As filed with the Securities and Exchange Commission on February 26, 1997
Registration No. 333-22353
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT No. 1
To
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CARRAMERICA REALTY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Maryland 52-1796339
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1700 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
(202) 624-7500
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
Thomas A. Carr
1700 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
(202) 624-7500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
--------------
Copies to:
J. Warren Gorrell, Jr.
David W. Bonser
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, D.C. 20004-1109
Approximate date of commencement of proposed sale to the public: As soon as
possible after the effective date of this Registration Statement and from time
to time as determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed maximum Proposed maximum
Title of each class of Amount to be aggregate price per aggregate Amount of
securities to be registered registered(1) security(2) offering price(2) registration fee
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<S> <C> <C> <C> <C>
Debt Securities.........................
Preferred Stock.........................
Common Stock............................ $1,000,000,000 (3) $1,000,000,000 $ 303,030(4)
Common Stock Warrants..................
Depositary Shares......................
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(Footnotes on the following page)
The Registrant hereby amends the Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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</TABLE>
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(Footnotes continued from previous page)
(1) This Registration Statement also covers contracts which may be issued
by the Registrant under which the counterparty may be required to
purchase Debt Securities, Preferred Stock, Common Stock, Common Stock
Warrants or Depositary Shares. Such contracts would be issued with the
Debt Securities, Preferred Stock, Common Stock, Common Stock Warrants
and/or Depositary Shares covered hereby. In addition, Securities
registered hereunder may be sold separately, together or as units with
other Securities registered hereunder.
(2) Estimated solely for purposes of calculating the registration fee. No
separate consideration will be received for shares of Common Stock or
Preferred Stock that are issued upon conversion of Debt Securities,
Preferred Stock or Depositary Shares, or upon exercise of Common Stock
Warrants registered hereunder, as the case may be. The aggregate
maximum offering price of all Securities issued pursuant to this
Registration Statement will not exceed $1,000,000,000.
(3) Omitted pursuant to General Instruction II.D of Form S-3 under the
Securities Act of 1993, as amended.
(4) Filing fee previously paid.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
Subject to Completion
Preliminary Prospectus Dated March 26, 1997
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, $.01
par value ("Common Stock"), (iv) warrants exercisable for Common Stock ("Common
Stock Warrants"), and (iv) 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 2 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 March __, 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 value office properties in select suburban growth 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. The
Company's web site can be found at "http:www.carramerica.com."
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RISK FACTORS
Prospective investors should carefully consider, among other factors,
the matters described below.
Real Estate Investment Risks
General. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate and the
Company's ability to service debt will depend in large part on the amount of
income generated, expenses incurred and capital expenditures required 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, such as an over-supply of, or a
reduction in demand for, office space in the area where its properties are
located and the attractiveness of the properties to prospective tenants. In
addition, income from properties and real estate values also are affected by
such factors as the cost of compliance with government regulation, including
zoning and tax laws 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.
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 prepay or
refinance existing 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 equity holders or debt service. In addition, if a
property or properties are mortgaged to secure payment of indebtedness and the
Company is unable to meet mortgage payments, the mortgage securing the property
could be foreclosed upon by, or the property could be otherwise transferred to,
the mortgagee with a consequent loss of income and asset value to the Company.
Renewal of Leases and Reletting of Space. The Company is subject to the
risks that upon expiration of leases for space located at its properties, the
space may not be relet or the terms of the renewal or reletting (including the
cost of required renovations or concessions to tenants) may be less favorable
than current lease terms. In particular, as of December 31, 1996, one of the
Company's tenants leased space representing approximately 7.6%, respectively, of
the total rentable square footage of the Company's properties pursuant to leases
that expire beginning in 1998. Although the Company has established an annual
budget for renovation and reletting costs that it believes are reasonable in
light of each property's situation, no assurance can be given that this budget
will be sufficient to cover these costs. If the Company is unable to promptly
relet or renew leases for all or substantially all of the space at its
properties, if the rental rates upon such renewal or reletting are significantly
lower than expected, or if the Company's reserves for these purposes prove
inadequate, then the Company's cash provided by operating activities and ability
to make expected distributions to shareholders or debt service payments could be
adversely affected.
Possible Environmental Liabilities. Under various Federal, state and
local laws, ordinances and regulations, a current or previous owner or operator
of real estate may be required to investigate and clean up certain hazardous
substances released at the property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and cleanup
costs incurred by such parties in connection with the contamination. In
addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs it incurs in connection with the
contamination. The presence of contamination or the failure to remediate
contamination may adversely affect the owner's ability to sell or lease real
estate or to borrow using the real estate as collateral. The owner or operator
of a site may be liable under common law to third parties for damages and
injuries
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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.
Conflicts of Interest
Certain members of the Company's board of directors (the "Board") and
officers own limited partnership interests ("Units") of Carr Realty, L.P., a
partnership that owns certain of the Company's properties, and, thus, may have
interests that conflict with shareholders with respect to business decisions
affecting the Company and Carr Realty, L.P. In particular, a holder of Units may
suffer different and/or more adverse tax consequences than the Company upon the
sale or refinancing of some of the properties as a result of unrealized gain
attributable to certain properties. These Unit holders and the Company,
therefore, may have different objectives regarding the appropriate pricing and
timing of any sale or refinancing of properties. Although the Company, as the
sole general partner of Carr Realty, L.P., has the exclusive authority as to
whether and on what terms to sell or refinance an individual property, these
Unit holders might seek to influence the Company not to sell or refinance the
properties, even though such sale might otherwise be financially advantageous to
the Company, or may seek to influence the Company to refinance a property with a
higher level of debt than would be in the best interests of the Company.
Although the Company believes that the change in 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.
Acquisition and Development Risks
The Company intends to continue acquiring and developing office
properties in markets where it believes that such acquisition or development is
consistent with the business strategies of the Company. Acquisitions entail
risks that investments will fail to perform in accordance with expectations and
that judgments with respect to the costs of improvements to bring an acquired
property up to standards established for the market position intended for that
property will prove inaccurate, as well as general investment risks associated
with any new real estate investment. See "Real Estate Investment Risks" above.
New office development also is subject to a number of risks, including
construction delays or cost overruns that may increase project costs, financing
risks as described above, the failure to meet anticipated occupancy or rent
levels, failure to receive required zoning, occupancy and other governmental
permits and authorizations and changes in applicable zoning and land use laws,
which may result in the incurrence of development costs in connection with
projects that are not pursued to completion. In addition, because the Company
must distribute 95% of its taxable income in order to maintain its qualification
as a REIT, the Company anticipates that new acquisitions and developments will
be financed primarily through periodic equity offerings, lines of credit or
other forms of secured or unsecured construction financing. If permanent debt or
equity financing is not available on acceptable terms to refinance such new
acquisitions or developments are undertaken without permanent financing, further
acquisitions or development activities may be curtailed or cash available for
distribution to 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
value 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
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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 value office
properties in suburban growth markets, the Company has significantly expanded
its portfolio of office properties in 1996. These properties have a relatively
short operating history under the Company's management and they may have
characteristics or deficiencies unknown to the Company affecting their valuation
or revenue potential.
Dependence on Washington, D.C. Market
Although the Company's business strategy is to move toward a more
national business focus, at December 31, 1996, the Company's consolidated
Properties located in downtown Washington, D.C. represented approximately 19.3%
of the consolidated Properties in terms of rentable square footage. The
Company's performance and its ability to make expected distributions to
stockholders could be adversely affected by economic or other conditions in
downtown Washington, D.C. that are beyond the control of the Company.
Substantial Ownership of Common Stock
As of December 31, 1996, Security Capital Holdings S.A., a wholly owned
subsidiary of Security Capital U.S. Realty (collectively "USRealty") owned 43.4%
of the outstanding shares of the Company's Common Stock (37.3% of the Common
Stock on a fully-diluted basis), and USRealty has the right to nominate a
proportionate number of the directors of the Board based upon its ownership of
stock on a fully-diluted basis, rounded down to the nearest whole number (but in
no event more than 40% of the directors). As a result, USRealty is the largest
single stockholder of the Company, while no other stockholder is permitted to
own more than 5% of the Company's Common Stock, subject to certain exceptions
set forth in the Articles of Incorporation or approved by the Board. Although
certain standstill provisions preclude USRealty from increasing its percentage
interest in the Company 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 USRealty agreed to certain
limitations on its voting rights with respect to its shares of Common Stock,
USRealty nonetheless has a substantial influence over the affairs of the
Company. This concentration of ownership in one stockholder could potentially be
disadvantageous to other stockholders' interests. In addition, so long as
USRealty owns at least 25% of the outstanding Common Stock of the Company on a
fully diluted basis, USRealty will be entitled (except in certain limited
circumstances), upon compliance with certain specified conditions, to a
participation right to purchase or subscribe for, either as part of such
issuance or in a concurrent issuance, a total number of shares of Common Stock
or Preferred Stock, as the case may be, equal to up to 30% (or 35% in certain
circumstances) of the total number of shares or of Common Stock or Preferred
Stock, as applicable, proposed to be issued by the Company.
Limitations on Corporate Actions
In conjunction with the transaction in which USRealty acquired its
initial interest in the Company (the "USRealty Transaction"), the Company agreed
to certain limitations on its operations, including restrictions relating to
incurrence of additional indebtedness, retention of third-party managers for the
Company's properties, investments in properties other than office buildings,
issuances of Units by Carr Realty, L.P., and certain other matters. The Company
may take actions relating to these matters only with the consent of USRealty. In
addition, the Company has agreed to certain limitations on the amount of assets
that it owns indirectly through other entities and the manner in which it
conducts its business (including the types of assets that it can acquire and own
and the manner in which such assets are operated). These limitations, which are
intended to permit USRealty to comply with certain requirements of the Internal
Revenue Code and other countries' tax laws applicable to foreign investors,
limit somewhat the flexibility of the Company to structure transactions that
might otherwise be advantageous to the Company. Although the Company does not
believe that the limitations imposed on the Company's activities will materially
impair the Company's ability to conduct its business, there can be no assurance
that these limitations will not adversely affect the Company's operations in the
future.
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Management, Leasing and Brokerage Risks
The Company is subject to the risks associated with the property
management, leasing and brokerage businesses. These risks include the risk that
management contracts or service agreements with third-party owners will be lost
to competitors, that a property will be sold and the Company will lose the
contract, that contracts will not be renewed upon expiration or will not be
renewed on terms consistent with current terms and that leasing and brokerage
activity generally may decline. Each of these developments could adversely
affect the ability of the Company to make expected distributions to shareholders
or debt service payments.
Lack of Voting Control of Operating Subsidiaries
The Company does not have voting control of Carr Real Estate Services,
Inc. ("Carr Services, Inc.") or Carr Development & Construction, Inc. ("Carr
Development & Construction") (collectively, the "Operating Subsidiaries"). The
capital stock of Carr Services, Inc., which conducts fee-based management and
leasing, 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.
The capital stock of Carr Development & Construction which conducts
fee-based development, is divided into two classes: voting common stock, 99% and
1% of which is held by OCCO and the Company, respectively; and nonvoting common
stock, 96% and 4% of which is held by the Company and OCCO, respectively. OCCO,
as the holder of 99% of the voting common stock, has the ability to elect the
board of directors of Carr Development & Construction.
Oliver T. Carr, Jr., who is Chairman of the Board and Chief Executive
Officer and a significant stockholder of the Company, beneficially owns a
majority of the voting stock of OCCO, which will control the election of
directors of the Operating Subsidiaries. Although neither the right of Carr
Realty, L.P. or the Company, as applicable, to receive distributions with
respect to its equity interests in the Operating Subsidiaries nor the terms of
the promissory notes made by each of the Operating Subsidiaries and held by Carr
Realty, L.P. or the Company, as applicable, can be changed by OCCO, the Company
will not be able to elect directors of each of the Operating Subsidiaries, and
its ability to influence the day-to-day decisions of the Operating Subsidiaries
is limited. As a result, the board of directors and management of each of the
Operating Subsidiaries may implement business policies or decisions that might
not have been implemented by persons elected by the Company and that are adverse
to the interests of the Company or that lead to adverse financial results, which
could adversely impact the Company's operating income and funds from operations.
Changes in Policies
The major policies of the Company, including its policies with respect
to development, acquisitions, financing, growth, operations, debt capitalization
and distributions, are determined by its Board. 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
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continue to so operate. No assurance, however, can be given that the Company has
so qualified or will be able to remain so qualified. Qualification as a REIT
involves the application of highly technical and complex Code provisions as to
which there are only limited judicial and administrative interpretations.
Certain facts and circumstances that may be wholly beyond the Company's control
may affect its ability to qualify or to continue to qualify as a REIT. In
addition, no assurance can be given that new legislation, Treasury Regulations,
administrative interpretations or court decisions will not significantly change
the tax laws with respect to the qualification as a REIT or the Federal income
consequences of such qualification to the Company. If the Company fails to
qualify as a REIT, it will be subject to Federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. In addition, unless entitled to relief under certain statutory
provisions, the Company would be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification is lost. The
additional tax incurred in such event would significantly reduce the cash flow
available for distribution to shareholders and to meet debt service obligations.
See "Federal Income Tax Considerations -- Taxation of the Company."
REIT Distribution Requirements and Potential Impact of Borrowings. To
obtain the favorable tax treatment associated with qualifying as a REIT under
the Code, the Company generally is required each year to distribute to its
shareholders at least 95% of its net taxable income. See "Federal Income Tax
Considerations--Taxation of the Company (Annual Distribution Requirements)." In
addition, the Company will be subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions paid by it with respect to any
calendar year are less than the sum of 85% of its ordinary income, 95% of its
capital gain net income and 100% of its undistributed income from prior years.
Differences in timing between the receipt of income, the payment of expenses and
the inclusion of such income and the deduction of such expenses in arriving at
taxable income (of the Company or 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."
Consequences of Failure of the Carr Realty, L.P., CarrAmerica Realty,
L.P. or other Partnerships to be Treated as a Partnership. The Company believes
that the Carr Realty, L.P., CarrAmerica Realty, L.P. and each other partnership
and limited liability company in which it holds an interest are properly treated
as partnerships for Federal income tax purposes. See "Federal Income Tax
Considerations -- Other Tax Considerations (Effect of Tax Status of Carr Realty,
L.P., CarrAmerica Realty, L.P. and Other Partnerships on REIT Status)." If the
Internal Revenue Service (the "IRS") were to challenge successfully the tax
status of Carr Realty, L.P., CarrAmerica Realty, L.P., or any other partnership
in which the Company holds an interest, as a partnership for Federal income tax
purposes, Carr Realty, L.P., CarrAmerica Realty, L.P. or the affected
partnership would be taxable as a corporation. In such event, since the value of
the Company's ownership interest in Carr Realty, L.P. and CarrAmerica Realty,
L.P. exceeds, and the value of Carr Realty, L.P.'s ownership interest in the
affected partnership could exceed, 5% of the Company's assets, the Company could
cease to qualify as a REIT. See "Federal Income Tax Considerations -- Taxation
of the Company (Asset Tests)." In addition, the imposition of a corporate tax on
Carr Realty, L.P., CarrAmerica Realty, L.P. or any of the other partnerships in
which it holds an interest would reduce the amount of funds available for
distribution to the Company and its stockholders.
Special Considerations for Foreign Investors
In order to assist the Company in qualifshares ying 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 USRealty and its affiliates) from acquiring
additional shares of
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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 USRealty.
Price Fluctuations of the Common Stock and Trading Volume; Shares Available for
Future Sale
A number of factors may adversely influence the price of the Company's
Common Stock in the public markets, many of which are beyond the control of the
Company. These factors include possible increases in market interest rates,
which may lead purchasers of Common Stock to demand a higher annual yield from
distributions by the Company in relation to the price paid for Common Stock, the
relatively low daily trading volume of REITs in general, including the Common
Stock, and any inability of the Company to invest the proceeds of a future
offering of Securities in a manner that will increase earnings per share. Sales
of a substantial number of shares of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for shares.
The Company also may issue shares of Common Stock upon redemption of Units
issued in connection with the formation of the Company and subsequent
acquisitions. In addition, as of December 31, 1996, 1,436,900 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 USRealty Transaction, the Company granted USRealty the right
to require the Company to file, at any time requested by USRealty, a
registration statement under the Securities Act of 1933 covering all or any of
the shares of Common Stock acquired by USRealty. No prediction can be made about
the effect that future sales of Common Stock will have on the market prices of
shares.
Possible Adverse Consequences of Limits on Ownership of Shares
In order to assist the Company in maintaining its qualification as a
REIT, the Articles of Incorporation contain certain provisions generally
limiting the ownership of shares of capital stock by any single shareholder to
5% of the outstanding Common Stock and/or 5% of any class or series of Preferred
Stock (with exceptions for persons who received more than 5% of the equity of
the Company pursuant to the contribution of assets to the Company in connection
with the initial public offering of the Company and USRealty and its
affiliates). The Board could waive this restriction if it were satisfied that
ownership in excess of the above ownership limit would not jeopardize the
Company's status as a REIT and the Board otherwise decided such action would be
in the best interests of the Company. Capital stock acquired or transferred in
breach of the limitation will be automatically transferred to a trust for the
benefit of a designated charitable beneficiary. See "Description of Common Stock
- -- Restrictions on Transfer" for additional information regarding the limits on
ownership of shares of capital stock.
Restrictions on Acquisition and Change in Control
Various provisions of the Articles of Incorporation restrict the
possibility for acquisition or change in control of the Company, even if such
acquisition or change in control were in the shareholders' interest, including
the Ownership 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.
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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 was 1.75, 1.81, 1.91 and 1.74,
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.
Accordingly, the ratio of earnings to combined fixed charges and preferred stock
dividends is 1.71 for the year ended December 31, 1996.
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DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and
provisions of the Debt Securities to which this Prospectus and any applicable
Prospectus Supplement may relate. The particular terms of the Debt Securities
being offered and the extent to which such general provisions may apply will be
set forth in the applicable indenture or in one or more indentures supplemental
thereto and described in a Prospectus Supplement relating to such Debt
Securities. The forms of the Senior Indenture (as defined herein) and the
Subordinated Indenture (as defined herein) have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
General
The Debt Securities will be direct, unsecured obligations of the
Company and may be either senior Debt Securities ("Senior Securities") or
subordinated Debt Securities ("Subordinated Securities"). The Debt Securities
will be issued under one or more indentures (the "Indentures"). Senior
Securities and Subordinated Securities will be issued pursuant to separate
indentures (respectively, a "Senior Indenture" and a "Subordinated Indenture"),
in each case between the Company and a trustee (a "Trustee"). The Indentures
will be subject to and governed by the Trust Indenture Act of 1939, as amended
(the "TIA"). The statements made under this heading relating to the Debt
Securities and the Indentures are summaries of the anticipated provisions
thereof, do not purport to be complete and are qualified in their entirety by
reference to the Indentures and such Debt Securities. All section references
appearing herein are to sections of each Indenture unless otherwise indicated
and capitalized terms used but not defined below shall have the respective
meanings set forth in each Indenture.
The indebtedness represented by Subordinated Securities will be
subordinated in right of payment to the prior payment in full of the Senior Debt
of the Company as described under "Subordination."
Except as set forth in the applicable Indenture or in one or more
indentures supplemental thereto and described in a Prospectus Supplement
relating thereto, the Debt Securities may be issued without limit as to
aggregate principal amount, in one or more series, in each case as established
from time to time in or pursuant to authority granted by a resolution of the
Board of the Company or as established in the applicable Indenture or in one or
more indentures supplemental to such Indenture. All Debt Securities of one
series need not be issued at the same time and, unless otherwise provided, a
series may be reopened, without the consent of the Holders of the Debt
Securities of such series, for issuances of additional Debt Securities of such
series.
It is anticipated that each Indenture will provide that there may be
more than one Trustee thereunder, each with respect to one or more series of
Debt Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a director of a trust under the
applicable Indenture separate and apart from the trust administered by any other
Trustee, and, except as otherwise indicated herein, any action described herein
to be taken by each Trustee may be taken by each such Trustee with respect to,
and only with respect to, the one or more series of Debt Securities for which it
is Trustee under the applicable Indenture.
The Prospectus Supplement relating to any series of Debt Securities
being offered will contain the specific terms thereof, including, without
limitation:
(1) The title of such Debt Securities and whether such Debt
Securities are Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such Debt Securities and
any limit on such aggregate principal amount;
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(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;
(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;
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(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
(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
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transfer or exchange thereof at the corporate trust office of the applicable
Trustee. Every Debt Security surrendered for conversion, registration of
transfer or exchange must be duly endorsed or accompanied by a written
instrument of transfer. No service charge will be made for any registration of
transfer or exchange of any Debt Securities, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith. If the applicable Prospectus Supplement refers to any
transfer agent (in addition to the applicable Trustee) initially designated by
the Company with respect to any series of Debt Securities, the Company may at
any time rescind the designation of any such transfer agent or approve a change
in the location through which any such transfer agent acts, except that the
Company will be required to maintain a transfer agent in each place of payment
for such series. The Company may at any time designate additional transfer
agents with respect to any series of Debt Securities (Section 1002).
Neither the Company nor any Trustee shall be required to (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) issue, register the transfer of or exchange any Debt Security
that has been surrendered for repayment at the option of the Holder, except the
portion, if any, of such Debt Security not to be so repaid (Section 305).
Merger, Consolidation or Sale
The Company will be permitted to consolidate with, or sell, lease or
convey all or substantially all of its assets to, or merge with or into, any
other entity provided that (a) either the Company shall be the continuing
entity, or the successor entity (if other than the Company) formed by or
resulting from any such consolidation or merger or which shall have received the
transfer of such assets shall expressly assume payment of the principal of (and
premium, if any) and interest on all of the Debt Securities and the due and
punctual performance and observance of all of the covenants and conditions
contained in each Indenture; (b) immediately after giving effect to such
transaction and treating any indebtedness that becomes an obligation of the
Company or any Subsidiary as a result thereof as having been incurred by the
Company or Subsidiary at the time of such transaction, no Event of Default under
the Indentures, and no event which, after notice or the lapse of time, or both,
would become such an Event of Default, shall have occurred and be continuing;
and (c) an officer's certificate and legal opinion covering such conditions
shall be delivered to each Trustee (Sections 801 and 803).
Certain Covenants
Existence. Except as described above under "Merger, Consolidation or
Sale", the Company will be required to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
(by articles of incorporation, by-laws and statute) and franchises; provided,
however, that the Company shall not be required to preserve any right or
franchise if it determines that the preservation thereof is no longer desirable
in the conduct of its business and that the loss thereof is not disadvantageous
in any material respect to the Holders of the Debt Securities.
Maintenance of Properties. The Company will be required to cause all of
its material properties used or useful in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times (Section 1007); provided, however, that the Company shall
not be prevented from selling or otherwise disposing for value its properties in
the ordinary course of business.
Insurance. The Company will be required to, and will be required to
cause each of its Subsidiaries, defined below, to keep all of its insurable
properties insured against loss or damage at least equal to their then full
insurable value with insurers of recognized responsibility and, if described in
the applicable
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Prospectus Supplement, having a specified rating from a recognized insurance
rating service (Section 1008).
Payment of Taxes and Other Claims. The Company will be required to pay
or discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of the
Company or any Subsidiary, and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any Subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings (Section 1009).
Provision of Financial Information. Whether or not the Company is
subject to Section 13 or 15(d) of the Exchange Act, the Company will be
required, to the extent permitted under the Exchange Act, to file with the
Commission the annual reports, quarterly reports and other documents which the
Company would have been required to file with the Commission pursuant to such
Sections 13 or 15(d) if the Company were so subject (the "Financial
Information"), such documents to be filed with the Commission on or prior to the
respective dates (the "Required Filing Dates") by which the Company would have
been required so to file such documents if the Company were so subject. The
Company also will in any event (x) within 15 days of each Required Filing Date
(i) transmit by mail to all Holders of Debt Securities, as their names and
addresses appear in the Security Register, without cost to such Holders, copies
of the Financial Information and (ii) file with the Trustee copies of the
Financial Information, and (y) if filing such documents by the Company with the
Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective Holder (Section 1010).
Additional Covenants and/or Modifications to the Covenants Described Above
Any additional covenants of the Company and/or modifications to the
covenants described above with respect to any Debt Securities or series thereof,
including any covenants relating to limitations on incurrence of indebtedness or
other financial covenants, will be set forth in the applicable Indenture or an
indenture supplemental thereto and described in the Prospectus Supplement
relating thereto.
Events of Default, Notice and Waiver
Each Indenture will provide that the following events are "Events of
Default" with respect to any series of Debt Securities issued thereunder: (i)
default for 30 days in the payment of any installment of interest on any Debt
Security of such series; (ii) default in the payment of principal of (or
premium, if any, on) any Debt Security of such series at its maturity; (iii)
default in making any sinking fund payment as required for any Debt Security of
such series; (iv) default in the performance or breach of any other covenant or
warranty of the Company contained in the applicable Indenture (other than a
covenant added to the Indenture solely for the benefit of a series of Debt
Securities issued thereunder other than such series), continued for 60 days
after written notice as provided in the applicable Indenture; (v) default in the
payment of an aggregate principal amount exceeding $10,000,000 of any
indebtedness of the Company or any mortgage, indenture or other instrument under
which such indebtedness is issued or by which such indebtedness is secured, such
default having occurred after the expiration of any applicable grace period and
having resulted in the acceleration of the maturity of such indebtedness, but
only if such indebtedness is not discharged or such acceleration is not
rescinded or annulled; (vi) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of the
Company or any Significant Subsidiary, as defined below, or either of its
property; and (vii) any other Event of Default provided with respect to a
particular series of Debt Securities (Section 501).
"Significant Subsidiary" means any Subsidiary that is a "significant
subsidiary" (within the meaning of Regulation S-X promulgated under the
Securities Act) of the Company.
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"Subsidiary" means a corporation, partnership or entity such as a
limited liability company, in which a majority of the outstanding voting stock
or partnership interests, as the case may be, is owned or controlled, directly
or indirectly, by the Company or by one or more other Subsidiaries of the
Company. For the purposes of this definition, "voting stock" means stock having
voting power for the election of directors, or managers or other voting members
of the governing body of such entities, whether at all times or only so long as
no senior class of stock has such voting power by reason of any contingency. The
term "Subsidiary" does not include Carr Services, Inc. or Carr Development &
Construction as the Company does not own or control a majority of the
outstanding voting stock of such entities.
If an Event of Default under any Indenture with respect to Debt
Securities of any series at the time outstanding occurs and is continuing, then
in every such case the applicable Trustee or the Holders of not less than 25% of
the principal amount of the Outstanding Debt Securities of that series will have
the 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
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Holders shall have offered to the Trustee thereunder reasonable security or
indemnity (Section 602). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series (or of all Debt
Securities then Outstanding under an Indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the applicable Trustee, or of exercising any trust or
power conferred upon such Trustee. However, a Trustee may refuse to follow any
direction which is in conflict with any law or the applicable Indenture, which
may involve such Trustee in personal liability or which may be unduly
prejudicial to the Holders of Debt Securities of such series not joining therein
(Section 512).
Within 120 days after the close of each fiscal year, the Company will
be required to deliver to each Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the applicable Indenture and, if so, specifying each such default
and the nature and status thereof (Section 1011).
Modification of the Indentures
Modifications and amendments of an Indenture will be permitted to be
made only with the consent of the Holders of not less than a majority in
principal amount of all Outstanding Debt Securities issued under such Indenture
which are affected by such modification or amendment; provided, however, that no
such modification or amendment may, without the consent of the Holder of each
such Debt Security affected thereby, (a) change the stated maturity of the
principal of, or any installment of interest (or premium, if any) on, any such
Debt Security; (b) reduce the principal amount of, or the rate or amount of
interest on, or any premium payable on redemption of, any such Debt Security, or
reduce the amount of principal of an Original Issue Discount Security that would
be due and payable upon declaration of acceleration of the maturity thereof or
would be provable in bankruptcy, or adversely affect any right of repayment of
the Holder of any such Debt Security; (c) change the place of payment, or the
coin or currency, for payment of principal or premium, if any, or interest on
any such Debt Security; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any such Debt Security; (e)
reduce the above-stated percentage of Outstanding Debt Securities of any series
necessary to modify or amend the applicable Indenture, to waive compliance with
certain provisions thereof or certain defaults and consequences thereunder or to
reduce the quorum or voting requirements set forth in the applicable Indenture;
or (f) modify any of the foregoing provisions or any of the provisions relating
to the waiver of certain past defaults or certain covenants, except to increase
the required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the Holder of
such Debt Security (Section 902).
The Holders of not less than a majority in principal amount of
Outstanding Debt Securities of each series affected thereby will have the right
to waive compliance by the Company with certain covenants in such Indenture
(Section 1013).
Modifications and amendments of an Indenture will be permitted to be
made by the Company and the respective Trustee thereunder without the consent of
any Holder of Debt Securities for any of the following purposes: (i) to evidence
the succession of another person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Company in the Indenture; (iii) to add Events of Default for
the benefit of the Holders of all or any series of Debt Securities; (iv) to add
or change any provisions of an Indenture to facilitate the issuance of, or to
liberalize certain terms of, Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form, provided that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect; (v) to change or eliminate any
provisions of an Indenture, provided that any such change or elimination shall
become effective only when there are no Debt Securities Outstanding of any
series created prior thereto which are entitled to the benefit of such
provision; (vi) to secure the Debt Securities; (vii) to establish the form or
terms of Debt Securities of any series, including the provisions and procedures,
if applicable, for the conversion of such Debt Securities into Common Stock or
Preferred Stock of the Company; (viii) to provide for the acceptance of
appointment by a successor Trustee or facilitate the administration of the
trusts under an Indenture by more than one Trustee; (ix) to cure
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any ambiguity, defect or inconsistency in an Indenture, provided that such
action shall not adversely affect the interests of Holders of Debt Securities of
any series issued under such Indenture in any material respect; or (x) to
supplement any of the provisions of an Indenture to the extent necessary to
permit or facilitate defeasance and discharge of any series of such Debt
Securities, provided that such action shall not adversely affect the interests
of the Holders of the Debt Securities of any series in any material respect
(Section 901).
Each Indenture will provide that in determining whether the Holders of
the requisite principal amount of Outstanding Debt Securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of any Debt Security denominated in a foreign currency that shall be deemed
Outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an indexed security that shall be deemed Outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security pursuant to the
applicable Indenture, and (iv) Debt Securities owned by the Company or any other
obligor upon the Debt Securities or any affiliate of the Company or of such
other obligor shall be disregarded.
Each Indenture will contain provisions for convening meetings of the
Holders of Debt Securities of a series (Section 501). A meeting will be
permitted to be called at any time by the applicable Trustee, and also, upon
request, by the Company or the Holders of at least 10% in principal amount of
the Outstanding Debt Securities of such series, in any such case upon notice
given as provided in the Indenture. Except for any consent that must be given by
the Holder of each Debt Security affected by certain modifications and
amendments of an Indenture, any resolution presented at a meeting or adjourned
meeting duly reconvened at which a quorum is present may be adopted by the
affirmative vote of the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series; provided, however, that, except as
referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of the Outstanding Debt Securities of a
series may be adopted at a meeting or adjourned meeting or adjourned meeting
duly reconvened at which a quorum is present by the affirmative vote of the
Holders of such specified percentage in principal amount of the Outstanding Debt
Securities of that series. Any resolution passed or decision taken at any
meeting of Holders of Debt Securities of any series duly held in accordance with
an Indenture will be binding on all Holders of Debt Securities of that series.
The quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be persons holding or representing a majority in principal amount
of the Outstanding Debt Securities of a series; provided, however, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the Holders of not less than a specified percentage in principal
amount of the Outstanding Debt Securities of a series, the persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum.
Notwithstanding the foregoing provisions, each Indenture will provide
that if any action is to be taken at a meeting of Holders of Debt Securities of
any series with respect to any request, demand, authorization, direction,
notice, consent, waiver and other action that such Indenture expressly provides
may be made, given or taken by the Holders of a specified percentage in
principal amount of all Outstanding Debt Securities affected thereby, or the
Holders of such series and one or more additional series: (i) there shall be no
minimum quorum requirement for such meeting, and (ii) the principal amount of
the Outstanding Debt Securities of such series that vote in favor of such
request, demand, authorization, direction, notice, consent, waiver or other
action shall be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture.
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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 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
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obligation of the United States of America or such government, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank or trust company as
custodian with respect to any such Government Obligation or a specific payment
of interest on or principal of any such Government Obligation held by such
custodian for the account of the Holder of a depository receipt, provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the Holder of such depository receipt from
any amount received by the custodian in respect of the Government Obligation or
the specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if
after the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security will be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate. "Conversion
Event" means the cessation of use of (i) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community, (ii) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Communities or (iii) any currency
unit or composite currency other than the ECU for the purposes for which it was
established. Unless otherwise provided in the applicable Prospectus Supplement,
all payments of principal of (and premium, if any) and interest on any Debt
Security that is payable in a foreign currency that ceases to be used by its
government of issuance shall be made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to
any Debt Securities and such Debt Securities are declared due and payable
because of the occurrence of any Event of Default other than the Event of
Default described in clause (iv) under "Events of Default, Notice and Waiver"
with respect to certain specified sections of Article Ten of each Indenture
(which sections would no longer be applicable to such Debt Securities as a
result of such covenant defeasance) or described in clause (vii) under "Events
of Default, Notice and Waiver" with respect to any other covenant as to which
there has been covenant defeasance, the amount in such currency, currency unit
or composite currency in which such Debt Securities are payable, and Government
Obligations on deposit with the applicable Trustee, will be sufficient to pay
amounts due on such Debt Securities at the time of their stated maturity but may
not be sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Default. However, the Company would remain
liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the
provisions, if any, permitting such defeasance or covenant defeasance, including
any modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
Conversion Rights
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Stock or Preferred
Stock, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the Holders
or the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities
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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 the Debt
Securities are to be redeemed, the Trustee shall select the Debt Securities to
be redeemed pro rata, by lot or in such manner as it shall deem fair and
appropriate.
Global Securities
The Debt Securities of a series may be issued in whole or in part in
the form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depository identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depository arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series.
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DESCRIPTION OF SERIES A PREFERRED SHARES
The Company is authorized to issue 1,740,000 shares of Series A
Cumulative Convertible Redeemable Preferred Stock (the "Series A Preferred
Shares"). As of December 31, 1996 there were 1,740,000 Series A Preferred Shares
outstanding.
The summary of certain terms and provisions of the Series A Preferred
Shares contained in this Prospectus does not purport to be complete and is
subject to and qualified in its entirety by reference to the terms and
provisions of the Articles Supplementary relating to the Series A Preferred
Shares (the "Articles Supplementary").
General
The Company's Board of Directors is authorized to issue, from the
authorized but unissued shares of capital stock of the Company, preferred shares
in series and to establish from time to time the number of preferred shares to
be included in such series and to fix the designation and any preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption of the shares
of each such series.
The Series A Preferred Shares were issued on October 25, 1996. The
holders of the Series A Preferred Shares have no preemptive rights with respect
to any shares of 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 A Preferred Shares are not be subject to any sinking fund or
other obligation of the Company to redeem or retire the Series A Preferred
Shares.
The transfer agent, registrar and dividend disbursing agent for the
Series A Preferred Shares is Boston EquiServe.
Ranking
The Series A Preferred Shares will rank senior to the Common Stock with
respect to payment of dividends and amounts upon liquidation, dissolution or
winding up.
While any Series A Preferred Shares are outstanding, the Company may
not authorize, create or increase the authorized amount of any class or any
security convertible into shares of any class that ranks senior to the Series A
Preferred Shares with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding up without the consent of the holders of
two-thirds of the outstanding Series A Preferred Shares and Parity Shares (as
defined below), voting as a single class. However, the Company may create
additional classes of stock, increase the authorized number of preferred shares
or issue series of preferred shares ranking on a parity with the Series A
Preferred Shares with respect, in each case, to the payment of dividends and
amounts upon liquidation, dissolution and winding up (a "Parity Share") without
the consent of any holder of Series A Preferred Shares. See "-- Voting Rights"
below.
Dividends
Holders of the Series A Preferred Shares are 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 in an amount
per share equal to the greater of (i) $1.75 per annum or (ii) the cash dividends
(determined on each of the quarterly dividend payment dates referred to below)
paid on the number of shares of Common Stock, or portion thereof, into which a
Series A Preferred Share is convertible. Such dividends are cumulative from the
date of original issue and shall be payable quarterly in arrears on the last
calendar day (or if such day is not a business day, the next business day
thereafter) of each February, May, August and November (each, a "Dividend
Payment Date"). Such dividends and any dividends payable on the Series A
Preferred Shares for any partial dividend period will be computed on the basis
of the actual number of days in such period. 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
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Dividend Record Date. Any dividend payment made on the Series A Preferred Shares
will first be credited against the earliest accrued but unpaid dividend due with
respect to the Series A Preferred Shares that remains payable.
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 payment set
aside on the Series A Preferred Share for all prior dividend periods. If accrued
dividends on the Series A Preferred Shares for all prior dividend periods have
not been paid in full, then any dividend declared on the Series A 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 A 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 A 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 A
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 A 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 A Preferred Shares both as to the payment
of dividends and distribution of assets upon liquidation, dissolution and
winding up.
Redemption
Except as required by the limitation on ownership (see "-- Restrictions
on Transfer; Ownership Limits" below), the Series A Preferred Shares are not
redeemable prior to October 25, 1999. On and after October 25, 1999 the Company,
at its option, upon not less than 30 nor more than 90 days' written notice, may
redeem the Series A Preferred Shares, in whole or in part, at any time or from
time to time, at a redemption price equal to $25.00 per share, plus accumulated,
accrued and unpaid dividends thereon to the date fixed for redemption. If fewer
than all of the outstanding Series A Preferred Shares 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 by such holders (with adjustments
to avoid redemption of fractional 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 A Preferred Shares and
any Parity Shares 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 then current dividend period, no Series A
Preferred Shares shall 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 A Preferred Shares.
The Series A Preferred Shares have no stated maturity and will not be
subject to any sinking fund or mandatory redemption. However, in order to
preserve the Company's status as a REIT, as defined in the Code, the Series A
Preferred Shares may be subject to redemption or exchange as described in the
Company's Articles of Incorporation. See "--Restrictions on Transfer; Ownership
Limits" below.
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Liquidation Preference
The holders of Series A Preferred Shares are entitled to receive in the
event of any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, $25.00 per Series A Preferred Share plus an amount per
Series A 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 A 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 A Preferred Shares are insufficient to pay in full the liquidation
preference with respect to the Series A Preferred Shares and any other Parity
Shares, then such assets, or the proceeds thereof, will be distributed among the
holders of Series A Preferred Shares and any such Parity Shares ratably in
accordance with the respective amounts which would be payable on such Series A
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
corporation, a statutory share exchange by the Company nor a sale 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.
Voting Rights
Except as indicated below, or except as otherwise from time to time
required by applicable law, the holders of Series A Preferred Shares will have
no voting rights.
If six consecutive quarterly dividends payable on the Series A
Preferred Shares or any Parity Shares are in arrears, whether or not earned or
declared, the number of directors then constituting the Board of Directors of
the Company will be increased by two, and the holders of Series A Preferred
Shares, 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 shareholders or a
properly called special meeting of the holders of Series A Preferred Shares and
such voting Parity Shares and at each subsequent annual meeting of shareholders
until all such dividends and dividends for the current quarterly period on the
Series A Preferred Shares and such other voting Parity Shares have been paid or
declared and paid or set aside for payment. Such voting right 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 Series A Preferred Shares
and all other series of voting Parity Shares similarly affected, voting as a
single class, is required in order to (i) amend the Company's Articles of
Incorporation to affect materially and adversely the rights, preferences or
voting powers of the holders of the Series A Preferred Shares or the voting
Parity Shares, (ii) enter into a share exchange that affects the Series A
Preferred Shares, consolidate with or merge into another entity, or permit
another entity to consolidate with or merge into the Company, unless in each
such case each Series A Preferred Share remains outstanding without a material
adverse change to its terms and rights or is converted into or exchanged for
convertible preferred stock of the surviving entity having preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms or conditions of redemption thereof
identical to that of a Series A Preferred Share (except for changes that do not
materially and adversely affect the holders of the Series A Preferred Shares),
or (iii) authorize, reclassify, create, or increase the authorized amount of any
class of capital stock having rights senior to the Series A Preferred Shares
with respect to the payment of dividends or amounts upon liquidation,
dissolution or winding up. 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 Series A Preferred Shares.
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Except as provided above and as required by law, the holders of Series
A Preferred Shares are not entitled to vote on any merger or consolidation
involving the Company or a sale of all or substantially all of the assets of the
Company.
Conversion Rights
The Series A Preferred Shares will be convertible, in whole or in part,
at the option of the holders thereof, at any time after April 25, 1997, into
authorized but previously unissued shares of Common Stock at a conversion price
of $25.00 per Common Stock (equivalent to a conversion rate of one share of
Common Stock for each Series A Preferred Share), subject to adjustment as
described below (the "Conversion Price"). See "-- Conversion Price Adjustments"
below. The right to convert Series A Preferred Shares called for redemption will
terminate at the close of business on the fifth business day prior to the
redemption date for such Series A Preferred Shares. For information as to
notices of redemption, see "--Redemption" above. For a description of the
Company's Common Stock, see "Description of Common Stock" in the accompanying
Prospectus.
Each conversion will be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for Series A
Preferred Shares shall have been surrendered and notice shall have been received
by the Company as aforesaid (and if applicable, payment of an amount equal to
the dividend payable on such shares shall have been received by the Company as
described below) and the conversion shall be at the Conversion Price in effect
at such time and on such date.
The Company will not issue fractional shares of Common Stock upon
conversion but in lieu thereof will pay cash at the current market price of the
Common Stock on the day prior to the conversion date.
Conversion Price Adjustments
The Conversion Price is subject to adjustment upon certain events,
including without limitation (i) dividends (and other distributions) payable in
Common Stock, (ii) the issuance to all holders of Common Stock of certain rights
or warrants entitling them to subscribe for or purchase Common Stock at a price
per share less than the fair market value per share of Common Stock (which, as
defined, includes an adjustment for underwriting commissions avoided in rights
offerings to shareholders), (iii) subdivisions, combinations and
reclassifications of Common Stock, and (iv) distributions to all holders of
Common Stock of any capital stock of the Company (other than Common Stock),
evidences of indebtedness of the Company or assets (including securities, but
excluding those dividends, rights, warrants and distributions referred to above
and excluding Permitted Common Stock Cash Distributions, as herein defined).
"Permitted Common Stock Cash Distributions" are those cumulative cash dividends
and distributions paid with respect to the Common Stock after December 31, 1995
which are not in excess of the following: the sum of (i) the Company's
cumulative undistributed funds from operations at December 31, 1995, plus (ii)
the cumulative amount of funds from operations, as determined by the Board of
Directors of the Company, after December 31, 1995, minus (iii) the cumulative
amount of distributions accrued or paid on the Series A Preferred Shares or any
other class of preferred stock after the date of this Prospectus Supplement. In
addition to the foregoing adjustments, the Company will be permitted to make
such reductions in the Conversion Price as it considers to be advisable in order
that any event treated for federal income tax purposes as a dividend of stock or
stock rights will not be taxable to the holders of the Common Stock.
In the event that the Company shall be a party to any transaction
(including without limitation a merger, consolidation, statutory share exchange,
self tender offer for all or substantially all of the Common Stock or sale of
all or substantially all of the Company's assets or certain recapitalizations of
the Common Stock), in each case as a result of which all or substantially all
Common Stock is converted into the right to receive stock, securities or other
property (including cash or any combination thereof), each Series A Preferred
Share that is not redeemed or converted prior to such transaction, will
thereafter be convertible into the kind and amount of shares of stock and other
securities and property receivable (including cash or any combination thereof)
upon the consummation of such transaction by a holder of that number of shares
of Common Stock or fraction thereof into which one Series A Preferred Share was
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convertible immediately prior to such transaction (assuming such holder of
Common Stock failed to exercise any rights of election and received per share
the kind and amount received per share by a plurality of non-electing shares).
The Company may not become a party to any such transaction unless the terms
thereof are consistent with the foregoing.
No adjustment of the Conversion Price will be required to be made in
any case until cumulative adjustments amount to 1% or more of the Conversion
Price. Any adjustments not so required to be made will be carried forward and
taken into account in subsequent adjustments.
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 taxable year (other than the
first 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 Articles of Incorporation contain certain restrictions on the
ownership and transfer of capital stock, including the Series A Preferred
Shares, intended to ensure compliance 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 Articles of
Incorporation, 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 A 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 A Preferred
Shares, no "individual" would be considered the beneficial owner of more than 5%
of the Series A Preferred Shares. If a holder were to acquire more than 5% of
the Series A Preferred Shares and such holder did not meet the criteria set
forth in the preceding sentence, such holder's shares of Series A Preferred
Shares would be subject to the provisions in the Articles of Incorporation
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."
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DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 15,000,000 shares of Preferred
Stock. As of December 31, 1996, there were no shares of Preferred Stock
outstanding other than the Series A Preferred Shares described in "Description
of Series A Preferred Shares."
Under the Company's Articles of Incorporation, the Board may from time
to time establish and issue one or more series of Preferred Stock. The Board may
classify or reclassify any unissued Preferred Stock by setting or changing the
number, designation, preference, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption of such series (a "Designating Amendment").
The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation and the
Company's bylaws (the "Bylaws").
General
The Board is empowered by the Company's Articles of Incorporation to
designate and issue from time to time one or more series of Preferred Stock
without shareholder approval. The Board may determine the relative rights,
preferences and privileges of each series of Preferred Stock so issued. Because
the Board has the power to establish the preferences and rights of each series
of Preferred Stock, it may afford the holders of any series of Preferred Stock
preferences, powers and rights, voting or otherwise, senior to the rights of
holders of Common Stock. The Preferred Stock will, when issued, be fully paid
and nonassessable.
The Prospectus Supplement relating to any Preferred Stock offered
thereby will contain the specific terms thereof, including, without limitation:
(1) The title and stated value of such Preferred Stock;
(2) The number of such shares of Preferred Stock offered, the
liquidation preference per share and the offering price of such
Preferred Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock will
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any,
for such Preferred Stock;
(6) The provision for a sinking fund, if any, for such
Preferred Stock;
(7) The provision for redemption, if applicable, of such
Preferred Stock;
(8) Any listing of such Preferred Stock on any securities
exchange;
(9) The terms and conditions, if applicable, upon which such
Preferred Stock will be convertible into Common Stock of the Company,
including the conversion price (or manner of calculation thereof);
(10) Any other specific terms, preferences, rights,
limitations or restrictions of such Preferred Stock;
(11) A discussion of federal income tax considerations
applicable to such Preferred Stock;
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(12) The relative ranking and preferences of such Preferred
Stock as to dividend rights and rights upon liquidation, dissolution or
winding up of the affairs of the Company;
(13) Any limitations on issuance of any series of Preferred
Stock ranking senior to or on a parity with such series of Preferred
Stock as to dividend rights and rights upon liquidation, dissolution or
winding up of the affairs of the Company; and
(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
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periods if such Preferred Stock do not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum of money
in lieu of interest, will be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i)
if such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in Common Stock or other capital stock ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation) will be declared or paid or set aside for payment or other
distribution upon the Common Stock, or any other capital stock of the Company
ranking junior to or on a parity with the Preferred Stock of such series as to
dividends or upon liquidation, nor will any Common Stock, or any other capital
stock of the Company ranking junior to or on a parity with the Preferred Stock
of such series as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such stock) by the
Company (except by conversion into or exchange for other capital stock of the
Company ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation).
If for any taxable year, the Company elects to designate as "capital
gains dividends" (as defined in Section 857 of the Code) any portion (the
"Capital Gains Amount") of the dividends (within the meaning of the Code) paid
or made available for the year to holders of all classes of shares of beneficial
interest (the "Total Dividends"), then the portion of the Capital Gains Amount
that will be allocable to the holders of shares of Preferred Stock will be the
Capital Gains Amount multiplied by a fraction, the numerator of which shall be
the total dividends (within the meaning of the Code) paid or made available to
the holders of shares of Preferred Stock for the year and the denominator of
which shall be the Total Dividends.
Redemption
If so provided in the applicable Prospectus Supplement, the Preferred
Stock will be subject to mandatory redemption or redemption at the option of the
Company, in whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that
is subject to mandatory redemption will specify the number of shares of such
Preferred Stock that will be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
will not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital stock of the Company, the terms of such
Preferred Stock may provide that, if no such capital stock shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock will
automatically and mandatorily be converted into the applicable capital stock of
the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Stock has a cumulative dividend, full cumulative dividends on all Preferred
Stock of any series shall have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the current dividend period and (ii) if such
series of Preferred Stock does not have a cumulative dividend, full dividends of
the Preferred Stock of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no Preferred Stock of any series
shall be redeemed unless all outstanding Preferred Stock of such series are
simultaneously redeemed; provided,
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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 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.
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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 shareholders, and at each
subsequent annual meeting until (i) if such series of Preferred Stock has a
cumulative dividend, all dividends accumulated on such shares of Preferred Stock
for the past dividend periods and the then current dividend period shall have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment or (ii) if such series of Preferred Stock do not have a
cumulative dividend, four consecutive quarterly dividends shall have been fully
paid or declared and a sum sufficient for the payment thereof set aside for
payment. In such case, the entire Board will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as
any shares of Preferred Stock remain outstanding, the Company will not, without
the affirmative vote or consent of the holders of at least two-thirds of each
series of shares of Preferred Stock outstanding at the time, given in person or
by proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking prior to such series of Preferred
Stock with respect to the payment of dividends or the distribution of assets
upon liquidation, dissolution or winding up or reclassify any authorized capital
stock of the Company into such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such shares; or (ii) amend, alter or repeal the provisions of the Company's
Articles of Incorporation or the Designating Amendment for such series of
Preferred Stock, whether by merger, consolidation or otherwise (an "Event"), so
as to materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Stock or the holders thereof; provided,
however, with respect to the occurrence of any of the Events set forth in (ii)
above, so long as the shares of Preferred Stock remain outstanding with the
terms thereof materially unchanged, taking into account that upon the occurrence
of an Event, the Company may not be the surviving entity, the occurrence of any
such Event will not be deemed to materially and adversely affect such rights,
preferences, privileges or voting power of holders of Preferred Stock and
provided further that (x) any increase in the amount of the authorized Preferred
Stock or the creation or issuance of any other series of Preferred Stock, or (y)
any increase in the amount of authorized shares of such series or any other
series of Preferred Stock, in each case ranking on a parity with or junior to
the Preferred Stock of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, will not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of Preferred Stock of such series
shall have been redeemed or called for redemption and sufficient funds shall
have been deposited in trust to effect such redemption.
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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, not more than 50% in value of its outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year. To assist the
Company in meeting this requirement, the Articles of Incorporation provide that
no holder of Preferred Stock may own, or be deemed to own by virtue of certain
attribution provisions of the Code, more than 5% of any class or series of
Preferred Stock and/or more than 5% of the issued and outstanding shares of
Common Stock, subject to certain exceptions specified in the Articles of
Incorporation. See "Description of Common Stock -- Restrictions on Transfer --
Ownership Limits."
Registrar and Transfer Agent
The Registrar and Transfer Agent for the Preferred Stock will be set
forth in the applicable Prospectus Supplement.
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DESCRIPTION OF COMMON STOCK
General
The Company is authorized to issue 90,000,000 shares of Common Stock.
The outstanding Common Stock entitles the holder to one vote on all matters
presented to shareholders for a vote. Holders of Common Stock have no preemptive
rights. At December 31, 1996, there were 43,789,073 shares of Common Stock
outstanding.
Shares of Common Stock currently outstanding are listed for trading on
the New York Stock Exchange (the "NYSE"). The Company will apply to the NYSE to
list the additional Common Stock to be sold pursuant to any Prospectus
Supplement, and the Company anticipates that such shares will be so listed.
Subject to such preferential rights as may be granted by the Board in
connection with the future issuance of Preferred Stock, holders of Common Stock
are entitled to one vote per share on all matters to be voted on by stockholders
and are entitled to receive ratably such dividends as may be declared on the
Common Stock by the Board in its discretion from funds legally available
therefor. In the event of the liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of all debts and other liabilities and any liquidation
preference of the holders of Preferred Stock. Holders of Common Stock have no
subscription, redemption, conversion or preemptive rights. Matters submitted for
stockholder approval generally require a majority vote of the shares present and
voting thereon.
Advance Notice of Director Nominations and New Business
The Bylaws of the Company provide that, with respect to an annual
meeting of stockholders, the proposal of business to be considered by
stockholders may be made only (i) by or at the direction of the Board or (ii) by
a stockholder who is entitled to vote at the meeting and who has complied with
the advance notice procedures set forth in the Bylaws. In addition, with respect
to any meeting of stockholders, nominations of persons for election to the Board
may be made only (i) by or at the direction of the Board or (ii) by any
stockholder of the Company who is entitled to vote at the meeting and has
complied with the advance notice provisions set forth in the Bylaws.
Restrictions on Transfer
Ownership Limits. The Company's Articles of Incorporation contain
certain restrictions on the number of shares of Common Stock that individual
shareholders may own. For the Company to qualify as a REIT under the Code, no
more than 50% in value of its outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year) or during a proportionate part of a shorter taxable year. The capital
stock also must be beneficially owned by 100 or more persons during at least 335
days of a taxable year or during a proportionate part of a shorter taxable year.
Because the Company intends to maintain its qualification as a REIT, the
Company's Articles of Incorporation contain certain restrictions on the
ownership and transfer of capital stock, including Common Stock, intended to
ensure compliance with these requirements.
Subject to certain exceptions specified in the Articles of
Incorporation, no holder may own, or be deemed to own by virtue of certain
attribution provisions of the Code, more than (A) 5% of the issued and
outstanding shares of Common Stock ("Common Stock Ownership Limit") and/or (B)
more than 5% of any class or series of Preferred Stock. (This limit, in addition
to the Existing Holder Limit, the Special Shareholder Limit, and the Non U.S.
Shareholder Limit, all as defined below, are referred to collectively herein as
the "Ownership Limits.") Existing Holders, including Clark Enterprises Inc., The
Oliver Carr Company, Oliver T. Carr, Jr., or A. James Clark, are not subject to
the Common Stock Ownership Limit, but they are subject to special ownership
limitations (the "Existing Holder Limit"). Furthermore, USRealty and its
affiliates are not subject to the Common Stock Ownership Limit, but are subject
to a
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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
USRealty and its affiliates), from acquiring additional shares of the Company's
capital stock if, as a result of such acquisition, the Company would fail to
qualify as a "domestically controlled REIT" (computed assuming that USRealty
owns the maximum percentage of the Company's capital stock that it is permitted
to own under the Special Shareholder Limit) ("Non-U.S. Shareholder Limit"). A
Non-U.S. Shareholder is a nonresident alien individual, foreign corporation,
foreign partnership and any other foreign shareholder. For a discussion of the
taxation of a Non-U.S. Shareholder and the requirements for the Company to
qualify as a "domestically controlled REIT," see "Federal Income Tax
Considerations--Taxation of Holders of Common Stock -- Taxation of Non-U.S.
Shareholders." The Company is unlikely to be able to advise a prospective
Non-U.S. Shareholder that its purchase of any shares of the Company's capital
stock would not violate this prohibition, thereby subjecting such prospective
Non-U.S. Shareholder to the adverse consequences described below under "--
Violation of Ownership Limits." Accordingly, an acquisition of the Company's
capital stock would not likely be a suitable investment for Non-U.S.
Shareholders other than USRealty.
The Board may increase the Ownership Limits from time to time, but may
not do so to the extent that after giving effect to such increase five
beneficial owners of shares of capital stock could beneficially own in the
aggregate more than 49.5% of the Company's outstanding shares of capital stock.
The Board, in its sole discretion, may waive the Ownership Limits with respect
to a holder if such holder's ownership will not then or in the future jeopardize
the Company's status as a REIT.
Violation of Ownership Limits. The Articles of Incorporation provide
that, if any holder of capital stock of the Company purports to transfer shares
to a person or there is a change in the capital structure of the Company and
either the transfer or the change in capital structure would result in the
Company failing to qualify as a REIT, or such transfer or the change in capital
structure would cause the 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.
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Every owner of more than 5% (or such lower percentage as required by
the Code or regulations thereunder) of the issued and outstanding shares of
Common Stock must file a written notice with the Company containing the
information specified in the Articles of Incorporation no later than December 31
of each year. In addition, each shareholder shall upon demand be required to
disclose to the Company in writing such information as the Company may request
in good faith in order to determine the Company's status as a REIT.
Registrar and Transfer Agent
The Registrar and Transfer Agent for the Common Stock is Boston
EquiServe.
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DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common
Stock. Common Stock Warrants may be issued independently or together with any
other Securities offered by any Prospectus Supplement and may be attached to or
separate from such Securities. Each series of Common Stock Warrants will be
issued under a separate warrant agreement (each, a "Warrant Agreement") to be
entered into between the Company and a warrant agent specified in the applicable
Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will act solely
as an agent of the Company in connection with the Common Stock Warrants of such
series and will not assume any obligation or relationship of agency or trust for
or with any holders or beneficial owners of Common Stock Warrants. The following
sets forth certain general terms and provisions of the Common Stock Warrants
offered hereby. Further terms of the Common Stock Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Common Stock Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following: (1) the title of such Common Stock
Warrants; (2) the aggregate number of such Common Stock Warrants; (3) the price
or prices at which such Common Stock Warrants will be issued; (4) the
designation, number and terms of the shares of Common Stock purchasable upon
exercise of such Common Stock Warrants; (5) the designation and terms of the
other Securities offered thereby with which such Common Stock Warrants are
issued and the number of such Common Stock Warrants issued with each such
Security offered thereby; (6) the date, if any, on and after which such Common
Stock Warrants and the related Common Stock will be separately transferable; (7)
the price at which each of the shares of Common Stock purchasable upon exercise
of such Common Stock Warrants may be purchased; (8) the date on which the right
to exercise such Common Stock Warrants shall commence and the date on which such
right shall expire; (9) the minimum or maximum number of such Common Stock
Warrants which may be exercised at any one time; (10) information with respect
to book entry procedures, if any; (11) a discussion of certain federal income
tax considerations; and (12) any other terms of such Common Stock Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Common Stock Warrants.
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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.
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.
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
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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-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
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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 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.
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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.
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FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a description of certain Federal income tax
consequences to the Company and the holders of Common Stock, Preferred Stock,
Depositary Shares, Common Stock Warrants and Debt Securities of the treatment of
the Company as a REIT under applicable provisions of the Code. The following
discussion, which is not exhaustive of all possible tax considerations, does not
give a detailed discussion of any state, local or foreign tax considerations.
Nor does it discuss all of the aspects of Federal income taxation that may be
relevant to a prospective shareholder in light of his or her particular
circumstances or to certain types of shareholders (including insurance
companies, tax-exempt entities, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) who are subject to special treatment under the Federal income tax laws.
As used in this section, the term "Company" refers solely to CarrAmerica Realty
Corporation.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF STOCK IN AN ENTITY ELECTING TO BE TAXED AS A
REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF
SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
Taxation of the Company
General. The Company, which is considered a corporation for Federal
income tax purposes, has elected to be taxed as a REIT under Sections 856
through 860 of the Code effective as of its taxable year ended December 31,
1993. The Company believes that it is organized and has operated in 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 satisfies such tests or will continue to do so. See
"Failure to Qualify" below.
The following is a general summary of the Code provisions that govern
the Federal income tax treatment of a REIT and its shareholders. These
provisions of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, Treasury
Regulations and administrative and judicial interpretations thereof.
If the Company qualifies for taxation as a REIT, it generally will not
be subject to Federal corporate income taxes on net income that it distributes
currently to shareholders. However, the Company will be subject to Federal
income tax on any income that it does not distribute and will be subject to
Federal income tax in certain circumstances on certain types of income even
though that income is distributed.
Requirements for Qualification. The Code defines a REIT as a
corporation, trust or association (1) that is managed by one or more trustees or
directors; (2) the beneficial ownership of which is evidenced by transferable
shares of stock, or by transferable certificates of beneficial interest; (3)
that would be taxable as a domestic corporation, but for Sections 856 through
859 of the Code; (4) that is neither a financial institution nor an insurance
company subject to certain provisions of the Code; (5) the beneficial ownership
of which is held by 100 or more persons; (6) that during the last half of each
taxable year not more than 50% in value of the outstanding stock of which is
owned, directly or indirectly, by five or fewer
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individuals (as defined in the Code to include certain entities); and (7) that
meets certain other tests, described below, regarding the nature of its income
and assets. The Code provides that conditions (l) through (4), inclusive, must
be met during the entire taxable year and that condition (5) must be met during
at least 335 days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months. The Company's Articles of
Incorporation contain restrictions regarding the transfer of its capital stock
that are intended to assist the Company in continuing to satisfy the stock
ownership requirements described in (5) and (6) above. See "Description of
Common Stock -- Restrictions on Transfer."
Income Tests. In order to maintain qualification as a REIT, there are
three gross income requirements that must be satisfied annually. First, at least
75% of the REIT's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of the REIT's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from the same items which qualify under the 75% income
test, and from dividends, interest and gain from the sale or disposition of
stock or securities, or from any combination of the foregoing. Third, short-term
gain from the sale or other disposition of stock or securities, gain from
prohibited transactions and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the REIT's gross
income (including gross income from prohibited transactions) for each taxable
year.
Rents received by the Company will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described above
only if several conditions (related to the identity of the tenant, the
computation of the rent payable, and the nature of the property leased) are met.
The Company does not anticipate receiving rents in excess of 1% of gross revenue
that fail to meet these conditions. In addition, for rents received to qualify
as "rents from real property," the Company generally must not operate or manage
the property or furnish or render services to tenants, other than through an
"independent contractor" from whom the Company derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent the
services provided by the Company are "usually or customarily rendered" in
connection with the rental space for occupancy only and are not otherwise
considered "rendered to the occupant." The Company will provide certain services
with respect to the properties through entities that do not satisfy the
"independent contractor" requirements described above. The Company has received
a ruling from the IRS that the provision of certain services will not cause the
rents received with respect to the properties to fail to qualify as "rents from
real property." Based upon the IRS ruling and its experience in the office
rental 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 is no assurance that the IRS will not contend
otherwise. If the Company contemplates providing services, either directly, or
through another entity, in the future that reasonably might be expected not to
meet the "usual or customary" standard, it will arrange to have such services
provided by an independent contractor from which the Company will receive no
income.
The Company may receive fees in consideration of the performance of
management and administrative services with respect to properties that are not
owned entirely by the Company. A portion of such management and administrative
fees (corresponding to that portion of a property owned by a third party)
generally will not qualify under the 75% or 95% gross income tests. The Company
also may receive other types of income with respect to the properties that it
owns that will not qualify for the 75% or 95% gross income tests. The Company
believes, however, that the aggregate amount of such fees and other
non-qualifying income in any taxable year will not cause the Company to exceed
the limits on non-qualifying income under the 75% and 95% gross income tests.
If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code. It
is not possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of these relief provisions. Even if these
relief provisions were to apply,
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however, a tax would be imposed with respect to the "excess net income"'
attributable to the failure to satisfy the 75% and 95% gross income tests.
Asset Tests. At the close of each quarter of its taxable year, the
Company also must satisfy three tests relating to the nature of its assets: (i)
at least 75% of the value of the Company's total assets must be represented by
"real estate assets," cash, cash items and government securities; (ii) not more
than 25% of the Company's total assets may be represented by securities other
than those in the 75% asset class; and (iii) of the investments included in the
25% asset class, the value of any one issuer's securities (other than an
interest in a partnership, shares of a "qualified REIT subsidiary" or another
REIT, but including any unsecured debt of Carr Realty, L.P. 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 Carr
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. and Carr
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.
Annual Distribution Requirements. To qualify as a REIT, the Company
generally must distribute to its shareholders at least 95% of its income each
year. In addition, the Company will be subject to tax on the undistributed
amount at regular capital gains and ordinary corporate tax rates and also may be
subject to a 4% excise tax on undistributed income in certain events.
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
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of Preferred Stock. Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the shareholder has held its stock. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current or accumulated
earnings and profits will not be taxable to a shareholder to the extent that
they do not exceed the adjusted basis of the shareholder's shares of Common
Stock, but rather will reduce the adjusted basis of such shares of Common Stock.
To the extent that such distributions exceed the adjusted basis of a
shareholder's shares of Common Stock, they will be included in income as
long-term capital gain (or short-term capital gain if the shares of Common Stock
have been held for one year or less), assuming the shares of Common Stock are a
capital asset in the hands of the shareholder.
In general, a domestic shareholder will realize capital gain or loss on
the disposition of shares of Common Stock equal to the difference between (i)
the amount of cash and the fair market value of any property received on such
disposition and (ii) the shareholder's adjusted basis of such shares of Common
Stock. Such gain or loss generally will constitute long-term capital gain or
loss if the shareholder has held such shares for more than one year. Loss upon a
sale or exchange of shares of Common Stock by a shareholder who has held such
shares of Common Stock for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such shareholder as
long-term capital gain.
Backup Withholding. The Company will report to its domestic
shareholders and the IRS the amount of dividends paid during each calendar year,
and the amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number and
certifies as to no loss of exemption from backup withholding. Amounts withheld
as backup withholding will be creditable against the stockholder's income tax
liability. In addition, the Company may be required to withhold a portion of
capital gain distributions made to any shareholders who fail to certify their
non-foreign status to the Company. See " --Taxation of Non-U.S. Shareholders"
below. Additional issues may arise pertaining to information reporting and
backup withholding with respect to Non-U.S. Shareholders (persons other than (i)
citizens or residents of the United States, (ii) corporations, partnerships or
other entities created or organized under the laws of the United States or any
political subdivision thereof, and (iii) estates or trusts the income of which
is subject to United States Federal income taxation regardless of its source)
and Non-U.S. Shareholders should consult their tax advisors with respect to any
such information reporting and backup withholding requirements.
The Treasury Department has recently issued proposed regulations
regarding the withholding and information reporting rules discussed above. In
general, the proposed regulations do not alter the substantive withholding and
information reporting requirements but unify current certification procedures
and forms and clarify and modify reliance standards. If finalized in their
current form, the proposed regulations would generally be effective for payments
made after December 31, 1997, subject to certain transition rules.
Taxation of Tax-Exempt Shareholders. As a general rule, amounts
distributed to a tax-exempt entity do not constitute "unrelated business taxable
income" ("UBTI"), and thus distributions by the Company to a stockholder that is
a tax-exempt entity should also not constitute UBTI, provided that the
tax-exempt entity has not financed the acquisition of its shares of Common Stock
with "acquisition indebtedness" within the meaning of the Code and the shares of
Common Stock is not otherwise used in an unrelated trade or business of the
tax-exempt entity. However, under the Revenue Reconciliation Act of 1993,
distributions by a REIT to a tax-exempt employee's pension trust that owns more
than 10 percent of the REIT will be treated as UBTI in an amount equal to the
percentage of gross income of the REIT that is derived from an "unrelated trade
or business" (determined as if the REIT were a pension trust) divided by the
gross income of the REIT for the year in which the dividends are paid. This rule
only applies, however, if (i) the percentage of gross income of the REIT that is
derived from an unrelated trade or business for the year in which the dividends
are paid is at least five percent, (ii) the REIT qualifies as a
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REIT only because the pension trust is not treated as a single individual for
purposes of the "five-or-fewer rule" (see "-- Taxation of the Company
(Requirements for Qualification)" above), and (iii) (A) one pension trust owns
more than 25 percent of the value of the REIT or, (B) a group of pension trusts
individually holding more than 10 percent of the value of the REIT collectively
own more than 50 percent of the value of the REIT. The Company currently does
not expect that this rule will apply.
Taxation of Non-U.S. Shareholders. The rules governing U.S. Federal
income taxation of Non-U.S. Shareholders are complex, and no attempt will be
made herein to provide more than a limited summary of such rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of U.S. Federal, state and local income tax laws with regard to an
investment in Common Stock, including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges
by the Company of U.S. real property interests and not designated by the Company
as capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions, ordinarily, will be subject to a withholding
tax equal to 30% of the gross amount of the distribution unless an applicable
tax treaty reduces that tax. Distributions in excess of current and accumulated
earnings and profits of the Company will not be taxable to a Non-U.S.
Shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's Common Stock, but rather will reduce the adjusted basis of such
Common Stock. To the extent that such distributions exceed the adjusted basis of
a Non-U.S. Shareholder's Common Stock, they will give rise to tax liability if
the Non-U.S. Shareholder would otherwise be subject to tax on any gain from the
sale or disposition of his Common Stock as described below (in which case they
also may be subject to a 30% branch profits tax if the shareholder is a foreign
corporation). As a result of a legislative change made by the Small Business Job
Protection Act of 1996, effective for distributions made after August 20, 1996,
the Company is 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 withhold at a rate of 30% (or such lower rate as may
apply to dividends under an applicable treaty) on the entire amount of any
distribution, to the extent that the Company does not do so, any portion of a
distribution not subject to dividend withholding tax will be subject to
withholding at a rate of 10%. However, the Non-U.S. Shareholder may seek a
refund of such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of current or accumulated earnings and
profits of the Company, 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.
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 December 31, 1996, USRealty, a
Luxembourg corporation, held approximately 40.9% in value of the securities of
the Company. In the event that USRealty and other stockholders of the Company
who are Non-U.S. Shareholders own collectively 50% or more, in value, of the
outstanding stock of the Company, the Company would cease to be a "domestically
controlled REIT."
If the Company does not qualify as a "domestically controlled REIT," a
Non-U.S. Shareholder's sale of securities of the Company generally still will
not be subject to U.S. tax under FIRPTA as a sale of a U.S. real property
interest, provided that (i) the securities are "regularly traded" (as defined by
the
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applicable Treasury regulations) on an established securities market, and (ii)
the selling Non-U.S. Shareholder held 5% or less of the Company's outstanding
securities at all times during a specified testing period. The Company believes
the Common Stock would be considered to be "regularly traded" for this purpose,
and the Company has no actual knowledge of any Non-U.S. Shareholder (other than
USRealty) that holds in excess of 5% of the Company's stock. In order to assist
the Company in qualifying as a "domestically controlled REIT," the Articles of
Incorporation contain certain provisions preventing any Non-U.S. Shareholder
(other than USRealty and its affiliates) from acquiring additional shares of the
Company's capital stock if, as a result of such acquisition, the Company would
fail to qualify as a "domestically controlled REIT" (computed assuming that
USRealty owns the maximum percentage of the Company's capital stock that it is
permitted to own under the Special Shareholder Limit). The Company is unlikely
to be able to advise a prospective Non-U.S. Shareholder that its purchase of any
shares of the Company's capital stock would not violate this prohibition,
thereby subjecting such prospective Non-U.S. Shareholder to the adverse
consequences described under "Description of Common Stock -- Restrictions on
Transfer --Violation of Ownership Limits." Accordingly, an acquisition of the
Company's capital stock would not likely be a suitable investment for Non-U.S.
Shareholders other than USRealty.
If the gain on the sale of Common Stock were to be subject to tax under
FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as
domestic shareholders with respect to such gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals), and the purchaser of the Common Stock would be
required to withhold and remit to the IRS 10% of the purchase price.
Taxation of Holders of Preferred Stock, Depositary Shares, Common Stock Warrants
and Debt Securities
Additional Tax Consequences for Holders of Preferred Stock, Depositary
Shares, Common Stock Warrants or Debt Securities. 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.
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 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).
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Tax Allocations with Respect to the Properties. Carr Realty, L.P. was
formed by way of contributions of appreciated property. When property is
contributed to a partnership in exchange for an interest in the partnership, the
partnership generally takes a carryover basis in that property for tax purposes
equal to the adjusted basis of the contributing partner in the property, rather
than a basis equal to the fair market value of the property at the time of
contribution (this difference is referred to as "Book-Tax Difference"). The Carr
Realty, L.P. partnership agreement requires allocations of income, gain, loss
and deduction with respect to the contributed Property be made in a manner
consistent with the special rules in 704(c) of the Code and the regulations
thereunder, which will tend to eliminate the Book-Tax Differences with respect
to the contributed Properties over the life of Carr Realty, L.P. However,
because of certain technical limitations, the special allocation rules of
Section 704(c) may not always entirely eliminate the Book-Tax Difference on an
annual basis or with respect to a specific taxable transaction such as a sale.
Thus, the carryover basis of the contributed Properties in the hands of Carr
Realty, L.P. could cause the Company (i) to be allocated lower amounts of
depreciation and other deductions for tax purposes than would be allocated to
the Company if all Properties were to have a tax basis equal to their fair
market value at the time the Properties were contributed to Carr Realty, L.P.,
and (ii) possibly to be allocated taxable gain in the event of a sale of such
contributed Properties in excess of the economic or book income allocated to the
Company as a result of such sale.
Non-Qualified REIT Subsidiaries. The Non-qualified REIT Subsidiaries do
not qualify as REITs and thus pay Federal, state and local income taxes
(including District of Columbia franchise tax) on their net income at normal
corporate rates. To the extent the Non-qualified REIT Subsidiaries are required
to pay Federal, state and local income taxes, the cash available for
distribution to stockholders will be reduced accordingly.
State and Local Taxes; District of Columbia Unincorporated Business
Tax. The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the Federal income tax consequences
discussed above. In this regard, the District of Columbia imposes an
unincorporated business income tax, at the rate of 9.975%, on the "District of
Columbia taxable income" of partnerships doing business in the District of
Columbia. Because many of the Properties owned by Carr Realty, L.P. are located
in the District of Columbia, the Company's share of the "District of Columbia
taxable income" of Carr Realty, L.P. will be subject to this tax. Carr Realty,
L.P. has taken steps to attempt to reduce the amount of income that is
considered "District of Columbia taxable income," but it is likely that at least
some portion of the income attributable to the Properties located in the
District of Columbia will be subject to the District of Columbia tax. To the
extent Carr Realty, L.P. is required to pay the District of Columbia
unincorporated business income tax, the cash available for distribution to the
Company and, therefore, 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.
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PLAN OF DISTRIBUTION
General
The Company may sell Securities in or through underwriters for public
offer and sale by them, and also may sell Securities offered hereby to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Securities at a fixed price or
prices, which may be changed, at prices related to the prevailing market prices
at the time of sale or at negotiated prices. The Company also may, from time to
time, authorize underwriters acting as the Company's agents to offer and sell
Securities upon terms and conditions set forth in the applicable Prospectus
Supplement. In connection with the sale of the Securities, underwriters may be
deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of the Securities for whom they may act as agent. Underwriters may
sell Securities to or through dealers, and such dealers may receive compensation
in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or
agents in connection with the offering of the Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Securities may be deemed to
be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements to be entered into with the
Company, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company
will authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
at the public offering price set forth in such Prospectus Supplement pursuant to
delayed delivery contracts ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount not less than, and the aggregate principal amount of Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Securities covered by its
Contracts shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and (ii)
if the Securities are being sold to underwriters, the Company shall have sold to
such underwriters the total principal amount of the Securities less the
principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and its
Subsidiaries in the ordinary course of business.
Participation Rights
In conjunction with the USRealty Transaction, so long as USRealty owns
at least 25% of the outstanding Common Stock of the Company on a fully diluted
basis, USRealty will be entitled (except in certain limited circumstances), upon
compliance with certain specified conditions, to a participation right to
purchase or subscribe for, either as part of such issuance or in a concurrent
issuance, a total number of shares of Common Stock or Preferred Stock, as the
case may be, equal to up to 30% (or 35% in certain circumstances) of the total
number of shares or of Common Stock or Preferred Stock, as applicable, proposed
to be issued by the Company. 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.
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LEGAL MATTERS
The legality of the Debt Securities, the Preferred Stock, the
Depositary Shares, the Common Stock and the Common Stock Warrants offered hereby
will be passed upon for the Company by Hogan & Hartson L.L.P., Washington, D.C.
Certain federal income tax matters will be 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 and other information with the Securities
and Exchange Commission (the "Commission"). Such reports, proxy statements and
other information can be inspected at the Public Reference Section maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and
the following regional offices of the Commission: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Company's Common Stock are listed
on the New York Stock Exchange and such reports, proxy statements and other
information concerning the Company can be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005. The Commission
maintains a "web site" that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. The address of such site is "http://www.sec.gov".
The Company has filed with the Commission a registration statement on
Form S-3 (the "Registration Statement"), of which this Prospectus is a part,
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Securities offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other documents are not necessarily complete, and in each instance,
reference is made to the copy of such contract or documents filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference and the exhibits and schedules thereto. For further
information regarding the Company and the Securities, reference is hereby made
to the Registration Statement and such exhibits and schedules which may be
obtained from the Commission at its principal office in Washington, D.C. upon
payment of the fees prescribed by the Commission.
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; and
2. The Company's Current Report on Form 8-K filed with the Commission
on February 12, 1997 and the Company's Current Report on Form 8-K filed
with the Commission on March 26, 1997.
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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 CARRAMERICA
information or to make any representations other than REALTY CORPORATION
those contained in this Prospectus and, if given or made,
such information or representations must not be relied
upon as having been authorized. This Prospectus does not
constitute an offer to sell or the solicitation of an
offer to buy any securities other than the securities
described in this Prospectus or an offer to sell or the
solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder 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 the date
of such information.
------------------------
TABLE OF CONTENTS
PROSPECTUS
The Company ....................................1
Risk Factors ....................................2
Use of Proceeds ....................................7
Ratios of Earnings to Fixed Charges...................8
Description of Debt Securities........................9
Description of Series A Preferred Shares.............20
Description of Preferred Stock.......................25
Description of Common Stock..........................31
Description of Common Stock Warrants.................34
Description of Depositary Shares.....................35
Federal Income Tax Considerations....................39
Plan of Distribution.................................46
Legal Matters ...................................47
Experts ...................................47
Available Information................................47
Incorporation of Certain Documents by
Reference. ...................................47
________________, 1997
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the estimated fees and expenses payable
by the Company in connection with the issuance and distribution of the
securities being registered:
SEC Registration Fee....................................$ 303,030
Printing and Duplicating Expenses....................... 500,000
Legal Fees and Expenses................................. 300,000
Accounting Fees and Expenses............................ 250,000
Blue Sky Fees and Expenses.............................. 10,000
Miscellaneous........................................... 136,970
Total...............................................$1,500,000
==========
Item 15. Indemnification of Directors and Officers
The Company's officers and directors are and will be indemnified under
Maryland and Delaware law, the charter and by-laws of the Company, the
partnership agreement of Carr Realty, L.P. and the partnership agreement of
CarrAmerica Realty, L.P.
The charter and by-laws of the Company require that the Company shall,
to the fullest extent permitted by Section 2-418 of the Maryland General
Corporation Law (the "MGCL") as in effect from time to time, indemnify any
person who is or was, or is the personal representative of a deceased person who
was, a director or officer of the Company against any judgments, penalties,
fines, settlements and reasonable expenses and any other liabilities; provided,
that, unless applicable law otherwise requires, indemnification shall be
contingent upon a determination, by the Board by a majority vote of a quorum
consisting of directors not, at the time, parties to the proceeding, or, if such
a quorum cannot be obtained, then by a majority vote of a committee of the Board
consisting solely of two or more directors not, at the time, parties to such
proceeding and who were duly designated to act in the matter by a majority vote
of the full Board in which the designated directors who are parties may
participate or by special legal counsel selected by and if directed by the Board
as set forth above, that indemnification is proper in the circumstances because
such director, officer, employee, or agent has met the applicable standard of
conduct prescribed by Section 2-418(b) of the MGCL.
Under Maryland law, a corporation formed in Maryland is permitted to
limit, by provision in its charter, the liability of directors and officers so
that no director or officer of the Company shall be liable to the Company or to
any shareholder for money damages except to the extent that (i) the director or
officer actually received an improper benefit in money, property or services,
for the amount of the benefit or profit in money, property or services actually
received, or (ii) a judgment or other final adjudication adverse to the director
or officer is entered in a proceeding based on a finding in a proceeding that
the director's or officer's action was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding.
The partnership agreements of Carr Realty, L.P. and CarrAmerica Realty,
L.P. also provide for indemnification of the Company and their officers and
directors against any and all losses, claims, damages, liabilities, joint or
several, expenses (including legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the partnership as set forth in the partnership
agreements in which any indemnitee may be involved, or is threatened to be
involved,
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unless it is established that (i) the act or mission of the indemnitee was
material to the matter giving rise to the proceeding and either was committed in
bad faith or was the result of active and deliberate dishonesty, (ii) the
indemnitee actually received an improper personal benefit in money, property or
services, or (iii) in the case of a criminal proceeding, the indemnitee had
cause to believe that the act or omission was unlawful. The termination of any
proceeding by judgment, order or settlement does not create a presumption that
the indemnitee did not meet the requisite standard of conduct set forth in the
respective partnership agreement section on indemnification. The termination of
any proceeding by conviction or upon a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior to judgment creates a
rebuttable presumption that the indemnitee acted in a manner contrary to that
specified in the indemnification section of the partnership agreements. Any
indemnification pursuant to one of the partnership agreements may only be made
out of the assets of that respective partnership.
Item 16. Exhibits
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3.1 * - Articles of Amendment and Restatement of Incorporation of the
Company
3.2 ** - Second Amendment and Restatement of By-laws of the Company
4.1 + - Form of Senior Indenture between the Company and Trustee
4.2 + - Form of Subordinate Indenture between the Company and Trustee
5.1 ++ - Opinion of Hogan & Hartson L.L.P.
8.1 ++ - Opinion of Hogan & Hartson L.L.P. regarding certain tax matters
12.1 - Computation of Ratios of Earnings to Fixed Charges
23.1 - Consent of KPMG Peat Marwick LLP
23.2 ++ - Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.3 ++ - Consent of Hogan & Hartson L.L.P. (included in Exhibit 8.1)
24.1 ++ - Powers of Attorney
25.1 + - Statement of Eligibility of Trustee on Form T-1
</TABLE>
-----------------
* Incorporated by reference to the same numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996.
** Incorporated by reference to the same numbered exhibit to the
Company's Current Report on Form 8-K filed on February 12,
1997.
+ To be filed by amendment.
++ Previously filed.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
II-2
<PAGE>
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in this registration statement;
provided, however, that subparagraphs (i) and (ii) above do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the Offered
Securities offered herein, and the offering of such Offered Securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the Offered Securities being registered which remain unsold at
the termination of the offering.
The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the Offered Securities offered therein, and the offering of such
Offered Securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to existing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Washington, D.C., on March 26, 1997.
CARRAMERICA REALTY
CORPORATION,
a Maryland corporation
By: /S/ BRIAN K. FIELDS
-------------------------
Brian K. Fields
Chief Financial Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
below on March 26, 1997:
Name Title
____________*___________________ Chairman of the Board, Chief Executive
Oliver T. Carr, Jr. Officer and Director
____________*__________________ President, Chief Operating Officer and
Thomas A. Carr Director
____________*___________________ Chief Financial Officer
Brian K. Fields
____________*___________________ Director
David Bonderman
____________*___________________ Director
Andrew F. Brimmer
____________*___________________ Director
George R. Puskar
II-4
<PAGE>
____________*___________________ Director
Robert O. Carr
_______________________________ Director
A. James Clark
____________*___________________ Director
Wesley S. Williams
____________*___________________ Director
Caroline McBride
____________*___________________ Director
Anthony R. Manno, Jr
____________*___________________ Director
J. Marshall Peck
____________*___________________ Director
William D. Sanders
*By: /s/ ANDREA F. BRADLEY__
Andrea F. Bradley
As Attorney-in-Fact
(See Exhibit 24.1)
II-5
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequentially
Number Description of Exhibit Numbered Page
3.1 * - Articles of Amendment and Restatement of Incorporation
of the Company
3.2 ** - Second Amendment and Restatement of By-laws of the
Company
4.1 + - Form of Senior Indenture between the Company and the
Trustee
4.2 + - Form of Subordinate Indenture between the Company and
the Trustee
5.1 ++ - Opinion of Hogan & Hartson L.L.P.
8.1 ++ - Opinion of Hogan & Hartson L.L.P. regarding certain tax
matters
12.1 - Computation of Ratios of Earnings to Fixed Charges
23.1 - Consent of KPMG Peat Marwick LLP
23.2 ++ - Consent of Hogan & Hartson L.L.P. (included in Exhibit
5.1)
23.3 ++ - Consent of Hogan & Hartson L.L.P. (included in Exhibit
8.1)
24.1 ++ - Powers of Attorney
25.1 + - Statement of Eligibility of Trustee on Form T-1
-----------------
* Incorporated by reference to the same numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996.
** Incorporated by reference to the same numbered exhibit to the
Company's Current Report on Form 8-K filed on February 12,
1997.
+ To be filed by amendment.
++ Previously filed.
EXHIBIT 12.1
CARRAMERICA REALTY CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES CALCULATION
<TABLE>
<CAPTION>
Ratio of Earnings
to Combined
Fixed Charges Ratio of
and Preferred Stock Earnings to
Dividends Fixed Charges
-------------------- -----------------------------------------
1996 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Income before Minority Interest............. $ 29,050 $29,050 $17,284 $17,821 $ 6,004
Add:
Extraordinary Charges......................... $ 484 $ 484 $ -- -- $ 5,613
Fixed Charges, excluding Capital Interest..... $ 33,724 $33,724 $22,579 $21,880 $12,768
Deduct:
Gain of Sale of Assets........................ $ -- $ -- $ -- $ -- $ --
-------- ------- ------- ------- -------
$ 63,258 $63,258 $39,863 $39,701 $24,385
======== ======= ======= ======= =======
Fixed Charges:
Interest Expense.............................. $ 32,396 $32,396 $21,873 $21,366 $12,436
Interest Capitalized.......................... $ 2,664 $ 2,664 $ 226 $ -- $ --
Amortization of Deferred Financing Costs...... $ 1,015 $ 1,015 $ 365 $ 208 $ 101
Rent Deemed as Interest....................... $ 313 $ 313 $ 341 $ 306 $ 231
Preferred Stock Dividends..................... $ 572 $ -- $ -- $ -- $ --
-------- ------- ------- ------- -------
Total Fixed Charges....................... $ 36,960 $36,388 $22,805 $21,880 $12,768
======== ======= ======= ======= =======
Ratio of Earnings to Fixed Charges.............. 1.71 1.74 1.75 1.81 1.91
</TABLE>
Accountants' Consent
--------------------
The Board of Directors
CarrAmerica Realty Corporation:
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the registration statement
on Form S-3.
KPMG Peat Marwick LLP
Washington, D.C.
March 26, 1997
