As filed with the Securities and Exchange Commission on December 10, 1998
Registration No. 333-22353
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-3/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CARRAMERICA REALTY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Maryland 52-1796339
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1850 K Street, N.W., Suite 500
Washington, D.C. 20006
(202) 729-7500
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
Brian K. Fields
Chief Financial Officer
1850 K Street, N.W., Suite 500
Washington, D.C. 20006
(202) 729-7500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
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Copies to:
J. Warren Gorrell, Jr., Esq.
David W. Bonser, Esq.
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, D.C. 20004-1109
(202) 637-5600
Approximate date of commencement of proposed sale to the public: As soon as
possible after the effective date of this Amendment and from time to time as
determined by market conditions.
The Registrant hereby amends the Registration Statement on such date or
dates as may be necessary to delay the effective date of this Amendment until
the Registrant shall file a further amendment which specifically states that
this Amendment shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Amendment shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
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<PAGE>
Information contained herein is subject to completion or amendment. An amendment
to a registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the amendment becomes effective.
This prospectus shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 10, 1998
PROSPECTUS
$200,580,389
CARRAMERICA REALTY CORPORATION
DEBT SECURITIES, PREFERRED STOCK, COMMON STOCK,
COMMON STOCK WARRANTS AND DEPOSITARY SHARES
CarrAmerica Realty Corporation (the 'Company') may from time to time offer
in one or more series its (i) unsecured debt securities ('Debt Securities'),
(ii) preferred stock ('Preferred Stock'), (iii) common stock, par value $0.01
per share ('Common Stock'), (iv) warrants exercisable for Common Stock ('Common
Stock Warrants'), and (v) shares of Preferred Stock represented by depositary
shares ('Depositary Shares') with an aggregate public offering price of up to
$200,580,389 (or its equivalent based on the exchange rate at the time of
sale) in amounts, at prices and on terms to be determined at the time of
offering. The Debt Securities, Preferred Stock, Common Stock, Common Stock
Warrants and Depositary Shares (collectively, the 'Securities') may be offered,
separately or together, in separate series, in amounts, at prices and on terms
to be described in one or more supplements to this Prospectus (each a
'Prospectus Supplement').
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, currency, form (which may be registered or
bearer, or certificated or global), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, any terms for
redemption at the option of the Company or repayment at the option of the
holder, any terms for any sinking fund payments, any terms for conversion into
Preferred Stock or Common Stock of the Company, covenants and any public
offering price; (ii) in the case of Preferred Stock, the specific title and
stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and any public offering price; (iii) in the case of Common Stock,
any public offering price; (iv) in the case of Common Stock Warrants, the
specific title and aggregate number, the issue price and the exercise price; and
(v) in the case of Depositary Shares, the fractional shares of Preferred Stock
represented by each such Depositary Share. In addition, such specific terms may
include limitations on direct or beneficial ownership and restrictions on
transfer of the Securities, in each case as may be appropriate to preserve the
status of the Company as a real estate investment trust for federal income tax
purposes.
If set forth in the applicable Prospectus Supplement, this Prospectus
relates to the offer and sale from time to time of 5,000,000 shares of Common
Stock originally issued to Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") in April 1998 and additional shares of Common Stock that may
be issued to Merrill Lynch or its assignee as a purchase price adjustment to the
5,000,000 shares originally issued, as more fully described under 'Plan of
Distribution--Merrill Lynch Shares.' Merrill Lynch is acting as an underwriter
with respect to such shares. The 5,000,000 shares constituted approximately 7%
of the Company's outstanding shares at the date of this Prospectus.
The applicable Prospectus Supplement also will contain information, where
applicable, about certain U.S. federal income tax considerations relating to,
and any listing on a securities exchange of, the Securities covered by such
Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by the Company, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Securities, their names,
and any applicable purchase price, fee, commission or discount arrangement with,
between or among them, will be set forth, or will be calculable from the
information set forth, in an accompanying Prospectus Supplement. See 'Plan of
Distribution.' No Securities may be sold without delivery of a Prospectus
Supplement describing the method and terms of the offering of such Securities.
SEE 'RISK FACTORS' BEGINNING ON PAGE 2 FOR CERTAIN FACTORS RELATING TO AN
INVESTMENT IN THE SECURITIES.
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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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THE DATE OF THIS PROSPECTUS IS DECEMBER ______, 1998.
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THE COMPANY
The Company is a fully integrated, self-administered and self-managed
publicly traded real estate investment trust (a 'REIT') that focuses primarily
on the acquisition, development, ownership and operation of office properties in
select suburban growth markets across the United States. The Company was
organized as a Maryland corporation on July 9, 1992.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and files reports and other information with
the Securities and Exchange Commission. See 'Available Information.'
The Company's principal executive offices are located at 1850 K Street,
N.W., Washington, D.C. 20006, and its telephone number is (202) 729-7500.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below.
REAL ESTATE INVESTMENT RISKS
General. Investments in real property are subject to varying degrees of
risk. The yields available from equity investments in real estate and the
Company's ability to service debt will depend in large part on the amount of
income generated, expenses incurred and capital expenditures required by its
real property investments. The Company's income from office properties may be
adversely affected by a number of factors, including the general economic
climate and local real estate conditions, an over-supply of, or a reduction in
demand for, office space in the areas where its properties are located and the
attractiveness of the properties to tenants. Income from properties and real
estate values also are affected by such factors as the cost of compliance with
government regulation, including zoning and tax laws and the potential for
liability under applicable laws. Certain significant expenditures associated
with each equity investment by the Company in a property (such as operating
expenses and capital expenditures costs) may not be reduced when circumstances
cause a reduction in income from the property.
Renewal of Leases and Reletting of Space. The Company is subject to the
risks that upon expiration of leases for space located at its properties, the
space may not be relet or, if relet, the terms of the renewal or reletting
(including the cost of required renovations or concessions to tenants) may be
less favorable than current lease terms. Although the Company has established an
annual budget for renovation and reletting costs that it believes is reasonable
in light of each property's situation, no assurance can be given that this
budget will be sufficient to cover these costs. If the Company is unable
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 stockholders or debt
service payments may be adversely affected.
Possible Environmental Liabilities. Under various federal, state and local
laws, ordinances and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up certain hazardous
substances released at the property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and cleanup
costs incurred by such parties in connection with the contamination. In
addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs it incurs in connection with the
contamination. The presence of contamination or the failure to remediate
contamination may adversely affect the owner's ability to sell or lease real
estate or to borrow using the real estate as collateral. The owner or operator
of a site may be liable under common law to third parties for damages and
injuries resulting from environmental contamination emanating from the site. The
Company has not been notified by any governmental authority of any material
non-compliance, liability or other claim in connection with any of its
properties, and the Company is not aware of any other material environmental
condition with respect to any of its properties. No assurance, however, can be
given that no prior owner created any material environmental condition not known
to the Company, that no material environmental condition with respect to any
property has occurred during the Company's ownership thereof, or that future
uses or conditions (including, without limitation, changes in applicable
environmental laws and regulations) will not result in imposition of
environmental liability against the Company.
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REAL ESTATE FINANCING RISKS
Debt Financing. The Company is subject to the risks associated with debt
financing, including the risk that the cash provided by the Company's operating
activities will be insufficient to meet required payments of principal and
interest, the risk of rising interest rates on the Company's floating rate debt
that is not hedged, the risk that the Company will not be able to repay or
refinance existing indebtedness (which generally will not have been fully
amortized at maturity) or that the terms of such refinancing will not be as
favorable as the terms of existing indebtedness. In the event the Company is
unable to secure refinancing of such indebtedness on acceptable terms, the
Company might be forced to dispose of properties upon disadvantageous terms,
which might result in losses to the Company, or to obtain financing at
unfavorable terms, either of which might adversely affect the cash flow
available for distribution to stockholders or meet debt service obligations. In
addition, if a property or properties are mortgaged to secure payment of
indebtedness and the Company is unable to meet required mortgage payments, the
mortgage securing the property could be foreclosed upon by, or the property
could be otherwise transferred to, the mortgagee with a consequent loss of
income and asset value to the Company.
Degree of Leverage. At September 30, 1998, on a consolidated basis, the
Company's total indebtedness was approximately $1.602 billion and the ratio of
its total indebtedness to total assets (excluding intangibles) was 42.3%. The
degree to which the Company is leveraged could have important consequences to
holders of the Securities, including affecting the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, development or other general corporate purposes and making the
Company more vulnerable to a downturn in its business or the economy generally.
ACQUISITION AND DEVELOPMENT RISKS
The Company intends to continue acquiring and developing office properties
in markets where it believes that such acquisition or development is consistent
with the business strategies of the Company. Acquisitions entail risks that
investments will fail to perform in accordance with expectations and that
judgments with respect to the costs of improvements to bring an acquired
property up to standards established for the market position intended for that
property will prove inaccurate, as well as general investment risks associated
with any new real estate investment. See '--Real Estate Investment Risks' above.
New office development also is subject to a number of risks, including, but not
limited to, construction delays or cost overruns that may increase project
costs, financing risks as described above, the failure to meet anticipated
occupancy or rent levels, failure to receive required zoning, occupancy and
other governmental permits and authorizations and changes in applicable zoning
and land use laws, which may result in the incurrence of development costs in
connection with projects that are not pursued to completion. In addition,
because the Company must distribute 95% of its taxable income in order to
maintain its qualification as a REIT, the Company anticipates that new
acquisitions and developments will be financed primarily through periodic equity
and debt offerings, lines of credit or other forms of secured or unsecured
financing. If permanent debt or equity financing is not available on acceptable
terms, further acquisitions or development activities may be curtailed or cash
available for distribution to stockholders or to meet debt service obligations
may be adversely affected.
CHANGE IN BUSINESS STRATEGY; RISKS ASSOCIATED WITH THE ACQUISITION OF
SUBSTANTIAL NEW PROPERTIES
In November 1995, the Company shifted its emphasis from downtown
Washington, D.C. properties toward a more national business strategy, focusing
primarily on office properties in suburban growth markets across the United
States. This change represented a significant shift in the business strategy of
the Company. Although the Company's Board of Directors (the 'Board') believes
that such a shift in strategy was warranted in light of the opportunities
available to the Company, there is no assurance that the Company's efforts to
implement its national business strategy will continue to be successful.
Consistent with the Company's strategy of acquiring office properties in
suburban growth markets, the Company has significantly expanded its portfolio of
office properties since November 1995. These
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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.
SUBSTANTIAL OWNERSHIP OF COMMON STOCK
As of November 30, 1998, Security Capital Holdings S.A., a wholly owned
subsidiary of Security Capital U.S. Realty (together with Security Capital U.S.
Realty, 'SC-USREALTY'), owned approximately 39.9% of the outstanding shares of
the Company's Common Stock (36.2% of the Common Stock on a fully diluted basis),
and SC-USREALTY has the right to nominate a proportionate number of the
directors of the Board based upon its ownership of stock on a fully-diluted
basis, rounded down to the nearest whole number (but in no event more than 40%
of the directors). As a result, SC-USREALTY is the largest single stockholder of
the Company, while no other stockholder is permitted to own more than 5% of the
Company's Common Stock, subject to certain exceptions set forth in the Articles
of Incorporation or approved by the Board. Although certain standstill
provisions preclude SC-USREALTY from increasing its percentage interest in the
Company above 45% until at least April 30, 2001 (subject to certain exceptions)
and the Articles of Incorporation preclude it from increasing such percentage
interest thereafter, and SC-USREALTY agreed to certain limitations on its voting
rights with respect to its shares of Common Stock, SC-USREALTY nonetheless has a
substantial influence over the affairs of the Company. This concentration of
ownership in one stockholder could potentially be disadvantageous to other
stockholders' interests. In addition, so long as SC-USREALTY owns at least 25%
of the outstanding Common Stock of the Company on a fully diluted basis,
SC-USREALTY will be entitled (except in certain limited circumstances), upon
compliance with certain specified conditions, to a participation right to
purchase or subscribe for, either as part of such issuance or in a concurrent
issuance, a total number of shares of Common Stock or Preferred Stock, as the
case may be, equal to up to 30% (or 35% in certain circumstances) of the total
number of shares or of Common Stock or Preferred Stock, as applicable, proposed
to be issued by the Company.
LIMITATIONS ON CORPORATE ACTIONS
In conjunction with the transaction in which SC-USREALTY acquired its
initial interest in the Company (the 'SC-USREALTY Transaction'), the Company
agreed to certain limitations on its operations, including restrictions relating
to incurrence of additional indebtedness, retention of third-party managers for
the Company's properties, investments in properties other than office buildings,
issuances of limited partnership interests ('CRLP Units') of Carr Realty, L.P.,
a partnership that owns certain of the Company's properties, and certain other
matters. The Company may take actions relating to these matters only with the
consent of SC-USREALTY. In addition, the Company is contractually obligated to
abide by certain limitations on the amount of assets that it owns indirectly
through other entities and the manner in which it conducts its business
(including the types of assets that it can acquire and own and the manner in
which such assets are operated). The Company also is obligated to use reasonable
efforts to effect all dispositions of assets in transactions that are tax-free
exchanges and do not generate 'capital gain dividends' to stockholders of the
Company. These limitations (which generally were designed to address special
U.S. tax considerations applicable to foreign corporations such as SC-USREALTY
under the Internal Revenue Code) limit the flexibility of the Company to
structure transactions that might otherwise be advantageous to the Company, and
may impair the Company's ability to conduct its business in the future.
In addition, in connection with the acquisition of certain properties by
CarrAmerica Realty, L.P. and Carr Realty, L.P., the Company is restricted in its
ability to dispose of such properties in taxable transactions or to refinance
such properties.
CONFLICTS OF INTEREST
Certain members of the Board and officers of the Company own CRLP Units
and, thus, may have interests that conflict with stockholders with respect to
business decisions affecting the Company and Carr Realty, L.P. In particular, a
holder of CRLP Units may suffer different and/or more adverse tax consequences
than the Company upon the sale or refinancing of some of the properties owned by
Carr
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Realty, L.P. as a result of unrealized gain attributable to certain properties.
These CRLP Unit holders and the Company, therefore, may have different
objectives regarding the appropriate pricing and timing of a sale or refinancing
of properties. Although the Company, as the sole general partner of Carr Realty,
L.P., has the exclusive authority to determine whether and on what terms to sell
or refinance an individual property, these CRLP Unit holders might seek to
influence the Company not to sell or refinance a property, even though such sale
might otherwise be financially advantageous to the Company, or may seek to
influence the Company to refinance a property with a higher level of debt than
would be in the best interests of the Company.
MANAGEMENT, LEASING AND BROKERAGE RISKS
The Company is subject to the risks associated with the property
management, leasing and brokerage businesses. These risks include the risk that
management contracts or service agreements with third-party owners will be lost
to competitors, that a property will be sold and the Company will lose the
contract, that contracts will not be renewed upon expiration or will not be
renewed on terms consistent with current terms and that leasing and brokerage
activity generally may decline. Each of these developments could adversely
affect the ability of the Company to make expected distributions to stockholders
or debt service payments.
LACK OF VOTING CONTROL OF OPERATING SUBSIDIARIES; OTHER SPECIAL CONSIDERATIONS
RELATED TO OMNIOFFICES
Lack of Voting Control. The Company does not have voting control of
Carr Real Estate Services, Inc. ('Carr Services, Inc.'), CarrAmerica
Development, Inc. ('CarrAmerica Development') OmniOffices, Inc. ('OmniOffices'),
or OmniOffices (UK) Limited ('Omni UK'), and may acquire economic interests in
similarly structured companies in the future (collectively, the 'Operating
Subsidiaries'). (Certain provisions in the Internal Revenue Code of 1986, as
amended (the 'Code') prohibit the Company from owning a significant portion of
the voting stock of an Operating Subsidiary, as described in 'Federal Income Tax
Considerations--Taxation of the Company--Asset Tests' and '--Administration's
Proposed Changes to REIT Asset Test' below.) Carr Services, Inc., which conducts
primarily fee-based management and leasing, has capital stock which is divided
into two classes: voting common stock, approximately 92% and 8% of which was
held by The Oliver Carr Company ('OCCO') and Carr Realty, L.P., respectively, as
of September 30, 1998; and nonvoting common stock, approximately 96% and 4% of
which is held by Carr Realty, L.P. and OCCO, respectively, as of September 30,
1998. OCCO, as the holder of 92% of the voting common stock, has the ability to
elect the board of directors of Carr Services, Inc. CarrAmerica Development,
which conducts primarily fee-based development, has capital stock which is
divided into two classes: voting common stock, 99% and 1% of which was held by
OCCO and the Company, respectively, as of September 30, 1998; and nonvoting
common stock, 96% and 4% of which was held by OCCO and the Company,
respectively, as of September 30, 1998. OCCO, as the holder of 99% of the voting
common stock, has the ability to elect the board of directors of CarrAmerica
Development. Oliver T. Carr, Jr., who is Chairman of the Board of the Company
and a significant stockholder of the Company, beneficially owns a majority of
the voting stock of OCCO, which controls the election of directors of Carr
Services, Inc. and CarrAmerica Development. OmniOffices, which provides
executive office suites to U.S. commercial customers, has capital stock which is
divided into two classes: voting common stock and nonvoting common stock. The
voting stock was owned 17% by OCCO, 35% by SC-USREALTY and 48% by an entity
owned as of September 30, 1998 by certain current or former executive officers
of the Company. The nonvoting common stock was owned by the Company and two
individuals, as of September 30, 1998. The holders of the voting common stock
control the ability to elect the board of directors of OmniOffices. Omni UK,
which provides executive office suites to international commercial customers,
has capital stock which is divided into two classes: voting common stock and
nonvoting common stock. The voting stock was owned by OmniOffices and two
individuals as of September 30, 1998 and the nonvoting stock was owned by the
Company, as of September 30, 1998. OmniOffices, as the holder of a substantial
majority of the voting stock, controls the ability to elect the members of the
board of directors of Omni UK.
Although neither the right of Carr Realty, L.P. or the Company, as
applicable, to receive distributions with respect to its equity interest in each
Operating Subsidiary nor the terms of the promissory notes made by such
Operating Subsidiary and held by Carr Realty, L.P. or the Company, as
applicable, can be changed by the holder of the majority of the voting common
stock of such Operating Subsidiary, the Company will not be able to elect
directors of any Operating Subsidiary, and its ability to influence the
day-to-day decisions of each Operating Subsidiary is limited. As a result, the
board of directors and management of each Operating Subsidiary may implement
business policies or decisions that might not have been implemented by persons
elected by the Company and that are adverse to the interests of the Company or
that lead to adverse financial results, which could adversely impact the
Company's operating income and funds from operations.
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Lack of Liquidity for Stock. None of the Operating Subsidiaries is a
public company, and there is no market for the equity securities held by the
Company or Carr Realty, L.P. in any Operating Subsidiary. Consequently, neither
the Company nor Carr Realty, L.P. has ready ability to liquidate its holdings in
any Operating Subsidiary.
Constraints on Growth of OmniOffices. Certain provisions in the Code
prohibit the Company from having an investment in any Operating Subsidiary that
has a value in excess of 5% of the value of the Company's gross assets. These
provisions will limit the ability of OmniOffices to grow its business without
jeopardizing the Company's REIT qualification or, alternatively, incurring third
party debt (which may have to be guaranteed by the Company) or bringing into
OmniOffices additional investors. As of September 30, 1998, the Company's
investment in OmniOffices was such that the Company currently is limited in its
ability to make substantial additional investments (either in the form of equity
or a loan) in OmniOffices. There can be no assurance that OmniOffices will be
able to obtain such third-party financing (or obtain it on attractive terms) or
that suitable additional investors can be identified. Limitations on the
Company's ability to fund additional growth of OmniOffices may preclude (or
delay) OmniOffices from pursuing growth opportunities that might otherwise be in
its best interest.
It is possible that the Company could elect in the future to dispose of
part or all of its equity interest in OmniOffices, including through a
distribution of the stock of OmniOffices to the Company's stockholders; however,
the Company is subject to certain contractual restrictions with SC-USREALTY that
could preclude or restrict such a distribution or other disposition. In
addition, the income from such a disposition would not qualify for purposes of
the 75% gross income test applicable to REITs, which could limit the ability of
the Company to dispose of all of its interest in OmniOffices (through a
distribution to stockholders or otherwise) in a single transaction. (For a more
detailed description of the income tests applicable to REITs, see 'Federal
Income Tax Considerations--Taxation of the Company--Asset Tests.') Finally,
because of tax-related considerations specific to SC-USREALTY and SC-USREALTY's
indirect interest in OmniOffices through the Company, OmniOffices has agreed to
conduct its business subject to certain constraints, even though these
constraints may have the effect of precluding OmniOffices from undertaking
transactions that would be in the best interests of its other stockholders,
including the Company. Any reduction by the Company of its investment in
OmniOffices would correspondingly reduce the Company's right to receive
distributions from OmniOffices.
Administration's Proposed Changes to REIT Asset Test. In order for the
Company to qualify as a REIT, the Company, at the close of each quarter of its
taxable year, must not own more than 10% of the outstanding voting securities of
any issuer, other than a qualified REIT subsidiary (a 'QRS') or another REIT.
(For a more detailed discussion of this and other REIT qualification
requirements, see 'Federal Income Tax Considerations--Taxation of the Company.')
The Clinton Administration's February 1998 budget proposal includes a proposal
to amend the 10% voting securities test by prohibiting a REIT from owning more
than 10% of the vote or value of all classes of stock of any corporation (other
than a QRS or another REIT). Stock owned by the Company in corporations prior to
the effective date of the proposal generally would be 'grandfathered' (i.e.,
with respect to such grandfathered stock, the REIT would be subject only to the
existing 10% voting securities test described above). However, if the
corporation in which such grandfathered stock is held were to engage in a new
trade or business or acquire substantial new assets, the grandfathered status
would terminate with respect to such stock.
Because the Company owns the majority of the nonvoting stock of each of the
Operating Subsidiaries, the Company would not satisfy the proposed 10% value
limitation with respect to its stock interests in the Operating Subsidiaries.
However, as the Clinton Administration's proposal is currently drafted, stock
currently held by the Company in the Operating Subsidiaries should be
grandfathered. If any of the Operating Subsidiaries, however, were to engage in
new trades or businesses or acquire substantial new assets (or the Company were
to make a significant additional equity investment in an Operating Subsidiary),
then the stock held by the Company in such Operating Subsidiary would lose its
grandfathered status and the Company would fail to qualify as a REIT. Moreover,
the Company would not be able to own more than 10% of the vote or value of any
corporation (other than a QRS or another REIT) formed after the effective date
of the proposal. Thus, if enacted as currently drafted, the proposal would
materially impede the ability of the Company to engage in new activities or to
expand substantially the
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current activities engaged in through the Operating Subsidiaries, such as the
executive office suites business and the property development and management
businesses. Although the Clinton Administration's proposals are not expected to
be enacted in 1998, it cannot be predicted whether, in what forms or with what
effective dates, any future legislation affecting the Company might be enacted.
CHANGES IN POLICIES
The major policies of the Company, including its policies with respect to
development, acquisitions, financing, growth, operations, debt capitalization
and distributions, are determined by its Board. The Board may amend or revise
these and other policies from time to time without a vote of the stockholders of
the Company. A change in these policies could adversely affect the Company's
financial condition, results of operations, funds available for distributions to
stockholders, debt service or the market price of the Securities. The Company
cannot change its policy of seeking to maintain its qualification as a REIT
without the approval of the holders of a majority of the Common Stock.
CERTAIN TAX RISKS
Tax Liabilities as a Consequence of the Failure to Qualify as a REIT. The
Company believes that it has been organized and has operated so as to qualify
for taxation as a REIT under 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 qualified for taxation as a REIT or will be
able to remain so qualified. Qualification as a REIT involves the application of
highly technical and complex Code provisions as to which there are only limited
judicial and administrative interpretations. Certain facts and circumstances
that may be wholly or partially beyond the Company's control may affect its
ability to qualify or to continue to qualify as a REIT. In addition, no
assurance can be given that new legislation, Treasury Regulations,
administrative interpretations or court decisions will not significantly change
the tax laws with respect to the Company's qualification as a REIT or the
federal income consequences of such qualification to the Company. If the Company
fails to qualify as a REIT, it will be subject to federal income tax (including
any applicable alternative minimum tax) on its taxable income at regular
corporate rates and it will not be entitled to a deduction for dividends paid to
its stockholders. In addition, unless entitled to relief under certain statutory
provisions, the Company would be disqualified from taxation as a REIT for the
four taxable years following the year during which qualification is lost. The
additional tax incurred in such event would significantly reduce the cash flow
available for distribution to shareholders and to meet debt service obligations.
See 'Federal Income Tax Considerations--Taxation of the Company.'
REIT Distribution Requirements and Potential Impact of Borrowings. To
obtain the favorable tax treatment associated with qualifying as a REIT under
the Code, the Company generally is required each year to distribute to its
shareholders at least 95% of its real estate investment trust taxable income.
See 'Federal Income Tax Considerations--Taxation of the Company (Annual
Distribution Requirements).' In addition, the Company will be subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum of 85% of its
ordinary income, 95% of its capital gain net income and 100% of its real estate
investment trust taxable income from prior years that is not deemed to have been
distributed under the Code. Differences in timing between the receipt of income,
the payment of expenses and the inclusion of such income and the deduction of
such expenses in arriving at taxable income (of the Company or its
subsidiaries), or the effect of nondeductible capital expenditures, the creation
of reserves or required debt or amortization payments, could require the
Company, directly or through its subsidiaries, to borrow funds on a short-term
basis to meet the distribution requirements that are necessary to achieve the
tax benefits associated with qualifying as a REIT. In such instances, the
Company might need to borrow funds in order to avoid adverse tax consequences
even if management believed that the prevailing market conditions were not
otherwise 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.'
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SPECIAL CONSIDERATIONS FOR FOREIGN INVESTORS
In order to assist the Company in qualifying as a 'domestically controlled
REIT,' the Company's Articles of Incorporation, as amended (the 'Articles of
Incorporation'), contain certain provisions generally preventing foreign
investors (other than SC-USREALTY and its affiliates) from acquiring additional
shares of the Company's capital stock if, as a result of such acquisition, the
Company would fail to qualify as a 'domestically controlled REIT.' See 'Federal
Income Tax Considerations--Taxation of Holders of Common Stock--Taxation of
Non-U.S. Shareholders.' Accordingly, an acquisition of the Company's capital
stock would not likely be a suitable investment for non-U.S. shareholders other
than SC-USREALTY. See 'Description of Common Stock--Restrictions on Transfer.'
PRICE FLUCTUATIONS OF THE COMMON STOCK AND TRADING VOLUME;
SHARES AVAILABLE FOR FUTURE SALE
A number of factors may adversely influence the price of the Company's
Common Stock in the public markets, many of which are beyond the control of the
Company. These factors include possible increases in market interest rates,
which may lead purchasers of Common Stock to demand a higher annual yield from
distributions by the Company in relation to the price paid for Common Stock, the
relatively low daily trading volume of REITs in general, including the Common
Stock, and any inability of the Company to invest the proceeds of a future
offering of Securities in a manner that will increase earnings per share.
Sales of a substantial number of shares of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices for
shares. In particular, pursuant to the agreement with Merrill Lynch, discussed
under "Plan of Distribution--Merrill Lynch Shares," Merrill Lynch has the right
to sell 5,000,000 shares acquired by it from the Company in April 1998, as well
as certain additional shares that it may receive under the terms of the
agreement, at any time, through a public offering, negotiated transactions,
block sales, sales through the facilities of the New York Stock Exchange or
other means of distribution. The Company also may issue shares of Common Stock
upon redemption of Units issued in connection with the formation of the Company
and subsequent acquisitions. In addition, as of September 30, 1998, 8,736,900
shares of Common Stock of the Company were reserved for issuance pursuant to
stock and unit options, and more shares may be reserved for such purpose in the
future. All of these shares will be available for sale in the public markets
from time to time. In connection with the SC-USREALTY Transaction, the Company
granted SC-USREALTY the right to require the Company to file, at any time
requested by SC-USREALTY, a registration statement under the Securities Act of
1933 covering all or any of the shares of Common Stock acquired by SC-USREALTY.
No prediction can be made about the effect that future sales of Common Stock
will have on the market prices of shares.
POTENTIAL DILUTIVE EFFECT OF ISSUANCE BY COMPANY OF COMMON STOCK WITH
PURCHASE PRICE ADJUSTMENT
As of April 2, 1998, the Company entered into an equity sale transaction
with Merrill Lynch in which Merrill Lynch purchased from the Company 5,000,000
shares of the Company's Common Stock for net proceeds of $147 million. At the
time, the Company and Merrill Lynch entered into a Purchase Price Adjustment
Agreement (the "Purchase Price Adjustment Agreement"), which provides for an
adjustment of the number of shares of Common Stock issued to Merrill Lynch in
the transaction (or the aggregate purchase price deemed to have been paid for
such shares) over the year ending April 2, 1999. The adjustment is based upon
the difference between the "reference price" (originally $30 per share, $150
million in the aggregate) deemed to have been paid by Merrill Lynch and the
amount deemed to be received by Merrill Lynch upon a resale of the shares. The
effect of this agreement was to permit the Company to benefit if the shares
ultimately can be sold at an average price that exceeds the price at which they
are deemed to have been issued originally. The agreement also subjected the
Company to the risk that it may have to deliver additional shares if the shares
ultimately are sold at an average price that is less than the original purchase
price. The final settlement under the agreement is scheduled to occur by April
2, 1999, although Merrill Lynch has the right to cause an earlier settlement if
the market price of the Company's Common Stock declines below certain levels. At
periodic intervals up until the final settlement, the Company is required to
deposit into escrow either cash or additional shares of Common Stock if the
market price of the Company's Common Stock declines. In October 1998, the
Company and Merrill Lynch amended the Purchase Price Adjustment Agreement by,
among other things, lowering the reference price to $22.21 per share and
permitting Merrill Lynch to retain $39.3 million that the Company had deposited
as collateral to secure its obligations to Merrill Lynch under the Purchase
Price Adjustment Agreement. See "Plan of Distribution--Merrill Lynch Shares."
If the Company issues additional shares to Merrill Lynch under the Purchase
Price Adjustment Agreement because the market price of its Common Stock has
declined, the issuance would have dilutive effects on the capital stock of the
Company. The dilutive effect increases significantly as the market price of the
Common Stock declines further below the reference price. Moreover, under the
Purchase Price Adjustment Agreement, each party has the right, under prescribed
conditions, to decrease the number of shares subject to adjustment by causing
Merrill Lynch to sell shares of the Company's Common Stock into the marketplace
or settle the transaction. Any such settlement may force the Company to issue
shares of its Common Stock at a depressed price, which may heighten the dilutive
effect on the capital stock of the Company.
As of December 8, 1998 (on which date the closing price of a share of the
Company's Common Stock was $24.50), Merrill Lynch was permitted to require
settlement of 50% of the transaction, as a result of prior declines in the
market price of the Company's Common Stock. Merrill Lynch also is permitted to
require settlement of 100% of the transaction if the closing price of the
Company's Common Stock declines below $18.00 per share. See "Plan of
Distribution--Merrill Lynch Shares." The Company may attempt to negotiate with
Merrill Lynch to settle its obligations to Merrill Lynch arising from the
transaction by paying cash to Merrill Lynch (currently approximately $112
million) rather than by requesting Merrill Lynch to sell shares of the Company's
Common Stock before the final settlement date of April 2, 1999. The Company may
obtain cash to settle its obligations to Merrill Lynch from a number of sources,
including debt or private equity issuances, secured property financings and
property dispositions.
POSSIBLE ADVERSE CONSEQUENCES OF LIMITS ON OWNERSHIP OF SHARES
In order to assist the Company in maintaining its qualification as a REIT,
the Articles of Incorporation contain certain provisions generally limiting the
ownership of shares of capital stock by any single shareholder to 5% of the
outstanding Common Stock and/or 5% of any class or series of Preferred Stock
(with exceptions for persons who received more than 5% of the equity of the
Company pursuant to the contribution of assets to the Company in connection with
the initial public offering of the Company and SC-USREALTY and its affiliates).
The Board could waive this restriction if it were satisfied that ownership in
excess of the above ownership limit would not jeopardize the Company's status as
a REIT and the Board otherwise decided such action would be in the best
interests of the Company. Capital stock acquired or transferred in breach of the
limitation will be automatically transferred to a trust for the benefit of a
designated charitable beneficiary. See 'Description of Common
Stock--Restrictions on Transfer' for additional information regarding the limits
on ownership of shares of capital stock.
RESTRICTIONS ON ACQUISITION AND CHANGE IN CONTROL
Various provisions of the Articles of Incorporation restrict the
possibility for acquisition or change in control of the Company, even if such
acquisition or change in control were in the stockholders' interest, including
the Ownership Limits (as defined herein), the staggered terms of the Company's
directors and the ability of the Board to authorize the issuance of preferred
stock without stockholder approval.
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USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the net
proceeds from the sale of the Securities will be used for the acquisition and
development of additional office properties, as suitable opportunities arise,
for the repayment of certain outstanding indebtedness at such time, for capital
improvements to property and for working capital and other general corporate
purposes.
The Company used the net proceeds of approximately $147 million from the
sale of 5,000,000 shares of its Common Stock in the transaction described under
'Plan of Distribution--Merrill Lynch Shares' to fund acquisition and development
activities through repayment in April 1998 of unsecured line of credit
borrowings incurred to fund such activities. At the time, the Company's
unsecured line of credit bore interest at a daily floating rate equal to, as
selected by the Company, either (i) the higher of the prime rate or the federal
funds rate or (ii) a rate equal to 90 basis points above the 30-day London
Interbank Offered Rate ('LIBOR'). The Company at the time had predominantly
selected interest rates equal to 90 basis points above the 30-day LIBOR rate.
The net proceeds from Merrill Lynch's sales in the marketplace of the 5,000,000
shares issued in the forward equity transaction, plus or minus any adjustment
shares issued to or returned by Merrill Lynch to account for changes in the
market price of the Company's Common Stock since inception of the forward equity
transaction, will be applied to satisfy the Company's obligations to Merrill
Lynch in the forward equity transaction. In the event that the net proceeds from
such sales exceed the Company's obligations, the amount and use of such proceeds
will be described in the Prospectus Supplement relating to the offer and sale of
such shares by Merrill Lynch.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratios of earnings to fixed charges for the period from
February 16, 1993 (commencement of operations) to December 31, 1993, for the
years ended December 31, 1994, 1995, 1996 and 1997 and for the nine months ended
September 30, 1998 were 1.91x, 1.81x, 1.75x, 1.74x, 2.01x and 1.88x,
respectively.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of income (loss) before
gains from sales of property and extraordinary items plus fixed charges
(excluding interest cost capitalized). Fixed charges consist of interest expense
(including interest costs capitalized), the amortization of debt issuance costs
and rental expense deemed to represent interest expense.
The Company issued preferred stock in 1996 and in August, November and
December 1997. Accordingly, the Company's ratios of earnings to combined fixed
charges and preferred stock dividends for the years ended December 31, 1996 and
1997 and for the nine months ended September 30, 1998 were 1.71x, 1.73x and
1.41x, respectively.
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DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions
of the Debt Securities to which this Prospectus and any applicable Prospectus
Supplement may relate. The particular terms of the Debt Securities being offered
and the extent to which such general provisions may apply will be set forth in
the applicable indenture or in one or more indentures supplemental thereto and
described in a Prospectus Supplement relating to such Debt Securities.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Company
and may be either senior Debt Securities ('Senior Securities') or subordinated
Debt Securities ('Subordinated Securities'). The Debt Securities will be issued
under one or more indentures (the 'Indentures'). Senior Securities and
Subordinated Securities will be issued pursuant to separate indentures
(respectively, a 'Senior Indenture' and a 'Subordinated Indenture'), in each
case between the Company and a trustee (a 'Trustee'). The Indentures will be
subject to and governed by the Trust Indenture Act of 1939, as amended (the
'TIA'). The statements made under this heading relating to the Debt Securities
and the Indentures are summaries of the anticipated provisions thereof, do not
purport to be complete and are qualified in their entirety by reference to the
Indentures and such Debt Securities. All section references appearing herein are
to sections of each Indenture unless otherwise indicated and capitalized terms
used but not defined under this heading shall have the respective meanings set
forth in each Indenture.
The indebtedness represented by Subordinated Securities will be
subordinated in right of payment to the prior payment in full of the Senior Debt
of the Company as described under '--Ranking'.
Except as set forth in the applicable Indenture or in one or more
indentures supplemental thereto and described in a Prospectus Supplement
relating thereto, the Debt Securities may be issued without limit as to
aggregate principal amount, in one or more series, in each case as established
from time to time in or pursuant to authority granted by a resolution of the
Board of the Company or as established in the applicable Indenture or in one or
more indentures supplemental to such Indenture. All Debt Securities of one
series need not be issued at the same time and, unless otherwise provided, a
series may be reopened, without the consent of the Holders of the Debt
Securities of such series, for issuances of additional Debt Securities of such
series.
It is anticipated that each Indenture will provide that there may be more
than one Trustee thereunder, each with respect to one or more series of Debt
Securities. Any Trustee under an Indenture may resign or be removed with respect
to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a director of a trust under the
applicable Indenture separate and apart from the trust administered by any other
Trustee, and, except as otherwise indicated herein, any action described herein
to be taken by each Trustee may be taken by each such Trustee with respect to,
and only with respect to, the one or more series of Debt Securities for which it
is Trustee under the applicable Indenture.
The Prospectus Supplement relating to any series of Debt Securities being
offered will contain the specific terms thereof, including, without limitation:
(1) The title of such Debt Securities and whether such Debt Securities
are Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) The percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
(4) If convertible in whole or in part into Common Stock or Preferred
Stock, the terms on which such Debt Securities are convertible, including
the initial conversion price or rate (or method for determining the same),
the portion that is convertible and the conversion period, and any
applicable limitations on the ownership or transferability of the Common
Stock or Preferred Stock receivable on conversion;
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(5) The date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(7) The date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the dates on which any
such interest will be payable, the regular record dates for such interest
payment dates, or the method by which such dates shall be determined, the
persons to whom such interest shall be payable, and the basis upon which
interest shall be calculated if other than that of a 360-day year of twelve
30-day months;
(8) The place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable, where such
Debt Securities may be surrendered for conversion or registration of
transfer or exchange and where notices or demands to or upon the Company in
respect of such Debt Securities and the applicable Indenture may be served;
(9) The period or periods within which, the price or prices at which
and the other terms and conditions upon which such Debt Securities may be
redeemed, in whole or in part, at the option of the Company, if the Company
is to have such an option;
(10) The obligation, if any, of the Company to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a Holder thereof, and the period or periods
within which or the date and dates on which the price or prices at which
and the other terms and conditions upon which such Debt Securities will be
redeemed, repaid or purchased, in whole or in part, pursuant to such
obligation;
(11) If other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;
(13) Any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to Events of Default or covenants set
forth in the applicable Indenture;
(14) Whether such Debt Securities will be issued in certificate or
book-entry form;
(15) Whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(16) The applicability, if any, of the defeasance and covenant
defeasance provisions of Article Fourteen of the applicable Indenture;
(17) Whether and under what circumstances the Company will pay any
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will have
the option to redeem such Debt Securities in lieu of making such payment;
and
(18) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
('Original Issue Discount Securities'). Special federal income tax, accounting
and other considerations applicable to Original Issue Discount Securities will
be described in the applicable Prospectus Supplement.
Except as set forth in the applicable Indenture or in one or more
indentures supplemental thereto, the applicable Indenture will not contain any
provisions that would limit the ability of the Company to
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incur indebtedness or that would afford Holders of Debt Securities protection in
the event of a highly leveraged or similar transaction involving the Company or
in the event of a change of control. Restrictions on ownership and transfers of
the Company's Common Stock and Preferred Stock are designed to preserve its
status as a REIT and, therefore, may act to prevent or hinder a change of
control. See 'Description of Preferred Stock--Restrictions on Ownership' and
'Description of Common Stock-- Restrictions on Transfer.' Reference is made to
the applicable Prospectus Supplement for information with respect to any
deletions from, modifications of or additions to the Events of Default or
covenants of the Company that are described below, including any addition of a
covenant or other provision providing event risk or similar protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of Debt
Securities will be payable at the corporate trust office of the Trustee, the
address of which will be stated in the applicable Prospectus Supplement;
provided that, at the option of the Company, payment of interest may be made by
check mailed to the address of the person entitled thereto as it appears in the
applicable register for such Debt Securities or by wire transfer of funds to
such person at an account maintained within the United States (Sections 301,
305, 306, 307 and 1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ('Defaulted Interest') will
forthwith cease to be payable to the Holder on the applicable regular record
date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the 'Special
Record Date') for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than ten days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture
(Section 307).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the applicable Trustee referred
to above. In addition, subject to certain limitations imposed upon Debt
Securities issued in book-entry form, the Debt Securities of any series may be
surrendered for conversion or registration of transfer or exchange thereof at
the corporate trust office of the applicable Trustee. Every Debt Security
surrendered for conversion, registration of transfer or exchange must be duly
endorsed or accompanied by a written instrument of transfer. No service charge
will be made for any registration of transfer or exchange of any Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. If the
applicable Prospectus Supplement refers to any transfer agent (in addition to
the applicable Trustee) initially designated by the Company with respect to any
series of Debt Securities, the Company may at any time rescind the designation
of any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that the Company will be required to maintain a
transfer agent in each place of payment for such series. The Company may at any
time designate additional transfer agents with respect to any series of Debt
Securities (Section 1002).
Neither the Company nor any Trustee shall be required to (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) issue, register the transfer of or exchange any Debt Security
that has been surrendered for repayment at the option of the Holder, except the
portion, if any, of such Debt Security not to be so repaid (Section 305).
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MERGER, CONSOLIDATION OR SALE
The Company will be permitted to consolidate with or into, or sell, lease
or convey all or substantially all of its assets to, or merge with or into, any
other entity provided that (a) either the Company shall be the continuing
entity, or the successor entity (if other than the Company) formed by or
resulting from any such consolidation or merger or which shall have received the
transfer of such assets shall expressly assume payment of the principal of (and
premium, if any) and interest on all of the Debt Securities and the due and
punctual performance and observance of all of the covenants and conditions
contained in each Indenture; (b) immediately after giving effect to such
transaction and treating any indebtedness that becomes an obligation of the
Company or any Subsidiary (as defined below) as a result thereof as having been
incurred by the Company or Subsidiary at the time of such transaction, no Event
of Default under the Indentures, and no event which, after notice or the lapse
of time, or both, would become such an Event of Default, shall have occurred and
be continuing; and (c) an officer's certificate and legal opinion covering such
conditions shall be delivered to each Trustee (Sections 801 and 803).
CERTAIN COVENANTS
Existence. Except as described under '--Merger, Consolidation or Sale'
above, the Company will be required to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
(by articles of incorporation, by-laws and statute) and franchises; provided,
however, that the Company shall not be required to preserve any right or
franchise if it determines that the preservation thereof is no longer desirable
in the conduct of its business and that the loss thereof is not disadvantageous
in any material respect to the Holders of the Debt Securities.
Maintenance of Properties. The Company will be required to cause all of its
material properties used or useful in the conduct of its business or the
business of any Subsidiary (as defined below) to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times (Section 1007); provided,
however, that the Company shall not be prevented from selling or otherwise
disposing for value its properties in the ordinary course of business.
Insurance. The Company will be required to, and will be required to cause
each of its Subsidiaries to keep all of its insurable properties insured against
loss or damage at least equal to their then full insurable value with insurers
of recognized responsibility and, if described in the applicable Prospectus
Supplement, having a specified rating from a recognized insurance rating service
(Section 1008).
Payment of Taxes and Other Claims. The Company will be required to pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of the
Company or any Subsidiary, and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any Subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings (Section 1009).
Provision of Financial Information. Whether or not the Company is subject
to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company will be required, to the extent permitted under the
Exchange Act, to file with the U.S. Securities and Exchange Commission (the
"Commission" or the "SEC") the annual reports, quarterly reports and other
documents which the Company would have been required to file with the Commission
pursuant to such Sections 13 or 15(d) if the Company were so subject (the
'Financial Information'), such documents to be filed with the Commission on or
prior to the respective dates (the 'Required Filing Dates') by which the Company
would have been required so to file such documents if the Company were so
subject. The Company also will in any event (x) within 15 days of each Required
Filing Date (i) transmit by mail to all Holders of Debt Securities, as their
names and addresses appear in the Security Register, without cost to such
Holders, copies of the Financial Information and (ii) file with the Trustee
copies of the Financial Information, and (y) if filing such documents by the
Company with the Commission is not permitted
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under the Exchange Act, promptly upon written request and payment of the
reasonable cost of duplication and delivery, supply copies of such documents to
any prospective Holder (Section 1010).
ADDITIONAL COVENANTS AND/OR MODIFICATIONS TO THE COVENANTS DESCRIBED ABOVE
Any additional covenants of the Company and/or modifications to the
covenants described above with respect to any Debt Securities or series thereof,
including any covenants relating to limitations on incurrence of indebtedness or
other financial covenants, will be set forth in the applicable Indenture or an
indenture supplemental thereto and described in the Prospectus Supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture will provide that the following events are 'Events of
Default' with respect to any series of Debt Securities issued thereunder: (i)
default in the payment of any installment of interest on any Debt Security of
such series; (ii) default in the payment of principal of (or premium, if any,
on) any Debt Security of such series when due and payable; (iii) default in
making any sinking fund payment as required for any Debt Security of such
series; (iv) default in the performance, or breach, of any other covenant or
warranty of the Company contained in the applicable Indenture (other than a
covenant added to the Indenture solely for the benefit of a series of Debt
Securities issued thereunder other than such series), continued for 60 days
after written notice as provided in the applicable Indenture; (v) default under
any bond, debenture, note or other evidence of indebtedness for money borrowed
by the Company or any of its Subsidiaries (including obligations under leases
required to be capitalized on the balance sheet of the lessee under GAAP)
representing recourse indebtedness or indebtedness guaranteed by such party in
an aggregate principal amount in excess of $5,000,000, or under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by the Company or any
of its Subsidiaries (including the leases) representing recourse indebtedness or
indebtedness guaranteed by such party in an aggregate principal amount in excess
of $5,000,000, whether the indebtedness now exists or shall hereafter be
created, which default shall have resulted in the indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable, or the obligations being accelerated, without the
acceleration having been rescinded or annulled; (vi) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Company or any Significant Subsidiary (as defined
below) for all or substantially all of the property of the Company or any
Significant Subsidiary; and (vii) any other Event of Default provided with
respect to a particular series of Debt Securities (Section 501).
'Significant Subsidiary' means any Subsidiary that is a 'significant
subsidiary' (within the meaning of Regulation S-X promulgated under the
Securities Act) of the Company.
'Subsidiary' means a corporation, partnership or other entity a majority of
the voting power of the voting equity securities or the outstanding equity
interests of which are owned, directly or indirectly, by the Company or by one
or more other Subsidiaries of the Company. For the purposes of this definition,
'voting equity securities' means equity securities having voting power for the
election of directors, whether at all times or only so long as no senior class
of security has such voting power by reason of any contingency. The term
'Subsidiary' does not include Carr Services, Inc., CarrAmerica Development
OmniOffices or Omni UK, as the Company does not own or control a majority of the
outstanding voting stock of such entities.
If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the Holders of not less than 25% of the
principal amount of the Outstanding Debt Securities of that series will have the
right to declare the principal amount (or, if the Debt Securities of that series
are Original Issue Discount Securities or indexed securities, such portion of
the principal amount as may be specified in the terms thereof) of all the Debt
Securities of that series to be due and payable immediately by written notice
thereof to the Company (and to the applicable Trustee if given by the Holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then Outstanding under
any Indenture, as the case may be) has been made, but before a judgment or
decree for payment of the money due has been obtained by the applicable Trustee,
the
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Holders of not less than a majority in principal amount of Outstanding Debt
Securities of such series (or of all Debt Securities then Outstanding under the
applicable Indenture, as the case may be) may rescind and annul such declaration
and its consequences if (a) the Company shall have deposited with the applicable
Trustee all required payments of the principal of (and premium, if any) and
interest on the Debt Securities of such series (or of all Debt Securities then
Outstanding under the applicable Indenture, as the case may be), plus certain
fees, expenses, disbursements and advances of the applicable Trustee and (b) all
events of default, other than the non-payment of accelerated principal (or
specified portion thereof), with respect to Debt Securities of such series (or
of all Debt Securities then Outstanding under the applicable Indenture, as the
case may be) have been cured or waived as provided in such Indenture (Section
502). Each Indenture also will provide that the Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of any series
(or of all Debt Securities then Outstanding under the applicable Indenture, as
the case may be) may waive any past default with respect to such series and its
consequences, except a default (x) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or (y) in
respect of a covenant or provision contained in the applicable Indenture that
cannot be modified or amended without the consent of the Holder of each
Outstanding Debt Security affected thereby (Section 513).
Each Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default shall have been cured or waived; provided, however, that such
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if specified responsible officers of such Trustee
consider such withholding to be in the interest of such Holders (Section 601).
Each Indenture will provide that no Holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to
such Indenture or for any remedy thereunder, except in the cases of failure of
the applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it (Section 507). This provision will not prevent, however, any
Holder of Debt Securities from instituting suit for the enforcement of payment
of the principal of (and premium, if any) and interest on such Debt Securities
at the respective due dates thereof (Section 508).
Subject to provisions in each Indenture relating to its duties in case of
default, no Trustee will be under any obligation to exercise any of its rights
or powers under an Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under such Indenture, unless such
Holders shall have offered to the Trustee thereunder reasonable security or
indemnity (Section 602). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series (or of all Debt
Securities then Outstanding under an Indenture, as the case may be) shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the applicable Trustee, or of exercising any trust or
power conferred upon such Trustee. However, a Trustee may refuse to follow any
direction which is in conflict with any law or the applicable Indenture, which
may involve such Trustee in personal liability or which may be unduly
prejudicial to the Holders of Debt Securities of such series not joining therein
(Section 512).
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the applicable Indenture and, if so, specifying each such default
and the nature and status thereof (Section 1011).
MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all Outstanding Debt Securities issued under such Indenture which are
affected by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the Holder of each such
Debt Security affected
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thereby, (a) change the stated maturity of the principal of, or any installment
of interest (or premium, if any) on, any such Debt Security; (b) reduce the
principal amount of, or the rate or amount of interest on, or any premium
payable on redemption of, any such Debt Security, or reduce the amount of
principal of an Original Issue Discount Security that would be due and payable
upon declaration of acceleration of the maturity thereof or would be provable in
bankruptcy, or adversely affect any right of repayment of the Holder of any such
Debt Security; (c) change the place of payment, or the coin or currency, for
payment of the principal of (or premium, if any) or interest on any such Debt
Security; (d) impair the right to institute suit for the enforcement of any
payment on or with respect to any such Debt Security; (e) reduce the
above-stated percentage of Outstanding Debt Securities of any series necessary
to modify or amend the applicable Indenture, to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder or to reduce
the quorum or voting requirements set forth in the applicable Indenture; or (f)
modify any of the foregoing provisions or any of the provisions relating to the
waiver of certain past defaults or certain covenants, except to increase the
required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the Holder of
such Debt Security (Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of each series affected thereby will have the right to waive
compliance by the Company with certain covenants in such Indenture (Section
1013).
Modifications and amendments of an Indenture will be permitted to be made
by the Company and the respective Trustee thereunder without the consent of any
Holder of Debt Securities for any of the following purposes: (i) to evidence the
succession of another person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Company in the Indenture; (iii) to add Events of Default for
the benefit of the Holders of all or any series of Debt Securities; (iv) to add
or change any provisions of an Indenture to facilitate the issuance of, or to
liberalize certain terms of, Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form, provided that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect; (v) to change or eliminate any
provisions of an Indenture, provided that any such change or elimination shall
become effective only when there are no Debt Securities Outstanding of any
series created prior thereto which are entitled to the benefit of such
provision; (vi) to secure the Debt Securities; (vii) to establish the form or
terms of Debt Securities of any series, including the provisions and procedures,
if applicable, for the conversion of such Debt Securities into Common Stock or
Preferred Stock of the Company; (viii) to provide for the acceptance of
appointment by a successor Trustee or facilitate the administration of the
trusts under an Indenture by more than one Trustee; (ix) to cure any ambiguity,
defect or inconsistency in an Indenture, provided that such action shall not
adversely affect the interests of Holders of Debt Securities of any series
issued under such Indenture in any material respect; or (x) to supplement any of
the provisions of an Indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such Debt Securities, provided that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect (Section 901).
Each Indenture will provide that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of any Debt Security denominated in a foreign currency that shall be deemed
Outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an indexed security that shall be deemed Outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security pursuant to the
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applicable Indenture, and (iv) Debt Securities owned by the Company or any other
obligor under the Debt Securities or any affiliate of the Company or of such
other obligor shall be disregarded.
Each Indenture will contain provisions for convening meetings of the
Holders of Debt Securities of a series (Section 501). A meeting will be
permitted to be called at any time by the applicable Trustee, and also, upon
request, by the Company or the Holders of at least 10% in principal amount of
the Outstanding Debt Securities of such series, in any such case upon notice
given as provided in the Indenture. Except for any consent that must be given by
the Holder of each Debt Security affected by certain modifications and
amendments of an Indenture, any resolution presented at a meeting or adjourned
meeting duly reconvened at which a quorum is present may be adopted by the
affirmative vote of the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series; provided, however, that, except as
referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of the Outstanding Debt Securities of a
series may be adopted at a meeting or adjourned meeting or adjourned meeting
duly reconvened at which a quorum is present by the affirmative vote of the
Holders of such specified percentage in principal amount of the Outstanding Debt
Securities of that series. Any resolution passed or decision taken at any
meeting of Holders of Debt Securities of any series duly held in accordance with
an Indenture will be binding on all Holders of Debt Securities of that series.
The quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be persons holding or representing a majority in principal amount
of the Outstanding Debt Securities of a series; provided, however, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the Holders of not less than a specified percentage in principal
amount of the Outstanding Debt Securities of a series, the persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum.
Notwithstanding the foregoing provisions, each Indenture will provide that
if any action is to be taken at a meeting of Holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the Holders of a specified percentage in principal
amount of all Outstanding Debt Securities affected thereby, or the Holders of
such series and one or more additional series: (i) there shall be no minimum
quorum requirement for such meeting, and (ii) the principal amount of the
Outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture.
RANKING
The terms and conditions, if any, upon which the Debt Securities are
subordinated to other indebtedness of the Company will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include a
description of the indebtedness ranking senior to the Debt Securities, the
restrictions on payments to the Holders of such Debt Securities while a default
with respect to such senior indebtedness in continuing, the restrictions, if
any, on payments to the Holders of such Debt Securities following an Event of
Default, and provisions requiring Holders of such Debt Securities to remit
certain payments to holders of senior indebtedness.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Company may be permitted under the applicable Indenture to discharge
certain obligations to Holders of any series of Debt Securities issued
thereunder that have not already been delivered to the applicable Trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the applicable Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the
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date of such deposit (if such Debt Securities have become due and payable) or to
the stated maturity or redemption date, as the case may be.
Each Indenture will provide that, if the provisions of Article Fourteen are
made applicable to the Debt Securities of or within any series pursuant to
Section 301 of such Indenture, the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay additional amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities, and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
('defeasance') (Section 1402) or (b) to be released from its obligations with
respect to such Debt Securities under certain specified sections of Article Ten
of such Indenture as specified in the applicable Prospectus Supplement and any
omission to comply with such obligations shall not constitute an Event of
Default with respect to such Debt Securities ('covenant defeasance') (Section
1403), in either case upon the irrevocable deposit by the Company with the
applicable Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at stated maturity, or Government Obligations (as defined
below), or both, applicable to such Debt Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient without reinvestment to pay the principal of (and
premium, if any) and interest on such Debt Securities, and any mandatory sinking
fund or analogous payments thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Trustee an opinion of
counsel (as specified in the applicable Indenture) to the effect that the
Holders of such Debt Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
or covenant defeasance had not occurred, and such opinion of counsel, in the
case of defeasance, will be required to refer to and be based upon a ruling of
the Internal Revenue Service or a change in applicable U.S. federal income tax
law occurring after the date of the Indenture (Section 1404).
'Government Obligations' means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
currency in which the Debt Securities of such series are payable, the timely
payment of which is unconditionally guaranteed as a full faith and credit
obligation of the United States of America or such government, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank or trust company as
custodian with respect to any such Government Obligation or a specific payment
of interest on or principal of any such Government Obligation held by such
custodian for the account of the Holder of a depository receipt, provided that
(except as required by applicable law) such custodian is not authorized to make
any deduction from the amount payable to the Holder of such depository receipt
from any amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of the Government
Obligation evidenced by such depository receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security will be deemed to have been, and
will be, fully discharged and satisfied
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through the payment of the principal of (and premium, if any) and interest on
such Debt Security as they become due out of the proceeds yielded by converting
the amount so deposited in respect of such Debt Security into the currency,
currency unit or composite currency in which such Debt Security becomes payable
as a result of such election or such cessation of usage based on the applicable
market exchange rate. 'Conversion Event' means the cessation of use of (i) a
currency, currency unit or composite currency both by the government of the
country which issued such currency and for the settlement of transactions by a
central bank or other public institutions of or within the international banking
community, (ii) the ECU both within the European Monetary System and for the
settlement of transactions by public institutions of or within the European
Communities or (iii) any currency unit or composite currency other than the ECU
for the purposes for which it was established. Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium, if
any) and interest on any Debt Security that is payable in a foreign currency
that ceases to be used by its government of issuance shall be made in U.S.
dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default described
in clause (iv) under '--Events of Default, Notice and Waiver' above with respect
to certain specified sections of Article Ten of each Indenture (which sections
would no longer be applicable to such Debt Securities as a result of such
covenant defeasance) or described in clause (vii) under '--Events of Default,
Notice and Waiver' above with respect to any other covenant as to which there
has been covenant defeasance, the amount in such currency, currency unit or
composite currency in which such Debt Securities are payable, and Government
Obligations on deposit with the applicable Trustee, will be sufficient to pay
amounts due on such Debt Securities at the time of their stated maturity but may
not be sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Default. However, the Company would remain
liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Stock or Preferred
Stock, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the Holders
or the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities and any restrictions on conversion, including restrictions directed
at maintaining the Company's REIT status.
REDEMPTION OF SECURITIES
The Indenture provides that the Debt Securities may be redeemed at any time
at the option of the Company, in whole or in part, at the redemption price,
except as may otherwise be provided in connection with any Debt Securities or
series thereof.
From and after notice has been given as provided in the Indenture, if funds
for the redemption of any Debt Securities called for redemption shall have been
made available on such redemption date, such Debt Securities will cease to bear
interest on the date fixed for such redemption specified in such notice, and the
only right of the Holders of the Debt Securities will be to receive payment of
the redemption price.
Notice of any optional redemption of any Debt Securities will be given to
Holders at their addresses, as shown in the Company's books and records, not
more than 60 nor less than 30 days prior to the date fixed for redemption. The
notice of redemption will specify, among other items, the redemption price and
the principal amount of the Debt Securities held by such Holder to be redeemed.
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If the Company elects to redeem Debt Securities, it will notify the Trustee
at least 45 days prior to the redemption date (or such shorter period as
satisfactory to the Trustee) of the aggregate principal amount of Debt
Securities to be redeemed and the redemption date. If less than all of the Debt
Securities are to be redeemed, the Trustee shall select the Debt Securities to
be redeemed pro rata, by lot or in such manner as it shall deem fair and
appropriate.
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 35,000,000 shares of Preferred Stock. As
of November 30, 1998, there were 680,000 shares of Series A Cumulative
Convertible Redeemable Preferred Stock (1,740,000 were issued originally) and
8,000,000 shares of Series B Cumulative Redeemable Preferred Stock issued and
outstanding. There were also 600,000 shares of Series C Cumulative Redeemable
Preferred Stock issued and outstanding and underlying 6,000,000 depositary
shares, which are traded publicly, and 200,000 shares of Series D Cumulative
Redeemable Preferred Stock issued and outstanding and underlying 2,000,000
depositary shares, which are traded publicly.
Under the Company's Articles of Incorporation, the Board may from time to
time establish and issue one or more series of Preferred Stock. The Board may
classify or reclassify any unissued Preferred Stock by setting or changing the
number, designation, preference, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption of such series (a 'Designating Amendment').
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation and Bylaws (the
'Bylaws').
GENERAL
The Board is empowered by the Company's Articles of Incorporation to
designate and issue from time to time one or more series of Preferred Stock
without stockholder approval. The Board may determine the relative rights,
preferences and privileges of each series of Preferred Stock so issued. Because
the Board has the power to establish the preferences and rights of each series
of Preferred Stock, it may afford the holders of any series of Preferred Stock
preferences, powers and rights, voting or otherwise, senior to the rights of
holders of Common Stock. The Preferred Stock will, when issued, be fully paid
and nonassessable.
The Prospectus Supplement relating to any Preferred Stock offered thereby
will contain the specific terms thereof, including, without limitation:
(1) The title and stated value of such Preferred Stock;
(2) The number of such shares of Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock will
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) The provision for a sinking fund, if any, for such Preferred
Stock;
(7) The provision for redemption, if applicable, of such Preferred
Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock of the Company, including the
conversion price (or manner of calculation thereof);
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(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(11) A discussion of federal income tax considerations applicable to
such Preferred Stock;
(12) The relative ranking and preferences of such Preferred Stock as
to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(13) Any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(14) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock of the Company, and to all equity securities ranking
junior to such Preferred Stock, (ii) on a parity with all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Stock, and (iii) junior to all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank senior to the Preferred Stock. The term 'equity
securities' does not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board, out of assets of the Company legally
available for payment, cash dividends (or dividends in kind or in other property
if expressly permitted and described in the applicable Prospectus Supplement) at
such rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Each such dividend will be payable to holders of record as they
appear on the stock transfer books of the Company on such record dates as are
fixed by the Board.
Dividends on any series of Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board fails to declare a dividend
payable on a dividend payment date on any series of the Preferred Stock for
which dividends are non-cumulative, then the holders of such series of the
Preferred Stock will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and the Company will have
no obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.
Unless otherwise specified in the Prospectus Supplement, if any shares of
Preferred Stock of any series are outstanding, no full dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such series. When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon Preferred Stock of any series and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Preferred Stock of
such series, all dividends declared upon Preferred Stock of such series and any
other series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock will be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock
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will in all cases bear to each other the same ratio that accrued dividends per
share on the Preferred Stock of such series (which will not include any
accumulation in respect of unpaid dividends for prior dividend periods if such
Preferred Stock do not have a cumulative dividend) and such other series of
Preferred Stock bear to each other. No interest, or sum of money in lieu of
interest, will be payable in respect of any dividend payment or payments on
Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in Common Stock or other capital stock ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation) will be declared or paid or set aside for payment or other
distribution upon the Common Stock, or any other capital stock of the Company
ranking junior to or on a parity with the Preferred Stock of such series as to
dividends or upon liquidation, nor will any Common Stock, or any other capital
stock of the Company ranking junior to or on a parity with the Preferred Stock
of such series as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such stock) by the
Company (except by conversion into or exchange for other capital stock of the
Company ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation).
If for any taxable year, the Company elects to designate as 'capital gains
dividends' (as defined in Section 857 of the Code) any portion (the 'Capital
Gains Amount') of the dividends (within the meaning of the Code) paid or made
available for the year to holders of all classes of capital stock (the 'Total
Dividends'), then the portion of the Capital Gains Amount that will be allocable
to the holders of shares of Preferred Stock will be the Capital Gains Amount
multiplied by a fraction, the numerator of which shall be the total dividends
(within the meaning of the Code) paid or made available to the holders of shares
of Preferred Stock for the year and the denominator of which shall be the Total
Dividends.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of the
Company, in whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that will be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
will not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of capital stock of the Company, the terms of such
Preferred Stock may provide that, if no such capital stock shall have been
issued or to the extent the net proceeds from any issuance are insufficient to
pay in full the aggregate redemption price then due, such Preferred Stock will
automatically and mandatorily be converted into the applicable capital stock of
the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all Preferred Stock of
any series shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the current dividend period and (ii) if such
series of Preferred Stock does not have a cumulative dividend, full dividends of
the Preferred Stock of any series have been or
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contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for the then current dividend period, no
Preferred Stock of any series shall be redeemed unless all outstanding Preferred
Stock of such series are simultaneously redeemed; provided, however, that the
foregoing shall not prevent the purchase or acquisition of Preferred Stock of
such series to preserve the REIT status of the Company or pursuant to a purchase
or exchange offer made on the same terms to holders of all outstanding Preferred
Stock of such series. In addition, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all outstanding shares
of any series of Preferred Stock have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividends periods and the then current dividend period, and
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, the Company will not
purchase or otherwise acquire directly or indirectly any Preferred Stock of such
series (except by conversion into or exchange for capital stock of the Company
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation); provided, however, that the foregoing will not prevent the
purchase or acquisition of Preferred Stock of such series to preserve the REIT
status of the Company or pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
or for which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares) or by lot in a manner determined by the
Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice will state: (i) the redemption date; (ii) the number of
shares and series of Preferred Stock to be redeemed; (iii) the redemption price;
(iv) the place or places where certificates for such Preferred Stock are to be
surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all of the Preferred Stock of any series are to be
redeemed, the notice mailed to each such holder thereof will also specify the
number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Stock, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment is made to
the holders of any Common Stock or any other class or series of capital stock of
the Company ranking junior to the Preferred Stock in the distribution of assets
upon any liquidation, dissolution or winding up of the Company, the holders of
each series of Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to stockholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which will not include any accumulation in respect
of unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Stock will
have no right or claim to any of the remaining assets of the Company. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of the Company are insufficient to pay the
amount of the liquidating distributions on all outstanding Preferred Stock and
the corresponding amounts payable on all shares of other classes or series of
capital stock of the Company ranking on a
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parity with the Preferred Stock in the distribution of assets, then the holders
of the Preferred Stock and all other such classes or series of capital stock
shall share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company will be distributed among
the holders of any other classes or series of capital stock ranking junior to
the Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Company, will not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
VOTING RIGHTS
Holders of Preferred Stock will not have any voting rights, except as set
forth below or as otherwise from time to time required by law or as indicated in
the applicable Prospectus Supplement.
Whenever dividends on any Preferred Stock shall be in arrears for six or
more consecutive quarterly periods, the holders of such Preferred Stock (voting
separately as a class with all other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of two additional directors of the Company at a special meeting
called by the holders of record of at least ten percent (10%) of any series of
Preferred Stock so in arrears (unless such request is received less than 90 days
before the date fixed for the next annual or special meeting of the
shareholders) or at the next annual meeting of stockholders, and at each
subsequent annual meeting until (i) if such series of Preferred Stock has a
cumulative dividend, all dividends accumulated on such shares of Preferred Stock
for the past dividend periods and the then current dividend period shall have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment or (ii) if such series of Preferred Stock do not have a
cumulative dividend, four consecutive quarterly dividends shall have been fully
paid or declared and a sum sufficient for the payment thereof set aside for
payment. In such case, the entire Board will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of each series
of shares of Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking prior to such series of Preferred
Stock with respect to the payment of dividends or the distribution of assets
upon liquidation, dissolution or winding up or reclassify any authorized capital
stock of the Company into such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such shares, or (ii) amend, alter or repeal the provisions of the Company's
Articles of Incorporation or the Designating Amendment for such series of
Preferred Stock, whether by merger, consolidation or otherwise (an 'Event'), so
as to materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Stock or the holders thereof; provided,
however, with respect to the occurrence of any of the Events set forth in clause
(ii) above, so long as the shares of Preferred Stock remain outstanding with the
terms thereof materially unchanged, taking into account that upon the occurrence
of an Event the Company may not be the surviving entity, the occurrence of any
such Event will not be deemed to materially and adversely affect such rights,
preferences, privileges or voting power of holders of Preferred Stock and
provided further that (x) any increase in the amount of the authorized Preferred
Stock or the creation or issuance of any other series of Preferred Stock, or (y)
any increase in the amount of authorized shares of such series or any other
series of Preferred Stock, in each case ranking on a parity with or junior to
the Preferred Stock of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, will not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of Preferred Stock
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of such series shall have been redeemed or called for redemption and sufficient
funds shall have been deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of shares of
Common Stock into which the Preferred Stock are convertible, the conversion
price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at the option of the holders of the Preferred
Stock or the Company, the events requiring an adjustment of the conversion price
and provisions affecting conversion in the event of the redemption of such
series of Preferred Stock.
RESTRICTIONS ON OWNERSHIP
As discussed below under 'Description of Common Stock--Restrictions on
Transfer--Ownership Limits,' for the Company to qualify as a REIT under the
Code, no more than 50% in value of its outstanding capital stock may be owned,
directly or indirectly, by five or fewer 'individuals' (as defined in the Code
to include certain entities) during the last half of a taxable year (other than
the first year) or during a proportionate part of a shorter taxable year. To
assist the Company in meeting this requirement, the Articles of Incorporation
provide that no holder of Preferred Stock may own, or be deemed to own by virtue
of certain attribution provisions of the Code, more than 5% of any class or
series of Preferred Stock and/or more than 5% of the issued and outstanding
shares of Common Stock, subject to certain exceptions specified in the Articles
of Incorporation. See 'Description of Common Stock--Restrictions on
Transfer--Ownership Limits.'
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF COMMON STOCK
GENERAL
The Company is authorized to issue 180,000,000 shares of Common Stock. The
outstanding Common Stock entitles the holder to one vote on all matters
presented to stockholders for a vote. Holders of Common Stock have no preemptive
rights. At November 30, 1998, there were 71,760,172 shares of Common Stock
outstanding.
Shares of Common Stock currently outstanding are listed for trading on the
New York Stock Exchange (the 'NYSE'). The Company will apply to the NYSE to list
the additional Common Stock to be sold pursuant to any Prospectus Supplement,
and the Company anticipates that such shares will be so listed.
Subject to such preferential rights as may be granted by the Board in
connection with the future issuance of Preferred Stock, holders of Common Stock
are entitled to one vote per share on all matters to be voted on by stockholders
and are entitled to receive ratably such dividends as may be declared on the
Common Stock by the Board in its discretion from funds legally available
therefor. In the event of the liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of all debts and other liabilities and any liquidation
preference of the holders of Preferred Stock. Holders of Common Stock have no
subscription, redemption, conversion or preemptive rights. Matters submitted for
stockholder approval generally require a majority vote of the shares present and
voting thereon.
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ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that, with respect to an annual meeting
of stockholders, the proposal of business to be considered by stockholders may
be made only (i) by or at the direction of the Board or (ii) by a stockholder
who is entitled to vote at the meeting and who has complied with the advance
notice procedures set forth in the Bylaws. In addition, with respect to any
meeting of stockholders, nominations of persons for election to the Board may be
made only (i) by or at the direction of the Board or (ii) by any stockholder of
the Company who is entitled to vote at the meeting and has complied with the
advance notice provisions set forth in the Bylaws.
RESTRICTIONS ON TRANSFER
Ownership Limits. The Company's Articles of Incorporation contain certain
restrictions on the number of shares of Common Stock that individual
shareholders may own. For the Company to qualify as a REIT under the Code, no
more than 50% in value of its outstanding capital stock may be owned, directly
or indirectly, by five or fewer 'individuals' (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year) or during a proportionate part of a shorter taxable year. The capital
stock also must be beneficially owned by 100 or more persons during at least 335
days of a taxable year or during a proportionate part of a shorter taxable year.
Because the Company intends to maintain its qualification as a REIT, the
Company's Articles of Incorporation contain certain restrictions on the
ownership and transfer of capital stock, including Common Stock, intended to
ensure compliance with these requirements.
Subject to certain exceptions specified in the Articles of Incorporation,
no holder may own, or be deemed to own by virtue of certain attribution
provisions of the Code, more than (A) 5% of the issued and outstanding shares of
Common Stock (the 'Common Stock Ownership Limit') and/or (B) more than 5% of any
class or series of Preferred Stock. (This limit, in addition to the Existing
Holder Limit, the Special Shareholder Limit, and the Non U.S. Shareholder Limit,
all as defined below, are referred to collectively herein as the 'Ownership
Limits.') Existing Holders, including Clark Enterprises Inc., The Oliver Carr
Company, Oliver T. Carr, Jr., and A. James Clark, are not subject to the Common
Stock Ownership Limit, but they are subject to special ownership limitations
(the 'Existing Holder Limit'). Furthermore, SC-USREALTY and its affiliates are
not subject to the Common Stock Ownership Limit, but are subject to a special
ownership limit of 45% of the outstanding shares of Common Stock and 45% of the
outstanding shares of each class or series of preferred stock of the Company
(the 'Special Shareholder Limit'). Furthermore, all holders are prohibited from
acquiring any capital stock if such acquisition would cause five beneficial
owners of capital stock to beneficially own in the aggregate more than 50% in
value of the outstanding capital stock.
In addition to the above restrictions on ownership of shares of capital
stock of the Company, in order to assist the Company in qualifying as a
'domestically controlled REIT,' the Articles of Incorporation contain certain
provisions preventing any Non-U.S. Shareholder (as defined below) (other than
SC-USREALTY and its affiliates) from acquiring additional shares of the
Company's capital stock if, as a result of such acquisition, the Company would
fail to qualify as a 'domestically controlled REIT' (computed assuming that
SC-USREALTY owns the maximum percentage of the Company's capital stock that it
is permitted to own under the Special Shareholder Limit) (the 'Non-U.S.
Shareholder Limit'). A Non-U.S. Shareholder is a nonresident alien individual,
foreign corporation, foreign partnership and any other foreign shareholder. For
a discussion of the taxation of a Non-U.S. Shareholder and the requirements for
the Company to qualify as a 'domestically controlled REIT,' see 'Federal Income
Tax Considerations--Taxation of Holders of Common Stock--Taxation of Non-U.S.
Shareholders.' The Company is unlikely to be able to advise a prospective
Non-U.S. Shareholder that its purchase of any shares of the Company's capital
stock would not violate this prohibition, thereby subjecting such prospective
Non-U.S. Shareholder to the adverse consequences described under '--Violation of
Ownership Limits' below. Accordingly, an acquisition of the Company's capital
stock would not likely be a suitable investment for Non-U.S. Shareholders other
than SC-USREALTY.
The Board may increase the Ownership Limits from time to time, but may not
do so to the extent that, after giving effect to such increase, five beneficial
owners of shares of capital stock could beneficially
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own in the aggregate more than 49.5% of the value of the Company's outstanding
shares of capital stock. The Board, in its sole discretion, may waive the
Ownership Limits with respect to a holder if such holder's ownership will not
then or in the future jeopardize the Company's status as a REIT.
Violation of Ownership Limits. The Articles of Incorporation provide that,
if any holder of capital stock of the Company purports to transfer shares to a
person or there is a change in the capital structure of the Company and either
the transfer or the change in capital structure would result in the Company
failing to qualify as a REIT, or such transfer or the change in capital
structure would cause the transferee to hold shares in excess of the applicable
Ownership Limit (including the Non-U.S. Shareholder Limit), then the capital
stock being transferred (or in the case of an event other than a transfer, the
capital stock beneficially owned) that would cause one or more of the
restrictions on ownership or transfer to be violated will be automatically
transferred to a trust for the benefit of a designated charitable beneficiary.
The purported transferee of such shares shall have no right to receive dividends
or other distributions with respect to such shares and shall have no right to
vote such shares. Any dividends or other distributions paid to such purported
transferee prior to the discovery by the Company that the shares have been
transferred to a trust shall be paid upon demand to the trustee of the trust for
the benefit of the charitable beneficiary. The trustee of the trust will have
all rights to dividends with respect to the shares of capital stock held in
trust, which rights will be exercised for the exclusive benefit of the
charitable beneficiary. Any dividends or distributions paid over to the trustee
will be held in trust for the charitable beneficiary. The trustee shall
designate a transferee of such stock so long as such shares of stock would not
violate the Ownership Limitations in the hands of such designated transferee.
Upon the sale of such shares, the purported transferee shall receive the lesser
of (A) (i) the price per share such purported transferee paid for the capital
stock in the purported transfer that resulted in the transfer of shares of
capital stock to the trust, or (ii) if the transfer or other event that resulted
in the transfer of shares of capital stock to the trust was not a transaction in
which the purported record transferee of shares of capital stock gave full value
for such shares, a price per share equal to the market price on the date of the
purported transfer or other event that resulted in the transfer of the shares to
the trust, and (B) the price per share received by the trustee from the sale or
disposition of the shares held in the trust.
All certificates representing Common Stock will bear a legend referring to
the restrictions described above.
Every owner of more than 5% (or such lower percentage as required by the
Code or regulations thereunder) of the issued and outstanding shares of Common
Stock must file a written notice with the Company containing the information
specified in the Articles of Incorporation no later than December 31 of each
year. In addition, each stockholder shall upon demand be required to disclose to
the Company in writing such information as the Company may request in good faith
in order to determine the Company's status as a REIT.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Common Stock is BankBoston, N.A.
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DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common
Stock. Common Stock Warrants may be issued independently or together with any
other Securities offered by any Prospectus Supplement and may be attached to or
separate from such Securities. Each series of Common Stock Warrants will be
issued under a separate warrant agreement (each, a 'Warrant Agreement') to be
entered into between the Company and a warrant agent specified in the applicable
Prospectus Supplement (the 'Warrant Agent'). The Warrant Agent will act solely
as an agent of the Company in connection with the Common Stock Warrants of such
series and will not assume any obligation or relationship of agency or trust for
or with any holders or beneficial owners of Common Stock Warrants. The following
sets forth certain general terms and provisions of the Common Stock Warrants
offered hereby. Further terms of the Common Stock Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Common
Stock Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following: (1) the title of such Common Stock
Warrants; (2) the aggregate number of such Common Stock Warrants; (3) the price
or prices at which such Common Stock Warrants will be issued; (4) the
designation, number and terms of the shares of Common Stock purchasable upon
exercise of such Common Stock Warrants; (5) the designation and terms of the
other Securities offered thereby with which such Common Stock Warrants are
issued and the number of such Common Stock Warrants issued with each such
Security offered thereby; (6) the date, if any, on and after which such Common
Stock Warrants and the related Common Stock will be separately transferable; (7)
the price at which each of the shares of Common Stock purchasable upon exercise
of such Common Stock Warrants may be purchased; (8) the date on which the right
to exercise such Common Stock Warrants shall commence and the date on which such
right shall expire; (9) the minimum or maximum number of such Common Stock
Warrants which may be exercised at any one time; (10) information with respect
to book entry procedures, if any; (11) a discussion of certain federal income
tax considerations; and (12) any other terms of such Common Stock Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Common Stock Warrants.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ('Depositary Receipts') for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by Depositary
Shares will be deposited under a separate deposit agreement (each, a 'Deposit
Agreement') among the Company, the depositary named therein (a 'Preferred Stock
Depositary') and the holders from time to time of the Depositary Receipts.
Subject to the terms of the applicable Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest of
a share of a particular series of Preferred Stock represented by the Depositary
Shares evidenced by such Depositary Receipt, to all the rights and preferences
of the Preferred Stock represented by such Depositary Shares (including
dividend, voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to a Preferred Stock
Depositary, the Company will cause such Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to Deposit Agreements and
the Depositary Receipts to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to,
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and qualified in their entirety by reference to, all of the provisions of the
applicable Deposit Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
A Preferred Stock Depositary will be required to distribute all cash
dividends or other cash distributions received in respect of the applicable
Preferred Stock to the record holders of Depositary Receipts evidencing the
related Depositary Shares in proportion to the number of such Depositary
Receipts owned by such holders, subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain charges and
expenses to such Preferred Stock Depositary.
In the event of a distribution other than in cash, a Preferred Stock
Depositary will be required to distribute property received by it to the record
holders of Depositary Receipts entitled thereto, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to such Preferred Stock Depositary, unless such Preferred
Stock Depositary determines that it is not feasible to make such distribution,
in which case such Preferred Stock Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock which has been converted or
exchanged before the record date for such distribution.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the applicable Preferred Stock Depositary (unless the related Depositary Shares
have previously been called for redemption or converted), the holders thereof
will be entitled to delivery at such office, to or upon each such holder's
order, of the number of whole or fractional shares of the applicable Preferred
Stock and any money or other property represented by the Depositary Shares
evidenced by such Depositary Receipts. Holders of Depositary Receipts will be
entitled to receive whole or fractional shares of the related Preferred Stock on
the basis of the proportion of Preferred Stock represented by each Depositary
Share as specified in the applicable Prospectus Supplement, but holders of such
shares of Preferred Stock will not thereafter be entitled to receive Depositary
Shares therefor. If the Depositary Receipts delivered by the holder evidence a
number of Depositary Shares in excess of the number of Depositary Shares
representing the number of shares of Preferred Stock to be withdrawn, the
applicable Preferred Stock Depositary will be required to deliver to such holder
at the same time a new Depositary Receipt evidencing such excess number of
Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by a Preferred
Stock Depositary, such Preferred Stock Depositary will be required to redeem as
of the same redemption date the number of Depositary Shares representing shares
of the Preferred Stock so redeemed, provided the Company shall have paid in full
to such Preferred Stock Depositary the redemption price of the Preferred Stock
to be redeemed plus an amount equal to any accrued and unpaid dividends thereon
to the date fixed for redemption. The redemption price per Depositary Share will
be equal to the redemption price and any other amounts per share payable with
respect to the Preferred Stock. If fewer than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Company that preserves the REIT
status of the Company.
From and after the date fixed for redemption, all dividends in respect of
the shares of Preferred Stock so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts
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were entitled upon such redemption upon surrender thereof to the applicable
Preferred Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the
applicable Preferred Stock are entitled to vote, a Preferred Stock Depositary
will be required to mail the information contained in such notice of meeting to
the record holders of the Depositary Receipts evidencing the Depositary Shares
which represent such Preferred Stock. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Stock) will be entitled to instruct such
Preferred Stock Depositary as to the exercise of the voting rights pertaining to
the amount of Preferred Stock represented by such holder's Depositary Shares.
Such Preferred Stock Depositary will be required to vote the amount of Preferred
Stock represented by such Depositary Shares in accordance with such
instructions, and the Company will agree to take all reasonable action which may
be deemed necessary by such Preferred Stock Depositary in order to enable such
Preferred Stock Depositary to do so. Such Preferred Stock Depositary will be
required to abstain from voting the amount of Preferred Stock represented by
such Depositary Shares to the extent it does not receive specific instructions
from the holders of Depositary Receipts evidencing such Depositary Shares. A
Preferred Stock Depositary will not be responsible for any failure to carry out
any instruction to vote, or for the manner or effect of any such vote made, as
long as any such action or non-action is in good faith and does not result from
negligence or willful misconduct of such Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Share evidenced by such Depositary
Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common Stock
or any other securities or property of the Company. Nevertheless, if so
specified in the applicable Prospectus Supplement relating to an offering of
Depositary Shares, the Depositary Receipts may be surrendered by holders thereof
to the applicable Preferred Stock Depositary with written instructions to such
Preferred Stock Depositary to instruct the Company to cause conversion of the
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into whole shares of Common Stock, other shares of Preferred
Stock of the Company or other shares of stock, and the Company will agree that
upon receipt of such instructions and any amounts payable in respect thereof, it
will cause the conversion thereof utilizing the same procedures as those
provided for delivery of Preferred Stock to effect such conversion. If the
Depositary Shares evidenced by a Depositary Receipt are to be converted in part
only, a new Depositary Receipt or Receipts will be issued for any Depositary
Shares not to be converted. No fractional shares of Common Stock will be issued
upon conversion, and if such conversion will result in a fractional share being
issued, an amount will be paid in cash by the Company equal to the value of the
fractional interest based upon the closing price of the Common Stock on the last
business day prior to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
Any form of Depositary Receipt evidencing Depositary Shares which will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between the Company and the
applicable Preferred Stock Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts or that
would be materially and adversely inconsistent with the rights granted to the
holders of the related Preferred Stock will not be effective unless such
amendment has been approved by the existing holders of at least two-thirds of
the applicable Depositary Shares evidenced by the applicable Depositary Receipts
then outstanding. No amendment shall impair the right, subject to certain
anticipated exceptions in the Deposit Agreements, of any holders of Depositary
Receipts to surrender any Depositary Receipt with instructions to deliver to the
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holder the related Preferred Stock and all money and other property, if any,
represented thereby, except in order to comply with law. Every holder of an
outstanding Depositary Receipt at the time any such amendment becomes effective
shall be deemed, by continuing to hold such Depositary Receipt, to consent and
agree to such amendment and to be bound by the applicable Deposit Agreement as
amended thereby.
A Deposit Agreement will be permitted to be terminated by the Company upon
not less than 30 days' prior written notice to the applicable Preferred Stock
Depositary if (i) such termination is necessary to preserve the Company's status
as a REIT or (ii) a majority of each series of Preferred Stock affected by such
termination consents to such termination, whereupon such Preferred Stock
Depositary will be required to deliver or make available to each holder of
Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional shares of Preferred Stock as are
represented by the Depositary Shares evidenced by such Depositary Receipts
together with any other property held by such Preferred Stock Depositary with
respect to such Depositary Receipts. The Company will agree that if a Deposit
Agreement is terminated to preserve the Company's status as a REIT, then the
Company will use its best efforts to list the Preferred Stock issued upon
surrender of the related Depositary Shares on a national securities exchange. In
addition, a Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares thereunder shall have been redeemed, (ii) there
shall have been a final distribution in respect of the related Preferred Stock
in connection with any liquidation, dissolution or winding up of the Company and
such distribution shall have been distributed to the holders of Depositary
Receipts evidencing the Depositary Shares representing such Preferred Stock or
(iii) each share of the related Preferred Stock shall have been converted into
stock of the Company not so represented by Depositary Shares.
CHARGES OF PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of a Deposit Agreement. In addition, the
Company will pay the fees and expenses of a Preferred Stock Depositary in
connection with the performance of its duties under a Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of a
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the applicable
Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
A Preferred Stock Depositary will be permitted to resign at any time by
delivering to the Company notice of its election to do so, and the Company will
be permitted at any time to remove a Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
A Preferred Stock Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from the Company which are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.
Neither a Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under a Deposit Agreement. The obligations of the
Company and a Preferred Stock Depositary under a Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Stock represented by the applicable Depositary Shares), gross negligence or
willful misconduct, and neither the Company nor any applicable Preferred Stock
Depositary will be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of Preferred
Stock represented thereby unless satisfactory indemnity is furnished. The
Company and any Preferred Stock Depositary will be permitted to rely on
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written advice of counsel or accountants, or information provided by persons
presenting shares of Preferred Stock represented thereby for deposit, holders of
Depositary Receipts or other persons believed in good faith to be competent to
give such information, and on documents believed in good faith to be genuine and
signed by a proper party.
In the event a Preferred Stock Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and the Company on the other hand, such Preferred Stock Depositary shall
be entitled to act on such claims, requests or instructions received from the
Company.
BOOK-ENTRY SECURITIES
The Securities may be issued in whole or in part in book-entry form,
meaning that beneficial owners of the Securities will not receive certificates
representing their ownership interests in the Securities, except in the event
the book-entry system for the Securities is discontinued. If the Securities are
issued in book-entry form, they will be issued, the form of one or more global
securities (the 'Global Securities'), which will be deposited with, or on behalf
of, a depository identified in the applicable Prospectus Supplement relating to
such series. Global Securities may be issued in either registered or bearer form
and in either temporary or permanent form. The specific terms of the depository
arrangement with respect to a class or series of Securities issued in book-entry
form will be described in the applicable Prospectus Supplement relating to such
class or series.
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FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes the material federal income tax
considerations to a prospective holder of Common Stock. The following discussion
is for general information only, is not exhaustive of all possible tax
considerations and is not intended to be and should not be construed as tax
advice. For example, this summary does not give a detailed discussion of any
state, local or foreign tax considerations. In addition, this discussion is
intended to address only those federal income tax considerations that are
generally applicable for all Security holders in the Company. It does not
discuss all of the aspects of federal income taxation that may be relevant to a
prospective Security holder in light of his or her particular circumstances or
to certain types of Security holders who are subject to special treatment under
the federal income tax laws including, without limitation, insurance companies,
tax-exempt entities, financial institutions or broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States.
If the Company offers one or more series of Preferred Stock, Depositary Shares,
Common Stock Warrants or Debt Securities, then there may be tax consequences for
the holders of such Securities not discussed herein. For a discussion of any
such additional consequences, see the applicable Prospectus Supplement.
The information in this section is based on the Code (including the
provisions of the Taxpayer Relief Act of 1997 (the '1997 Act') and the Internal
Revenue Service Restructuring and Reform Act of 1998 (the 'IRS Restructuring
Act'), several of which are described herein), current, temporary and proposed
Treasury Regulations, the legislative history of the Code, current
administrative interpretations and practices of the IRS (including its practices
and policies as endorsed in private letter rulings, which are not binding on the
IRS except with respect to the taxpayer that receives such a ruling), and court
decisions, all as of the date hereof. No assurance can be given that future
legislation, Treasury Regulations, administrative interpretations and court
decisions will not significantly change current law or adversely affect existing
interpretations of current law. Any such change could apply retroactively to
transactions preceding the date of the change. Except as described below in
'--Requirements for Qualification--Income Tests,' the Company has not received
any rulings from the IRS concerning the tax treatment of the Company. Thus no
assurance can be provided that the statements set forth herein (which do not
bind the IRS or the courts) will not be challenged by the IRS or will be
sustained by a court if so challenged.
As used under this heading, the term 'Company' refers solely to CarrAmerica
Realty Corporation.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF SECURITIES OF 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 has elected to be taxed as a REIT under Sections 856
through 860 of the Code commencing with its taxable year ended December 31,
1993. The Company believes that it was organized and has operated in a manner so
as to qualify for taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner. No assurance, however, can be given that
the Company has operated in a manner so as to qualify as a REIT or that it will
continue to operate in such a manner in the future. Qualification and taxation
as a REIT depends upon the Company's ability to meet on a continuing basis
(through actual annual operating results, distribution levels and diversity of
stock ownership) the various qualification tests imposed under the Code on
REITs, some of which are summarized below. While the Company intends to operate
so that it qualifies as a RElT, given the highly complex nature of the rules
governing REITs, the ongoing importance of factual determinations, and the
possibility of future changes in circumstances of the Company, no assurance can
be given that the Company has satisfied or will continue to satisfy such tests.
See '--Failure to Qualify' below.
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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, all of which are subject to
change prospectively or retroactively.
In any year in which the Company qualifies for taxation as a REIT, it
generally will not be subject to federal corporate income taxes on net income
that it distributes currently to shareholders. However, the Company will be
subject to federal income tax in the following circumstances. First, the Company
will be taxed at regular corporate rates on any undistributed REIT taxable
income, including undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the 'alternative minimum tax' on
any items of tax preference. Third, if the Company has (i) net income from the
sale or other disposition of certain 'foreclosure property' that is held
primarily for sale to customers in the ordinary course of business or (ii) other
nonqualifying income from foreclosure property, it will be subject to tax at the
highest corporate rate on such income. Fourth, if the Company has net income
from prohibited transactions (which are, in general, certain sales or other
dispositions of property (other than foreclosure property) held primarily for
sale to customers in the ordinary course of business), such income will be
subject to a 100% tax. Fifth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (discussed below), and
nonetheless should maintain its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of either the amount by which it fails the 75% gross
income test or the amount by which it fails the 95% gross income test. Sixth, if
the Company should fail to distribute during each calendar year at least the sum
of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain net income for such year, and (iii) any undistributed taxable
income from prior periods, it would be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually distributed. Seventh, if
the Company acquires or has acquired any asset from a C corporation (i.e., a
corporation generally subject to full corporate-level tax) in a transaction in
which the basis of the asset in the acquiror's hands is determined by reference
to the basis of the asset (or any other asset) in the hands of the C corporation
and the acquiror recognizes gain on the disposition of such asset during the 10
year period beginning on the date on which such asset was acquired by it, then
to the extent of such asset's 'Built-In Gain' (i.e.,the excess of (a) the fair
market value of such asset at the time of the acquisition by the Company over
(b) the adjusted basis in such asset, determined as of the time of such
acquisition), such gain will be subject to tax at the highest regular corporate
rate applicable, pursuant to anticipated Treasury Regulations that have not yet
been promulgated. This result with respect to the recognition of Built-In Gain
assumes that the Company will make an election pursuant to IRS Notice 88-19 with
respect to any such acquisition.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) that is managed by one or more trustees or directors,
(2) the beneficial ownership of which is evidenced by transferable shares of
stock, or by transferable certificates of beneficial interest, (3) that would be
taxable as a domestic corporation, but for Sections 856 through 859 of the Code,
(4) that is neither a financial institution nor an insurance company subject to
certain provisions of the Code, (5) the beneficial ownership of which is held by
100 or more persons, (6) that during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities), and (7) that meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(1) through (4), inclusive, must be met during the entire taxable year and that
condition (5) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
The Company's Articles of Incorporation contain restrictions regarding the
transfer of its capital stock that are intended to assist the Company in
continuing to satisfy the stock ownership requirements described in conditions
(5) and (6). See 'Description of Common Stock--Restrictions on Transfer.'
Moreover, pursuant to the 1997 Act, for the Company's taxable years commencing
on or after January 1, 1998, if the Company complies with regulatory rules
pursuant to which it is required to send annual letters to holders of its
capital stock requesting information regarding the actual ownership of the
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capital stock, and the Company does not know, or exercising reasonable diligence
would not have known, whether it failed to meet requirement (6) above, the
Company will be treated as having met the requirement.
Income Tests. In order to maintain qualification as a REIT, the Company
must satisfy certain gross income requirements, which are applied on an annual
basis. First, at least 75% of the Company's gross income (excluding gross income
from prohibited transactions) for each taxable year must be derived directly or
indirectly from investments relating to real property or mortgages on real
property (including 'rents from real property' and, in certain circumstances,
interest) or from certain types of temporary investments. Second, at least 95%
of the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from the same items which
qualify under the 75% income test, and from dividends, interest and gain from
the sale or disposition of stock or securities, or from any combination of the
foregoing. For its taxable years ending on or before December 31, 1997, the
Company was subject to a third gross income test which required that 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 have represented less than 30% of the
Company's gross income (including gross income from prohibited transactions).
Pursuant to the 1997 Act, the Company will not have to meet the 30% test for its
taxable years commencing on or after January 1, 1998.
Rents received by the Company will qualify as 'rents from real property' in
satisfying the gross income requirements for a REIT described above only if
several conditions (related to the identity of the tenant, the computation of
the rent payable, and the nature of the property leased) are met. The Company
does not anticipate receiving rents that fail to meet these conditions in an
amount that reasonably could be expected to cause it to fail to meet the 75% and
95% gross income tests. In addition, for rents received to qualify as 'rents
from real property,' the Company generally must not operate or manage the
property or furnish or render services to tenants, other than through an
'independent contractor' from whom the Company derives no revenue. The
'independent contractor' requirement, however, does not apply to the extent the
services are 'usually or customarily rendered' in connection with the rental
space for occupancy only and are not otherwise considered 'rendered to the
occupant' ('Permissible Services'). The Company will provide certain services
with respect to the properties through entities that do not satisfy the
'independent contractor' requirements described above. The Company has received
a ruling from the IRS that the provision of certain services will not cause the
rents received with respect to the properties to fail to qualify as 'rents from
real property.' Based upon the IRS ruling and its experience in the office
rental markets in which the Company's properties are located, the Company
believes that all services provided to tenants will be considered 'usually or
customarily rendered' in connection with the rental of office space for
occupancy only, although there can be no assurance that the IRS will not contend
otherwise. If the Company contemplates providing services, either directly or
through another entity, in the future that reasonably might be expected not to
meet the 'usual or customary' standard, it will arrange to have such services
provided by an independent contractor from which the Company will receive no
income.
Pursuant to the 1997 Act, for the Company's taxable years commencing on or
after January 1, 1998, rents received generally will qualify as rents from real
property notwithstanding the fact that the Company provides services that are
not Permissible Services so long as the amount received for such services meets
a de minimis standard. The amount received for 'impermissible services' with
respect to a property will be de minimis so long as such amount does not exceed
one percent of all amounts received, directly or indirectly, by the Company with
respect to such property. The amount that the Company will be deemed to have
received for performing 'impermissible services' will be the greater of the
actual amount so received or 150% of the direct cost to the Company of providing
such 'impermissible services.'
The Company may receive fees in consideration of the performance of
management and administrative services with respect to properties that are not
owned entirely by the Company. A portion of such management and administrative
fees (corresponding to that portion of a property owned by a third party)
generally will not qualify under the 75% or 95% gross income tests. The Company
also may
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receive other types of income with respect to the properties that it owns that
will not qualify for the 75% or 95% gross income tests. The Company believes,
however, that the aggregate amount of such fees and other non-qualifying income
in any taxable year will not cause the Company to exceed the limits on
non-qualifying income under the 75% and 95% gross income tests.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. It is not
possible, however, to state whether in all circumstances the Company would be
entitled to the benefit of these relief provisions. Even if these relief
provisions were to apply, however, a 100% tax would be imposed with respect to
the 'excess net income' attributable to the failure to satisfy the 75% and 95%
gross income tests.
Asset Tests. At the close of each quarter of its taxable year, the Company
also must satisfy the following three tests relating to the nature of its
assets: (i) at least 75% of the value of the Company's total assets must be
represented by 'real estate assets,' cash, cash items and government securities;
(ii) not more than 25% of the Company's total assets may be represented by
securities other than those in the 75% asset class; and (iii) of the investments
included in the 25% asset class, the value of any one issuer's securities (other
than an interest in a partnership, shares of a 'qualified REIT subsidiary' or
another REIT, but including any unsecured debt of Carr Realty, L.P. or
CarrAmerica Realty, L.P.) owned by the Company may not exceed 5% of the value of
the Company's total assets, and the Company may not own more than 10% of any one
issuer's outstanding voting securities (other than an interest in a partnership,
shares of a 'qualified REIT subsidiary' or another REIT). The 5% value
requirement must be satisfied not only on the date the Company acquired
securities of the Non-qualified REIT Subsidiaries, but also each time the
Company increases its ownership of securities of the Non-qualified REIT
subsidiaries.
The Company owns directly all or substantially all of the non-voting stock,
representing 95% of the equity, of Omni UK, OmniOffices and CarrAmerica
Development. By virtue of its ownership of CRLP Units, the Company will be
considered to own its pro rata share of the assets of Carr Realty, L.P.,
including the securities of Carr Services, Inc. (Carr Services, Inc.,
OmniOffices, Omni UK and CarrAmerica Development are referred to collectively
herein as the 'Non-qualified REIT Subsidiaries.') Neither Carr Realty, L.P.,
CarrAmerica Realty, L.P., nor the Company will own more than 10% of the voting
securities of any Non-qualified REIT Subsidiary. There can be no assurance,
however, that the IRS might not contend that the arrangements between the
Company and the Non-qualified REIT Subsidiaries are such that the Company should
be considered to own more than 10% of the voting securities of one or both of
these entities. In addition, the Company and its senior management believe that
the Company's pro rata share of the value of the securities of each 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. In this regard, if OmniOffices and Omni UK were
to be viewed for federal income tax purposes as a single corporation, the
Company might not satisfy the 5% limitation with respect to that corporation.
The Company has represented that OmniOffices and Omni UK will be operated as
separate entities. There can be no assurance, however, that the IRS might not
contend either that the value of the securities of one or more of the
Non-qualified REIT Subsidiaries exceeds the 5% value limitation or that all or
some of the Non-qualified REIT subsidiaries shall be viewed as a single
corporation for purposes of the 5% value limitation and that the value of that
corporation exceeds the 5% value limitation. Although the Company plans to take
steps to ensure that it continues to satisfy the 5% test for any quarter with
respect to which retesting is to occur, 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. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (i) the sum of (a) 95% of the
Company's 'REIT taxable income' (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (b) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum of certain
items of noncash income. In addition, if the Company disposes of any Built-In
Gain Asset during its Recognition Period, the Company will be required, pursuant
to Treasury Regulations which have not yet been promulgated, to distribute at
least 95% of the Built-In Gain (after tax), if any, recognized on the
disposition of such asset. See '--General' above for a discussion of 'Built-In
Gain Assets.' Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Company timely
files its tax return for such year and if paid on or before the first regular
dividend payment date after such declaration.
To the extent that the Company does not distribute all of its net capital
gain or distributes at least 95%, but less than 100%, of its 'REIT taxable
income,' as adjusted, it will be subject to tax thereon at regular ordinary and
capital gain corporate tax rates. The Company may elect to require the
shareholders to include the Company's undistributed net capital gains in their
income by designating, in a written
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notice to shareholders, those amounts as undistributed capital gains in respect
of its shareholders' shares. If the Company makes such an election, the
shareholders will (i) include in their income as capital gains their
proportionate share of such undistributed capital gains and (ii) be deemed to
have paid their proportionate share of the tax paid by the Company on such
undistributed capital gains and thereby receive a credit or refund for such
amount. A shareholder will increase the basis in its Common Shares by the
difference between the amount of capital gain included in its income and the
amount of the tax that the Company is deemed to have paid on the shareholder's
behalf. The earnings and profits of the Company will be adjusted appropriately.
For a more detailed description of the tax consequences to a shareholder of such
a designation, see '--Taxation of Holders of Common or Preferred Stock.'
In addition, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain income for such year, and (iii) any undistributed
taxable income from prior periods, the Company would be subject to a 4% excise
tax on the excess of such required distribution over the sum of amounts actually
distributed during the calendar year by the REIT and the amount, if any, on
which the REIT paid income tax for such year.
The Company intends to make timely distributions sufficient to satisfy its
annual distribution requirements. It is expected that the Company's REIT taxable
income will be less than its cash flow due to the allowance of depreciation and
other noncash charges in computing REIT taxable income. Accordingly, the Company
anticipates that it will generally have sufficient cash or liquid assets to
enable it to satisfy the distribution requirements described above. It is
possible, however, that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet these distribution requirements due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company. If such timing
differences occur, in order to meet the distribution requirements, the Company
may find it necessary to arrange for short-term, or possibly long-term,
borrowings or to pay dividends in the form of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying 'deficiency dividends'
to shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Company will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
Prohibited Transactions Tax. If the Company has net income from 'prohibited
transactions' (which are, in general, certain sales or other dispositions of
property (other than foreclosure property) held primarily for sale to customers
in the ordinary course of business), such income will be subject to a 100% tax.
The Company may, from time to time, consider dispositions of assets that are or
become inconsistent with its long-term strategic or return objectives or where
market conditions for disposition are favorable. If the IRS were to assert that
a disposition of such property by the Company was a prohibited transaction, the
100% tax would apply to any gain resulting therefrom, thus reducing the funds
generated from the disposition that would be available to the Company. The
Company will attempt to select assets for disposition and to structure any such
disposition in a manner that is intended to reduce the risk of a successful
assertion by the IRS that the prohibited transactions tax should apply, but
there can be no assurance that the Company will be successful in that effort.
The Code provides safe harbor rules pursuant to which certain sales will be
deemed not to constitute prohibited transactions. In order to meet the safe
harbor, (i) the REIT must have held the property for at least four years, (ii)
the property generally must have been held by the REIT for the production of
rental income, (iii) either the REIT must have had no more than seven sales of
property during the taxable year or the REIT can have unlimited sales so long as
the aggregate of the adjusted tax bases of the properties sold by the REIT does
not exceed 10% of the adjusted bases of all of the REIT's properties, and (iv)
the total expenditures made by the REIT during the four-year period preceding
the sale must not exceed 30% of the net sales price. The Company does not
believe that it would meet the safe harbor rules with respect to the
dispositions that it would consider.
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. Distributions to shareholders in a year in which the Company fails to
qualify as a REIT will not be deductible and will not be required to be made. In
addition, if the Company fails to qualify as a REIT, all distributions to
shareholders will be taxable as ordinary income, to the extent of the Company's
current and accumulated earnings and profits, and, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Company also will be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief.
TAXATION OF HOLDERS OF COMMON STOCK
Taxation of Taxable U.S. Shareholders. As used herein, the term 'U.S.
shareholder' means a holder of Common Stock who (for United States federal
income tax purposes) (i) is a citizen or resident of the United States, (ii) is
a corporation, partnership, or other entity treated as a corporation or
partnership for federal income tax purposes created or organized in or under the
laws of the United States or of any political subdivision thereof, (iii) is an
estate the income of which is subject to United States federal income taxation
regardless of its source or (iv) a trust whose administration is subject to the
primary supervision of a United States court and which has one or more United
States persons who have the authority to control all substantial decisions of
the trust.
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As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income, and corporate shareholders will not be
eligible for the dividends received deduction as to such amounts. For purposes
of determining whether distributions on the shares of Common Stock are out of
current or accumulated earnings and profits, the earnings and profits of the
Company will be allocated first to shares of Preferred Stock and second to the
shares of Common Stock. There can be no assurance that the Company will have
sufficient earnings and profits to cover distributions on any shares of
Preferred Stock.
Distributions that are designated as capital gain dividends will be taxed
as gains from the sale or exchange of a capital asset held for more than one
year (to the extent they do not exceed the Company's actual net capital gain for
the taxable year) without regard to the period for which the shareholder has
held its stock. Corporate shareholders, however, may be required to treat up to
20% of certain capital gain dividends as ordinary income.
As described below in '--Recent Legislation,' the 1997 Act, together with
the IRS Restructuring Act, changed significantly the taxation of capital gains
by taxpayers who are individuals, estates, or trusts. On November 10, 1997, the
IRS issued IRS Notice 97-64, which provides generally that the Company may
classify portions of its designated capital gain dividend as (i) a 20% rate gain
distribution (which would be taxed as long-term capital gain in the 20% group),
(ii) an unrecaptured Section 1250 gain distribution (which would be taxed as
long-term capital gain in the 25% group), or (iii) a 28% rate gain distribution
(which would be taxed as long-term capital gain in the 28% group). (If no
designation is made, the entire designated capital gain dividend will be treated
as a 28% rate gain distribution.) IRS Notice 97-64 provides that a REIT must
determine the maximum amounts that it may designate as 20% and 25% rate capital
gain dividends by performing the computation required by the Code as if the REIT
were an individual whose ordinary income were subject to a marginal tax rate of
at least 28%. The Notice further provides that designations made by the REIT
will be effective only to the extent that they comply with Revenue Ruling 89-81,
which requires that distributions made to different classes of shares not be
composed disproportionately of dividends of a particular type. On July 22, 1998,
as part of the IRS Restructuring Act, the holding period requirement for the
application of the 20% and 25% capital gain tax rates was reduced to 12 months
from 18 months for sales of capital gain assets on or after January 1, 1998.
Although Notice 97-64 will apply to sales of capital gain assets after July 28,
1997 and before January 1, 1998, it is expected that the IRS will issue
clarifying guidance (most likely applying the same principles set forth in
Notice 97-64) regarding a REIT's designation of capital gain dividends in light
of the new holding period requirements.
Distributions in excess of current or accumulated earnings and profits will
not be taxable to a U.S. shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares of Common Stock, but rather will
reduce the adjusted basis of such shares of Common Stock. To the extent that
such distributions exceed the adjusted basis of a U.S. shareholder's shares of
Common Stock, they will be included in income as capital gains, assuming the
shares of Common Stock are a capital asset in the hands of the U.S. shareholder.
In general, a U.S. shareholder will realize capital gain or loss on the
disposition of shares of Common Stock equal to the difference between (i) the
amount of cash and the fair market value of any property received on such
disposition and (ii) the shareholder's adjusted basis of such shares of Common
Stock. The following tax rates will apply with respect to dispositions made by
taxable U.S. shareholders who are individuals, estates or trust: (1) for
dispositions occurring after July 28, 1997 and prior to January 1, 1998, such
gain or loss will be long-term capital gain or loss and will be subject to a 28%
tax rate if such shares have been held for more than one year but not more than
18 months; (2) for dispositions occurring after July 28, 1997 and prior to
January 1, 1998, such gain or loss will be long-term capital gain or loss and
will be subject to a 20% tax rate if such shares have been held for longer than
18 months; and (3) for dispositions occurring on or after January 1, 1998, such
gain or loss will be long-term capital gain or loss and will be subject to a 20%
tax rate if such shares have been held for more than one year. In the case of a
taxable U.S. shareholder that is a corporation, such gain or loss will be
long-term capital gain or loss if such shares have been held for more than one
year. Loss upon a sale or exchange of shares of Common Stock by a shareholder
who has held such shares of Common Stock for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss to the
extent of distributions from the Company required to be treated by such
shareholder as long-term capital gain.
Pursuant to the 1997 Act, for the Company's taxable years commencing on or
after January 1, 1998, the Company may elect to require the holders of Common
Stock to include the Company's undistributed net long-term capital gains in
their income. If the Company makes such an election, the holders of Common Stock
will (i) include in their income as long-term capital gains their proportionate
share of such undistributed capital gains and (ii) be deemed to have paid their
proportionate share of the tax paid by
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the Company on such undistributed capital gains and thereby receive a credit or
refund for such amount. A holder of Common Stock will increase the basis in its
Common Stock by the difference between the amount of capital gain included in
its income and the amount of the tax it is deemed to have paid. The earnings and
profits of the Company will be adjusted appropriately. As described below in
'--Recent Legislation,' with respect to such long-term capital gain of a taxable
domestic shareholder that is an individual or an estate or trust, the IRS has
authority to issue regulations that could apply the special tax rate applicable
to sales of depreciable real property by an individual or an estate or trust to
the portion of the long-term capital gains of an individual or an estate or
trust attributable to deductions for depreciation taken with respect to
depreciable real property. The Company may, from time to time, consider
dispositions of assets that are or become inconsistent with its long-term
strategic or return objectives or where market conditions for dispositions are
favorable. In the event of such a disposition, the Company believes that it
would elect to retain all or a portion of the net long-term capital gains
resulting from such disposition and require the holders of Common Stock to
include such undistributed net long-term capital gains in their income as
described above.
Backup Withholding. The Company will report to its U.S. shareholders
and the IRS the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) provides a taxpayer identification number and
certifies as to no loss of exemption from backup withholding. Amounts withheld
as backup withholding will be creditable against the stockholder's income tax
liability. In addition, the Company may be required to withhold a portion of
capital gain distributions made to any shareholders who fail to certify their
non-foreign status to the Company. See '--Taxation of Non-U.S. Shareholders'
below.
Taxation of Tax-Exempt Shareholders. As a general rule, amounts distributed
to a tax-exempt entity do not constitute 'unrelated business taxable income'
('UBTI'), and thus distributions by the Company to a stockholder that is a
tax-exempt entity should also not constitute UBTI, provided that the tax-exempt
entity has not financed the acquisition of its shares of Common Stock with
'acquisition indebtedness' within the meaning of the Code and the shares of
Common Stock are not otherwise used in an unrelated trade or business of the
tax-exempt entity. However, distributions by a REIT to a tax-exempt employee's
pension trust that owns more than 10% of the REIT will be treated as UBTI in an
amount equal to the percentage of gross income of the REIT that is derived from
an 'unrelated trade or business' (determined as if the REIT were a pension
trust) divided by the gross income of the REIT for the year in which the
dividends are paid. This rule only applies, however, if (i) the percentage of
gross income of the REIT that is derived from an unrelated trade or business for
the year in which the dividends are paid is at least 5%, (ii) the REIT qualifies
as a REIT only because the pension trust is not treated as a single individual
for purposes of the 'five-or-fewer rule' (see '--Taxation of the
Company-Requirements for Qualification' above), and (iii) (A) one pension trust
owns more than 25 percent of the value of the REIT or, (B) a group of pension
trusts individually holding more than 10 percent of the value of the REIT
collectively own more than 50 percent of the value of the REIT. The Company
currently does not expect that this rule will apply.
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Taxation of Non-U.S. Shareholders. The rules governing U.S. federal income
taxation of the ownership and disposition of Common Stock by persons that are,
for purposes of such taxation, nonresident alien individuals, foreign
corporations, foreign partnerships, or foreign estates or trusts (collectively,
'Non-U.S. Shareholders') are complex, and no attempt will be made herein to
provide more than a limited summary of such rules. Prospective Non-U.S.
Shareholders should consult with their own tax advisors to determine the impact
of U.S. federal, state and local income tax laws with regard to an investment in
Common Stock, including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
the Company of U.S. real property interests and not designated by the Company as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions, ordinarily, will be subject to a withholding
tax equal to 30% of the gross amount of the distribution unless an applicable
tax treaty reduces or eliminates that tax. Distributions in excess of current
and accumulated earnings and profits of the Company will not be taxable to a
Non-U.S. Shareholder to the extent that they do not exceed the adjusted basis of
the shareholder's Common Stock, but rather will reduce the adjusted basis of
such Common Stock. To the extent that such distributions exceed the adjusted
basis of a Non-U.S. Shareholder's Common Stock, they will give rise to tax
liability if the Non-U.S. Shareholder would otherwise be subject to tax on any
gain from the sale or disposition of its Common Stock as described below. For
withholding tax purposes, the Company is currently required to treat all
distributions as if made out of its current or accumulated earnings and profits
and thus intends to withhold at the rate of 30% (or a reduced treaty rate if
applicable) on the amount of any distribution (other than distributions designed
as capital gain dividends) made to a Non-U.S. Shareholder. Under the Final
Regulations (discussed below), generally effective for distributions after
December 31, 1999, the Company would not be required to withhold at the 30% rate
on distributions it reasonably estimates to be in excess of the Company's
current and accumulated earnings and profits. If it cannot be determined at the
time a distribution is made whether such distribution will be in excess of
current and accumulated earnings and profits, the distribution will be subject
to withholding at the rate applicable to ordinary dividends. As a result of a
legislative change made by the Small Business Job Protection Act of 1996, it
appears that the Company will be required to withhold 10% of any distribution in
excess of the Company's current and accumulated earnings and profits.
Consequently, although the Company intends to withhold at a rate of 30% on the
entire amount of any distribution (or a lower applicable treaty rate), to the
extent that the Company does not do so, any portion of a distribution not
subject to withholding at a rate of 30% (or a lower applicable treaty rate) will
be subject to withholding at a rate of 10%. However, the Non-U.S. Shareholder
may seek from the IRS a refund of such amounts from the IRS if it is
subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of the Company, and the amount
withheld exceeded the Non-U.S. Shareholder's United States tax liability, if
any.
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 (whether or not designated as a capital gain dividend) will
be taxable to a Non-U.S. Shareholder under the provisions of the Foreign
Investment in Real Property Tax Act of 1980 ('FIRPTA') at the normal capital
gain rates applicable to domestic shareholders (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals). Also, distributions subject to FIRPTA may be
subject to a 30% branch profits tax in the hands of a corporate Non-U.S.
Shareholder not entitled to treaty relief or exemption. The Company is required
by applicable Treasury Regulations to withhold 35% of any distribution that is
or could be designated by the Company as a capital gain dividend. The amount
withheld is creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Although not entirely clear, it appears that amounts designated by the
Company pursuant to the 1997 Act as undistributed capital gains in respect of
shares of Common Stock (see 'Taxation of Shareholders--Taxation of Taxable
Domestic Shareholders' above) would be treated with respect to Non-U.S.
Shareholders in the manner outlined in the preceding paragraph for actual
distributions by the Company of capital gain dividends. Non-U.S. Shareholders
would be able to offset as a credit against their United States federal income
tax liability resulting therefrom their proportionate share of the tax paid by
the Company on such undistributed capital gains (and to receive from the IRS a
refund to the extent their proportionate share of such tax paid by the Company
were to exceed their actual United States federal income tax liability).
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Gain recognized by a Non-U.S. Shareholder upon a sale or exchange of Common
Stock generally will not be subject to United States taxation unless such Common
Stock constitutes a 'United States real property interest' under FIRPTA. Common
Stock will not constitute a 'United States real property interest' so long as
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 30,
1998, SC-USREALTY held approximately 39.9% in value of the outstanding Common
Stock of the Company. In the event that SC-USREALTY and other stockholders of
the Company who are Non-U.S. Shareholders own collectively 50% or more, in
value, of the outstanding stock of the Company, the Company would cease to be a
'domestically controlled REIT.'
If the Company does not qualify as a 'domestically controlled REIT,' a
Non-U.S. Shareholder's sale of securities of the Company generally still will
not be subject to U.S. tax under FIRPTA as a sale of a U.S. real property
interest, provided that (i) the securities are 'regularly traded' (as defined by
the applicable Treasury Regulations) on an established securities market, and
(ii) the selling Non-U.S. Shareholder held 5% or less of the value of the
outstanding class or series of securities being sold at all times during a
specified testing period. The Company believes that the Common Stock would be
considered to be 'regularly traded' for this purpose, and the Company has no
actual knowledge of any Non-U.S. Shareholder (other than SC-USREALTY) that holds
in excess of 5% of the Company's Common Stock. In order to assist the Company in
qualifying as a 'domestically controlled REIT,' the Articles of Incorporation
contain certain provisions preventing any Non-U.S. Shareholder (other than
SC-USREALTY and its affiliates) from acquiring additional shares of the
Company's capital stock if, as a result of such acquisition, the Company would
fail to qualify as a 'domestically controlled REIT' (computed assuming that
SC-USREALTY owns the maximum percentage of the Company's capital stock that
SC-USREALTY is permitted to own under the Special Shareholder Limit). The
Company is unlikely to be able to advise a prospective Non-U.S. Shareholder that
its purchase of any shares of the Company's capital stock would not violate this
prohibition, thereby subjecting such prospective Non-U.S. Shareholder to the
adverse consequences described under 'Description of Common Stock--Restrictions
on Transfer--Violation of Ownership Limits.' Accordingly, an acquisition of the
Company's capital stock would not likely be a suitable investment for Non-U.S.
Shareholders other than SC-USREALTY.
If the gain on the sale of Common Stock were to be subject to tax under
FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as U.S.
shareholders with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals), and the purchaser of the Common Stock would be required to
withhold and remit to the IRS 10% of the purchase price.
Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to Non-U.S. Shareholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of Common Stock by or through a foreign office of a foreign
broker. Information reporting (but not backup withholding) will apply, however,
to a payment of the proceeds of a sale of Common Stock by a foreign office of a
broker that (a) is a United States person, (b) derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the United
States or (c) is a "controlled foreign corporation" (generally, a foreign
corporation controlled by United States shareholders) for United States tax
purposes, unless the broker has documentary evidence in its records that the
holder is a Non-U.S. Shareholder and certain other conditions are met, or the
shareholder otherwise establishes an exemption. Payment to or through a United
States office of a broker of the proceeds of a sale of Common Stock is subject
to both backup withholding and information reporting unless the shareholder
certifies under penalty of perjury that the shareholder is a Non-U.S.
Shareholder, or otherwise establishes an exemption. A Non-U.S. Shareholder may
obtain a refund of any amounts withheld under the backup withholding rules by
filing the appropriate claim for refund with the IRS.
The United States Treasury has recently finalized regulations (the 'Final
Regulations') regarding the withholding and information reporting rules
discussed above. In general, these regulations do not alter the substantive
withholding and information reporting requirements but unify certification
procedures and forms and clarify and modify reliance standards. Pursuant to IRS
Notice 98-16, these regulations generally will be effective for payments made
after December 31, 1999, subject to certain transition rules. Valid withholding
certificates that are held on December 31, 1999, will remain valid until the
earlier of December 31, 2000 or the date of expiration of the certificate under
rules currently in effect (unless otherwise invalidated due to changes in the
circumstances of the person whose name is on such certificate). A Non-U.S.
Shareholder should consult its own advisor regarding the effect of the Final
Regulations.
RECENT LEGISLATION
As described above, the 1997 Act contains certain changes to the REIT
qualification requirements and to the taxation of REITs. The 1997 Act also
contains certain changes to the taxation of capital gains of individuals, trusts
and estates.
Capital Gain Rates. The 1997 Act altered the taxation of capital gain
income. Under the 1997 Act, individuals, trusts and estates that hold certain
investments for more than 18 months may be taxed at a maximum long-term capital
gain rate of 20% on the sale or exchange of those investments. Individuals,
trusts and estates that hold certain assets for more than one year but not more
than 18 months may be taxed at a maximum long-term capital gain rate of 28% on
the sale or exchange of those investments. The 1997 Act also provides a maximum
rate of 25% for 'unrecaptured Section 1250 gain' for individuals, trusts and
estates, special rules for 'qualified 5-year gain' and other changes to prior
law. The recently enacted IRS Restructuring Act, however, reduced the holding
period requirement established by the 1997 Act for the application of the 20%
and 25% capital gain tax rates to 12 months from 18 months for sales of capital
gain assets after December 31, 1997. The 1997 Act provides the IRS with
authority to issue regulations that could, among other things, apply these rates
to sales of capital assets by 'pass-through entities' (including REITs, such as
the Company) and to sales of interests in 'pass-through entities.' The taxation
of capital gains of corporations was not changed by the 1997 Act or the IRS
Restructuring Act.
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REIT Provisions. In addition to the provisions discussed above, the 1997
Act contains a number of technical provisions that either (i) reduce the risk
that the Company will inadvertently cease to qualify as a REIT, or (ii) provide
additional flexibility with which the Company can meet the REIT qualification
requirements. These provisions are effective for the Company's taxable years
commencing on or after January 1, 1998.
OTHER TAX CONSIDERATIONS
Entity Classification. A significant number of the Company's investments
are through Carr Realty, L.P. and CarrAmerica Realty, L.P. If either Carr
Realty, L.P. or CarrAmerica Realty, L.P. were treated as an association, the
entity would be taxable as a corporation and therefore would be subject to an
entity level tax on its income. In such a situation, the character of the
Company's assets and items of gross income would change and would preclude the
Company from qualifying as a REIT (see 'Taxation of the Company--Income Tests'
and '--Asset Tests').
Prior to January 1, 1997, an organization formed as a partnership or a
limited liability company was treated as a partnership for federal income tax
purposes rather than as a corporation only if it had no more than two of the
four corporate characteristics that the Treasury Regulations in effect at that
time used to distinguish a partnership from a corporation for tax purposes.
These four characteristics were (i) continuity of life, (ii) centralization of
management, (iii) limited liability and (iv) free transferability of interests.
Under final Treasury Regulations which became effective January 1, 1997, the
four factor test has been eliminated and an entity formed as a partnership or as
a limited liability company will be taxed as a partnership for federal income
tax purposes, unless it specifically elects otherwise. The Regulations provide
that the IRS will not challenge the classification of an existing partnership or
limited liability company for tax periods prior to January 1, 1997, so long as
(1) the entity had a reasonable basis for its claimed classification, (2) the
entity and all of its members recognized the federal income tax consequences of
any changes in the entity's classification within the 60 months prior to January
1, 1997, and (3) neither the entity nor any member of the entity had been
notified in writing on or before May 8, 1996, that the classification of the
entity was under examination by the IRS.
The Company believes that Carr Realty, L.P. and CarrAmerica Realty, L.P.
each will be treated as a partnership for federal income tax purposes (and not
as an association taxable as a corporation).
Tax Allocations with Respect to the Properties. When property is
contributed to a partnership in exchange for an interest in the partnership, the
partnership generally takes a carryover basis in that property for tax purposes
equal to the adjusted basis of the contributing partner in the property, rather
than a basis equal to the fair market value of the property at the time of
contribution (this difference is referred to as 'Book-Tax Difference'). The
partnership agreements of each of Carr Realty, L.P. and CarrAmerica Realty, L.P.
require that allocations of income, gain, loss and deduction with respect to
each property contributed to those partnerships be made in a manner consistent
with the special rules in 704(c) of the Code and the regulations thereunder,
which will tend to eliminate the Book-Tax Differences with respect to such
contributed properties over the useful lives of such properties. However,
because of certain technical limitations, the special allocation rules of
Section 704(c) may not always entirely eliminate the Book-Tax Difference on an
annual basis or with respect to a specific taxable transaction such as a sale.
Thus, the carryover basis of such contributed properties in the hands of Carr
Realty, L.P. or CarrAmerica Realty, L.P., as applicable could cause the Company
to be allocated lower amounts of depreciation and other deductions for tax
purposes than would be allocated to the Company if all such contributed
properties were to have a tax basis equal to their fair market values at the
time such properties were contributed to Carr Realty, L.P. or CarrAmerica
Realty, L.P., as applicable. The foregoing rules also apply for purposes of
determining the Company's earnings and profits. The application of such rules
over time could result in a higher portion of distributions to shareholders
being taxed as dividends. See '--Taxation of Holders of Common Stock.'
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Non-qualified REIT Subsidiaries. The Non-qualified REIT Subsidiaries do not
qualify as REITs and each Non-qualified REIT Subsidiary (except for Omni UK) is
subject to federal, state and local income taxes (including District of Columbia
franchise tax) on its net income at normal corporate rates. Omni UK is subject
to income taxation by the United Kingdom and any other country in which it
engages in business on its net income and dividends paid to the Company by Omni
UK will be subject to the applicable withholding tax imposed by the United
Kingdom. (Unlike a regular 'C' corporation, the Company will be unable to take
advantage of any credit for U.S. income tax purposes for foreign taxes paid by a
Non-qualified REIT Subsidiary.) To the extent the Non-qualified REIT
Subsidiaries are required to pay federal, state and local income taxes, the cash
available for distribution to stockholders will be reduced accordingly.
State and Local Taxes; District of Columbia Unincorporated Business Tax.
The Company and its stockholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the federal income tax consequences
discussed above. In this regard, the District of Columbia imposes an
unincorporated business income tax, at the rate of 9.975%, on the 'District of
Columbia taxable income' of partnerships doing business in the District of
Columbia. Because many of the properties owned by Carr Realty, L.P. are located
in the District of Columbia, the Company's share of the 'District of Columbia
taxable income' of Carr Realty, L.P. will be subject to this tax. Carr Realty,
L.P. has taken steps to attempt to reduce the amount of income that is
considered 'District of Columbia taxable income,' but it is likely that at least
some portion of the income attributable to Carr Realty, L.P.'s properties
located in the District of Columbia will be subject to the District of Columbia
tax. To the extent Carr Realty, L.P. is required to pay the District of Columbia
unincorporated business income tax, the cash available for distribution to the
Company and, therefore, to its stockholders as dividends will be reduced
accordingly. This tax would not apply if the Company were to own and operate its
assets directly, rather than through Carr Realty, L.P.; however, the Company's
ability to eliminate Carr Realty, L.P. and thus own directly the assets
currently owned by Carr Realty, L.P. is severely limited.
PLAN OF DISTRIBUTION
GENERAL
The Company may sell Securities in or through underwriters for public offer
and sale by them, and also may sell Securities offered hereby to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer and sell
Securities upon terms and conditions set forth in the applicable Prospectus
Supplement. In connection with the sale of the Securities, underwriters may be
deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of the Securities for whom they may act as agent. Underwriters may
sell Securities to or through dealers, and such dealers may receive compensation
in the form of discounts, concessions or commissions from the underwriters
and/or commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of the Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Securities may be deemed to
be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements with the Company, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase
43
<PAGE>
Securities from the Company at the public offering price set forth in such
Prospectus Supplement pursuant to delayed delivery contracts ('Contracts')
providing for payment and delivery on the date or dates stated in such
Prospectus Supplement. Each Contract will be for an amount not less than, and
the aggregate principal amount of Securities sold pursuant to Contracts shall be
neither less nor more than, the respective amounts stated in the applicable
Prospectus Supplement. Institutions with whom Contracts, when authorized, may be
made include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions, and other
institutions, but will in all cases be subject to the approval of the Company.
Contracts will not be subject to any conditions except (i) the purchase by an
institution of the Securities covered by its Contracts shall not at the time of
delivery be prohibited under the laws of any jurisdiction in the United States
to which such institution is subject, and (ii) if the Securities are being sold
to underwriters, the Company shall have sold to such underwriters the total
principal amount of the Securities less the principal amount thereof covered by
Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and its
Subsidiaries in the ordinary course of business.
PARTICIPATION RIGHTS
In conjunction with the SC-USREALTY Transaction, so long as SC-USREALTY
owns at least 25% of the outstanding Common Stock of the Company on a fully
diluted basis, SC-USREALTY will be entitled (except in certain limited
circumstances), upon compliance with certain specified conditions, to a
participation right to purchase or subscribe for, either as part of such
issuance or in a concurrent issuance, a total number of shares of Common Stock
or Preferred Stock, as the case may be, equal to up to 30% (or 35% in certain
circumstances) of the total number of shares or of Common Stock or Preferred
Stock, as applicable, proposed to be issued by the Company. All purchases
pursuant to such participation rights will be at the same price and on the same
terms and conditions as are applicable to other purchasers hereunder.
MERRILL LYNCH SHARES
If indicated in the applicable Prospectus Supplement, this Prospectus
relates to the offer and sale from time to time of shares of Common Stock
representing (i) the 5,000,000 shares of Common Stock initially purchased from
the Company by Merrill Lynch in an equity purchase transaction of April 2, 1998
and (ii) additional shares of Common Stock that may be issued to Merrill Lynch
or its assignee to adjust the number of shares subject to the transaction to
reflect decreases in the market price of the Company's Common Stock until April
2, 1999, as provided for in a Purchase Price Adjustment Agreement entered into
at the time of the initial equity purchase. The 5,000,000 shares were issued in
a public transaction covered by the Registration Statement of which this
Prospectus is a part. The Company plans to issue any such additional shares
under this or another effective Registration Statement. If offered and sold from
time to time under this Prospectus, such shares will constitute Securities under
this Prospectus.
The Purchase Price Adjustment Agreement provides that Merrill Lynch or its
assignee will sell, as directed by the Company and on or before April 2, 1999, a
specified number of shares of Common Stock using a method specified in the
Purchase Price Adjustment Agreement. In addition, Merrill Lynch has the right to
cause the sale of all or a portion of the 5,000,000 shares initially issued in
the transaction. Such sales may be effected from time to time through brokers or
dealers or in a distribution by one or more underwriters on a firm commitment or
best efforts basis on the New York Stock Exchange, in the over-the-counter
market, on any national securities exchange on which the shares of the Company's
Common Stock are listed or traded, in privately negotiated transactions, through
sales involving a dividend reinvestment plan of the Company, at fixed prices, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Merrill Lynch is an
underwriter under the Securities Act with respect to such sales.
In connection with the sale of any such shares, a Prospectus Supplement or
Supplements will specify the number of shares of Common Stock to be sold, the
purchase price, the public offering price, if any, the method of distribution,
any underwriting discount, fee or commission or other compensation paid by the
Company to any brokers, dealers or underwriters, the names of each underwriter,
agent or broker, and any discount arrangement between or among them.
The Company's sale of the 5,000,000 shares to Merrill Lynch resulted in net
proceeds to the Company of approximately $147 million. The Purchase Price
Adjustment Agreement entered into in connection with the transaction provides
for an adjustment of the number of shares of Common Stock issued to Merrill
Lynch (or the aggregate purchase price paid for such shares) based upon the
proceeds received by Merrill Lynch upon a resale of the shares in relation to
the $150 million amount originally deemed to have been paid by Merrill Lynch.
The effect of this agreement was to permit the Company to benefit if the shares
are ultimately resold at an average price that exceeds the price at which the
shares are deemed to have been issued originally ($30 per share), but also
subjected the Company to the risk that it may have to deliver additional shares
if the shares ultimately are sold at an average price that is less than the
original purchase price. The final settlement under the agreement is scheduled
to occur by April 2, 1999, although Merrill Lynch has the right to cause an
earlier settlement if the market price of the Company's Common Stock declines
below certain levels. At periodic intervals up until the final settlement, the
Company is required to deposit into escrow either cash or additional shares of
Common Stock if the market price of the Company's Common Stock declines. As a
result of declines in the market price of the Company's Common Stock, the
Company deposited $39.3 million in cash with Merrill Lynch at various times
between April 1998 and October 1998.
In October 1998, the Company and Merrill Lynch entered into an amendment to
the Purchase Price Adjustment Agreement pursuant to which the Company paid to
Merrill Lynch the $39.3 million then on deposit, and in connection therewith the
aggregate settlement amount under the agreement was reduced from $150 million to
approximately $112 million (i.e., the purchase price adjustment mechanism takes
effect if the aggregate proceeds received by Merrill Lynch from the sale of the
5,000,000 shares is less than or greater than $112 million). The effect of this
amendment is to permit the Company to benefit from the increase in the market
price of its Common Stock over $22.21, but also subjects to the Company to the
risk that it may have to deliver additional shares or return a portion of the
purchase price if there is a decrease in the market price of its Common Stock
below $22.21. The scheduled final settlement under the agreement remains in
April of 1999.
44
<PAGE>
LEGAL MATTERS
The legality of the Debt Securities, the Preferred Stock, the Depositary
Shares, the Common Stock and the Common Stock Warrants offered hereby have been
passed upon for the Company by Hogan & Hartson L.L.P., Washington, D.C. Certain
federal income tax matters have been passed upon for the Company by Hogan &
Hartson L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements and schedule of CarrAmerica Realty
Corporation and subsidiaries as of December 31, 1997 and 1996 and for each of
the years in the three-year period ended December 31, 1997 have been
incorporated herein by reference in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, and, in accordance therewith, files reports, proxy
statements and other information with the SEC. Such reports, proxy statements
and other information can be inspected and copied at the Public Reference
Section maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the following regional offices of the Commission: 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material also can
be obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, upon receipt of the fees prescribed
by the rules and regulations of the Commission. Such material also may be
accessed electronically by means of the Commission's web site on the Internet at
'http://www.sec.gov'. The Company's Common Stock and certain classes of its
Preferred Stock and Depositary Preferred Shares are listed on the New York Stock
Exchange, and reports, proxy statements and other information concerning the
Company can be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
45
<PAGE>
The Company has filed with the Commission a registration statement on Form
S-3 (the 'Registration Statement'), of which this Prospectus is a part, under
the Securities Act of 1933, as amended (the 'Securities Act'), with respect to
the Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Securities, reference is hereby made to the
Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon receipt of
the fees prescribed by the rules and regulations of the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed under the Exchange Act with the
Commission by the Company and are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998.
3. The Company's Current Reports on Form 8-K filed on January 7, 1998
and on Form 8-K filed on February 5, 1998 (and an amendment thereto on Form
8-K/A filed on February 11, 1998), February 18, 1998 (two reports), April
3, 1998, April 8, 1998, April 16, 1998, April 28, 1998, May 7, 1998, July
1, 1998 (and an amendment thereto on Form 8-K/A filed on July 8, 1998),
August 6, 1998, September 25, 1998, September 29, 1998, October 2, 1998 and
November 5, 1998 (and an amendment thereto on Form 8-K/A filed on November
6, 1998).
All documents filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of all Securities to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and shall be part
hereof from the date of filing of such document.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in this
Prospectus (in the case of a statement in a previously filed document
incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of Securities
or in any other subsequently filed document that is also incorporated or deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
accompanying Prospectus Supplement. Subject to the foregoing, all information
appearing in this Prospectus and each accompanying Prospectus Supplement is
qualified in its entirety by the information appearing in the documents
incorporated by reference.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon their
written or oral request, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents). Written requests
for such copies should be addressed to Secretary, CarrAmerica Realty
Corporation, 1850 K St., N.W., Washington, D.C. 20006 (telephone number (202)
729-7500).
46
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the estimated fees and expenses payable
by the Company in connection with the issuance and distribution of the
securities being registered:
SEC Registration Fee.................................... $ 0
Printing and Duplicating Expenses....................... 50,000
Legal Fees and Expenses................................. 50,000
Accounting Fees and Expenses............................ 10,000
Blue Sky Fees and Expenses.............................. 1,000
Miscellaneous........................................... 14,000
Total............................................... $125,000
==========
Item 15. Indemnification of Directors and Officers
The Company's officers and directors are and will be indemnified under
Maryland and Delaware law, the charter and by-laws of the Company, the
partnership agreement of Carr Realty, L.P. and the partnership agreement of
CarrAmerica Realty, L.P.
The charter and by-laws of the Company require that the Company shall,
to the fullest extent permitted by Section 2-418 of the Maryland General
Corporation Law (the "MGCL") as in effect from time to time, indemnify any
person who is or was, or is the personal representative of a deceased person who
was, a director or officer of the Company against any judgments, penalties,
fines, settlements and reasonable expenses and any other liabilities; provided,
that, unless applicable law otherwise requires, indemnification shall be
contingent upon a determination, by the Board by a majority vote of a quorum
consisting of directors not, at the time, parties to the proceeding, or, if such
a quorum cannot be obtained, then by a majority vote of a committee of the Board
consisting solely of two or more directors not, at the time, parties to such
proceeding and who were duly designated to act in the matter by a majority vote
of the full Board in which the designated directors who are parties may
participate or by special legal counsel selected by and if directed by the Board
as set forth above, that indemnification is proper in the circumstances because
such director, officer, employee, or agent has met the applicable standard of
conduct prescribed by Section 2-418(b) of the MGCL.
Under Maryland law, a corporation formed in Maryland is permitted to
limit, by provision in its charter, the liability of directors and officers so
that no director or officer of the Company shall be liable to the Company or to
any shareholder for money damages except to the extent that (i) the director or
officer actually received an improper benefit in money, property or services,
for the amount of the benefit or profit in money, property or services actually
received, or (ii) a judgment or other final adjudication adverse to the director
or officer is entered in a proceeding based on a finding in a proceeding that
the director's or officer's action was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding.
The partnership agreements of Carr Realty, L.P. and CarrAmerica Realty,
L.P. also provide for indemnification of the Company and their officers and
directors against any and all losses, claims, damages, liabilities, joint or
several, expenses (including legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the partnership as set forth in the partnership
agreements in which any indemnitee may be involved, or is threatened to be
involved,
II-1
<PAGE>
unless it is established that (i) the act or mission of the indemnitee was
material to the matter giving rise to the proceeding and either was committed in
bad faith or was the result of active and deliberate dishonesty, (ii) the
indemnitee actually received an improper personal benefit in money, property or
services, or (iii) in the case of a criminal proceeding, the indemnitee had
cause to believe that the act or omission was unlawful. The termination of any
proceeding by judgment, order or settlement does not create a presumption that
the indemnitee did not meet the requisite standard of conduct set forth in the
respective partnership agreement section on indemnification. The termination of
any proceeding by conviction or upon a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior to judgment creates a
rebuttable presumption that the indemnitee acted in a manner contrary to that
specified in the indemnification section of the partnership agreements. Any
indemnification pursuant to one of the partnership agreements may only be made
out of the assets of that respective partnership.
Item 16. Exhibits
The exhibits to this registration statement are listed in the Exhibit
Index, which appears after the signature page and is incorporated in this Item
16 by reference.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
II-2
<PAGE>
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in this registration statement;
provided, however, that subparagraphs (i) and (ii) above do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the Offered
Securities offered herein, and the offering of such Offered Securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the Offered Securities being registered which remain unsold at
the termination of the offering.
The undersigned registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the Offered Securities offered therein, and the offering of such
Offered Securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to existing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Washington, D.C., on December 10, 1998.
CARRAMERICA REALTY
CORPORATION,
a Maryland corporation
By: /s/ BRIAN K. FIELDS
-------------------------
Brian K. Fields
Chief Financial Officer
Pursuant to the requirements of the Securities Act, this Amendment has
been signed by the following persons in the capacities indicated below on
December 10, 1998:
Name Title
---- -----
* Chairman of the Board and Director
- -------------------------------
Oliver T. Carr, Jr.
* President, Chief Executive Officer and
- ------------------------------- Director
Thomas A. Carr
/s/ BRIAN K. FIELDS Chief Financial Officer
- -------------------------------
Brian K. Fields
* Director
- -------------------------------
Andrew F. Brimmer
II-4
<PAGE>
Name Title
---- -----
Director
- --------------------------------
C. Ronald Blankenship
Director
- --------------------------------
A. James Clark
Director
- --------------------------------
Timothy Howard
* Director
- --------------------------------
Caroline McBride
* Director
- --------------------------------
William D. Sanders
* Director
- --------------------------------
Wesley S. Williams, Jr.
*By: /s/ BRIAN K. FIELDS
---------------------------
Brian F. Fields
As Attorney-in-Fact
(See Exhibit 24.1)
II-5
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
- ------ ----------------------
3.1 Articles of Amendment and Restatement of Incorporation
of the Company(1)
3.2 Articles of Amendment to Articles of Amendment and Restatement of
Articles of Incorporation of the Company(2)
3.3 Second Amendment and Restatement of By-laws of the Company(3)
3.4 Articles Supplementary relating to Series A Cumulative Convertible
Redeemable Preferred Stock of the Company(4)
3.5 Articles Supplementary relating to Series B Cumulative Redeemable
Preferred Stock of the Company(5)
3.6 Articles Supplementary relating to Series C Cumulative Redeemable
Preferred Stock of the Company(6)
3.7 Articles Supplementary relating to Series D Cumulative Redeemable
Preferred Stock of the Company(7)
4.1 * Form of Senior Indenture between the Company and the Trustee
4.2 * Form of Subordinate Indenture between the Company and the Trustee
5.1 * Opinion of Hogan & Hartson L.L.P.
8.1 * Opinion of Hogan & Hartson L.L.P. regarding certain tax matters
12.1 Computation of Ratios
23.1 Consent of KPMG Peat Marwick LLP
23.2 * Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.3 * Consent of Hogan & Hartson L.L.P. (included in Exhibit 8.1)
24.1 * Powers of Attorney
25.1 ** Statement of Eligibility of Trustee on Form T-1
99.1 Purchase Agreement dated as of April 2, 1998 by and between the
Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated (8)
99.2 Purchase Price Adjustment Agreement dated as of April 2, 1998 by
and between the Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (9)
99.3 Amendment Agreement to Purchase Price Adjustment Agreement dated
July 8, 1998 by and between the Company and Merrill Lynch, Pierce,
Fenner & Smith Incorporated (10)
99.4 Amendment Agreement to Purchase Price Adjustment Agreement dated
October 5, 1998 by and between the Company and Merrill Lynch,
Pierce, Fenner & Smith Incorporated (11)
- -----------------
(1) Incorporated by reference to the same numbered exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
(2) Incorporated by reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K filed on July 1, 1998.
(3) Incorporated by reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K filed on February 12, 1997.
(4) Incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996.
(5) Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997.
(6) Incorporated by reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated and filed on November 6, 1997.
(7) Incorporated by reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated December 16, 1997 and filed on December 17, 1997.
(8) Incorporated by reference to Exhibit 1.2 to the Company's Current Report on
Form 8-K filed on April 8, 1998.
(9) Incorporated by reference to Exhibit 1.3 to the Company's Current Report on
Form 8-K filed on April 8, 1998.
(10) Incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998.
(11) Incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998.
* Previously filed.
** To be filed by amendment or incorporated by reference in connection with
the offering of specific securities.
Exhibit 12.1
CARRAMERICA REALTY CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES CALCULATION
<TABLE>
<CAPTION>
Ratio of Earnings to Fixed Charges
-----------------------------------------------------------------
Nine
Months
Ended
9/30/98 1997 1996 1995 1994 1993
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Income before
Minority Interest.............. $124,546 $ 87,013 $29,534 $17,284 $17,821 $ 6,004
Add:
Extraordinary Charges.......... $ -- $ -- $ 484 $ -- $ -- $ 5,613
Fixed Charges, excluding
Capital Interest............. $ 58,373 $ 55,893 $32,946 $22,579 $21,880 $12,768
Deduct:
Gain of Sale of Assets......... $(33,030) $ (5,420) $ -- $ -- $ -- $ --
-------- -------- ------- ------- ------- -------
$149,889 $137,486 $63,258 $39,863 $39,701 $24,385
======== ======== ======= ======= ======= =======
Fixed Charges:
Interest Expense............... $ 55,227 $ 51,528 $31,630 $21,873 $21,366 $12,436
Interest Capitalized........... $ 21,408 $ 14,266 $ 2,664 $ 226 $ -- $ --
Amortization of Deferred
Financing Costs.............. $ 2,717 $ 2,138 $ 1,003 $ 365 $ 208 $ 101
Rent Deemed as Interest........ $ 429 $ 532 $ 313 $ 341 $ 306 $ 231
Preferred Stock Dividends...... $ -- $ -- $ -- $ -- $ -- $ --
-------- -------- ------- ------- ------- -------
Total Fixed Charges........ $ 79,781 $ 68,464 $36,388 $22,805 $21,880 $12,768
======== ======== ======= ======= ======= =======
Ratio of Earnings to
Fixed Charges.................. 1.88 2.01 1.74 1.75 1.81 1.91
</TABLE>
<TABLE>
<CAPTION>
Ratio of Earnings
to Combined Fixed Charges
and Preferred Stock Dividends
----------------------------------
Nine
Months
Ended
9/30/98 1997 1996
------- ---- ----
<S> <C> <C> <C>
Net Income before
Minority Interest............. $124,546 $ 87,013 $ 29,050
Add:
Extraordinary Charges.......... $ -- $ -- $ 484
Fixed Charges, excluding
Capital Interest ............ $ 58,373 $ 55,893 $ 33,724
Deduct:
Gain of Sale of Assets......... $(33,030) $ (5,420) $ --
-------- -------- --------
$149,889 $137,486 $ 63,258
======== ======== ========
Fixed Charges:
Interest Expense............... $ 55,227 $ 51,528 $ 32,396
Interest Capitalized........... $ 21,408 $ 14,266 $ 2,664
Amortization of Deferred
Financing Costs ............. $ 2,717 $ 2,138 $ 1,015
Rent Deemed as Interest........ $ 429 $ 532 $ 313
Preferred Stock Dividends...... $ 26,639 $ 10,991 $ 572
-------- -------- --------
Total Fixed Charges and
Preferred Stock
Dividends................ $106,420 $ 79,455 $ 36,960
======== ======== ========
Ratio of Earnings to
Fixed Charges and
Preferred Stock Dividends..... 1.41 1.73 1.71
</TABLE>
Exhibit 23.1
ACCOUNTANT'S CONSENT
--------------------
The Board of Directors
CarrAmerica Realty Corporation:
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts" in Post-Effective Amendment
No. 2 to the registration statement on Form S-3.
KPMG Peat Marwick LLP
Washington, D.C.
December 10, 1998
