<PAGE> 1
THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE INFORMATION CONTAINED HEREIN
ARE SUBJECT TO COMPLETION OR AMENDMENT AND PROSPECTIVE PURCHASERS ARE
REFERRED TO THE RELATED FINAL PROSPECTUS SUPPLEMENT FOR DEFINITIVE
INFORMATION ON ANY MATTER CONTAINED HEREIN. THIS PRELIMINARY PROSPECTUS
SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY
JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH JURISDICTION.
Filed Pursuant to Rule 424(a)
Registration No. 333-26967
PRELIMINARY PROSPECTUS SUPPLEMENT ISSUED JUNE 12, 1997 (SUBJECT TO COMPLETION)
TO PROSPECTUS DATED JUNE , 1997
CROWN AMERICAN REALTY TRUST
2,500,000 % SENIOR PREFERRED SHARES
($50.00 LIQUIDATION PREFERENCE)
CROWN AMERICAN REALTY TRUST ("Crown") is offering (the "Offering")
2,500,000 % Senior Preferred Shares of Beneficial Interest, par value $.01
per share (the "Shares"). The Shares are sometimes referred to herein as the
"Securities." The Shares may be traded at any time following completion of the
Offering.
Crown is a self-administered, self-managed, fully integrated real estate
investment trust primarily engaged in the ownership, operation, management,
leasing, acquisition, development, redevelopment, expansion, renovation and
financing of enclosed shopping malls. Crown currently owns and manages 24
enclosed shopping malls and owns a 50% general partnership interest in another
enclosed mall, with a total gross leasable area of approximately 14.3 million
square feet.
Crown's Common Shares of Beneficial Interest, par value $.01 per share (the
"Common Shares"), are listed on the New York Stock Exchange ("NYSE") under the
symbol "CWN". Crown intends to apply for listing of the Shares on the NYSE.
SEE "RISK FACTORS" BEGINNING ON PAGE S-5 FOR CERTAIN FACTORS RELEVANT TO
AN INVESTMENT IN THE SHARES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) CROWN(2)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
- ----------------------------------------------------------------------------------------------------
Total(3)...................................... $ $ $
====================================================================================================
</TABLE>
(1) Crown has agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting estimated expenses of $575,000 payable by Crown.
(3) Crown has granted the Underwriter an option to purchase up to an additional
375,000 Shares to cover over-allotments. If all such Shares are purchased in
the Offering, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Crown will be $ , $ and $ ,
respectively. See "Underwriting."
The Shares are offered by the Underwriter, subject to prior sale, to
withdrawal, cancellation or modification of the offer without notice, to
delivery and acceptance by the Underwriter and to certain further conditions. It
is expected that delivery of the Shares will be made on or about ,
1997.
------------------------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JUNE , 1997.
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
Crown has filed a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act, with the Securities and Exchange
Commission (the "Commission") covering the Securities offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus
Supplement and the accompanying Prospectus omit certain information, exhibits
and undertakings contained in the Registration Statement. For further
information pertaining to the Securities offered hereby, reference is made to
the Registration Statement, including the exhibits filed as part thereof.
Crown is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Commission.
Reports, proxy statements and other information filed by Crown can be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549; and at its Regional Offices
located at Suite 1400, 500 West Madison Street, Chicago, Illinois 60661; and
13th Floor, Seven World Trade Center, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the Commission's Web site is:
http://www.sec.gov. Crown is listed on the NYSE and such reports, proxy
statements and other information concerning Crown can be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
All documents that are incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus but which are not delivered herewith
are available without charge (other than exhibits to such documents which are
not specifically incorporated by reference therein) upon request from Crown
American Realty Trust, Pasquerilla Plaza, Johnstown, Pennsylvania 15901.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed with the Commission by Crown pursuant to the
Exchange Act are hereby incorporated by reference in this Prospectus Supplement
and the accompanying Prospectus:
(a) Crown's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "Form 10-K");
(b) Crown's Proxy Statement with respect to its Annual Meeting of
shareholders held on April 30, 1997;
(c) Crown's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997.
All documents filed by Crown pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus Supplement
and prior to the termination of the offering of the Securities shall be deemed
to be incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus and to be a part hereof from the date of filing such
documents.
Any statements contained herein or in a document incorporated by reference
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus Supplement and the accompanying
Prospectus to the extent that a statement contained in this Prospectus
Supplement and the accompanying Prospectus or in any other subsequently filed
document that also is or is
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<PAGE> 3
deemed to be incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus Supplement and the
accompanying Prospectus.
The following is qualified in its entirety by the more detailed information
appearing elsewhere in the accompanying Prospectus or incorporated herein by
reference. This Prospectus Supplement and the accompanying Prospectus, including
documents incorporated by reference, contain forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy and some of which
might not even be anticipated. Future events and actual results, financial and
otherwise, may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in Crown's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, and Crown's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997, which
are incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus.
S-3
<PAGE> 4
CROWN
Crown American Realty Trust ("Crown") was formed on May 14, 1993 as a
Maryland real estate investment trust to acquire and operate substantially all
of the enclosed shopping mall properties and two office buildings (the
"Properties") owned by Crown American Associates ("Crown Associates"), formerly
Crown American Corporation. Crown Associates is a wholly-owned subsidiary of
Crown Holding Company ("Crown Holding"), which is owned by Frank J. Pasquerilla
and members of his immediate family. Crown American Corporation was founded in
1950 and was engaged principally in the development, acquisition, ownership and
management of enclosed shopping malls and, to a lesser extent, strip shopping
centers, hotels and office buildings. Crown raised approximately $405 million in
equity through an initial public offering of approximately 25.5 million shares,
which occurred on August 17, 1993, and used the proceeds to purchase an initial
78% (74.6 %, as of May 31, 1997) general partnership interest in Crown American
Properties, L.P. (the "Operating Partnership"), a partnership which was formed
just prior to consummation of the offering to own and operate the Properties.
The proceeds were used by the Operating Partnership to retire debt related to
the Properties.
Simultaneously with the public offering, Crown Associates and an affiliate
transferred the Properties and the management operations into either Crown, the
Operating Partnership, or Crown American Financing Partnership (the "Financing
Partnership"), a general partnership which is 99.5% owned by the Operating
Partnership and 0.5% owned by Crown American Financing Corporation, a
wholly-owned subsidiary of Crown. The Properties not transferred to Crown were
retained by Crown Associates.
The limited partnership interest in the Operating Partnership and the 1.6
million Common Shares in Crown received for two malls transferred in 1993 are
currently held by Crown Investments Trust ("Crown Investments"), by Crown
American Investment Company (a subsidiary of Crown Investments), and by members
of the Pasquerilla family.
Simultaneously with the above transactions, the Financing Partnership
borrowed $300 million of mortgage debt (the "Mortgage Loans") secured by its 15
enclosed shopping malls. The $300 million of mortgage debt together with the
proceeds of the equity offering were used to retire existing debt contributed
with the Properties.
Crown is a fully-integrated real estate company primarily engaged in the
ownership, operation, management, leasing, acquisition, development,
redevelopment, expansion, renovation and financing of enclosed shopping malls.
Crown's revenues are primarily derived under real estate leases with national,
regional and local department store and other retailing companies. The
Properties currently consist of 25 enclosed shopping malls, including a 50%
partnership interest in Palmer Park Mall (the "Malls"). Each Mall is an enclosed
shopping mall. All of the Malls have department stores as anchor tenants (the
"Anchors") and numerous diversified retail store tenants (the "Mall Stores")
which are located along enclosed malls connecting the Anchors. Additional
freestanding retail stores (the "Freestanding Stores") are located along the
perimeter of the parking areas at 17 of the Malls.
The total gross leasable area ("GLA") of the 25 Malls is approximately 14.3
million square feet, including Anchors, Mall Stores and Freestanding Stores. As
used herein, GLA of a Mall includes the GLA attributable to all Anchors,
including seven anchor locations owned by their occupants or other entities.
Anchors, Mall Stores and Freestanding Stores account for approximately 58%, 37%,
and 5%, respectively, of the total GLA of the Malls. Excluding Freestanding
Stores, the Malls range in size from approximately 300,000 to 830,000 square
feet of GLA with an average size of approximately 545,000 square feet of GLA.
Each Mall has ample surface parking with 19 of the Malls having parking ratios
above 5.0 per 1,000 square feet of GLA.
The Malls are generally located in middle markets where there are
relatively few other enclosed shopping malls. Crown's management believes that
the Malls have strong competitive positions because 21 are the largest, of which
13 are the only, enclosed regional shopping malls in their respective trade
areas. One of Crown's principal business strategies is the ongoing expansion and
renovation of its shopping malls to maintain and improve their competitive
position and market share.
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<PAGE> 5
Crown believes that the Malls have excellent locations and highway access,
attract high quality tenants, are well maintained and professionally managed and
achieve among the highest rent and tenant retention rates within their markets.
The Malls have a diverse and stable base tenants. As of December 31, 1996 the
six largest anchor tenants in the Malls are Sears, Roebuck and Co., J.C. Penney,
Inc., The Bon Ton, May Department Stores Company, Wal-Mart and Value City
Department Stores; the six largest inline tenants are The Limited Stores, Inc.,
L.W. Woolworth, Charming Shops, Hallmark, The Wall Music Inc. and Waldenbook
Co., Inc. The Malls were 88% leased (Anchors and Mall shops combined) as of May
31, 1997.
Crown also owns (i) an office building in Johnstown, Pennsylvania with
approximately 102,500 gross leasable square feet, which serves as Crown's
headquarters and is leased to Crown American's hotel division and to third
parties ("Pasquerilla Plaza") and (ii) a ground leasehold interest in one parcel
of land within a shopping center owned by a third party that is improved with a
building consisting of approximately 107,000 square feet of GLA subleased to an
anchor department store (the "Anchor Pad").
As the owner of real estate, Crown is subject to risks arising in
connection with the underlying real estate, including defaults under or
non-renewal of tenant leases, tenant bankruptcies, competition, inability to
rent unleased space, failure to generate sufficient income to meet operating
expenses, as well as debt service, capital expenditures and tenant improvements,
environmental matters, financing availability and changes in real estate and
zoning laws. The success of Crown also depends upon certain key personnel,
Crown's ability to maintain its qualification as a real estate investment trust
for federal income tax purposes (a "REIT"), compliance with the terms and
conditions of the Mortgage Loans and other debt instruments, and trends in the
national and local economy, including income tax laws, governmental regulations
and legislation, and population trends. See also "Risk Factors" below.
RISK FACTORS
An investment in the Shares involves various risks. Prospective investors
should carefully consider the following information in conjunction with the
other information contained in this Prospectus Supplement and the accompanying
Prospectus before purchasing Shares in the Offering.
UNCERTAINTY OF ABILITY TO REFINANCE BALLOON PAYMENTS ON DEBT
Crown does not expect to have sufficient funds of its own to make all of
the balloon payments of principal totaling approximately $440 million when due
from June 1, 1997 to December 31, 2001 under its existing debt. There can be no
assurance that Crown will be able to refinance any such indebtedness, or to
otherwise obtain funds by selling assets or by raising equity. An inability to
make such balloon payments when due could cause the mortgage lender to foreclose
on such Properties, which would have a material adverse effect on Crown. In
addition, interest rates on any debt incurred to refinance such mortgage debt
may be higher than the rates on the current mortgages.
RISKS OF EQUITY REAL ESTATE INVESTMENTS
General Factors Affecting Investments in Real Estate;
Effect of Economic and Real Estate Conditions
A shopping center's revenues and value may be adversely affected by a
number of factors, including but not limited to: the national economic climate;
the regional economic climate (which may be adversely impacted by plant
closings, industry slowdowns and other factors); local real estate conditions
(such as an oversupply of retail space); perceptions by retailers or shoppers of
the safety, convenience and attractiveness of the shopping center, and the
willingness and ability of the property's owner to provide capable management
and adequate maintenance. In addition, other factors may adversely affect a
shopping center's value without affecting its current revenues, including:
changes in governmental regulations, zoning or tax laws; potential environmental
or other legal liabilities, and changes in interest rate levels. The yields
available from equity investments in real estate depend on the income generated
and expenses incurred. Therefore, if Crown's properties do not generate revenue
sufficient to meet operating expenses, including debt service and capital
expenditures, Crown's cash flow and ability to make distributions to its
shareholders will be adversely affected.
S-5
<PAGE> 6
Dependence on Tenants
Crown's income and funds available for distribution would be adversely
affected if space in the Properties could not be leased, if tenants were unable
to meet their lease obligations or if for any other reason rental payments could
not be collected. If the tenant sales in the Malls or the Anchor Pad were to
decline, tenants may be unable to pay their rent or other occupancy costs. In
the event of default by a tenant, delays and costs in enforcing the lessor's
rights could be experienced. See "Risk Factors--Bankruptcy of Tenants."
Similarly, an office tenant experiencing difficulties with its business might
default on its lease and cause a loss of or delay in receiving rental income.
Competition
Although many of the Malls are the only enclosed shopping malls in their
trade areas, there are other shopping facilities that compete with the Malls in
attracting retailers to lease space. In addition, retailers at the Malls face
increasing competition from discount shopping centers, outlet malls, discount
shopping clubs, direct mail and telemarketing. Increased competition could
adversely affect Crown's revenues, net income and cash flow.
Geographic Concentration
All but three of the Properties are located in the Mid-Atlantic region of
the United States, specifically, sixteen malls are located in the Pennsylvania,
one is located in New Jersey, two are located in Virginia, one is located in
Maryland, two are located in West Virginia, two are located in Tennessee and one
is located in Georgia. To the extent that general economic or other relevant
conditions in this region decline and result in a decrease in consumer demand,
Crown's performance may be adversely affected.
BORROWING RISKS
Crown is subject to risks normally associated with debt financing,
including the risk that Crown's net cash flow from operations will be
insufficient to meet required payments of principal and interest, the risk that
existing indebtedness on the Properties will not be able to be refinanced or the
risk that the terms of such refinancing will not be as favorable as the terms of
the existing indebtedness.
At May 31, 1997, Crown had outstanding $572.2 million of mortgage
indebtedness secured by substantially all of the Properties, of which $457.6
million becomes payable during the remainder of 1997 through 2001. It may be
necessary for Crown to refinance such debt either through additional debt
financing secured by individual properties or groups of properties or by
unsecured private or public debt offerings or repaid through additional equity
offerings. In the event that Crown is unable to refinance this indebtedness on
acceptable terms, Crown may be required to dispose of encumbered properties upon
unfavorable terms, which may result in losses to Crown and may adversely affect
its ability to make distributions to its shareholders. Further, if a property or
properties are mortgaged to secure payment of indebtedness and Crown is unable
to meet scheduled mortgage payments, the mortgaged properties could be
foreclosed upon by or otherwise transferred to the lender resulting in a loss of
income and asset value to Crown.
At May 31, 1997, Crown had outstanding variable-rate indebtedness
aggregating $176.9 million. In addition, future indebtedness may bear interest
at floating rates. Accordingly, if prevailing interest rates or other factors at
the time of refinancing result in higher rates or if interest rates increase at
the time Crown has variable-rate debt outstanding, Crown's interest expense
would increase and Crown's ability to make distributions to its shareholders
could be adversely affected.
BANKRUPTCY OF TENANTS
At any time, a tenant of one of the Properties may seek the protection of
the bankruptcy laws, which could result in the termination of such tenant's
lease at any time during the bankruptcy proceeding and cause a reduction in cash
flow generated by the Properties. Over the past three years, three companies
operating a total of five Anchor stores at the Malls have filed for bankruptcy
under the United States Bankruptcy Code.
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<PAGE> 7
Of the three companies, two have emerged from bankruptcy and are currently
operating. Of the five anchor stores, only one closed (at South Mall) and its
leased space was partially released within one year. The bankruptcy of an
Anchor, if followed by its closing or by its sale to a less desirable retailer,
could adversely affect customer traffic in a Mall and thereby reduce the income
generated by that Mall. Furthermore, the closing of an Anchor could, under
certain circumstances, allow certain other Anchors and Mall Stores to terminate
their leases at the Mall.
During each of the two years ended December 31, 1996, bankruptcies of Mall
Stores, Freestanding Stores and office tenants had not affected more than 2.3%
of revenues in any one year or more than 2.1% of the numbers of leases in effect
in any one year.
LEVERAGE
Required payments on mortgages and other indebtedness are generally not
reduced if the economic performance of any Property declines. If such decline
occurs, Crown's income and funds available for distribution would be adversely
affected. All of Crown's real estate assets are currently mortgaged or pledged
to secure payment of indebtedness, and if the mortgage payments cannot be made,
a loss could be sustained as a result of foreclosure by the mortgagee. Under
"cross-default" provisions contained in the mortgages encumbering certain
Properties, a default under the loan encumbering one Property would entitle the
lender to call a default and exercise its remedies (including foreclosure) under
mortgages held by such lender on other Properties. In addition, certain
mortgages are "cross-collateralized," with the result that a lender could
foreclose against one Property to recover obligations owed to such lender with
respect to another Property. All of Crown's $176.9 million floating rate
mortgage debt as of May 31, 1997 has interest rates that adjust based on changes
in certain indices. Increases in these adjustable interest rates could result in
increased debt service, adversely affecting Crown's funds available for
distribution.
NO LIMITATION ON DEBT
As of May 31, 1997, Crown has an aggregate of $572.2 million of debt and a
debt-to-Total Market Capitalization (as defined below) ratio of 66%.
As used herein, "Total Market Capitalization" means the aggregate market
value of Crown's outstanding shares and Operating Partnership Units plus the
total debt of Crown. The debt-to-Total Market Capitalization ratio, which is
based upon market values of equity, differs from debt-to-total asset ratios,
which are based upon book values that may not reflect the current income
potential of the assets and the operating business. Crown's debt-to-total asset
ratio at March 31, 1997 was 78%. Crown believes that debt-to-Total Market
Capitalization provides a more appropriate indication of leverage for a company
whose assets are primarily operating real estate. However, fluctuations in the
trading prices of Crown's equity securities will cause fluctuations in the debt
to Total Market Capitalization ratio. The organizational documents of Crown do
not limit the amount or percentage of indebtedness that Crown may incur.
Accordingly, Crown and the Operating Partnership could become more highly
leveraged, resulting in an increased risk of default on its obligations and an
increase in debt service requirements that could adversely affect the financial
condition and results of operations of Crown.
CONFLICTS OF INTEREST WITH CROWN AND THE PASQUERILLAS
Ownership Interest of the Pasquerillas
As of May 31, 1997, the Pasquerilla family, directly or indirectly, owned
approximately 8.5 % of Crown's outstanding Common Shares and had the right to
acquire an additional 23.3 % through the conversion of limited partnership units
in the Operating Partnership. Frank and Mark Pasquerilla, as the principal
executive officers of Crown, members of the Board of Trustees and holders of a
significant percentage of Crown's equity interests, have substantial influence
on Crown. Furthermore, Crown Investments, as the limited partner of the
Operating Partnership, has the ability to approve certain major decisions of the
Operating Partnership. Such influence might not always be consistent with the
interests of other shareholders and may in the future have a substantial
influence on the outcome of matters submitted to Crown's shareholders for
approval. Elections of
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<PAGE> 8
Trustees on a staggered basis and certain other provisions of the Declaration of
Trust and Crown's Bylaws (the "Bylaws") may discourage a change in the
composition of the Board of Trustees and control of Crown.
Tax Consequences of Sale of Certain Properties
Since 23 of the Properties have unrealized gain attributable to the
difference between fair market value and adjusted tax basis in such Properties
prior to the contribution to the Operating Partnership or the Financing
Partnership, the sale of any of these Properties may result in a
disproportionately higher tax for Crown Holding than for Crown. As a result,
Crown Investments might not favor a sale of these Properties even though such a
sale could be beneficial to the other shareholders of Crown. Crown's Second
Amended and Restated Declaration of Trust (the "Declaration of Trust") provides
that any decision by Crown relating to the potential sale of any such Property
will be made by the independent trustees if the sale would result in a
disproportionately higher taxable income for Crown Holding than for Crown (after
taking into account Crown Holding's use of its then available losses or loss
carryforwards).
Policies Relating to Conflicts of Interest
The Declaration of Trust provides that any contract or transaction between
Crown and any trustee, officer, employee or agent of Crown (or any affiliate of
such persons or entities) must be approved by a majority of the independent
trustees as defined therein.
INABILITY TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST
Crown intends to conduct its operations so as to enable it to continue to
qualify as and be taxed as a REIT. As a REIT, Crown is entitled to a deduction
for dividends paid to shareholders and, therefore, generally is not required to
pay Federal income tax on any income it distributes to its shareholders. Crown
is required to pay Federal income tax on income it retains or reinvests, certain
income or gain with respect to foreclosure property, as defined in the Internal
Revenue Code of 1986, as amended (the "Code"), income from prohibited
transactions (generally, sales of certain property held primarily for sale to
customers in the ordinary course of business), and if Crown fails certain
prescribed income tests, the amount of income by which such tests were failed.
Additionally, Crown may be required to pay an alternative minimum tax and/or an
excise tax.
In order to continue to qualify as a REIT, Crown must satisfy certain
highly technical requirements. Failure to satisfy these qualification
requirements would cause Crown to be taxable as a corporation.
To qualify as a REIT, Crown is required to distribute its distributable
REIT taxable income (generally, 95% of its taxable income less its net capital
gains). If in any year, Crown fails to distribute its distributable REIT taxable
income, it would not qualify as a REIT and would be taxed as a corporation
unless the failure results from an adjustment by the IRS to its REIT taxable
income. In that event, Crown could satisfy the distribution requirement by
distributing the amount of the adjustment. It is possible that Crown could be
required to borrow funds or liquidate a portion of its investments in order to
pay its expenses, make the required distributions to shareholders, or satisfy
its tax liabilities. There can be no assurance that such funds will be available
to the extent, and at the time, required by Crown to maintain its REIT status.
If Crown were to be taxed as a corporation, Crown would not be permitted to
deduct an amount equal to the dividends paid to shareholders and any payment of
tax by Crown could substantially reduce the funds available for distribution to
shareholders or for reinvestment. In that event, because Crown would owe income
tax, a portion of dividends may represent a return of capital and shareholders
may be entitled to a refund of taxes paid on such portion. Moreover, should
Crown's election to be taxed as REIT be terminated or voluntarily revoked, Crown
may not be able to elect to be treated as a REIT until the fifth taxable year
following the termination of its election unless it satisfies certain
conditions. See "Certain Federal Income Tax Consequences."
In addition, each of the Operating Partnership and the Financing
Partnership is classified and treated as a partnership for federal income tax
purposes. If the IRS were to successfully challenge the tax status of the
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Operating Partnership or the Financing Partnership as a partnership for federal
income tax purposes, the Operating Partnership or the Financing Partnership
would be taxable as a corporation. In such event, since the value of Crown's
ownership interest in the Operating Partnership exceeds, and the value of the
Operating Partnership's ownership interest in the Financing Partnership could
exceed, 5% of Crown's assets, Crown could cease to qualify as a REIT for Federal
income tax purposes. The imposition of a corporate tax on the Operating
Partnership or the Financing Partnership would materially reduce the amount of
Funds from Operations available for distribution to Crown and its shareholders.
CHANGES IN TAX LAWS
The discussions of the Federal income tax aspects of the Offering are based
on current law, including the Code, the Regulations issued thereunder, certain
administrative interpretations thereof and court decisions. Consequently, future
events (including those arising from legislative and administrative proposals
that are or in the future may be under consideration) that modify or otherwise
affect those provisions may result in treatment for Federal income tax purposes
of Crown and its shareholders that is materially and adversely different from
that described in this Prospectus Supplement, both for taxable years arising
before and after such events. There is no assurance that future legislation and
administrative interpretations will not be retroactive in effect.
RISKS OF EXPANSION AND DEVELOPMENT ACTIVITIES
In connection with any expansion of an existing center or development of a
new one, Crown and the Operating Partnership will incur risks associated with
any such activities. These risks include the risk that development opportunities
explored by Crown and the Operating Partnership may be abandoned after funds
have been expended; the risk that construction costs of a project may exceed
original estimates, possibly making the project uneconomic; and the risk that
occupancy rates and rents at a completed project will not be sufficient to make
the project profitable. In case of an unsuccessful expansion or development
project, Crown's loss could exceed its investment in the project. Also, there
may be competitors seeking to expand properties or to acquire properties for
development, some of which may have greater resources than the Operating
Partnership.
RISKS OF RENOVATION AND MAINTENANCE OF PROPERTY
Crown intends to expand and/or renovate its properties from time to time.
Expansion, renovation and maintenance projects generally require expenditure of
capital as well as various government and other approvals, which cannot be
assured. While policies with respect to expansion, renovation and maintenance
activities are intended to limit some of the risks otherwise associated with
such activities, Crown will nevertheless incur certain risks, including
expenditures of funds on, and devotion of management's time to, expansion,
renovation and maintenance projects which may not be completed or which may
generate investment returns which are less than anticipated. Any of the
foregoing could have a material adverse effect on Crown's ability to make
anticipated distributions.
LACK OF SHAREHOLDER CONTROL OVER INVESTMENT AND FINANCING POLICIES
The Board of Trustees of Crown will determine the investment and financing
policies of Crown and its policies with respect to certain other activities,
including its growth, debt capitalization, distributions and operating policies.
Crown has no present intention to amend or revise these policies. However, Crown
may do so at any time without a vote of Crown's shareholders. A change in these
policies could adversely affect Crown's financial condition or results of
operations.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state, and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or
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operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. In addition, the presence of hazardous or toxic substances, or
the failure to properly remediate such property, may adversely affect the
owner's or operator's ability to borrow using such real property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances may also be liable for the costs of removal or remediation of such
substances at the disposal or treatment facility. In connection with their
ownership and operation of the Malls, the Operating Partnership and the
Financing Partnership, and indirectly Crown, may be potentially liable for such
costs.
Certain Federal, state and local laws, ordinances and regulations govern
the removal, encapsulation or disturbance of asbestos-containing materials
("ACMs") when such materials are in poor condition or in the event of building
remodeling, renovations or demolition. Such laws may impose liability for
release of ACMs and may provide for third parties to seek recovery from owners
or operators of real estate for personal injuries associated with ACMs.
Except as otherwise described above, management of Crown believes that the
Properties are in compliance in all material respects with all Federal, state
and local laws, ordinances and regulations regarding hazardous or toxic
substances or petroleum products. Crown has not been notified by any
governmental authority, and is not otherwise aware, of any material
noncompliance, liability or claim relating to hazardous or toxic substances in
connection with any of the Properties. Management does not believe that the
matters described above, or compliance with applicable environmental laws or
regulations, will have a material adverse effect on Crown or its financial
condition, results of operations and cash flows.
LEGAL PROCEEDINGS
In August and September 1995, three complaints were filed by various
individuals on behalf of themselves, and also purportedly on behalf of other
similarly situated persons, against Crown and certain of its executive officers
in United States District Court for the Western District of Pennsylvania (the
"Western District") to recover unspecified damages under the federal securities
laws resulting from a decline in the market price for Crown's Common Shares
which are listed and traded on the NYSE. The decline in Crown's share price
followed the announcement on August 8, 1995 of various operational and capital
resource initiatives by Crown, including a reduction of Crown's quarterly
dividend to increase its level of retained internal cash flow and the intention
to sell certain assets that were not considered at that time to fit Crown's
growth strategy. A fourth complaint was filed in December 1995 by an individual
on behalf of himself and also purportedly on behalf of other similarly situated
persons, against Crown and certain of its current and former executive officers
in United States Court for the Eastern District of Pennsylvania. While this
complaint is substantially similar to the previous complaints, it alleges a
class period extending from August 17, 1993, (the date of Crown's initial public
offering) to February 29, 1995.
All four cases have been transferred to the Western District, and a
consolidated amended complaint has been filed. Crown has filed a motion seeking
to dismiss the consolidated action which is currently pending before the Court.
Discovery has been stayed pending resolution of the motion to dismiss.
Crown believes that it and the named officers have substantial defenses to
the plaintiffs' claims and intends to vigorously defend the litigation. Crown
does not believe the ultimate outcome of the litigation will have a material
adverse effect on Crown. However, if the case proceeds to trial and if the
verdict is unfavorable, or if Crown settles the litigation on unfavorable terms,
the litigation could have a material adverse effect on Crown.
EFFECT OF UNINSURED LOSS ON PROFITABILITY
The Partnerships and Crown carry comprehensive liability, fire, extended
coverage and rental loss insurance covering the Properties, with policy
specifications and insured limits customarily carried for similar properties.
There are, however, certain types of losses (such as from wars and earthquakes)
that are not generally insured because they are either uninsurable or not
economically insurable. Should an uninsured loss or a loss in excess of insured
limits occur, the capital invested in the Property, as well as the anticipated
future revenues from the Property, could be lost, while the Property owner
remains obligated for any mortgage
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indebtedness or other financial obligations related to the Property. Any such
loss would adversely affect Crown. Moreover, as a general partner of the
Operating Partnership, Crown will generally be liable for any unsatisfied
obligations of the Operating Partnership other than nonrecourse obligations.
Crown's management believes that the Properties are adequately insured in
accordance with industry standards.
COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. These requirements became effective in 1992.
The ADA has separate compliance requirements for "public accommodations" and
"commercial facilities," but generally requires that buildings be made
accessible to people with disabilities. A number of additional Federal, state
and local laws exist which also may require modification to Crown's properties,
or may restrict certain further renovations thereof, with respect to access by
disabled persons. Non-compliance with the ADA requirements or other related laws
could require removal of access barriers and could result in the imposition of
fines or an award of damages to private litigants. The ultimate amount of these
compliance costs is not currently ascertainable, but such costs are not expected
to have a material effect on Crown.
Additional legislation may impose additional financial obligations or
restrictions on owners with respect to access by disabled persons. If required
changes involve greater expenditures than Crown currently anticipates, or if the
change must be made on a more accelerated basis than it anticipates, Crown's
ability to make expected distributions to its shareholders could be adversely
affected.
CERTAIN ANTITAKEOVER PROVISIONS; OWNERSHIP LIMITS
Certain provisions of the Declaration of Trust and the Bylaws may have the
effect of discouraging a third party from making an acquisition proposal for
Crown and may thereby inhibit a change in control of Crown under circumstances
that could give the holders of Shares the opportunity to realize a premium over
the then-prevailing market prices. Furthermore, the ability of Crown's
shareholders to effect a change in management control of Crown would be
substantially impeded by such antitakeover provisions. Moreover, in order for
Crown to maintain its qualification as a REIT for Federal income tax purposes,
it cannot be closely held within the meaning of Code section 856(h) which means
that during the last half of the taxable year not more than 50% in value of its
outstanding shares may be owned, directly or indirectly, by five or fewer
individuals (defined in the Code to include certain entities including qualified
pension funds). For the purpose of preserving Crown's REIT qualification, the
Declaration of Trust prohibits ownership, either directly or under the
applicable attribution rules of the Code, of more than 7.5% of the shares by any
shareholder, subject to certain exceptions. Such ownership limit may have the
effect of precluding an acquisition of control of Crown without the approval of
the Board of Trustees.
ABSENCE OF PRIOR PUBLIC MARKET FOR SHARES
Prior to the Offering, there has been no public market for the Shares.
Although it is expected that the Shares will be listed on the NYSE, there can be
no assurance that an active trading market will develop or be sustained in the
Shares or that investors in the Offering will be able to resell their Shares
above the price paid for such Shares.
RECENT DEVELOPMENTS
On May 1, 1997 Crown extended to April 30, 1998 its $5.6 million secured
line of credit with United States National Bank in Johnstown; at May 31, 1997
$1.1 million was outstanding under this credit facility. On April 9, 1997, Crown
executed a commitment letter with a life insurance company to refinance the
existing 9.79% fixed rate $38.3 million mortgage loan on Capital City Mall in
Harrisburg, Pennsylvania. The new loan commitment is for $41.0 million with a
seven year maturity, a fixed interest rate of 8.27%, and payments based on 25
year amortization.
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Crown announced on April 30, 1997 that Regal Cinema has signed a lease to
open a 43,400 square foot, thirteen screen theater in Crown's West Manchester
Mall in York, Pennsylvania. The new theater is expected to open in early 1998.
Crown also announced on March 13, 1997 that Wal-Mart plans to expand its
existing 90,000 square foot anchor store at Martinsburg Mall in Martinsburg,
West Virginia to a 204,000 square foot Wal-Mart Supercenter. The new store will
be constructed at Wal-Mart's cost and is expected to be completed by fall 1998.
Crown's current largest project, the reconstruction of the Logan Valley Mall,
which had been partially destroyed by fire in late 1994, is nearing completion.
The final phase of the project is expected to open in August 1997.
For the quarter ended March 31, 1997, Crown reported a net loss of $1.3
million versus net income of $1.8 million for the corresponding quarter of 1996.
Crown's percentage share of Funds from Operations (FFO) for the first quarter of
1997 was $7.4 million compared to $8.9 million for the first quarter of 1996.
Total FFO during the first quarter of 1997 was impacted by several factors
compared with 1996. Positive factors affecting total FFO were: $0.3 million of
higher temporary and seasonal leasing revenues and $0.6 million in lower
property operating costs, net of recoveries. These positive factors were offset
by $1.4 million in lower minimum and percentage rents (including $0.2 million
lower lease buyout income and straight line rental income which are included in
minimum rents), $0.5 million in lower business interruption insurance income
related to the December 1994 fire at Logan Valley Mall, $0.1 million in higher
interest costs, $0.2 million in higher property and general and administrative
costs, and $0.5 million in lower gain on land sales.
In Crown's April 30, 1997 earnings press release, which is included as an
exhibit to Crown's Form 10Q for the quarter ended March 31, 1997, Crown also
reported that the fundamental operating trends in the property portfolio are
strong, with first quarter 1997 comparable small shop sales up 6.6% from the
first quarter of 1996 and with small shop leasing activity up 25% in amount of
space leased and up 16% in higher rental rates.
USE OF PROCEEDS
The Board of Trustees may direct the use of the net proceeds for general
corporate purposes, which may include, among other things, the acquisition,
development and renovation of enclosed shopping malls as suitable opportunities
arise, the expansion and improvement of its existing Properties, the repurchase
of Common Shares and the repayment of outstanding indebtedness. Pending such
uses, the net proceeds from the sale of the Shares may be invested in short-term
investments.
DESCRIPTION OF THE SHARES
PREFERRED SHARES
Crown is offering 2,500,000 % Senior Preferred Shares pursuant to this
Prospectus Supplement. The Shares may be traded at any time following completion
of the Offering.
Crown's Declaration of Trust authorizes it to issue preferred shares of
beneficial interest from time to time in one or more series in such amounts and
with such designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption as may be fixed by the Board of Trustees. The following
description of the Shares sets forth certain terms and provisions of the Shares
under the Offering. The statements below describing the Shares are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Declaration of Trust (including any Articles
Supplementary describing the designations, rights, and preferences of each class
or series of Shares) and Bylaws.
RANK
The Shares will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of Crown, rank (i) senior to all classes
or series of Common Shares of Crown, and to all equity and debt
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securities which are specifically designated as ranking junior to the Shares
with respect to dividend rights or rights upon liquidation, dissolution or
winding up of Crown; (ii) on a parity with all equity and debt securities issued
by Crown the terms of which specifically provide that such equity and debt
securities rank on a parity with the Shares with respect to dividend rights or
rights upon liquidation, dissolution or winding up of Crown; and (iii) junior to
all equity and debt securities issued by Crown the terms of which specifically
provide that such equity and debt securities rank senior to the Shares with
respect to dividend rights or rights upon liquidation, dissolution or winding up
of Crown.
DIVIDENDS
Holders of the Shares shall be entitled to receive, when, as and if
declared by the Board of Trustees, out of funds legally available for the
payment of dividends, cumulative, preferential cash dividends in an amount per
Share equal to $ per annum. Each such dividend shall be payable to holders
of record as they appear on the Share transfer books of Crown on such record
dates as provided below.
Dividends with respect to the Shares will be cumulative and will be payable
quarterly in arrears in March, June, September and December (on the same dates
as dividends on Common Shares, par value $.01 per share (the "Common Shares"),
beginning with the dividend payment for 1997 (each, a "Preferred Dividend
Payment Date"). Any dividend payable on the Shares for any partial dividend
period after the initial dividend period will be computed on the basis of a
360-day year consisting of twelve 30-day months. Dividends payable on the Shares
for each full dividend period will be computed by dividing the annual dividend
rate by four. The initial dividend payable on the Shares in 1997 will
accrue from the date of issuance of the Shares up to but excluding the initial
Preferred Dividend Payment Date. Dividends will be payable to holders of record
as they appear in the share records of Crown at the close of business on the
applicable record date, which will be the first day of the calendar month in
which the applicable Preferred Dividend Payment Date falls or such other date
designated by the Board of Trustees for the payment of dividends that is no more
than thirty (30) nor less than ten (10) days prior to such Preferred Dividend
Payment Date (each, a "Preferred Dividend Record Date").
No dividends on the Shares will be declared by the Board of Trustees or
paid or set apart for payment by Crown at such time as, and to the extent that,
the terms and provisions of any agreement of Crown, including any agreement
relating to its indebtedness, or any provisions of the Declaration of Trust
relating to any series of preferred shares ranking senior to the Shares as to
dividends, prohibit such declaration, payment or setting apart for payment or
provide that such declaration, payment or setting apart for payment would
constitute a breach thereof or a default thereunder, or if such declaration or
payment will be prohibited by law. Notwithstanding the foregoing, dividends on
the Shares will accrue whether or not Crown has earnings, whether or not there
are funds legally available for the payment of such dividends and whether or not
such dividends are declared. Holders of the Shares will not be entitled to any
dividends in excess of full cumulative dividends as described above.
If any Shares are outstanding, no full dividends will be declared or paid
or set apart for payment on the capital shares of Crown of any other series
ranking, as to dividends, on a parity with or junior to the Shares for any
period unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for such payment on the Shares for all past dividend periods and the then
current dividend period. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon the Shares and the
shares of any series of preferred shares ranking on a parity as to dividends
with the Shares, all dividends declared upon the Shares and any series of
preferred shares ranking on a parity as to dividends with the Shares will be
declared pro rata so that the amount of dividends declared per share on the
Shares and such other series of preferred shares will in all cases bear to each
other the same ratio that accrued and unpaid dividends per Share and such other
series of preferred shares bear to each other. No interest, or sum of money in
lieu of interest, will be payable in respect of any dividend payment or payments
on the Shares which may be in arrears.
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Shares have been or contemporaneously are declared
and paid or declared and a sum sufficient for the
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payment thereof set apart for payment for all past dividend periods and the then
current dividend period, no dividends (other than distributions payable on
Common Shares or other capital shares ranking junior to the Shares as to
dividends and upon liquidation, dissolution or winding up of Crown) will be
declared or paid or set aside for payment, and no other distribution will be
declared or made, upon the common shares or any other capital shares of Crown
ranking junior to or on a parity with the Shares as to dividends, nor will any
common shares or any other capital shares of Crown ranking junior to or on a
parity with the Shares as to dividends or upon liquidation, dissolution or
winding up of Crown be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any such shares) by Crown (except by conversion into or
exchange for other capital shares of Crown ranking junior to the Shares as to
dividends and upon liquidation, dissolution and winding up).
Any dividend payment made on Shares shall first be credited against the
earliest accrued but unpaid dividend due with respect to the Shares which
remains payable.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of Crown,
subject to the prior rights of any series of capital shares ranking senior to
the Shares, the holders of Shares will be entitled to be paid out of the assets
of Crown legally available for distribution to its shareholders a liquidation
preference equal to the sum of $50.00 per Share plus an amount equal to any
accrued and unpaid dividends thereon (whether or not earned or declared) to the
date of payment (the "Preferred Liquidation Preference Amount"), before any
distribution of assets is made to holders of Common Shares or any other capital
shares that ranks junior to the Shares as to liquidation rights. After payment
of the full amount of the liquidating distributions to which they are entitled,
the holders of the Shares will have no right or claim to any of the remaining
assets of Crown.
In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up of Crown, the legally available assets of Crown are
insufficient to pay the Preferred Liquidation Preference Amount on all
outstanding Shares and the corresponding amounts payable on all shares of other
classes or series of capital shares of Crown ranking on a parity with the Shares
in the distribution of assets upon liquidation, dissolution or winding up of
Crown, then the holders of the Shares and all other such classes or series of
capital shares will share ratably in any such distribution of assets in
proportion to the full liquidating distributions to which they would otherwise
be respectively entitled.
If liquidating distributions have been made in full to all holders of
Shares, the remaining assets of Crown will be distributed among the holders of
any other classes or series of capital shares ranking junior to Shares upon
liquidation, dissolution or winding up of Crown, according to their respective
rights and preferences and in each case according to their respective number of
shares.
The consolidation or merger of Crown with or into any other corporation, or
the sale, lease, transfer or conveyance of all or substantially all of the
property or business of Crown, will not be deemed to constitute a liquidation,
dissolution or winding up of Crown for these purposes.
REDEMPTION
The Shares will not be redeemable prior to , 2002, except under
certain limited circumstances to preserve Crown's status as a REIT. See
"Restrictions on Transfer." On and after , 2002, Crown, at its
option (to the extent Crown has funds legally available therefor) upon not less
than 30 nor more than 60 days written notice, may redeem the Shares, in whole or
in part, at any time or from time to time, for cash at the redemption price per
share of $ , plus all accrued and unpaid dividends, if any, thereon
(whether or not earned or declared) to the date fixed for redemption (the
"Redemption Date").
Notwithstanding the foregoing, unless full cumulative dividends on all
Shares have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, no Shares will be
redeemed unless all outstanding Shares are simultaneously redeemed; provided,
however, that the foregoing will not prevent the purchase or acquisition of
Shares pursuant to a purchase or exchange offer made on the same terms to
holders
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of all outstanding Shares, and unless full cumulative dividends on all
outstanding Shares have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, Crown will not
purchase or otherwise acquire directly or indirectly through a subsidiary or
otherwise, any Shares.
If fewer than all of the outstanding Shares are to be redeemed, the number
of shares to be redeemed will be determined by Crown and such shares may be
redeemed pro rata from the holders of record of such shares in proportion to the
number of such shares held by such holders (as nearly as may be practicable
without creating fractional Shares) or any other equitable method determined by
Crown.
Notice of redemption will be given by publication in a newspaper of general
circulation in the City of New York, such publication to be made once a week for
two successive weeks commencing not less than 30 nor more than 60 days prior to
the Redemption Date. A similar notice will be mailed by Crown, postage prepaid,
not less than 30 nor more than 60 days prior to the Redemption Date, addressed
to the respective holders of record of the Shares to be redeemed at their
respective addresses as they appear on the share transfer records of Crown. No
failure to give such notice or any defect therein or in the mailing thereof will
affect the validity of the proceeding for the redemption of any Shares except as
to the holder to whom notice was defective or not given. Each notice will state:
(i) the Redemption Date; (ii) the redemption price; (iii) the aggregate number
of Shares to be redeemed and, if less than all Shares held by the shareholder
are to be redeemed, the number of Shares to be redeemed; (iv) the place or
places where the Shares are to be surrendered for payment of the redemption
price; and (v) that dividends on the Shares to be redeemed will cease to accrue
on such Redemption Date. If fewer than all the Shares held by any holder are to
be redeemed, the notice mailed to such holder will also specify the number of
Shares to be redeemed from such holder. If notice of redemption of any Shares
has been properly given and if funds necessary for such redemption have been
irrevocably set aside by Crown in trust for the benefit of the holders of any of
the Shares so called for redemption, then from and after the redemption date
dividends will cease to accrue on such Shares, such Shares will no longer be
deemed to be outstanding and all rights of the holders of such Shares will
terminate except for the right to receive the applicable redemption price and
other amounts payable in respect of such Shares.
The holders of the Shares at the close of business on a Preferred Dividend
Record Date will be entitled to receive the dividend payable with respect to
such Shares on the corresponding Preferred Dividend Payment Date notwithstanding
the redemption thereof between such Preferred Dividend Record Date and the
corresponding Preferred Dividend Payment Date or Crown's default in the payment
of the dividend due. Except as provided above, Crown will make no payment or
allowance for unpaid dividends, whether or not in arrears, on Shares called for
redemption.
All Shares redeemed shall be retired and shall be restored to the status of
authorized and unissued preferred shares, without designation as to series, and
subject to the applicable limitations set forth herein may thereafter be
reissued as any series of preferred shares.
The Shares have no stated maturity and will not be subject to any sinking
fund.
VOTING RIGHTS
Holders of the Shares will not have any voting rights, except as set forth
below or as otherwise from time to time required by law. Subject to the
provisions in the Declaration of Trust regarding Excess Shares (defined below),
in any matter in which the Shares may vote, including any action by written
consent, each Share will be entitled to one vote. The holders of each Share may
separately designate a proxy for the vote to which that Share is entitled.
Whenever dividends on any Shares have been in arrears for six or more
quarterly periods (regardless of whether such periods are consecutive), the
holders of such Shares (voting separately as a class with all other series of
preferred shares upon which rights to vote on such matter with Shares have been
conferred and are then exercisable) will be entitled to vote for the election of
two additional trustees of Crown at a special meeting called by the holders of
record of at least 10% of the Shares and such other preferred shares, if any
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(unless such request is received less than 90 days before the date fixed for the
next annual or special meeting of the shareholders), or at the next annual
meeting of shareholders, and at each subsequent annual meeting until all
dividends accumulated on such Shares for the past dividend periods and the then
current dividend period have been fully paid or declared and a sum sufficient
for the payment thereof set aside for payment. In such event, the entire Board
of Trustees will be increased by two trustees. Each of such two trustees will be
elected to serve until the earlier of (i) the election and qualification of such
trustee's successor or (ii) payment of the dividend arrearage for the Shares.
If any trustee so elected by the holders of the Shares shall cease to serve
as a trustee before such trustee's term shall expire, the holders of the Shares
(and any other series of preferred shares, if any, entitled to vote on such
matter, as described above) then outstanding may, at a special meeting of the
holders called as provided above, elect a successor to hold office for the
unexpired term of the trustee whose place shall be vacant.
So long as any Shares remain outstanding, Crown will not (i) without the
affirmative vote or consent of the holders of at least a majority of the Shares
outstanding at the time, given in person or by proxy, either in writing or at a
meeting (such series voting separately as a class), authorize, create or issue,
or increase the authorized or issued amount of, any class or series of capital
shares ranking senior to the Shares with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares; or (ii) without the affirmative vote or
consent of the holders of at least two-thirds of the Shares outstanding at the
time, given in person or by proxy, either in writing or at a meeting (such
series voting separately as a class), amend, alter or repeal the provisions of
the Declaration of Trust, whether by merger, consolidation or otherwise, so as
to materially and adversely affect any right, preference, privilege or voting
power of the Shares or the holders thereof; provided, however, that any increase
in the amount of the authorized preferred shares, or the creation or issuance of
any other series of preferred shares, or any increase in the amount of
authorized shares of preferred shares or any other series of preferred shares,
in each case ranking on a parity with or junior to the Shares with respect to
payment of dividends or the distribution of assets upon liquidation, dissolution
or winding up of Crown, will not be deemed to materially and adversely affect
such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required is
effected, all outstanding Shares have been redeemed or called for redemption
upon proper notice and sufficient funds have been deposited in trust to effect
such redemption.
RESTRICTIONS ON TRANSFER
For Crown to qualify as a real estate investment trust under the Code, it
cannot be "closely held"; that is, not more than 50% of the value of the
outstanding shares of beneficial interest may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year, the shares of beneficial
interest must be beneficially owned by 100 or more persons during at least 335
days of a taxable year of 12 months or during a proportionate part of a shorter
taxable year, and certain percentages of Crown's gross income must be derived
from particular activities.
The Declaration of Trust contains a number of provisions which restrict the
ownership and transfer of shares of beneficial interest and which are designed
to safeguard Crown against an inadvertent loss of real estate investment trust
status. These include ownership restrictions ("Ownership Restrictions") that
restrict, with certain exceptions, common shareholders from owning, under the
applicable attribution rules of the Code, more than 7.5% of the outstanding
Common Shares and preferred shareholders from owning more than 9.8% of the
outstanding preferred shares.
The Ownership Restrictions will not be automatically removed even if the
real estate investment trust provisions of the Code are changed so as to no
longer contain any ownership concentration limitation or if the ownership
concentration limitation is increased. Except as otherwise described above, any
change in the Ownership Restrictions would require an amendment to the
Declaration of Trust. Amendments to the Declaration of Trust require the
affirmative vote of holders owning a majority of the shares then outstanding and
entitled to vote thereon, except as expressly provided in the Declaration of
Trust. In addition to preserving
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Crown's status as a real estate investment trust, the Ownership Restrictions may
have the effect of precluding an acquisition of control of Crown without the
approval of the Board of Trustees.
The trustees of Crown may waive the Ownership Restrictions if evidence
satisfactory to the trustees and Crown's tax counsel is presented showing that
such waiver will not jeopardize Crown's status as a REIT under the Code. As a
condition of such waiver, the trustees of Crown may require that an intended
transferee give written notice to Crown, furnish such opinions of counsel,
affidavits, undertakings, agreements and information as may be required by the
trustees and/or an undertaking from the applicant with respect to preserving the
real estate investment trust status of Crown. Any transfer of shares or any
security convertible into shares that would (i) create a direct or indirect
ownership of shares in excess of the ownership limit, (ii) result in the shares
being owned by fewer than 100 persons or (iii) result in Crown being "closely
held" within the meaning of Section 856(h) of the Code, will be void with
respect to the intended transferee and will be exchanged for an equal number of
excess shares ("Excess Shares"). Under the Declaration of Trust, Excess Shares
shall be deemed to have been transferred to Crown, as trustee of a separate
trust (the "Special Trust"), for the exclusive benefit of the person or persons
to whom the interest in the Special Trust can ultimately be transferred.
Excess Shares are not transferable. The purported transferee of any shares
(including the Shares) that are exchanged for Excess Shares may designate a
transferee of the interest in the Special Trust if the Excess Shares held in the
Special Trust and represented by such Special Trust interest to be transferred
would not be Excess Shares in the hands of the designated transferee at a price
not to exceed the price paid by the purported transferee (or, if no
consideration was paid, the market price at the time of the original attempted
transfer) at which point such Excess Shares will automatically be exchanged for
shares to which the Excess Shares are attributable. In addition, Excess Shares
are subject to purchase by Crown at a purchase price equal to the lesser of: (i)
the price paid for the shares by the intended transferee (or, if no
consideration was paid, the market price of the shares the attempted transfer of
which resulted in Excess Shares, measured on the date of the transfer); or (ii)
the market price of the shares the attempted transfer of which resulted in
Excess Shares measured on the date on which Crown elects to purchase the Excess
Shares. "Market Price" means the last reported sales price reported on the NYSE
of shares of the relevant class on the trading day immediately preceding the
relevant date, or if the shares of the relevant class are not then traded on the
NYSE, the last reported sales price of shares of the relevant class on the
trading date immediately preceding the relevant date as reported on any exchange
or quotation system over which the shares of the relevant class may be traded,
or if the Shares of the relevant class are not then traded over any exchange or
quotation system, then the market price of the shares of the relevant class on
the relevant date as determined in good faith by the board of trustees of the
Special Trust.
From and after the intended transfer to the purported transferee of the
Excess Shares, the purported transferee shall cease to be entitled to
distributions (except upon liquidation), voting rights and other benefits with
respect to the Excess Shares except the right to payment of the purchase price
for the shares (including the Shares). Any dividend or distribution paid to a
purported transferee on Excess Shares prior to the discovery by Crown that the
shares have been transferred in violation of the Declaration of Trust shall be
repaid to Crown upon demand. If the foregoing transfer restrictions are
determined to be void or invalid by virtue of any legal decision, statute, rule
or regulation, then the intended transferee of any Excess Shares may be deemed,
at the option of Crown, to have acted as an agent on behalf of Crown in
acquiring the Excess Shares and to hold the Excess Shares on behalf of Crown.
All certificates representing shares (including the Shares) will bear a legend
referring to the restrictions described above.
All certificates representing shares of beneficial interest will bear a
legend referring to the restrictions described above.
All persons who own, directly or by virtue of the applicable attribution
provisions of the Code, more than 7.5% of the value of any class of outstanding
shares of beneficial interest must file an affidavit with Crown containing the
information specified in the Declaration of Trust by January 1 of each year. In
addition, each shareholder shall upon demand be required to disclose to Crown in
writing such information with respect to the direct, indirect and constructive
ownership of shares of beneficial interest as the Board of Trustees deems
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necessary to comply with the provisions of the Code applicable to a real estate
investment trust, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
GENERAL
The transfer agent and registrar for the Shares is American Stock Transfer
and Trust Company. The Shares will be, when issued, duly authorized, fully paid
and nonassessable and will have no preemptive rights.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material Federal income tax
considerations affecting holders of the Shares. Reed Smith Shaw & McClay has
acted as counsel to Crown in connection with the Prospectus and this Prospectus
Supplement and has reviewed the summary below and is of the opinion that it
fairly summarizes the Federal income tax consequences that are likely to be
material to a holder of Shares. This Summary is directed principally at
investors who are United States citizens or residents or domestic corporations
and who will hold the Shares as capital assets within the meaning of section
1221 of the Code. It does not address in all material respects considerations
that might be relevant to the treatment of investors who are subject to special
treatment under the tax laws (such as insurance companies, cooperatives,
financial institutions, broker-dealers, tax exempt organizations or foreign
investors). The discussion in this section is based on existing provisions of
the Code, existing and proposed Treasury regulations, existing court decisions
and existing rulings and other administrative interpretations. There can be no
assurance that future Code provisions or other legal authorities will not alter
significantly the tax consequences described below. No rulings have been
obtained from the Internal Revenue Service ("IRS") concerning any of the matters
discussed in this section. Because the following represents only a summary, it
is qualified in its entirety by the applicable provisions of the Code, and
regulations, court decisions and IRS rulings and other IRS pronouncements.
Each prospective purchaser of the Shares is advised to consult his or her
own tax advisor about the Federal, state, local, foreign and other tax
consequences of buying, holding and selling the Shares.
BASIS
The basis each shareholder will have for his or her Shares will be the
amount such shareholder pays for such Shares at the time of purchase.
HOLDING PERIODS
The holding period each shareholder will have for his or her Shares shall
commence on the day after the acquisition date of the Shares.
TAXABLE DISTRIBUTIONS
As long as Crown qualifies as a REIT, distributions from Crown (other than
distributions designated as capital gain dividends) will be taxable to
shareholders who are not tax-exempt entities as ordinary income to the extent of
the earnings and profits of Crown. For purposes of determining whether
distributions on the Shares are out of current or accumulated earnings and
profits, the earnings and profits of Crown will be allocated first to the Shares
and second to its common shares. Any dividend declared by Crown in October,
November or December of any year payable to shareholders of record on a date in
such month will be treated as if it were received by the shareholders on
December 31, provided such dividend actually is paid by January 31, of the
following year. Consequently, any such dividend will be taxable to a shareholder
in such shareholder's taxable year including December 31. (It is possible that
any portion of a dividend made to a shareholder after December 31 not from
current or accumulated earnings and profits would be treated as a distribution
by Crown in the year it is actually made. Accordingly, if Crown has sufficient
earnings and profits in the year in which such dividend actually is paid, no
portion of such dividend would be a return of capital distribution.) Dividends
paid to such shareholders will not constitute passive activity income (such
income,
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therefore, will not be subject to reduction by losses from passive activities of
a shareholder who is subject to the passive activity loss rules). Such
distributions, however, will be considered investment income, which may be
offset by investment expense deductions. Dividends from Crown that are
designated as capital gains dividends by Crown will be taxed as long-term
capital gain to taxable shareholders to the extent that they do not exceed
Crown's actual net capital gain for the taxable year. A shareholder that is a
corporation may be required to treat up to 20% of any such capital gains
dividend as ordinary income. Such distributions, whether characterized as
ordinary income or as capital gain, are not eligible for the dividends received
deduction for corporations. Shareholders are not permitted to deduct any net
losses of Crown.
A dividend that is not designated as a capital gains dividends and that is
in excess of Crown's current or accumulated earnings and profits is treated as a
return of capital to a shareholder and reduces the tax basis of the
shareholder's Shares (but not below zero). Any such distribution in excess of
the tax basis of a shareholder's Shares is taxable to any such shareholder who
is not a tax-exempt entity as gain realized from the sale of the Shares. If any
portion (the "Capital Gain Amount") of Crown's distributions are designated by
Crown as capital gain dividends, then the portion of the Capital Gain Amount for
the year so designated that will be allocable to the holders of the Shares will
be the Capital Gain Amount multiplied by a fraction, the numerator of which will
be the total dividends paid or made available to the holders of the Shares for
the year and the denominator of which will be the total dividends paid by Crown.
TAXATION OF DISPOSITION OF SHARES OF CROWN
In general, any gain or loss realized upon a taxable disposition of Shares
of Crown by a shareholder who is not a dealer in securities or another person
who does not hold the Shares as capital assets will be treated as long-term
capital gain or loss if the Shares have been held for more than 12 months and as
short-term capital gain or loss if the Shares have been held for 12 months or
less. If, however, the shareholders have received any capital gains dividends
with respect to such Shares, any loss realized upon a taxable disposition of
Shares held for six months or less, to the extent of such capital gains
dividends received with respect to such Shares, will be treated as long-term
capital loss.
TAXATION OF TAX-EXEMPT ENTITIES
In general, a shareholder that is a tax-exempt entity not subject to tax on
its investment income will not be subject to tax on distributions from Crown. In
Revenue Ruling 66-106, 1966-1 C.B. 151, the IRS ruled that amounts distributed
as dividends by a REIT do not constitute unrelated business taxable income
("UBTI") when received by a qualified plan. Based on that ruling, regardless of
whether Crown incurs indebtedness in connection with the acquisition of
properties, distributions paid by Crown to a shareholder that is a tax-exempt
entity will not be treated as UBTI, provided that (i) the tax-exempt entity has
not financed the acquisition of its Shares with "acquisition indebtedness"
within the meaning of the Code and the Shares otherwise are not used in an
unrelated trade or business of the tax-exempt entity and (ii) Crown is not a
pension-held REIT. If Crown is a pension-held REIT and a tax-exempt pension fund
owns more than 10 percent of Crown, such shareholder may be required to
recognize as UBTI that percentage of the dividends that is equal to the
percentage of Crown's gross income that would be UBTI to Crown if Crown were a
qualified pension fund required to recognize UBTI. A REIT is a pension-held REIT
if at least one qualified trust holds more than 25 percent of the value the
REIT's shares or one or more qualified trusts, each of whom own more than 10
percent of the REIT's shares, hold more than 50 percent of the value the REIT's
shares and the closely held rule could only be avoided by looking through the
pension funds to their beneficiaries. A tax-exempt shareholder also should be
aware that Congress currently is examining the taxation of investment income
received by tax-exempt entities including the treatment of income received by
such entities from REITs and other pass-through entities and is considering
whether to treat income derived from a REIT as UBTI to the extent that Crown has
incurred debt to acquire its assets. The Congressional committee conducting this
examination has not yet concluded its study.
For 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 Crown will constitute UBTI
unless
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the organization is able to deduct amounts set aside or placed in reserve for
certain purposes so as to offset the UBTI generated by its investment in Crown.
Such prospective shareholders should consult their own tax advisors concerning
these "set aside" and reserve requirements.
REDEMPTION OF PREFERRED SHARES
A cash redemption of the Shares will be treated under Section 302 of the
Code as a distribution taxable as a dividend (to the extent of Crown's current
and accumulated earnings and profits) at ordinary income rates unless the
redemption satisfies one of the tests set forth in Section 302(b) of the Code
and is therefore treated as a sale or exchange of the redeemed shares. The cash
redemption will be treated as a sale or exchange if it (i) is "substantially
disproportionate" with respect to the holder, (ii) results in a "complete
termination" of the holder's share interest in Crown, or (iii) is "not
essentially equivalent to a dividend" with respect to the holder, all within the
meaning of Section 302(b) of the Code. In determining whether any of these tests
have been met, capital shares (including Common Shares and other equity
interests in Crown) considered to be owned by the holder by reason of certain
constructive ownership rules set forth in the Code, as well as capital shares
actually owned by the holder, must generally be taken into account. Because the
determination as to whether any of the alternative tests of Section 302(b) of
the Code will be satisfied with respect to any particular holder of the Shares
depends upon the facts and circumstances at the time that the determination must
be made, prospective holders of the Shares are advised to consult their own tax
advisors to determine such tax treatment.
If a cash redemption of the Shares is not treated as a distribution taxable
as a dividend to a particular holder, it will be treated, as to that holder, as
a taxable sale or exchange. As a result, such holder 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 (less any
portion thereof attributable to accumulated and declared but unpaid dividends,
which will be taxable as a dividend to the extent of Crown's current and
accumulated earnings and profits), and (ii) the holder's adjusted basis in the
Shares for tax purposes. Such gain or loss will be capital gain or loss if the
Shares have been held as a capital asset and will be long-term gain or loss if
such Shares have been held for more than one year.
If a cash redemption of the Shares is treated as a distribution taxable as
a dividend, the amount of the distribution will be measured by the amount of
cash and the fair market value of any property received by the holder. The
holder's adjusted basis in the redeemed Shares for tax purposes will be
transferred to the holder's remaining capital shares in Crown, if any. If the
holder owns no other capital shares in Crown, such basis may, under certain
circumstances, be transferred to a related person or it may be lost entirely.
REDEMPTION PREMIUM
Under Section 305(c) of the Code and applicable Treasury Regulations, if
the redemption price of the Shares exceeds its issue price by more than a de
minimis amount then, in certain circumstances, the amount of such excess may be
deemed to be a constructive distribution (treated as a dividend to the extent of
Crown's current and accumulated earnings and profits) which is taxable to the
holder at a constant yield (as if it was original issue discount on a debt
instrument) over the period the Shares cannot be redeemed.
A redemption premium is considered de minimis under the Treasury
Regulations if it is less than the product of .25% times the redemption price of
the Shares times the number of complete years the Shares are outstanding. Crown
does not expect that the price paid for the redemption of the Shares would be
considered de minimis.
However, the constant yield method, described above, which must be used to
take into account the redemption premium on preferred stock only applies if the
subject preferred stock is (i) mandatorily redeemable, (ii) redeemable at the
holder's option, or (iii) redeemable at the issuer's option if at the time of
issue, based on all the facts and circumstances, it is more likely than not that
the issuer will exercise such option. With respect to situation (iii) in the
preceding sentence, the Treasury Regulations further provide that, even if the
redemption is more likely than not to occur, this constant yield method will not
apply if the redemption premium is solely in the nature of a penalty for
premature redemption. A redemption premium is
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considered to be a penalty for premature redemption only if it is paid as a
result of changes in economic or market conditions over which the issuer of the
stock or the holder does not have legal or practical control.
The Shares are not mandatorily redeemable or redeemable at the holder's
option, and Crown does not believe that at the time of issue it is more likely
than not that the Shares will be redeemed; thus Crown does not expect that a
holder of such stock will be required to take the redemption premium into income
as a dividend distribution at a constant yield over the period the holder holds
such stock. However, no assurance can be given that the IRS will not take a
contrary position.
STATEMENT OF SHARE OWNERSHIP
Crown is required to demand annual written statements from the record
holders of designated percentages of its Shares disclosing the actual owners of
the Shares. Any record shareholder who, upon request by Crown, does not provide
Crown with required information concerning actual ownership of the Shares is
required to include certain specified information relating thereto in his
Federal income tax return. Crown also must maintain, within the Internal Revenue
district in which it is required to file its Federal income tax return,
permanent records showing the information it has received as to the actual
ownership of such Shares and a list of those persons failing or refusing to
comply with such demand.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
between Friedman, Billings, Ramsey & Co., Inc. (the "Underwriter") and Crown
(the "Underwriting Agreement"), the Underwriter has agreed to purchase from
Crown, and Crown has agreed to sell to the Underwriter, 2,500,000 Shares at the
price set forth on the cover page of this Prospectus Supplement.
The Underwriting Agreement provides that the Underwriter's obligation to
purchase the Units is subject to the satisfaction of certain conditions,
including the receipt of certain legal opinions. The nature of the Underwriter's
obligations is such that it is committed to purchase all of the Shares if any
are purchased.
Crown also has granted an option to the Underwriter, exercisable during the
30-day period after the date of this Prospectus Supplement, to purchase up to
375,000 additional Shares at the price to the public set forth on the cover page
of this Prospectus Supplement, less the underwriting discount.
The Underwriter has advised Crown that it proposes initially to offer the
Shares to the public at the public offering price set forth on the cover page of
this Prospectus Supplement and may offer the Shares to certain dealers at such
offering price less a concession not in excess of $ per Share. The
Underwriter may allow, and such dealers may reallow, a concession not to exceed
$0. per Share on certain sales to other dealers. After the initial public
offering, the public offering price of the Shares may change and the Shares may
be offered for sale to the public at fixed prices that may be changed, at market
prices prevailing at the time of sale or at negotiated prices. Application has
been made to list the Shares on the NYSE.
Brokers, dealers, agents and underwriters that participate in the
distribution of the Shares offered hereby, may be deemed to be underwriters
under the Securities Act. Those who act as underwriter, broker, dealer or agent
in connection with the sale of the Shares offered hereby will be selected by the
Underwriter and may have other business relationships with Crown and its
subsidiaries or affiliates in the ordinary course of business.
Crown has agreed not to register for sale, sell, contract to sell or
otherwise dispose of any preferred shares for a period of 180 days after the
date of this Prospectus Supplement without the prior written consent of the
Underwriter. In the Underwriting Agreement, Crown and the Operating Partnership
have agreed to indemnify the Underwriter against certain liabilities, including
certain liabilities under the Securities Act or to contribute to payments the
Underwriter may be required to make in respect thereof. The Underwriter may be
deemed to be an "Underwriter" for purposes of the Securities Act in connection
with the Offering. Crown will reimburse the Underwriter for its reasonable
out-of-pocket expenses incurred in connection with the Offering.
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LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for Crown by
Reed Smith Shaw & McClay, Pittsburgh, Pennsylvania and for the Underwriter by
Winston & Strawn, Chicago, Illinois.
EXPERTS
The consolidated financial statements and schedules of Crown American
Realty Trust, incorporated by reference from the Annual Report on Form 10-K for
the year ended December 31, 1996, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports, with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED WITHOUT THE DELIVERY OF A FINAL PROSPECTUS
SUPPLEMENT AND PROSPECTUS. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS DATED JUNE 12, 1997
SUBJECT TO COMPLETION
$300,000,000
CROWN AMERICAN REALTY TRUST
COMMON SHARES, COMMON SHARE WARRANTS, PREFERRED SHARES AND DEBT SECURITIES
Crown American Realty Trust ("Crown") may from time to time offer in one or
more series (i) common shares of beneficial interest, par value $.01 per share
(the "Common Shares"), (ii) Common Share warrants (the "Common Share Warrants"),
(iii) preferred shares of beneficial interest, par value $.01 per share (the
"Preferred Shares"), or (iv) debt securities (the "Debt Securities"), with an
aggregate public offering price of up to $300,000,000 in amounts, at prices and
on terms to be determined at the time of any such offering. Crown may offer the
Common Shares, Common Share Warrants, Preferred Shares and Debt Securities
(collectively, the "Securities") from time to time, separately or together, in
separate series, in amounts, at prices and on terms to be set forth in
supplements to this Prospectus (each a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Common Shares, the specific
number of shares and issuance price per share; (ii) in the case of Common Share
Warrants, the duration, offering price, exercise price and detachability; (iii)
in the case of Preferred Shares, the specific number of shares, designation, any
dividend, liquidation, redemption, conversion, voting and other rights, and
issuance price per share; and (iv) in the case of Debt Securities, the specific
title, aggregate principal amount, form (which may be registered or bearer, or
certificated or global), authorized denominations, maturity, rate (or manner of
calculation thereof) and time of payment of interest, terms for redemption at
the option of Crown or repayment at the option of the holder, terms for any
sinking fund payments, terms for conversion into Common Shares, Preferred Shares
or Debt Securities of another series, and any initial public offering price. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Securities, in each case as may be
appropriate to preserve the status of Crown as a real estate investment trust
for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain federal income tax considerations relating to, and any
listing on a securities exchange of, the Securities covered by such Prospectus
Supplement.
The Securities may be offered directly, through agents designated from time
to time by Crown, or to or through underwriters or dealers. If any agents or
underwriters are involved in the sale of any of the Securities, their names, and
any applicable purchase price, fee, commission or discount arrangement between
or among them, will be set forth, or will be calculable from the information set
forth, in the applicable Prospectus Supplement. See "Plan of Distribution." No
Securities may be sold without delivery of the applicable Prospectus Supplement
describing the method and terms of the offering of such series of Securities.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
This Prospectus may not be used to consummate sales of securities unless
accompanied by a Prospectus Supplement. Any statement contained in this
Prospectus will be deemed to be modified or superseded by any inconsistent
statement contained in an accompanying Prospectus Supplement.
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THE DATE OF THIS PROSPECTUS IS JUNE , 1997
<PAGE> 24
AVAILABLE INFORMATION
Crown is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Crown can be inspected and copied at
the public reference facilities of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Midwest Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; Northeast Regional Office, 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material may be obtained from the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a website at http://www.sec.gov
containing reports, prospectuses and information statements and other
information regarding registrants, including Crown, that file electronically.
Similar materials and other information concerning Crown also are available for
inspection at The New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
Crown has filed with the Commission a Registration Statement on Form S-3
(together with all amendments, exhibits and schedules, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Securities. The Prospectus and any accompanying Prospectus
Supplement do not contain all of the information included in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to Crown and
the Securities, reference is hereby made to the Registration Statement,
including the exhibits and schedules thereto. Statements contained in this
Prospectus and any accompanying Prospectus Supplement concerning the provisions
or contents of any contract, agreement or any other document referred to herein
are not necessarily complete. With respect to each such contract, agreement or
document filed as an exhibit to the Registration Statement, reference is made to
such exhibit for a more complete description of the matters involved, and each
such statement shall be deemed qualified in its entirety by such reference to
the copy of the applicable document filed with the Commission. The Registration
Statement may be inspected without charge at the Commission's principal office
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of
it or any part thereof may be obtained from such office, upon payment of the
fees prescribed by the Commission. The Registration Statement also may be
retrieved from the Commission's website.
This Prospectus, including the documents incorporated herein by reference,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"). Also, documents
subsequently filed by Crown with the Securities and Exchange Commission and
incorporated herein by reference will contain forward-looking statements. Actual
results could differ materially from those projected in the forward-looking
statements as a result of any risk factors set forth in the Prospectus
Supplement and the matters set forth or incorporated in this Prospectus
generally. Crown cautions the reader, however, that any such list of factors may
not be exhaustive, particularly with respect to the future filings. Prospective
investors should carefully consider, among other factors, any risk factors
described in the Prospectus Supplement and the matters described below before
purchasing Shares.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have previously been filed by Crown with the
Commission are incorporated herein by reference:
(1) Crown's Annual Report on Form 10-K for the year ended December 31,
1996;
(2) Crown's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997;
(3) Crown's Proxy Statement with respect to its Annual Meeting of
Shareholders held on April 30, 1997.
All documents filed by Crown pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Securities made hereby shall be deemed to be
incorporated in this Prospectus by reference and to be a part hereof from the
date of filing of such documents. Any statement contained herein, or in a
document incorporated or deemed to be incorporated by reference herein, shall be
deemed to be modified or superseded for purposes of this Prospectus
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to the extent that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Crown will provide without charge to each person, including any beneficial
owner, to whom a copy of this Prospectus is delivered, on the written request of
any such person, a copy of any or all of the documents incorporated herein by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to Crown, Attention: Sharon Callihan, Investor
Relations, Crown American Realty Trust, Pasquerilla Plaza, Johnstown,
Pennsylvania 15901; telephone number 1-800-860-2011.
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CROWN
Crown American Realty Trust ("Crown") was formed on May 14, 1993 as a
Maryland real estate investment trust to acquire and operate substantially all
of the enclosed shopping mall properties and two office buildings (the
"Properties") owned by Crown American Associates ("Crown Associates"), formerly
Crown American Corporation. Crown Associates is a wholly-owned subsidiary of
Crown Holding Company ("Crown Holding"), which is owned by Frank J. Pasquerilla
and members of his immediate family. Crown Associates, which was founded in
1950, was engaged principally in the development, acquisition, ownership and
management of enclosed shopping malls and, to a lesser extent, strip shopping
centers, hotels and office buildings. Crown raised approximately $405 million in
equity through an initial public offering of approximately 25.5 million shares,
which occurred on August 17, 1993, and used the proceeds to purchase an initial
78% (74.6% as of May 31, 1997) general partnership interest in Crown American
Properties, L.P. (the "Operating Partnership"), a partnership which was formed
just prior to consummation of the initial public offering to own and operate the
Properties. The proceeds were used by the Operating Partnership to retire debt
related to the Properties.
Simultaneously with the initial public offering, Crown Associates and an
affiliate transferred the Properties and the management operations into either
Crown, the Operating Partnership, or Crown American Financing Partnership (the
"Financing Partnership"), a partnership which is 99.5% owned by the Operating
Partnership and 0.5% owned by Crown.
The limited partnership interest in the Operating Partnership and the 1.6
million shares in Crown received for two malls transferred in 1993 are currently
held by Crown Investments Trust ("Crown Investments"), by Crown American
Investment Company (a subsidiary of Crown Investments), and by members of the
Pasquerilla family.
Simultaneously with the above transactions, the Financing Partnership
borrowed $300 million of mortgage debt ( the "Mortgage Loans") secured by its 15
enclosed shopping malls. The $300 million of mortgage debt together with the
proceeds of the initial public offering were used to retire existing debt
contributed with the Properties.
Crown is a fully-integrated real estate company primarily engaged in the
ownership, operation, management, leasing, acquisition, development,
redevelopment, expansion, renovation and financing of enclosed shopping malls.
Crown's revenues are primarily derived under real estate leases with national,
regional and local department store and other retailing companies. The
Properties currently consist of 25 enclosed shopping malls, including a 50%
partnership interest in Palmer Park Mall (the "Malls"). Each Mall is an enclosed
shopping mall. All of the Malls have department stores as anchor tenants (the
"Anchors"). All of the malls have numerous diversified retail store tenants (the
"Mall Stores") which are located along enclosed malls connecting the Anchors.
Additional freestanding retail stores (the "Freestanding Stores") are located
along the perimeter of the parking areas at 17 of the Malls.
The total gross leasable area ("GLA") of the 25 Malls is approximately 14.3
million square feet, including Anchors, Mall Stores and Freestanding Stores. As
used herein, GLA of a Mall includes the GLA attributable to all Anchors,
including seven anchor locations owned by their occupants or other entities.
Anchors, Mall Stores and Freestanding Stores account for approximately 58%, 37%,
and 5%, respectively, of the total GLA of the Malls. Excluding Freestanding
Stores, the Malls range in size from approximately 300,000 to 830,000 square
feet of GLA with an average size of approximately 540,000 square feet of GLA.
Each Mall has ample surface parking with 19 of the Malls having parking ratios
above 5.0 per 1,000 square feet of GLA.
The Malls are generally located in middle markets where there are
relatively few other enclosed shopping malls. Crown's management believes that
the Malls have strong competitive positions because 21 are the largest, of which
13 are the only, enclosed regional shopping malls in their respective trade
areas. One of Crown's principal business strategies is the ongoing expansion and
renovation of its shopping malls to maintain and improve their competitive
position and market share.
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Crown also owns (i) an office building in Johnstown, Pennsylvania with
approximately 102,500 gross leasable square feet, which serves as Crown's
headquarters and is leased to Crown American's hotel division and to third
parties ("Pasquerilla Plaza") and (ii) a ground leasehold interest in one parcel
of land within a shopping center owned by a third party that is improved with a
building consisting of approximately 107,000 square feet of GLA subleased to an
anchor department store (the "Anchor Pad").
As the owner of real estate, Crown is subject to risks arising in
connection with the underlying real estate, including defaults under or
non-renewal of tenant leases, tenant bankruptcies, competition, inability to
rent unleased space, failure to generate sufficient income to meet operating
expenses, as well as debt service, capital expenditures and tenant improvements,
environmental matters, financing availability and changes in real estate and
zoning laws. The success of Crown also depends upon certain key personnel,
Crown's ability to maintain its qualification as a real estate investment trust
for federal income tax purposes (a "REIT"), compliance with the terms and
conditions of the Mortgage Loans and other debt instruments, and trends in the
national and local economy, including income tax laws, governmental regulations
and legislation, and population trends.
USE OF PROCEEDS
Unless otherwise indicated in the Prospectus Supplement accompanying this
Prospectus, Crown intends to use the net proceeds from the sale of the
Securities solely for investment purposes in the Operating Partnership. The
Board of Trustees may direct the use of such net proceeds for general corporate
purposes, which may include, among other things, the acquisition, development
and renovation of enclosed shopping malls as suitable opportunities arise, the
expansion and improvement of its existing Properties and the repayment of
outstanding indebtedness. Pending such uses, the net proceeds from the sale of
Securities may be invested in short-term investments.
RATIO OF EARNINGS TO FIXED CHARGES
Crown and its predecessor (prior to Crown's formation in 1993) historically
have generated positive cash flows from operating activities. However, after
deductions for real estate depreciation and amortization, the computation of the
ratios of earnings to fixed charges results in a deficiency in certain periods.
For the years ended December 31, 1994 and 1996, Crown's ratios of earnings to
fixed charges were 1.40 and 1.11 respectively. For the year ended December 31,
1995 and the quarter ended March 31, 1997 earnings were inadequate to cover
fixed charges by approximately $29.25 million and $2.34 million, respectively.
For purposes of computing these ratios, earnings have been calculated by
adding fixed charges (excluding capitalized interest) to income (loss) before
extraordinary income and minority interest. Fixed charges consist of interest
costs, whether expensed or capitalized, and amortization of deferred debt
issuance costs.
DESCRIPTION OF SHARES
The following summary of the terms of the shares of Crown does not purport
to be complete and is subject to and qualified in its entirety by reference to
Title 8 of the Corporations and Associations Article of the Annotated Code of
Maryland ("Title 8") and to Crown's Second Amended and Restated Declaration of
Trust, dated August 6, 1993 ("Declaration of Trust") and bylaws. See "Available
Information".
GENERAL
Crown's Declaration of Trust authorizes Crown to issue up to 250,000,000
shares of beneficial interest, consisting of 120,000,000 Common Shares of
Beneficial Interest, 5,000,000 Preferred Shares of Beneficial Interest, par
value $.01 per share ("Preferred Shares") and 125,000,000 Excess Shares of
Beneficial Interest ("Excess Shares"). As of May 31, 1997, 27,688,511 Common
Shares of Beneficial Interest were issued and outstanding.
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The Declaration of Trust also provides that, subject to the provisions of
any class or series of the shares of beneficial interest of Crown then
outstanding and to mandatory provisions of law, the shareholders of Crown shall
be entitled to vote only on the following matters: (a) election or removal of
trustees of Crown (the "Trustees"); (b) amendment of the Declaration of Trust;
(c) termination of the existence of Crown; (d) reorganization of Crown; (e)
merger, consolidation or share exchange of Crown or the sale or disposition of
substantially all Crown's assets; and (f) termination of Crown's status as a
real estate investment trust for federal tax purposes. Except with respect to
the foregoing matters, no action taken by the shareholders of Crown at any
meeting shall in any way bind the Trustees.
Both Maryland statutory law governing real estate investment trusts
organized under the laws of that state and the Declaration of Trust provide that
no shareholder of Crown will be personally liable for any obligation of Crown.
The Declaration of Trust provides that Crown shall indemnify each shareholder
against any claim or liability to which the shareholder may become subject by
reason of his being or having been a shareholder, and that Crown shall reimburse
each shareholder for reasonable expenses incurred by him in connection with any
such claim or liability. Crown carries public liability insurance which it
considers adequate. Accordingly, any risk of personal liability to shareholders
should be limited to situations in which the law of another jurisdiction would
not respect Maryland's limitation on shareholder liability and then only to the
extent that Crown's assets plus its insurance coverage would be insufficient to
satisfy the claims against Crown and its shareholders.
COMMON SHARES OF BENEFICIAL INTEREST
The following description of the Common Shares sets forth certain general
terms and provisions of the Common Shares to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Shares will be
issuable upon conversion of Debt Securities or Preferred Shares of Crown. The
statements below describing the Common Shares are in all respects subject to and
qualified in their entirety by reference to the applicable provisions of the
Declaration of Trust.
Each outstanding Common Share entitles the holder to one vote on all
matters submitted to a vote of shareholders, including the election of Trustees.
There is no cumulative voting in the election of Trustees, which means that the
holders of a majority of the outstanding Common Shares can elect all of the
Trustees then standing for election. Holders of Shares are entitled to such
distributions as may be declared from time to time by the Trustees in cash or
other assets of Crown, in securities of Crown or from any other legally
available source as the Trustees shall in their discretion determine.
Holders of the Common Shares have no conversion, redemption or preemptive
rights to subscribe to any securities of Crown. All outstanding Shares are fully
paid and nonassessable by Crown. In the event of any liquidation, dissolution or
winding-up of the affairs of Crown, holders of Common Shares will be entitled to
share ratably in the assets of Crown remaining after provision for payment of
liabilities to creditors and preferential rights of the Preferred Shares.
The Common Shares shall have equal dividend, distribution, liquidation and
other rights, and shall have no preference, appraisal, or exchange rights.
COMMON SHARE WARRANTS
Crown may issue Common Share Warrants for the purchase of Common Shares.
Common Share Warrants may be issued independently or together with any other
Securities offered pursuant to any Prospectus Supplement and may be attached to
or separate from such Securities. Each series of Common Share Warrants will be
issued under a separate warrant agreement (each, a "Warrant Agreement") to be
entered into between Crown and the warrant recipient or, if the recipients are
numerous, a warrant agent identified in the applicable Prospectus Supplement
(the "Warrant Agent"). The Warrant Agent, if engaged, will act solely as an
agent of Crown in connection with the Common Share Warrants of such series and
will not assume any obligations or relationship of agency or trust for or with
any holders or beneficial owners of Common Share Warrants. Further terms of the
Common Share Warrants and the applicable Warrant Agreements will be set forth in
the Prospectus Supplement.
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The applicable Prospectus Supplement will describe the terms of any Common
Share Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following: (1) the title of such Common Share
Warrants; (2) the aggregate number of such Common Share Warrants; (3) the price
or prices at which such Common Share Warrants will be issued; (4) the
designation, number and terms of the shares of Common Shares purchasable upon
exercise of such Common Share Warrants; (5) the designation and terms of the
other Securities with which such Common Share Warrants are issued and the number
of such Common Share Warrants issued with such offered Securities; (6) the date,
if any, on and after which such Common Share Warrants and the related Common
Stock will be separately transferable; (7) the price at which each Common Share
purchasable upon exercise of such Common Share Warrants may be purchased; (8)
the date on which the right to exercise such Common Share Warrants shall
commence and the date on which such right shall expire; (9) the minimum or
maximum amount of such Common Share Warrants which may be exercised at any one
time; (10) information with respect to book-entry procedures, if any; (11) a
discussion of certain federal income tax considerations relevant to a holder of
such Common Share Warrants; and (12) any other terms of such Common Share
Warrants, including terms, procedures and limitations relating to the exchange
and exercise of such Common Share Warrants.
Reference is made to the section above entitled "Common Shares of
Beneficial Interest" for a general description of the Common Shares to be
acquired upon the exercise of the Common Share Warrants.
PREFERRED SHARES
The Preferred Shares authorized by the Declaration of Trust may be issued
from time to time in one or more series in such amounts and with such
designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms or
conditions of redemption as may be fixed by the Trustees. The following
description of the Preferred Shares sets forth certain anticipated general terms
and provisions of the Preferred Shares to which any Prospectus Supplement may
relate. Certain other terms of any class or series of Preferred Shares (which
terms may be different than those stated below) will be described in the
Prospectus Supplement to which such class or series relates. The statements
below describing the Preferred Shares are in all respects subject to and
qualified in their entirety by reference to the applicable provisions of the
Prospectus Supplement and Declaration of Trust (including any amendment
describing the designations, rights, and preferences of each class or series of
Preferred Shares) and bylaws.
Classification or Reclassification of Preferred Shares
The Declaration of Trust authorizes the Trustees to classify or reclassify
any unissued Preferred Shares by setting or changing the designations,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to distributions, qualifications or terms or conditions of
redemption of such Preferred Shares.
Rank
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of Crown, rank (i) senior to all classes or series of
Common Shares of Crown, and to all equity and debt securities which are
specifically designated as ranking junior to such Preferred Shares with respect
to dividend rights or rights upon liquidation, dissolution or winding up of
Crown; (ii) on a parity with all equity and debt securities issued by Crown the
terms of which specifically provide that such equity and debt securities rank on
a parity with the Preferred Shares with respect to dividend rights or rights
upon liquidation, dissolution or winding up of Crown; and (iii) junior to all
equity and debt securities issued by Crown the terms of which specifically
provide that such equity and debt securities rank senior to the Preferred Shares
with respect to dividend rights or rights upon liquidation, dissolution or
winding up of Crown.
Dividends
Holders of shares of the Preferred Shares of each class or series shall be
entitled to receive, when, as and if declared by the Board of Trustees (as
defined below) of Crown, out of assets of Crown legally available for
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payment, cash dividends (or dividends in kind or in other property if expressly
permitted and described in the applicable Prospectus Supplement) at such rates
and on such dates as will be set forth in the applicable Prospectus Supplement.
Each such dividend shall be payable to holders of record as they appear on the
shares of beneficial interest transfer books of Crown on such record dates as
shall be fixed by the Board of Trustees of Crown.
Dividends on any class or series of the Preferred Shares may be cumulative
or non-cumulative, as provided in the applicable Prospectus Supplement.
Dividends, if cumulative, will be cumulative from and after the date set forth
in the Prospectus Supplement. If the Board of Trustees of Crown fails to declare
a dividend payable on a dividend payment date on any class or series of the
Preferred Shares for which dividends are noncumulative, then the holders of such
class or series of the Preferred Shares will have no right to receive a dividend
in respect of the dividend period ending on such dividend payment date, and
Crown will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such class or series are declared payable on any
future dividend payment date.
Unless otherwise specified in the applicable Prospectus Supplement, if any
shares of the Preferred Shares of any class or series are outstanding, no full
dividends shall be declared or paid or set apart for payment on the Preferred
Shares of Crown of any other class or series ranking, as to dividends, on a
parity with or junior to the Preferred Shares of such class or series for any
period unless full dividends (which include all unpaid dividends in the case of
cumulative dividend Preferred Shares) have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for such payment on the Preferred Shares of such class or series.
When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon the shares of Preferred Shares of any class or
series and the shares of any other class or series of Preferred Shares ranking
on a parity as to dividends with the Preferred Shares of such class or series,
all dividends declared upon shares of Preferred Shares of such class or series
and any other class or series of Preferred Shares ranking on a parity as to
dividends with such Preferred Shares shall be declared pro rata among the
holders of such class or series. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
Preferred Shares of such class or series which may be in arrears.
Until required dividends are paid, no dividends (other than in Common
Shares or other capital shares ranking junior to the Preferred Shares of such
class or series as to dividends and upon liquidation) shall be declared or paid
or set aside for payment, nor shall any other distribution be declared or made
upon the Common Shares or any other capital shares of Crown ranking junior to or
on a parity with the Preferred Shares of such class or series as to dividends or
upon liquidation, nor shall any Common Shares or any other capital shares of
Crown ranking junior to or on a parity with the Preferred Shares of such class
or series as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by Crown
(except by conversion into or exchange for other capital shares of Crown ranking
junior to the Preferred Shares of such class or series as to dividends and upon
liquidation).
Any dividend payment made on shares of a class or series of Preferred
Shares shall first be credited against the earliest accrued but unpaid dividend
due with respect to shares of Preferred Shares of such class or series which
remains payable.
Redemption
If so provided in the applicable Prospectus Supplement, the Preferred
Shares will be subject to mandatory redemption or redemption at the option of
Crown, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a class or series of Preferred Shares
that is subject to mandatory redemption will specify the number of shares of
such Preferred Shares that shall be redeemed by Crown in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Shares
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do not have a cumulative dividend, include any accumulation in respect of unpaid
dividends for prior dividend periods) to the date of redemption. The redemption
price may be payable in cash or other property, as specified in the Prospectus
Supplement. If the redemption price for Preferred Shares of any class or series
is payable only from the net proceeds of the issuance of capital shares of
Crown, the terms of such Preferred Shares may provide that, if no such capital
shares shall have been issued or to the extent the net proceeds from any
issuance are insufficient to pay in full the aggregate redemption price then
due, such Preferred Shares shall automatically and mandatorily be converted into
shares of the applicable capital shares of Crown pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
So long as any dividends on shares of any class or series of the Preferred
Shares of Crown ranking on a parity as to dividends and distributions of assets
with such class or series of the Preferred Shares are in arrears, no shares of
any such class or series of the Preferred Shares of Crown will be redeemed
(whether by mandatory or optional redemption) unless all such shares are
simultaneously redeemed, and Crown will not purchase or otherwise acquire any
such shares. However, the foregoing will not prevent the purchase or acquisition
of such shares of Preferred Shares to preserve the status of Crown as a REIT or
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding shares of Preferred Shares of such class or series and, unless
the full cumulative dividends on all outstanding shares of any cumulative
Preferred Shares of such class or series and any other shares of Crown ranking
on a parity with such class or series as to dividends and upon liquidation shall
have been paid or contemporaneously are declared and paid for all past dividend
periods, Crown shall not purchase or otherwise acquire directly or indirectly
any shares of Preferred Shares of such class or series (except by conversion
into or exchange for shares of Crown ranking junior to the Preferred Shares of
such class or series as to dividends and upon liquidation). In addition, the
foregoing will not prevent the purchase or acquisition of such shares of
Preferred Shares to preserve the status of Crown as a REIT or pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
shares of Preferred Shares of such class or series.
If fewer than all of the outstanding shares of Preferred Shares of any
class or series are to be redeemed, the number of shares to be redeemed will be
determined by Crown and such shares may be redeemed pro rata from the holders of
record of such shares in proportion to the number of such shares held by such
holders (with adjustments to avoid redemption of fractional shares) or any other
equitable method determined by Crown.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of a share of Preferred
Shares of any class or series to be redeemed at the address shown on the share
transfer books of Crown. If notice of redemption of any Preferred Shares has
been given and if the funds necessary for such redemption have been set aside by
Crown in trust for the benefit of the holders of Preferred Shares so called for
redemption, then from and after the redemption date dividends will cease to
accrue on such Preferred Shares, such Preferred Shares shall no longer be deemed
outstanding and all rights of the holders of such Preferred Shares will
terminate, except the right to receive the redemption price.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of Crown, then, before any distribution or payment shall be made to
the holders of Common Shares, or any other class or series of capital shares of
Crown ranking junior to the Preferred Shares in the distribution of assets upon
any liquidation, dissolution or winding up of Crown, the holders of each class
or series of Preferred Shares shall be entitled to receive out of assets of
Crown legally available for distribution to shareholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which shall not include any accumulation in respect
of unpaid dividends for prior dividend periods if such Preferred Shares do not
have a cumulative dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of shares of Preferred
Shares will have no right or claim to any of the remaining assets of Crown. In
the event that, upon any such voluntary or involuntary liquidation, dissolution
or winding up, the legally available assets of Crown are insufficient to pay the
amount of the liquidating distributions on all outstanding Preferred Shares and
the corresponding amounts payable on all shares of other classes or series of
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capital shares of Crown ranking on a parity with the Preferred Shares in the
distribution of assets upon liquidation, dissolution or winding up, then the
holders of the Preferred Shares and all other such classes or series of capital
shares shall share ratably in any such distribution of assets in proportion to
the full liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
shares of Preferred Shares, the remaining assets of Crown shall be distributed
among the holders of any other classes or series of capital shares ranking
junior to the Preferred Shares upon liquidation, dissolution or winding up,
according to their respective rights and preferences and in each case according
to their respective number of shares.
Voting Rights
Holders of the Preferred Shares will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Any class or series of Preferred Shares may provide that, so long as any
shares of such class or series of Preferred Shares remain outstanding, the
holders of such class or series may vote as a separate class on certain
specified matters, which may include changes in Crown's capitalization,
amendments to the Declaration of Trust, and mergers and dispositions.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such class or series of Preferred Shares
shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been irrevocably deposited in trust to effect such
redemption.
The provisions of a class or series of Preferred Shares may provide for
additional rights, remedies, and privileges if dividends on such class or series
are in arrears for specified periods, which rights and privileges will be
described in the applicable Prospectus Supplement.
Under Maryland law, notwithstanding anything to the contrary set forth
above, holders of each class or series of Preferred Shares will be entitled to
vote upon a proposed amendment to the Declaration of Trust, whether or not
entitled to vote thereon by the Declaration of Trust, if the amendment would
alter the contract rights, as set forth in the Declaration of Trust, of their
shares.
Conversion Rights
The terms and conditions, if any, upon which shares of any class or series
of Preferred Shares are convertible into Common Shares will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of Common Shares into which the Preferred Shares are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Shares or Crown, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of such
Preferred Shares.
Restrictions On Ownership
The Preferred Shares will be subject to certain restrictions on ownership
as described in the applicable Prospectus Supplement.
EXCESS SHARES
The Declaration of Trust provides that no holder may own, or be deemed to
own under the applicable attribution rules of the Internal Revenue Code of 1986,
as amended (the "Code"), shares in excess of the Ownership Limits and that no
purported transfer of shares of beneficial interest may be given effect if it
results in ownership of all of the outstanding shares of beneficial interest by
fewer than 100 persons (the "Ownership Restrictions"). In the event of a
purported transfer or other event that would, if effective, result in the
ownership of shares of beneficial interest in violation of the Ownership
Restrictions, such transfer would be deemed void ab initio and such shares would
automatically be exchanged for Excess Shares authorized by the
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Declaration of Trust, according to rules set forth in the Declaration of Trust,
to the extent necessary to ensure that the purported transfer or other event
does not result in the ownership of shares of beneficial interest in violation
of the Ownership Restrictions.
Holders of Excess Shares are not entitled to voting rights (except to the
extent required by law), dividends or distributions. If, after the purported
transfer or other event resulting in an exchange of shares of beneficial
interest for Excess Shares and prior to the discovery by Crown of such exchange,
dividends or distributions are paid with respect to the shares of beneficial
interest that were exchanged for Excess Shares, then such dividends or
distributions are to be repaid to Crown upon demand. While outstanding, Excess
Shares will be held in trust by Crown for the benefit of the ultimate transferee
of an interest in such trust, as described below. While Excess Shares are held
in trust, an interest in that trust may be transferred by the purported
transferee or other purported holder with respect to such Excess Shares only to
a person whose ownership of the shares of beneficial interest will not violate
the Ownership Restrictions, at which time the Excess Shares will be
automatically exchanged for shares of beneficial interest of the same type and
class as the shares of beneficial interest for which the Excess Shares were
originally exchanged. The Declaration of Trust contains provisions that are
designed to ensure that the purported transferee or other purported holder of
the Excess Shares may not receive in return for such a transfer an amount that
reflects any appreciation in the shares of beneficial interest for which such
Excess Shares were exchanged during the period that such Excess Shares were
outstanding. Any amount received by a purported transferee or other purported
holder in excess of the amount permitted to be received must be turned over to
Crown.
The Declaration of Trust provides that Crown, by notice to the holder
thereof, may purchase any or all Excess Shares that have been automatically
exchanged for outstanding Common Shares or Preferred Shares as a result of any
transfer or other event. The price at which Crown may purchase such Excess
Shares shall be equal to the lesser of (i) in the case of Excess Shares
resulting from a purported transfer for value, the price per share in the
purported transfer that caused the automatic exchange for such Excess Shares or,
in the case of Excess Shares resulting from some other event, the market price
of such Shares or Preferred Shares on the date of the automatic exchange for
Excess Shares, or (ii) the market price of such Shares or Preferred Shares on
the date that Crown accepts such Excess Shares. Any dividend or distribution
paid to a proposed transferee on Excess Shares prior to the discovery by Crown
that such shares of beneficial interest have been transferred in violation of
the provisions of the Declaration of Trust shall be repaid to Crown upon demand.
If the foregoing restrictions are determined to be void or invalid by virtue of
any legal decision, statute, rule or regulation, then the intended transferee or
holder of any Excess Shares may be deemed, at the option of Crown, to have acted
as an agent on behalf of Crown in acquiring or holding such Excess Shares and to
hold such Excess Shares on behalf of Crown.
RESTRICTIONS ON TRANSFER
For Crown to qualify as a real estate investment trust under the Code, not
more than 50% of the value of the outstanding shares of beneficial interest may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities) during the last half of a taxable year the
"closely held rule"), the shares of beneficial interest must be beneficially
owned by 100 or more persons during at least 335 days of a taxable year of 12
months or during a proportionate part of a shorter taxable year, certain
percentages of Crown's gross income must be derived from particular activities,
and Crown must satisfy certain asset ownership tests. See "Certain Federal
Income Tax Considerations to Crown of its REIT Election--Taxation of a REIT" and
"--Requirements for Qualification".
The Declaration of Trust contains a number of provisions which restrict the
ownership and transfer of shares of beneficial interest and which are designed
to safeguard Crown against an inadvertent loss of real estate investment trust
status. In order to help prevent owning shares of beneficial interest of Crown
from being held by five or fewer individuals after the offerings, the
Declaration of Trust contains Ownership Restrictions that restrict, with certain
exceptions, common shareholders from owning, under the applicable attribution
rules of the Code, more than 7.5% of the outstanding Common Shares and preferred
shareholders from owning more than 9.8% of the outstanding Preferred Shares.
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The trustees of Crown may waive the Ownership Restrictions if evidence
satisfactory to the trustees and Crown's tax counsel is presented showing that
such waiver will not jeopardize Crown's status as a real estate investment trust
under the Code. As a condition of such waiver, the trustees of Crown may require
that an intended transferee give written notice to Crown, furnish such opinions
of counsel, affidavits, undertakings, agreements and information as may be
required by the trustees and/or an undertaking from the applicant with respect
to preserving the real estate investment trust status of Crown Any transfer of
shares or any security convertible into shares that would (i) create a direct or
indirect ownership of shares in excess of the Ownership Limit, (ii) result in
the shares being owned by fewer than 100 persons or (iii) result in Crown being
"closely held" within the meaning of Section 856(h) of the Code, will be void
with respect to the intended transferee and will result in Excess Shares as
described above.
The Ownership Restrictions will not be automatically removed even if the
real estate investment trust provisions of the Code are changed so as to no
longer contain any ownership concentration limitation or if the ownership
concentration limitation is increased. Except as otherwise described above, any
change in the Ownership Restrictions would require an amendment to the
Declaration of Trust. Amendments to the Declaration of Trust require the
affirmative vote of holders owning a majority of the shares then outstanding and
entitled to vote thereon, except as expressly provided in the Declaration of
Trust. In addition to preserving Crown's status as a real estate investment
trust, the Ownership Restrictions may have the effect of precluding an
acquisition of control of Crown without the approval of the Board of Trustees.
All certificates representing shares of beneficial interest will bear a
legend referring to the restrictions described above.
All persons who own, directly or by virtue of the applicable attribution
provisions of the Code, more than 7.5% of the value of any class of outstanding
shares of beneficial interest must file an affidavit with Crown containing the
information specified in the Declaration of Trust by January 1 of each year. In
addition, each shareholder shall upon demand be required to disclose to Crown in
writing such information with respect to the direct, indirect and constructive
ownership of shares of beneficial interest as the Board of Trustees deems
necessary to comply with the provisions of the Code applicable to a real estate
investment trust, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
DESCRIPTION OF DEBT SECURITIES
Crown may issue Debt Securities under one or more trust indentures (each an
"Indenture") to be executed by Crown and one or more trustees (each an
"Indenture Trustee") meeting the requirements of a trustee under the Trust
Indenture Act of 1939, as amended (the "TIA"). The Indentures will be qualified
under the TIA.
The following description sets forth certain anticipated general terms and
provisions of the Debt Securities to which any Prospectus Supplement may relate.
The particular terms of the Debt Securities offered by any Prospectus Supplement
(which terms may be different than those stated below) and the extent, if any,
to which such general provisions may apply to the Debt Securities so offered
will be described in the Prospectus Supplement relating to such Debt Securities.
Accordingly, for a description of the terms of a particular issue of Debt
Securities, reference must be made to both the Prospectus Supplement relating
thereto and the following description. Forms of the Senior Indenture (as defined
herein) and the Subordinated Indenture (as defined herein) have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
General
The Debt Securities will be direct obligations of Crown and may be either
senior Debt Securities ("Senior Securities") or subordinated Debt Securities
("Subordinated Securities"). The indebtedness represented by Subordinated
Securities will be subordinated in right of payment to the prior payment in full
of the Senior Debt (as defined in the applicable Indenture) of Crown. Senior
Securities and Subordinated Securities will be issued pursuant to separate
indentures (respectively, a "Senior Indenture" and a "Subordinated Indenture"),
in each case between Crown and an Indenture Trustee.
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Except as set forth in the applicable Indenture and described in a
Prospectus Supplement relating thereto, the Debt Securities may be issued
without limit as to aggregate principal amount, in one or more series, secured
or unsecured, in each case as established from time to time in or pursuant to
authority granted by a resolution of the Board of Trustees of Crown or as
established in the applicable Indenture. All Debt Securities of one series need
not be issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series.
The Prospectus Supplement relating to any series of Debt Securities being
offered will contain the specific terms thereof, including, without limitation:
(1) the title of such Debt Securities and whether such Debt Securities
are Senior Securities or Subordinated Securities;
(2) the aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof, or (if applicable) the portion of the
principal amount of such Debt Securities which is convertible into Common
Shares or Preferred Shares, or the method by which any such portion shall
be determined;
(4) if convertible, any applicable limitations on the ownership or
transferability of the Common Shares or Preferred Shares into which such
Debt Securities are convertible;
(5) the date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(6) the rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(7) the date or dates, or the method for determining such date or
dates, from which any interest will accrue, the interest payment dates on
which any such interest will be payable, the regular record dates for such
interest payment dates, or the method by which any such date shall be
determined, the person to whom such interest shall be payable, and the
basis upon which interest shall be calculated if other than that of a
360-day year of twelve 30-day months;
(8) the place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable, such Debt
Securities may be surrendered for conversion or registration of transfer or
exchange and notices or demands to or upon Crown in respect of such Debt
Securities and the applicable Indenture may be served;
(9) the period or periods within which, the price or prices at which
and the terms and conditions upon which such Debt Securities may be
redeemed, as a whole or in part, at the option of Crown, if Crown is to
have such an option;
(10) the obligation, if any, of Crown to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision or
at the option of a holder thereof, and the period or periods within which,
the price or prices at which and the terms and conditions upon which such
Debt Securities will be redeemed, repaid or purchased, as a whole or in
part, pursuant to such obligation;
(11) if other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which
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index, formula or method may, but need not be, based on a currency,
currencies, currency unit or units or composite currency or currencies) and
the manner in which such amounts shall be determined;
(13) any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to the Events of Default or covenants set
forth in the applicable Indenture;
(14) any provisions for collateral security for repayment of such Debt
Securities;
(15) whether such Debt Securities will be issued in certificated
and/or book-entry form;
(16) whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form the denominations
thereof and terms and conditions relating thereto;
(17) the applicability, if any, of defeasance and covenant defeasance
provisions of the applicable Indenture;
(18) the terms, if any, upon which such Debt Securities may be
convertible into Common Shares or Preferred Shares of Crown and the terms
and conditions upon which such conversion will be effected, including,
without limitation, the initial conversion price or rate and the conversion
period;
(19) whether and under what circumstances Crown will pay additional
amounts as contemplated in the Indenture on such Debt Securities in respect
of any tax, assessment or governmental charge and, if so, whether Crown
will have the option to redeem such Debt Securities in lieu of making such
payment; and
(20) any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special federal income tax, accounting
and other considerations applicable to Original Issue Discount Securities will
be described in the applicable Prospectus Supplement.
Except as set forth in the applicable Indenture, the applicable Indenture
will not contain any provisions that would limit the ability of Crown to incur
indebtedness or that would afford holders of Debt Securities protection in the
event of a highly leveraged or similar transaction involving Crown or in the
event of a change of control. Restrictions on ownership and transfers of Crown's
Common Shares and Preferred Shares are designed to preserve its status as a REIT
and, therefore, may act to prevent or hinder a change of control. Reference is
made to the applicable Prospectus Supplement for information with respect to any
deletions from, modifications of or additions to the Events of Default or
covenants of Crown that are described below, including any addition of a
covenant or other provision providing event risk or similar protection.
Merger, Consolidation Or Sale
It is expected that each Indenture will provide that Crown may consolidate
with, or sell, lease or convey all or substantially all of its assets to, or
merge with or into, any other corporation, provided that (a) either Crown shall
be the continuing corporation, or the successor corporation (if other than
Crown) formed by or resulting from any such consolidation or merger or which
shall have received the transfer of such assets shall expressly assume payment
of the principal of (and premium, if any), and interest on, all of the
applicable Debt Securities and the due and punctual performance and observance
of all of the covenants and conditions contained in the applicable Indenture;
(b) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of Crown or any subsidiary as a result
thereof as having been incurred by Crown or such subsidiary at the time of such
transaction, no Event of Default under the applicable Indenture, and no event
which, after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing; and (c) an officer's certificate
and legal opinion covering such conditions shall be delivered to the Trustee.
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Covenants
Each Indenture will contain covenants requiring Crown to take certain
actions and prohibiting Crown from taking certain actions. The covenants with
respect to any series of Debt Securities will be described in the Prospectus
Supplement relating thereto.
Events Of Default, Notice And Waiver
Each Indenture will describe specific "Events of Defaults" with respect to
any series of Debt Securities issued thereunder. Such "Events of Defaults" are
likely to include (with grace and cure periods): (i) default in the payment of
any installment of interest on any Debt Security of such series; (ii) default in
the payment of principal of (or premium, if any, on) any Debt Security of such
series at its maturity; (iii) default in making any required sinking fund
payment for any Debt Security of such series; (iv) default in the performance or
breach of any other covenant or warranty of Crown contained in the applicable
Indenture (other than a covenant added to the Indenture solely for the benefit
of a series of Debt Securities issued thereunder other than such series),
continued for a specified period of days after written notice as provided in the
applicable Indenture; (v) default in the payment of specified amounts of
indebtedness of Crown or any mortgage, indenture or other instrument under which
such indebtedness is issued or by which such indebtedness is secured, such
default having occurred after the expiration of any applicable grace period and
having resulted in the acceleration of the maturity of such indebtedness, but
only if such indebtedness is not discharged or such acceleration is not
rescinded or annulled and (vi) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or Trustee of
Crown or any subsidiary or either of its property.
If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Indenture Trustee or the holders of not less than 25%
of the principal amount of the outstanding Debt Securities of that series will
have the right to declare the principal amount (or, if the Debt Securities of
that series are Original Issue Discount Securities, such portion of the
principal amounts may be specified in the terms thereof) of all the Debt
Securities of that series to be due and payable immediately by written notice
thereof to Crown (and to the applicable Indenture Trustee if given by the
holders). However, at any time after such a declaration of acceleration with
respect to Debt Securities of such series (or of all Debt Securities then
outstanding under any Indenture, as the case may be) has been made, but before a
judgment or decree for payment of the money due has been obtained by the
applicable Indenture Trustee, the holders of not less than a majority in
principal amount of outstanding Debt Securities of such series (or of all Debt
Securities then outstanding under the applicable Indenture, as the case may be)
may rescind and annul such declaration and its consequences if (a) the REIT
shall have deposited with the applicable Indenture Trustee all required payments
of the principal of (and premium, if any) and interest on the Debt Securities of
such series (or of all Debt Securities then outstanding under the applicable
Indenture, as the case may be), plus certain fees, expenses, disbursements and
advances of the applicable Indenture Trustee and (b) all events of default,
other than the non-payment of accelerated principal (or specified portion
thereof), with respect to Debt Securities of such series (or of all Debt
Securities then outstanding under the applicable Indenture, as the case may be)
have been cured or waived as provided in such Indenture. Each Indenture also
will provide that the holders of not less than a majority in principal amount of
the outstanding Debt Securities of any series (or of all Debt Securities then
outstanding under the applicable Indenture, as the case may be) may waive any
past default with respect to such series and its consequences, except a default
(x) in the payment of the principal of (or premium, if any) or interest on any
Debt Security of such series or (y) in respect of a covenant or provision
contained in the applicable Indenture that cannot be modified or amended without
the consent of the holder of each outstanding Debt Security affected thereby.
Each Indenture Trustee will be required to give notice to the holders of
Debt Securities within 90 days of a default under the applicable Indenture
unless such default shall have been cured or waived; provided, however, that
such Indenture Trustee may withhold notice to the holders of any series of Debt
Securities of any default with respect to such series (except a default in the
payment of the principal of (or premium, if any) or interest on any Debt
Security of such series or in the payment of any sinking fund installment in
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respect of any Debt Security of such series) if specified responsible officers
of such Indenture Trustee consider such withholding to be in the interest of
such holders.
Each Indenture will provide that no holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to
such Indenture or for any remedy thereunder, except in the case of failure of
the applicable Indenture Trustee, for 60 days, to act after it has received a
written request to institute proceedings in respect of a Event of Default from
the holders of not less than 25% in principal amount of the outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it. This provision will not prevent, however, any holder of Debt
Securities from instituting suit for the enforcement of payment of the principal
of (and premium, if any) and interest on such Debt Securities at the respective
due dates thereof.
Subject to provisions in each Indenture relating to its duties in case of
default, no Indenture Trustee will be under any obligation to exercise any of
its rights or powers under an Indenture at the request or direction of any
holders of any series of Debt Securities then outstanding under such Indenture,
unless such holders shall have offered to the Indenture Trustee thereunder
reasonable security or indemnity. The holders of not less than a majority in
principal amount of the outstanding Debt Securities of any series (or of all
Debt Securities then outstanding under an Indenture, as the case may be) shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the applicable Indenture Trustee, or of exercising
any trust or power conferred upon such Indenture Trustee. However, an Indenture
Trustee may refuse to follow any direction which is in conflict with any law or
the applicable Indenture, which may involve such Indenture Trustee in personal
liability or which may be unduly prejudicial to the holders of Debt Securities
of such series not joining therein.
Within 120 days after the close of each fiscal year, Crown will be required
to deliver to each Indenture Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the applicable Indenture and, if so, specifying each such default
and the nature and status thereof.
Modification Of The Indentures
It is anticipated that modifications and amendments of an Indenture may be
made by Crown and the Indenture Trustee, with the consent of the holders of not
less than a majority in aggregate principal amount of each series of the
outstanding Debt Securities issued under the Indenture which are affected by the
modification or amendment, provided that no such modification or amendment may,
without a consent of each holder of such Debt Securities affected thereby: (1)
change the stated maturity date of the principal of (or premium, if any) or any
installment of interest, if any, on any such Debt Security; (2) reduce the
principal amount of (or premium, if any) or the interest, if any, on any such
Debt Security or the principal amount due upon acceleration of an Original Issue
Discount Security; (3) change the place or currency of payment of principal of
(or premium, if any) or interest, if any, on any such Debt Security; (4) impair
the right to institute suit for the enforcement of any such payment on or with
respect to any such Debt Security; (5) reduce the above-stated percentage of
holders of Debt Securities necessary to modify or amend the Indenture; or (6)
modify the foregoing requirements or reduce the percentage of outstanding Debt
Securities necessary to waive compliance with certain provisions of the
Indenture or for waiver of certain defaults. A record date may be set for any
act of the holders with respect to consenting to any amendment.
The holders of not less than a majority in principal amount of outstanding
Debt Securities of each series affected thereby will have the right to waive
compliance by Crown with certain covenants in such Indenture.
Each Indenture will contain provisions for convening meetings of the
holders of Debt Securities of a series to take permitted action.
Redemption Of Securities
Each Indenture will provide that the Debt Securities may be redeemed at any
time at the option of Crown, in whole or in part, for certain reasons intended
to protect Crown's status as a REIT. Debt Securities
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may also be subject to optional or mandatory redemption on terms and conditions
described in the applicable Prospectus Supplement.
From and after notice has been given as provided in the applicable
Indenture, if funds for the redemption of any Debt Securities called for
redemption shall have been made available on such redemption date, such Debt
Securities will cease to bear interest on the date fixed for such redemption
specified in such notice, and the only right of the holders of the Debt
Securities will be to receive payment of the Redemption Price.
Conversion Of Securities
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Shares or Preferred Shares will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Shares or Preferred
Shares, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the holders
or Crown, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities and any restrictions on conversion, including restrictions directed
at maintaining Crown's REIT status.
Subordination
Upon any distribution to creditors of Crown in a liquidation, dissolution
or reorganization, the payment of the principal of and interest on any
Subordinated Securities will be subordinated to the extent provided in the
applicable Indenture in right of payment to the prior payment in full of all
Senior Securities. No payment of principal or interest will be permitted to be
made on Subordinated Securities at any time if a default in Senior Securities
exists that permits the holders of such Senior Securities to accelerate their
maturity and the default is the subject of judicial proceedings or Crown
receives notice of the default. After all Senior Securities are paid in full and
until the Subordinated Securities are paid in full, holders of Subordinated
Securities will be subrogated to the right of holders of Senior Securities to
the extent that distributions otherwise payable to holders of Subordinated
Securities have been applied to the payment of Senior Securities. By reason of
such subordination, in the event of a distribution of assets upon insolvency,
certain general creditors of Crown may recover more, ratably, than holders of
Subordinated Securities. If this Prospectus is being delivered in connection
with a series of Subordinated Securities, the accompanying Prospectus Supplement
or the information incorporated herein by reference will contain the approximate
amount of Senior Securities outstanding as of the end of Crown's most recent
fiscal quarter.
CERTAIN PROVISIONS OF MARYLAND LAW AND
CROWN'S DECLARATION OF TRUST AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and
Crown's Declaration of Trust and bylaws. The summary does not purport to be
complete and is subject to and qualified in its entirety by reference to
Maryland law and to Crown's Declaration of Trust and bylaws.
GENERAL
As a Maryland real estate investment trust, Crown is governed by Title 8 of
the Corporations and Associations Article of the Annotated Code of Maryland
("Title 8") and certain other provisions of the Annotated Code of Maryland. The
following discussion summarizes certain provisions of Maryland law and Crown's
Declaration of Trust and bylaws. This discussion does not purport to be complete
and is subject to and qualified in its entirety by reference to Title 8 and also
to the Declaration of Trust and bylaws of Crown. Copies of these documents have
been filed as exhibits to the Registration Statement of which this Prospectus is
a part.
Certain provisions of the Declaration of Trust and the bylaws described in
this Section could make more difficult the acquisition of Crown by means of a
tender offer, a proxy contest or otherwise. These provisions are expected to
discourage certain types of coercive takeover practices and inadequate takeover
bids and to
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encourage persons seeking to acquire control of Crown to negotiate first with
the Board of Trustees as defined below. Crown believes that the benefits of
these provisions outweigh the potential disadvantages of discouraging such
proposals because, among other things, negotiation of such proposals might
result in an improvement of their terms.
STAGGERED BOARD OF TRUSTEES
Crown's Declaration of Trust and bylaws provide that the board of Trustees
will be divided into three classes of Trustees, each class constituting
approximately one-third of the total number of Trustees and with the classes
serving staggered three-year terms (the "Board of Trustees"). The classification
of Trustees will have the effect of making it more difficult for shareholders to
change the composition of the Board of Trustees. Crown believes, however, that
the longer time required to elect a majority of a classified Board of Trustees
will help to ensure continuity and stability of Crown's management and policies.
The classification provisions could also have the effect of discouraging a
third party from accumulating large blocks of Crown's shares of beneficial
interest or attempting to obtain control of Crown, even though such an attempt
might be beneficial to Crown and its shareholders. Accordingly, shareholders
could be deprived of certain opportunities to sell their Shares at a higher
price than might otherwise be the case.
NUMBER OF TRUSTEES; REMOVAL; FILLING VACANCIES
Crown's Declaration of Trust provides that, subject to any rights of
holders of Preferred Shares to elect additional Trustees under specified
circumstances, the number of Trustees of the Declaration of Trust will be fixed
by the Board of Trustees, but must consist of not less than three nor more than
15 Trustees. In addition, subject to any rights of holders of Preferred Shares,
and unless the Board of Trustees otherwise determines, any vacancy (including a
vacancy created by an increase in the number of Trustees) will be filled, at any
regular meeting or at any special meeting of the Trustees called for that
purpose, by the affirmative vote of a majority of the remaining Trustees, though
less than a quorum. Accordingly, the Board of Trustees could temporarily prevent
any shareholder from enlarging the Board of Trustees and filling the new
Trusteeships with such shareholder's own nominees.
Crown's Declaration of Trust provides, consistent with Title 8, that,
subject to the right of the holders of Preferred Shares to elect additional
Trustees under specified circumstances, Trustees may be removed only upon the
affirmative vote of holders of at least 66 2/3% of the voting power of all the
then outstanding shares entitled to vote generally in the election of Trustees,
voting together as a single class.
MEETINGS OF SHAREHOLDERS
An annual meeting of the shareholders for the Election of Trustees and the
transaction of any business within the powers of Crown will be held during the
second quarter of each calendar year at the time set by the Trustees.
Subject to the rights of the holders of any series of Preferred Shares to
elect additional Trustees under specified circumstances, special meetings of the
shareholders may be called only by the chairman of the Board of Trustees or by a
resolution adopted by a majority of the Trustees, assuming no vacancies.
All meetings of shareholders shall be held at the principal office of Crown
or at such other place within the United States as shall be stated in the notice
of the meeting.
NO SHAREHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Crown's Declaration of Trust and the bylaws provide that, subject to the
rights of any holders of Preferred Shares to elect additional Trustees under
specified circumstances, shareholder action can be taken only at an annual or
special meeting of shareholders. They also prohibit shareholder action by
written consent in lieu of a meeting, calling a special meeting or requiring
that the Board of Trustees call a special meeting of shareholders. These
provisions may have the effect of delaying consideration of a shareholder
proposal until the next annual meeting.
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ADVANCE NOTICE PROVISIONS FOR SHAREHOLDER NOMINATIONS AND SHAREHOLDER PROPOSALS
The Bylaws establish an advance notice procedure for shareholders to make
nominations of candidates for election as Trustees or to bring other business
before an annual meeting of shareholders of Crown (the "Shareholder Notice
Procedure").
The Shareholder Notice Procedure provides that (i) only persons who are
nominated by, or at the direction of, the Board of Trustees, or by a shareholder
who has given timely written notice containing specified information to the
Secretary of Crown prior to the meeting at which Trustees are to be elected,
will be eligible for election as Trustees of Crown and (ii) at an annual meeting
only such business may be conducted as has been brought before the meeting by,
or at the direction of, the chairman or the Board of Trustees or by a
shareholder who has given timely written notice to the Secretary of Crown of
such shareholder's intention to bring such business before such meeting. In
general, for notice of shareholder nominations or business to be made at an
annual meeting to be timely, such notice must be received by Crown not less than
60 days nor more than 90 days prior to the first anniversary of the previous
year's annual meeting.
The purpose of requiring shareholders to give Crown advance notice of
nominations and other business is to afford the Board of Trustees a meaningful
opportunity to consider the qualifications of the proposed nominees or the
advisability of the other proposed business and, to the extent deemed necessary
or desirable by the Board of Trustees, to inform shareholders and make
recommendations about such qualifications or business, as well as to provide a
more orderly procedure for conducting meetings of shareholders. Although the
Bylaws do not give the Board of Trustees any power to disapprove shareholder
nominations for the election of Trustees or proposals for action, they may have
the effect of precluding a contest for the election of Trustees or the
consideration of shareholder proposals if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of Trustees or to approve its own
proposal, without regard to whether consideration of such nominees or proposals
might be harmful or beneficial to Crown and its shareholders.
RELEVANT FACTORS TO BE CONSIDERED BY THE BOARD OF TRUSTEES
The Declaration of Trust provides that in determining what is in the best
interest of Crown, a Trustee of Crown shall consider the interests of the
shareholders of Crown and, in his or her discretion, may consider (a) the
interests of Crown's employees, suppliers, creditors and customers, (b) the
economy of the nation, (c) community and societal interests and (d) the
long-term as well as short-term interests of Crown and its shareholders,
including the possibility that these interests may be best served by the
continued independence of Crown. Pursuant to this provision, the Board of
Trustees may consider numerous judgmental or subjective factors affecting a
proposal, including certain nonfinancial matters, and on the basis of these
considerations may oppose a business combination or other transaction which, as
an exclusively financial matter, might be attractive to some, or a majority, of
Crown's shareholders.
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
Crown's Declaration of Trust authorizes the Board of Trustees to create and
issue rights entitling the holders thereof to purchase from Crown shares of
beneficial interest or other securities or property. The times at which and
terms upon which such rights are to be issued would be determined by the Board
of Trustees and set forth in the contracts or instruments that evidence such
rights. This provision is intended to confirm the Board of Trustees' authority
to issue share purchase rights, which may have terms that could impede a merger,
tender offer or other takeover attempt, or other rights to purchase shares or
securities of Crown or any other corporation.
SPECIAL STATUTORY REQUIREMENTS FOR CERTAIN TRANSACTIONS
Business Combination Statute. The MGCL establishes special requirements
with respect to "business combinations" between Maryland corporations and
"interested shareholders" unless exemptions are applicable. Among other things,
the law prohibits for a period of five years a merger or other specified
transactions between a company and an interested shareholder and requires a
super-majority vote for such transactions
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after the end of such five-year period. This statute is applicable to a Maryland
real estate investment trust formed under Title 8.
"Interested shareholders" are all persons owning beneficially, directly or
indirectly, 10% or more of the outstanding voting shares of a Maryland
corporation or real estate investment trust. "Business combinations" include any
merger or similar transaction subject to a statutory vote and additional
transactions involving transfers of assets or securities in specified amounts to
interested shareholders or their affiliates. Unless an exemption is available,
transactions of these types may not be consummated between a Maryland
corporation or real estate investment trust and an interested shareholder or its
affiliates for a period of five years after the date on which the shareholder
first became an interested shareholder and thereafter may not be consummated
unless recommended by the board of directors of the Maryland corporation or real
estate investment trust and approved by the affirmative vote of at least 80% of
the votes entitled to be cast by all holders of outstanding shares of voting
shares and 66 2/3% of the votes entitled to be cast by all holders of
outstanding shares of voting shares other than the interested shareholder. A
business combination with an interested shareholder which is approved by the
board of directors of a Maryland corporation or real estate investment trust at
any time before an interested shareholder first becomes an interested
shareholder is not subject to the 5-year moratorium or special voting
requirements. An amendment to a Maryland corporation charter (or real estate
investment trust declaration of trust) electing not to be subject to the
foregoing requirements must be approved by the affirmative vote of at least 80%
of the votes entitled to be cast by all holders of outstanding shares of voting
shares and 66 2/3% of the votes entitled to be cast by holders of outstanding
shares of voting shares who are not interested shareholders. Any such amendment
is not effective until 18 months after the vote of shareholders and does not
apply to any business combination of a corporation or real estate investment
trust with a shareholder who was an interested shareholder on the date of the
shareholder vote. Crown's Board of Trustees has adopted a resolution exempting
all business combinations between Crown and any existing or future interested
shareholders (or their affiliates) from the provisions of the Business
Combination statute to the fullest extent permitted under Maryland Law.
Control Share Acquisition Statute. The Maryland General Corporation law
imposes limitations on the voting rights of shares acquired in a "control share
acquisition." This statute is applicable to a Maryland real estate investment
trust formed under Title 8. The Maryland statute defines a "control share
acquisition" at the 20%, 33-1/3% and 50% acquisition levels, and requires a
two-thirds shareholder vote (excluding shares owned by the acquiring person and
certain members of management) to accord voting rights to shares acquired in a
control share acquisition. The statute also requires Maryland corporations or
real estate investment trusts to hold a special meeting at the request of an
actual or proposed control share acquiror generally within 50 days after a
request is made with the submission of an "acquiring person statement," but only
if the acquiring person (a) posts a bond for the cost of the meeting and (b)
submits a definitive financing agreement to the extent that financing is not
provided by the acquiring person. In addition, unless the charter or by-laws
provide otherwise, the statute gives the Maryland corporation, within certain
time limitations, various redemption rights if there is a shareholder vote on
the issue and the grant of voting rights is not approved, or if an "acquiring
person statement is not delivered to the target within 10 days following a
control share acquisition. Moreover, unless the charter, declaration of trust or
bylaws provide otherwise, the statute provides that if, before a control share
acquisition occurs, voting rights are accorded to control shares which results
in the acquiring person having majority voting power, then minority shareholders
have appraisal rights. An acquisition of shares may be exempted from the control
share statute provided that a charter, declaration of trust or bylaw provision
is adopted for such purpose prior to the control share acquisition. Crown's
Bylaws exempt all shares of beneficial interest in Crown from this statute to
the fullest extent allowed under Maryland law.
Reference is made to the full text of the foregoing statutes for their
entire terms, and the partial summary contained in this Prospectus is not
intended to be complete.
AMENDMENT OF DECLARATION OF TRUST
Under Title 8 and the Declaration of Trust, the Trustees, by a two-thirds
vote, may at any time amend Crown's Declaration of Trust from time to time to
enable Crown to qualify as a real estate investment trust
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under the Code or as a real estate investment trust under Title 8, without the
approval of the shareholders. Other amendments require the vote of a majority of
the outstanding shares.
TERMINATION OF CROWN AND REAL ESTATE INVESTMENT TRUST STATUS
Crown's Declaration of Trust permits the termination of the Trust by the
affirmative vote of the holders of not less than a majority of the outstanding
shares at a meeting of shareholders called for that purpose. In addition, the
Declaration of Trust permits the Trustees, with the approval of a majority of
Crown's shareholders, to terminate the status of the Trust as a real estate
investment trust under the Code at any time.
LIMITATION OF LIABILITY
Pursuant to Title 8 and the Declaration of Trust, the liability of Trustees
and officers of Crown to Crown or to any shareholder of Crown for money damages
has been eliminated except (a) for actual receipt of an improper personal
benefit in money, property or services and (b) for active and deliberate
dishonesty established by a final judgment as being material to the cause of
action.
INDEMNIFICATION
Crown's bylaws require it to indemnify any Trustee, officer or shareholder
(a) against reasonable expenses incurred by him in the successful defense (on
the merits or otherwise) of any proceeding to which he is made a party by reason
of such status or (b) against any claim or liability to which he may become
subject by reason of such status unless it is established that (i) the act or
omission giving rise to the claim was committed in bad faith or was the result
of active and deliberate dishonesty, (ii) he actually received an improper
personal benefit in money, property or services or (iii) in the case of a
criminal proceeding, he had reasonable cause to believe that his act or omission
was unlawful. Crown is also required by its bylaws to pay or reimburse, in
advance of a final disposition, reasonable expenses of a Trustee, officer or
shareholder made a party to a proceeding by reason of his or her status as such
upon receipt of a written affirmation by the Trustee or officer of his or her
good faith belief that he or she has met the applicable standard for
indemnification under the bylaws and a written undertaking to repay such
expenses if it shall ultimately be determined that the applicable standard was
not met.
In addition, Crown has entered into indemnification agreements with each of
Crown's officers and Trustees. The indemnification agreements require, among
other things, that Crown indemnify its officers and Trustees to the fullest
extent permitted by law, and advance to the officers and Trustees all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. Crown must also indemnify and advance all
expenses incurred by officers and Trustees seeking to enforce their rights under
the indemnification agreements, and cover officers and Trustees under Crown's
Trustees and officers' liability insurance. Although the form of indemnification
agreement offers substantially the same scope of coverage afforded by provisions
in the Declaration of Trust, it provides greater assurance to Trustees and
officers that indemnification will be available, because, as a contract, it
cannot be modified unilaterally in the future by the Board of Trustees or by the
shareholders to eliminate the rights it provides.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Trustees and officers of Crown, Crown has been
advised that, although the validity and scope of the governing statute has not
been tested in court, in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In addition, indemnification may be limited by state securities
laws.
INSPECTION OF BOOKS AND RECORDS
Under Title 8 any shareholder may inspect and copy the bylaws of Crown,
minutes of proceedings of shareholders and annual statements of affairs of
Crown. In addition, any shareholder of record who owns at least five percent of
the outstanding shares of any class of beneficial interest for at least six
months will be entitled to inspect and copy Crown's books of account and share
ledger and to require Crown to prepare and
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deliver a verified list of the name and address of, and the number of shares
owned by, each shareholder of Crown.
RESTRICTIONS ON INVESTMENT AND USE
Under Title 8, a Maryland real estate investment trust must hold at least
75% of the value of its assets in real estate assets, mortgages or mortgage
related securities, government securities, cash and cash items (including
receivables) and may not use or apply land for farming, agriculture,
horticulture or similar purposes.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TO CROWN OF ITS REIT ELECTION
The following summary of certain federal income tax considerations to Crown
is based on current law, is for general information only, and is not tax advice.
The tax treatment of a holder of any of the Securities will vary depending upon
the terms of the specific securities acquired by such holder, as well as his or
her particular situation, and this discussion does not attempt to address any
aspects of federal income taxation relating to holders of Securities. Certain
federal income tax considerations relevant to holders of the Securities will be
provided in the applicable Prospectus Supplement relating thereto.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS
SUPPLEMENT, AS WELL AS HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP AND SALE OF THE OFFERED
SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
TAXATION OF A REIT
Crown has elected to be taxed as a REIT under Sections 856 through 860 of
the Code, commencing with its taxable year ending December 31, 1993. Crown
believes that it has been organized and has operated in such a manner as to
qualify for taxation as a REIT under the Code commencing with such taxable year,
and Crown intends to continue to operate in such a manner, but no assurance can
be given that it has operated or will continue to operate in such a manner so as
to qualify or remain qualified.
These sections of the Code dealing with REITs and their shareholders are
highly technical and complex. The following sets forth the material aspects of
the sections that govern the federal income tax treatment of a REIT. This
summary is qualified in its entirety by the applicable Code provisions, rules
and regulations promulgated thereunder, and administrative and judicial
interpretations thereof. No ruling will be sought from the Internal Revenue
Service with respect to any matter described herein.
In the opinion of Reed Smith Shaw & McClay, counsel to Crown, Crown has
been organized in conformity with the requirements for qualification as a REIT,
and its method of operation should enable it to meet the requirements for
continued qualification and taxation as a REIT under the Code. It must be
emphasized that this opinion is based on various factual assumptions relating to
the organization and operation of Crown, the Operating Partnership and the lower
tier partnerships and is conditioned upon certain representations made by Crown
as to factual matters. In addition, this opinion is based upon the factual
representations of Crown concerning its business and properties as set forth in
this Prospectus and will assume that the actions described in this Prospectus
have been completed as described. Moreover, such qualification and taxation as a
REIT depends upon Crown's ability to meet, through actual annual operating
results, distribution levels and diversity of share ownership, the various
qualification tests imposed under the Code discussed below, the results of which
will not be reviewed by such counsel to Crown. Accordingly, no assurance can be
given that the actual results of Crown's operation for any particular taxable
year will satisfy such requirements. Further, the anticipated income tax
treatment described in this Prospectus may be changed, perhaps retroactively, by
legislative or administrative action at any time.
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If Crown continues to qualify for taxation as a REIT, it generally will not
be subject to federal corporate income taxes on its net income that is currently
distributed to shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) that generally results from
investment in a corporation. However, Crown will be subject to federal income
tax as follows: First, Crown will be taxed at regular corporate rates on any
undistributed taxable income, including undistributed net capital gains. Second,
under certain circumstances, Crown may be subject to the "alternative minimum
tax" on its items of tax preference. Third, if Crown has (i) net income from the
sale or other disposition of "foreclosure property" which is held primarily for
sale to customers in the ordinary course of business or (ii) other nonqualifying
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income. Fourth, if Crown has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of business
other than foreclosure property), such income will be subject to a 100% tax.
Fifth, if Crown should fail to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), but has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which Crown fails the 75% or 95%
test multiplied by (b) a fraction intended to reflect Crown's profitability.
Sixth, if Crown should fail to distribute during each calendar year at least the
sum of (i) 85% of its ordinary income for such year, (ii) 95% of its REIT
capital gain net income for such year, and (iii) any undistributed taxable
income from prior periods, Crown would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Seventh, with respect to an asset (a "Built-In Gain Asset") acquired by Crown
from a corporation which is or has been a C corporation (i.e., generally a
corporation subject to full corporate-level tax) in certain transactions in
which the basis of the Built-In Gain Asset in the hands of Crown is determined
by reference to the basis of the asset in the hands of the C corporation, if
Crown recognizes gain on the disposition of such asset during the ten-year
period (the "Recognition Period") beginning on the date on which such asset was
acquired by Crown, then, to the extent of the Built-In Gain (i.e., the excess of
(a) the fair market value of such asset over (b) Crown's adjusted basis in such
asset, determined as of the beginning of the Recognition Period), such gain will
be subject to tax at the highest regular corporate tax pursuant to Internal
Revenue Service ("IRS") regulations that have not yet been promulgated. The
results described above with respect to the recognition of Built-In Gain assume
that Crown will make an election pursuant to IRS Notice 88-19.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association (1) which is
managed by one or more Trustees or directors; (2) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (3) which would be taxable as a domestic corporation, but
for Sections 856 through 859 of the Code; (4) which is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(5) the beneficial ownership of which is held by 100 or more persons; (6) during
the last half of each taxable year not more than 50% in value of the outstanding
shares of which is owned, directly or constructively, by five or fewer
individuals (as defined in the Code to include certain entities); and (7) which
meets certain other tests, described below, regarding the nature of its income,
assets and distributions. The Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of twelve months, or
during a proportionate part of a taxable year of less than twelve months.
The Declaration of Trust provides for restrictions regarding transfer of
its shares, in order to assist Crown in continuing to satisfy the share
ownership requirements described in (5) and (6) above. Such transfer
restrictions are described in "Description of Shares"--"Restrictions on
Transfer."
Crown does not intend to have any subsidiaries that are not "qualified REIT
subsidiaries." Code Section 856 (i) provides that a corporation which is a
"qualified real estate investment trust subsidiary" shall not be treated as a
separate corporation, and all assets, liabilities, and items of income,
deduction, and credit of a "qualified real estate investment trust subsidiary"
shall be treated as assets, liabilities, and such items (as the case may be) of
the real estate investment trust. Thus, in applying the requirements described
herein, Crown's
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"qualified real estate investment trust subsidiaries" will be ignored, and all
assets, liabilities, and items of income, deduction, and credit of such
subsidiaries will be treated as assets, liabilities and items of Crown.
In the case of a REIT which is a partner in a partnership, IRS regulations
provide that Crown will be deemed to own its proportionate share (corresponding
to its capital interest in such partnership) 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 shall retain the same character in the hands of Crown for purposes
of Section 856 of the Code, including satisfying the gross income tests and the
asset tests. Thus, Crown's proportionate share of the assets, liabilities and
items of income of the Operating Partnership and the Financing Partnership are
treated as assets, liabilities and items of income of Crown for purposes of
applying the requirements described herein. A summary of the rules governing the
Federal income taxation of partnerships and their partners is provided below in
"Tax Aspects of the Operating Partnership." Crown has direct control of the
Operating Partnership and has and will continue to operate it consistent with
the requirements for qualification as a REIT.
In order to maintain qualification as a REIT, Crown annually must satisfy
three gross income requirements. First, at least 75% of Crown's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived directly or indirectly from investments relating to real property or
mortgages on real property (including "rents from real property" and, in certain
circumstances, interest) or from certain types of temporary investments. Second,
at least 95% of Crown's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property
investments, dividends, interest and gain from the sale or disposition of shares
or securities (or from any combination of the foregoing). Third, gain from the
sale or other disposition of shares or securities held for less than one year,
gain from prohibited transactions and gain on the sale or other disposition of
real property held for less than four years (apart from involuntary conversions
and sales of foreclosure property) must represent less than 30% of Crown's gross
income (including gross income from prohibited transactions) for each taxable
year.
Rents received by Crown will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, 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. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if Crown, or an actual or constructive owner of 10% or more of
Crown, actually or constructively owns 10% or more of such tenant (a "Related
Party Tenant"). Third, 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." Finally, for rents
received to qualify as "rents from real property," Crown generally must not
operate or manage the property or furnish or render services to the tenants of
such property, other than through an independent contractor from whom Crown
derives no revenue. Crown may, however, directly perform certain services that
are "usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant" of
the property. Crown has not and will not (i) 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 the Board of Trustees determines in its discretion that the rent
received on such property is not material and will not jeopardize Crown's status
as a REIT), (ii) rent any property to a Related Party Tenant (unless the Board
of Trustees determines in its discretion that the rent received from such
Related Party Tenant is not material and will not jeopardize Crown's status as a
REIT) or (iii) directly perform services considered to be rendered to the
occupant of property.
The Operating Partnership provides certain services with respect to Crown's
properties that may not satisfy the "independent contractor" requirements
described above. Crown has obtained a ruling from the IRS that the provision of
such services will not cause the rents received with respect to Crown's
properties to fail to qualify as "rents from real property."
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The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends 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 "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
Any gross income derived from a prohibited transaction is taken into
account in applying the 30% income test necessary to qualify as a REIT (and the
net income from the transaction is subject to a 100% tax). The term "prohibited
transaction" generally includes a sale or other disposition of property (other
than foreclosure property) that is held primarily for sale to customers in the
ordinary course of a trade or business. The Operating Partnership and Crown
believe that no asset owned by the Operating Partnership, Financing Partnership
or Crown is held for sale to customers and that the sale of any such property
and associated property will not be in the ordinary course of business of the
Operating Partnership, Financing Partnership or Crown. Whether property is held
"primarily for sale to customers in the ordinary course of a trade or business"
depends, however, on the facts and circumstances in effect from time to time,
including those related to a particular property. Complete assurance cannot be
given, however, that Crown can comply with the safe-harbor provisions of the
Code or avoid owning property that may be characterized as property held
"primarily for sale to customers in the ordinary course of business" with the
result that Crown may be subject to the 100% tax described above on income or
gain, if any, from such sales.
If Crown fails to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, it may nevertheless qualify as a REIT for such year if it
is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if Crown's failure to meet such tests was
due to reasonable cause and not due to willful neglect, Crown attaches a
schedule of the sources of its income to its federal income tax return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances Crown
would be entitled to the benefit of these relief provisions. As discussed above
in "Taxation of a REIT," even if these relief provisions apply, a tax would be
imposed with respect to the excess of 75% or 95% of Crown's gross income over
Crown's qualifying income in the relevant category, whichever is greater.
Crown, at the close of each quarter of its taxable year, must also satisfy
three tests relating to the nature of its assets. First, at least 75% of the
value of Crown's total assets (including its allocable share of the assets held
by the Operating Partnership) must be represented by real estate assets
(including (i) its allocable share of real estate assets held by partnerships in
which Crown owns an interest and (ii) shares or debt instruments held for not
more than one year purchased with the proceeds of a share offering or long-term
(at least five years) debt offering of Crown), cash, cash items and government
securities. Second, not more than 25% of Crown's total assets may be represented
by securities other than those in the 75% asset class. Third, of the investments
included in the 25% asset class, the value of any one issuer's securities owned
by Crown may not exceed 5% of the value of Crown's total assets and Crown may
not own more than 10% of any one issuer's outstanding voting securities.
As set forth above, the ownership of more than 10% of the voting securities
of any one issuer by a real estate investment trust is prohibited by the asset
tests. However, if Crown's subsidiaries are "qualified real estate investment
trust subsidiaries" as defined in the Code, such subsidiaries will not be
treated as separate corporations for federal income tax purposes. Thus, Crown's
ownership of the shares of a "qualified real estate investment trust subsidiary"
will not cause Crown to fail the asset tests.
Crown, in order to qualify as a REIT, is required to distribute dividends
(other than capital gain dividends) to its shareholders in an amount at least
equal to (A) the sum of (i) 95% of Crown's "REIT taxable income" (computed
without regard to the dividends paid deduction and Crown's net capital gain) and
(ii) 95% of the net income (after tax), if any, from foreclosure property, minus
(B) the sum of certain items of noncash income. In addition, if Crown disposes
of any Built-In Gain Asset during its Recognition Period, Crown 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), if any, recognized on
the disposition of such asset. Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if declared before
Crown timely files its tax return for such year and if paid on or before the
first regular dividend payment
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after such declaration. To the extent that Crown does not distribute all of its
net capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gain corporate tax rates. Crown believes it has made and
intends to make timely distributions sufficient to satisfy these annual
distribution requirements.
It is possible that, from time to time, Crown may experience timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of that income and deduction of such
expenses in arriving at Crown taxable income. Further, it is possible that, from
time to time, Crown may be allocated a share of net capital gain attributable to
the sale of depreciated property which exceeds its allocable share of cash
attributable to that sale. As such, Crown may have less cash available for
distribution than is necessary to meet its annual 95% distribution requirement
or to avoid tax with respect to capital gain or the excise tax imposed on
certain undistributed income. To meet the 95% distribution requirement necessary
to qualify as a real estate investment trust or to avoid tax with respect to
capital gain or the excise tax imposed on certain undistributed income, Crown
may find it appropriate to arrange for short-term (or possibly long-term)
borrowings or to pay distributions in the form of taxable share dividends. Any
such borrowings for the purpose of making distributions to shareholders are
required to be arranged through the Operating Partnership.
Under certain circumstances, Crown may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year, which may be included in Crown's deduction for
dividends paid for the earlier year. Thus, Crown may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, Crown will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
Crown's taxable income (before the dividends paid deduction), however, for
the years ended December 31, 1996, 1995 and 1994 was approximately $1.9 million,
$2.8 million and $7.4 million, respectively. These amounts differ significantly
from net income (loss) as reported in Crown's consolidated financial statements
for the same periods.
Pursuant to applicable Treasury Regulations, in order to be able to elect
to be taxed as a real estate investment trust, Crown must maintain certain
records and request certain information from its shareholders designed to
disclose the actual ownership of its shares. Crown intends to comply with such
requirements.
FAILURE TO QUALIFY
If Crown fails to qualify for taxation as a REIT in any taxable year, and
the relief provisions do not apply, Crown will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to shareholders in any year in which Crown fails to qualify
will not be deductible by Crown nor will they be required to be made. As a
result, Crown's failure to qualify as a REIT would reduce the cash available for
distribution by Crown to its shareholders. In addition, if Crown fails to
qualify as a REIT, all distributions to shareholders will be taxable as ordinary
income, to the extent of Crown's current and accumulated earnings and profits,
and, subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, Crown will also 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 Crown would
be entitled to such statutory relief.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as Crown qualifies as a real estate investment trust, distributions
made to Crown's taxable U.S. shareholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by such U.S. shareholders as ordinary income and will not be eligible
for the dividends received deduction for corporations. Distributions that are
designated as capital gain dividends will be taxed as long-term capital gains
(to the extent they do not exceed Crown's actual net capital gain for the
taxable year) without regard to the period for which the shareholder has held
its shares. However, corporate shareholders may be required to treat up to 20%
of certain capital gain dividends as ordinary income.
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Distributions in excess of current and accumulated earnings and profits will not
be currently taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares, but rather will reduce the adjusted
basis of such shares. To the extent that distributions in excess of current and
accumulated earnings and profits exceed the adjusted basis of a shareholders
shares, such distributions will be included in income as long-term capital gain
(or short-term capital gain if the shares have been held for one year or less)
assuming the shares are a capital asset in the hands of the shareholder. In
addition, any distribution declared by Crown in October, November or December of
any year payable to a shareholder of record on a specified date in any such
month shall be treated as both paid by Crown and received by the shareholder on
December 31 of such year, provided that the distribution is actually paid by
Crown during January of the following calendar year. Shareholders may not
include in their individual income tax returns any net operating losses or
capital losses of Crown.
In general, any loss upon a sale or exchange of shares by a shareholder who
has held such shares for six months or less (after applying certain holding
period rules), will be treated as a long-term capital loss to the extent of
distributions from Crown required to be treated by such shareholder as long-term
capital gain.
BACKUP WITHHOLDING
Crown will report to its U.S. shareholders and the IRS the amount of
distributions paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid unless such
holder (a) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact, or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding rules.
A shareholder that does not provide Crown with his correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the shareholder's
income tax liability. In addition, Crown may be required to withhold a portion
of capital gain distributions to any shareholders who fail to certify their
nonforeign status to Crown. See "Taxation of Foreign Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
In general, a shareholder that is a tax-exempt entity not subject to tax on
its investment income will not be subject to tax on distributions from Crown. In
Revenue Ruling 66-106, 1966-1 C.B. 151, the IRS ruled that amounts distributed
as dividends by a REIT do not constitute "unrelated business taxable income" as
defined in the Code ("UBTI") when received by a qualified plan. Based on that
ruling, regardless whether Crown incurs indebtedness in connection with the
acquisition of properties, distributions paid by Crown to a shareholder that is
a tax-exempt entity will not be treated as UBTI, provided that (i) the
tax-exempt entity has not financed the acquisition of its shares with
"acquisition indebtedness" within the meaning of the Code and the shares
otherwise are not used in an unrelated trade or business of the tax-exempt
entity and (ii) Crown is not a pension-held REIT. This applies to a shareholder
that is an organization that qualifies under Code Section 401(a), an IRA or any
other tax-exempt organization that would compute UBTI, if any, in accordance
with Code Section 512(a)(1). However, if Crown is a pension-held REIT and a
qualified plan owns more than 10 percent of Crown, such shareholder will be
required to recognize as UBTI that percentage of the dividends that it receives
from Crown as is equal to the percentage of Crown's gross income that would be
UBTI to Crown if Crown were a tax-exempt entity required to recognize UBTI. A
REIT is a pension-held REIT if at least one qualified trust holds more than 25
percent of the value of Crown's shares or one or more qualified trusts, each of
whom own more than 10 percent of Crown's shares, hold more than 50 percent of
the value of Crown's shares. A tax-exempt shareholder also should be aware that
Congress currently is examining the taxation of investment income received by
tax-exempt entities including the treatment of income received by such entities
from REITs and other pass-through entities and is considering whether to treat
income derived from a REIT as UBTI to the extent that Crown has incurred debt to
acquire its assets. The Congressional committee conducting this examination has
not yet concluded its study. Crown does not anticipate being a pension-held
REIT.
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<PAGE> 50
For 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 Crown will constitute UBTI
unless the organization is able to deduct amounts set aside or placed in reserve
for certain purposes so as to offset the UBTI generated by its investment in
Crown. Such prospective shareholders should consult their own tax advisors
concerning these "set aside" and reserve requirements.
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws with regard to an
investment in shares, including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges by
Crown of United States real property interests and not designated by Crown 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
Crown. Such distributions will ordinarily be subject to a withholding tax equal
to 30% of the gross amount of the distribution unless an applicable tax treaty
reduces or eliminates that tax. However, if income from the investment in the
shares is treated as effectively connected with the Non-U.S. Shareholder's
conduct of a United States trade or business, the Non-U.S. Shareholder generally
will be subject to a tax at graduated rates, in the same manner as U.S.
shareholders are taxed with respect to such distributions (and may also be
subject to the 30% branch profits tax in the case of a shareholder that is a
foreign corporation). Crown expects to withhold United States income tax at the
rate of 30% on the gross amount of any such distributions made to a Non-U.S.
Shareholder unless (i) a lower treaty rate applies or (ii) the Non-U.S.
Shareholder files an IRS Form 4224 with Crown claiming that the distribution is
effectively connected income. Distributions in excess of current and accumulated
earnings and profits of Crown will not be taxable to a shareholder to the extent
that such distributions do not exceed the adjusted basis of the shareholders
shares, but rather will reduce the adjusted basis of such shares. To the extent
that distributions in excess of current accumulated earnings and profits exceed
the adjusted basis of a Non-U.S. Shareholder's shares, such distributions will
give rise to tax liability if the Non-U.S. Shareholder would otherwise be
subject to tax on any gain from the sale or disposition of his shares in Crown,
as described below. If it cannot be determined at the time a distribution is
made whether or not such distribution will be in excess of current and
accumulated earnings and profit, the distributions will be subject to
withholding at the same rate as dividends. However, amounts thus withheld are
refundable if it is subsequently determined that such distribution was, in fact,
in excess of current and accumulated earnings and profits of Crown.
For any year in which Crown qualifies as a real estate investment trust,
distributions that are attributable to gain from sales or exchanges by Crown of
United States real property interests will be taxed to a Non-U.S. Shareholder
under the provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales of
United States real property interests are taxed to a Non-U.S. Shareholder as if
such gain were effectively connected with a United States business. Non-U.S.
Shareholders would thus be taxed at the normal capital gain rates applicable to
U.S. shareholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate shareholder not entitled to treaty exemption.
Crown is required by applicable Treasury Regulations to withhold 35% of any
distribution that could be designated by Crown as a capital gains dividend. This
amount is creditable against the Non-U.S. Shareholder FIRPTA tax liability. If
Crown designates prior distributions as capital gains dividends, then subsequent
distributions up to the amount of such prior distributions will be treated as
capital gains dividends for purposes of withholding.
Gain recognized by a Non-U.S. Shareholder upon a sale of shares generally
will not be taxed under FIRPTA if Crown is a "domestically controlled real
estate investment trust," defined generally as a real estate investment trust in
which at all times during a specified testing period less than 50% in value of
the shares were
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<PAGE> 51
held directly or indirectly by foreign persons. It is currently anticipated that
Crown will be a "domestically controlled real estate investment trust," and
therefore the sale of shares will not be subject to taxation under FIRPTA.
However, gain not subject to FIRPTA will be taxable to a Non-U.S. Shareholder if
(i) investment in the shares is effectively connected with the Non-U.S.
Shareholder's United States trade or business, in which case the Non-U.S.
Shareholder will be subject to the same treatment as U.S. shareholders with
respect to such gain, or (ii) the Non-U.S. Shareholder is a nonresident alien
individual who was 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. If the gain on the sale of shares were to be subject to taxation
under FIRPTA, the Non-U.S. Shareholder will be subject to the same treatment as
U.S. shareholders with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals).
If the proceeds of a disposition of Shares are paid by or through a United
States office of a broker, the payment is subject to information reporting and
to backup withholding unless the disposing non-U.S. shareholder certifies as to
his name, address and non-United States status or otherwise establishes an
exemption. Generally, United States information reporting and backup withholding
will not apply to a payment of disposition proceeds if the payment is made
outside the United States through a non-United States office of a non-United
States broker. United States information reporting requirements (but not backup
withholding) will apply, however, to a payment of disposition proceeds outside
the United States if (i) the payment is made through an office outside the
United States of a broker that is either (a) a United States person, (b) a
foreign person that 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) a
"controlled foreign corporation" for United States federal income tax purposes,
and (ii) the broker fails to initiate documentary evidence that the shareholder
is a non-U.S. shareholder and that certain conditions are met or that the
non-U.S. shareholder otherwise is entitled to an exemption.
OTHER TAX CONSEQUENCES
Crown and its shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of Crown and its
shareholders may not conform to the federal income tax consequences discussed
above. Consequently, prospective shareholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
Crown.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
The following discussion summarizes certain federal income tax
considerations applicable solely to Crown's investment in the Operating
Partnership and represents the view of Reed Smith Shaw & McClay. The discussion
does not cover state or local tax laws or any federal tax laws other than income
tax laws.
Classification as a Partnership
Crown is entitled to include in its income its distributive share of the
Operating Partnership's income and to deduct its distributive share of the
Operating Partnership's losses only if the Operating Partnership is classified
for federal income tax purposes as a partnership rather than as an association
taxable as a corporation.
For taxable periods prior to January 1, 1997, an organization formed as a
partnership was treated as a partnership rather than as a corporation for
federal income tax purposes only if it possessed no more than two of the four
corporate characteristics that the Treasury Regulations used to distinguish a
partnership from a corporation. These four characteristics were continuity of
life, centralization of management, limited liability, and free transferability
of interests. Although neither the Operating Partnership nor the Financing
Partnership requested a ruling from the IRS that they would be classified as
partnerships for Federal income tax purposes, rather than as associations
taxable as corporations, at the time of their organization, the partnerships
received an opinion of counsel that based on the provisions of the respective
partnership agreements of the Operating
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<PAGE> 52
Partnership and the Financing Partnership, and certain factual assumptions and
representations as to each of them, the Operating Partnership and the Financing
Partnership would be treated as partnerships for federal income tax purposes and
not as associations taxable as corporations. Effective January 1, 1997, newly
promulgated Treasury Regulations (the "Regulations") eliminated the four-factor
test described above and, instead, permit partnerships and other non-corporate
entities to be taxed as partnerships for federal income tax purposes without
regard to the number of corporate characteristics possessed by such entity.
Under those Regulations, both the Operating Partnership and the Financing
Partnership will be classified as partnerships for federal income tax purposes
unless an affirmative election is made by the entity to be taxed as a
corporation. Crown has represented that no such election has been made, or is
anticipated to be made, on behalf of the Operating Partnership or the Financing
Partnership. Under a special transitional rule in the Regulations, the IRS will
not challenge the classification of an existing entity such as the Operating
Partnership or the Financing Partnership for periods prior to January 1, 1997
if: (i) the entity has a "reasonable basis" for its classification; (ii) the
entity and each of its members recognized the federal income tax consequences of
any change in classification of the entity made within the 60 months prior to
January 1, 1997; and (iii) neither the entity nor any of its members had been
notified in writing on or before May 8, 1996 that its classification was under
examination by the IRS. Neither the Operating Partnership nor the Financing
Partnership changed their classification within the 60-month period preceding
May 8, 1996, nor was either of them notified that its classification as a
partnership for federal income tax purposes was under examination by the IRS.
Therefore, in reliance upon the assumption that the Operating Partnership and
the Financing Partnership were properly classified as partnerships, the
classification of the Operating Partnership and the Financing Partnership should
not be subject to challenge for any period prior to January 1, 1997.
If for any reason the Operating Partnership or the Financing Partnership
was taxable as a corporation rather than as a partnership for federal income tax
purposes, Crown would not be able to satisfy the income and asset requirements
for real estate investment trust status. In addition, any change in the status
of the Operating Partnership or the Financing Partnership for tax purposes might
be treated as a taxable event, in which case Crown might incur a tax liability
without any related cash distribution. Further, items of income and deduction of
the Operating Partnership or the Financing Partnership would not pass through to
its partners, and its partners would be treated as shareholders for tax
purposes. The Operating Partnership or the Financing Partnership would be
required to pay income tax at corporate tax rates on its net income, and
distributions to its partners would constitute dividends that would not be
deductible in computing the Operating Partnership's taxable income.
Income Taxation of the Operating Partnership and Its Partners:
Partners, Not the Operating Partnership, Subject to Tax. A partnership is
not a taxable entity for federal income tax purposes. Rather, Crown will be
required to take into account its allocable share of the Operating Partnership's
income, gains, losses, deductions, and credits for any taxable year of the
Operating Partnership ending within or with the taxable year of Crown, without
regard to whether Crown has received or will receive any distribution from the
Operating Partnership.
Operating Partnership Allocations. Although a partnership agreement will
generally determine the allocation of income and losses among partners, such
allocations will be disregarded for tax purposes under Section 704(b) of the
Code if they do not comply with the provisions of Section 704(b) of the Code and
the Treasury Regulations promulgated thereunder.
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 Operating Partnership's
allocations of taxable income and loss are intended to comply with the
requirements of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder.
Tax Allocations With Respect to Contributed Properties. Pursuant to Section
704(c) of the Code, income, gain, loss, and deduction attributable to
appreciated or depreciated property that is contributed to a
30
<PAGE> 53
partnership in exchange for an interest in the partnership must be allocated for
federal income tax purposes in a manner such that the contributor is charged
with, or benefits from, the unrealized gain or unrealized loss associated with
the property at the time of the contribution. The amount of such unrealized gain
or unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution. The Partnership
Agreement requires allocations of income, gain, loss, and deduction attributable
to such contributed property to be made in a manner that is consistent with
Section 704(c) of the Code. The Treasury Department recently proposed
regulations (the "Section 704(c) Regulations") requiring partnerships to use a
"reasonable method" for allocating items affected by Section 704(c) of the Code
and outlining three reasonable allocation methods. The application of Section
704(c) to the Operating Partnership and the Financing Partnership is not
entirely clear and may be affected by Treasury Regulations which may be
promulgated in the future.
Basis in Operating Partnership Interest. Crown's adjusted tax basis in its
partnership interest in the Operating Partnership generally (i) will be equal to
the amount of cash and the basis of any other property contributed to the
Operating Partnership by Crown, (ii) will be increased by (a) its allocable
share of the Operating Partnership's income and (b) its allocable share of
indebtedness of the Operating Partnership and the Financing Partnership and
(iii) will be reduced, but not below zero, by Crown's allocable share of (a) the
Operating Partnership's loss and (b) the amount of cash distributed to Crown,
and by constructive distributions resulting from a reduction in Crown's share of
indebtedness of the Operating Partnership and the Financing Partnership.
If the allocation of Crown's distributive share of the Operating
Partnership's loss would reduce the adjusted tax basis of Crown's partnership
interest in the Operating Partnership below zero, the recognition of such loss
will be deferred until such time as the recognition of such loss would not
reduce Crown's adjusted tax basis below zero. To the extent that the Operating
Partnership's distributions, or any decrease in Crown's share of the nonrecourse
indebtedness of the Operating Partnership (such decrease being considered a
constructive cash distribution to the partners), would reduce Crown's adjusted
tax basis below zero, such distributions (including such constructive
distributions) constitute taxable income to Crown. Such distributions and
constructive distributions will normally be characterized as a capital gain, and
if Crown's partnership interest in the Operating Partnership has been held for
longer than the long-term capital gain holding period (currently one year), the
distributions and constructive distributions will constitute long-term capital
gains.
Depreciation Deductions Available to the Operating Partnership and the Financing
Partnership.
The Operating Partnership and the Financing Partnership were formed in 1993
principally by way of contributions of property interests. Crown, the Operating
Partnership and the Financing Partnership, as applicable, compute depreciation
for federal income tax purposes using the historic depreciation schedules
pursuant to which each Property (except for Oak Ridge Mall, Shenango Valley
Mall, Middletown Mall and Wyoming Valley Mall) was depreciated using various
methods of depreciation that were determined at the time each Property was
placed in service. With respect to Oak Ridge Mall and the Shenango Valley Mall,
the Operating Partnership computes depreciation for federal income tax purposes
using the alternative cost recovery system method based on useful lives of 40
years for buildings and improvements and 7 years for equipment and fixtures, and
for accounting purposes using the straight-line method based on useful lives of
40 years for buildings and improvements and 7 years for equipment and fixtures.
Section 704 (c) of the Code may affect allocations of depreciation and gain
or loss on all of the Properties contributed to the Operating Partnership or the
Financing Partnership.
Sale of the Operating Partnership's Property
Generally, any gain realized by the Operating Partnership or the Financing
Partnership on the sale of property held by the Operating Partnership or the
Financing Partnership for more than one year will be long-term capital gain,
except for any portion of such gain that is treated as depreciation or cost
recovery recapture. Any unrealized gain attributable to the excess of the fair
market value of the shopping center interests over their adjusted tax bases at
the time of contribution to the Operating Partnership ("Pre-Contribution Gain")
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<PAGE> 54
must, when recognized by the Operating Partnership, be allocated to Crown
Investments under Section 704(c) of the Code and Treasury Regulations
promulgated thereunder. As noted above, in connection with the contribution of
the interests in the Properties with respect to which there is Pre-Contribution
Gain, the Operating Partnership will allocate to Crown depreciation which is
disproportionately greater than Crown's ownership in the Operating Partnership.
As a result of the foregoing, in the event of the disposition of any of
Crown's properties which have Pre-Contribution Gain, all income attributable to
such Pre-Contribution Gain will be allocated to Crown Investments, and Crown
will be allocated only its share of capital gains attributable to appreciation,
if any, occurring after the closing of the offerings and gain in an amount no
greater than the amount in which Crown has been allocated depreciation
deductions from the Operating Partnership disproportionately greater than
Crown's percentage interest in the Operating Partnership pursuant to Section
704(c) of the Code. The decision relating to the potential sale of any such
property will be made by the independent Trustees of Crown if the sale would
result in a disproportionately higher taxable income for Crown Investments than
for Crown (after taking into account Crown Investments' use of its then
available losses or loss carry forwards).
Crown's share of any gain realized on the sale of any property held by the
Operating Partnership, the Financing Partnership or Crown as inventory or other
property held primarily for sale to customers in the ordinary course of Crown's
Operating Partnership's or the Financing Partnership's trade or business will
however, be treated as income from a prohibited transaction that is subject to a
100% penalty tax. Such prohibited transaction income will also have an adverse
effect upon Crown's ability to satisfy the income tests for real estate
investment trust status. Under existing law, whether property is held as
inventory or primarily for sale to customers in the ordinary course of Crown's,
the Operating Partnership's or the Financing Partnership's trade or business is
a question of fact that depends on all the facts and circumstances with respect
to the particular transaction. Crown, the Operating Partnership and the
Financing Partnership intend to hold their properties for investment with a view
to long-term appreciation, to engage in the business of acquiring, developing,
owning, and operating their properties (and other shopping centers) and to make
such occasional sales of properties, including peripheral land, as are
consistent with the investment objectives of Crown, the Operating Partnership
and the Financing Partnership.
PLAN OF DISTRIBUTION
Crown may sell Securities through underwriters for public offer and sale by
them, and also may sell the Securities offered hereby to investors directly or
through agents. Any such underwriter or agent involved in the offer and sale of
the Securities will be named in the applicable Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. Crown also may, from time to time,
authorize underwriters acting as Crown's agents to offer and sell Securities
upon terms and conditions set forth in the applicable Prospectus Supplement. In
connection with the sale of the Securities, underwriters may be deemed to have
received compensation from Crown in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of the Securities
for whom they may act as agent. Underwriters may sell Securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agent.
Any underwriters or agents in connection with an offering of the
Securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, will be set forth in the applicable
Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of the Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Securities may be deemed to be underwriting discounts and
commissions, under the Securities Act. Underwriters, dealers and agents may be
entitled, under agreements to be entered into with Crown, to indemnification
against and contribution toward certain civil liabilities, including liabilities
under the Securities Act.
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<PAGE> 55
If so indicated in the applicable Prospectus Supplement, Crown will
authorize underwriters or other persons acting as Crown's agents to solicit
offers by certain institutions to purchase Securities from Crown at the public
offering price set forth in such Prospectus Supplement pursuant to delayed
delivery contracts providing for payment and delivery on the date or dates
stated in such Prospectus Supplement. Each delayed delivery contract will be for
an amount not less than, and the aggregate principal amount of Securities sold
pursuant to delayed delivery contracts shall be not less nor more than, the
respective amounts stated in the applicable Prospectus Supplement. Institutions
with whom delayed delivery contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions but
will in all cases be subject to the approval of Crown. Delayed delivery
contracts will not be subject to any conditions except (i) the purchase by an
institution of the Securities covered by its delayed delivery contracts shall
not at the time of delivery be prohibited under the laws of any jurisdiction in
the United States to which such institution is subject, and (ii) if the
Securities are being sold to underwriters, Crown shall have sold to such
underwriters the total principal amount of the Securities less the principal
amount thereof covered by delayed delivery contracts.
EXPERTS
The consolidated financial statements and schedules of Crown American
Realty Trust incorporated by reference from the Annual Report on Form 10-K for
the year ended December 31, 1996, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports, with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing, in giving said reports.
LEGAL MATTERS
Certain legal matters will be passed upon for Crown by Reed Smith Shaw &
McClay, Pittsburgh, Pennsylvania.
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======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CROWN OR THE UNDERWRITER.
NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Available Information................ S-2
Information Incorporated by
Reference.......................... S-2
Crown................................ S-4
Risk Factors......................... S-5
Recent Developments.................. S-11
Use of Proceeds...................... S-12
Description of the Shares............ S-12
Certain Federal Income
Tax Consequences................... S-18
Underwriting......................... S-21
Legal Matters........................ S-22
Experts.............................. S-22
PROSPECTUS
Available Information................ 2
Incorporation of Certain Documents by
Reference.......................... 2
Crown................................ 4
Use of Proceeds...................... 5
Ratio of Earnings to Fixed Charges... 5
Description of Shares................ 5
Certain Provisions of Maryland Law
and Crown's Declaration of Trust
and Bylaws......................... 17
Certain Federal Income Tax
Considerations to Crown of its REIT
Election........................... 22
Plan of Distribution................. 32
Experts.............................. 33
Legal Matters........................ 33
</TABLE>
======================================================
======================================================
2,500,000 % SENIOR PREFERRED SHARES OF BENEFICIAL INTEREST
($50.00 LIQUIDATION PREFERENCE)
CROWN AMERICAN REALTY TRUST
------------------
PROSPECTUS SUPPLEMENT
------------------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
JUNE , 1997
======================================================
