As filed with the Securities and Exchange Commission on October 15, 1999
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
CARRAMERICA REALTY CORPORATION
(Exact name of registrant as specified in its charter)
MARYLAND 52-1796339
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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)
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Agent for Service: Copies to:
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Linda A. Madrid, Esq. J. Warren Gorrell, Jr., Esq.
General Counsel David W. Bonser, Esq.
CarrAmerica Realty Corporation Hogan & Hartson L.L.P.
1850 K Street, N.W., Suite 500 555 Thirteenth Street, N.W.
Washington, D.C. 20006 Washington, D.C. 20004-1109
(202) 729-7500 (202) 637-5600
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Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement in light of market
conditions and other factors.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box: [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434 under
the Securities Act, please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Amount to be Offering Price Per Aggregate Offering Amount of
Title of Securities to be Registered Registered Share (1) Price (1) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 271,363 $21.9375 $5,953,026 $1,655
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended, based on
the average of the high and low prices per share of CarrAmerica Realty
Corporation's Common Stock, par value $0.01 per share, on October 14, 1999,
as reported in the consolidated reporting system for the New York Stock
Exchange.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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RED HERRING:
The information in this prospectus is not complete and may be changed. We may
not sell the securities covered by this prospectus until the Securities and
Exchange Commission declares effective the registration statement of which this
prospectus is a part. This prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any state where
such an offer or sale is not permitted.
<PAGE>
Subject to Completion, dated October 15, 1999
PROSPECTUS
CarrAmerica Realty Corporation
1850 K Street, N.W., Suite 500
Washington, D.C. 20006
(202) 729-7500
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271,363 Shares
CARRAMERICA REALTY CORPORATION
Common Stock
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This prospectus covers our issuance from time to time of up to 271,363
shares of our common stock upon redemption on a one-for-one basis of units of
limited partner interest in CarrAmerica Realty, L.P. The 271,363 units that may
be redeemed were issued in connection with the acquisition of an office property
by CarrAmerica Realty, L.P. We are required to register the issuance of the
271,363 shares of common stock upon the redemption of units pursuant to a
registration rights agreement with the holders of such units.
We are registering the issuance of the shares to permit the holders of
the units to sell the shares immediately upon redemption of the units without
restriction in the open market or otherwise, but the registration of the shares
does not necessarily mean that any unit holders of CarrAmerica Realty, L.P. will
elect to redeem their units. In addition, upon any redemption, we may elect to
pay cash for the units tendered rather than to issue shares of our common stock.
Although we will incur expenses in connection with the registration of
the 271,363 shares, we will not receive any cash proceeds upon their issuance.
We will, however, acquire the units redeemed in exchange for any shares issued
upon redemption of the units. With each redemption, our interest in CarrAmerica
Realty, L.P. will increase.
Our common stock is listed on the New York Stock Exchange and traded
under the symbol "CRE."
See "Risk Factors" beginning on page 2 for certain factors relevant to
an investment in CarrAmerica Realty Corporation common stock, including special
considerations applicable to redeeming unit holders.
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Neither the SEC nor any state securities commission has approved or
disapproved these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
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The date of this prospectus is ______ __, 1999
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ABOUT THE COMPANY
We are a fully integrated, self-administered and self-managed publicly
traded real estate investment trust, and focus primarily on the acquisition,
development, ownership and operation of office properties in select growth
markets across the United States. As of June 30, 1999, we owned 258 properties.
SECURITIES BEING OFFERED
This prospectus relates to the possible issuance from time to time by
us of up to 271,363 shares of our common stock if, and to the extent that, we
elect to issue such shares to the holders of up to 271,363 units of limited
partner interest in CarrAmerica Realty, L.P. (the "Partnership"), upon the
tender of such units for redemption. We will not receive any cash proceeds upon
the issuance of such shares but will acquire the redeemed units in exchange for
any shares issued upon redemption of the units.
Pursuant to the Partnership's partnership agreement, each unit may be
tendered to the Partnership for redemption for a cash payment equal to the
market price of a share of our common stock at the time of redemption. We have
the right, however, to elect to issue shares of our common stock in lieu of
paying cash upon the redemption of units. We generally expect that we will issue
shares of our common stock in exchange for such units tendered for redemption
rather than paying cash, although the determination whether to pay cash or issue
shares of the common stock will be made at the time the units are tendered. With
each redemption, our interest in the Partnership will increase.
RISK FACTORS
An investment in shares of common stock of CarrAmerica Realty
Corporation or in the units of the Partnership, which are redeemable on a
one-to-one basis for shares of common stock of CarrAmerica Realty Corporation or
their cash equivalent, involves various risks. In deciding whether to redeem
their units for shares of common stock, unit holders should carefully consider
the following risks and the other information contained in this prospectus and
incorporated herein by reference, including, without limitation, the risks of an
investment in CarrAmerica Realty Corporation set forth under the caption "Item
1. Business--Risk Factors" in our Annual Report on Form 10-K for the most
recently completed fiscal year, before deciding whether to redeem units.
Redeeming Unit Holders Face Special Risks
The Redemption of Partnership Units Involves Certain Tax Consequences.
Your exercise of your unit redemption right will be treated for tax purposes as
a sale of the units you redeem. Such a sale will be fully taxable to you and you
will be treated as realizing for tax purposes an amount equal to the sum of the
cash or the value of the CarrAmerica Realty Corporation stock received in the
exchange plus the amount of the Partnership nonrecourse liabilities considered
allocable to the redeemed units at the time of the redemption. It is possible
that the amount of gain you will be required to recognize or even the tax
liability resulting from such gain could exceed the amount of cash and the value
of the shares of CarrAmerica Realty Corporation common stock you receive upon
such redemption. See "Redemption of Units--Tax Consequences of Redemption." In
addition, your ability to sell a substantial number of shares of CarrAmerica
Realty Corporation common stock in order to raise cash to pay tax liabilities
associated with redemption of Partnership units may be restricted due to our
relatively low trading volume, and, as a result of fluctuations in the stock
price, the price you would receive for such shares may not equal the value of
your Partnership units at the time of redemption.
Redeeming Units Will Result in a Change in Your Investment. If you
exercise the right to require the redemption of your Partnership units, you may
receive cash or, if we so elect, shares of
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CarrAmerica Realty Corporation common stock. If you receive cash, you will not
receive any interest in CarrAmerica Realty Corporation, will not benefit from
any subsequent increases in share price and will not receive any future
distributions from us (unless you currently own or acquire in the future
additional shares of CarrAmerica Realty Corporation common stock, Partnership
units or Carr Realty, L.P. units). If you receive shares of CarrAmerica Realty
Corporation common stock, you will become a stockholder of CarrAmerica Realty
Corporation rather than a holder of Partnership units. See "Redemption of
Units--Comparison of Ownership of Units and Common Stock."
Partnership Units May Outperform Shares of CarrAmerica Realty
Corporation Common Stock. Partnership units, which represent undivided interests
in all of the assets of the Partnership, may, over time, outperform shares of
CarrAmerica Realty Corporation common stock, which represent undivided interests
in all of our assets, including our indirect interest in the Partnership.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we
filed with the SEC under the Securities Act of 1933, as amended. This prospectus
and any accompanying prospectus supplement do not contain all of the information
included in the registration statement. For further information, we refer you to
the registration statement, including its exhibits. Statements contained in this
prospectus and any accompanying prospectus supplement about the provisions or
contents of any agreement or other document are not necessarily complete. If the
SEC's rules and regulations require that such agreement or document be filed as
an exhibit to the registration statement, please see such filed agreement or
document for a complete description of these matters. You should not assume that
the information in this prospectus or any prospectus supplement is accurate as
of any date other than the date on the front of each document.
You should read this prospectus together with additional information
described under the heading "Where to Find More Information."
WHERE TO FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file with
the SEC at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference room. Our SEC filings also are available on the SEC's
website at http://www.sec.gov and through the CarrAmerica Realty Corporation
website at http://www.CarrAmerica.com.
The SEC allows us to "incorporate by reference" in this prospectus
information from other documents filed with the SEC, which means that we may
disclose important information in this prospectus by referring to those
documents. The information incorporated by reference is considered to be part of
this prospectus, and information that we file later with the SEC will
automatically update and supersede the information filed earlier. We incorporate
by reference the documents listed below and any the future filings we make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
before the sale of all of the shares covered by this prospectus:
o Our Annual Report on Form 10-K for the year ended December 31, 1998;
o Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999 and June 30, 1999;
o Our Current Reports on Forms 8-K filed with the SEC on February 4,
1999, May 7, 1999 and August 16, 1999; and
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o The description of the CarrAmerica Realty Corporation common stock
contained in our Registration Statement on Form 8-A, filed with the
SEC on February 3, 1993.
We will provide a copy of any of these filings to each person to whom a
copy of this prospectus is delivered at no cost, upon written or oral request
to:
CarrAmerica Realty Corporation
1850 K Street, N.W., Suite 500
Washington, D.C. 20006
Attention: Corporate Secretary
Telephone: 202/729-7500
You should rely only on the information contained in this document or
other information that we have referred you to in deciding whether to invest in
the stock covered by this prospectus. We have not authorized anyone else to
provide you with different information. We will not make an offer to sell the
shares of our common stock covered by this prospectus in any state where the
offer is not permitted.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus, and in the documents
incorporated by reference in this prospectus, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance,
achievements or transactions or industry results to be materially different from
any future results, performance, achievements or transactions expressed or
implied by such forward-looking statements. Such factors include, among others,
the following: national and local economic, business and real estate conditions
that will, among other things, affect demand for office properties, availability
and creditworthiness of tenants, the level of lease rents and the availability
of financing to both us and our tenants, adverse changes in the real estate
markets including, among other things, competition from other companies, risks
of real estate acquisition and development (including the failure of pending
acquisitions to close and pending developments to be completed on time and
within budget), actions, strategies and performance of affiliates that we may
not control, governmental actions and initiatives, and environmental/safety
requirements.
REDEMPTION OF UNITS
Background
The units in the Partnership to which the shares being registered
hereby relate were issued in connection with the acquisition by the Partnership
of an office property in October 1997. Under the terms of the Partnership's
partnership agreement, these units became redeemable for cash or, at the option
of CarrAmerica Realty Corporation, CarrAmerica Realty Corporation common stock
beginning on October 6, 1999.
General
The holders of units of limited partner interest in the Partnership to
which this prospectus relates may, subject to certain limitations, require that
the Partnership redeem such units by delivering a notice to the Partnership.
Upon redemption, such unit holders will receive, at our option, with respect to
each unit tendered (subject to certain anti-dilution adjustments), either (i)
cash in an amount equal to the market price of one share of our common stock or
(ii) one share of our common stock. The market price of our common stock for
this purpose will be equal to the
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average of the closing trading price of our common stock (or substitute
information, if no such closing price is available) for the ten trading days
before the day on which the redemption notice was delivered to CarrAmerica
Realty GP Holdings, Inc., the general partner of the Partnership and our wholly
owned subsidiary.
We currently anticipate that we generally will elect to assume directly
and satisfy any redemption right exercised by a holder of units through the
issuance of shares of our common stock pursuant to this prospectus, whereupon we
will acquire the units being redeemed and will become the owner of such units.
However, we will make the determination whether to issue shares of our common
stock upon redemption of such units at the time the units are tendered for
redemption. Such an acquisition of units by us will be treated as a sale of such
units to us for federal income tax purposes. See "--Tax Consequences of
Redemption" below. Upon redemption, the right of a unit holder to receive
distributions with respect to the units redeemed will cease (but if such units
are exchanged for shares of our common stock, the unit holder will have rights
as a stockholder of CarrAmerica Realty Corporation from the time of its
acquisition of such shares).
A unit holder must notify CarrAmerica Realty GP Holdings, Inc., as the
general partner of the Partnership, of his or her desire to require the
Partnership to redeem units by sending a notice in the form attached as an
exhibit to the partnership agreement of the Partnership, a copy of which is
available from us. A unit holder must request the redemption of at least 1,000
units (or all of the units held by such holder, if less). The redemption
generally will occur on the tenth business day after the notice is delivered by
the unit holder, except that no redemption can occur if the delivery of shares
of our common stock would be prohibited under the provisions of our charter
designed to protect our qualification as a real estate investment trust for
Federal income tax purposes. Furthermore, if we combine our outstanding shares
of common stock into a smaller number of shares, redemption will not occur prior
to the effectiveness of the combination.
Tax Consequences of Redemption
The following discussion summarizes certain federal income tax
considerations that may be relevant to a limited partner of the Partnership who
exercises his or her right to require the redemption of units.
Tax Treatment of Redemption of Units. If we assume and perform the
redemption obligation, the partnership agreement of the Partnership provides
that the redemption will be treated by us, the Partnership and the redeeming
limited partner as a sale of such units by such limited partner to us at the
time of such redemption. In that event, such sale will be fully taxable to the
redeeming limited partner and such redeeming limited partner will be treated as
realizing for tax purposes an amount equal to the sum of the cash or the value
of the CarrAmerica Realty Corporation common stock received in the exchange plus
the amount of the Partnership nonrecourse liabilities allocable to such redeemed
units at the time of the redemption. The determination of the amount of gain or
loss is discussed more fully below.
If we do not elect to assume the obligation to redeem a limited
partner's units, the Partnership may redeem such units for cash. If the
Partnership redeems units for cash that we contribute to it to effect such
redemption, the redemption likely would be treated for tax purposes as a sale of
such units to us in a fully taxable transaction, although the matter is not free
from doubt. In that event, the redeeming partner would be treated as realizing
an amount equal to the sum of the cash received in the exchange plus the amount
of Partnership nonrecourse liabilities allocable to the redeemed units at the
time of the redemption. The determination of the amount of gain or loss in the
event of sale treatment is discussed more fully below.
If, instead, the Partnership chooses to redeem a limited partner's
units for cash that is not contributed by us to effect the redemption, the tax
consequences would be the same as described in the previous paragraph, except
that if the Partnership redeems less than all of a limited partner's units, such
limited partner would not be permitted to recognize any loss occurring on the
transaction
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and would recognize taxable gain only to the extent that the cash, plus the
share of Partnership nonrecourse liabilities allocable to the redeemed units,
exceeded the limited partner's adjusted basis in all of such limited partner's
units immediately before the redemption.
Tax Treatment of Disposition of Units by Limited Partner Generally. If
a Partnership unit is redeemed in a manner that is treated as a sale of such
unit, or a limited partner otherwise disposes of a Partnership unit, the
determination of gain or loss from the sale or other disposition will be based
on the difference between the amount considered realized for tax purposes and
the tax basis in such unit. See "--Basis of Units" below. Upon the sale of a
unit, the "amount realized" will be measured by the sum of the cash and fair
market value of other property received (e.g., shares of our common stock) plus
the portion of the Partnership's nonrecourse liabilities allocable to the unit
sold. To the extent that the amount of cash or property received plus the
allocable share of the Partnership's nonrecourse liabilities exceeds the limited
partner's basis for the unit disposed of, such limited partner will recognize
gain. It is possible that the amount of gain recognized or even the tax
liability resulting from such gain could exceed the amount of cash and the value
of any other property (e.g., shares of our common stock) received upon such
disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Partnership units will be treated as gain attributable to the
sale or disposition of a capital asset. To the extent, however, that the amount
realized upon the sale of a unit attributable to a limited partner's share of
"unrealized receivables" of the Partnership (as defined in Section 751 of the
Internal Revenue Code of 1986, as amended) exceeds the basis attributable to
those assets, such excess will be treated as ordinary income. Unrealized
receivables include, to the extent not previously included in Partnership
income, any rights to payment for services rendered or to be rendered.
Unrealized receivables also include amounts that would be subject to recapture
as ordinary income if the Partnership had sold its assets at their fair market
value at the time of the transfer of a unit.
Basis of Units. In general, a limited partner who was deemed at the
time of an acquisition to have received his or her Partnership units upon
liquidation of a partnership has an initial tax basis in such units equal to the
basis in his or her partnership interest at the time of such liquidation.
Similarly, in general, a limited partner who contributed property in exchange
for his or her units has an initial tax basis in the units equal to the basis in
the contributed property. A limited partner's initial tax basis in his or her
units generally is increased by (a) such limited partner's share of Partnership
taxable income and (b) increases in his or her share of liabilities of the
Partnership (including any increase in his or her share of nonrecourse
liabilities). Generally, such partner's basis in his or her units is decreased
(but not below zero) by (i) his or her share of Partnership distributions, (ii)
decreases in his or her share of liabilities of the Partnership (including any
decrease in his or her share of nonrecourse liabilities of the Partnership),
(iii) his or her share of losses of the Partnership, and (iv) his or her share
of nondeductible expenditures of the Partnership that are not chargeable to
capital.
Comparison of Ownership of Units and Common Stock
The nature of an investment in shares of our common stock is not
substantially equivalent economically to an investment in Partnership units. A
holder of a share of our common stock is not required to receive the same
distribution as a holder of a Partnership unit. In addition, stockholders and
unit holders do not generally share in a substantially equivalent fashion in the
risks and rewards of ownership in the enterprise being conducted by us because
we conduct substantial business other than the business of the Partnership.
The information below highlights a number of the significant
differences between the Partnership and CarrAmerica Realty Corporation relating
to, among other things, form of organization, policies and restrictions,
management structure, compensation and fees, investor rights and Federal income
taxation, and compares certain legal rights associated with the ownership of
Partnership units and our common stock, respectively. These comparisons are
intended to assist
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unit holders of the Partnership in understanding how their investment will be
changed if their units are redeemed for our common stock. This discussion is
summary in nature and does not constitute a complete discussion of these
matters, and unit holders should carefully review the balance of this prospectus
and the registration statement of which this prospectus is a part for additional
important information about CarrAmerica Realty Corporation.
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CARRAMERICA REALTY, L.P. CARRAMERICA REALTY CORPORATION
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Form of Organization and Assets Owned
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The Partnership is organized as a Delaware We are a Maryland corporation. We believe
limited partnership. As of June 30, 1999, the that we have operated so as to qualify as a
Partnership owns interests in 63 operating real estate investment trust under the
properties, nine properties under Internal Revenue Code of 1986, as amended,
construction and land that is expected to commencing with our taxable year ended
support the future development of up to December 31, 1993, and intend to continue to
944,000 square feet of office space. so operate. As of June 30, 1999, we owned
(either directly or through interests in
subsidiaries, including the Partnership)
interests in 258 properties, as well as 35
properties under construction that will
contain an additional 2.9 million square feet
of office space.
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Additional Equity
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The Partnership is authorized to issue units The board of directors may issue, in its
and other partnership interests (including discretion, additional equity securities
partnership interests of different series or consisting of our common stock or preferred
classes that may be senior to currently stock; provided, that the total number of
outstanding units) as determined by its shares issued does not exceed the authorized
general partner, in its sole discretion. The number of shares of capital stock set forth
general partner may, in its sole and absolute in our charter. The proceeds of equity
discretion, make a capital contribution to capital raised us are not required to be
the Partnership in exchange for additional contributed to the Partnership.
units.
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CARRAMERICA REALTY, L.P. CARRAMERICA REALTY CORPORATION
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Borrowing Policies
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The Partnership has no restrictions on We are not restricted under our charter and
borrowings, and its general partner has full by-laws from incurring borrowings. We are not
power and authority to borrow money on behalf required to incur any or all of our
of the Partnership. indebtedness through the Partnership. We have
adopted a policy that currently limits total
borrowings to 50% of the total market
capitalization of the Company, but this
policy may be altered at any time by the
board of directors.
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Management Control
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Generally, all management powers over the The board of directors has exclusive control
business and affairs of the Partnership are over our business and affairs subject only to
vested in the general partner of the the restrictions in our charter and by-laws.
Partnership, and no limited partner of the The board of directors is divided into three
Partnership has any right to participate in classes of directors. At each annual meeting
or exercise control or management power over of the stockholders, the successors of the
the business and affairs of the Partnership. class of directors whose terms expire at that
The general partner may not be removed by the meeting are elected. The policies adopted by
limited partners of the Partnership, with or the board of directors may be altered or
without cause. eliminated without a vote of the
stockholders. Accordingly, except for their
vote in the elections of directors,
stockholders generally have no control over
our ordinary business policies. The board of
directors cannot change our policy of
maintaining its status as a real estate
investment trust, however, without the
approval of holders a majority of the
outstanding shares of our common stock.
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Fiduciary Duties
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Under Delaware law, the general partner of Under Maryland law, the directors must
the Partnership is accountable to the perform their duties in good faith, in a
Partnership as a fiduciary and, consequently, manner that they reasonably believe to be in
is required to exercise good faith and our best interests and with the care of an
integrity in all of its dealings with respect ordinarily prudent person in a like position.
to partnership affairs. However, under the
Partnership's partnership agreement, the
general partner is under no obligation to
take into account the separate interests of
limited partners (including, without
limitation, the tax consequences to any
partner) in deciding whether to cause the
Partnership to take any action.
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CARRAMERICA REALTY, L.P. CARRAMERICA REALTY CORPORATION
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Management Liability and Indemnification
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As a matter of Delaware law, the general Our charter provides that the liability of
partner has liability for the payment of the our directors and officers to us and our
obligations and debts of the Partnership stockholders for money damages is limited to
unless limitations upon such liability are the fullest extent permitted under Maryland
stated in the document or instrument law. Under current Maryland law, the
evidencing the obligation. However, under the directors and officers of a corporation are
Partnership's partnership agreement, the not liable to such corporation or to its
general partner is not liable for monetary stockholders for money damages except to the
damages to the Partnership or any limited extent that (i) the director or officer
partner for losses sustained or liabilities actually received an improper benefit in
incurred as a result of errors in judgment or money, property or services, for the amount
of any act or omission if the general partner of the benefit or profit in money, property
acted in good faith. or services actually received, or (ii) a
judgment or other final adjudication adverse
Under the Partnership's partnership to the director or officer is entered in a
agreement, the Partnership also has agreed to proceeding based on a finding in a proceeding
indemnify the general partner and any that the director's or officer's action was
director or officer of the general partner the result of active and deliberate
from and against all losses, claims, damages, dishonesty and was material to the cause of
liabilities and expenses incurred in action adjudicated in the proceeding.
connection with any actions relating to the
operations of the Partnership in which the Our charter also provides that directors and
general partner or such director or officer officers generally shall by indemnified to
is involved, unless (1) the act was in bad the fullest extent permitted from time to
faith and was material to the action, (2) time by the laws of Maryland.
such party received an improper personal
benefit or (3) in the case of any criminal
proceeding, such party had reasonable cause
to believe the act was unlawful.
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CARRAMERICA REALTY, L.P. CARRAMERICA REALTY CORPORATION
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Antitakeover Provisions
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<S> <C>
Generally, the general partner of the Our charter and by-laws contain a number of
Partnership has exclusive management power provisions that may have the effect of
over the business and affairs of the delaying or discouraging an unsolicited
Partnership. The general partner may not be proposal for the acquisition of CarrAmerica
removed by the limited partners, with or Realty Corporation or the removal of
without cause. Subject to limited exceptions, incumbent management. These provisions
under the Partnership's partnership include, among others: (1) a staggered board
agreement, a limited partner may not transfer of directors; (2) authorized capital stock
his or her interest as a limited partner that may be issued as preferred stock in the
without the consent of the general partner, discretion of the board of directors, with
which consent may be given or denied by the superior voting rights to our common stock;
general partner in its sole and absolute (3) a requirement that directors may be
discretion. removed only for cause and only by a vote of
holders of at least a majority of our
outstanding common stock; and (4) an
ownership limit that prohibits ownership by
any person of more than 5% of our common
stock, subject to certain exceptions.
<CAPTION>
Voting Rights
-------------
<S> <C>
Generally, all decisions relating to the We are managed and controlled by a board of
operation and management of the Partnership directors divided into three classes having
are made by the general partner. As of June staggered terms of office. Each class is to
30, 1999, subsidiaries of CarrAmerica Realty be elected by the stockholders at our annual
Corporation held approximately 88% of the meetings. Maryland law requires that certain
outstanding units. As units are redeemed by major corporate transactions, including most
partners, our percentage ownership of the amendments to our charter, may not be
units will increase. If additional units are consummated without the approval of
issued to third parties, which is permitted, stockholders as set forth below. All shares
our percentage ownership of the units will of our common stock have one vote.
decrease.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
CARRAMERICA REALTY, L.P. CARRAMERICA REALTY CORPORATION
- --------------------------------------------------------------------------------------------------------
Compensation, Fees and Distributions
------------------------------------
<S> <C>
The general partner does not receive any Our directors and officers receive
compensation for its services as general compensation for their services.
partner of the Partnership As a partner in
the Partnership, however, the general partner
has a right to allocations and distributions
of the Partnership. In addition, the
Partnership is required to reimburse the
general partner for all expenses incurred by
it relating to the ongoing operation of the
Partnership and any other offering of
additional partnership interests in the
Partnership.
<CAPTION>
Liability of Investors
----------------------
<S> <C>
Under the Partnership's partnership agreement Under Maryland law, our stockholders are not
and applicable state law, the liability of personally liable for CarrAmerica Realty
the limited partners for the Partnership's Corporation's debts or obligations.
debts and obligations generally is limited to
the amount of their investment in the
Partnership.
<CAPTION>
Review of Investor Lists
------------------------
<S> <C>
Under the Partnership's partnership Under Maryland law, a stockholder holding at
agreement, limited partners of the least 5% of the outstanding stock of a
Partnership, upon written demand containing a corporation may upon written request obtain a
statement of the purpose of such demand and list of the stockholders of the corporation.
at the limited partner's expense, are
entitled to obtain a current list of the
names and last known business, residence or
mailing addresses of the limited partners of
the Partnership.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
CARRAMERICA REALTY, L.P. CARRAMERICA REALTY CORPORATION
- --------------------------------------------------------------------------------------------------------
Liquidity
---------
<S> <C>
Limited partners in the Partnership generally The shares of common stock issued upon
(subject to certain limited exceptions) may redemption of Partnership units will be
not transfer their units without the general freely transferable as registered securities
partner's consent. In addition, the general under the Securities Act of 1933, as amended.
partner, in its sole and absolute discretion, Our common stock is listed on the New York
may prevent the admission to the Partnership Stock Exchange. The breadth and strength of
of substituted limited partners. the market for CarrAmerica Realty Corporation
stock will depend, among other things, upon
Each holder of units of limited partner the number of shares outstanding, our
interest in the Partnership, however, has the financial results and prospects, the general
right to tender his or her units for interest in CarrAmerica Realty Corporation
redemption by the Partnership as described and other real estate investments, and our
elsewhere herein. dividend yield compared to that of other debt
and equity securities.
<CAPTION>
Federal Income Taxation
-----------------------
<S> <C>
The Partnership is not subject to Federal We have elected to be taxed as a real estate
income taxes. Instead, each holder of investment trust. So long as we qualify as a
Partnership units includes its allocable real estate investment trust, we will be
share of the Partnership's taxable income or permitted to deduct distributions paid to our
loss in determining its individual federal stockholders, which effectively will reduce
income tax liability. The maximum federal the "double taxation" that typically results
income tax rate for individuals under current when a corporation earns income and
law is 39.6%. distributes that income to its stockholders
in the form of dividends. A qualified real
estate investment trust, however, is subject
to federal income tax on income that is not
distributed and also may be subject to
federal income and excise taxes in certain
circumstances. Our noncontrolled
subsidiaries, however, do not qualify as real
estate investment trusts and, thus are
subject to federal income tax on their net
income at normal corporate rates. The maximum
federal income tax rate for corporations
under current law is 35%.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
CARRAMERICA REALTY, L.P. CARRAMERICA REALTY CORPORATION
- --------------------------------------------------------------------------------------------------------
<S> <C>
Income and loss from the Partnership Dividends we pay will be treated as
generally is subject to the "passive "portfolio" income and cannot be offset with
activity" limitations. Under the "passive losses from "passive activities." The
activity" rules, income and loss from the portfolio income of individuals is taxed at a
Partnership that is considered "passive maximum Federal income tax rate of 39.6%
income" generally can be offset against under current law.
income and loss from other investments that
constitute "passive activities."
Cash distributions from the Partnership are Distributions we make to our taxable domestic
not taxable to a holder of units except to stockholders out of current or accumulated
the extent they exceed such holder's basis in earnings and profits will be taken into
the holder's interest in the Partnership account by them as ordinary income.
(which will include such holder's allocable Distributions that are designated as capital
share of Partnership nonrecourse debt). gain dividends generally will be taxed as
long-term capital gain, subject to certain
limitations. Distributions in excess of
current or accumulated earnings and profits
will be treated as a non-taxable return of
basis to the extent of a stockholder's
adjusted basis in its shares of our common
stock, with the excess taxed as capital gain.
We may elect to require stockholders to
include our undistributed net capital gains
in their income. If we so elect, stockholders
would include their proportionate share of
such gains in their income and would be
deemed to have paid their share of the tax
actually paid by us on such gains.
Each year, holders of units will receive a Each year, stockholders will receive Form
Schedule K-1 tax form containing detailed tax 1099 containing information regarding
information for inclusion in preparing their dividends paid and, if applicable, dividends
Federal income tax returns. designated as capital gain dividends. In the
event we designate any amounts as
undistributed capital gain, stockholders will
receive Form 2439 containing information
regarding the amount of gain required to be
included in their income.
Holders of units are required, in some cases, Stockholders who are individuals generally
to file state income tax returns and/or pay will not be required to file state income tax
state income taxes in the states in which the returns and/or pay state income taxes outside
Partnership owns property, even if they are of their state of residence with respect to
not residents of those states. our operations and distributions. We may be
required to pay state income taxes in certain
states.
</TABLE>
13
<PAGE>
The following is a comparison of the voting rights of the limited
partners of the Partnership and stockholders of CarrAmerica Realty Corporation
as they relate to certain major transactions:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
CARRAMERICA REALTY, L.P. CARRAMERICA REALTY CORPORATION
- --------------------------------------------------------------------------------------------------------
A. Amendment of the Partnership's Partnership Agreement or the Charter of
----------------------------------------------------------------------
CarrAmerica Realty Corporation.
-------------------------------
<S> <C>
Generally, the Partnership's partnership Amendments to the charter of CarrAmerica
agreement may be amended through a proposal Realty Corporation must be approved by the
by the general partner or any limited partner board of directors and generally by at least
holding 25% or more of the units. Such two-thirds of the votes entitled to be cast
proposal, in order to be effective, must be at a meeting of stockholders.
approved by the general partner and by the
vote of holders of at least a majority of the
outstanding units. Certain amendments that
affect the fundamental rights of a limited
partner must be approved by each affected
limited partner. In addition, the general
partner may, without the consent of the
limited partners, amend the Partnership's
partnership agreement as to certain
ministerial matters.
<CAPTION>
B. Vote Required to Dissolve the Partnership or CarrAmerica Realty
---------------------------------------------------------------
Corporation.
------------
<S> <C>
The dissolution of the Partnership may be Under Maryland law, the board of directors
effected by the general partner in its sole must obtain approval of holders of at least
and absolute discretion. In addition, the two-thirds of the outstanding common stock in
Partnership shall be dissolved by the order to dissolve CarrAmerica Realty
expiration of its term, an event of Corporation.
withdrawal of the general partner, subject to
certain exceptions, the entry of a decree of
judicial dissolution of the Partnership, the
sale of all or substantially all of the
assets and properties of the Partnership in
exchange for cash or a final and
non-appealable judgment entered by a court
ruling that the general partner is bankrupt,
subject to certain exceptions.
<CAPTION>
C. Vote Required to Sell Assets or Merge.
--------------------------------------
<S> <C>
Pursuant to the Partnership's partnership Under Maryland law, the sale of all or
agreement, the general partner has the substantially all of our assets or a merger
authority to dispose of any or all of the or consolidation of CarrAmerica Realty
assets of the Partnership and to merge or Corporation requires the approval of the
combine the Partnership with or into another board of directors and holders of two-thirds
entity on such terms as the general partner of our outstanding common stock. No approval
deems proper. of the stockholders is required for the sale
of less than all or substantially all of
CarrAmerica Realty Corporation's assets.
</TABLE>
14
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain federal income tax
considerations relating to CarrAmerica and to the acquisition, ownership and
disposition of shares of common stock. The following description 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
consequences. In addition, this discussion is intended to address only those
federal income tax considerations that are generally applicable for all
stockholders in CarrAmerica. It does not discuss all aspects of federal income
taxation that might be relevant to a specific stockholder in light of its
particular investment or tax circumstances. The description does not purport to
deal with all aspects of taxation that may be relevant to stockholders subject
to special treatment under the federal income tax laws, including, without
limitation, insurance companies, financial institutions or broker-dealers,
tax-exempt organizations or foreign corporations and persons who are not
citizens or residents of the United States.
The information in this section is based on the Internal Revenue Code,
current, temporary and proposed regulations, the legislative history of the
Internal Revenue 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, and court decisions, all as of the
date hereof. No assurance can be given that future legislation, 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 as a
REIT Income Tests Applicable to REITs," CarrAmerica has not requested and does
not plan to request any rulings from the IRS concerning the tax treatment of
CarrAmerica. Thus no assurance can be provided that the statements set forth
herein will not be challenged by the IRS or will be sustained by a court if so
challenged.
The specific tax attributes of a particular stockholder could have a
material impact on the tax considerations associated with the purchase,
ownership and disposition of common stock. Therefore, it is essential that each
prospective stockholder consult with his own tax advisors with regard to the
application of the federal income tax laws to such stockholder's personal tax
situation, as well as any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction.
As used in this section, "CarrAmerica" refers solely to CarrAmerica
Realty Corporation.
Tax Consequences of the Redemption of Units
For a description of the tax consequences of the redemption of units,
see "Redemption of Units - Tax Consequences of Redemption."
Taxation of CarrAmerica as a REIT
General. CarrAmerica has elected to be taxed as a REIT under Sections
856 through 860 of the Internal Revenue Code, beginning with its taxable year
ended December 31, 1993. CarrAmerica believes that it is organized and has
operated in such a manner so as to qualify for taxation as a REIT under the
Internal Revenue Code and intends to continue to operate in such a manner.
Qualification and taxation as a REIT depends upon CarrAmerica's ability to meet
on a continuing basis the various qualification tests imposed on REITs by the
Internal Revenue Code. Given the highly complex nature of the REIT qualification
requirements, the ongoing importance of factual determinations and the
possibility of future changes in circumstances of CarrAmerica, no assurance can
be given that CarrAmerica has qualified as a REIT or will continue to qualify as
a REIT.
15
<PAGE>
The sections of the Internal Revenue Code and the corresponding
regulations that govern the federal income tax treatment of a REIT and its
stockholders are highly technical and complex. The following discussion is a
summary of the material aspects of these rules, which is qualified in its
entirety by the applicable Internal Revenue Code provisions, rules and
regulations promulgated thereunder and administrative and judicial
interpretations thereof.
So long as CarrAmerica qualifies for taxation as a REIT, it generally
will not be subject to federal corporate income tax on its net income that is
distributed currently to stockholders. This treatment substantially eliminates
the "double taxation" (taxation at both the corporate and stockholder levels)
that generally results from investment in a regular corporation. However,
CarrAmerica will be subject to federal income tax as described below.
1. CarrAmerica will be taxed at regular corporate rates on any
undistributed "REIT taxable income," and on undistributed net capital
gains. REIT taxable income is the otherwise taxable income of the REIT
subject to certain adjustments, including a deduction for dividends
paid.
2. Under certain circumstances, CarrAmerica may be subject to the
"alternative minimum tax" on its items of tax preference.
3. If CarrAmerica has net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in
the ordinary course of business or other nonqualifying income from
foreclosure property, it will be subject to tax at the highest
corporate rate on such income.
4. CarrAmerica's net income from "prohibited transactions" will be subject
to a 100% tax. In general, prohibited transactions are certain sales or
other dispositions of property held primarily for sale to customers in
the ordinary course of business other than foreclosure property.
5. If CarrAmerica fails to satisfy the 75% gross income test or the 95%
gross income test discussed below, but nonetheless maintains its
qualification as a REIT because certain other requirements are met, it
will be subject to a tax equal to (1) the gross income attributable to
the greater of the amount by which CarrAmerica fails the 75% or 95%
test multiplied by (2) a fraction intended to reflect its
profitability.
6. If CarrAmerica fails to distribute during each calendar year at least
the sum of (1) 85% of its REIT ordinary income for such year, (2) 95%
of its REIT capital gain net income for such year and (3) any
undistributed taxable income from prior periods, CarrAmerica will be
subject to a 4% excise tax on the excess of such required distribution
over the sum of amounts actually distributed and amounts retained but
with respect to which federal income tax was paid.
7. If CarrAmerica acquires any asset from a taxable "C" corporation in a
carryover basis transaction and CarrAmerica recognizes gain on the
disposition of such asset during the ten-year period beginning on the
date on which such asset was acquired by CarrAmerica, then, to the
extent of the asset's "built-in gain," such gain will be subject to tax
at the highest regular corporate rate applicable. Built-in gain is the
excess of the fair market value of an asset over CarrAmerica's adjusted
basis in the asset, determined when CarrAmerica acquired the asset.
These results regarding the recognition of built-in gain assume that
CarrAmerica will make an election pursuant to IRS Notice 88-19 with
respect to the receipt of any built-in gain assets in any carryover
basis transaction.
Requirements for Qualification as a REIT. The Internal Revenue Code
defines a REIT as a corporation, trust or association
(1) that is managed by one or more trustees or directors;
16
<PAGE>
(2) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest;
(3) that would be taxable as a domestic corporation, but for Sections
856 through 859 of the Internal Revenue Code;
(4) that is neither a financial institution nor an insurance company
subject to certain provisions of the Internal Revenue Code;
(5) the beneficial ownership of which is held by 100 or more persons;
(6) during the last half of each taxable year not more than 50% in
value of the outstanding shares of which is owned directly or indirectly by five
or fewer individuals (as defined in the Internal Revenue Code to include certain
entities);
(7) that makes an election to be taxable as a REIT, or has made such
election for a previous taxable year which has not been revoked or terminated,
and satisfies all relevant filing and other administrative requirements
established by the IRS that must be met in order to elect and maintain REIT
status;
(8) that uses a calendar year for federal income tax purposes and
complies with the recordkeeping requirements of the Internal Revenue Code and
regulations promulgated thereunder; and
(9) that meets certain other tests, described below, regarding the
nature of its income and assets and the amount of its distributions.
Conditions (1) to (5) inclusive must be met during the entire taxable
year and 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. For purposes of determining stock ownership under condition (6), a
supplemental unemployment compensation benefits plan, a private foundation or a
portion of a trust permanently set aside or used exclusively for charitable
purposes generally is considered an individual. However, a trust that is a
qualified trust under Internal Revenue Code Section 401(a) generally is not
considered an individual and beneficiaries of such trust are treated as holding
shares of a REIT in proportion to their actuarial interests in such trust for
purposes of condition (6).
CarrAmerica believes that it has issued sufficient shares of capital
stock with sufficient diversity of ownership to allow it to satisfy the
conditions described in clauses (5) and (6) above. In addition, the Articles of
Incorporation contain restrictions regarding the transfer of shares of capital
stock that are intended to assist CarrAmerica in continuing to satisfy the stock
ownership requirements described in clauses (5) and (6) above. These
restrictions, however, may not ensure that CarrAmerica will, in all cases, be
able to satisfy the stock ownership requirements described above. If CarrAmerica
fails to satisfy such stock ownership requirements, its status as a REIT will
terminate.
In connection with condition (6), a REIT is required to send annual
letters to its stockholders requesting information regarding the actual
ownership of its shares. For CarrAmerica's taxable years beginning on or after
January 1, 1998, if CarrAmerica complies with the annual letters requirement and
it does not know or, exercising reasonable diligence, would not have known of
its failure to meet condition (6), then it will be treated as having met
condition (6).
Qualified REIT Subsidiaries. If a REIT owns a corporate subsidiary that
is a "qualified REIT subsidiary" that subsidiary will be disregarded for federal
income tax purposes, and all assets, liabilities and items of income, deduction
and credit of the subsidiary will be treated as assets,
17
<PAGE>
liabilities and items of income, deduction and credit of the REIT itself.
Generally, a qualified REIT subsidiary is a corporation all of the capital stock
of which is owned by the REIT. A qualified REIT subsidiary of CarrAmerica will
not be subject to federal corporate income taxation, although it may be subject
to state and local taxation in certain states.
Ownership of Partnership Interests by a REIT. A REIT that is a partner
in a partnership will be deemed to own its proportionate share of the assets of
the partnership and will be deemed to be entitled to the income of the
partnership attributable to such share. In addition, the character of the assets
and gross income of the partnership retain the same character in the hands of
the REIT for purposes of Section 856 of the Internal Revenue Code, including
satisfying the gross income tests and the asset tests. Thus, for purposes of
applying the requirements described herein, CarrAmerica is treated as owning
directly its proportionate share of the assets and items of income of all
partnerships and LLCs in which it owns an interest, such as CarrAmerica Realty,
L.P. and Carr Realty, L.P., either directly or indirectly through another
partnership or LLC. CarrAmerica has direct control over CarrAmerica Realty, L.P.
and Carr Realty, L.P. and intends to operate them in a manner that is consistent
with the requirements for qualification of CarrAmerica as a REIT.
Income Tests Applicable to REITs. To qualify as a REIT, CarrAmerica
must satisfy two gross income tests.
(1) At least 75% of CarrAmerica'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," gains on the disposition of real
estate, dividends paid by another REIT and interest on obligations secured by
mortgages on real property or on interests in real property, or from certain
types of temporary investments.
(2) At least 95% of CarrAmerica's gross income, excluding gross income
from prohibited transactions, for each taxable year must be derived from any
combination of such real property investments, dividends, interest, certain
payments under hedging instruments and gain from the sale or disposition of
stock or securities and certain hedging instruments.
Rents received by CarrAmerica will qualify as rents from real property
in satisfying the gross income requirements for a REIT described above only if
several conditions are met.
o The amount of rent must not be based in whole or in part on the
income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term rents from real
property solely by reason of being based on a fixed percentage or
percentages of receipts or sales.
o Rents received from a "related party tenant" will not qualify as
rents from real property in satisfying the gross income tests. A
tenant is a related party tenant if the REIT, or an actual or
constructive owner of 10% or more of the REIT, actually or
constructively owns 10% or more of such tenant.
o If rent attributable to personal property, leased in connection with
a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to
such personal property will not qualify as "rents from real
property."
CarrAmerica is only allowed to provide services that are "usually or
customarily rendered" in connection with the rental of real property and not
otherwise considered "rendered to the occupant." Accordingly, CarrAmerica may
not operate or manage the property or provide "impermissible services" to the
tenants except through an independent contractor that bears the expenses of
providing the services and from whom CarrAmerica derives no revenue. However,
CarrAmerica may provide some impermissible services directly, provided that the
"impermissible service income" at
18
<PAGE>
any particular property for any taxable year does not exceed 1% of CarrAmerica's
total income from that property. For these purposes, impermissible service
income is deemed to be at least 150% of CarrAmerica's direct cost of providing
the service. If the impermissible service income does not exceed 1% of
CarrAmerica's total income from a property, the services will not cause the rent
paid by tenants of that property to fail to qualify as rents from real property,
but the impermissible service income will not qualify as rents from real
property. If the impermissible service income exceeds 1% of CarrAmerica's total
income from a property, then all of the income from that property will fail to
qualify as rents from real property.
CarrAmerica will provide directly certain services at some or all of
the properties. However, based upon CarrAmerica's experience in the office
rental markets in which the properties are located, we believe that all services
provided to tenants by us either are usually or customarily rendered in
connection with the rental of office space for occupancy or, if considered
impermissible services, will not result in impermissible service income in
excess of the 1% threshold described above. However, there can be no assurance
that the IRS will not contend otherwise with respect to either of these
positions.
CarrAmerica does not and will not do any of the following:
o charge rent for any property that is based in whole or in part on
the income or profits of any person, except by reason of being based
on a percentage of receipts or sales, as described above, or unless
CarrAmerica determines that the rent received from a particular
tenant under such an arrangement is not material and will not
jeopardize CarrAmerica's status as a REIT;
o rent any property to a related party tenant, unless the CarrAmerica
determines that the rent received from such related party tenant is
not material and will not jeopardize CarrAmerica's status as a REIT;
o derive rental income attributable to personal property other than
personal property leased in connection with the lease of real
property, the amount of which either is less than 15% of the total
rent received under the lease or is such that it will not jeopardize
CarrAmerica's status as a REIT; or
o perform services considered to be rendered to the occupant of the
property, other than through an independent contractor from whom
CarrAmerica derives no revenue, except to the extent that the
impermissible service income would not exceed the 1% threshold
described above or CarrAmerica otherwise determines that the
nonqualifying income resulting therefrom is not material and will
not jeopardize CarrAmerica's status as a REIT.
CarrAmerica will provide certain services with respect to the
properties through entities that do not satisfy the "independent contractor"
requirements described above. CarrAmerica has received rulings from the IRS to
the effect that the provision of these services will not cause the rents
received from the properties to fail to qualify as "rents from real property."
Based upon the IRS rulings and its experience in the office rental market,
CarrAmerica believes that all services provided to tenants will be considered
"usually or customarily rendered" in connection with the rental of office space
for occupancy only, although there is no assurance that the IRS will not contend
otherwise. If CarrAmerica 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 CarrAmerica will receive no
income.
CarrAmerica has also received a ruling from the IRS to the effect that
revenue received by CarrAmerica with respect to certain telecommunications
services provided to tenants will qualify as rents from real property for
purposes of the 75% and 95% gross income tests and will not cause the
19
<PAGE>
rents received by CarrAmerica from these tenants not to qualify as rents from
real property for purposes of the 75% and 95% income tests. The ruling addresses
revenue generated from the provision of telephone and other communications
services, e-mail, video communications, electronic research, internet access,
communication networking, safety and security systems and environmental control
systems, some of which will be provided through business relationships with
telecommunications service providers. CarrAmerica intends to provide these
telecommunication services only as described in the ruling received from the
IRS.
Carr Real Estate Services, Inc., CarrAmerica Development, Inc., HQ
Global Workplaces, Inc. (previously known as OmniOffices, Inc.), OmniOffices
(UK) Limited and OmniOffices (Lux) 1929 Holding Company S.A., collectively, are
referred to as the noncontrolled subsidiaries. CarrAmerica owns, directly or
through Carr Realty, L.P., 95% or more of the non-voting stock of each of the
noncontrolled subsidiaries. None of CarrAmerica, CarrAmerica Realty, L.P. or
Carr Realty, L.P. owns more than 10% of the voting stock of any of the
noncontrolled subsidiaries or any other corporation. Each of the noncontrolled
subsidiaries is taxable as a regular "C corporation." CarrAmerica's share of any
dividends received from the noncontrolled subsidiaries should qualify for
purposes of the 95% gross income test but not for purposes of the 75% gross
income test. CarrAmerica does not anticipate that it will receive sufficient
dividends from the noncontrolled subsidiaries to cause it to exceed the limit on
nonqualifying income under the 75% gross income test.
In addition to the 75% and 95% gross income tests, CarrAmerica had to
meet a 30% gross income test for its taxable years that ended prior to January
1, 1998. The 30% gross income test 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, represent less than 30% of CarrAmerica's gross income, including gross
income from prohibited transactions. The 30% gross income test is not applicable
for taxable years starting on or after January 1, 1998.
Relief Provisions for Failure to Satisfy Income Tests. If CarrAmerica
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 Internal Revenue Code. These
relief provisions will generally be available if
o CarrAmerica's failure to meet such tests is due to reasonable cause
and not due to willful neglect,
o CarrAmerica attaches a schedule of the sources of its income to its
federal income tax return, and
o any incorrect information on such schedule is not due to fraud with
intent to evade tax.
It is not possible, however, to state whether in all circumstances CarrAmerica
would be entitled to the benefit of these relief provisions. For example, if
CarrAmerica fails to satisfy the gross income tests because nonqualifying income
that CarrAmerica intentionally incurs exceeds the limits on such income, the IRS
could conclude that the failure to satisfy the tests was not due to reasonable
cause. If these relief provisions are inapplicable to a particular set of
circumstances involving CarrAmerica, CarrAmerica will fail to qualify as a REIT.
As discussed above in " - Taxation of CarrAmerica as a REIT - General," even if
these relief provisions apply, a tax would be imposed with respect to the excess
net income. No similar relief provision is available if CarrAmerica failed the
30% income test for any of its taxable years ending prior to January 1, 1998.
Prohibited Transactions Tax. Any gain realized by CarrAmerica on the
sale of any property held as inventory or other property held primarily for sale
to customers in the ordinary course of business, including CarrAmerica's share
of any such gain realized by CarrAmerica Realty, L.P. or Carr Realty, L.P., will
be treated as income from a prohibited transaction that is subject to a 100%
penalty tax. Under existing law, whether property is held as inventory or
primarily for sale to
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customers in the ordinary course of a trade or business is a question of fact
that depends on all the facts and circumstances with respect to the particular
transaction. If a particular sale meets the conditions described in Section
857(b)(6)(C) of the Code, referred to as a "safe harbor," that sale will not be
considered a prohibited transaction. The safe harbor generally would apply to a
sale of property if:
o CarrAmerica has held the property for at least four years;
o the aggregate expenditures includible in the basis of the property
during the four year period prior to the sale with respect to the
property equal 30% or less of the net selling price of the property;
o for the taxable year, either CarrAmerica makes no more than 7 such
sales or the aggregate adjusted bases of all such properties sold
does not exceed 10% of the aggregate adjusted bases of all of
CarrAmerica's assets;
o in the case of real property not acquired through foreclosure,
CarrAmerica has held the property for the production of rental
income for at least four years; and
o if more than seven sales of property are made during the taxable
year, substantially all of the marketing and development
expenditures with respect to the property are made through an
independent contractor from whom CarrAmerica does nor receive any
income.
CarrAmerica, CarrAmerica Realty, L.P. and Carr Realty, L.P. intend to hold their
respective properties for investment with a view to long-term appreciation, to
engage in the business of acquiring, developing, owning, and operating the
properties, and other properties, and to make such occasional sales of the
properties as are consistent with these investment objectives. In this regard,
CarrAmerica, CarrAmerica Realty, L.P. and Carr Realty, L.P. have recently
undertaken a significant number of asset sales. Although these sales may not
qualify the safe harbor described above, CarrAmerica nevertheless believes that
these sales should not be considered prohibited transactions. There can be no
assurance, however, that the IRS might not contend that one or more of these or
any future sales is subject to the 100% penalty tax.
Asset Tests Applicable to REITs. CarrAmerica, at the close of each
quarter of its taxable year, must satisfy three tests relating to the nature of
its assets.
(1) At least 75% of the value of CarrAmerica's total assets must be
represented by real estate assets. CarrAmerica's real estate assets include, for
this purpose, its allocable share of real estate assets held by CarrAmerica
Realty, L.P., Carr Realty, L.P., and the non-corporate subsidiaries of
CarrAmerica, CarrAmerica Realty, L.P. and Carr Realty, L.P., as well as stock or
debt instruments held for less than one year purchased with the proceeds of a
stock offering, or long-term (at least five years) debt offering of CarrAmerica,
cash, cash items and government securities. Stock interests owned by CarrAmerica
in another REIT are qualifying real estate assets for purposes of the 75% gross
asset test, and, consequently, such stock interests are not subject to the 10%
voting stock limitation described below.
(2) Not more than 25% of CarrAmerica's total assets may be represented
by securities other than those in the 75% asset class.
(3) Of the investments included in the 25% asset class, the value of
any one issuer's securities owned by CarrAmerica may not exceed 5% of the value
of CarrAmerica's total assets, and, except for REITs or qualified REIT
subsidiaries, CarrAmerica may not own more than 10% of any one issuer's
outstanding voting securities. CarrAmerica will be considered to own its
proportionate share of the assets of CarrAmerica Realty, L.P. and Carr Realty,
L.P. (including the securities of Carr Real Estate Services, Inc.).
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After initially meeting the asset tests at the close of any quarter,
CarrAmerica will not lose its status as a REIT for failure to satisfy the 25% or
5% asset tests at the end of a later quarter solely by reason of changes in the
relative values of its assets. An acquisition of additional securities or
property with respect to an issuer will require a "retesting" at the end of the
quarter in which such acquisition occurs in order to determine whether the 5%
and 25% asset tests continue to be met. If the failure to satisfy the 25% or 5%
asset tests results from an acquisition of securities or other property during a
quarter, the failure generally can be cured by disposition of sufficient
nonqualifying assets within 30 days after the close of that quarter.
CarrAmerica and its senior management believe that the value of the
securities of each of noncontrolled subsidiaries and of any unsecured debt of
Carr Realty, L.P. and CarrAmerica Realty, L.P. owned by CarrAmerica have not and
will not exceed 5% of the total value of CarrAmerica's assets on any "retesting"
date. In this regard, if HQ Global Workplaces, Inc, OmniOffices (UK) Limited and
OmniOffices (Lux) 1929 Holding Company S.A. were viewed for federal income tax
purposes as a single corporation, CarrAmerica might not satisfy the 5%
limitation with respect to that corporation. CarrAmerica believes that these
noncontrolled subsidiaries have operated and will continue to operate as
separate entities. There can be no assurance however that the IRS would not
contend that either the value of one or more of the noncontrolled subsidiaries
exceeds the 5% limitation or that two or more of the noncontrolled subsidiaries
should be viewed as a single corporation for purposes of the 5% limitation.
Although CarrAmerica intends to take steps to ensure that it continues to
satisfy the 5% limitation, there can be no assurance that the 5% limitation will
be met in the future or that CarrAmerica will not have to reduce it ownership
interest in one or more of the noncontrolled subsidiaries in order to comply
with the 5% limitation.
CarrAmerica does not own, directly or indirectly, more than 10% of the
voting stock of any of the noncontrolled subsidiaries but it does own, directly
or indirectly, 95% or more of the nonvoting stock of each of the noncontrolled
subsidiaries. CarrAmerica also may own nonvoting stock, representing
substantially all of the equity, in other corporate entities that serve as
partners or members in the various entities that hold title to the properties.
There can be no assurance, however, that the IRS might not contend that the
arrangements between CarrAmerica and the noncontrolled subsidiaries are such
that CarrAmerica should be considered to own more than 10% of the voting
securities of one of the noncontrolled subsidiaries.
CarrAmerica intends to maintain adequate records of the value of its
assets to ensure compliance with the asset tests and to take any available
actions within 30 days after the close of any quarter as may be required to cure
any noncompliance with the 25% or 5% asset tests. If CarrAmerica fails to cure
noncompliance with the asset tests within such time period, CarrAmerica would
cease to qualify as a REIT.
Proposed Changes to REIT Qualification Requirements. The Clinton
Administration's fiscal year 2000 budget proposal, announced February 1, 1999,
includes a proposal that would change the 10% voting securities test to a 10%
vote or value test. Under the proposal, a REIT would not be able to own more
than 10% of the vote or value of the outstanding securities of any corporation,
except for a qualified REIT subsidiary or another REIT. The proposal also
contains an exception to the 5% and 10% asset tests that would allow a REIT to
have "taxable REIT subsidiaries," including both "qualified independent
contractor subsidiaries," which could perform noncustomary and other currently
prohibited services for tenants and other customers, and "qualified business
subsidiaries," which could undertake third-party management and development
activities as well as other non-real estate related activities. Under the
proposal, no more than 15% of a REIT's total assets could consist of interests
in taxable REIT subsidiaries and no more than 5% of a REIT's total assets could
consist of interests in qualified independent contractor subsidiaries. Under the
budget proposal, a taxable REIT subsidiary would not be entitled to deduct any
interest on debt funded directly or indirectly by the REIT. This proposal would
be effective after the date of enactment and a REIT would be allowed to combine
and convert existing corporate subsidiaries into taxable REIT subsidiaries
tax-free prior
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to a certain date. A transition period would allow for conversion of existing
corporate subsidiaries before the 10% vote or value test would become effective.
For CarrAmerica's taxable years after the effective date of the proposal and
after any applicable transition period, the 10% vote or value test would apply
to CarrAmerica's ownership in any of the noncontrolled subsidiaries not
converted into taxable REIT subsidiaries.
On August 5, 1999, the Financial Freedom Act of 1999 (the "bill") was
passed by Congress, but has not been signed by the President. The bill is
similar to the administration's proposal in several respects. Like the
administration's proposal, the bill would create "taxable REIT subsidiaries"
that would not be subject to the 5% asset test, but that would remain subject to
the 25% asset test. The "taxable REIT subsidiaries" would also be subject to
"earnings stripping" limitations on the deductibility of interest. Under the
bill, a REIT would be able to rent up to 10% of a property to a taxable REIT
subsidiary and generally have the rent qualify as good income. The bill would
also change the 10% voting securities test to a 10% vote or value test unless
the corporation elects to be a taxable REIT subsidiary or the securities qualify
for the "grandfather rule." In general, the "grandfather rule" would apply to
securities of a corporation in which the REIT owned an interest on July 12,
1999. The grandfather rule would also apply to securities acquired in a tax-free
exchange for "grandfathered securities" and to securities acquired in a
qualifying tax-free reorganization with another REIT, if those securities were
grandfathered in the hands of the other REIT. Securities of a corporation will
lose their "grandfathered" status if the corporation acquires any substantial
asset or engages in a substantial new line of business after July 12, 1999
(other than pursuant to a binding contract in effect on that date). It is
presently uncertain whether any proposal regarding REIT subsidiaries, including
the budget proposal or the bill, will be enacted or, if enacted, what the terms,
including the effective date, will be.
Annual Distribution Requirements Applicable to REITs. CarrAmerica, in
order to qualify as a REIT, is required to distribute dividends, other than
capital gain dividends, to its stockholders in an amount at least equal to
(i) the sum of (a) 95% of CarrAmerica's REIT taxable income, computed
without regard to the dividends paid deduction and CarrAmerica'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 CarrAmerica recognizes any built-in gain, CarrAmerica
will be required, pursuant to IRS regulations which have not yet been
promulgated, to distribute at least 95% of the built-in gain, after tax,
recognized on the disposition of such asset. Such distributions must be paid
either in the taxable year to which they relate, or in the following taxable
year if declared before CarrAmerica timely files its tax return for such year
and if paid on or before the first regular dividend payment date after such
declaration. See " - General" above for a discussion of the possible recognition
of built-in gain.
To the extent that CarrAmerica 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 is subject to tax thereon at regular ordinary
and capital gain corporate tax rates. CarrAmerica, however, may designate some
or all of its retained net capital gain, so that, although the designated amount
will not be treated as distributed for purposes of this tax, a stockholder would
include its proportionate share of such amount in income, as capital gain, and
would be treated as having paid its proportionate share of the tax paid by
CarrAmerica with respect to such amount. The stockholder's basis in its stock
would be increased by the amount the stockholder included in income and
decreased by the amount of the tax the stockholder is treated as having paid.
CarrAmerica would make an appropriate adjustment to its earnings and profits.
For a more detailed description of the federal income tax consequences to a
stockholder of such a designation, see " - Taxation of Taxable U.S. Stockholders
Generally."
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CarrAmerica believes that it has made, and intends to continue to make,
timely distributions sufficient to satisfy the annual distribution requirements.
Accordingly, CarrAmerica 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 CarrAmerica, from time to time, may not
have sufficient cash or other liquid assets to meet these distribution
requirements. In such event, in order to meet the distribution requirements,
CarrAmerica may find it necessary to arrange for short-term, or possibly
long-term borrowings to fund required distributions or to pay dividends in the
form of taxable stock dividends.
Under certain circumstances, CarrAmerica may be able to rectify a
failure to meet the distribution requirement for a year by paying deficiency
dividends to stockholders in a later year, which may be included in
CarrAmerica's deduction for dividends paid for the earlier year. Thus,
CarrAmerica may be able to avoid being taxed on amounts distributed as
deficiency dividends; however, CarrAmerica will be required to pay interest
based upon the amount of any deduction taken for deficiency dividends.
Furthermore, if CarrAmerica should fail to distribute during each
calendar year at least the sum of 85% of its REIT ordinary income for such year,
95% of its REIT capital gain income for such year, and any undistributed taxable
income from prior periods, CarrAmerica 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.
Recordkeeping Requirements. Pursuant to applicable IRS regulations,
CarrAmerica must comply with certain recordkeeping requirements to qualify for
taxation as a REIT.
Failure of CarrAmerica to Qualify as a REIT. If CarrAmerica fails to
qualify for taxation as a REIT in any taxable year and if the relief provisions
do not apply, CarrAmerica will be subject to tax, including any applicable
alternative minimum tax, on its taxable income at regular corporate rates.
Distributions to stockholders in any year in which CarrAmerica fails to qualify
will not be deductible by CarrAmerica nor will they be required to be made. As a
result, CarrAmerica's failure to qualify as a REIT would significantly reduce
the cash available for distributions by CarrAmerica to its stockholders. In
addition, if CarrAmerica fails to qualify as a REIT, all distributions to
stockholders will be taxable as ordinary income, to the extent of CarrAmerica's
current and accumulated earnings and profits. Subject to certain limitations of
the Internal Revenue Code, corporate distributees may be eligible for the
dividends received deduction with respect to these distributions. Unless
entitled to relief under specific statutory provisions, CarrAmerica 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 CarrAmerica would be entitled to such statutory relief.
Taxation of Taxable U.S. Stockholders Generally
As used herein, the term "U.S. stockholder" 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 or trust 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.
Distributions by CarrAmerica. As long as CarrAmerica qualifies as a
REIT, distributions made by CarrAmerica out of its current or accumulated
earnings and profits, and not designated as capital gain dividends, constitute
dividends taxable to its taxable U.S. stockholders as ordinary income. Such
distributions are not eligible for the dividends received deduction in the case
of U.S.
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stockholders that are corporations. To the extent that CarrAmerica makes
distributions not designated as capital gain dividends in excess of its current
and accumulated earnings and profits, such distributions are treated first as a
tax-free return of capital to each U.S. stockholder, reducing the adjusted basis
which such U.S. stockholder has in its shares for tax purposes by the amount of
such distribution but not below zero, with distributions in excess of a U.S.
stockholder's adjusted basis in its shares taxable as capital gains, provided
that the shares have been held as a capital asset. Dividends declared by
CarrAmerica in October, November, or December of any year and payable to a
stockholder of record on a specified date in any such month shall be treated as
both paid by CarrAmerica and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by CarrAmerica on or before
January 31 of the following calendar year.
Distributions made by CarrAmerica that are properly designated by
CarrAmerica as capital gain dividends are subject to special rules. They are
taxed as gain from the sale or exchange of a capital asset held for more than
one year to the extent that they do not exceed CarrAmerica's actual net capital
gain for the taxable year, without regard to the period for which a U.S.
stockholder has held its shares. In the event that CarrAmerica designates any
portion of a dividend as a "capital gain dividend," a U.S. stockholder's share
of such capital gain dividend would be an amount which bears the same ratio to
the total amount of dividends paid to such U.S. stockholder for the year as the
aggregate amount designated as a capital gain dividend bears to the aggregate
amount of all dividends paid on all classes of shares for the year.
Pursuant to IRS Notice 97-64, CarrAmerica generally may classify
portions of its designated capital gain dividend as either a 20% rate gain
distribution, which would be taxable to non-corporate U.S. stockholders, i.e.
individuals, estates or trusts, at a maximum rate of 20%, an unrecaptured
Section 1250 gain distribution, which would be taxable to non-corporate U.S.
stockholders at a maximum rate of 25%, or a 28% rate gain distribution, which
would be taxable to non-corporate U.S. stockholders at a maximum rate of 28%. If
no designation is made, the entire designated capital gain dividend will be
treated as a 28% rate gain distribution. 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 Internal Revenue
Code as if the REIT were an individual whose ordinary income were subject to a
marginal tax rate of at least 28%. Notice 97-64 further provides that
designations made by the REIT only will be effective to the extent that they
comply with Revenue Ruling 89-91, which requires that distributions made to
different classes of shares be composed proportionately of dividends of a
particular type. For a discussion of the capital gain tax rates applicable to
non-corporate U.S. stockholders, see "--Capital Gain Rates" below.
Distributions made by CarrAmerica that are properly designated as
capital gain dividends will be taxable to taxable corporate U.S. stockholders as
long-term capital gain to the extent that they do not exceed CarrAmerica's
actual net capital gain for the taxable year, at a maximum rate of 35% without
regard to the period for which such corporate U.S. stockholder has held its
shares. Such corporate U.S. stockholders may, however, be required to treat up
to 20% of certain capital gain dividends as ordinary income.
U.S. stockholders may not include in their individual income tax
returns any net operating losses or capital losses of CarrAmerica. Instead, such
losses would be carried over by CarrAmerica for potential offset against future
income, subject to certain limitations. Distributions made by CarrAmerica and
gain arising from the sale or exchange by a U.S. stockholder of common stock
will not be treated as passive activity income, and as a result, U.S.
stockholders generally will not be able to apply any "passive losses" against
such income or gain. In addition, taxable distributions from CarrAmerica
generally will be treated as investment income for purposes of the investment
interest limitations. Capital gain dividends and capital gains from the
disposition of shares, including distributions treated as such, however, will be
treated as investment income for purposes of the investment interest limitation
only if the U.S. stockholder so elects, in which case such capital gains will be
taxed at ordinary income rates. CarrAmerica will notify stockholders after the
close of CarrAmerica's taxable year as to the portions of distributions
attributable to that year that constitute ordinary income, return of capital and
capital gain.
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CarrAmerica may designate, by written notice to its stockholders, its
net capital gain so that with respect to retained net capital gains, a U.S.
stockholder would include its proportionate share of such gain in income, as
long-term capital gain, and would be treated as having paid its proportionate
share of the tax paid by CarrAmerica with respect to the gain. The U.S.
stockholder's basis in its shares would be increased by its share of such gain
and decreased by its share of such tax. With respect to such long-term capital
gain of a U.S. stockholder that is an individual or an estate or trust, the IRS,
as described below in this section, has authority to issue regulations that
could apply the special tax rate applicable generally 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. IRS
Notice 97-64, described above in this Section, did not address the taxation of
noncorporate REIT stockholders with respect to retained net capital gains.
Sales of Common stock. Upon any sale or other disposition of common
stock, a U.S. stockholder will recognize gain or loss for federal income tax
purposes in an amount equal to the difference between (i) the amount of cash and
the fair market value of any property received on such sale or other disposition
and (ii) the holder's adjusted basis in such common stock for tax purposes. Such
gain or loss will be a capital gain or loss if the common stock have been held
by the U.S. stockholder as a capital asset. In the case of a U.S. stockholder
who is an individual or an estate or trust, such gain or loss will be long-term
capital gain or loss, and any such long-term capital gain shall be subject to
the maximum capital gain rate of 20%. In the case of a U.S. stockholder that is
a corporation, such gain or loss will be long-term capital gain or loss if such
common stock have been held for more than one year, and any such capital gain
shall be subject to the maximum capital gain rate of 35%. In general, any loss
recognized by a U.S. stockholder upon the sale or other disposition of common
stock that have been held 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 received by such U.S. stockholder from CarrAmerica that were
required to be treated as long-term capital gains.
Capital Gain Rates. The maximum rate of tax for individuals, trusts and
estates on the net capital gain from the sale or exchange of an asset held for
more than 12 months is 20%. Net capital gain from the sale of an asset held for
12 months or less is subject to tax at the applicable rate for ordinary income.
The maximum rate for net capital gains attributable to the sale of depreciable
real property held for more than 12 months is 25% to the extent of the prior
depreciation deductions not otherwise recaptured as ordinary income under the
IRS's depreciation recapture rules. For a discussion of the rules under the
Taxpayer Relief Act that apply to the taxation of distributions by CarrAmerica
to its stockholders that are designated by CarrAmerica as capital gain
dividends, see "--Distributions by CarrAmerica" above. Stockholders are urged to
consult with their own tax advisors with respect to the rules contained in the
Taxpayer Relief Act and the IRS Restructuring Act.
Backup Withholding for CarrAmerica's Distributions
CarrAmerica will report to its U.S. stockholders and the IRS the amount
of dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a U.S. stockholder may be subject to
backup withholding at the rate of 31% with respect to dividends paid unless such
holder either is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding rules.
A U.S. stockholder that does not provide CarrAmerica with a correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding is creditable against the stockholder's income
tax liability. In addition, CarrAmerica may be required to withhold a portion of
its capital gain distributions to any stockholders who fail to certify their
nonforeign status to CarrAmerica. See " - Taxation of Non-U.S. Stockholders"
below.
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Taxation of Tax-Exempt Stockholders
Provided that a tax-exempt stockholder has not held its common stock as
"debt financed property" within the meaning of the Internal Revenue Code and
such common stock are not otherwise used in a trade or business, the dividend
income from CarrAmerica will not be unrelated business taxable income ("UBTI")
to a tax-exempt stockholder. Similarly, income from the sale of common stock
will not constitute UBTI unless such tax-exempt stockholder has held such common
stock as debt financed property within the meaning of the Internal Revenue Code
or has used the common stock in a trade or business.
However, for tax-exempt stockholders that are social clubs, voluntary
employee benefit associations, supplemental unemployment benefit trusts, and
qualified group legal services plans exempt from federal income taxation under
Code Sections 501 (c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from
an investment in CarrAmerica will constitute UBTI unless the organization is
able to properly deduct amounts set aside or placed in reserve for certain
purposes so as to offset the income generated by its investment in CarrAmerica.
Such stockholders should consult their own tax advisors concerning these "set
aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by
a "pension held REIT" are treated as UBTI as to any trust which is described in
Section 401(a) of the Internal Revenue Code, is tax-exempt under Section 501(a)
of the Internal Revenue Code, and holds more than 10%, by value, of the
interests in the REIT. Tax-exempt pension funds that are described in Section
401(a) of the Internal Revenue Code are referred to below as "qualified trusts."
A REIT is a pension held REIT if (i) it would not have qualified as a
REIT but for the fact that Section 856(h)(3) of the Internal Revenue Code
provides that stock owned by qualified trusts shall be treated, for purposes of
the "not closely held" requirement, as owned by the beneficiaries of the trust
rather than by the trust itself, and (ii) either (a) at least one such qualified
trust holds more than 25%, by value, of the interests in the REIT, or (b) one or
more such qualified trusts, each of which owns more than 10%, by value, of the
interests in the REIT, hold in the aggregate more than 50%, by value, of the
interests in the REIT. The percentage of any REIT dividend treated as UBTI is
equal to the ratio of the UBTI earned by the REIT, treating the REIT as if it
were a qualified trust and therefore subject to tax on UBTI, to the total gross
income of the REIT. An exception applies where the percentage is less than 5%
for any year. The provisions requiring qualified trusts to treat a portion of
REIT distributions as UBTI will not apply if the REIT is able to satisfy the not
closely held requirement without relying upon the "look-through" exception with
respect to qualified trusts. Based on both the current ownership common stock
and the limitations on transfer and ownership of common stock contained in the
Declaration of Trust, CarrAmerica does not expect to be classified as a pension
held REIT.
Taxation of Non-U.S. Stockholders
The rules governing federal income taxation of the ownership and
disposition of common stock by non-U.S. stockholders are complex, and no attempt
is made herein to provide more than a brief summary of those rules. Accordingly,
this discussion does not address all aspects of federal income tax and does not
address state, local or foreign tax consequences that may be relevant to a
non-U.S. stockholder in light of its particular circumstances. In addition, this
discussion is based on current law, which is subject to change, and assumes that
CarrAmerica qualifies for taxation as a REIT. Prospective non-U.S. stockholders
should consult with their own tax advisers to determine the impact of federal,
state, local and foreign income tax laws with regard to an investment in common
stock, including any reporting requirements.
Distributions by CarrAmerica. Distributions by CarrAmerica to a
non-U.S. stockholder that are neither attributable to gain from sales or
exchanges by CarrAmerica of United States real property interests nor designated
by CarrAmerica as capital gains 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 CarrAmerica. Such distributions ordinarily will be
subject to withholding of
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United States federal income tax on a gross basis (that is, without allowance of
deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are treated as effectively
connected with the conduct by the non-U.S. stockholder of a United States trade
or business. Under certain treaties, however, lower withholding rates generally
applicable to dividends do not apply to dividends from a REIT, such as
CarrAmerica. Certain certification and disclosure requirements must be satisfied
to be exempt from withholding under the effectively connected income exemption.
Dividends that are effectively connected with such a trade or business will be
subject to tax on a net basis (that is, after allowance for deductions) at
graduated rates, in the same manner as U.S. stockholders are taxed with respect
to such dividends, and are generally not subject to withholding. Any such
dividends received by a non-U.S. stockholder that is a corporation may also be
subject to an additional branch profits tax at a 30% rate or such lower rate as
may be specified by an applicable income tax treaty. CarrAmerica expects to
withhold United States income tax at the rate of 30% on any distributions made
to a non-U.S. stockholder unless (i) a lower treaty rate applies and any
required form or certification evidencing eligibility for that reduced rate is
filed with CarrAmerica or (ii) the non-U.S. stockholder files an IRS Form 4224
with CarrAmerica claiming that the distribution is effectively connected income.
Distributions in excess of current or accumulated earnings and profits
of CarrAmerica will not be taxable to a non-U.S. stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's common stock but
rather will reduce the adjusted basis of such common stock. To the extent that
such distributions exceed the adjusted basis of a non-U.S. stockholder's common
stock, they will give rise to gain from the sale or exchange of its common
stock, the tax treatment of which is described below.
As a result of a legislative change made by the Small Business Job
Protection Act of 1996, it appears that CarrAmerica will be required to withhold
10% of any distribution in excess of its current and accumulated earnings and
profits. Consequently, although CarrAmerica intends to withhold at a rate of
30%, or a lower applicable treaty rate, on the entire amount of any
distribution, to the extent that CarrAmerica 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, a
non-U.S. stockholder may seek a refund of such amounts from the IRS if it
subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of CarrAmerica, and the amount
withheld exceeded the non-U.S. stockholder's United States tax liability, if
any, with respect to the distribution.
Distributions to a non-U.S. stockholder that are designated by
CarrAmerica at the time of the distributions as capital gain dividends, other
than those arising from the disposition of a United States real property
interest, generally will not be subject to United States federal income taxation
unless
(i) the investment in the common stock is effectively connected with
the non-U.S. stockholder's United States trade or business, in
which case the non-U.S. stockholder will be subject to the same
treatment as U.S. stockholders with respect to such gain, except
that a stockholder that is a foreign corporation may also be
subject to the 30% branch profits tax, as discussed above, or
(ii) the non-U.S. stockholder is a nonresident alien individual who is
present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States, in which
case the nonresident alien individual will be subject to a 30% tax
on the individual's capital gains.
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"),
distributions to a non-U.S. stockholder that are attributable to gain from sales
or exchanges by CarrAmerica of United States real property interests, whether or
not designated as a capital gain dividend, will cause the non-U.S. stockholder
to be treated as recognizing such gain as income effectively connected with a
United States trade or business. Non-U.S. stockholders would thus generally be
taxed at the same
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<PAGE>
rates applicable to U.S. stockholders, subject to a special alternative minimum
tax in the case of nonresident alien individuals. Also, such gain may be subject
to a 30% branch profits tax in the hands of a non-U.S. stockholder that is a
corporation, as discussed above. CarrAmerica is required to withhold 35% of any
such distribution. That amount is creditable against the non-U.S. stockholder's
United States federal income tax liability.
Although the law is not entirely clear on the matter, it appears that
amounts designated by CarrAmerica pursuant to the Taxpayer Relief Act as
undistributed capital gains in respect of the common stock held by U.S.
stockholders (see " - Requirements for Qualification as a REIT - Annual
Distribution Requirements Applicable to REITs" above) would be treated with
respect to non-U.S. stockholders in the manner outlined in the preceding two
paragraphs for actual distributions by CarrAmerica of capital gain dividends.
Under that approach, the non-U.S. stockholders 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 CarrAmerica on such
undistributed capital gains, and to receive from the IRS a refund to the extent
their proportionate share of such tax paid by CarrAmerica were to exceed their
actual United States federal income tax liability.
Sale of Common Stock. Gain recognized by a non-U.S. stockholder upon
the sale or exchange of common stock generally will not be subject to United
States taxation unless
(1) the investment in the common stock is effectively connected with
the non-U.S. stockholder's United States trade or business, in which case the
non-U.S. stockholder will be subject to the same treatment as domestic
stockholders with respect to such gain;
(2) the non-U.S. stockholder is a nonresident alien individual who is
present in the United States for 183 days or more during the taxable year and
has a tax home in the United States, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains; or
(3) such common stock constitutes a "United States real property
interest" within the meaning of FIRPTA. If gain on the sale or exchange of
common stock were subject to taxation under FIRPTA, the non-U.S. stockholder
would be subject to regular United States income tax with respect to such gain
in the same manner as a taxable U.S. stockholder, subject to any applicable
alternative minimum tax, a special alternative minimum tax in the case of
nonresident alien individuals and the possible application of the 30% branch
profits tax in the case of foreign corporations. The purchaser of the common
stock would be required to withhold and remit to the IRS 10% of the purchase
price.
Shares of CarrAmerica's common stock will constitute a United States
real property interest unless CarrAmerica qualifies as 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 March 15, 1999, a Luxembourg
corporation, referred to as "SC-USREALTY," which is a wholly owned subsidiary of
Security Capital U.S. Realty, held approximately 39.9% in value of the
securities of CarrAmerica. In the event that SC-USREALTY and other stockholders
of CarrAmerica who are non-U.S. stockholders own collectively 50% or more, in
value, of the outstanding stock of CarrAmerica, CarrAmerica would cease to be a
"domestically controlled REIT."
Even if CarrAmerica does not qualify as or ceases to be a domestically
controlled REIT, gain arising from the sale or exchange by a non-U.S.
stockholder of common stock still would not be subject to United States taxation
under FIRPTA as a sale of a United States real property interest if:
(i) the class or series of shares being sold is "regularly traded," as
defined by applicable IRS regulations, on an established
securities market such as the New York Stock Exchange, and
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<PAGE>
(ii) the selling non-U.S. stockholder owned 5% or less of the value of
the outstanding class or series of shares being sold throughout
the five-year period ending on the date of the sale or exchange.
CarrAmerica believes the Common Stock would be considered to be
"regularly traded" for this purpose, and CarrAmerica has no actual knowledge of
any non-U.S. stockholder, other than SC-USREALTY, that holds in excess of 5% of
CarrAmerica's stock. In order to assist CarrAmerica in qualifying as a
"domestically controlled REIT," the Articles of Incorporation contain provisions
preventing any non-U.S. stockholder, other than SC-USREALTY and its affiliates,
from acquiring additional shares of CarrAmerica's capital stock if, as a result
of the acquisition, CarrAmerica would fail to qualify as a "domestically
controlled REIT," computed assuming that SC-USREALTY owns the maximum percentage
of CarrAmerica's capital stock that it is permitted to own under the special
stockholder limit applicable to SC-USREALTY. An acquisition of CarrAmerica
capital stock in violation of this provision would result that stock being
reacquired automatically from the foreign investor by a designated charitable
trust. CarrAmerica anticipates that it would be unable to advise a prospective
non-U.S. stockholder that its purchase of any shares of CarrAmerica's capital
stock would not violate this prohibition. Accordingly, CarrAmerica's capital
stock generally would not be a suitable investment for non-U.S. stockholders
other than SC-USREALTY.
Backup Withholding Tax and Information Reporting. Backup withholding
tax 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. Backup withholding and information
reporting will generally not apply to distributions paid to non-U.S.
stockholders outside the United States that are treated as dividends subject to
the 30% (or lower treaty rate) withholding tax discussed above, capital gain
dividends or distributions attributable to gain from the sale or exchange by
CarrAmerica 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. Generally, information reporting will apply 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," which, in general, is a
foreign corporation that controlled by United States stockholders.
If, however, the broker has documentary evidence in its records that
the holder is a non-U.S. stockholder and certain other conditions are met or the
stockholder otherwise establishes an exemption information reporting will not
apply. 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 stockholder certifies under penalty of perjury that the
stockholder is a non-U.S. stockholder, or otherwise establishes an exemption. A
non-U.S. stockholder may obtain a refund of any amounts withheld under the
backup withholding rules by filing the appropriate claim for refund with the
IRS.
The IRS has recently finalized 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. These regulations generally are 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
30
<PAGE>
changes in the circumstances of the person whose name is on such certificate. A
non-U.S. stockholder should consult its own advisor regarding the effect of the
new regulations.
Tax Aspects of CarrAmerica's Ownership of Interests in Partnerships
General. A substantial portion of CarrAmerica's investments are held
indirectly through CarrAmerica Realty, L.P., Carr Realty, L.P., and other
partnerships and LLCs. In general, partnerships and limited liability companies
are "pass-through" entities that are not subject to federal income tax. Rather,
partners or members are allocated their proportionate shares of the items of
income, gain, loss, deduction and credit of the pass-through entity, and are
potentially subject to tax thereon, without regard to whether the partners or
members receive a distribution from the partnership. CarrAmerica includes in its
income its proportionate share of the foregoing partnership items for purposes
of the various REIT income tests and in the computation of its REIT taxable
income. Moreover, for purposes of the REIT asset tests, CarrAmerica includes its
proportionate share of assets held through CarrAmerica Realty, L.P., Carr
Realty, L.P., and other partnerships and LLCs. See " Requirements for
Qualification as a REIT - Ownership of Partnership Interests by a REIT" above.
Entity Classification. CarrAmerica believes that CarrAmerica Realty,
L.P. and Carr Realty, L.P. and each partnership in which CarrAmerica owns an
interest will be treated as a partnership for federal income tax purposes and
not as an association taxable as a corporation. CarrAmerica believes that each
LLC in which CarrAmerica owns an interest will be treated as a partnership or
disregarded for federal income tax purposes. If any of these partnerships or
LLCs 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 CarrAmerica's assets and items of gross
income would change and could preclude CarrAmerica from qualifying as a REIT
(see " - Requirements for Qualification as a REIT - Asset Tests Applicable to
REITs" and " - Income Tests Applicable to REITs" above).
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 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
IRS 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
will be taxed as a partnership for federal income tax purposes, unless it
specifically elects otherwise. The regulations provide that the IRS will not
challenge the classification of an existing partnership or limited liability
company for tax periods prior to January 1, 1997 so long as:
(1) the entity had a reasonable basis for its claimed classification,
(2) the entity and all its members recognized the federal income tax
consequences of any changes in the entity's classification within the 60 months
prior to January 1, 1997, and
(3) neither the entity nor any member of the entity had been notified
in writing on or before May 8, 1996 that the classification of the entity was
under examination by the IRS.
Allocations of Partnership Income, Gain, Loss and Deduction. Although a
partnership agreement will generally determine the allocation of income and loss
among partners, such allocations will be disregarded for tax purposes if they do
not comply with the provisions of Section 704(b) of the Internal Revenue Code
and the applicable regulations. Generally, Section 704(b) and the applicable
regulations require that partnership allocations respect the economic
arrangement of the partners.
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<PAGE>
If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The allocations of taxable income and
loss provided for in the CarrAmerica Realty, L.P. and Carr Realty, L.P.
partnership agreements are intended to comply with the requirements of Section
704(b) of the Internal Revenue Code and the regulations promulgated thereunder.
Tax Allocations with Respect to the Properties. Pursuant to Section
704(c) of the Internal Revenue Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the difference between the adjusted tax basis and the fair market
value of such property at the time of contribution associated with the property
at the time of contribution. The difference is known as the book-tax difference.
Such allocations are solely for federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners. Under regulations promulgated under Section 704 of the Internal
Revenue Code, similar rules apply when a partnership elects to "revalue" its
assets in certain situations, such as when a contribution of property is made to
a partnership by a new partner.
In general, if any asset contributed to or revalued by a partnership is
determined to have a fair market value that is greater than its adjusted tax
basis, certain partners, including CarrAmerica, will be allocated lower amounts
of depreciation deductions as to certain properties for tax purposes and
increased taxable income and gain on sale. Such allocations will tend to
eliminate the book-tax difference over the life of the partnership. However, the
special allocation rules of Section 704(c) of the Internal Revenue Code do not
always entirely rectify the book-tax difference on an annual basis or with
respect to a specific transaction such as a sale. Thus, CarrAmerica may be
allocated lower depreciation and other deductions, and possibly greater amounts
of taxable income in the event of a sale of contributed assets, and such amounts
may be in excess of the economic or book income allocated to it as a result of
such sale. Such an allocation might cause CarrAmerica to recognize taxable
income in excess of cash proceeds, which might adversely affect CarrAmerica's
ability to comply with the REIT distribution requirements. In this regard, it
should be noted that as the general partner of CarrAmerica Realty, L.P. and Carr
Realty, L.P., CarrAmerica will determine when and whether to sell any given
property. See " - Requirements for Qualification as a REIT - Annual Distribution
Requirements Applicable to REITs."
Other Tax Consequences for CarrAmerica and Its Stockholders
CarrAmerica and its stockholders are 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 CarrAmerica
and its stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective stockholders of CarrAmerica should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in CarrAmerica . In this regard, the District of Columbia
imposes an unincorporated business income tax, at the rate of 9.975%, on the
"District of Columbia taxable income" of partnerships doing business in the
District of Columbia. Because many of the Properties owned by Carr Realty, L.P.
are located in the District of Columbia, the Company's share of the "District of
Columbia taxable income" of Carr Realty, L.P. will be subject to this tax. Carr
Realty, L.P. has taken steps to attempt to reduce the amount of income that is
considered "District of Columbia taxable income," but it is likely that at least
some portion of the income attributable to the Properties located in the
District of Columbia will be subject to the District of Columbia tax. To the
extent Carr Realty, L.P. is required to pay the District of Columbia
unincorporated business income tax, the cash available for distribution to the
Company and, therefore, to its stockholders as dividends will be reduced
accordingly. This tax would not apply if the Company were to own and operate its
assets directly, rather than through Carr Realty, L.P.; however, the Company's
ability to eliminate Carr Realty, L.P. and thus own directly the assets
currently owned by Carr Realty, L.P. is severely limited.
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<PAGE>
A portion of the cash to be used by CarrAmerica to fund distributions
comes from the noncontrolled subsidiaries through payment of dividends on the
stock of such corporations held by CarrAmerica. The noncontrolled subsidiaries
pay federal and state income tax, including the District of Columbia franchise
tax, at the full applicable corporate rates. To the extent that the
noncontrolled subsidiaries are required to pay federal, state or local taxes,
the cash otherwise available for distribution by CarrAmerica to stockholders
will be reduced accordingly.
PLAN OF DISTRIBUTION
This prospectus relates to the possible issuance from time to time by
CarrAmerica Realty Corporation of up to 271,363 shares of our common stock if,
and to the extent that, we elect to issue such shares to the holders of 271,363
units of limited partner interest in the Partnership, upon the tender of such
units for redemption. We have registered the issuance of such shares to permit
the holders of such units to sell the shares so issued without restriction in
the open market or otherwise, but registration of the issuance of the shares
does not necessarily mean that any holders of the units will elect to redeem
them or that we will issue any such shares upon any redemption.
We will acquire one unit from a redeeming partner in exchange for each
share of our common stock that we issue. Consequently, with each redemption, our
interest in the Partnership will increase.
EXPERTS
Our consolidated financial statements and schedule, as of December 31,
1998 and 1997 and for each of the years in the three-year period ended December
31, 1998, have been incorporated herein by reference in reliance upon the
reports of KPMG LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
LEGAL MATTERS
The legality of the securities offered hereby and certain tax matters
have been passed upon for us by Hogan & Hartson L.L.P., Washington, D.C.
33
<PAGE>
- --------------------------------------------------------------------------------
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this prospectus in
connection with the offering covered by this prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by CarrAmerica Realty Corporation. This prospectus does not constitute an offer
to sell, or a solicitation of any offer to buy, the shares of common stock of
CarrAmerica Realty Corporation in any jurisdiction where, or to any person to
whom, it is unlawful to make any such offer or solicitation. Neither the
delivery of this prospectus nor any offer or sale made hereunder shall, under
any circumstances, create an implication that there has not been any change in
the facts set forth in this prospectus or in the affairs of CarrAmerica Realty
Corporation since the date hereof.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
About the Company 2
Securities Being Offered 2
Risk Factors 2
About this Prospectus 3
Where to Find More Information 3
A Warning about Forward-Looking Statements 4
Redemption of Units 4
Federal Income Tax Considerations 15
Plan of Distribution 33
Experts 33
Legal Matters 33
- --------------------------------------------------------------------------------
271,363 Shares
CarrAmerica Realty Corporation
Common Stock
----------------------------------
PROSPECTUS
----------------------------------
___________ __, 1999
34
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses, other than underwriting discounts and
commissions, in connection with the offering of the shares of CarrAmerica Realty
Corporation common stock, are as follows:
Registration Fee - Securities and Exchange Commission $ 1,655
Legal Fees and Expenses 50,000
Accounting Fees and Expenses 10,000
Miscellaneous 3,345
--------
Total $ 65,000
Item 15. Indemnification of Officers and Directors.
CarrAmerica Realty Corporation's officers and directors are and will be
indemnified under Maryland law and under the charter and by-laws of the company.
The charter requires CarrAmerica to indemnify its directors and officers to the
fullest extent permitted from time to time by the laws of Maryland. The by-laws
require the company to indemnify, to the fullest extent permitted under Section
2-418 of the Maryland General Corporation Law as in effect from time to time,
any person who is or was, or is the personal representative of a deceased person
who was, a director or officer of CarrAmerica 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 of directors of CarrAmerica 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 of directors 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 of directors 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 Maryland General Corporation Law.
In addition, CarrAmerica's charter provides that, to the fullest extent
permitted under Maryland law, directors and officers of the company will not be
liable to CarrAmerica and its stockholders for money damages. 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 corporation shall be liable to the corporation or to any stockholder 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.
Item 16. Exhibits.
The exhibits to this Registration Statement are listed in the Exhibit
Index, which appears immediately after the signature page and is incorporated
herein by reference.
II-1
<PAGE>
Item 17. Undertakings.
I. 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, as amended;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in this 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 SEC 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;
(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 paragraphs I(1)(i) and I(1)(ii) do not apply
if 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 SEC by the registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934, as amended,
that are incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such 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 securities being registered which remain unsold at the
termination of the offering.
II. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended, that is incorporated
by reference in this registration statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
III. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to existing provisions or arrangements
whereby the registrant may indemnify a director, officer or controlling person
of the registrant against liabilities arising under the Securities Act of 1933,
as amended, or otherwise, the registrant has been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in the
Securities Act of 1933, as amended, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
II-2
<PAGE>
(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 Securities Act of 1933, as amended, 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, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Washington, D.C., on October 15, 1999.
CARRAMERICA REALTY CORPORATION,
a Maryland corporation
By: /s/ Richard F. Katchuk
--------------------------------
Richard F. Katchuk
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated below:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
* Chairman of the Board of Directors October 15, 1999
- -------------------------
Oliver T. Carr, Jr.
* President, Chief Executive Officer October 15, 1999
- ------------------------- and Director (principal executive
Thomas A. Carr officer)
/s/ Richard F. Katchuk Chief Financial Officer (principal October 15, 1999
- ------------------------- financial and accounting officer)
Richard F. Katchuk
* Director October 15, 1999
- -------------------------
C. Ronald Blankenship
* Director October 15, 1999
- -------------------------
Andrew F. Brimmer
* Director October 15, 1999
- -------------------------
A. James Clark
* Director October 15, 1999
- -------------------------
Timothy Howard
* Director October 15, 1999
- -------------------------
Caroline S. McBride
* Director October 15, 1999
William D. Sanders
- -------------------------
* Director October 15, 1999
- -------------------------
Wesley S. Williams, Jr.
</TABLE>
II-4
<PAGE>
* By: /s/ Richard F. Katchuk
---------------------------
Richard F. Katchuk
As Attorney-in-Fact
(See Exhibit 24.1)
II-5
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
3.1 Articles of Amendment and Restatement of Articles of
Incorporation of CarrAmerica Realty Corporation (incorporated
by reference to Exhibit 3.1 of the Quarterly Report on Form
10-Q of CarrAmerica Realty Corporation for the quarter ended
March 31, 1996)
3.2 Articles Supplementary Relating to Series A Cumulative
Convertible Redeemable Preferred Stock dated October 24, 1996
(incorporated by reference to Exhibit 4.1 of the Quarterly
Report on Form 10-Q of CarrAmerica Realty Corporation for the
quarter ended September 30, 1996)
3.3 Articles Supplementary Relating to Series B Cumulative
Redeemable Preferred Stock dated August 8, 1997 (incorporated
by reference to Exhibit 3.1 of the Quarterly Report on Form
10-Q of CarrAmerica Realty Corporation for the quarter ended
June 30, 1997)
3.4 Articles Supplementary Relating to Series C Cumulative
Redeemable Preferred Stock dated October 30, 1997
(incorporated by reference to Exhibit 4.1 of the Current
Report on Form 8-K of CarrAmerica Realty Corporation filed on
November 6, 1997)
3.5 Articles Supplementary Relating to Series D Cumulative
Redeemable Preferred Stock dated December 17, 1997
(incorporated by reference to Exhibit 4.1 of the Current
Report on Form 8-K of CarrAmerica Realty Corporation filed on
December 19, 1997)
3.6 Articles of Amendment of Articles of Amendment and Restatement
of Articles of Incorporation of CarrAmerica Realty Corporation
(incorporated by reference to Exhibit 3.1 to the Current
Report on Form 8-K of CarrAmerica Realty Corporation filed on
July 1, 1998)
3.7 Second Amendment and Restatement of By-laws of CarrAmerica
Realty Corporation (incorporated by reference to Exhibit 3 of
the Current Report on Form 8-K of CarrAmerica Realty
Corporation filed on February 12, 1997)
3.8 Amendment to Second Amendment and Restatement of By-laws of
CarrAmerica Realty Corporation (incorporated by reference to
Exhibit 3.2 of the Quarterly Report on Form 10-Q of
CarrAmerica Realty Corporation for the quarter ended June 30,
1998)
3.9 (Second) Amendment to Second Amendment and Restatement of
By-laws of CarrAmerica Realty Corporation (incorporated by
reference to Exhibit 3.3 of the Quarterly Report on Form 10-Q
of CarrAmerica Realty Corporation for the quarter ended June
30, 1998)
5.1* Opinion of Hogan & Hartson L.L.P. regarding the legality of
the securities being registered
8.1* Opinion of Hogan & Hartson L.L.P. regarding certain tax
matters
23.1* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
23.2* Consent of Hogan & Hartson L.L.P. (included in Exhibit 8.1)
23.3 Consent of KPMG LLP, independent public accountants
24.1 Powers of Attorney
- --------------
* To be filed by amendment
Exhibit 23.3
Accountants' Consent
--------------------
The Board of Directors
CarrAmerica Realty Corporation:
We consent to the incorporation by reference in the
registration statement of CarrAmerica Realty Corporation (the "Company") on Form
S-3, relating to the registration of 271,363 shares of common stock of the
Company to be issued upon the redemption of units of limited partnership
interest of CarrAmerica Realty, L.P., of our reports dated February 6, 1999,
relating to the consolidated balance sheets of CarrAmerica Realty Corporation
and subsidiaries as of December 31, 1998 and 1997 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1998 and the related schedule,
which reports appear in the December 31, 1998 annual report on Form 10-K of
CarrAmerica Realty Corporation. We also consent to the reference to our firm
name under the heading "Experts" in such registration statement.
/s/ KPMG LLP
Washington, D.C.
October 15, 1999
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Richard F. Katchuk and
Linda A. Madrid, and each of them, his true and lawful attorney-in-fact and
agent, with full power of substitution, to execute and deliver in the
undersigned's name and on the undersigned's behalf a Registration Statement on
Form S-3, any additional registration statement relating to the foregoing and
filed pursuant to Rule 462 under the Securities Act of 1933, as amended (the
"Act"), and any and all amendments thereto (including post-effective
amendments), and to file the same, with all exhibits and other documents in
connection therewith, with the Securities and Exchange Commission, and to
execute, deliver and file any other documents and instruments in the
undersigned's name or on the undersigned's behalf which said attorneys-in-fact
and agents, or either of them, may determine to be necessary or advisable to
comply with the Act and any rules or regulations promulgated thereunder,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person; and the undersigned
hereby ratifies and confirms all that said attorneys-in-fact and agents, or
either of them, or their substitutes, may lawfully do or cause to be done by
virtue of the power of attorney granted hereby.
Date: August 5, 1999
/s/ Oliver T. Carr, Jr.
------------------------------------
Oliver T. Carr, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Richard F. Katchuk and
Linda A. Madrid, and each of them, his true and lawful attorney-in-fact and
agent, with full power of substitution, to execute and deliver in the
undersigned's name and on the undersigned's behalf a Registration Statement on
Form S-3, any additional registration statement relating to the foregoing and
filed pursuant to Rule 462 under the Securities Act of 1933, as amended (the
"Act"), and any and all amendments thereto (including post-effective
amendments), and to file the same, with all exhibits and other documents in
connection therewith, with the Securities and Exchange Commission, and to
execute, deliver and file any other documents and instruments in the
undersigned's name or on the undersigned's behalf which said attorneys-in-fact
and agents, or either of them, may determine to be necessary or advisable to
comply with the Act and any rules or regulations promulgated thereunder,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person; and the undersigned
hereby ratifies and confirms all that said attorneys-in-fact and agents, or
either of them, or their substitutes, may lawfully do or cause to be done by
virtue of the power of attorney granted hereby.
Date: August 5, 1999
/s/ Thomas A. Carr
------------------------------------
Thomas A. Carr
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Linda A. Madrid his true
and lawful attorney-in-fact and agent, with full power of substitution, to
execute and deliver in the undersigned's name and on the undersigned's behalf a
Registration Statement on Form S-3, any additional registration statement
relating to the foregoing and filed pursuant to Rule 462 under the Securities
Act of 1933, as amended (the "Act"), and any and all amendments thereto
(including post-effective amendments), and to file the same, with all exhibits
and other documents in connection therewith, with the Securities and Exchange
Commission, and to execute, deliver and file any other documents and instruments
in the undersigned's name or on the undersigned's behalf which said
attorney-in-fact and agent may determine to be necessary or advisable to comply
with the Act and any rules or regulations promulgated thereunder, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person; and the undersigned hereby ratifies and confirms all that said
attorney-in-fact and agent or her substitutes, may lawfully do or cause to be
done by virtue of the power of attorney granted hereby.
Date: October 15, 1999
/s/ Richard F. Katchuk
------------------------------------
Richard F. Katchuk
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Richard F. Katchuk and
Linda A. Madrid, and each of them, his true and lawful attorney-in-fact and
agent, with full power of substitution, to execute and deliver in the
undersigned's name and on the undersigned's behalf a Registration Statement on
Form S-3, any additional registration statement relating to the foregoing and
filed pursuant to Rule 462 under the Securities Act of 1933, as amended (the
"Act"), and any and all amendments thereto (including post-effective
amendments), and to file the same, with all exhibits and other documents in
connection therewith, with the Securities and Exchange Commission, and to
execute, deliver and file any other documents and instruments in the
undersigned's name or on the undersigned's behalf which said attorneys-in-fact
and agents, or either of them, may determine to be necessary or advisable to
comply with the Act and any rules or regulations promulgated thereunder,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person; and the undersigned
hereby ratifies and confirms all that said attorneys-in-fact and agents, or
either of them, or their substitutes, may lawfully do or cause to be done by
virtue of the power of attorney granted hereby.
Date: August 5, 1999
/s/ C. Ronald Blankenship
------------------------------------
C. Ronald Blankenship
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Richard F. Katchuk and
Linda A. Madrid, and each of them, his true and lawful attorney-in-fact and
agent, with full power of substitution, to execute and deliver in the
undersigned's name and on the undersigned's behalf a Registration Statement on
Form S-3, any additional registration statement relating to the foregoing and
filed pursuant to Rule 462 under the Securities Act of 1933, as amended (the
"Act"), and any and all amendments thereto (including post-effective
amendments), and to file the same, with all exhibits and other documents in
connection therewith, with the Securities and Exchange Commission, and to
execute, deliver and file any other documents and instruments in the
undersigned's name or on the undersigned's behalf which said attorneys-in-fact
and agents, or either of them, may determine to be necessary or advisable to
comply with the Act and any rules or regulations promulgated thereunder,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person; and the undersigned
hereby ratifies and confirms all that said attorneys-in-fact and agents, or
either of them, or their substitutes, may lawfully do or cause to be done by
virtue of the power of attorney granted hereby.
Date: August 5, 1999
/s/ Andrew F. Brimmer
------------------------------------
Andrew F. Brimmer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Richard F. Katchuk and
Linda A. Madrid, and each of them, his true and lawful attorney-in-fact and
agent, with full power of substitution, to execute and deliver in the
undersigned's name and on the undersigned's behalf a Registration Statement on
Form S-3, any additional registration statement relating to the foregoing and
filed pursuant to Rule 462 under the Securities Act of 1933, as amended (the
"Act"), and any and all amendments thereto (including post-effective
amendments), and to file the same, with all exhibits and other documents in
connection therewith, with the Securities and Exchange Commission, and to
execute, deliver and file any other documents and instruments in the
undersigned's name or on the undersigned's behalf which said attorneys-in-fact
and agents, or either of them, may determine to be necessary or advisable to
comply with the Act and any rules or regulations promulgated thereunder,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person; and the undersigned
hereby ratifies and confirms all that said attorneys-in-fact and agents, or
either of them, or their substitutes, may lawfully do or cause to be done by
virtue of the power of attorney granted hereby.
Date: August 5, 1999
/s/ A. James Clark
------------------------------------
A. James Clark
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Richard F. Katchuk and
Linda A. Madrid, and each of them, his true and lawful attorney-in-fact and
agent, with full power of substitution, to execute and deliver in the
undersigned's name and on the undersigned's behalf a Registration Statement on
Form S-3, any additional registration statement relating to the foregoing and
filed pursuant to Rule 462 under the Securities Act of 1933, as amended (the
"Act"), and any and all amendments thereto (including post-effective
amendments), and to file the same, with all exhibits and other documents in
connection therewith, with the Securities and Exchange Commission, and to
execute, deliver and file any other documents and instruments in the
undersigned's name or on the undersigned's behalf which said attorneys-in-fact
and agents, or either of them, may determine to be necessary or advisable to
comply with the Act and any rules or regulations promulgated thereunder,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person; and the undersigned
hereby ratifies and confirms all that said attorneys-in-fact and agents, or
either of them, or their substitutes, may lawfully do or cause to be done by
virtue of the power of attorney granted hereby.
Date: August 5, 1999
/s/ Timothy Howard
------------------------------------
Timothy Howard
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Richard F. Katchuk and
Linda A. Madrid, and each of them, her true and lawful attorney-in-fact and
agent, with full power of substitution, to execute and deliver in the
undersigned's name and on the undersigned's behalf a Registration Statement on
Form S-3, any additional registration statement relating to the foregoing and
filed pursuant to Rule 462 under the Securities Act of 1933, as amended (the
"Act"), and any and all amendments thereto (including post-effective
amendments), and to file the same, with all exhibits and other documents in
connection therewith, with the Securities and Exchange Commission, and to
execute, deliver and file any other documents and instruments in the
undersigned's name or on the undersigned's behalf which said attorneys-in-fact
and agents, or either of them, may determine to be necessary or advisable to
comply with the Act and any rules or regulations promulgated thereunder,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person; and the undersigned
hereby ratifies and confirms all that said attorneys-in-fact and agents, or
either of them, or their substitutes, may lawfully do or cause to be done by
virtue of the power of attorney granted hereby.
Date: August 5, 1999
/s/ Caroline S. McBride
------------------------------------
Caroline S. McBride
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Richard F. Katchuk and
Linda A. Madrid, and each of them, his true and lawful attorney-in-fact and
agent, with full power of substitution, to execute and deliver in the
undersigned's name and on the undersigned's behalf a Registration Statement on
Form S-3, any additional registration statement relating to the foregoing and
filed pursuant to Rule 462 under the Securities Act of 1933, as amended (the
"Act"), and any and all amendments thereto (including post-effective
amendments), and to file the same, with all exhibits and other documents in
connection therewith, with the Securities and Exchange Commission, and to
execute, deliver and file any other documents and instruments in the
undersigned's name or on the undersigned's behalf which said attorneys-in-fact
and agents, or either of them, may determine to be necessary or advisable to
comply with the Act and any rules or regulations promulgated thereunder,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person; and the undersigned
hereby ratifies and confirms all that said attorneys-in-fact and agents, or
either of them, or their substitutes, may lawfully do or cause to be done by
virtue of the power of attorney granted hereby.
Date: August 5, 1999
/s/ William D. Sanders
------------------------------------
William D. Sanders
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the individual whose
signature appears below hereby constitutes and appoints Richard F. Katchuk and
Linda A. Madrid, and each of them, his true and lawful attorney-in-fact and
agent, with full power of substitution, to execute and deliver in the
undersigned's name and on the undersigned's behalf a Registration Statement on
Form S-3, any additional registration statement relating to the foregoing and
filed pursuant to Rule 462 under the Securities Act of 1933, as amended (the
"Act"), and any and all amendments thereto (including post-effective
amendments), and to file the same, with all exhibits and other documents in
connection therewith, with the Securities and Exchange Commission, and to
execute, deliver and file any other documents and instruments in the
undersigned's name or on the undersigned's behalf which said attorneys-in-fact
and agents, or either of them, may determine to be necessary or advisable to
comply with the Act and any rules or regulations promulgated thereunder,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person; and the undersigned
hereby ratifies and confirms all that said attorneys-in-fact and agents, or
either of them, or their substitutes, may lawfully do or cause to be done by
virtue of the power of attorney granted hereby.
Date: August 5, 1999
/s/ Wesley S. Williams, Jr.
------------------------------------
Wesley S. Williams, Jr.
