PROSPECTUS
882,567 Shares
CarrAmerica Realty Corporation
Common Stock
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CarrAmerica Realty Corporation (the "Company") is a publicly-traded
real estate investment trust (a "REIT") that focuses primarily on the
acquisition, development, ownership and operation of value office properties in
select suburban growth markets across the United States. As of November 15,
1996, the Company owned interests in a portfolio of 147 operating office
properties containing approximately 12.5 million square feet of space.
This Prospectus relates to (i) the possible issuance by the Company of
up to 708,654 shares (the "Redemption Shares") of common stock, par value $.01
per share ("Common Stock"), of the Company if, and to the extent that, holders
of up to 708,654 units of limited partnership interest ("Units") in Carr Realty,
L.P. ("Carr Realty, L.P." or the "Operating Partnership"), of which the Company
is the sole general partner and owns a controlling limited partner interest,
tender such Units for redemption and (ii) the resale of up to 173,913 shares of
Common Stock, if and to the extent that holders of up to 173,913 Units redeem
their Units and the Company issues them Common Stock in exchange therefor (such
persons, the "Selling Stockholders"). The Units were issued (or reserved for
issuance) in connection with the acquisition of properties by the Company. The
registration of the Redemption Shares does not necessarily mean that any of such
shares will be offered or sold by the holders thereof. See "The Company" and
"Registration Rights."
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "CRE." To ensure that the Company maintains its qualification
as a REIT, ownership by any person of more than 5% of the Common Stock is
restricted, with certain exceptions. See "Capital Stock of the Company."
The Selling Stockholders from time to time may offer and sell shares of
Common Stock held by them (the "Secondary Shares") directly or through agents or
broker-dealers on terms to be determined at the time of sale. To the extent
required, the names of any agent or broker-dealer and applicable commissions or
discounts and any other required information with respect to any particular
offer will be set forth in an accompanying Prospectus Supplement. See "Plan of
Distribution." Each of the Selling Stockholders reserves the sole right to
accept or reject, in whole or in part, any proposed purchase of the Secondary
Shares to be made directly or through agents. The Selling Stockholders and any
agents or broker-dealers that participate with the Selling Stockholders in the
distribution of Secondary Shares may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), and
any commissions received by them and any profit on the resale of the Secondary
Shares may be deemed to be underwriting commissions or discounts under the
Securities Act. See "Registration Rights" for indemnification arrangements
between the Company and the Selling Stockholders.
The Company will not receive any of the proceeds from the issuance of
the Redemption Shares or the sale of any Secondary Shares by the Selling
Stockholders but has agreed to bear certain expenses of registration of the
Secondary Shares under Federal and state securities laws, other than commissions
and discounts of agents or broker-dealers and transfer taxes, if any. The
Company will acquire Units in Carr Realty, L.P. in exchange for any Redemption
Shares that the Company may issue to Unit holders pursuant to this Prospectus.
See "Risk Factors" beginning on page 2 of this prospectus for a
discussion of certain factors relating to an investment in the common stock.
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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.
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December 31, 1996
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As used herein, the term "Company" includes CarrAmerica Realty
Corporation, a Maryland corporation, and/or one or more of its subsidiaries, as
appropriate.
THE COMPANY
The Company is a publicly-traded REIT that focuses primarily on the
acquisition, development, ownership and operation of value office properties in
select suburban growth markets across the United States. The Company's national
value office strategy is responsive to the growing number of corporate space
users that are relocating their operations from central business districts to
suburban markets to reduce operating costs and improve their employees' quality
of life. "Value office" property describes office space which combines the
elements of affordability, accessibility and flexibility with regard to customer
needs.
As of November 15, 1996, the Company owned interests in a portfolio of
147 operating office properties, and four properties currently under
construction, located in nine target markets and totaling approximately 12.5
million square feet of space, and four office properties under construction,
totaling approximately 524,000 square feet (collectively, the "Properties"). The
operating Properties owned by the Company as of September 30, 1996 were 91.9%
leased as of that date. The Company also provided fee-based real estate
management services for more than 8 million square feet of office space in
properties owned by third parties as of November 15, 1996.
The Company's experienced staff of over 450 employees, including over
325 on-site building employees, provides a full range of real estate services.
The Company's principal executive offices are located at 1700 Pennsylvania
Avenue, N.W., Washington, D.C. 20006, and its telephone number is (202)
624-7500. The Company was organized as a Maryland corporation on July 9, 1992.
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RISK FACTORS
Prospective investors and Unit holders should carefully consider, among
other factors, the matters described below.
SPECIAL CONSIDERATIONS APPLICABLE TO REDEEMING UNIT HOLDERS
Tax Consequences of Redemption of Units. The exercise by a Unit holder
of his or her right to require the redemption of his or her Units will be
treated for tax purposes as a sale of such Units by the Unit holder. Such a sale
will be fully taxable to the redeeming Unit holder and such redeeming Unit
holder will be treated as realizing for tax purposes an amount equal to the sum
of the cash or the value of the Common Stock received in the exchange plus the
amount of the Operating Partnership nonrecourse liabilities allocable to the
redeemed Units at the time of the redemption. It is possible that the amount of
gain recognized or even the tax liability resulting from such gain could exceed
the amount of cash and the value of other property (e.g., Redemption Shares)
received upon such disposition. See "Redemption of Units--Tax Consequences of
Redemption." In addition, the ability of the Unit holder to sell a substantial
number of Redemption Shares in order to raise cash to pay tax liabilities
associated with redemption of Units may be restricted due to the Company's
relatively low trading volume, and, as a result of fluctuations in the stock
price, the price the Unit holder receives for such shares may not equal the
value of his or her Units at the time of redemption. See "--Common Stock Price
Fluctuations and Trading Volume" below.
Change in Investment Upon Redemption of Units. If a Unit holder
exercises the right to require the redemption of his or her Units, such Unit
holder may receive cash or, if the Company so elects, shares of Common Stock. If
the Unit holder receives cash, the Unit holder will no longer have any interest
in the Company and will not benefit from any subsequent increases in share price
and will not receive any future distributions from the Company (unless the Unit
holder currently owns or acquires in the future additional shares of Common
Stock or Units). If the Unit holder receives shares of Common Stock, the Unit
holder will become a stockholder of the Company rather than a holder of Units in
the Operating Partnership. See "Redemption of Units-- Comparison of Ownership of
Units and Common Stock."
Units of the Operating Partnership May Outperform Shares of Common
Stock of the Company. Units, which represent undivided interests in all of the
assets of the Operating Partnership, may, over time, outperform shares of Common
Stock, which represent undivided interests in all of the assets of the Company,
including the Company's interest in the Operating Partnership.
REAL ESTATE INVESTMENT RISKS
General. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate and the
Company's ability to service debt will depend in large part on the amount of
income generated, expenses incurred and capital expenditures required. The
Company's income from office properties may be adversely affected by a number of
factors, including the general economic climate and local real estate
conditions, such as an oversupply of, or a reduction in demand for, office space
in the area and the attractiveness of the properties to tenants. In addition,
income from properties and real estate values also are affected by such factors
as the cost of compliance with government regulation, including zoning and tax
laws, the potential for liability under applicable laws, interest rate levels
and the availability of financing. Certain significant expenditures associated
with each equity investment by the Company in a property (such as mortgage
payments, if any, real estate taxes and maintenance costs) also are generally
not reduced when circumstances cause a reduction in income from the property.
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Debt Financing. The Company is subject to the risks associated with
debt financing, including the risk that the cash provided by the Company's
operating activities will be insufficient to meet required payments of principal
and interest, the risk of rising interest rates on the Company's floating rate
debt, the risk that the Company will not be able to prepay or refinance existing
indebtedness on its properties (which generally will not have been fully
amortized at maturity) or that the terms of such refinancing will not be as
favorable as the terms of existing indebtedness. In the event the Company is
unable to secure refinancing of such indebtedness on acceptable terms, the
Company might be forced to dispose of properties upon disadvantageous terms,
which might result in losses to the Company and might adversely affect the cash
flow available for distribution to equity holders or debt service. In addition,
if a property or properties are mortgaged to secure payment of indebtedness and
the Company is unable to meet mortgage payments, the mortgage securing the
property could be foreclosed upon by, or the property could be otherwise
transferred to, the mortgagee with a consequent loss of income and asset value
to the Company.
Renewal of Leases and Reletting of Space. The Company is subject to the
risks that upon expiration of leases for space located at its properties, the
leases may not be renewed, the space may not be relet or the terms of the
renewal or reletting (including the cost of required renovations or concessions
to tenants) may be less favorable than current lease terms. In particular, as of
September 30, 1996, two of the Company's tenants leased space representing
approximately 13% and 5%, respectively, of the total square footage of its
properties pursuant to leases that expire beginning in 1998. Although the
Company has established an annual budget for renovation and reletting costs that
it believes are reasonable in light of each property's situation, no assurance
can be given that this budget will be sufficient to cover these costs. If the
Company is unable to promptly relet or renew leases for all or substantially all
of the space at its properties, if the rental rates upon such renewal or
reletting are significantly lower than expected, or if the Company's reserves
for these purposes prove inadequate, then the Company's cash provided by
operating activities and ability to make expected distributions to shareholders
or debt service payments could be adversely affected.
Possible Environmental Liabilities. Under various Federal, state and
local laws, ordinances and regulations, a current or previous owner or operator
of real estate may be required to investigate and clean up certain hazardous
substances released at the property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and cleanup
costs incurred by such parties in connection with the contamination. In
addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs it incurs in connection with the
contamination. The presence of contamination or the failure to remediate
contamination may adversely affect the owner's ability to sell or lease real
estate or to borrow using the real estate as collateral. The owner or operator
of a site may be liable under common law to third parties for damages and
injuries resulting from environmental contamination emanating from the site. The
Company has not been 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 Units of Carr Realty, L.P. and, thus, may have interests that
conflict with shareholders with respect to business decisions affecting the
Company and Carr Realty, L.P. In particular, a holder of Units may suffer
different and/or more adverse tax consequences than the Company upon the sale or
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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 its change in operational structure from an
"UPREIT" to a "DownREIT" in 1996 should reduce, over time, these potential
conflicts of interest, assets will continue to be owned by Carr Realty, L.P.,
diminishing the effects of this structural modification.
ACQUISITION AND DEVELOPMENT RISKS
The Company intends to continue acquiring and developing office
properties in markets where it believes that such acquisition or development is
consistent with the business strategies of the Company. Acquisitions entail
risks that investments will fail to perform in accordance with expectations and
that judgments with respect to the costs of improvements to bring an acquired
property up to standards established for the market position intended for that
property will prove inaccurate, as well as general investment risks associated
with any new real estate investment. See "Real Estate Investment Risks" above.
New office development also is subject to a number of risks, including
construction delays or cost overruns that may increase project costs, financing
risks as described above, the failure to meet anticipated occupancy or rent
levels, failure to receive required zoning, occupancy and other governmental
permits and authorizations and changes in applicable zoning and land use laws,
which may result in the incurrence of development costs in connection with
projects that are not pursued to completion. In addition, because the Company
must distribute 95% of its taxable income in order to maintain its qualification
as a REIT, the Company anticipates that new acquisitions and developments will
be financed primarily through periodic equity offerings, lines of credit or
other forms of secured or unsecured financing. If permanent debt or equity
financing is not available on acceptable terms to refinance such new
acquisitions or developments are undertaken without permanent financing, further
acquisitions or development activities may be curtailed or cash available for
distribution to shareholders or to meet debt service obligations may be
adversely affected.
CHANGE IN BUSINESS STRATEGY; RISKS ASSOCIATED WITH THE ACQUISITION OF
SUBSTANTIAL NEW PROPERTIES
The Company's move toward a more national business focus represents a
significant shift in the business strategy of the Company. Although the Board
believes that such a shift in strategy is warranted in light of the
opportunities available, there is no assurance that the Company's efforts to
establish a national office REIT will be successful.
Consistent with the Company's strategy of acquiring value office
properties in suburban growth markets, the Company has significantly expanded
its portfolio of properties. 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 DOWNTOWN WASHINGTON, D.C. MARKET
Although the Company's business strategy is to move toward a more
national business focus, at November 15, 1996, the Company's properties
consolidated in financial statements located in
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downtown Washington, D.C., represented approximately 22% of the Properties in
terms of square footage, including two properties containing 407,000 square feet
of office space in which the Company owns a 50% interest but which are not
consolidated in the Company's financial statements. 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
In November 1995, the Company announced a strategic alliance (the
"USRealty Transaction") with Security Capital U.S. Realty, a European real
estate operating company which owns strategic positions in selected real estate
companies in the United States (together with its wholly-owned subsidiary,
"USRealty"). As of November 15, 1996, U.S. Realty owned 43.4% of the outstanding
shares of the Company's common stock and U.S. Realty has the right to nominate a
proportionate number of the directors of the Board based upon its ownership of
stock on a fully-diluted basis, rounded down to the nearest whole number (but in
no event more than 40% of the directors). As a result, U.S. Realty is the
largest single stockholder of the Company, while no other stockholder is
permitted to own more than 5% of the Company's common stock, subject to certain
exceptions set forth in the Articles of Incorporation or approved by the Board.
Although certain standstill provisions preclude U.S. Realty from increasing its
percentage interest above 45% in the Company for a period of at least five years
(subject to certain exceptions) and the Articles of Incorporation preclude it
from increasing such percentage interest thereafter, and U.S. Realty agreed to
certain limitations on its voting rights with respect to its shares of Common
Stock, U.S. Realty nonetheless has a substantial influence over the affairs of
the Company as a result of the U.S. Realty Transaction. This concentration of
ownership in one stockholder could potentially be disadvantageous to other
stockholders' interests. In addition, so long as U.S. Realty owns at least 25%
of the outstanding Common Stock of the Company on a fully diluted basis, U.S.
Realty will be entitled (except in certain limited circumstances), upon
compliance with certain specified conditions, to a participation right to
purchase or subscribe for, either as part of such issuance or in a concurrent
issuance, a total number of shares of Common Stock or preferred stock, as the
case may be, equal to up to 30% (or 35% in certain circumstances) of the total
number of shares of Common Stock or preferred stock, as applicable, proposed to
be issued by the Company.
LIMITATIONS ON CORPORATE ACTIONS
In conjunction with the U.S. Realty Transaction, the Company agreed to
certain limitations on its operations, including restrictions relating to
incurrence of additional indebtedness, retention of third-party managers for the
Company's properties, investments in properties other than office buildings,
issuances of Units by Carr Realty, L.P., and certain other matters. The Company
may take actions relating to these matters only with the consent of U.S. Realty.
In addition, the Company has agreed to certain limitations on the amount of
assets that it owns indirectly through other entities and the manner in which it
conducts its business (including the types of assets that it can acquire and own
and the manner in which such assets are operated). These limitations, which are
intended to permit U.S. Realty to comply with certain requirements of the
Internal Revenue Code and other countries' tax laws applicable to foreign
investors, limit somewhat the flexibility of the Company to structure
transactions that might otherwise be advantageous to the Company. Although the
Company does not believe that the limitations imposed on the Company's
activities will materially impair the Company's ability to conduct its business,
there can be no assurance that these limitations will not adversely affect the
Company's operations in the future.
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MANAGEMENT, LEASING AND BROKERAGE RISKS
The Company is subject to the risks associated with the property
management, leasing and brokerage businesses. These risks include the risk that
management contracts or service agreements with third-party owners will be lost
to competitors, that a property will be sold and the Company will lose the
contract, that contracts will not be renewed upon expiration or will not be
renewed on terms consistent with current terms and that leasing and brokerage
activity generally may decline. Each of these developments could adversely
affect the ability of the Company to make expected distributions to shareholders
or debt service payments.
LACK OF VOTING CONTROL OF OPERATING SUBSIDIARIES
The Company does not have voting control of Carr Real Estate Services,
Inc. ("Carr Services, Inc."), Carr Real Estate Services of Northern Virginia,
Inc. ("CRESNOVA") or Carr Development & Construction, Inc. ("Carr Development &
Construction") (collectively, the "Operating Subsidiaries"). The capital stock
of Carr Services, Inc., which conducts fee-based management and leasing in the
Washington, D.C. metropolitan area, is divided into two classes: voting common
stock, approximately 92% and 8% of which is held by OCCO and Carr Realty, L.P.,
respectively, and nonvoting preferred stock, approximately 95% and 5% of which
is held by Carr Realty, L.P. and OCCO, respectively. OCCO, as the holder of 92%
of the voting common stock, has the ability to elect the board of directors of
Carr Services, Inc.
The capital stock of CRESNOVA, which conducts fee-based management and
leasing in northern Virginia, is divided into two classes: voting common stock,
92% and 8% of which is held by OCCO and Carr Realty, L.P., respectively, and
nonvoting common stock, 100% of which is held by Carr Realty, L.P. OCCO, as the
holder of 92% of the voting common stock, has the ability to elect the board of
directors of CRESNOVA.
The capital stock of Carr Development & Construction, Inc. which
conducts fee-based development, is divided into two classes: voting common
stock, 99% and 1% of which is held by OCCO and the Company, respectively, and
nonvoting common stock, 96% and 4% of which is held by the Company and OCCO,
respectively. OCCO, as the holder of 99% of the voting common stock, has the
ability to elect the board of directors of Carr Development & Construction after
the terms of the initial directors expire.
Oliver T. Carr, Jr., who is Chairman of the Board and Chief Executive
Officer and a significant stockholder of the Company, beneficially owns a
majority of the voting stock of OCCO, which will control the election of
directors of the Operating Subsidiaries. Although neither the Company's right to
receive preferred distributions with respect to its preferred stock of Carr
Services, Inc. nor the terms of the promissory notes made by each of the
Operating Subsidiaries and held by Carr Realty, L.P. or the Company, as
applicable, can be changed by OCCO, the Company will not be able to elect
directors of each of the Operating Subsidiaries, and its ability to influence
the day-to-day decisions of the Operating Subsidiaries is limited. As a result,
the board of directors and management of each of the Operating Subsidiaries may
implement business policies or decisions that might not have been implemented by
persons elected by the Company and that are adverse to the interests of the
Company or that lead to adverse financial results, which could adversely impact
the Company's operating income and funds from operations.
CHANGES IN POLICIES
The major policies of the Company, including its policies with respect
to development, acquisitions, financing, growth, operations, debt capitalization
and distributions, are determined by its Board. Although it has no present
intention to do so, the board may amend or revise these and
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other policies from time to time without a vote of the shareholders of the
Company. A change in these policies could adversely affect the Company's
financial condition, results of operations, funds available for distributions to
shareholders, debt service or the market price of the Securities. The Company
cannot change its policy of seeking to maintain its qualification as a REIT
without the approval of the holders of a majority of the Common Stock.
CERTAIN TAX RISKS
Tax Liabilities as a Consequence of the Failure to Qualify as a REIT.
The Company believes that it has operated so as to qualify and has qualified as
a REIT under the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ended December 31, 1993, and intends to
continue to so operate. No assurance, however, can be given that the Company has
so qualified or will be able to remain so qualified. Qualification as a REIT
involves the application of highly technical and complex Code provisions as to
which there are only limited judicial and administrative interpretations.
Certain facts and circumstances that may be wholly beyond the Company's control
may affect its ability to qualify or to continue to qualify as a REIT. In
addition, no assurance can be given that new legislation, Treasury Regulations,
administrative interpretations or court decisions will not significantly change
the tax laws with respect to the qualification as a REIT or the Federal income
consequences of such qualification to the Company. If the Company fails to
qualify as a REIT, it will be subject to Federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. In addition, unless entitled to relief under certain statutory
provisions, the Company would be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification is lost. The
additional tax incurred in such event would significantly reduce the cash flow
available for distribution to shareholders and to meet debt service obligations.
See "Federal Income Tax Considerations--Taxation of the Company."
REIT Distribution Requirements and Potential Impact of Borrowings. To
obtain the favorable tax treatment associated with qualifying as a REIT under
the Code, the Company generally is required each year to distribute to its
shareholders at least 95% of its net taxable income. See "Federal Income Tax
Considerations-Taxation of the Company (Annual Distribution Requirements)." In
addition, the Company will be subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions paid by it with respect to any
calendar year are less than the sum of 85% of its ordinary income, 95% of its
capital gain net income and 100% of its undistributed income from prior years.
Differences in timing between the receipt of income, the payment of expenses and
the inclusion of such income and the deduction of such expenses in arriving at
taxable income (of the Company, Carr Realty, L.P. or CarrAmerica Realty, L.P.),
or the effect of nondeductible capital expenditures, the creation of reserves or
required debt or amortization payments, could require the Company, directly,
through Carr Realty, L.P. or CarrAmerica Realty, L.P., to borrow funds on a
short-term basis to meet the distribution requirements that are necessary to
achieve the tax benefits associated with qualifying as a REIT. In such
instances, the Company might need to borrow funds in order to avoid adverse tax
consequences even if management believed that then prevailing market conditions
were not generally favorable for such borrowings.
Other Tax Liabilities. Even if the Company qualifies as a REIT, the
Company and certain of its subsidiaries will be subject to certain Federal,
state and local taxes on its income and property. See "Federal Income Tax
Considerations--Taxation of the Company" and "--Other Tax Considerations."
Consequences of Failure of Carr Realty, L.P., CarrAmerica Realty, L.P.
or other Partherships to be Treated as a Partnership. The Company believes that
Carr Realty, L.P., CarrAmerica Realty, L.P. and each other partnership and
limited liability company in which it holds an interest are properly treated as
partnerships for Federal income tax purposes. See "Federal Income Tax
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Considerations--Other Tax Considerations (Effect of Tax Status of Carr Realty,
L.P., CarrAmerica Realty, L.P. and Other Partnerships on REIT Qualification)."
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. 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 qualifying as a
"domestically controlled REIT," the Articles of Incorporation contain certain
provisions generally preventing foreign investors (other than U.S. Realty and
its affiliates) from acquiring additional shares of the Company's capital stock
if, as a result of such acquisition, the Company would fail to qualify as a
"domestically controlled REIT." See "Federal Income Tax Considerations--Taxation
of Stockholders (Taxation of Non-U.S. Stockholders)." Accordingly, an
acquisition of the Company's capital stock would not likely be a suitable
investment for Non-U.S. Stockholders other than U.S. Realty.
PRICE FLUCTUATIONS OF THE COMMON STOCK AND TRADING VOLUME; SHARES AVAILABLE FOR
FUTURE SALE
A number of factors may adversely influence the price of the Company's
Common Stock in the public markets, many of which are beyond the control of the
Company. These factors include possible increases in market interest rates,
which may lead purchasers of Common Stock to demand a higher annual yield from
distributions by the Company in relation to the price paid for Common Stock, the
relatively low daily trading volume of REITs in general, including the Common
Stock and any inability of the Company to invest the proceeds of a future
offering of Securities in a manner that will increase earnings per share. Sales
of a substantial number of shares of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for shares.
The Company also may issue shares of Common Stock (subject to the Ownership
Limit, as defined below) upon redemption of Units issued in connection with the
formation of the Company and subsequent acquisitions. In addition, 1,441,900
shares of Common Stock of the Company have been issued or reserved for issuance
pursuant to stock and unit options, and these shares will be available for sale
in the public markets from time to time pursuant to exemptions from registration
requirements or upon registration. In connection with the U.S. Realty
Transaction, the Company granted U.S. Realty the right to require the Company to
file, at any time requested by U.S. Realty, a Registration Statement under the
Securities Act of 1933 covering all or any of the shares of Common Stock held by
U.S. Realty. No prediction can be made about the effect that future sales of
Common Stock will have on the market prices of shares.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES
In order to assist the Company in maintaining its qualification as a
REIT, the Company's Articles of Incorporation, as amended (the "Articles of
Incorporation"), contain certain provisions generally limiting the ownership of
shares of capital stock by any single shareholder to 5% of the outstanding
Common Stock and/or 5% of any class or series of preferred stock (with
exceptions for persons who received more than 5% of the equity of the Company
pursuant to the contribution of
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assets to the Company in connection with the initial public offering of the
Company and U.S. Realty and its affiliates). The Board could waive this
restriction if it were satisfied that ownership in excess of the above ownership
limit would not jeopardize the Company's status as a REIT and the Board
otherwise decided such action would be in the best interests of the Company.
Capital stock acquired or transferred in breach of the limitation will be
automatically transferred to a trust for the benefit of a designated charitable
beneficiary. See "Capital Stock of the Company--Restrictions on Transfer" for
additional information regarding the limits on ownership of shares of capital
stock.
RESTRICTIONS ON ACQUISITION AND CHANGE IN CONTROL
Various provisions of the Company's Articles of Incorporation restrict
the possibility for acquisition or change in control of the Company, even if
such acquisition or change in control were in the shareholders' interest,
including the Ownership Limit, the staggered terms of the Company's directors
and the ability of the Board to authorize the issuance of preferred stock
without stockholder approval.
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CAPITAL STOCK OF THE COMPANY
GENERAL
The authorized capital stock of the Company consists of 105,000,000
shares of capital stock, $.01 par value, of which 90,000,000 shares are
classified as Common Stock and 15,000,000 shares are classified as preferred
stock ("Preferred Stock"). The following description of the terms and provisions
of the shares of capital stock of the Company and certain other matters does not
purport to be complete and is subject to and qualified in its entirety by
reference to the applicable provisions of Maryland law and the Company's
Articles of Incorporation and By-Laws, as amended (the "By-Laws").
COMMON STOCK
Each holder of Common Stock is entitled to one vote at stockholder
meetings for each share of Common Stock held. Neither the Articles of
Incorporation nor the By-Laws provide for cumulative voting for the election of
directors. Subject to the prior rights of any series of Preferred Stock that may
be classified and issued, holders of Common Stock are entitled to receive,
pro-rata, such dividends as may be declared by the board of directors out of
funds legally available therefor, and also are entitled to share, pro-rata, in
any other distributions to stockholders. The Company currently pays regular
quarterly dividends to holders of Common Stock.
There are no redemption or sinking fund provisions and no direct
limitations in any indenture or agreement on the payment of dividends. Holders
of Common Stock do not have any preemptive rights or other rights to subscribe
for additional shares.
SERIES A CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
The Company is authorized to issue 1,740,000 shares of Series A
Cumulative Convertible Redeemable Preferred Stock, par value $.01 per share (the
"Series A Preferred Shares"). As of December 15, 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 here 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 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. Dividends on the Series A Preferred Shares are cumulative from the
date of original issue, October 25, 1996, and will 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, commencing
on or about November 30, 1996 in an amount per share equal to the greater of (i)
$1.75 per annum or (ii) the cash dividend (determined on each of the quarterly
dividend payment dates referred to above) on the number of shares of Common
Stock or portion thereof into which a Series A Preferred Share is convertible.
The Series A Preferred Shares are convertible, at the holder's option,
at any time beginning six months from the date of original issuance, into that
number of shares of Common Stock obtained by dividing the aggregate liquidation
preference of such shares by the conversion price then in effect. The initial
conversion price shall be $25.00 (equivalent to a conversion rate of one share
of Common Stock for each Series A Preferred Share), which shall be adjusted as
provided in the Articles Supplementary relating to the Series A Preferred
Shares.
The Series A Preferred Shares are not redeemable prior to October 25,
1999. On and after such date, the Series A Preferred Shares may be redeemed in
whole or in part, at the option of the Company, at a redemption price of $25.00
per share, plus all accrued and unpaid dividends. The Series A Preferred Shares
have no stated maturity and will not be subject to any sinking fund or mandatory
redemption.
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PREFERRED STOCK
Under the Company's Articles of Incorporation, the board of directors
may issue, without any further action by the stockholders, shares of capital
stock in one or more series having such preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption as the board of directors may determine
and as may be evidenced by Articles Supplementary to the Articles of
Incorporation adopted by the board of directors.
Through its power to establish the preferences and rights of additional
series of capital stock without further stockholder vote, the board of directors
may afford the holders of any series of senior capital stock preferences, powers
and rights, voting or otherwise, senior to the rights of holders of Common
Stock. The issuance of any such senior capital stock could have the effect of
delaying or preventing a change in control of the Company.
CLASSIFICATION OF BOARD OF DIRECTORS; U.S. REALTY; REMOVAL OF DIRECTORS; OTHER
PROVISIONS
The Company's Articles of Incorporation provide for the board of
directors to be divided into three classes of directors, with each class to
consist as nearly as possible of an equal number of directors. At each annual
meeting of stockholders, the class of directors to be elected at such meeting
will be elected for a three-year term, and the directors in the other two
classes will continue in office. Because holders of Common Stock will have no
right to cumulative voting for the election of directors, at each annual meeting
of stockholders, the holders of a majority of the shares of Common Stock will be
able to elect all of the successors of the class of directors whose term expires
at that meeting. However, pursuant to the Stockholders Agreement among the
Company, Carr Realty, L.P. and U.S. Realty (the "U.S. Realty Stockholders
Agreement"), U.S. Realty is entitled, under certain circumstances, to nominate
for election by stockholders a certain number of directors to the board of
directors. See "Risk Factors--Substantial Ownership of Common Stock."
The Articles of Incorporation also provide that, except for any
directors who may be elected by holders of a class or series of capital stock
other than Common Stock, directors may be removed only for cause and only by the
affirmative vote of stockholders holding at least a majority of all the votes
entitled to be cast for the election of directors. Vacancies on the board of
directors may be filled by the affirmative vote of the remaining directors.
These provisions may make it more difficult and time-consuming to
change majority control of the board of directors of the Company and, thus, may
reduce the vulnerability of the Company to an unsolicited proposal for the
takeover of the Company or the removal of incumbent management. The Company's
officers and directors are and will be indemnified under Maryland and Delaware
law, the Articles of Incorporation of the Company and the Partnership Agreement
against certain liabilities, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
RESTRICTIONS ON TRANSFER
Ownership Limits. The Company's Articles of Incorporation contain
certain restrictions on the number of shares of Common Stock that individual
shareholders may own. For the Company to qualify as a REIT under the Code, no
more than 50% in value of its outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year) or during a proportionate part of a shorter taxable year. The capital
stock also must be beneficially owned by 100 or more persons during at least 335
days of a taxable year or during a proportionate part of a shorter taxable year.
Because the Company intends to maintain its qualification as a REIT, the
Company's Articles of Incorporation
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contain certain restrictions on the ownership and transfer of capital stock,
including Common Stock, intended to ensure compliance with these requirements.
Subject to certain exceptions specified in the Articles of
Incorporation, no holder may own, or be deemed to own by virtue of certain
attribution provisions of the Code, more than (A) 5% of the issued and
outstanding shares of Common Stock ("Common Stock Ownership Limit") and/or (B)
more than 5% of any class or series of Preferred Stock. (This limit, in addition
to the Existing Holder Limit, the Special Stockholder Limit, and the Non U.S.
Stockholder Limit, all as defined below, are referred to collectively herein as
the "Ownership Limits.") Certain holders are not subject to the Common Stock
Ownership Limit, but they are subject to special ownership limitations (the
"Existing Holder Limit"). In addition, U.S. Realty and its affiliates are not
subject to the Common Stock Ownership Limit, but are subject to a special
ownership limit of 48% of the outstanding shares of Common Stock and 48% of the
outstanding shares of each class or series of preferred stock of the Company
(the "Special Stockholder Limit"). Furthermore, all holders are prohibited from
acquiring any capital stock if such acquisition would cause five beneficial
owners of capital stock to beneficially own in the aggregate more than 50% in
value of the outstanding capital stock.
In addition to the above restrictions on ownership of shares of capital
stock of the Company, in order to assist the Company in qualifying as a
"domestically controlled REIT," the Articles of Incorporation contain certain
provisions preventing any Non-U.S. Stockholder, as defined below (other than
U.S. Realty and its affiliates), from acquiring additional shares of the
Company's capital stock if, as a result of such acquisition, the Company would
fail to qualify as a "domestically controlled REIT" (computed assuming that U.S.
Realty owns the maximum percentage of the Company's capital stock that it is
permitted to own under the Special Stockholder Limit) ("Non-U.S. Stockholder
Limit"). A Non-U.S. Stockholder is a nonresident alien individual, foreign
corporation, foreign partnership and any other foreign stockholder. For a
discussion of the taxation of a Non-U.S. Stockholder and the requirements for
the Company to qualify as a "domestically controlled REIT," see "Federal Income
Tax Considerations--Taxation of Stockholders (Taxation of Non-U.S.
Stockholders)." The Company is unlikely to be able to advise a prospective
Non-U.S. Stockholder that its purchase of any shares of the Company's capital
stock would not violate this prohibition, thereby subjecting such prospective
Non-U.S. Stockholder to the adverse consequences described below under
"Violation of Ownership Limitations." Accordingly, an acquisition of the
Company's capital stock would not likely be a suitable investment for Non-U.S.
Stockholders other than U.S. Realty.
The Board may increase the Ownership Limits from time to time, but may
not do so to the extent that after giving effect to such increase five
beneficial owners of shares of capital stock could beneficially own in the
aggregate more than 49.5% of the Company's outstanding shares of capital stock.
The Board, in its sole discretion, may waive the Ownership Limits with respect
to a holder if such holder's ownership will not then or in the future jeopardize
the Company's status as a REIT.
Violation of Ownership Limits. The Company's Articles of Incorporation
provide that, if any holder of capital stock of the Company purports to transfer
shares to a person or there is a change in the capital structure of the Company
and either the transfer or the change in capital structure would result in the
Company failing to qualify as a REIT, or such transfer or the change in capital
structure would cause the transferee to hold shares in excess of the applicable
Ownership Limit (including the Non-U.S. Stockholder Limit), then the capital
stock being transferred (or in the case of an event other than a transfer, the
capital stock beneficially owned) that would cause one or more of the
restrictions on ownership or transfer to be violated will be automatically
transferred to a trust for the benefit of a designated charitable beneficiary.
The purported transferee of such shares shall have no right to receive dividends
or other distributions with respect to such shares and shall have no right to
vote such shares. Any dividends or other distributions paid to such purported
transferee prior to the discovery by the Company that the shares have been
transferred to a trust shall be paid upon demand to the trustee of the trust for
the benefit of the charitable beneficiary. The trustee of the trust will have
all rights to dividends with respect to the shares of capital stock held in
trust, which rights will be exercised for the
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exclusive benefit of the charitable beneficiary. Any dividends or distributions
paid over to the trustee will be held in trust for the charitable beneficiary.
The trustee shall designate a transferee of such stock so long as such shares of
stock would not violate the Ownership Limitations in the hands of such
designated transferee. Upon the sale of such shares, the purported transferee
shall receive the lesser of (A) (i) the price per share such purported
transferee paid for the capital stock in the purported transfer that resulted in
the transfer of shares of capital stock to the trust, or (ii) if the transfer or
other event that resulted in the transfer of shares of capital stock to the
trust was not a transaction in which the purported record transferee of shares
of capital stock gave full value for such shares, a price per share equal to the
market price on the date of the purported transfer or other event that resulted
in the transfer of the shares to the trust, and (B) the price per share received
by the trustee from the sale or disposition of the shares held in the trust.
All certificates representing Common Stock will bear a legend referring
to the restrictions described above.
Every owner of more than 5% (or such lower percentage as required by
the Code or regulations thereunder) of the issued and outstanding shares of
Common Stock must file a written notice with the Company containing the
information specified in the Articles of Incorporation no later than December 31
of each year. In addition, each shareholder shall upon demand be required to
disclose to the Company in writing such information as the Company may request
in good faith in order to determine the Company's status as a REIT.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent, Registrar and Dividend Disbursing Agent for the
Common Stock of the Company is Boston Equiserve (formerly known as Bank of
Boston).
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DESCRIPTION OF UNITS
The material terms of the Units, including a summary of certain
provisions of the Partnership Agreement, are set forth below. The following
description of the terms and provisions of the Units and certain other matters
does not purport to be complete and is subject to and qualified in its entirety
by reference to applicable provisions of Delaware law and the Partnership
Agreement. A copy of the Partnership Agreement is included as an exhibit to the
Registration Statement of which this Prospectus is a part. For a comparison of
the voting and other rights of holders of Units and the Company's stockholders,
see "Redemption of Units--Comparison of Ownership of Units and Common Stock."
GENERAL
Holders of Units (other than the Company in its capacity as general
partner) hold limited partner interests in the Operating Partnership, and all
holders of Units (including the Company in its capacity as general partner) are
entitled to share in cash distributions from, and in the profits and losses of,
the Operating Partnership. One percentage point (1%) of the interest held by the
Company is in the form of Units as the general partner of the Operating
Partnership. The balance of the interest held by the Company is in the form of
Units as a limited partner of the Operating Partnership. Each Unit may not
receive distributions in the same amount as paid on each share of Common Stock.
Holders of Units have the rights to which limited partners are entitled
under the Partnership Agreement and the Delaware Revised Uniform Limited
Partnership Act (the "Act"). The Units have not been registered pursuant to the
Federal or state securities laws and have not been listed on any exchange or
quoted on any national market system.
PURPOSES, BUSINESS AND MANAGEMENT
The purpose of the Operating Partnership includes the conduct of any
business that may be conducted lawfully by a limited partnership formed under
the Act, except that the Partnership Agreement requires the business of the
Operating Partnership to be conducted in such a manner that will permit the
Company to be classified as a REIT under Section 856 of the Code, unless the
Company ceases to qualify as a REIT for reasons other than the conduct of the
business of the Operating Partnership. Subject to the foregoing limitation, the
Operating Partnership may enter into partnerships, joint ventures or similar
arrangements and may own interests in any other entity.
The Company, as general partner of the Operating Partnership, has the
exclusive power and authority to conduct the business of the Operating
Partnership subject to the consent of the limited partners in certain limited
circumstances discussed below. No limited partner may take part in the
operation, management or control of the business of the Operating Partnership by
virtue of being a holder of Units.
ABILITY TO ENGAGE IN OTHER BUSINESSES; CONFLICTS OF INTEREST
The general partner may acquire assets directly and engage in
activities outside of the Operating Partnership, including activities direct or
indirect competition with the Operating Partnership. Other persons (including
officers, directors, employees, agents and other affiliates of the Company) are
not prohibited under the Partnership Agreement from engaging in other business
activities and will not be required to present any business opportunities to the
Operating Partnership. However, the Company, on behalf of the Operating
Partnership, has adopted certain policies and entered into certain direct and
indirect agreements with affiliates of the Company and the Operating Partnership
regarding rights of first opportunity and avoidance of conflicts of interest.
DISTRIBUTIONS; ALLOCATIONS OF INCOME AND LOSS
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The Partnership Agreement provides for the quarterly distribution of
Available Cash, as determined in the manner provided in the Partnership
Agreement, to the Company and the limited partners in proportion to their
percentage interests in the Operating Partnership. "Available Cash" is generally
defined as net income plus depreciation and other adjustments and minus
reserves, principal payments on debt and capital expenditures and other
adjustments. Neither the Company nor the limited partners are entitled to any
preferential or disproportionate distributions of Available Cash. The
Partnership Agreement generally provides for the allocation to the general
partner and the limited partners of items of Operating Partnership income and
loss in accordance with their representative percentage interests in the
Operating Partnership.
BORROWING BY THE PARTNERSHIP
The Company is authorized to cause the Operating Partnership to borrow
money and to issue and guarantee debt (including from or to the Company) as it
deems necessary for the conduct of the activities of the Operating Partnership.
Such debt may be secured by mortgages, deeds of trust, liens or encumbrances on
properties of the Operating Partnership or its subsidiaries. The Company also
may cause the Operating Partnership to borrow money to enable the Partnership to
make distributions in an amount sufficient to permit the Company, so long as it
qualifies as a REIT, to avoid the payment of any Federal income tax.
REIMBURSEMENT OF COMPANY; TRANSACTIONS WITH THE GENERAL PARTNER AND ITS
AFFILIATES
The Company does not receive any compensation for its services as
general partner of the Operating Partnership. The Company, however, as a partner
in the Operating Partnership, has the same right to allocations and
distributions as other partners of the Operating Partnership. In addition, the
Operating Partnership will reimburse the Company for all expenses incurred by it
related to the operation of, or for the benefit of, the Operating Partnership.
In the event that certain expenses are incurred for the benefit of the Operating
Partnership and other entities (including the Company), such expenses are
allocated by the Company, as general partner of the Operating Partnership, to
the Operating Partnership and such other entities in a manner as the Company, as
general partner of the Operating Partnership, in its sole and absolute
discretion deems fair and reasonable. The Operating Partnership will reimburse
the Company for all expenses incurred by it relating to any other offering of
additional Units or capital stock (in such case based on the percentage of the
net proceeds therefrom contributed to or otherwise made available to the
Operating Partnership). The Operating Partnership also will reimburse the
Company for all expenses it incurs in connection with the Registration Statement
of which this Prospectus is a part.
Except as expressly permitted by the Partnership Agreement, the Company
and its affiliates may not engage in any transactions with the Operating
Partnership except on terms that are fair and reasonable and no less favorable
to the Operating Partnership than would be obtained from an unaffiliated third
party.
LIABILITY OF GENERAL PARTNER AND LIMITED PARTNERS
The Company, as general partner of the Operating Partnership, is liable
for all general recourse obligations of the Operating Partnership to the extent
not paid by the Operating Partnership. The Company is not liable for the
nonrecourse obligations of the Operating Partnership.
The limited partners of the Operating Partnership are not required to
make additional contributions to the Operating Partnership. Assuming that a
limited partner does not take part in the control of the business of the
Operating Partnership and otherwise acts in conformity with the provisions of
the Partnership Agreement, the liability of the limited partner for obligations
of the Operating Partnership under the Partnership Agreement and the Act is
limited, subject to certain limited exceptions, generally to the loss of the
limited partner's investment in the Operating
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Partnership represented by his or her Units. The Operating Partnership will
operate in a manner the general partner deems reasonable, necessary and
appropriate to preserve the limited liability of the limited partners.
EXCULPATION AND INDEMNIFICATION OF THE GENERAL PARTNER
The Partnership Agreement generally provides that the Company, as
general partner of the Operating Partnership, will incur no liability to the
Operating Partnership or any limited partner for losses sustained or liabilities
incurred as a result of errors in judgment or of any act or omission if the
Company carried out its duties in good faith. In addition, the Company is not
responsible for any misconduct or negligence on the part of its agents, provided
the Company appointed such agents in good faith. The Company may consult with
legal counsel, accountants, appraisers, management consultants, investment
bankers and other consultants and advisors, and any action it takes or omits to
take in reliance upon the opinion of such persons, as to matters that the
Company reasonably believes to be within their professional or expert
competence, shall be conclusively presumed to have been done or omitted in good
faith and in accordance with such opinion.
The Partnership Agreement also provides for indemnification of the
Company, the directors and officers of the Company, and such other persons as
the Company may from time to time designate against any judgments, penalties,
fines, settlements and reasonable expenses actually incurred by such person in
connection with the proceeding unless it is established that: (1) the act or
omission of the indemnified person was material to the matter giving rise to the
proceeding and either was committed in bad faith or was the result of active and
deliberate dishonesty; (2) the indemnified person actually received an improper
personal benefit in money, property or services; or (3) in the case of any
criminal proceeding, the indemnified person had reasonable cause to believe that
the act or omission was unlawful.
SALES OF ASSETS
Under the Partnership Agreement, the Company generally has the
exclusive authority to determine whether, when and on what terms the assets of
the Operating Partnership will be sold. The Operating Partnership, however, is
prohibited under the Partnership Agreement and certain contractual agreements
from selling certain assets, except in certain limited circumstances. A sale of
all or substantially all of the assets of the Operating Partnership (or a merger
of the Operating Partnership with another entity), requires an affirmative vote
of two-thirds of the outstanding Units (including Units held by the Company).
REMOVAL OF THE GENERAL PARTNER; TRANSFER OF THE GENERAL PARTNER'S INTEREST
The Partnership Agreement provides that the limited partners may not
remove the Company as general partner of the Operating Partnership. The Company
may not transfer any of its interests as general or limited partner in the
Operating Partnership except in connection with a merger or sale of all or
substantially all of its assets. The Company also may not sell all or
substantially all of its assets, or enter into a merger, unless the sale or
merger includes the sale of all or substantially all of the assets of, or the
merger of, the Operating Partnership with partners of the Operating Partnership
receiving substantially the same consideration as holders of Common Stock.
RESTRICTIONS ON TRANSFER OF UNITS BY LIMITED PARTNERS
Unit holders now may transfer, subject to certain limitations, the
economic rights associated with their Units without the consent of the general
partner, thereby eliminating the ability of the general partner to block, except
in very limited circumstances, such assignments. However, a transferee will not
be admitted to the Operating Partnership as a substituted limited partner
without the consent of the general partner. In addition, Unit holders may
dispose of their Units by exercising
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their rights to have their Units redeemed for cash or for Common Stock, at the
option of the Company. See "Redemption of Units" below.
REDEMPTION OF UNITS
Subject to certain limitations, Unit holders may require that the
Operating Partnership redeem their Units, by providing the Operating Partnership
with a notice of redemption. Unless the Company elects to assume and perform the
Operating Partnership's redemption obligation, the redeeming Unit holder will
receive cash in an amount equal to the market value of the Units to be redeemed.
See "Redemption of Units."
ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS
The Company is authorized, without the consent of the limited partners,
to cause the Operating Partnership to issue additional Units to itself, to the
limited partners or to other persons for such consideration and on such terms
and conditions as the Company deems appropriate. The Company as general partner
may, in its sole and absolute discretion, make a capital contribution to the
Operating Partnership in exchange for additional Units without a corresponding
issuance of shares of Common Stock by the Company. In addition, the Company may
cause the Operating Partnership to issue to the Company additional partnership
interests in different series or classes, which may be senior to the Units.
Consideration for additional partnership interests may be cash or any property
or other assets permitted by the Act. The Company also will cause the Operating
Partnership to issue additional Units upon the exercise of the options granted
pursuant to the Option Plans. No limited partner has preemptive, preferential or
similar rights with respect to additional capital contributions to the Operating
Partnership or the issuance or sale of any partnership interests therein.
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MEETINGS; VOTING
Meetings of the limited partners may be called only by the Company, on
its own motion, or upon written request of limited partners owning at least 25%
of the Units. Limited partners may vote either in person or by proxy at
meetings. Any action that is required or permitted to be taken by the limited
partners of the Operating Partnership may be taken either at a meeting of the
limited partners or without a meeting if consents in writing setting forth the
action so taken are signed by limited partners owning not less than the minimum
Units that would be necessary to authorize or take such action at a meeting of
the limited partners at which all limited partners entitled to vote on such
action were present. On matters in which limited partners are entitled to vote,
each limited partner (including the Company to the extent it holds Units) will
have a vote equal to the number of Units he or she holds in the Operating
Partnership. The Partnership Agreement does not provide for annual meetings of
the limited partners, and the Company does not anticipate calling such meetings.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed by the Company
or by limited partners owning at least 25% of the Units. Generally, the
Partnership Agreement may be amended with the approval of the Company, as
general partner, and limited partners (including the Company) holding a majority
of the Units. Certain amendments that affect the fundamental rights of a limited
partner (e.g., the limited liability of a limited partner, or the right to
receive any distributions) must be approved by the Company and each limited
partner that would be adversely affected by such amendment. Notwithstanding the
foregoing, the Company, as general partner, has the power, without the consent
of the limited partners, to amend the Partnership Agreement in certain limited
circumstances. Certain provisions affecting the rights and duties of the Company
as general partner may not be amended without the approval of a majority of the
Units not held by the Company.
DISSOLUTION, WINDING UP AND TERMINATIOn
The Operating Partnership will continue until December 31, 2091, unless
sooner dissolved and terminated. The Operating Partnership will be dissolved
prior to the expiration of its term, and its affairs wound up upon the
occurrence of the earliest of: (1) the withdrawal of the Company as general
partner without the permitted transfer of the Company's interest to a successor
general partner (except in certain limited circumstances); (2) the sale of all
or substantially all of the Operating Partnership's assets and properties; (3)
the entry of a decree of judicial dissolution of the Operating Partnership
pursuant to the provisions of the Act or the entry of a final order for relief
in a bankruptcy proceeding of the general partner; (4) the entry of a final
judgment ruling that the general partner is bankrupt or insolvent; or (5) (i)
through December 31, 2012, an election by the Company, unless any limited
partner who became a limited partner at the time of the formation of the
Company, the Company's initial public offering or the acquisition by the Company
of its assets in February 1993 (collectively, the "Formation Transactions") and
who holds Units issued at the time of the Formation Transactions objects to such
dissolution, (ii) from and after January 1, 2013 through December 31, 2042, an
election by the Company, unless limited partners who became limited partners at
the time of the Formation Transactions and who hold at least five percent (5%)
of the Units issued at the time of the Formation Transactions object to such
dissolution and (iii) on or after January 1, 2043, an election by the Company,
in its sole and absolute discretion. Upon dissolution, the Company, as general
partner, or any liquidator will proceed to liquidate the assets of the Operating
Partnership and apply the proceeds therefrom in the order of priority set forth
in the Partnership Agreement.
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SHARES AVAILABLE FOR FUTURE SALE
As of December 15, 1996, the Company had outstanding 35,574,787 shares
of Common Stock and had reserved for possible issuance upon redemption of Units
and of units of partnership interest in CarrAmerica Realty, L.P. an additional
5,473,465 shares of Common Stock. All of the shares of Common Stock and any
shares of Common Stock issued upon redemption of Units are tradable without
restriction under the Securities Act (unless such shares are held by affiliates
of the Company), either pursuant to the Registration Statement of which this
Prospectus is a part, pursuant to registration rights granted by the Company or
otherwise. See "Registration Rights." The Company also has filed a registration
statement with the Securities and Exchange Commission for the possible offer and
sale from time to time of up to $600,000,000 worth of its debt securities,
Preferred Stock, Common Stock and/or Common Stock warrants. The Company also has
established the a unit option plan for the purpose of attracting and retaining
executive officers and other key employees. As of November 15, 1996, options to
purchase 951,347 Units have been granted or authorized to be granted to
executive officers and certain key employees and 315,553 additional Units were
reserved for future issuance under the Option Plans. In addition, the Company
has established a Non-Employee Director Stock Option Plan for the purpose of
attracting and retaining non-employee directors. As of November 15, 1996,
options to purchase 72,000 shares of Common Stock have been granted or
authorized to be granted to non-employee directors. All of the 17,277,907 shares
of Common Stock issued to U.S. Realty in connection with the U.S. Realty
Transaction, the July 1996 private placement and the November 1996 purchase may
be tradable without restriction under the Securities Act pursuant to a
registration statement that the Company is obligated to file upon notice.
No prediction can be made as to the effect, if any, that future sales
of shares of Common Stock, or the availability of shares for future sale, will
have on the market price prevailing from time to time. Sales of substantial
amounts of shares of Common Stock (including shares issued upon the redemption
of Units or the exercise of options), or the perception that such sales could
occur, could adversely affect prevailing market price of the shares.
REGISTRATION RIGHTS
The Company has filed the Registration Statement of which this
Prospectus is a part pursuant to its obligations under registration rights
agreements executed in conjunction with the acquisition of certain properties.
Under these registration rights agreements, executed in conjunction with the
parties listed therein, the Company is obligated to use its reasonable efforts
to keep the Registration Statement continuously effective for a period expiring
on the date on which all of the Common Stock covered by these registration
rights agreements have been sold pursuant to the Registration Statement or Rule
144(k) of the Securities Act. Any shares that have been sold pursuant to the
registration rights agreements, or have been otherwise transferred and new
certificates for them have been issued without legal restriction on further
transfer of such shares, will no longer be entitled to the benefits of the
registration rights agreements.
The Company has no obligation under these registration rights
agreements to retain any underwriter to effect the sale of the shares covered
thereby and the Registration Statement shall not be available for use for an
underwritten public offering of the such shares.
Pursuant to these registration rights agreements, the Company agreed to
pay all expenses of effecting the registration of the Secondary Shares (other
than underwriting discounts and commissions, fees and disbursements of counsel,
and transfer taxes, if any) pursuant to the Registration Statement. The Company
also agreed to indemnify each holder of Secondary Shares and its officers and
directors and any person who controls any holder against certain losses, claims,
damages and expenses arising under the securities laws. In addition, each holder
of Secondary Shares agreed to indemnify the Company and the other holders of
Secondary Shares, and each of their respective directors and officers (including
each director and officer of the Company who signed the Registration Statement),
and any
19
<PAGE>
person who controls the Company or any holder against other losses, claims
damages and expenses arising under the securities laws with respect to written
information furnished to the Company by such holder.
SELLING STOCKHOLDERS
The following table provides the names of and the number of shares of
Common Stock owned by each Selling Stockholder. Since the Selling Stockholders
may sell all, or some or none of their Secondary Shares, no estimate can be made
of the aggregate number of Secondary Shares that are to be offered hereby or
that will be owned by each Selling Stockholder upon completion of the offering
to which this Prospectus relates. In addition to the Common Stock they currently
own, certain Selling Stockholders also may offer the Redemption Shares they will
own if the Units they hold are redeemed for shares. The number of shares in the
following table represents the number of shares of Common Stock the person holds
plus the number of Redemption Shares into which Units held by the person are
redeemable (if the Company elects to issue shares rather than pay cash upon such
redemption). The extent to which the person holds Units as opposed to shares of
Common Stock (if known) is set forth in the notes.
The Secondary Shares offered by this Prospectus may be offered from
time to time by the Selling Stockholders named below (based on Common Stock or
Units held at December 15, 1996):
Number of Shares
Name Owned and Offered Hereby (1)
---- ------------------------ ---
1775 Pennsylvania Ave. Associates 173,913
Limited Partnership
- ----------
(1) Represents shares of common stock that may be issued upon redemption of
Units.
REDEMPTION OF UNITS
GENERAL
Each Unit holder may, subject to certain limitations, require that the
Operating Partnership redeem his or her Units, by delivering a notice to the
Operating Partnership. Upon redemption, such Unit holder will receive, at the
option of the Operating Partnership, with respect to each Unit tendered, either
(i) cash in an amount equal to the market value of one share of Common Stock
(subject to certain anti-dilution adjustments) or (ii) one share of Common
Stock. The market value of the Common Stock for this purpose will be equal to
the average of the closing trading price of the Common Stock (or substitute
information, if no such closing price is available) for the ten trading days
before the day on which the redemption notice was received by the Operating
Partnership.
In lieu of the Operating Partnership redeeming Units for cash, the
Company, as general partner of Carr Realty, L.P., has the right to assume
directly and satisfy the redemption right of a Unit holder described in the
preceding paragraph. The Company currently anticipates that it generally will
elect to assume directly and satisfy any redemption right exercised by a Unit
holder through the issuance of shares of Common Stock (the Redemption Shares)
pursuant to this Prospectus, whereupon the Company will acquire the Units being
redeemed and will become the owner of the Units. However, the determination
whether to pay cash or issue shares of Common Stock upon redemption of Units
will be made by the Company at the time Units are tendered for redemption. Such
an acquisition of Units by the Company will be treated as a sale of the Units to
the Company for Federal income tax purposes. See
20
<PAGE>
"--Tax Consequences of Redemption" below. Upon redemption, such Unit holder's
right to receive distributions with respect to the Units redeemed will cease
(but if such right is exchanged for Redemption Shares, the Unit holder will have
rights as a stockholder of the Company from the time of its acquisition of the
Redemption Shares).
A Unit holder must notify the Company, as the general partner of the
Operating Partnership, of his or her desire to require the Operating Partnership
to redeem Units by sending a notice in the form attached as an exhibit to the
Partnership Agreement, a copy of which is available from the Company. A Unit
holder must request the redemption of at least 1,000 Units (or all of the Units
held by such holder, if less). The redemption generally will occur on the tenth
business day after the notice is delivered by the Unit holder, except that no
redemption can occur if the delivery of Redemption Shares would be prohibited
under the provisions of the Articles of Incorporation designed to protect the
Company's qualification as a REIT. Furthermore, if the Company combines its
outstanding shares of Common Stock into a smaller number of shares, redemption
will not occur prior to the effectiveness of the combination.
TAX CONSEQUENCES OF REDEMPTION
The following discussion summarizes certain Federal income tax
considerations that may be relevant to a Limited Partner who exercises his right
to require the redemption of his Units.
Tax Treatment of Redemption of Units. If the Company assumes and
performs the redemption obligation, the Partnership Agreement provides that the
redemption will be treated by the Company, the Operating Partnership and the
redeeming Limited Partner as a sale of Units by such Limited Partner to the
Company at the time of such redemption. (A Limited Partner's right to require
the redemption of Units is referred to as the "Redemption Right.") In that
event, such sale will be fully taxable to the redeeming Limited Partner and such
redeeming Limited Partner will be treated as realizing for tax purposes an
amount equal to the sum of the cash or the value of the Common Stock received in
the exchange plus the amount of Operating Partnership nonrecourse liabilities
allocable to the redeemed Units at the time of the redemption. The determination
of the amount of gain or loss is discussed more fully below.
If the Company does not elect to assume the obligation to redeem a
Limited Partner's Units, the Operating Partnership will redeem such Units for
cash. If the Operating Partnership redeems Units for cash that the Company
contributes to the Operating Partnership to effect such redemption, the
redemption likely would be treated for tax purposes as a sale of such Units to
the Company in a fully taxable transaction, although the matter is not free from
doubt. In that event, the redeeming Partner would be treated as realizing an
amount equal to the sum of the cash received in the exchange plus the amount of
Operating Partnership nonrecourse liabilities allocable to the redeemed Units at
the time of the redemption. The determination of the amount of gain or loss in
the event of sale treatment is discussed more fully below.
If, instead, the Operating Partnership chooses to redeem a Limited
Partner's Units for cash that is not contributed by the Company to effect the
redemption, the tax consequences would be the same as described in the previous
paragraph, except that if the Operating Partnership redeems less than all of a
Limited Partner's Units, the Limited Partner would not be permitted to recognize
any loss occurring on the transaction and would recognize taxable gain only to
the extent that the cash, plus the share of Operating Partnership nonrecourse
liabilities allocable to the redeemed Units, exceeded the Limited Partner's
adjusted basis in all of such Limited Partner's Units immediately before the
redemption.
Tax Treatment of Disposition of Units by Limited Partner Generally. If
a Unit is redeemed in a manner that is treated as a sale of the Unit, or a
Limited Partner otherwise disposes of a Unit, the determination of gain or loss
from the sale or other disposition will be based on the difference between
21
<PAGE>
the amount considered realized for tax purposes and the tax basis in such Unit.
See "Basis of Units" below. Upon the sale of a Unit, the "amount realized" will
be measured by the sum of the cash and fair market value of other property
received (e.g., Redemption Shares) plus the portion of the Operating
Partnership's nonrecourse liabilities allocable to the Unit sold. To the extent
that the amount of cash or property received plus the allocable share of the
Operating Partnership's nonrecourse liabilities exceeds the Limited Partner's
basis for the Unit disposed of, such Limited Partner will recognize gain. It is
possible that the amount of gain recognized or even the tax liability resulting
from such gain could exceed the amount of cash and the value of any other
property (e.g., Redemption Shares) received upon such disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount realized
upon the sale of a Unit attributable to a Limited Partner's share of "unrealized
receivables" of the Operating Partnership (as defined in Section 751 of the
Code) exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Unrealized receivables include, to the extent not
previously included in Operating Partnership income, any rights to payment for
services rendered or to be rendered. Unrealized receivables also include amounts
that would be subject to recapture as ordinary income if the Operating
Partnership had sold its assets at their fair market value at the time of the
transfer of a Unit.
Basis of Units. In general, a Limited Partner who was deemed at the
time of an acquisition to have received his Units upon liquidation of a
partnership had an initial tax basis in his Units ("Initial Basis") equal to his
basis in his partnership interest at the time of such liquidation. Similarly, in
general, a Limited Partner who contributed property in exchange for his Units
had an Initial Basis in the Units equal to his basis in the contributed
property. A Limited Partner who acquired Units as the result of the exercise of
an option granted pursuant to one of the Option Plans generally will have an
Initial Basis in such Units equal to the fair market value of such Units at the
time the option was exercised. A Limited Partner's Initial Basis in his Units
generally is increased by (a) such Limited Partner's share of Operating
Partnership taxable income and (b) increases in his share of liabilities of the
Operating Partnership (including any increase in his share of nonrecourse
liabilities). Generally, such Partner's basis in his Units is decreased (but not
below zero) by (i) his share of Operating Partnership distributions, (ii)
decreases in his share of liabilities of the Operating Partnership (including
any decrease in his share of nonrecourse liabilities of the Operating
Partnership), (iii) his share of losses of the Operating Partnership, and (iv)
his share of nondeductible expenditures of the Operating Partnership that are
not chargeable to capital.
COMPARISON OF OWNERSHIP OF UNITS AND COMMON STOCK
As a result of the USRealty Transaction, the nature of an investment in
shares of Common Stock of the Company is no longer substantially equivalent
economically to an investment in Units in the Operating Partnership (and is
likely to become less so over time). A holder of a share of Common Stock is no
longer required to receive the same distribution that a holder of a Unit
receives, although the general partner is required under the Partnership
Agreement to act in good faith to use reasonable efforts to maintain a
distribution rate per Unit that is equal to the distribution rate per share. In
addition, stockholders and Unit holders no longer generally share in a
substantially equivalent fashion in the risks and rewards of ownership in the
enterprise being conducted by the Company because the Company intends to conduct
substantial business other than the business of the Operating Partnership.
22
<PAGE>
The information below highlights a number of the significant differences between
the Operating Partnership and the Company relating to, among other things, form
of organization, permitted investments, policies and restrictions, management
structure, compensation and fees, investor rights and Federal income taxation,
and compares certain legal rights associated with the ownership of Units and
Common Stock, respectively. These comparisons are intended to assist Unit
holders of the Operating Partnership in understanding how their investment will
be changed if their Units are redeemed for Common Stock. This discussion is
summary in nature and does not constitute a complete discussion of these
matters, and Units holders should carefully review the balance of this
Prospectus and the registration statement of which this Prospectus is a part for
additional important information about the Company.
- --------------------------------------------------------------------------------
OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
FORM OF ORGANIZATION AND ASSETS OWNED
-------------------------------------
The Operating Partnership is organized The Company is a Maryland corporation.
as a Delaware limited partnership. The The Company believes that it has
Operating Partnership owns interests operated so as to qualify as a REIT
(directly through subsidiaries) in under the Code, commencing with its
Properties and, through three of its taxable year ended December 31, 1993,
subsidiaries, conducts the Company's and intends to continue to so operate.
management and leasing business. See The Company's interest in the Operating
"The Company." Partnership gives the Company an
indirect investment in the properties
owned by the Operating Partnership. In
addition, the Company owns (either
directly or through interests in
subsidiaries other than the Operating
Partnership) interests in the other
Properties and, through one its
subsidiaries, conducts the Company's
development business.
LENGTH OF INVESTMENT
--------------------
The Operating Partnership has a stated The Company has a perpetual term and
term of 99 years. intends to continue its operations for
an indefinite time period.
23
<PAGE>
- --------------------------------------------------------------------------------
OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
PURPOSE AND PERMITTED INVESTMENTS
---------------------------------
The Operating Partnership's purpose is Under its Articles of Incorporation,
to conduct any business that may be the Company may engage in any lawful
lawfully conducted by a limited activity permitted by the General
partnership organized pursuant to the Corporation Law of Maryland. The
Act, provided that such business is to Company is now permitted by the
be conducted in a manner that permits Partnership Agreement to engage in
the Company to be qualified as a REIT activities not related to the business
unless the Company ceases to qualify of the Operating Partnership, including
as REIT. The Operating Partnership is activities in direct or indirect
authorized to perform any and all acts competition with the Operating
for the furtherance of the purposes Partnership, and may own assets other
and business of the Operating than its interest in the Operating
Partnership, provided that the Partnership and such other assets
Operating Partnership may not take, or necessary to carry out its
refrain from taking, any action which, responsibilities under the Partnership
in the judgment of the general partner Agreement and its Articles of
(i) could adversely affect the ability Incorporation. In addition, the Company
of the general partner to continue to has no obligation to present
qualify as a REIT, (ii) could subject opportunities to the Operating
the general partner to any additional Partnership and the Unit holders have
taxes under Section 857 or Section no rights by virtue of the Partnership
4981 of the Code, or (iii) could Agreement in any outside business
violate any law or regulation of any ventures of the Company.
governmental body (unless such action,
or inaction, is specifically consented
to by the general partner).
ADDITIONAL EQUITY
-----------------
The Operating Partnership is The board of directors may issue, in
authorized to issue Units and other its discretion, additional equity
partnership interests (including securities consisting of Common Stock
partnership interests of different or Preferred Stock; provided, that the
series or classes that may be senior total number of shares issued does not
to Units) as determined by the Company exceed the authorized number of shares
as its general partner, in its sole of capital stock set forth in the
discretion. The Company, as general Company's Articles of Incorporation.
partner, now may, in its sole and The proceeds of equity capital raised
absolute discretion, make a capital by the Company is are not required to
contribution to the Operating be contributed to the Operating
Partnership in exchange for additional Partnership.
Units without a corresponding issuance
of shares of Common Stock by the
Company. In addition, the Operating
Partnership may issue up to 1,266,900
additional Units upon exercise of the
options granted pursuant to option
plans.
24
<PAGE>
- --------------------------------------------------------------------------------
OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
BORROWING POLICIES
------------------
The Operating Partnership has no The Company is not restricted under its
restrictions on borrowings, and the governing instrument from incurring
Company as general partner has full borrowings. The Company, as general
power and authority to borrow money on partner, is permitted by the
behalf of the Operating Partnership. Partnership Agreement to incur debts
other than those for which it may be
liable as general partner of the
Operating Partnership. Therefore, the
Company is not required to incur all of
its indebtedness through the Operating
Partnership. The Company has adopted a
policy that currently limits total
borrowings to 50% of the total market
capitalization of the Company and the
Operating Partnership, but this policy
may be altered at any time by the board
of directors. However, pursuant to the
terms of the U.S. Realty Transaction,
the Company may not, subject to the
terms thereof, incur total indebtedness
in an amount exceeding 65% of the
Company's total market capitalization
(equity and debt) as of November 5,
1995, adjusted for the acquisition cost
of properties acquired thereafter and
the distribution to stockholders of any
proceeds of property dispositions.
OTHER INVESTMENT RESTRICTIONS
-----------------------------
Other than restrictions precluding Neither the Company's Articles of
investments by the Operating Incorporation nor its By-laws impose
Partnership that would adversely any restrictions upon the types of
affect the qualification of the investments made by the Company except
Company as a REIT, there are no that under the Articles of
restrictions upon the Operating Incorporation the board of directors is
Partnership's authority to enter into prohibited from taking any action that
certain transactions, including among would terminate the Company's REIT
others, making investments, lending status, unless a majority of the
Operating Partnership funds, or stockholders vote to terminate such
reinvesting the Operating REIT status.
Partnership's cash flow and net sale
or refinancing proceeds.
25
<PAGE>
- --------------------------------------------------------------------------------
OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
MANAGEMENT CONTROL
------------------
All management powers over the The board of directors has exclusive
business and affairs of the Operating control over the Company's business and
Partnership are vested in the general affairs subject only to the
partner of the Operating Partnership, restrictions in the Articles of
and no limited partner of the Incorporation, the By-laws and the
Operating Partnership has any right to Partnership Agreement. The board of
participate in or exercise control or directors is classified into three
management power over the business and classes of directors. At each annual
affairs of the Operating Partnership meeting of the stockholders, the
except (1) the general partner of the successors of the class of directors
Operating Partnership may not dispose whose terms expire at that meeting will
of all or substantially all of the be elected. The policies adopted by the
Operating Partnership's assets without board of directors may be altered or
the consent of the holders of eliminated without a vote of the
two-thirds of the outstanding Units, stockholders. Accordingly, except for
and (2) there are certain limitations their vote in the elections of
on the ability of the general partner directors, stockholders have no control
of the Operating Partnership to cause over the ordinary business policies of
or permit the Operating Partnership to the Company. The board of directors
dissolve. See "--Vote Required to cannot change the Company's policy of
Dissolve the Operating Partnership or maintaining its status as a REIT,
the Company" below. The general however, without the approval of
partner may not be removed by the holders a majority of the outstanding
limited partners of the Operating shares of Common Stock.
Partnership with or without cause.
FIDUCIARY DUTIES
----------------
Under Delaware law, the general Under Maryland law, the directors must
partner of the Operating Partnership perform their duties in good faith, in
is accountable to the Operating a manner that they reasonably believe
Partnership as a fiduciary and, to be in the best interests of the
consequently, is required to exercise Company and with the care of an
good faith and integrity in all of its ordinarily prudent person in a like
dealings with respect to partnership position. Directors of the Company who
affairs. However, under the act in such a manner generally will not
Partnership Agreement, the general be liable to the Company for monetary
partner is under no obligation to take damages arising from their activities.
into account the tax consequences to
any partner of any action taken by it,
and the general partner is not liable
for monetary damages for losses
sustained or liabilities incurred by
partners as a result of errors of
judgment or of any act or omission,
provided that the general partner has
acted in good faith.
26
<PAGE>
- --------------------------------------------------------------------------------
OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
MANAGEMENT LIABILITY AND INDEMNIFICATION
----------------------------------------
As a matter of Delaware law, the The Company's Articles of Incorporation
general partner has liability for the provide that the liability of the
payment of the obligations and debts Company's directors and officers to the
of the Operating Partnership unless Company and its stockholders for money
limitations upon such liability are damages is limited to the fullest
stated in the document or instrument extent permitted under Maryland law.
evidencing the obligation. Under the The Articles of Incorporation and state
Partnership Agreement, the Operating law provide indemnification to
Partnership has agreed to indemnify directors and officers to the same
the general partner and any director extent that such directors and officers
or officer of the general partner from have indemnification rights under the
and against all losses, claims, Partnership Agreement (as officers and
damages, liabilities (joint or directors of the general partner).
several) expenses (including legal
fees and expenses), judgments, fines,
settlements and other amounts incurred
in connection with any actions
relating to the operations of the
Operating Partnership in which the
general partner or such director or
officer is involved, unless: (1) the
act was in bad faith and was material
to the action; (2) such party received
an improper personal benefit; or (3)
in the case of any criminal
proceeding, such party had reasonable
cause to believe the act was unlawful.
The reasonable expenses incurred by an
indemnitee may be reimbursed by the
Operating Partnership in advance of
the final disposition of the
proceeding upon receipt by the
Operating Partnership of an
affirmation by such indemnitee of his,
her or its good faith belief that the
standard of conduct necessary for
indemnification has been met and an
undertaking by such indemnitee to
repay the amount if it is determined
that such standard was not met.
27
<PAGE>
- --------------------------------------------------------------------------------
OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
ANTITAKEOVER PROVISIONS
-----------------------
Except in limited circumstances (See The Articles of Incorporation and
"Voting Rights" below), the general By-laws of the Company contain a number
partner of the Operating Partnership of provisions that may have the effect
has exclusive management power over of delaying or discouraging an
the business and affairs of the unsolicited proposal for the
Operating Partnership. The general acquisition of the Company or the
partner may not be removed by the removal of incumbent management. These
limited partners with or without provisions include, among others: (1) a
cause. Under the Partnership staggered board of directors; (2)
Agreement, a limited partner may authorized capital stock that may be
transfer his or her interest as a issued as Preferred Stock in the
limited partner (subject to certain discretion of the board of directors,
limited exceptions set forth in the with superior voting rights to the
Partnership Agreement), without Common Stock; (3) a requirement that
obtaining the approval of the general directors may be removed only for cause
partner except that the general and only by a vote of holders of at
partner may, in its sole discretion, least a majority of the outstanding
prevent the admission to the Operating Common Stock; and (4) provisions
Partnership of substituted limited designed to avoid concentration of
partners. The general partner may share ownership in a manner that would
exercise this right of approval to jeopardize the Company's status as a
deter, delay or hamper attempts by REIT under the Code. See "Capital Stock
persons to acquire a controlling of the Company."
interest in the Operating Partnership.
See "Description of Units."
28
<PAGE>
- --------------------------------------------------------------------------------
OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
VOTING RIGHTS
-------------
Under the Partnership Agreement, the The Company is managed and controlled
limited partners have voting rights by a board of directors consisting of
only as to the dissolution of the three classes having staggered terms of
Operating Partnership, the sale of all office. Each class is to be elected by
or substantially all of the assets or the stockholders at annual meetings of
merger of the Operating Partnership, the Company. Maryland law requires that
and amendments of the Partnership certain major corporate transactions,
Agreement, as described more fully including most amendments to the
below. Otherwise, all decisions Articles of Incorporation, may not be
relating to the operation and consummated without the approval of
management of the Operating stockholders as set forth below. All
Partnership are made by the general shares of Common Stock have one vote,
partner. See "Description of Units." and the Articles of Incorporation
As of December 15, 1996, the Company permit the board of directors to
held approximately 76% of the classify and issue Preferred Stock in
outstanding Units. As Units are one or more series having voting power
redeemed by partners, the Company's which may differ from that of the
percentage ownership of the Units will Common Stock. See "Capital Stock of the
increase. If additional Units are Company." U.S. Realty has the right to
issued to third parties, which is nominate a certain number of nominees
permitted but not anticipated by the for election to the Company's board of
Company, the Company's percentage Directors.
ownership of the Units will decrease.
The following is a comparison of the voting rights of the limited
partners of the Operating Partnership and the stockholders of the Company as
they relate to certain major transactions:
A. AMENDMENT OF THE PARTNERSHIP AGREEMENT OR THE ARTICLES OF INCORPORATION.
-----------------------------------------------------------------------
The Partnership Agreement may be Amendments to the Company's Articles of
amended through a proposal by the Incorporation must be approved by the
general partner or any limited partner board of directors and generally by at
holding 25% or more of the Units. Such least two-thirds of the votes entitled
proposal, in order to be effective, to be cast at a meeting of
must be approved by the general stockholders.
partner and by the written vote of
holders of at least a majority of the
outstanding Units. Certain amendments
that affect the fundamental rights of
a limited partner must be approved by
each affected limited partner. In
addition, the general partner may,
without the consent of the limited
partners, amend the Partnership
Agreement as to certain ministerial
matters.
29
<PAGE>
- --------------------------------------------------------------------------------
OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
B. VOTE REQUIRED TO DISSOLVE THE OPERATING PARTNERSHIP OR THE COMPANY.
-------------------------------------------------------------------
From February 16, 1993 through Under Maryland law, the board of
December 31, 2012, the general partner directors must obtain approval of
of the Operating Partnership may not holders of at least two-thirds of the
elect to dissolve the Operating outstanding Common Stock in order to
Partnership if any limited partner who dissolve the Company.
became a limited partner in the
Formation Transactions holding Units
issued at such time objects to such
dissolution. From January 1, 2013
through December 31, 2042, the general
partner may not elect to dissolve the
Operating Partnership if any limited
partners who became limited partners
at the time of the Formation
Transactions and who hold at least 5%
of the Units object to such
dissolution. On or after January 1,
2043, the general partner may, in sole
discretion, dissolve the Operating
Partnership without the consent of the
limited partners.
C. VOTE REQUIRED TO SELL ASSETS OR MERGE.
-------------------------------------
Under the Partnership Agreement, the Under Maryland law, the sale of all or
sale, exchange, transfer or other substantially all of the assets of the
disposition of all or substantially Company or merger or consolidation of
all of the Operating Partnership's the Company requires the approval of
assets or merger or consolidation of the board of directors and holders of
the Operating Partnership requires the two-thirds of the outstanding Common
consent of the general partner and Stock. No approval of the stockholders
holders of two-thirds of the is required for the sale of less than
outstanding Units (including Units all or substantially all of the
held by the general partner). The Company's assets.
General Partner of the Operating
Partnership has the exclusive
authority the sell individual assets
of the Operating Partnership.
30
<PAGE>
- --------------------------------------------------------------------------------
OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
COMPENSATION, FEES AND DISTRIBUTIONS
------------------------------------
The general partner does not receive The directors and officers of the
any compensation for its services as Company receive compensation for their
general partner of the Operating services.
Partnership. As a partner in the
Operating Partnership, however, the
general partner has the same right to
allocations and distributions as other
partners of the Operating Partnership.
In addition, the Operating Partnership
will reimburse the general partner for
all expenses incurred relating to the
ongoing operation of the Company and
any other offering of additional
partnership interests in the Operating
Partnership or capital stock of the
Company.
LIABILITY OF INVESTORS
----------------------
Under the Partnership Agreement and Under Maryland law, stockholders are
applicable state law, the liability of not personally liable for the debts or
the limited partners for the Operating obligations of the Company.
Partnership's debts and obligations is
generally limited to the amount of
their investment in the Operating
Partnership.
REVIEW OF INVESTOR LISTS
------------------------
Under the Partnership Agreement, Under Maryland law, a stockholder
limited partners of the Operating holding at least 5% of the outstanding
Partnership, upon written demand with stock of a corporation may upon written
a statement of the purpose of such request obtain a list of the
demand and at the limited partner's stockholders of such corporation.
expense, are entitled to obtain a
current list of the name and last
known business, residence or mailing
address of each limited partner of the
Operating Partnership.
31
<PAGE>
- --------------------------------------------------------------------------------
OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
NATURE OF INVESTMENT
--------------------
The Units constitute equity interests Shares of Common Stock constitute
entitling each limited partner to his equity interests in the Company. The
pro rata share of cash distributions Company is entitled to receive its pro
made to the limited partners of the rata share of distributions made by the
Operating Partnership. The Operating Operating Partnership with respect to
Partnership generally intends to the Units, and the distributions made
retain and reinvest proceeds of the by the other direct subsidiaries of the
sale of property or excess refinancing Company. Each stockholder will be
proceeds in its business. entitled to his pro rata share of any
dividends or distributions paid with
respect to the Common Stock. The
dividends payable to the stockholders
are not fixed in amount and are only
paid if, when and as declared by the
Board of Directors. In order to qualify
as a REIT, the Company generally must
distribute at least 95% of its net
taxable income (excluding capital
gains), and any taxable income
(including capital gains) not
distributed will be subject to
corporate income tax.
POTENTIAL DILUTION OF RIGHTS
----------------------------
The general partner of the Operating The Board of Directors may issue, in
Partnership is authorized, in its sole its discretion, additional shares, and
discretion and without limited partner has the authority to issue from the
approval, to cause the Operating authorized capital stock a variety of
Partnership to issue additional other equity securities of the Company
limited partnership interests and with such powers, preferences and
other equity securities for any rights as the board of directors may
partnership purpose at any time to the designate at the time. The issuance of
limited partners or to other persons additional shares of either Common
(including the general partner on Stock or other similar equity
terms established by the general securities may result in the dilution
partner). of the interests of the stockholders.
For so long as U.S. Realty owns at
least 25% of the outstanding Common
Stock of the Company on a fully diluted
basis, U.S. Realty will be entitled
(except in certain limited
circumstances), upon compliance with
certain specified conditions, to a
participation right to purchase or
subscribe for, either as part of such
issuance or in a concurrent issuance, a
total number of shares of Common Stock
or Preferred Stock, as the case may be,
equal to up to 30% (or 35% in certain
circumstances) of the total number of
shares of Common Stock or Preferred
Stock, as applicable, proposed to be
issued by the Company.
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- --------------------------------------------------------------------------------
OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
LIQUIDITY
---------
Limited partners may generally The Redemption Shares will be freely
transfer their Units without the transferable as registered securities
general partner's consent, except that under the Securities Act. The Common
the general partner may, in its sole Stock is listed on the NYSE. The
discretion, prevent the admission to breadth and strength of this secondary
the Operating Partnership of market will depend, among other things,
substituted limited partners. upon the number of shares outstanding,
the Company's financial results and
Each limited partner has the right to prospects, the general interest in the
tender his or her Units for redemption Company's and other real estate
by the Operating Partnership. See investments, and the Company's dividend
"General" above. yield compared to that of other debt
and equity securities.
FEDERAL INCOME TAXATION
-----------------------
The Operating Partnership is not The Company has elected to be taxed as
subject to Federal income taxes. a REIT. So long as it qualifies as a
Instead, each holder of Units includes REIT, the Company will be permitted to
its allocable share of the Operating deduct distributions paid to its
Partnership's taxable income or loss stockholders, which effectively will
in determining its individual federal reduce the "double taxation" that
income tax liability. The maximum typically results when a corporation
federal income tax rate for earns income and distributes that
individuals under current law is income to its stockholders in the form
39.6%. of dividends. A qualified REIT,
however, is subject to federal income
tax on income that is not distributed
and also may be subject to Federal
income and excise taxes in certain
circumstances. The maximum federal
income tax rate for corporations under
current law is 35%.
33
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- --------------------------------------------------------------------------------
OPERATING PARTNERSHIP COMPANY
- --------------------------------------------------------------------------------
Income and loss from the Operating Dividends paid by the Company will be
Partnership generally is subject to treated as "portfolio" income and
the "passive activity" limitations. cannot be offset with losses from
Under the "passive activity" rules, "passive activities." The maximum
income and loss from the Operating federal income tax rate for individuals
Partnership that is considered under current law is 39.6%.
"passive income" generally can be
offset against income and loss from
other investments that constitute
"passive activities" (unless the
Operating Partnership is considered a
"publicly traded partnership," in
which case income and loss from the
Operating Partnership can only be
offset against other income and loss
from the Operating Partnership).
Income of the Operating Partnership,
however, attributable to dividends
from Carr Services, Inc. or CRESNOVA
(or interest paid by Carr Services,
Inc. or CRESNOVA) does not qualify as
passive income and cannot be offset
with losses and deductions from a
"passive activity."
Cash distributions from the Operating Distributions made by the Company to
Partnership are not taxable to a its taxable domestic stockholders out
holder of Units except to the extent of current or accumulated earnings and
they exceed such holder's basis in its profits will be taken into account by
interest in the Operating Partnership them as ordinary income. Distributions
(which will include such holder's that are designated as capital gain
allocable share of the Operating dividends generally will be taxed as
Partnership's nonrecourse debt). long-term capital gain, subject to
certain limitations. Distributions in
excess of current or accumulated
earnings and profits will be treated as
a non-taxable return of basis to the
extent of a stockholder's adjusted
basis in its Common Stock, with the
excess taxed as capital gain.
Each year, holders of Units will Each year, stockholders will receive
receive a Schedule K-1 tax form Form 1099 used by corporations to
containing detailed tax information report dividends paid to their
for inclusion in preparing their stockholders.
federal income tax returns.
Holders of Units are required, in some Stockholders who are individuals
cases, to file state income tax generally will not be required to file
returns and/or pay state income taxes state income tax returns and/or pay
in the states in which the Operating state income taxes outside of their
Partnership owns property, even if state of residence with respect to the
they are not residents of those Company's operations and distributions.
states. The Company may be required to pay
state income taxes in certain states.
34
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes certain Federal income tax
considerations that may be relevant to a prospective holder of shares of Common
Stock. The following discussion, which is not exhaustive of all possible tax
considerations, does not include a detailed discussion of any state, local or
foreign tax considerations. Nor does it discuss all of the aspects of Federal
income taxation that may be relevant to a prospective stockholder in light of
its particular circumstances or to certain types of stockholders (including
insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) who are subject to special treatment under the
Federal income tax laws. As used in this discussion, the term "Company" refers
only to CarrAmerica Realty Corporation, and not to any other entities.
EACH PROSPECTIVE HOLDER OF COMMON STOCK IS ADVISED TO CONSULT WITH ITS
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE RECEIPT,
OWNERSHIP AND SALE OF COMMON STOCK IN AN ENTITY ELECTING TO BE TAXED AS A REIT,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
TAXATION OF THE COMPANY
General. The Company, which is considered a corporation for Federal
income tax purposes, has elected to be taxed as a REIT under Sections 856
through 860 of the Code effective as of its taxable year ended December 31,
1993. The Company believes that it is organized and has operated in a manner
such 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
35
<PAGE>
neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) that during the last half of each taxable year not more than
50% in value of the outstanding stock of which is owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities); and (7) that meets certain other tests, described below, regarding
the nature of its income and assets. The Code provides that conditions (l)
through (4), inclusive, must be met during the entire taxable year and that
condition (5) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
The Company's Articles of Incorporation contain restrictions regarding the
transfer of its capital stock that are intended to assist the Company in
continuing to satisfy the stock ownership requirements described in (5) and (6)
above. See "Description of Common Stock-Restrictions on Transfer."
Income Tests. In order to maintain qualification as a REIT, there are
three gross income requirements that must be satisfied annually. First, at least
75% of the REIT's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of the REIT's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from the same items which qualify under the 75% income
test, and from dividends, interest and gain from the sale or disposition of
stock or securities, or from any combination of the foregoing. Third, short-term
gain from the sale or other disposition of stock or securities, gain from
prohibited transactions and gain on the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the REIT's gross
income (including gross income from prohibited transactions) for each taxable
year.
Rents received by the Company will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described above
only if several conditions (related to the identity of the tenant, the
computation of the rent payable, and the nature of the property leased) are met.
The Company does not anticipate receiving rents in excess of 1% of gross revenue
that fail to meet these conditions. In addition, for rents received to qualify
as "rents from real property," the Company generally must not operate or manage
the property or furnish or render services to tenants, other than through an
"independent contractor" from whom the Company derives no revenue. The
"independent contractor" requirement, however, does not apply to the extent the
services provided by the Company are "usually or customarily rendered" in
connection with the rental space for occupancy only and are not otherwise
considered "rendered to the occupant." The Company will provide certain services
with respect to the properties through entities that do not satisfy the
"independent contractor" requirements described above. The Company has received
a ruling from the IRS that the provision of certain services will not cause the
rents received with respect to the properties to fail to qualify as "rents from
real property." Based upon the IRS ruling and its experience in the office
rental market, the Company believes that all services provided to tenants will
be considered "usually or customarily rendered" in connection with the rental of
office space for occupancy 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
36
<PAGE>
and other non-qualifying income in any taxable year will not cause the Company
to exceed the limits on non-qualifying income under the 75% and 95% gross income
tests.
If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code. It
is not possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of these relief provisions. Even if these
relief provisions were to apply, however, a tax would be imposed with respect to
the "excess net income"' attributable to the failure to satisfy the 75% and 95%
gross income tests.
Asset Tests. 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). By virtue of its
ownership of Units, the Company will be considered to own its pro rata share of
the assets of Carr Realty, L.P., including the securities of Carr Services, Inc.
and CRESNOVA (Carr Services, Inc. and CRESNOVA, together with Carr Development
and Construction, Inc., are referred to collectively as the "Non-qualified REIT
Subsidiaries"). In addition, by virtue of its ownership interest in CarrAmerica
Realty, L.P., it will be considered to own its pro rata share of the assets of
CarrAmerica Realty, L.P. 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. 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 other 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.
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<PAGE>
TAXATION OF HOLDERS OF COMMON STOCK
Taxation of Taxable Domestic Stockholders. As long as the Company
qualifies as a REIT, distributions made to the Company's taxable domestic
stockholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income, and corporate stockholders will not be eligible for the
dividends received deduction as to such amounts. For purposes of determining
whether distributions on the shares of Common Stock are out of current or
accumulated earnings and profits, the earnings and profits of the Company will
be allocated first to shares of Preferred Stock, if any, and second to the
shares of Common Stock. There can be no assurance that the Company will have
sufficient earnings and profits to cover distributions on any shares of
Preferred Stock. Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the stockholder has held its stock. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and accumulated
earnings and profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's shares of Common
Stock, but rather will reduce the adjusted basis of such shares of Common Stock.
To the extent that such distributions exceed the adjusted basis of a
stockholder's shares of Common Stock, they will be included in income as
long-term capital gain (or short-term capital gain if the shares of Common Stock
have been held for one year or less), assuming the shares of Common Stock are a
capital asset in the hands of the stockholder.
In general, a domestic stockholder will realize capital gain or loss on
the disposition of shares of Common Stock equal to the difference between (i)
the amount of cash and the fair market value of any property received on such
disposition and (ii) the stockholder's adjusted basis of such shares of Common
Stock. Such gain or loss generally will constitute long-term capital gain or
loss if the stockholder has held such shares for more than one year. Loss upon a
sale or exchange of shares of Common Stock by a stockholder who has held such
shares of Common Stock for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such stockholder as
long-term capital gain.
Backup Withholding. The Company will report to its domestic
stockholders and the IRS the amount of dividends paid during each calendar year,
and the amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number and
certifies as to no loss of exemption from backup withholding. Amounts withheld
as backup withholding will be creditable against the stockholder's income tax
liability. In addition, the Company may be required to withhold a portion of
capital gain distributions made to any stockholders who fail to certify their
non-foreign status to the Company. See "--Taxation of Non-U.S. Stockholders"
below. The Company will report to its domestic stockholders and the IRS the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any, with respect thereto. In addition, the Company may be required
to withhold a portion of capital gain distributions made to any stockholders who
fail to certify their non-foreign status to the Company. See "--Taxation of
Non-U.S. Stockholders" below. Additional issues may arise pertaining to
information reporting and backup withholding with respect to Non-U.S.
Stockholders (persons other than (i) citizens or residents of the United States,
(ii) corporations, partnerships or other entities created or organized under the
laws of the United States or any political subdivision thereof, and (iii)
estates or trusts the income of which is subject to United States Federal income
taxation regardless of its source) and Non-U.S. Stockholders should consult
their tax advisors with respect to any such information reporting and backup
withholding requirements.
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<PAGE>
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 Stockholders. As a general rule, amounts
distributed to a tax-exempt entity do not constitute "unrelated business taxable
income" ("UBTI"), and thus distributions by the Company to a stockholder that is
a tax-exempt entity should also not constitute UBTI, provided that the
tax-exempt entity has not financed the acquisition of its shares of Common Stock
with "acquisition indebtedness" within the meaning of the Code and the shares of
Common Stock is not otherwise used in an unrelated trade or business of the
tax-exempt entity. However, under the Revenue Reconciliation Act of 1993,
distributions by a REIT to a tax-exempt employee's pension trust that owns more
than 10 percent of the REIT will be treated as UBTI in an amount equal to the
percentage of gross income of the REIT that is derived from an "unrelated trade
or business" (determined as if the REIT were a pension trust) divided by the
gross income of the REIT for the year in which the dividends are paid. This rule
only applies, however, if (i) the percentage of gross income of the REIT that is
derived from an unrelated trade or business for the year in which the dividends
are paid is at least five percent, (ii) the REIT qualifies as a REIT only
because the pension trust is not treated as a single individual for purposes of
the "five-or-fewer rule" (see "--Taxation of the Company (Requirements for
Qualification)" above), and (iii) (A) one pension trust owns more than 25
percent of the value of the REIT or, (B) a group of pension trusts individually
holding more than 10 percent of the value of the REIT collectively own more than
50 percent of the value of the REIT. The Company currently does not expect that
this rule will apply.
Taxation of Non-U.S. Stockholders. The rules governing U.S. Federal
income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. Prospective Non-U.S. Stockholders should
consult with their own tax advisors to determine the impact of U.S. Federal,
state and local income tax laws with regard to an investment in Common Stock,
including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges
by the Company of U.S. real property interests and not designated by the Company
as capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions, ordinarily, will be subject to a withholding
tax equal to 30% of the gross amount of the distribution unless an applicable
tax treaty reduces that tax. Distributions in excess of current and accumulated
earnings and profits of the Company will not be taxable to a Non-U.S.
Stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's Common Stock, but rather will reduce the adjusted basis of such
Common Stock. To the extent that such distributions exceed the adjusted basis of
a Non-U.S. Stockholder's Common Stock, they will give rise to tax liability if
the Non-U.S. Stockholder would otherwise be subject to tax on any gain from the
sale or disposition of his Common Stock as described below (in which case they
also may be subject to a 30% branch profits tax if the stockholder is a foreign
corporation). If it cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of current or accumulated
earnings and profits, the entire distribution will be subject to withholding at
the rate applicable to dividends. However, the Non-U.S. Stockholder may seek a
refund of such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of current or accumulated earnings and
profits of the Company.
For any year in which the Company qualifies as a REIT,
distributions that are attributable to gain from sales or exchanges by the
Company of U.S. real property interests will be taxed to a Non-U.S. Stockholder
under the provisions of the Foreign Investment in Real Property Tax
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<PAGE>
Act of 1980 ("FIRPTA") at the normal capital gain rates applicable to U.S.
stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a corporate Non-U.S. Stockholder not entitled to treaty relief or
exemption. The Company is required by applicable Treasury Regulations to
withhold 35% of any distribution that is or could be designated by the Company
as a capital gain dividend. The amount withheld is creditable against the
Non-U.S. Stockholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of
Common Stock generally will not be taxed under FIRPTA if the Company is a
"domestically controlled REIT," defined generally as a REIT in which at all
times during a specified testing period less than 50% in value of the stock was
held directly or indirectly by foreign persons. As of November 15, 1996, U.S.
Realty, a Luxembourg corporation, held approximately 43.4% in value of the
securities of the Company. In the event that U.S. Realty and other stockholders
of the Company who are Non-U.S. Stockholders own collectively 50% or more, in
value, of the outstanding stock of the Company, the Company would cease to be a
"domestically controlled REIT."
If the Company does not qualify as a "domestically controlled
REIT," a Non-U.S. Stockholder's sale of securities of the Company generally
still will not be subject to U.S. tax under FIRPTA as a sale of a U.S. real
property interest, provided that (i) the securities are "regularly traded" (as
defined by the applicable Treasury regulations) on an established securities
market, and (ii) the selling Non-U.S. Stockholder held 5% or less of the
Company's outstanding securities at all times during a specified testing period.
The Company believes the Common Stock would be considered to be "regularly
traded" for this purpose, and the Company has no actual knowledge of any
Non-U.S. Stockholder (other than U.S. Realty) that holds in excess of 5% of the
Company's stock. In order to assist the Company in qualifying as a "domestically
controlled REIT," the Articles of Incorporation contain certain provisions
preventing any Non-U.S. Stockholder (other than U.S. Realty and its affiliates)
from acquiring additional shares of the Company's capital stock if, as a result
of such acquisition, the Company would fail to qualify as a "domestically
controlled REIT" (computed assuming that U.S. Realty owns the maximum percentage
of the Company's capital stock that it is permitted to own under the Special
Stockholder Limit). The Company is unlikely to be able to advise a prospective
Non-U.S. Stockholder that its purchase of any shares of the Company's capital
stock would not violate this prohibition, thereby subjecting such prospective
Non-U.S. Stockholder to the adverse consequences described under "Description of
Common Stock--Restrictions on Transfer--Violation of Ownership Limitations."
Accordingly, an acquisition of the Company's capital stock would not likely be a
suitable investment for Non-U.S. Stockholders other than U.S. Realty.
If the gain on the sale of Common Stock were to be subject to tax under
FIRPTA, the Non-U.S. Stockholder would be subject to the same treatment as U.S.
stockholders with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals), and the purchaser of the Common Stock would be required to
withhold and remit to the IRS 10% of the purchase price.
Finally, Congress is considering legislation that could require the
Company, if it were not to qualify as a "domestically controlled REIT," to
withhold and remit to the IRS 10% of all distributions that are not treated
either as ordinary dividends or "capital gain dividends" and that are made to
Non-U.S. Shareholders who hold more than 5% of the Company's Stock. The
applicable Non-U.S. Shareholder could seek a refund of such withheld amounts to
the extent the Non-U.S. Shareholder did not recognize taxable gain as a result
of such distribution.
OTHER TAX CONSIDERATIONS
Entity Classification. If any of Carr Realty, L.P., CarrAmerica Realty,
L.P. or any other partnership or limited liability company in which the Company
holds an interest were treated as an
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association taxable as a corporation rather than a partnership for federal
income tax purposes, such entity would be taxable as a corporation and therefore
would be subject to an entity level tax on its income. If Carr Realty, L.P. or
CarrAmerica Realty, L.P. were treated as an association taxable as a
corporation, the Company would cease to qualify as a REIT. If any of the other
partnerships were treated as an association taxable as a corporation and the
Company's interest in such partnership exceeded 10% of the partnership's voting
interests or the value of such interest exceeded 5% of the value of the
Company's assets, the Company would cease to qualify as a REIT. (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 each of 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 a partnership for Federal income
tax purposes (and not as an association taxable as a corporation) both under
existing Treasury Regulations and under the new Treasury Regulations that will
become effective January 1, 1997.
Tax Allocations with Respect to the Properties. Carr Realty, L.P. was
formed by way of contributions of appreciated property. When property is
contributed to a partnership in exchange for an interest in the partnership, the
partnership generally takes a carryover basis in that property for tax purposes
equal to the adjusted basis of the contributing partner in the property, rather
than a basis equal to the fair market value of the property at the time of
contribution (this difference is referred to as "Book-Tax Difference"). The Carr
Realty, L.P. partnership agreement requires allocations of income, gain, loss
and deduction with respect to the contributed Property be made in a manner
consistent with the special rules in 704(c) of the Code and the regulations
thereunder, which will tend to eliminate the Book-Tax Differences with respect
to the contributed Properties over the life of Carr Realty, L.P. However,
because of certain technical limitations, the special allocation rules of
Section 704(c) may not always entirely eliminate the Book-Tax Difference on an
annual basis or with respect to a specific taxable transaction such as a sale.
Thus, the carryover basis of the contributed Properties in the hands of Carr
Realty, L.P. could cause the Company (i) to be allocated lower amounts of
depreciation and other deductions for tax purposes than would be allocated to
the Company if all Properties were to have a tax basis equal to their fair
market value at the time the Properties were contributed to Carr Realty, L.P.,
and (ii) possibly to be allocated taxable gain in the event of a sale of such
contributed Properties in excess of the economic or book income allocated to the
Company as a result of such sale.
Non-Qualified REIT Subsidiaries. The Non-qualified REIT subsidiaries do
not qualify as REITs and thus pays Federal, state and local income taxes
(including District of Columbia franchise tax) on their net income at normal
corporate rates. To the extent the Non-qualified REIT subsidiaries are required
to pay Federal, state and local income taxes, the case available for
distribution to stockholders will be reduced accordingly.
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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.
PLAN OF DISTRIBUTION
This Prospectus relates to (i) the possible issuance by the Company of
the Redemption Shares if, and to the extent that, holders of Units tender such
Units for redemption and (ii) the resale of shares of Common Stock, if and to
the extent that holders of Units redeem their Units and the Company issues them
Common Stock in exchange therefor. The Company has registered the Redemption
Shares for sale to provide the holders thereof with freely tradable securities,
but registration of such shares does not necessarily mean that any of such
shares will be offered or sold by the holders thereof.
The Company will not receive any proceeds from the offering by the
Selling Stockholders or from the issuance of the Redemption Shares to holders of
Units upon receiving a notice of redemption (but it may acquire from such
holders the Units tendered for redemption). The Secondary Shares may be sold
from time to time to purchasers directly by any of the Selling Stockholders.
Alternatively, the Selling Stockholders may from time to time offer the
Secondary Shares through dealers or agents, who may receive compensation in the
form of commissions from the Selling Stockholders and/or the purchasers of
Secondary Shares for whom they may act as agent. The Selling Stockholders and
any dealers or agents that participate in the distribution of Secondary Shares
may be deemed to be "underwriters" within the meaning of the Securities Act and
any profit on the sale of Secondary Shares by them and any commissions received
by any such dealers or agents might be deemed to be underwriting commissions
under the Securities Act.
At a time a particular offer of Secondary Shares is made, a Prospectus
Supplement, if required, will be distributed that will set forth the names of
any dealers or agents and any commissions and other terms constituting
compensation from the Selling Stockholders and any other required information.
The Secondary Shares may be sold from time to time at varying prices determined
at the time of sale or at negotiated prices.
In order to comply with the securities laws of certain states, if
applicable, the Secondary Shares may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the Secondary Shares may not
be sold unless they have been registered or qualified for sale in such state or
an exemption from such registration or qualification requirement is available
and is complied with.
The Company may from time to time issue up to 708,654 Redemption Shares
upon the acquisition of the Units tendered for redemption. The Company will
acquire from each exchanging
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Limited Partner a Unit in exchange for each Redemption Share that the Company
issues in connection with these acquisitions. Consequently, with each
redemption, the Company's interest in the Operating Partnership will increase.
EXPERTS
The financial statements of CarrAmerica Realty Corporation and certain
other entities incorporated by reference herein and elsewhere in the
Registration Statement have been incorporated by reference in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference or appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the issuance of the Common Stock will be passed upon
for the Company by Hogan & Hartson L.L.P., Washington, D.C.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part) on
Form S-3 under the Securities Act with respect to the securities offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus as to the content of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules hereto. For further information regarding the Company and
the Common Stock offered hereby, reference is hereby made to the Registration
Statement and such exhibits and schedules.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company
has filed reports and other information with the Commission and is subject to
the periodic reporting and informational requirements of the Exchange Act. The
Registration Statement, the exhibits and schedules forming a part thereof as
well as such reports and other information filed by the Company with the
Commission can be inspected and copies obtained from the Commission at Room
1204, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: 7 World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Common Stock
is listed on the NYSE and similar information concerning the Company can be
inspected and copied at the offices of the NYSE, 20 Broad Street, New York, New
York 10005.
INCORPORATION BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
2. The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996; the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 and a related
43
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Report on Form 10-QA filed on October 16, 1996; and the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996; and
3. The Company's Current Report on Form 8-K filed with the
Commission on January 11, 1996; the Company's Current Report on Form 8-K filed
with the Commission on April 10, 1996, and a Form 8-K/A related thereto and
filed with the Commission on May 14, 1996; the Company's Current Report on Form
8-K filed with the Commission on May 16, 1996; the Company's Current Report on
Form 8-K filed with the Commission on May 24, 1996; the Company's Current Report
on Form 8-K filed with the Commission on June 27, 1996, and a Form 8-K/A related
thereto filed with the Commission on July 16, 1996; the Company's Current Report
on Form 8-K filed with the Commission on July 10, 1996; the Company's Current
Report on Form 8-K filed with the Commission on July 11, 1996; the Company's
Current Report on Form 8-K filed with the Commission on July 25, 1996; the
Company's Current Report on Form 8-K filed with the Commission on October 16,
1996; the Company's Current Report on Form 8-K filed with the Commission on
October 24, 1996, and a Form 8-K/A related thereto and filed with the Commission
on November 22, 1996; the Company's Current Report on Form 8-K filed with the
Commission on October 25, 1996; the Company's Current Report on Form 8-K filed
with the Commission on November 4, 1996, and a Form 8-K/A related thereto and
filed with the Commission on November 22, 1996; the Company's Current Report on
Form 8-K filed with the Commission on November 15, 1996, and a Form 8-K/A
related thereto and filed with the Commission on December 9, 1996; the Company's
Current Report on Form 8-K filed with the Commission on November 26, 1996; the
Company's Current Report on Form 8-K filed with the Commission on November 26,
1996; the Company's Current Report on Form 8-K filed with the Commission on
December 18, 1996 and the Company's Current Report on Form 8-K filed with the
Commission on December 19, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the securities offered hereby shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company undertakes to provide without charge to each person to whom
a copy of this Prospectus has been delivered, upon the written or oral request
of any such person, a copy of any or all of the documents incorporated by
reference in this Prospectus (other than exhibits and schedules thereto, unless
such exhibits or schedules are specifically incorporated by reference into the
information that this Prospectus incorporates). Written or telephonic requests
for copies should be directed to CarrAmerica Realty Corporation, 1700
Pennsylvania Avenue, N.W., Washington, D.C. 20006, Attention: General Counsel
(telephone: (202) 624-7509).
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No dealer, salesperson or other
individual has been authorized to give
any information or to make any
representations other than those
contained or incorporated by reference
in this Prospectus in connection with 882,567 Shares
the offer made by this Prospectus and,
if given or made, such information or
representations must not be relied
upon as having been authorized by the
Company or the Selling Stockholders. CARRAMERICA REALTY CORPORATION
Neither the delivery of this
Prospectus nor any sale made hereunder
and thereunder shall under any Common Stock
circumstance create an implication
that there has been no change in the
affairs of the Company since the date
hereof. This Prospectus does not
constitute an offer or solicitation by
anyone in any state in which such
offer or solicitation is not
authorized or in which the person
making such offer or solicitation is
not qualified to do so or to anyone to
whom it is unlawful to make such offer --------------------------
or solicitation. PROSPECTUS
--------------------------
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TABLE OF CONTENTS
The Company......................... 1
Risk Factors........................ 2
Capital Stock of the Company........10
Description of Units................14
Shares Available for Future
Sale..............................19
Registration Rights.................19
Selling Stockholders................20
Redemption of Units.................20
Federal Income Tax
Considerations....................35
Plan of Distribution................42
Experts.............................43
Legal Matters.......................43
Available Information...............43
Incorporation of Certain
Documents by Reference............43
December 31, 1996
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