically
controlled REIT.'
Even if the Company were not a 'domestically controlled REIT,' a non-U.S.
shareholder that holds Depositary Shares will not be subject to tax under FIRPTA
provided that (i) the Depositary Shares are 'regularly traded' (as defined by
the applicable Treasury Regulations) on an established securities market, and
(ii) such non-U.S. shareholder owned 5% or less of the value of the Depositary
Shares, throughout the five-year period ending on the date of sale. The Company
intends to file an application to
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list the Depositary Shares on the New York Stock Exchange, although there can be
no assurance that the Depositary Shares will be approved for listing.
If the gain on the disposition of the Depositary Shares were to be subject
to tax under FIRPTA, a non-U.S. shareholder would be subject to the same tax
treatment as domestic shareholders with respect to such gain (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals), and the purchaser of the Depositary
Shares would be required to withhold and remit to the Service 10% of the
consideration paid for such Depositary Shares.
LEGAL MATTERS
The validity of the issuance of the Series C Preferred Shares represented
by Depositary Shares offered pursuant to this Prospectus Supplement will be
passed upon for the Company by Hogan & Hartson L.L.P., Washington, D.C. Certain
legal matters will be passed upon for the Underwriters by Rogers & Wells, New
York, New York.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to Goldman, Sachs & Co., Legg Mason Wood Walker,
Incorporated, J.P. Morgan Securities Inc., PaineWebber Incorporated, Prudential
Securities Incorporated and Smith Barney Inc., as representatives (the
'Representatives') of the Underwriters named below, and each of the Underwriters
has severally agreed to purchase from the Company, the respective number of
Depositary Shares set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
DEPOSITARY
UNDERWRITER SHARES
- ------------------------------------------------------------------------------- ----------
<S> <C>
Goldman, Sachs & Co............................................................ 780,000
Legg Mason Wood Walker, Incorporated........................................... 777,000
J.P. Morgan Securities Inc..................................................... 777,000
PaineWebber Incorporated....................................................... 777,000
Prudential Securities Incorporated............................................. 777,000
Smith Barney Inc............................................................... 777,000
BT Alex. Brown Incorporated.................................................... 75,000
Donaldson, Lufkin & Jenrette Securities Corporation............................ 75,000
EVEREN Securities, Inc......................................................... 75,000
Oppenheimer & Co., Inc......................................................... 75,000
Wheat First Butcher Singer..................................................... 75,000
J.C. Bradford & Co............................................................. 40,000
Cowen & Company................................................................ 40,000
Crowell, Weedon & Co........................................................... 40,000
Dain Bosworth Incorporated..................................................... 40,000
Fahnestock & Co. Inc........................................................... 40,000
J.J.B. Hilliard, W.L. Lyons, Inc............................................... 40,000
Interstate/Johnson Lane Corporation............................................ 40,000
Johnston, Lemon & Co. Incorporated............................................. 40,000
Lafayette Investments, Inc..................................................... 40,000
McDonald & Company Securities, Inc............................................. 40,000
McGinn, Smith & Co., Inc....................................................... 40,000
Morgan Keegan & Company, Inc................................................... 40,000
The Ohio Company............................................................... 40,000
Piper Jaffray Inc.............................................................. 40,000
Principal Financial Securities, Inc............................................ 40,000
Rauscher Pierce Refsnes, Inc................................................... 40,000
Raymond James & Associates, Inc................................................ 40,000
The Robinson-Humphrey Company, LLC............................................. 40,000
Roney & Co., L.L.C............................................................. 40,000
Sutro & Co. Incorporated....................................................... 40,000
Trilon International Inc....................................................... 40,000
Tucker Anthony Incorporated.................................................... 40,000
U.S. Clearing Corp............................................................. 40,000
Wedbush Morgan Securities Inc.................................................. 40,000
----------
Total..................................................................... 6,000,000
----------
----------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Depositary Shares, if
any are taken.
The Underwriters propose to offer the Depositary Shares in part directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus Supplement, and in part to certain securities dealers at such
price less a concession of $.50 per share. The Underwriters may allow, and
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<PAGE>
such dealers may reallow, a concession not in excess of $.40 per share to
certain brokers and dealers. After the Depositary Shares are released for sale
to the public, the offering price and other selling terms may from time to time
be varied by the Representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus Supplement to purchase up to an aggregate of
900,000 additional Depositary Shares solely to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of Depositary Shares to be purchased by
each of them, as shown in the foregoing table, bears to the 6,000,000 Depositary
Shares offered by this Prospectus Supplement.
Prior to the Offering, there has been no public market for the Depositary
Shares. The Company intends to file an application to list the Depositary Shares
on the New York Stock Exchange, although there can be no assurance that the
Depositary Shares will be approved for listing.
In the ordinary course of their respective businesses, certain of the
Underwriters and their affiliates have provided, and may in the future provide,
commercial banking, investment banking, fiduciary and other services to the
Company. In addition, Morgan Guaranty Trust Company of New York, an affiliate of
J.P. Morgan Securities Inc., is the agent for the banks and a lender under the
Company's unsecured line of credit with groups of banks. The entire net proceeds
from this offering of the Depositary Shares may be used to repay Morgan Guaranty
Trust Company of New York, as agent, for a portion of the outstanding borrowings
of the Company. Since the amount to be repaid to Morgan Guaranty Trust Company
of New York, as agent, exceeds 10% of the net proceeds from the sale of the
Depositary Shares, the offering is being made pursuant to the provisions of
Rules 2710(c)(8) and 2720(c)(3)(C) of the National Association of Securities
Dealers, Inc. See 'Use of Proceeds.'
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
In connection with the Offering, the Underwriters may purchase and sell the
Depositary Shares in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Depositary Shares; and
syndicate short positions involve the sale by the Underwriters of a greater
number of securities than they are required to purchase from the Company in this
offering. The Underwriters also may impose a penalty bid, whereby selling
concessions allowed to syndicate members or other broker-dealers in respect of
the securities sold in this offering for their account may be reclaimed by the
syndicate if such Depositary Shares are repurchased by the syndicate in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Depositary Shares, which may be
higher than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the New York Stock Exchange, in the over-the-counter market
or otherwise.
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<PAGE>
PROSPECTUS
$1,000,000,000
CARRAMERICA REALTY CORPORATION
DEBT SECURITIES, PREFERRED STOCK, COMMON STOCK,
COMMON STOCK WARRANTS AND DEPOSITARY SHARES
CarrAmerica Realty Corporation (the 'Company') may from time to time offer
in one or more series its (i) unsecured debt securities ('Debt Securities'),
(ii) preferred stock ('Preferred Stock'), (iii) common stock, par value $0.01
per share ('Common Stock'), (iv) warrants exercisable for Common Stock ('Common
Stock Warrants'), and (v) shares of Preferred Stock represented by depositary
shares ('Depositary Shares') with an aggregate public offering price of up to
$1,000,000,000 (or its equivalent based on the exchange rate at the time of
sale) in amounts, at prices and on terms to be determined at the time of
offering. The Debt Securities, Preferred Stock, Common Stock, Common Stock
Warrants and Depositary Shares (collectively, the 'Securities') may be offered,
separately or together, in separate series, in amounts, at prices and on terms
to be described in one or more supplements to this Prospectus (each a
'Prospectus Supplement').
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, currency, form (which may be registered or
bearer, or certificated or global), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, any terms for
redemption at the option of the Company or repayment at the option of the
holder, any terms for any sinking fund payments, any terms for conversion into
Preferred Stock or Common Stock of the Company, covenants and any public
offering price; (ii) in the case of Preferred Stock, the specific title and
stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and any public offering price; (iii) in the case of Common Stock,
any public offering price; (iv) in the case of Common Stock Warrants, the
specific title and aggregate number, the issue price and the exercise price; and
(v) in the case of Depositary Shares, the fractional shares of Preferred Stock
represented by each such Depositary Share. In addition, such specific terms may
include limitations on direct or beneficial ownership and restrictions on
transfer of the Securities, in each case as may be appropriate to preserve the
status of the Company as a real estate investment trust for federal income tax
purposes.
The applicable Prospectus Supplement also will contain information, where
applicable, about certain U.S. federal income tax considerations relating to,
and any listing on a securities exchange of, the Securities covered by such
Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by the Company, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Securities, their names,
and any applicable purchase price, fee, commission or discount arrangement with,
between or among them, will be set forth, or will be calculable from the
information set forth, in an accompanying Prospectus Supplement. See 'Plan of
Distribution.' No Securities may be sold without delivery of a Prospectus
Supplement describing the method and terms of the offering of such Securities.
SEE 'RISK FACTORS' BEGINNING ON PAGE 3 FOR CERTAIN FACTORS RELATING TO AN
INVESTMENT IN THE SECURITIES.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER 30, 1997.
<PAGE>
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 office properties in select suburban markets across the United States.
The Company is a Maryland corporation that was formed in July 1992. The
principal executive offices of the Company are located at 1700 Pennsylvania
Avenue, Washington, D.C. 20006, and its telephone number is (202) 624-7500.
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<PAGE>
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below.
REAL ESTATE INVESTMENT RISKS
General. Investments in real property 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 by its
real property investments. 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, an over-supply of, or a reduction in
demand for, office space in the areas where its properties are located and the
attractiveness of the properties to prospective tenants. 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 and the
potential for liability under applicable laws. Certain significant expenditures
associated with each equity investment by the Company in a property (such as
operating expenses and capital expenditures costs) may not be reduced when
circumstances cause a reduction in income from the property.
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
space may not be relet or, if relet, 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. Although the Company has established an
annual budget for renovation and reletting costs that it believes is 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
promptly to 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 stockholders or debt
service payments may 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 against the Company.
REAL ESTATE FINANCING RISKS
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
that is not hedged, the risk that the Company will not be able to repay or
refinance existing
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<PAGE>
indebtedness (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, or to obtain financing at unfavorable terms, either of which might
adversely affect the cash flow available for distribution to stockholders or
meet debt service obligations. In addition, if a property or properties are
mortgaged to secure payment of indebtedness and the Company is unable to meet
required 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.
Degree of Leverage. At September 30, 1997, on a consolidated basis, the
Company's total indebtedness was approximately $903 million and the ratio of its
total indebtedness to total assets (excluding intangibles) was 36.5%. The degree
to which the Company is leveraged could have important consequences to holders
of the Securities, including affecting the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, development or other general corporate purposes and making the
Company more vulnerable to a downturn in its business or the economy generally.
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, but not
limited to, 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
and debt offerings, lines of credit or other forms of secured or unsecured
financing. If permanent debt or equity financing is not available on acceptable
terms, further acquisitions or development activities may be curtailed or cash
available for distribution to stockholders or to meet debt service obligations
may be adversely affected.
CHANGE IN BUSINESS STRATEGY; RISKS ASSOCIATED WITH THE ACQUISITION OF
SUBSTANTIAL NEW PROPERTIES
In 1996, the Company shifted its emphasis from downtown Washington, D.C.
properties toward a more national business strategy, focusing primarily on
office properties in suburban growth markets across the United States. This
change represents a significant shift in the business strategy of the Company.
Although the Board believes that such a shift in strategy was warranted in light
of the opportunities available to the Company, there is no assurance that the
Company's efforts to implement its national business strategy will continue to
be successful. Consistent with the Company's strategy of acquiring office
properties in suburban growth markets, the Company significantly expanded its
portfolio of office properties in 1996 and has continued to do so in 1997. These
properties have a relatively short operating history under the Company's
management and they may have characteristics or deficiencies unknown to the
Company affecting their valuation or revenue potential.
4
<PAGE>
SUBSTANTIAL OWNERSHIP OF COMMON STOCK
As of September 30, 1997, Security Capital Holdings S.A., a wholly owned
subsidiary of Security Capital U.S. Realty (collectively 'SC-USREALTY'), owned
42.6% of the outstanding shares of the Company's Common Stock (38.2% of the
Common Stock on a fully-diluted basis), and SC-USREALTY has the right to
nominate a proportionate number of the directors of the Board based upon its
ownership of stock on a fully-diluted basis, rounded down to the nearest whole
number (but in no event more than 40% of the directors). As a result,
SC-USREALTY is the largest single stockholder of the Company, while no other
stockholder is permitted to own more than 5% of the Company's Common Stock,
subject to certain exceptions set forth in the Articles of Incorporation or
approved by the Board. Although certain standstill provisions preclude
SC-USREALTY from increasing its percentage interest in the Company above 45%
until at least April 30, 2001 (subject to certain exceptions) and the Articles
of Incorporation preclude it from increasing such percentage interest
thereafter, and SC-USREALTY agreed to certain limitations on its voting rights
with respect to its shares of Common Stock, SC-USREALTY nonetheless has a
substantial influence over the affairs of the Company. This concentration of
ownership in one stockholder could potentially be disadvantageous to other
stockholders' interests. In addition, so long as SC-USREALTY owns at least 25%
of the outstanding Common Stock of the Company on a fully diluted basis,
SC-USREALTY will be entitled (except in certain limited circumstances), upon
compliance with certain specified conditions, to a participation right to
purchase or subscribe for, either as part of such issuance or in a concurrent
issuance, a total number of shares of Common Stock or Preferred Stock, as the
case may be, equal to up to 30% (or 35% in certain circumstances) of the total
number of shares or of Common Stock or Preferred Stock, as applicable, proposed
to be issued by the Company.
LIMITATIONS ON CORPORATE ACTIONS
In conjunction with the transaction in which SC-USREALTY acquired its
initial interest in the Company (the 'SC-USREALTY Transaction'), the Company
agreed to certain limitations on its operations, including restrictions relating
to incurrence of additional indebtedness, retention of third-party managers for
the Company's properties, investments in properties other than office buildings,
issuances of limited partnership interests ('CRLP Units') of Carr Realty, L.P.,
a partnership that owns certain of the Company's properties, and certain other
matters. The Company may take actions relating to these matters only with the
consent of SC-USREALTY. In addition, the Company is contractually obligated to
abide by 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). The Company also is obligated to use reasonable
efforts to effect all dispositions of assets in transactions that are tax-free
exchanges and do not generate 'capital gain dividends' to stockholders of the
Company. These limitations (which generally were designed to address special use
tax considerations to foreign corporations applicable to SC-USREALTY under the
Internal Revenue Code) limit the flexibility of the Company to structure
transactions that might otherwise be advantageous to the Company, and may impair
the Company's ability to conduct its business in the future.
CONFLICTS OF INTEREST
Certain members of the Company's board of directors (the 'Board') and
officers of the Company own CRLP Units and, thus, may have interests that
conflict with stockholders with respect to business decisions affecting the
Company and Carr Realty, L.P. In particular, a holder of CRLP Units may suffer
different and/or more adverse tax consequences than the Company upon the sale or
refinancing of some of the properties owned by Carr Realty, L.P. as a result of
unrealized gain attributable to certain properties. These CRLP Unit holders and
the Company, therefore, may have different objectives regarding the appropriate
pricing and timing of a sale or refinancing of properties. Although the Company,
as the sole general partner of Carr Realty, L.P., has the exclusive authority to
determine whether and on what terms to sell or refinance an individual property,
these CRLP Unit holders might seek to influence the Company not to sell or
refinance a property, even though such sale might otherwise be financially
advantageous to the Company, or may seek to influence the Company to
5
<PAGE>
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 1996
in its operational structure from an 'UPREIT' to a 'DownREIT' has and should
continue to 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.
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 stockholders
or debt service payments.
LACK OF VOTING CONTROL OF OPERATING SUBSIDIARIES; OTHER SPECIAL CONSIDERATIONS
RELATED TO OMNIOFFICES
The Company does not have voting control of Carr Real Estate Services, Inc.
('Carr Services, Inc.'), CarrAmerica Development & Construction, Inc.
('CarrAmerica Development & Construction') or OmniOffices, Inc. ('OmniOffices'),
and may acquire economic interests in similarly structured companies in the
future (collectively, the 'Operating Subsidiaries'). Carr Services, Inc., which
conducts primarily fee-based management and leasing, has capital stock which is
divided into two classes: voting common stock, approximately 92% and 8% of which
is held by The Oliver Carr Company ('OCCO') and Carr Realty, L.P., respectively;
and nonvoting common 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. CarrAmerica Development & Construction, which conducts primarily fee-based
development, has capital stock which 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 CarrAmerica Development &
Construction. Oliver T. Carr, Jr., who is Chairman of the Board and a
significant stockholder of the Company, beneficially owns a majority of the
voting stock of OCCO, which controls the election of directors of Carr Services,
Inc. and CarrAmerica Development & Construction. OmniOffices, which provides
executive office suites to commercial customers, has capital stock that is
divided into two classes: voting common stock and nonvoting common stock. The
voting stock is owned 17% by OCCO, 35% by SC-USREALTY and 48% by an entity owned
by the Company's six current executive officers. The nonvoting common stock is
owned entirely by the Company. The holders of the voting common stock control
the ability to elect the directors of OmniOffices.
Although neither the right of Carr Realty, L.P. or the Company, as
applicable, to receive distributions with respect to its equity interest in each
Operating Subsidiary nor the terms of the promissory notes made by such
Operating Subsidiary and held by Carr Realty, L.P. or the Company, as
applicable, can be changed by the holder of the majority of the voting common
stock of such Operating Subsidiary, 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 each Operating Subsidiary is limited. As a result,
the board of directors and management of each Operating Subsidiary 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. Further, none of the
Operating Subsidiaries is a public company, and there is no market for the
equity securities held by the Company in any Operating Subsidiary. Consequently,
the Company has no ready ability to liquidate its holdings in any Operating
Subsidiary.
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In addition, the provisions in the Code prohibit the Company from having an
investment in any of the Operating Subsidiaries that has a value that exceeds 5%
of the overall value of the Company's assets, before debt. This limitation could
adversely affect the ability of OmniOffices to grow its business without either
jeopardizing the Company's REIT qualification or, alternatively, bringing into
OmniOffices additional investors.
It is possible that the Company could elect in the future to dispose of
part or all of its equity interest in OmniOffices, including through a
distribution of the stock of OmniOffices to the Company's stockholders; however,
no such intention presently exists, and the Company is subject to certain
contractual restrictions with SC-USREALTY that could preclude or restrict such a
distribution or other disposition. In addition, the income from such a
disposition would not qualify for purposes of the 75% gross income test
applicable to REITs (see 'Federal Income Tax Considerations--Taxation of the
Company--Income Tests'), which could limit the ability of the Company to dispose
of all of its interest in OmniOffices (through a distribution to stockholders or
otherwise) in a single transaction. Finally, because of tax-related
considerations specific to SC-USREALTY and its indirect interest in OmniOffices
through the Company, OmniOffices has agreed to conduct its business subject to
certain constraints, even though these constraints may have the effect of
precluding OmniOffices from undertaking transactions that would have been in the
best interests of its other shareholders, including the Company.
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. The Board may amend or revise
these and other policies from time to time without a vote of the stockholders of
the Company. A change in these policies could adversely affect the Company's
financial condition, results of operations, funds available for distributions to
stockholders, 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 or partially 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 Company's 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 and it will not be entitled to a deduction for dividends
paid to its stockholders. 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 real estate investment trust 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
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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 real estate investment trust taxable income from prior
years that is not deemed to have been distributed under the Code. 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 its subsidiaries), or the effect of nondeductible capital
expenditures, the creation of reserves or required debt or amortization
payments, could require the Company, directly or through its subsidiaries, 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.'
SPECIAL CONSIDERATIONS FOR FOREIGN INVESTORS
In order to assist the Company in qualifying as a 'domestically controlled
REIT,' the Company's Articles of Incorporation, as amended (the 'Articles of
Incorporation') contain certain provisions generally preventing foreign
investors (other than SC-USREALTY and its affiliates) from acquiring additional
shares of the Company's capital stock if, as a result of such acquisition, the
Company would fail to qualify as a 'domestically controlled REIT.' See 'Federal
Income Tax Considerations--Taxation of Holders of Common Stock--Taxation of
Non-U.S. Shareholders.' Accordingly, an acquisition of the Company's capital
stock would not likely be a suitable investment for non-U.S. shareholders other
than SC-USREALTY. See 'Description of Common Stock--Restrictions on Transfer.'
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 upon redemption of Units
issued in connection with the formation of the Company and subsequent
acquisitions. In addition, as of September 30, 1997, [4,416,900] shares of
Common Stock of the Company were reserved for issuance pursuant to stock and
unit options, and more shares may be reserved for such purpose in the future.
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 SC-USREALTY Transaction, the Company granted SC-USREALTY the
right to require the Company to file, at any time requested by SC-USREALTY, a
registration statement under the Securities Act of 1933 covering all or any of
the shares of Common Stock acquired by SC-USREALTY. No prediction can be made
about the effect that future sales of Common Stock will have on the market
prices of shares.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES
In order to assist the Company in maintaining its qualification as a REIT,
the Articles of Incorporation contain certain provisions generally limiting the
ownership of shares of capital stock by any single shareholder to 5% of the
outstanding Common Stock and/or 5% of any class or series of Preferred Stock
(with exceptions for persons who received more than 5% of the equity of the
Company pursuant to the contribution of assets to the Company in connection with
the initial public offering of the
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Company and SC-USREALTY and its affiliates). The Board could waive this
restriction if it were satisfied that ownership in excess of the above ownership
limit would not jeopardize the Company's status as a REIT and the Board
otherwise decided such action would be in the best interests of the Company.
Capital stock acquired or transferred in breach of the limitation will be
automatically transferred to a trust for the benefit of a designated charitable
beneficiary. See 'Description of Common Stock--Restrictions on Transfer' for
additional information regarding the limits on ownership of shares of capital
stock.
RESTRICTIONS ON ACQUISITION AND CHANGE IN CONTROL
Various provisions of the 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 stockholders' interest, including
the Ownership Limits (as defined herein), the staggered terms of the Company's
directors and the ability of the Board to authorize the issuance of preferred
stock without stockholder approval.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the net
proceeds from the sale of the Securities will be used for the acquisition and
development of additional office properties, as suitable opportunities arise,
for the repayment of certain outstanding indebtedness at such time, for capital
improvements to property and for working capital and other general corporate
purposes.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the period from
February 16, 1993 (commencement of operations) to December 31, 1993 and for the
years ended December 31, 1994, 1995 and 1996 and for the nine months ended
September 30, 1996 and 1997 was 1.75x, 1.81x, 1.91x, 1.74x, 1.74x and 2.01x,
respectively.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of income (loss) before
gains from sales of property and extraordinary items plus fixed charges. Fixed
charges consist of interest expense (including interest costs capitalized), the
amortization of debt issuance costs and rental expense deemed to represent
interest expense.
The Company issued preferred stock in 1996 and in August 1997. Accordingly,
the ratio of earnings to combined fixed charges and preferred stock dividends
was 1.71x for the year ended December 31, 1996 and 1.85x for the nine months
ended September 30, 1997.
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DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions
of the Debt Securities to which this Prospectus and any applicable Prospectus
Supplement may relate. The particular terms of the Debt Securities being offered
and the extent to which such general provisions may apply will be set forth in
the applicable indenture or in one or more indentures supplemental thereto and
described in a Prospectus Supplement relating to such Debt Securities.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Company
and may be either senior Debt Securities ('Senior Securities') or subordinated
Debt Securities ('Subordinated Securities'). The Debt Securities will be issued
under one or more indentures (the 'Indentures'). Senior Securities and
Subordinated Securities will be issued pursuant to separate indentures
(respectively, a 'Senior Indenture' and a 'Subordinated Indenture'), in each
case between the Company and a trustee (a 'Trustee'). The Indentures will be
subject to and governed by the Trust Indenture Act of 1939, as amended (the
'TIA'). The statements made under this heading relating to the Debt Securities
and the Indentures are summaries of the anticipated provisions thereof, do not
purport to be complete and are qualified in their entirety by reference to the
Indentures and such Debt Securities. All section references appearing herein are
to sections of each Indenture unless otherwise indicated and capitalized terms
used but not defined under this heading shall have the respective meanings set
forth in each Indenture.
The indebtedness represented by Subordinated Securities will be
subordinated in right of payment to the prior payment in full of the Senior Debt
of the Company as described under '--Subordination' below.
Except as set forth in the applicable Indenture or in one or more
indentures supplemental thereto and described in a Prospectus Supplement
relating thereto, the Debt Securities may be issued without limit as to
aggregate principal amount, in one or more series, in each case as established
from time to time in or pursuant to authority granted by a resolution of the
Board of the Company or as established in the applicable Indenture or in one or
more indentures supplemental to such Indenture. All Debt Securities of one
series need not be issued at the same time and, unless otherwise provided, a
series may be reopened, without the consent of the Holders of the Debt
Securities of such series, for issuances of additional Debt Securities of such
series.
It is anticipated that each Indenture will provide that there may be more
than one Trustee thereunder, each with respect to one or more series of Debt
Securities. Any Trustee under an Indenture may resign or be removed with respect
to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a director of a trust under the
applicable Indenture separate and apart from the trust administered by any other
Trustee, and, except as otherwise indicated herein, any action described herein
to be taken by each Trustee may be taken by each such Trustee with respect to,
and only with respect to, the one or more series of Debt Securities for which it
is Trustee under the applicable Indenture.
The Prospectus Supplement relating to any series of Debt Securities being
offered will contain the specific terms thereof, including, without limitation:
(1) The title of such Debt Securities and whether such Debt Securities
are Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) The percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
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(4) If convertible in whole or in part into Common Stock or Preferred
Stock, the terms on which such Debt Securities are convertible, including
the initial conversion price or rate (or method for determining the same),
the portion that is convertible and the conversion period, and any
applicable limitations on the ownership or transferability of the Common
Stock or Preferred Stock receivable on conversion;
(5) The date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(7) The date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the dates on which any
such interest will be payable, the regular record dates for such interest
payment dates, or the method by which such dates shall be determined, the
persons to whom such interest shall be payable, and the basis upon which
interest shall be calculated if other than that of a 360-day year of twelve
30-day months;
(8) The place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable, where such
Debt Securities may be surrendered for conversion or registration of
transfer or exchange and where notices or demands to or upon the Company in
respect of such Debt Securities and the applicable Indenture may be served;
(9) The period or periods within which, the price or prices at which
and the other terms and conditions upon which such Debt Securities may be
redeemed, in whole or in part, at the option of the Company, if the Company
is to have such an option;
(10) The obligation, if any, of the Company to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a Holder thereof, and the period or periods
within which or the date and dates on which the price or prices at which
and the other terms and conditions upon which such Debt Securities will be
redeemed, repaid or purchased, in whole or in part, pursuant to such
obligation;
(11) If other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;
(13) Any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to Events of Default or covenants set
forth in the applicable Indenture;
(14) Whether such Debt Securities will be issued in certificate or
book-entry form;
(15) Whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(16) The applicability, if any, of the defeasance and covenant
defeasance provisions of Article Fourteen of the applicable Indenture;
(17) Whether and under what circumstances the Company will pay any
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will have
the option to redeem such Debt Securities in lieu of making such payment;
and
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(18) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
('Original Issue Discount Securities'). Special federal income tax, accounting
and other considerations applicable to Original Issue Discount Securities will
be described in the applicable Prospectus Supplement.
Except as set forth in the applicable Indenture or in one or more
indentures supplemental thereto, the applicable Indenture will not contain any
provisions that would limit the ability of the Company to incur indebtedness or
that would afford Holders of Debt Securities protection in the event of a highly
leveraged or similar transaction involving the Company or in the event of a
change of control. Restrictions on ownership and transfers of the Company's
Common Stock and Preferred Stock are designed to preserve its status as a REIT
and, therefore, may act to prevent or hinder a change of control. See
'Description of Preferred Stock--Restrictions on Ownership' and 'Description of
Common Stock--Restrictions on Transfer.' Reference is made to the applicable
Prospectus Supplement for information with respect to any deletions from,
modifications of or additions to the Events of Default or covenants of the
Company that are described below, including any addition of a covenant or other
provision providing event risk or similar protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of Debt
Securities will be payable at the corporate trust office of the Trustee, the
address of which will be stated in the applicable Prospectus Supplement;
provided that, at the option of the Company, payment of interest may be made by
check mailed to the address of the person entitled thereto as it appears in the
applicable register for such Debt Securities or by wire transfer of funds to
such person at an account maintained within the United States (Sections 301,
305, 306, 307 and 1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ('Defaulted Interest') will
forthwith cease to be payable to the Holder on the applicable regular record
date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the 'Special
Record Date') for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than ten days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture
(Section 307).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the applicable Trustee referred
to above. In addition, subject to certain limitations imposed upon Debt
Securities issued in book-entry form, the Debt Securities of any series may be
surrendered for conversion or registration of transfer or exchange thereof at
the corporate trust office of the applicable Trustee. Every Debt Security
surrendered for conversion, registration of transfer or exchange must be duly
endorsed or accompanied by a written instrument of transfer. No service charge
will be made for any registration of transfer or exchange of any Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. If the
applicable Prospectus Supplement refers to any transfer agent (in addition to
the applicable Trustee) initially designated by the Company with respect to any
series of Debt Securities, the Company may at any time rescind the designation
of any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that the Company will be required to maintain a
transfer agent in each place of payment for such
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series. The Company may at any time designate additional transfer agents with
respect to any series of Debt Securities (Section 1002).
Neither the Company nor any Trustee shall be required to (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) issue, register the transfer of or exchange any Debt Security
that has been surrendered for repayment at the option of the Holder, except the
portion, if any, of such Debt Security not to be so repaid (Section 305).
MERGER, CONSOLIDATION OR SALE
The Company will be permitted to consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into, any other
entity provided that (a) either the Company shall be the continuing entity, or
the successor entity (if other than the Company) formed by or resulting from any
such consolidation or merger or which shall have received the transfer of such
assets shall expressly assume payment of the principal of (and premium, if any)
and interest on all of the Debt Securities and the due and punctual performance
and observance of all of the covenants and conditions contained in each
Indenture; (b) immediately after giving effect to such transaction and treating
any indebtedness that becomes an obligation of the Company or any Subsidiary as
a result thereof as having been incurred by the Company or Subsidiary at the
time of such transaction, no Event of Default under the Indentures, and no event
which, after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing; and (c) an officer's certificate
and legal opinion covering such conditions shall be delivered to each Trustee
(Sections 801 and 803).
CERTAIN COVENANTS
Existence. Except as described under '--Merger, Consolidation or Sale'
above, the Company will be required to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
(by articles of incorporation, by-laws and statute) and franchises; provided,
however, that the Company shall not be required to preserve any right or
franchise if it determines that the preservation thereof is no longer desirable
in the conduct of its business and that the loss thereof is not disadvantageous
in any material respect to the Holders of the Debt Securities.
Maintenance of Properties. The Company will be required to cause all of its
material properties used or useful in the conduct of its business or the
business of any Subsidiary (as defined below) to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times (Section 1007); provided,
however, that the Company shall not be prevented from selling or otherwise
disposing for value its properties in the ordinary course of business.
Insurance. The Company will be required to, and will be required to cause
each of its Subsidiaries to keep all of its insurable properties insured against
loss or damage at least equal to their then full insurable value with insurers
of recognized responsibility and, if described in the applicable Prospectus
Supplement, having a specified rating from a recognized insurance rating service
(Section 1008).
Payment of Taxes and Other Claims. The Company will be required to pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of the
Company or any Subsidiary, and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any Subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or
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discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings (Section
1009).
Provision of Financial Information. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Company will be required, to the
extent permitted under the Exchange Act, to file with the Commission the annual
reports, quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to such Sections 13 or 15(d) if
the Company were so subject (the 'Financial Information'), such documents to be
filed with the Commission on or prior to the respective dates (the 'Required
Filing Dates') by which the Company would have been required so to file such
documents if the Company were so subject. The Company also will in any event (x)
within 15 days of each Required Filing Date (i) transmit by mail to all Holders
of Debt Securities, as their names and addresses appear in the Security
Register, without cost to such Holders, copies of the Financial Information and
(ii) file with the Trustee copies of the Financial Information, and (y) if
filing such documents by the Company with the Commission is not permitted under
the Exchange Act, promptly upon written request and payment of the reasonable
cost of duplication and delivery, supply copies of such documents to any
prospective Holder (Section 1010).
ADDITIONAL COVENANTS AND/OR MODIFICATIONS TO THE COVENANTS DESCRIBED ABOVE
Any additional covenants of the Company and/or modifications to the
covenants described above with respect to any Debt Securities or series thereof,
including any covenants relating to limitations on incurrence of indebtedness or
other financial covenants, will be set forth in the applicable Indenture or an
indenture supplemental thereto and described in the Prospectus Supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture will provide that the following events are 'Events of
Default' with respect to any series of Debt Securities issued thereunder: (i)
default in the payment of any installment of interest on any Debt Security of
such series; (ii) default in the payment of principal of (or premium, if any,
on) any Debt Security of such series when due and payable; (iii) default in
making any sinking fund payment as required for any Debt Security of such
series; (iv) default in the performance, or breach, of any other covenant or
warranty of the Company contained in the applicable Indenture (other than a
covenant added to the Indenture solely for the benefit of a series of Debt
Securities issued thereunder other than such series), continued for 60 days
after written notice as provided in the applicable Indenture; (v) default under
any bond, debenture, note or other evidence of indebtedness for money borrowed
by the Company or any of its Subsidiaries (including obligations under leases
required to be capitalized on the balance sheet of the lessee under GAAP)
representing recourse indebtedness or indebtedness guaranteed by such party in
an aggregate principal amount in excess of $5,000,000, or under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by the Company or any
of its Subsidiaries (including the leases) representing recourse indebtedness or
indebtedness guaranteed by such party in an aggregate principal amount in excess
of $5,000,000, whether the indebtedness now exists or shall hereafter be
created, which default shall have resulted in the indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable, or the obligations being accelerated, without the
acceleration having been rescinded or annulled; (vi) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Company or any Significant Subsidiary (as defined
below) for all or substantially all of the property of the Company or any
Significant Subsidiary; and (vii) any other Event of Default provided with
respect to a particular series of Debt Securities (Section 501).
'Significant Subsidiary' means any Subsidiary that is a 'significant
subsidiary' (within the meaning of Regulation S-X promulgated under the
Securities Act) of the Company.
'Subsidiary' means a corporation, partnership or other entity a majority of
the voting power of the voting equity securities or the outstanding equity
interests of which are owned, directly or indirectly, by the Company or by one
or more other Subsidiaries of the Company. For the purposes of this definition,
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'voting equity securities' means equity securities having voting power for the
election of directors, whether at all times or only so long as no senior class
of security has such voting power by reason of any contingency. The term
'Subsidiary' does not include Carr Services, Inc. or CarrAmerica Development &
Construction as the Company does not own or control a majority of the
outstanding voting stock of such entities.
If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the Holders of not less than 25% of the
principal amount of the Outstanding Debt Securities of that series will have the
right to declare the principal amount (or, if the Debt Securities of that series
are Original Issue Discount Securities or indexed securities, such portion of
the principal amount as may be specified in the terms thereof) of all the Debt
Securities of that series to be due and payable immediately by written notice
thereof to the Company (and to the applicable Trustee if given by the Holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then Outstanding under
any Indenture, as the case may be) has been made, but before a judgment or
decree for payment of the money due has been obtained by the applicable Trustee,
the Holders of not less than a majority in principal amount of Outstanding Debt
Securities of such series (or of all Debt Securities then Outstanding under the
applicable Indenture, as the case may be) may rescind and annul such declaration
and its consequences if (a) the Company shall have deposited with the applicable
Trustee all required payments of the principal of (and premium, if any) and
interest on the Debt Securities of such series (or of all Debt Securities then
Outstanding under the applicable Indenture, as the case may be), plus certain
fees, expenses, disbursements and advances of the applicable Trustee and (b) all
events of default, other than the non-payment of accelerated principal (or
specified portion thereof), with respect to Debt Securities of such series (or
of all Debt Securities then Outstanding under the applicable Indenture, as the
case may be) have been cured or waived as provided in such Indenture (Section
502). Each Indenture also will provide that the Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of any series
(or of all Debt Securities then Outstanding under the applicable Indenture, as
the case may be) may waive any past default with respect to such series and its
consequences, except a default (x) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or (y) in
respect of a covenant or provision contained in the applicable Indenture that
cannot be modified or amended without the consent of the Holder of each
Outstanding Debt Security affected thereby (Section 513).
Each Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default shall have been cured or waived; provided, however, that such
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if specified responsible officers of such Trustee
consider such withholding to be in the interest of such Holders (Section 601).
Each Indenture will provide that no Holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to
such Indenture or for any remedy thereunder, except in the cases of failure of
the applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it (Section 507). This provision will not prevent, however, any
Holder of Debt Securities from instituting suit for the enforcement of payment
of the principal of (and premium, if any) and interest on such Debt Securities
at the respective due dates thereof (Section 508).
Subject to provisions in each Indenture relating to its duties in case of
default, no Trustee will be under any obligation to exercise any of its rights
or powers under an Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under such Indenture, unless such
Holders shall have offered to the Trustee thereunder reasonable security or
indemnity (Section 602). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series (or of all Debt
Securities then Outstanding under an Indenture, as the case may
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be) shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the applicable Trustee, or of exercising
any trust or power conferred upon such Trustee. However, a Trustee may refuse to
follow any direction which is in conflict with any law or the applicable
Indenture, which may involve such Trustee in personal liability or which may be
unduly prejudicial to the Holders of Debt Securities of such series not joining
therein (Section 512).
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the applicable Indenture and, if so, specifying each such default
and the nature and status thereof (Section 1011).
MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities issued under such Indenture which are
affected by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the Holder of each such
Debt Security affected thereby, (a) change the stated maturity of the principal
of, or any installment of interest (or premium, if any) on, any such Debt
Security; (b) reduce the principal amount of, or the rate or amount of interest
on, or any premium payable on redemption of, any such Debt Security, or reduce
the amount of principal of an Original Issue Discount Security that would be due
and payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the Holder
of any such Debt Security; (c) change the place of payment, or the coin or
currency, for payment of the principal of (or premium, if any) or interest on
any such Debt Security; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any such Debt Security; (e)
reduce the above-stated percentage of Outstanding Debt Securities of any series
necessary to modify or amend the applicable Indenture, to waive compliance with
certain provisions thereof or certain defaults and consequences thereunder or to
reduce the quorum or voting requirements set forth in the applicable Indenture;
or (f) modify any of the foregoing provisions or any of the provisions relating
to the waiver of certain past defaults or certain covenants, except to increase
the required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the Holder of
such Debt Security (Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of each series affected thereby will have the right to waive
compliance by the Company with certain covenants in such Indenture (Section
1013).
Modifications and amendments of an Indenture will be permitted to be made
by the Company and the respective Trustee thereunder without the consent of any
Holder of Debt Securities for any of the following purposes: (i) to evidence the
succession of another person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Company in the Indenture; (iii) to add Events of Default for
the benefit of the Holders of all or any series of Debt Securities; (iv) to add
or change any provisions of an Indenture to facilitate the issuance of, or to
liberalize certain terms of, Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form, provided that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect; (v) to change or eliminate any
provisions of an Indenture, provided that any such change or elimination shall
become effective only when there are no Debt Securities Outstanding of any
series created prior thereto which are entitled to the benefit of such
provision; (vi) to secure the Debt Securities; (vii) to establish the form or
terms of Debt Securities of any series, including the provisions and procedures,
if applicable, for the conversion of such Debt Securities into Common Stock or
Preferred Stock of the Company; (viii) to provide for the acceptance of
appointment by a successor Trustee or facilitate the administration of the
trusts under an Indenture by more than one Trustee; (ix) to cure any ambiguity,
defect or inconsistency in an Indenture, provided that such action shall not
adversely affect the interests of Holders of Debt Securities of any series
issued under such Indenture in any material respect; or (x) to supplement any of
the provisions of
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an Indenture to the extent necessary to permit or facilitate defeasance and
discharge of any series of such Debt Securities, provided that such action shall
not adversely affect the interests of the Holders of the Debt Securities of any
series in any material respect (Section 901).
Each Indenture will provide that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of any Debt Security denominated in a foreign currency that shall be deemed
Outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an indexed security that shall be deemed Outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security pursuant to the
applicable Indenture, and (iv) Debt Securities owned by the Company or any other
obligor under the Debt Securities or any affiliate of the Company or of such
other obligor shall be disregarded.
Each Indenture will contain provisions for convening meetings of the
Holders of Debt Securities of a series (Section 501). A meeting will be
permitted to be called at any time by the applicable Trustee, and also, upon
request, by the Company or the Holders of at least 10% in principal amount of
the Outstanding Debt Securities of such series, in any such case upon notice
given as provided in the Indenture. Except for any consent that must be given by
the Holder of each Debt Security affected by certain modifications and
amendments of an Indenture, any resolution presented at a meeting or adjourned
meeting duly reconvened at which a quorum is present may be adopted by the
affirmative vote of the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series; provided, however, that, except as
referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of the Outstanding Debt Securities of a
series may be adopted at a meeting or adjourned meeting or adjourned meeting
duly reconvened at which a quorum is present by the affirmative vote of the
Holders of such specified percentage in principal amount of the Outstanding Debt
Securities of that series. Any resolution passed or decision taken at any
meeting of Holders of Debt Securities of any series duly held in accordance with
an Indenture will be binding on all Holders of Debt Securities of that series.
The quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be persons holding or representing a majority in principal amount
of the Outstanding Debt Securities of a series; provided, however, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the Holders of not less than a specified percentage in principal
amount of the Outstanding Debt Securities of a series, the persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum.
Notwithstanding the foregoing provisions, each Indenture will provide that
if any action is to be taken at a meeting of Holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the Holders of a specified percentage in principal
amount of all Outstanding Debt Securities affected thereby, or the Holders of
such series and one or more additional series: (i) there shall be no minimum
quorum requirement for such meeting, and (ii) the principal amount of the
Outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture.
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SUBORDINATION
The terms and conditions, if any, upon which the Debt Securities are
subordinated to other indebtedness of the Company will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include a
description of the indebtedness ranking senior to the Debt Securities, the
restrictions on payments to the Holders of such Debt Securities while a default
with respect to such senior indebtedness in continuing, the restrictions, if
any, on payments to the Holders of such Debt Securities following an Event of
Default, and provisions requiring Holders of such Debt Securities to remit
certain payments to holders of senior indebtedness.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Company may be permitted under the applicable Indenture to discharge
certain obligations to Holders of any series of Debt Securities issued
thereunder that have not already been delivered to the applicable Trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the applicable Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the stated maturity or redemption
date, as the case may be.
Each Indenture will provide that, if the provisions of Article Fourteen are
made applicable to the Debt Securities of or within any series pursuant to
Section 301 of such Indenture, the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay additional amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities, and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
('defeasance') (Section 1402) or (b) to be released from its obligations with
respect to such Debt Securities under certain specified sections of Article Ten
of such Indenture as specified in the applicable Prospectus Supplement and any
omission to comply with such obligations shall not constitute an Event of
Default with respect to such Debt Securities ('covenant defeasance') (Section
1403), in either case upon the irrevocable deposit by the Company with the
applicable Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at stated maturity, or Government Obligations (as defined
below), or both, applicable to such Debt Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient without reinvestment to pay the principal of (and
premium, if any) and interest on such Debt Securities, and any mandatory sinking
fund or analogous payments thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Trustee an opinion of
counsel (as specified in the applicable Indenture) to the effect that the
Holders of such Debt Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
or covenant defeasance had not occurred, and such opinion of counsel, in the
case of defeasance, will be required to refer to and be based upon a ruling of
the Internal Revenue Service or a change in applicable U.S. federal income tax
law occurring after the date of the Indenture (Section 1404).
'Government Obligations' means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the
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United States of America or such government which issued the foreign currency in
which the Debt Securities of such series are payable, the timely payment of
which is unconditionally guaranteed as a full faith and credit obligation of the
United States of America or such government, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the Holder of a depository receipt, provided that (except as required
by applicable law) such custodian is not authorized to make any deduction from
the amount payable to the Holder of such depository receipt from any amount
received by the custodian in respect of the Government Obligation or the
specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security will be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate. 'Conversion
Event' means the cessation of use of (i) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community, (ii) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Communities or (iii) any currency
unit or composite currency other than the ECU for the purposes for which it was
established. Unless otherwise provided in the applicable Prospectus Supplement,
all payments of principal of (and premium, if any) and interest on any Debt
Security that is payable in a foreign currency that ceases to be used by its
government of issuance shall be made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default described
in clause (iv) under '--Events of Default, Notice and Waiver' above with respect
to certain specified sections of Article Ten of each Indenture (which sections
would no longer be applicable to such Debt Securities as a result of such
covenant defeasance) or described in clause (vii) under '--Events of Default,
Notice and Waiver' above with respect to any other covenant as to which there
has been covenant defeasance, the amount in such currency, currency unit or
composite currency in which such Debt Securities are payable, and Government
Obligations on deposit with the applicable Trustee, will be sufficient to pay
amounts due on such Debt Securities at the time of their stated maturity but may
not be sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Default. However, the Company would remain
liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Stock or Preferred
Stock,
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the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the Holders or the
Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities and any restrictions on conversion, including restrictions directed
at maintaining the Company's REIT status.
REDEMPTION OF SECURITIES
The Indenture provides that the Debt Securities may be redeemed at any time
at the option of the Company, in whole or in part, at the redemption price,
except as may otherwise be provided in connection with any Debt Securities or
series thereof.
From and after notice has been given as provided in the Indenture, if funds
for the redemption of any Debt Securities called for redemption shall have been
made available on such redemption date, such Debt Securities will cease to bear
interest on the date fixed for such redemption specified in such notice, and the
only right of the Holders of the Debt Securities will be to receive payment of
the redemption price.
Notice of any optional redemption of any Debt Securities will be given to
Holders at their addresses, as shown in the Company's books and records, not
more than 60 nor less than 30 days prior to the date fixed for redemption. The
notice of redemption will specify, among other items, the redemption price and
the principal amount of the Debt Securities held by such Holder to be redeemed.
If the Company elects to redeem Debt Securities, it will notify the Trustee
at least 45 days prior to the redemption date (or such shorter period as
satisfactory to the Trustee) of the aggregate principal amount of Debt
Securities to be redeemed and the redemption date. If less than all of the Debt
Securities are to be redeemed, the Trustee shall select the Debt Securities to
be redeemed pro rata, by lot or in such manner as it shall deem fair and
appropriate.
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DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 15,000,000 shares of Preferred Stock. As
of September 30, 1997, there were 780,000 shares of Series A Cumulative
Convertible Redeemable Preferred Stock issued and outstanding and 8,000,000
shares of Series B Cumulative Redeemable Preferred Stock issued and outstanding.
Under the Company's Articles of Incorporation, the Board may from time to
time establish and issue one or more series of Preferred Stock. The Board may
classify or reclassify any unissued Preferred Stock by setting or changing the
number, designation, preference, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption of such series (a 'Designating Amendment').
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation and the
Company's bylaws (the 'Bylaws').
GENERAL
The Board is empowered by the Company's Articles of Incorporation to
designate and issue from time to time one or more series of Preferred Stock
without stockholder approval. The Board may determine the relative rights,
preferences and privileges of each series of Preferred Stock so issued. Because
the Board has the power to establish the preferences and rights of each series
of Preferred Stock, it may afford the holders of any series of Preferred Stock
preferences, powers and rights, voting or otherwise, senior to the rights of
holders of Common Stock. The Preferred Stock will, when issued, be fully paid
and nonassessable.
The Prospectus Supplement relating to any Preferred Stock offered thereby
will contain the specific terms thereof, including, without limitation:
(1) The title and stated value of such Preferred Stock;
(2) The number of such shares of Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock will
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) The provision for a sinking fund, if any, for such Preferred
Stock;
(7) The provision for redemption, if applicable, of such Preferred
Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock of the Company, including the
conversion price (or manner of calculation thereof);
(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(11) A discussion of federal income tax considerations applicable to
such Preferred Stock;
(12) The relative ranking and preferences of such Preferred Stock as
to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
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(13) Any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(14) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock of the Company, and to all equity securities ranking
junior to such Preferred Stock, (ii) on a parity with all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Stock, and (iii) junior to all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank senior to the Preferred Stock. The term 'equity
securities' does not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board, out of assets of the Company legally
available for payment, cash dividends (or dividends in kind or in other property
if expressly permitted and described in the applicable Prospectus Supplement) at
such rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Each such dividend will be payable to holders of record as they
appear on the stock transfer books of the Company on such record dates as are
fixed by the Board.
Dividends on any series of Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board fails to declare a dividend
payable on a dividend payment date on any series of the Preferred Stock for
which dividends are non-cumulative, then the holders of such series of the
Preferred Stock will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and the Company will have
no obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.
Unless otherwise specified in the Prospectus Supplement, if any shares of
Preferred Stock of any series are outstanding, no full dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such series. When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon Preferred Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Preferred Stock of
such series, all dividends declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock will be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock will in all cases bear to each other the same ratio that accrued
dividends per share on the Preferred Stock of such series (which will not
include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock do not have a cumulative dividend) and such
other series of Preferred Stock bear to each other.
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No interest, or sum of money in lieu of interest, will be payable in respect of
any dividend payment or payments on Preferred Stock of such series which may be
in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in Common Stock or other capital stock ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation) will be declared or paid or set aside for payment or other
distribution upon the Common Stock, or any other capital stock of the Company
ranking junior to or on a parity with the Preferred Stock of such series as to
dividends or upon liquidation, nor will any Common Stock, or any other capital
stock of the Company ranking junior to or on a parity with the Preferred Stock
of such series as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such stock) by the
Company (except by conversion into or exchange for other capital stock of the
Company ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation).
If for any taxable year, the Company elects to designate as 'capital gains
dividends' (as defined in Section 857 of the Code) any portion (the 'Capital
Gains Amount') of the dividends (within the meaning of the Code) paid or made
available for the year to holders of all classes of capital stock (the 'Total
Dividends'), then the portion of the Capital Gains Amount that will be allocable
to the holders of shares of Preferred Stock will be the Capital Gains Amount
multiplied by a fraction, the numerator of which shall be the total dividends
(within the meaning of the Code) paid or made available to the holders of shares
of Preferred Stock for the year and the denominator of which shall be the Total
Dividends.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of the
Company, in whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that will be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
will not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital stock of the Company, the terms of such
Preferred Stock may provide that, if no such capital stock shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock will
automatically and mandatorily be converted into the applicable capital stock of
the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all Preferred Stock of
any series shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the current dividend period and (ii) if such
series of Preferred Stock does not have a cumulative dividend, full dividends of
the Preferred Stock of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no Preferred Stock of any
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series shall be redeemed unless all outstanding Preferred Stock of such series
are simultaneously redeemed; provided, however, that the foregoing shall not
prevent the purchase or acquisition of Preferred Stock of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Stock of
such series. In addition, unless (i) if such series of Preferred Stock has a
cumulative dividend, full cumulative dividends on all outstanding shares of any
series of Preferred Stock have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividends periods and the then current dividend period, and (ii) if
such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, the Company will not
purchase or otherwise acquire directly or indirectly any Preferred Stock of such
series (except by conversion into or exchange for capital stock of the Company
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation); provided, however, that the foregoing will not prevent the
purchase or acquisition of Preferred Stock of such series to preserve the REIT
status of the Company or pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
or for which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares) or by lot in a manner determined by the
Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice will state: (i) the redemption date; (ii) the number of
shares and series of Preferred Stock to be redeemed; (iii) the redemption price;
(iv) the place or places where certificates for such Preferred Stock are to be
surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all of the Preferred Stock of any series are to be
redeemed, the notice mailed to each such holder thereof will also specify the
number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Stock, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment is made to
the holders of any Common Stock or any other class or series of capital stock of
the Company ranking junior to the Preferred Stock in the distribution of assets
upon any liquidation, dissolution or winding up of the Company, the holders of
each series of Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to stockholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which will not include any accumulation in respect
of unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Stock will
have no right or claim to any of the remaining assets of the Company. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of the Company are insufficient to pay the
amount of the liquidating distributions on all outstanding Preferred Stock and
the corresponding amounts payable on all shares of other classes or series of
capital stock of the Company ranking on a parity with the Preferred Stock in the
distribution of assets, then the holders of
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the Preferred Stock and all other such classes or series of capital stock shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company will be distributed among
the holders of any other classes or series of capital stock ranking junior to
the Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Company, will not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
VOTING RIGHTS
Holders of Preferred Stock will not have any voting rights, except as set
forth below or as otherwise from time to time required by law or as indicated in
the applicable Prospectus Supplement.
Whenever dividends on any Preferred Stock shall be in arrears for six or
more consecutive quarterly periods, the holders of such Preferred Stock (voting
separately as a class with all other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of two additional directors of the Company at a special meeting
called by the holders of record of at least ten percent (10%) of any series of
Preferred Stock so in arrears (unless such request is received less than 90 days
before the date fixed for the next annual or special meeting of the
shareholders) or at the next annual meeting of stockholders, and at each
subsequent annual meeting until (i) if such series of Preferred Stock has a
cumulative dividend, all dividends accumulated on such shares of Preferred Stock
for the past dividend periods and the then current dividend period shall have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment or (ii) if such series of Preferred Stock do not have a
cumulative dividend, four consecutive quarterly dividends shall have been fully
paid or declared and a sum sufficient for the payment thereof set aside for
payment. In such case, the entire Board will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of each series
of shares of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking prior to such series of Preferred
Stock with respect to the payment of dividends or the distribution of assets
upon liquidation, dissolution or winding up or reclassify any authorized capital
stock of the Company into such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such shares, or (ii) amend, alter or repeal the provisions of the Company's
Articles of Incorporation or the Designating Amendment for such series of
Preferred Stock, whether by merger, consolidation or otherwise (an 'Event'), so
as to materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Stock or the holders thereof; provided,
however, with respect to the occurrence of any of the Events set forth in clause
(ii) above, so long as the shares of Preferred Stock remain outstanding with the
terms thereof materially unchanged, taking into account that upon the occurrence
of an Event the Company may not be the surviving entity, the occurrence of any
such Event will not be deemed to materially and adversely affect such rights,
preferences, privileges or voting power of holders of Preferred Stock and
provided further that (x) any increase in the amount of the authorized Preferred
Stock or the creation or issuance of any other series of Preferred Stock, or (y)
any increase in the amount of authorized shares of such series or any other
series of Preferred Stock, in each case ranking on a parity with or junior to
the Preferred Stock of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, will not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers.
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The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of Preferred Stock of such series shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of shares of
Common Stock into which the Preferred Stock are convertible, the conversion
price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at the option of the holders of the Preferred
Stock or the Company, the events requiring an adjustment of the conversion price
and provisions affecting conversion in the event of the redemption of such
series of Preferred Stock.
RESTRICTIONS ON OWNERSHIP
As discussed below under 'Description of Common Stock--Restrictions on
Transfer--Ownership Limits,' for the Company to qualify as a REIT under the
Code, 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. To
assist the Company in meeting this requirement, the Articles of Incorporation
provide that no holder of Preferred Stock may own, or be deemed to own by virtue
of certain attribution provisions of the Code, more than 5% of any class or
series of Preferred Stock and/or more than 5% of the issued and outstanding
shares of Common Stock, subject to certain exceptions specified in the Articles
of Incorporation. See 'Description of Common Stock--Restrictions on
Transfer--Ownership Limits.'
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF COMMON STOCK
GENERAL
The Company is authorized to issue 90,000,000 shares of Common Stock. The
outstanding Common Stock entitles the holder to one vote on all matters
presented to stockholders for a vote. Holders of Common Stock have no preemptive
rights. At September 30, 1997, there were 58,168,602 shares of Common Stock
outstanding.
Shares of Common Stock currently outstanding are listed for trading on the
New York Stock Exchange (the 'NYSE'). The Company will apply to the NYSE to list
the additional Common Stock to be sold pursuant to any Prospectus Supplement,
and the Company anticipates that such shares will be so listed.
Subject to such preferential rights as may be granted by the Board in
connection with the future issuance of Preferred Stock, holders of Common Stock
are entitled to one vote per share on all matters to be voted on by stockholders
and are entitled to receive ratably such dividends as may be declared on the
Common Stock by the Board in its discretion from funds legally available
therefor. In the event of the liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of all debts and other liabilities and any liquidation
preference of the holders of Preferred Stock. Holders of Common Stock have no
subscription, redemption, conversion or preemptive rights. Matters submitted for
stockholder approval generally require a majority vote of the shares present and
voting thereon.
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ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that, with respect to an annual meeting
of stockholders, the proposal of business to be considered by stockholders may
be made only (i) by or at the direction of the Board or (ii) by a stockholder
who is entitled to vote at the meeting and who has complied with the advance
notice procedures set forth in the Bylaws. In addition, with respect to any
meeting of stockholders, nominations of persons for election to the Board may be
made only (i) by or at the direction of the Board or (ii) by any stockholder of
the Company who is entitled to vote at the meeting and has complied with the
advance notice provisions set forth in the Bylaws.
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 (the 'Common Stock Ownership Limit') and/or (B) more than 5% of any
class or series of Preferred Stock. (This limit, in addition to the Existing
Holder Limit, the Special Shareholder Limit, and the Non U.S. Shareholder Limit,
all as defined below, are referred to collectively herein as the 'Ownership
Limits.') Existing Holders, including Clark Enterprises Inc., The Oliver Carr
Company, Oliver T. Carr, Jr., and A. James Clark, are not subject to the Common
Stock Ownership Limit, but they are subject to special ownership limitations
(the 'Existing Holder Limit'). Furthermore, SC-USREALTY and its affiliates are
not subject to the Common Stock Ownership Limit, but are subject to a special
ownership limit of 45% of the outstanding shares of Common Stock and 45% of the
outstanding shares of each class or series of preferred stock of the Company
(the 'Special Shareholder Limit'). Furthermore, all holders are prohibited from
acquiring any capital stock if such acquisition would cause five beneficial
owners of capital stock to beneficially own in the aggregate more than 50% in
value of the outstanding capital stock.
In addition to the above restrictions on ownership of shares of capital
stock of the Company, in order to assist the Company in qualifying as a
'domestically controlled REIT,' the Articles of Incorporation contain certain
provisions preventing any Non-U.S. Shareholder (as defined below) (other than
SC-USREALTY and its affiliates) from acquiring additional shares of the
Company's capital stock if, as a result of such acquisition, the Company would
fail to qualify as a 'domestically controlled REIT' (computed assuming that
SC-USREALTY owns the maximum percentage of the Company's capital stock that it
is permitted to own under the Special Shareholder Limit) (the 'Non-U.S.
Shareholder Limit'). A Non-U.S. Shareholder is a nonresident alien individual,
foreign corporation, foreign partnership and any other foreign shareholder. For
a discussion of the taxation of a Non-U.S. Shareholder and the requirements for
the Company to qualify as a 'domestically controlled REIT,' see 'Federal Income
Tax Considerations--Taxation of Holders of Common Stock--Taxation of Non-U.S.
Shareholders.' The Company is unlikely to be able to advise a prospective
Non-U.S. Shareholder that its purchase of any shares of the Company's capital
stock would not violate this prohibition, thereby subjecting such prospective
Non-U.S. Shareholder to the adverse consequences described under '--Violation of
Ownership Limits' below. Accordingly, an acquisition of the Company's capital
stock would not likely be a suitable investment for Non-U.S. Shareholders other
than SC-USREALTY.
The Board may increase the Ownership Limits from time to time, but may not
do so to the extent that, after giving effect to such increase, five beneficial
owners of shares of capital stock could
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beneficially own in the aggregate more than 49.5% of the Company's outstanding
shares of capital stock. The Board, in its sole discretion, may waive the
Ownership Limits with respect to a holder if such holder's ownership will not
then or in the future jeopardize the Company's status as a REIT.
Violation of Ownership Limits. The Articles of Incorporation provide that,
if any holder of capital stock of the Company purports to transfer shares to a
person or there is a change in the capital structure of the Company and either
the transfer or the change in capital structure would result in the Company
failing to qualify as a REIT, or such transfer or the change in capital
structure would cause the transferee to hold shares in excess of the applicable
Ownership Limit (including the Non-U.S. Shareholder Limit), then the capital
stock being transferred (or in the case of an event other than a transfer, the
capital stock beneficially owned) that would cause one or more of the
restrictions on ownership or transfer to be violated will be automatically
transferred to a trust for the benefit of a designated charitable beneficiary.
The purported transferee of such shares shall have no right to receive dividends
or other distributions with respect to such shares and shall have no right to
vote such shares. Any dividends or other distributions paid to such purported
transferee prior to the discovery by the Company that the shares have been
transferred to a trust shall be paid upon demand to the trustee of the trust for
the benefit of the charitable beneficiary. The trustee of the trust will have
all rights to dividends with respect to the shares of capital stock held in
trust, which rights will be exercised for the exclusive benefit of the
charitable beneficiary. Any dividends or distributions paid over to the trustee
will be held in trust for the charitable beneficiary. The trustee shall
designate a transferee of such stock so long as such shares of stock would not
violate the Ownership Limitations in the hands of such designated transferee.
Upon the sale of such shares, the purported transferee shall receive the lesser
of (A) (i) the price per share such purported transferee paid for the capital
stock in the purported transfer that resulted in the transfer of shares of
capital stock to the trust, or (ii) if the transfer or other event that resulted
in the transfer of shares of capital stock to the trust was not a transaction in
which the purported record transferee of shares of capital stock gave full value
for such shares, a price per share equal to the market price on the date of the
purported transfer or other event that resulted in the transfer of the shares to
the trust, and (B) the price per share received by the trustee from the sale or
disposition of the shares held in the trust.
All certificates representing Common Stock will bear a legend referring to
the restrictions described above.
Every owner of more than 5% (or such lower percentage as required by the
Code or regulations thereunder) of the issued and outstanding shares of Common
Stock must file a written notice with the Company containing the information
specified in the Articles of Incorporation no later than December 31 of each
year. In addition, each stockholder shall upon demand be required to disclose to
the Company in writing such information as the Company may request in good faith
in order to determine the Company's status as a REIT.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Common Stock is BankBoston, N.A.
DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common
Stock. Common Stock Warrants may be issued independently or together with any
other Securities offered by any Prospectus Supplement and may be attached to or
separate from such Securities. Each series of Common Stock Warrants will be
issued under a separate warrant agreement (each, a 'Warrant Agreement') to be
entered into between the Company and a warrant agent specified in the applicable
Prospectus Supplement (the 'Warrant Agent'). The Warrant Agent will act solely
as an agent of the Company in connection with the Common Stock Warrants of such
series and will not assume any obligation or relationship of agency or trust for
or with any holders or beneficial owners of Common Stock Warrants. The following
sets forth certain general terms and provisions of the Common Stock Warrants
offered hereby. Further terms of the Common Stock Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.
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The applicable Prospectus Supplement will describe the terms of the Common
Stock Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following: (1) the title of such Common Stock
Warrants; (2) the aggregate number of such Common Stock Warrants; (3) the price
or prices at which such Common Stock Warrants will be issued; (4) the
designation, number and terms of the shares of Common Stock purchasable upon
exercise of such Common Stock Warrants; (5) the designation and terms of the
other Securities offered thereby with which such Common Stock Warrants are
issued and the number of such Common Stock Warrants issued with each such
Security offered thereby; (6) the date, if any, on and after which such Common
Stock Warrants and the related Common Stock will be separately transferable; (7)
the price at which each of the shares of Common Stock purchasable upon exercise
of such Common Stock Warrants may be purchased; (8) the date on which the right
to exercise such Common Stock Warrants shall commence and the date on which such
right shall expire; (9) the minimum or maximum number of such Common Stock
Warrants which may be exercised at any one time; (10) information with respect
to book entry procedures, if any; (11) a discussion of certain federal income
tax considerations; and (12) any other terms of such Common Stock Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Common Stock Warrants.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ('Depositary Receipts') for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by Depositary
Shares will be deposited under a separate deposit agreement (each, a 'Deposit
Agreement') among the Company, the depositary named therein (a 'Preferred Stock
Depositary') and the holders from time to time of the Depositary Receipts.
Subject to the terms of the applicable Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest of
a share of a particular series of Preferred Stock represented by the Depositary
Shares evidenced by such Depositary Receipt, to all the rights and preferences
of the Preferred Stock represented by such Depositary Shares (including
dividend, voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to a Preferred Stock
Depositary, the Company will cause such Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to Deposit Agreements and
the Depositary Receipts to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable Deposit Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
A Preferred Stock Depositary will be required to distribute all cash
dividends or other cash distributions received in respect of the applicable
Preferred Stock to the record holders of Depositary Receipts evidencing the
related Depositary Shares in proportion to the number of such Depositary
Receipts owned by such holders, subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain charges and
expenses to such Preferred Stock Depositary.
In the event of a distribution other than in cash, a Preferred Stock
Depositary will be required to distribute property received by it to the record
holders of Depositary Receipts entitled thereto, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to such Preferred Stock Depositary, unless such Preferred
Stock Depositary determines that it is not feasible to make such distribution,
in which case such Preferred Stock Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
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No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock which has been converted or
exchanged before the record date for such distribution.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the applicable Preferred Stock Depositary (unless the related Depositary Shares
have previously been called for redemption or converted), the holders thereof
will be entitled to delivery at such office, to or upon each such holder's
order, of the number of whole or fractional shares of the applicable Preferred
Stock and any money or other property represented by the Depositary Shares
evidenced by such Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related Preferred Stock on
the basis of the proportion of Preferred Stock represented by each Depositary
Share as specified in the applicable Prospectus Supplement, but holders of such
shares of Preferred Stock will not thereafter be entitled to receive Depositary
Shares therefor. If the Depositary Receipts delivered by the holder evidence a
number of Depositary Shares in excess of the number of Depositary Shares
representing the number of shares of Preferred Stock to be withdrawn, the
applicable Preferred Stock Depositary will be required to deliver to such holder
at the same time a new Depositary Receipt evidencing such excess number of
Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by a Preferred
Stock Depositary, such Preferred Stock Depositary will be required to redeem as
of the same redemption date the number of Depositary Shares representing shares
of the Preferred Stock so redeemed, provided the Company shall have paid in full
to such Preferred Stock Depositary the redemption price of the Preferred Stock
to be redeemed plus an amount equal to any accrued and unpaid dividends thereon
to the date fixed for redemption. The redemption price per Depositary Share will
be equal to the redemption price and any other amounts per share payable with
respect to the Preferred Stock. If fewer than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Company that preserves the REIT
status of the Company.
From and after the date fixed for redemption, all dividends in respect of
the shares of Preferred Stock so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the applicable Preferred Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the
applicable Preferred Stock are entitled to vote, a Preferred Stock Depositary
will be required to mail the information contained in such notice of meeting to
the record holders of the Depositary Receipts evidencing the Depositary Shares
which represent such Preferred Stock. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Stock) will be entitled to instruct such
Preferred Stock Depositary as to the exercise of the voting rights pertaining to
the amount of Preferred Stock represented by such holder's Depositary Shares.
Such Preferred Stock Depositary will be required to vote the amount of Preferred
Stock represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action which may
be deemed necessary by such Preferred Stock Depositary in order to enable such
Preferred Stock Depositary to do so. Such Preferred Stock Depositary will be
required to abstain from voting the amount of Preferred Stock represented by
such Depositary Shares to the extent it does not receive specific instructions
from the holders of Depositary Receipts evidencing such Depositary Shares. A
Preferred Stock Depositary will not be responsible for any failure to carry out
any instruction to vote, or for the manner or effect of any such vote made, as
long as any such action or non-
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action is in good faith and does not result from negligence or willful
misconduct of such Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Share evidenced by such Depositary
Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common Stock
or any other securities or property of the Company. Nevertheless, if so
specified in the applicable Prospectus Supplement relating to an offering of
Depositary Shares, the Depositary Receipts may be surrendered by holders thereof
to the applicable Preferred Stock Depositary with written instructions to such
Preferred Stock Depositary to instruct the Company to cause conversion of the
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into whole shares of Common Stock, other shares of Preferred
Stock of the Company or other shares of stock, and the Company will agree that
upon receipt of such instructions and any amounts payable in respect thereof, it
will cause the conversion thereof utilizing the same procedures as those
provided for delivery of Preferred Stock to effect such conversion. If the
Depositary Shares evidenced by a Depositary Receipt are to be converted in part
only, a new Depositary Receipt or Receipts will be issued for any Depositary
Shares not to be converted. No fractional shares of Common Stock will be issued
upon conversion, and if such conversion will result in a fractional share being
issued, an amount will be paid in cash by the Company equal to the value of the
fractional interest based upon the closing price of the Common Stock on the last
business day prior to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
Any form of Depositary Receipt evidencing Depositary Shares which will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between the Company and the
applicable Preferred Stock Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts or that
would be materially and adversely inconsistent with the rights granted to the
holders of the related Preferred Stock will not be effective unless such
amendment has been approved by the existing holders of at least two-thirds of
the applicable Depositary Shares evidenced by the applicable Depositary Receipts
then outstanding. No amendment shall impair the right, subject to certain
anticipated exceptions in the Deposit Agreements, of any holders of Depositary
Receipts to surrender any Depositary Receipt with instructions to deliver to the
holder the related Preferred Stock and all money and other property, if any,
represented thereby, except in order to comply with law. Every holder of an
outstanding Depositary Receipt at the time any such amendment becomes effective
shall be deemed, by continuing to hold such Depositary Receipt, to consent and
agree to such amendment and to be bound by the applicable Deposit Agreement as
amended thereby.
A Deposit Agreement will be permitted to be terminated by the Company upon
not less than 30 days' prior written notice to the applicable Preferred Stock
Depositary if (i) such termination is necessary to preserve the Company's status
as a REIT or (ii) a majority of each series of Preferred Stock affected by such
termination consents to such termination, whereupon such Preferred Stock
Depositary will be required to deliver or make available to each holder of
Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional shares of Preferred Stock as are
represented by the Depositary Shares evidenced by such Depositary Receipts
together with any other property held by such Preferred Stock Depositary with
respect to such Depositary Receipts. The Company will agree that if a Deposit
Agreement is terminated to preserve the Company's status as a REIT, then the
Company will use its best efforts to list the Preferred Stock issued upon
surrender of the related Depositary Shares on a national securities exchange. In
addition, a Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares thereunder shall have been redeemed, (ii) there
shall have been a final distribution in respect of the related Preferred Stock
in connection with any liquidation, dissolution or winding up of the Company and
such distribution
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shall have been distributed to the holders of Depositary Receipts evidencing the
Depositary Shares representing such Preferred Stock or (iii) each share of the
related Preferred Stock shall have been converted into stock of the Company not
so represented by Depositary Shares.
CHARGES OF A PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of a Deposit Agreement. In addition, the
Company will pay the fees and expenses of a Preferred Stock Depositary in
connection with the performance of its duties under a Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of a
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the applicable
Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
A Preferred Stock Depositary will be permitted to resign at any time by
delivering to the Company notice of its election to do so, and the Company will
be permitted at any time to remove a Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
A Preferred Stock Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from the Company which are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.
Neither a Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under a Deposit Agreement. The obligations of the
Company and a Preferred Stock Depositary under a Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Stock represented by the applicable Depositary Shares), gross negligence or
willful misconduct, and neither the Company nor any applicable Preferred Stock
Depositary will be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of Preferred
Stock represented thereby unless satisfactory indemnity is furnished. The
Company and any Preferred Stock Depositary will be permitted to rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of Preferred Stock represented thereby for deposit, holders of Depositary
Receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
In the event a Preferred Stock Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and the Company on the other hand, such Preferred Stock Depositary shall
be entitled to act on such claims, requests or instructions received from the
Company.
BOOK-ENTRY SECURITIES
The Securities may be issued in whole or in part in book-entry form,
meaning that beneficial owners of the Securities will not receive certificates
representing their ownership interests in the Securities, except in the event
the book-entry system for the Securities is discontinued. If the Securities are
issued in book-entry form, they will be issued, the form of one or more global
securities (the 'Global Securities'), which will be deposited with, or on behalf
of, a depository identified in the applicable Prospectus Supplement relating to
such series. Global Securities may be issued in either registered or bearer form
and in either temporary or permanent form. The specific terms of the depository
arrangement with respect to a class or series of Securities issued in book-entry
form will be described in the applicable Prospectus Supplement relating to such
class or series.
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FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes the material federal income tax
considerations to a prospective holder of Common Stock. The following
discussion, which is not exhaustive of all possible tax considerations, does not
give a detailed discussion of any state, local or foreign tax considerations.
Nor does it discuss all of the aspects of federal income taxation that may be
relevant to a prospective Security holder in light of his or her particular
circumstances or to certain types of Security holders (including insurance
companies, tax-exempt entities, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) who are subject to special treatment under the federal income tax laws.
If the Company offers one or more series of Preferred Stock, Depositary Shares,
Common Stock Warrants or Debt Securities, then there may be tax consequences for
the holders of such Securities not discussed herein. For a discussion of any
such additional consequences, see the applicable Prospectus Supplement.
As discussed below, the Taxpayer Relief Act of 1997 (the '1997 Act')
contains certain changes to the REIT qualification requirements and to the
taxation of REITs that may be material to a holder of Common Stock, but which
will become effective only for the Company's taxable years commencing on or
after January 1, 1998.
As used under this heading, the term 'Company' refers solely to CarrAmerica
Realty Corporation.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF SECURITIES OF 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 was organized and has operated in a manner so as to
qualify for taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner. 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 has satisfied or will satisfy 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.
In any year in which 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.
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Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) that is managed by one or more trustees or directors,
(2) the beneficial ownership of which is evidenced by transferable shares of
stock, or by transferable certificates of beneficial interest, (3) that would be
taxable as a domestic corporation, but for Sections 856 through 859 of the Code,
(4) that is neither a financial institution nor an insurance company subject to
certain provisions of the Code, (5) the beneficial ownership of which is held by
100 or more persons, (6) that during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities), and (7) that meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(1) 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 conditions
(5) and (6). See 'Description of Common Stock--Restrictions on Transfer.'
Moreover, pursuant to the 1997 Act, for the Company's taxable years commencing
on or after January 1, 1998, if the Company complies with regulatory rules
pursuant to which it is required to send annual letters to holders of its
capital stock requesting information regarding the actual ownership of the
capital stock, and the Company does not know, or exercising reasonable diligence
would not have known, whether it failed to meet requirement (6) above, the
Company will be treated as having met the requirement.
Income Tests. In order to maintain qualification as a REIT, the Company
must satisfy three gross income requirements, which are applied on an annual
basis. First, at least 75% of the Company'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 Company'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, for its taxable years ending on or before December 31, 1997,
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 Company's
gross income (including gross income from prohibited transactions). Pursuant to
the 1997 Act, the Company will not have to meet the 30% test for its taxable
years commencing on or after January 1, 1998.
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 are 'usually or customarily rendered' in connection with the rental
space for occupancy only and are not otherwise considered 'rendered to the
occupant' ('Permissible Services'). The Company will provide certain services
with respect to the properties through entities that do not satisfy the
'independent contractor' requirements described above. The Company has received
a ruling from the IRS that the provision of certain services will not cause the
rents received with respect to the properties to fail to qualify as 'rents from
real property.' Based upon the IRS ruling and its experience in the office
rental markets in which the Company's properties are located, the Company
believes that all services provided to tenants will be considered 'usually or
customarily rendered' in connection with the rental of office space for
occupancy only, although there can be 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
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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.
Pursuant to the 1997 Act, for the Company's taxable years commencing on or
after January 1, 1998, rents received generally will qualify as rents from real
property notwithstanding the fact that the Company provides services that are
not Permissible Services so long as the amount received for such services meets
a de minimis standard. The amount received for 'impermissible services' with
respect to a property (or, if services are available only to certain tenants,
possibly with respect to such tenants) cannot exceed one percent of all amounts
received, directly or indirectly, by the Company with respect to such property
(or, if services are available only to certain tenants, possibly with respect to
such tenants). The amount that the Company will be deemed to have received for
performing 'impermissible services' will be the greater of the actual amount so
received or 150% of the direct cost to the Company of providing those services.
The Company may receive fees in consideration of the performance of
management and administrative services with respect to properties that are not
owned entirely by the Company. A portion of such management and administrative
fees (corresponding to that portion of a property owned by a third party)
generally will not qualify under the 75% or 95% gross income tests. The Company
also may receive other types of income with respect to the properties that it
owns that will not qualify for the 75% or 95% gross income tests. The Company
believes, however, that the aggregate amount of such fees and other
non-qualifying income in any taxable year will not cause the Company to exceed
the limits on non-qualifying income under the 75% and 95% gross income tests.
If the Company fails to satisfy one or both of the 75% or 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 100% 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. At the close of each quarter of its taxable year, the Company
also must satisfy the following 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. or
CarrAmerica 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). The Company owns
directly all of the non-voting stock, representing 95% of the equity, of
OmniOffices and CarrAmerica Development & Construction. 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.
(Carr Services, Inc., OmniOffices and CarrAmerica Development & Construction are
referred to collectively herein as the 'Non-qualified REIT Subsidiaries.')
Neither Carr Realty, L.P., CarrAmerica Realty, L.P., nor the Company will own
more than 10% of the voting securities of any Non-qualified REIT Subsidiary.
There can be no assurance, however, that the IRS might not contend that the
arrangements between the Company and the non-qualified REIT subsidiaries are
such that the Company should be considered to own more than 10% of the voting
securities of one or both of these entities. 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. and CarrAmerica Realty, L.P. owned by the Company will
not exceed 5% of the total value of the Company's assets. There can be no
assurance, however, that the IRS might not contend otherwise. Although the
Company plans to take steps to ensure that it continues to satisfy the 5% test,
there can be no assurance that such steps will be successful or will not require
a reduction in the Company's overall interest in one or more of the
Non-qualified REIT Subsidiaries.
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Annual Distribution Requirements. To qualify as a REIT, the Company
generally must distribute to its shareholders at least 95% of its income
(excluding any net capital gains) from each taxable year either during such
taxable year or, if certain procedures are followed, during the subsequent
taxable year. The Company will be subject to tax on amounts not distributed at
regular capital gains and ordinary corporate tax rates. With respect to income
distributed during a year subsequent to the year in which it was earned by the
Company, if the Company does not pay federal income tax with respect to such
income, the Company may be subject to a 4% excise tax on such income.
The Company believes that it has made, and intends to continue to make,
timely distributions sufficient to satisfy the annual distribution requirements.
It is possible, however, that the Company, from time to time, may not have
sufficient cash or liquid assets to meet the 95% distribution requirement. In
that event, the Company may arrange for short-term, or possibly long-term,
borrowing to permit the payments of required dividends.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year, the Company will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Unless entitled to relief under specific statutory provisions, the
Company also will be disqualified from taxation as a REIT for the four taxable
years following the year during which qualification was lost. It is not possible
to state whether in all circumstances the Company would be entitled to such
statutory relief.
TAXATION OF HOLDERS OF COMMON STOCK
Taxation of Taxable Domestic Shareholders. As long as the Company qualifies
as a REIT, distributions made to the Company's taxable domestic shareholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by them as ordinary income, and
corporate shareholders will not be eligible for the dividends received deduction
as to such amounts. For purposes of determining whether distributions on the
shares of Common Stock are out of current or accumulated earnings and profits,
the earnings and profits of the Company will be allocated first to shares of
Preferred Stock, if any, and second to the shares of Common Stock. There can be
no assurance that the Company will have sufficient earnings and profits to cover
distributions on any shares of Preferred Stock.
Distributions that are designated as capital gain dividends will be taxed
as gains from the sale or exchange of a capital asset held for more than one
year (to the extent they do not exceed the Company's actual net capital gain for
the taxable year) without regard to the period for which the shareholder has
held its stock. Corporate shareholders, however, may be required to treat up to
20% of certain capital gain dividends as ordinary income.
As described below in '--Recent Legislation,' the 1997 Act changed
significantly the taxation of capital gains by taxpayers who are individuals,
estates, or trust. It is not clear whether, for the taxable domestic shareholder
who is an individual or an estate or trust, amounts designated as capital gain
dividends will be taxable at the rate applicable to mid-term capital gains
(i.e., gains from the sale of capital assets held for more than one year but not
more than 18 months) or at the rate applicable to long-term capital gains (i.e.,
gains from the sale of capital assets held for more than 18 months). This
uncertainty may be clarified by future legislation or regulations.
Distributions in excess of current or accumulated earnings and profits will
not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares of Common Stock, but rather will
reduce the adjusted basis of such shares of Common Stock. To the extent that
such distributions exceed the adjusted basis of a shareholder's shares of Common
Stock, they will be included in income as capital gains, assuming the shares of
Common Stock are a capital asset in the hands of the shareholder.
In general, a domestic shareholder will realize capital gain or loss on the
disposition of shares of Common Stock equal to the difference between (i) the
amount of cash and the fair market value of any property received on such
disposition and (ii) the shareholder's adjusted basis of such shares of
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Common Stock. With respect to dispositions occurring after July 28, 1997, in the
case of a taxable domestic shareholder who is an individual or an estate or
trust, such gain or loss will be mid-term capital gain or loss if such shares
have been held for more than one year but not more than 18 months and long-term
capital gain or loss if such shares have been held for more than 18 months. In
the case of a taxable domestic shareholder that is a corporation, such gain or
loss will be long-term capital gain or loss if such shares have been held for
more than one year. Loss upon a sale or exchange of shares of Common Stock by a
shareholder who has held such shares of Common Stock for six months or less
(after applying certain holding period rules) will be treated as a long-term
capital loss to the extent of distributions from the Company required to be
treated by such shareholder as long-term capital gain.
Pursuant to the 1997 Act, for the Company's taxable years commencing on or
after January 1, 1998, the Company may elect to require the holders of Common
Stock to include the Company's undistributed net capital gains in their income.
If the Company makes such an election, the holders of Common Stock will (i)
include in their income as long-term capital gains their proportionate share of
such undistributed capital gains and (ii) be deemed to have paid their
proportionate share of the tax paid by the Company on such undistributed capital
gains and thereby receive a credit or refund for such amount. A holder of Common
Stock will increase the basis in its Common Stock by the difference between the
amount of capital gain included in its income and the amount of the tax it is
deemed to have paid. The earnings and profits of the Company will be adjusted
appropriately. As described below in '--Recent Legislation,' with respect to
such long-term capital gain of a taxable domestic shareholder that is an
individual or an estate or trust, the IRS has authority to issue regulations
that could apply the special tax rate applicable to sales of depreciable real
property by an individual or an estate or trust to the portion of the long-term
capital gains of an individual or an estate or trust attributable to deductions
for depreciation taken with respect to depreciable real property.
Backup Withholding. The Company will report to its domestic shareholders
and the IRS the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number and
certifies as to no loss of exemption from backup withholding. Amounts withheld
as backup withholding will be creditable against the stockholder's income tax
liability. In addition, the Company may be required to withhold a portion of
capital gain distributions made to any shareholders who fail to certify their
non-foreign status to the Company. See '--Taxation of Non-U.S. Shareholders'
below. Additional issues may arise pertaining to information reporting and
backup withholding with respect to Non-U.S. Shareholders (persons other than (i)
citizens or residents of the United States, (ii) corporations, partnerships or
other entities created or organized under the laws of the United States or any
political subdivision thereof, and (iii) estates or trusts the income of which
is subject to United States federal income taxation regardless of its source)
and Non-U.S. Shareholders should consult their tax advisors with respect to any
such information reporting and backup withholding requirements.
The Treasury Department has recently issued proposed regulations regarding
the withholding and information reporting rules discussed above. In general, the
proposed regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify and modify reliance standards. If finalized in their current form, the
proposed regulations would generally be effective for payments made after
December 31, 1997, subject to certain transition rules.
Taxation of Tax-Exempt Shareholders. As a general rule, amounts distributed
to a tax-exempt entity do not constitute 'unrelated business taxable income'
('UBTI'), and thus distributions by the Company to a stockholder that is a
tax-exempt entity should also not constitute UBTI, provided that the tax-exempt
entity has not financed the acquisition of its shares of Common Stock with
'acquisition indebtedness' within the meaning of the Code and the shares of
Common Stock are 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%
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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 5%, (ii) the REIT qualifies as a REIT only because the pension trust is
not treated as a single individual for purposes of the 'five-or-fewer rule' (see
'--Taxation of the Company--Requirements for Qualification' above), and (iii)
(A) one pension trust owns more than 25 percent of the value of the REIT or, (B)
a group of pension trusts individually holding more than 10 percent of the value
of the REIT collectively own more than 50 percent of the value of the REIT. The
Company currently does not expect that this rule will apply.
Taxation of Non-U.S. Shareholders. The rules governing U.S. federal income
taxation of Non-U.S. Shareholders are complex, and no attempt will be made
herein to provide more than a limited summary of such rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of U.S. federal, state and local income tax laws with regard to an
investment in Common Stock, including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
the Company of U.S. real property interests and not designated by the Company as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions, ordinarily, will be subject to a withholding
tax equal to 30% of the gross amount of the distribution unless an applicable
tax treaty reduces that tax. Distributions in excess of current and accumulated
earnings and profits of the Company will not be taxable to a Non-U.S.
Shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's Common Stock, but rather will reduce the adjusted basis of such
Common Stock. To the extent that such distributions exceed the adjusted basis of
a Non-U.S. Shareholder's Common Stock, they will give rise to tax liability if
the Non-U.S. Shareholder would otherwise be subject to tax on any gain from the
sale or disposition of its Common Stock as described below. As a result of a
legislative change made by the Small Business Job Protection Act of 1996, it
appears that the Company will be required to withhold 10% of any distribution in
excess of the Company's current and accumulated earnings and profits.
Consequently, although the Company intends to withold at a rate of 30% on the
entire amount of any distribution (or a lower applicable treaty rate), to the
extent that the Company does not do so, any portion of a distribuion not subject
to withholding at a rate of 30% (or a lower applicable treaty rate) will be
subject to withholding at a rate of 10%. However, the Non-U.S. Shareholder may
seek from the IRS 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, and the amount withheld
exceeded the Non-U.S. Shareholder's United States tax liability, if any, with
respect to the distribution.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ('FIRPTA') at the
normal capital gain rates applicable to domestic shareholders (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). Also, distributions subject to FIRPTA
may be subject to a 30% branch profits tax in the hands of a corporate Non-U.S.
Shareholder not entitled to treaty relief or exemption. The Company is required
by applicable Treasury Regulations to withhold 35% of any distribution that is
or could be designated by the Company as a capital gain dividend. The amount
withheld is creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Although the law is not entirely clear on the matter, it appears that
amounts designated by the Company pursuant to the 1997 Act as undistributed
capital gains in respect of shares of Common Stock (see 'Taxation of
Shareholders--Taxation of Taxable Domestic Shareholders' above) would be treated
with respect to Non-U.S. Shareholders in the manner outlined in the preceding
paragraph for actual distributions by the Company of capital gain dividends.
Under that approach, the Non-U.S. Shareholders would be able to offset as a
credit against their United States federal income tax
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liability resulting therefrom their proportionate share of the tax paid by the
Company on such undistributed capital gains (and to receive from the IRS a
refund to the extent their proportionate share of such tax paid by the Company
were to exceed their actual United States federal income tax liability).
Gain recognized by a Non-U.S. Shareholder upon a sale of Common Stock
generally will not be taxed under FIRPTA if the Company is a 'domestically
controlled REIT,' defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. As of September 30, 1997, SC-USREALTY held
approximately 42.6% in value of the outstanding Common Stock of the Company. In
the event that SC-USREALTY and other stockholders of the Company who are
Non-U.S. Shareholders own collectively 50% or more, in value, of the outstanding
stock of the Company, the Company would cease to be a 'domestically controlled
REIT.'
If the Company does not qualify as a 'domestically controlled REIT,' a
Non-U.S. Shareholder's sale of securities of the Company generally still will
not be subject to U.S. tax under FIRPTA as a sale of a U.S. real property
interest, provided that (i) the securities are 'regularly traded' (as defined by
the applicable Treasury Regulations) on an established securities market, and
(ii) the selling Non-U.S. Shareholder held 5% or less of the value of any class
or series of the Company's outstanding securities at all times during a
specified testing period. The Company believes that the Common Stock would be
considered to be 'regularly traded' for this purpose, and the Company has no
actual knowledge of any Non-U.S. Shareholder (other than SC-USREALTY) that holds
in excess of 5% of the Company's capital stock. In order to assist the Company
in qualifying as a 'domestically controlled REIT,' the Articles of Incorporation
contain certain provisions preventing any Non-U.S. Shareholder (other than
SC-USREALTY and its affiliates) from acquiring additional shares of the
Company's capital stock if, as a result of such acquisition, the Company would
fail to qualify as a 'domestically controlled REIT' (computed assuming that
SC-USREALTY owns the maximum percentage of the Company's capital stock that
SC-USREALTY is permitted to own under the Special Shareholder Limit). The
Company is unlikely to be able to advise a prospective Non-U.S. Shareholder that
its purchase of any shares of the Company's capital stock would not violate this
prohibition, thereby subjecting such prospective Non-U.S. Shareholder to the
adverse consequences described under 'Description of Common Stock-- Restrictions
on Transfer--Violation of Ownership Limits.' Accordingly, an acquisition of the
Company's capital stock would not likely be a suitable investment for Non-U.S.
Shareholders other than SC-USREALTY.
If the gain on the sale of Common Stock were to be subject to tax under
FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as
domestic shareholders with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals), and the purchaser of the Common Stock would be
required to withhold and remit to the IRS 10% of the purchase price.
RECENT LEGISLATION
As described above, 1997 Act contains certain changes to the REIT
qualification requirements and to the taxation of REITs. The 1997 Act also
contains certain changes to the taxation of capital gains of individuals, trusts
and estates.
Capital Gain Rates. Subject to certain exceptions, for individuals, trusts
and estates the maximum rate of tax on the net capital gain from a sale or
exchange occurring after July 28, 1997 of a long-term capital asset (i.e., a
capital asset held for more than 18 months) has been reduced to from 28% to 20%.
The maximum rate has been reduced to 18% for capital assets acquired after
December 21, 2000 and held for more than five years. The maximum rate for
mid-term capital assets (i.e., capital assets held for more than one year but
not more than 18 months) remains at 28%. The maximum rate for net capital gains
attributable to the sale of depreciable real property held for more than 18
months in 25% to the extent of the prior deductions for 'unrecaptured Section
1250 gain' (that is depreciation deductions not otherwise recaptured as ordinary
income under the existing depreciation recapture rules). Capital gain from the
sale of depreciable real property held for more than 18 months allocated by the
Company to a
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non-corporate shareholder will be subject to the 25% rate to the extent that the
capital gain on the real property sold by the Company does not exceed prior
depreciation deductions with respect to such property. The 1997 Act provides the
IRS with authority to issue regulations that could, among other things, apply
these rates on a look-through basis in the case of 'pass-through' entities such
as the Company. The taxation of capital gains of corporations was not changed by
the 1997 Act.
REIT Provisions. In addition to the provisions discussed above, the 1997
Act contains a number of technical provisions that either (i) reduce the risk
that the Company will inadvertently cease to qualify as a REIT, or (ii) provide
additional flexibility with which the Company can meet the REIT qualification
requirements. These provisions are effective for the Company's taxable years
commencing on or after January 1, 1998.
OTHER TAX CONSIDERATIONS
Entity Classification. A significant number of the Company's investments
are through Carr Realty, L.P. and CarrAmerica Realty, L.P. If either Carr
Realty, L.P. or CarrAmerica Realty, L.P. were treated as an association, the
entity would be taxable as a corporation and therefore would be subject to an
entity level tax on its income. In such a situation, the character of the
Company's assets and items of gross income would change and would preclude the
Company from qualifying as a REIT (see 'Taxation of the Company--Income Tests'
and '--Asset Tests').
Prior to January 1, 1997, an organization formed as a partnership or a
limited liability company was treated as a partnership for federal income tax
purposes rather than as a corporation only if it had no more than two of the
four corporate characteristics that the Treasury Regulations in effect at that
time used to distinguish a partnership from a corporation for tax purposes.
These four characteristics were (i) continuity of life, (ii) centralization of
management, (iii) limited liability and (iv) free transferability of interests.
Under final Treasury Regulations which became effective January 1, 1997, the
four factor test has been eliminated and an entity formed as a partnership or as
a limited liability company will be taxed as a partnership for federal income
tax purposes, unless it specifically elects otherwise. The Regulations provide
that the IRS will not challenge the classification of an existing partnership or
limited liability company for tax periods prior to January 1, 1997, so long as
(1) the entity had a reasonable basis for its claimed classification, (2) the
entity and all of its members recognized the federal income tax consequences of
any changes in the entity's classification within the 60 months prior to January
1, 1997, and (3) neither the entity nor any member of the entity had been
notified in writing on or before May 8, 1996, that the classification of the
entity was under examination by the IRS.
The Company believes that Carr Realty, L.P. and CarrAmerica Realty, L.P.
each will be treated as a partnership for federal income tax purposes (and not
as an association taxable as a corporation).
Tax Allocations with Respect to the Properties. 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
partnership agreements of each of Carr Realty, L.P. and CarrAmerica Realty, L.P.
require that allocations of income, gain, loss and deduction with respect to
each property contributed to those partnerships 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 such
contributed properties over the life of the partnership. 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 such contributed properties in the hands of Carr Realty, L.P.
or CarrAmerica Realty, L.P., as applicable could cause the Company to be
allocated lower amounts of depreciation and other deductions for tax purposes
than would be allocated to the Company if all such contributed properties were
to have a tax basis equal to their fair market values at the time such
properties were contributed to Carr Realty, L.P. or CarrAmerica Realty, L.P., as
applicable. The foregoing rules also apply for purposes of determining the
Company's earnings and profits. The
40
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application of such rules over time could result in a higher portion of
distributions to shareholders being taxed as dividends. See '--Taxation of
Holders of Common Stock.'
Non-Qualified REIT Subsidiaries. The Non-qualified REIT Subsidiaries do not
qualify as REITs and thus pay federal, state and local income taxes (including
District of Columbia franchise tax) on their net income at normal corporate
rates. To the extent the Non-qualified REIT Subsidiaries are required to pay
federal, state and local income taxes, the cash available for distribution to
stockholders will be reduced accordingly.
State and Local Taxes; District of Columbia Unincorporated Business Tax.
The Company and its stockholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the federal income tax consequences
discussed above. In this regard, the District of Columbia imposes an
unincorporated business income tax, at the rate of 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 Carr Realty, L.P.'s properties
located in the District of Columbia will be subject to the District of Columbia
tax. To the extent Carr Realty, L.P. is required to pay the District of Columbia
unincorporated business income tax, the cash available for distribution to the
Company and, therefore, to its stockholders as dividends will be reduced
accordingly. This tax would not apply if the Company were to own and operate its
assets directly, rather than through Carr Realty, L.P.; however, the Company's
ability to eliminate Carr Realty, L.P. and thus own directly the assets
currently owned by Carr Realty, L.P. is severely limited.
PLAN OF DISTRIBUTION
GENERAL
The Company may sell Securities in or through underwriters for public offer
and sale by them, and also may sell Securities offered hereby to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer and sell
Securities upon terms and conditions set forth in the applicable Prospectus
Supplement. In connection with the sale of the Securities, underwriters may be
deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of the Securities for whom they may act as agent. Underwriters may
sell Securities to or through dealers, and such dealers may receive compensation
in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of the Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Securities may be deemed to
be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements to be entered into with the
Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
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If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
at the public offering price set forth in such Prospectus Supplement pursuant to
delayed delivery contracts ('Contracts') providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount not less than, and the aggregate principal amount of Securities
sold pursuant to Contracts shall be neither less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions, but will in all cases be
subject to the approval of the Company. Contracts will not be subject to any
conditions except (i) the purchase by an institution of the Securities covered
by its Contracts shall not at the time of delivery be prohibited under the laws
of any jurisdiction in the United States to which such institution is subject,
and (ii) if the Securities are being sold to underwriters, the Company shall
have sold to such underwriters the total principal amount of the Securities less
the principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and its
Subsidiaries in the ordinary course of business.
PARTICIPATION RIGHTS
In conjunction with the SC-USREALTY Transaction, so long as SC-USREALTY
owns at least 25% of the outstanding Common Stock of the Company on a fully
diluted basis, SC-USREALTY will be entitled (except in certain limited
circumstances), upon compliance with certain specified conditions, to a
participation right to purchase or subscribe for, either as part of such
issuance or in a concurrent issuance, a total number of shares of Common Stock
or Preferred Stock, as the case may be, equal to up to 30% (or 35% in certain
circumstances) of the total number of shares or of Common Stock or Preferred
Stock, as applicable, proposed to be issued by the Company. All purchases
pursuant to such participation rights will be at the same price and on the same
terms and conditions as are applicable to other purchasers hereunder.
LEGAL MATTERS
The legality of the Debt Securities, the Preferred Stock, the Depositary
Shares, the Common Stock and the Common Stock Warrants offered hereby have been
passed upon for the Company by Hogan & Hartson L.L.P., Washington, D.C. Certain
federal income tax matters have been passed upon for the Company by Hogan &
Hartson L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements and schedule of CarrAmerica Realty
Corporation and subsidiaries as of December 31, 1996 and 1995 and for each of
the years in the three-year period ended December 31, 1996 have been
incorporated herein by reference in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the 'Commission'). Such reports, proxy
statements and other information can be inspected and copied at the Public
Reference Section maintained by the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 and the following regional offices of the
Commission: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material also can be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street,
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N.W., Washington, D.C. 20549, upon receipt of the fees prescribed by the rules
and regulations of the Commission. Such material also may be accessed
electronically by means of the Commission's web site on the Internet at
'http://www.sec.gov'. The Company's Common Stock is listed on the New York Stock
Exchange, and reports, proxy statements and other information concerning the
Company can be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (the 'Registration Statement'), of which this Prospectus is a part, under
the Securities Act of 1933, as amended (the 'Securities Act'), with respect to
the Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Securities, reference is hereby made to the
Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon receipt of
the fees prescribed by the rules and regulations of the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1996;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997; and
3. The Company's Current Reports on Form 8-K dated April 18, 1997,
June 20, 1997, June 20, 1997, June 23, 1997, June 26, 1997, July 1,
1997, July 1, 1997, July 11, 1997, August 4, 1997 (and a form 8-K/A
related thereto filed on August 8, 1997), August 12, 1997, August
14, 1997, August 28, 1997, October 30, 1997 and October 30, 1997.
All documents filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of all Securities to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and shall be part
hereof from the date of filing of such document.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in this
Prospectus (in the case of a statement in a previously filed document
incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of Securities
or in any other subsequently filed document that is also incorporated or deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
accompanying Prospectus Supplement. Subject to the foregoing, all information
appearing in this Prospectus and each accompanying Prospectus Supplement is
qualified in its entirety by the information appearing in the documents
incorporated by reference.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon their
written or oral request, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents). Written requests
for such copies should be addressed to Secretary, CarrAmerica Realty
Corporation, 1700 Pennsylvania Avenue, N.W., Washington, D.C. 20006 (telephone
number (202) 624-7500).
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary.................. S-3
The Company.................................... S-8
Recent Developments............................ S-11
Use of Proceeds................................ S-14
Capitalization................................. S-14
Management..................................... S-15
Description of Series C Preferred Shares and
Depositary Shares............................ S-16
Federal Income Tax Considerations.............. S-22
Legal Matters.................................. S-25
Underwriting................................... U-1
PROSPECTUS
The Company.................................... 2
Risk Factors................................... 3
Use of Proceeds................................ 9
Ratios of Earnings to Fixed Charges............ 9
Description of Debt Securities................. 10
Description of Preferred Stock................. 21
Description of Common Stock.................... 26
Description of Common Stock Warrants........... 28
Description of Depositary Shares............... 29
Book-Entry Securities.......................... 32
Federal Income Tax Considerations.............. 33
Plan of Distribution........................... 41
Legal Matters.................................. 42
Experts........................................ 42
Available Information.......................... 42
Incorporation of Certain Documents by
Reference.................................... 43
</TABLE>
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6,000,000 DEPOSITARY SHARES
CARRAMERICA
REALTY CORPORATION
EACH REPRESENTING 1/10 OF A SHARE OF 8.55% SERIES C CUMULATIVE REDEEMABLE
PREFERRED STOCK
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[LOGO]
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GOLDMAN, SACHS & CO.
LEGG MASON WOOD WALKER
INCORPORATED
J.P. MORGAN & CO.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
REPRESENTATIVES OF THE UNDERWRITERS
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