<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1997
REGISTRATION STATEMENT NO. 333-31639
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
CAPSTONE CAPITAL CORPORATION
(Exact name of Registrant as specified in its charter)
1000 URBAN CENTER DRIVE, SUITE 630
BIRMINGHAM, ALABAMA 35242
(205) 967-2092
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
---------------------
<TABLE>
<C> <C> <C>
MARYLAND JOHN W. MCROBERTS 63-1115479
(State or Other Jurisdiction PRESIDENT AND CHIEF EXECUTIVE OFFICER (I.R.S. Employer Identification No.)
of Organization) 1000 URBAN CENTER DRIVE, SUITE 630
BIRMINGHAM, ALABAMA 35242
(205) 967-2092
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent for Service)
</TABLE>
---------------------
Copies To:
JOHN H. COOPER, ESQ.
SIROTE & PERMUTT, P.C.
2222 ARLINGTON AVENUE SOUTH
BIRMINGHAM, ALABAMA 35255-5727
PHONE: (205) 930-5108
FAX: (205) 930-5301
Approximate date of commencement of proposed sale to the public: From time
to time after the effective time of this Registration Statement as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================================
PROPOSED
TITLE OF EACH AMOUNT MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1)(2)(3) OFFERING PRICE(4) FEE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock(par value $.001 per share)(5).................. N/A
- ----------------------------------------------------------------------------------------------------------------------------
Preferred Stock(par value $.001 per share)(6)............... N/A
- ----------------------------------------------------------------------------------------------------------------------------
Debt Securities(7).......................................... N/A
- ----------------------------------------------------------------------------------------------------------------------------
Warrants(8)................................................. N/A
- ----------------------------------------------------------------------------------------------------------------------------
Total................................................... $500,168,750(7) $500,168,750 $151,566(9)
============================================================================================================================
</TABLE>
(footnotes on next page)
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
---------------------
PURSUANT TO RULE 429, THE PROSPECTUS CONTAINED IN THIS REGISTRATION
STATEMENT WILL ALSO BE USED IN CONNECTION WITH THE OFFERING OF UP TO $24,831,250
PRINCIPAL AMOUNT OF OTHER SECURITIES PREVIOUSLY REGISTERED PURSUANT TO THE
COMPANY'S REGISTRATION STATEMENT (FILE NO. 33-97926) AND NOT ISSUED. IN THE
EVENT ANY SUCH PREVIOUSLY REGISTERED SECURITIES ARE OFFERED PRIOR TO THE
EFFECTIVE DATE OF THIS REGISTRATION STATEMENT, THEY WILL NOT BE INCLUDED IN ANY
PROSPECTUS HEREUNDER.
================================================================================
<PAGE> 2
(1) This Registration Statement also covers delayed delivery contracts which may
be issued by the Registrant under which the counterparty may be required to
purchase Debt Securities, Preferred Stock, Common Stock or Warrants. Such
contracts may be issued together with the specific Securities to which they
relate. In addition, Securities registered hereunder may be sold separately,
together or as units with other Securities registered hereunder.
(2) In U.S. Dollars or the equivalent thereof denominated in one or more foreign
currencies or units or two or more foreign currencies or composite
currencies (such as European Currency Units).
(3) Pursuant to Rule 429 under the Securities Act of 1933, as amended (the
"Securities Act"), the Prospectus included in this Registration Statement
relates also to $24,831,250 of Securities registered on the Company's
Registration Statement (No. 33-97926) and unissued as of the date hereof.
(4) Amount to be registered, proposed maximum offering price per security, and
proposed maximum aggregate offering price for each class of securities
omitted pursuant to General Instruction II.D of Form S-3 under the
Securities Act.
(5) Such indeterminate number of shares of Common Stock as may from time to time
be issued at indeterminate prices or issuable upon conversion of Debt
Securities or Preferred Stock registered hereunder or upon exercise of
Warrants registered hereunder, as the case may be.
(6) Such indeterminate number of shares of Preferred Stock as may from time to
time be issued at indeterminate prices or issuable upon conversion of Debt
Securities.
(7) Estimated solely for purposes of calculating the registration fee. No
separate consideration will be received for shares of Common Stock or
Preferred Stock that are issued upon conversion of Debt Securities or
Preferred Stock or upon exercise of Warrants registered hereunder, as the
case may be. The aggregate maximum offering price of all Securities issued
pursuant to this Registration Statement will not exceed $500,000,000.
(8) There are being registered hereunder an indeterminate number of Warrants
representing rights to purchase shares of Preferred Stock, Common Stock or
Debt Securities registered hereunder. Warrants may be sold separately or
with Securities.
(9) Calculated pursuant to Rule 457(o) of Regulation C under the Securities Act.
Pursuant to Rule 429, the Prospectus contained in this Registration
Statement will also be used in connection with the offering of up to
$24,831,250 principal amount of other securities previously registered
pursuant to the Company's Registration Statement (No. 33-97926) and not
issued. The Company previously paid a registration fee of $8,562 with
respect to the securities being carried forward pursuant to Rule 429.
2
<PAGE> 3
INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS SUBJECT
TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO
THE TIME THAT A FINAL PROSPECTUS SUPPLEMENT IS DELIVERED. THIS PRELIMINARY
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING 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.
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1997
PROSPECTUS SUPPLEMENT
(To Prospectus dated September , 1997)
[CAPSTONE LOGO] 3,000,000 SHARES
CAPSTONE CAPITAL CORPORATION
% SERIES A CUMULATIVE PREFERRED STOCK
(LIQUIDATION PREFERENCE $25 PER SHARE)
---------------------
Dividends on the % Series A Cumulative Preferred Stock, par value $.001
per share (the "Series A Preferred Stock"), of Capstone Capital Corporation (the
"Company") are cumulative from the date of original issue and are payable
quarterly, commencing on 1997, at the rate of % per annum of
the $25 per share liquidation preference (equivalent to a fixed annual rate of
$ per share). See "Description of Series A Preferred
Stock -- Dividends."
Except in certain circumstances relating to the Company's qualifications as
a real estate investment trust (a "REIT"), the Series A Preferred Stock is not
redeemable prior to , 2002. On and after , 2002, the Series A
Preferred Stock may be redeemed for cash at the option of the Company, in whole
or in part, at a redemption price of $25 per share, plus accrued and unpaid
dividends, if any, thereon to the redemption date. The redemption price (other
than the portion thereof consisting of accrued and unpaid dividends) shall be
payable solely out of the sale proceeds of other stock of the Company, which may
include other series of the Company's preferred stock, par value $.001 per share
("Preferred Stock"), and from no other source. The Series A Preferred Stock has
no stated maturity and will not be subject to any sinking fund or mandatory
redemption and will not be convertible into any other securities of the Company
except in certain circumstances relating to the Company's qualification as a
REIT. See "Description of Series A Preferred Stock -- Redemption."
In order to ensure that the Company remains a qualified REIT for federal
income tax purposes, shares of Series A Preferred Stock may be converted into
Excess Shares (as defined in the accompanying Prospectus) if a holder owns more
than 9.8% of the Company's stock, and the Company will have the right to
purchase Excess Shares from the holder. See "Description of Capital
Stock -- Restrictions on Ownership" in the accompanying Prospectus.
The Company has applied to list the Series A Preferred Stock on the New York
Stock Exchange ("NYSE"), subject to official notice of issuance, under the
symbol "CCT PrA." Trading of the Series A Preferred Stock on the NYSE is
expected to commence within 30 days of initial delivery of the Series A
Preferred Stock. Prior to the offering made hereby (the "Offering"), there has
been no public market for the Series A Preferred Stock. While the Underwriters
have advised the Company that they intend to make a market in the Series A
Preferred Stock prior to commencement of trading on the NYSE, they are under no
obligation to do so and may discontinue market making at any time without
notice. No assurance can be given that a market for the Series A Preferred Stock
will exist prior to commencement of trading or at any other time. See
"Underwriting."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THE PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SECURITIES OFFERED HEREBY.
---------------------
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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=======================================================================================================================
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(2) COMPANY(3)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- -----------------------------------------------------------------------------------------------------------------------
Total(4) $ $ $
=======================================================================================================================
</TABLE>
(1) Plus accrued dividends, if any, from the date of original issue.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
(4) The Company has granted the Underwriters an option for 30 days to
purchase up to an additional 450,000 shares of Series A Preferred Stock
on the same terms set forth above to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively.
---------------------
The shares of Series A Preferred Stock are being offered by the several
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that delivery of the
shares of Series A Preferred Stock will be made at the offices of Smith Barney
Inc., 333 West 34th Street, New York, New York 10001 on or about September ,
1997.
---------------------
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
J.C. BRADFORD & CO.
COWEN & COMPANY
The date of this Prospectus Supplement is September , 1997.
<PAGE> 4
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SHARES OF PREFERRED
STOCK, INCLUDING BY OVERALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING
SYNDICATE COVERING TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE> 5
PROSPECTUS SUPPLEMENT SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed descriptions and financial information and
statements appearing elsewhere or incorporated by reference in the accompanying
Prospectus or in this Prospectus Supplement. Except as otherwise indicated
herein, this Prospectus Supplement assumes no exercise of the Underwriter's
over-allotment option. As used herein, unless the context requires otherwise,
the term "Company" includes Capstone Capital Corporation, a Maryland
corporation, and its subsidiaries.
THE COMPANY
The Company is a real estate investment trust which owns, leases and
invests in a diversified portfolio of healthcare properties (the "Investments").
As of June 30, 1997, the Investments consisted of (i) 84 healthcare properties,
including properties under development, leased to 19 healthcare operators (the
"Leased Properties") and (ii) 34 mortgage loans on healthcare properties,
including loans related to properties under construction, made to 23 operators
(the "Mortgage Loans"). The Investments are located in 19 states primarily in
the southeastern and western regions of the United States and represent a
variety of facility types in diverse healthcare industry segments. The
Investments, including commitments to invest certain of which have been
partially funded, have grown from approximately $115 million at inception on
June 30, 1994 to approximately $697 million on July 31, 1997.
The Company intends to use the net proceeds of the Offering to reduce
outstanding borrowings under the Company's $170 million unsecured line of credit
(the "Bank Credit Facility") provided by a consortium of banks led by
NationsBank of Georgia, N.A. ("NationsBank"), which the Company has used
primarily to fund Investments. See "Use of Proceeds." The Company expects to
reborrow under the Bank Credit Facility to make additional investments.
Substantially all of the leases (the "Leases") for Leased Properties are
triple net leases which require the lessees to pay, in addition to base rent,
any additional rent and all additional charges, including any fines, penalties,
interest and costs which may be levied for nonpayment or late payment thereof,
all operating expenses, taxes, environmental clean-up costs, association dues,
insurance premiums, assessments, levies, fees, water and sewer rents and charges
and all governmental charges with respect to the applicable Leased Property. The
Leases generally provide for increases in rent commencing after the first year,
have primary terms of 10 to 15 years with options to extend the term at least 10
years and grant the lessees a right of first refusal to acquire the Company's
interest at a fair market value. Mortgage Loans generally have initial
maturities of between five and 15 years, require monthly installments of
principal and interest and bear interest at rates ranging from 9.5% to 13.39%
that increase annually at either a negotiated fixed rate or a rate based on the
consumer price index. Approximately 59% of the Company's Investments as of June
30, 1997 are operated by public healthcare companies or their subsidiaries,
including HEALTHSOUTH Corporation ("HEALTHSOUTH"), Columbia/HCA Healthcare
Corporation ("Columbia"), MedPartners, Inc. ("MedPartners"), Integrated Health
Services, Inc. ("Integrated Health"), and Tenet Healthcare Corporation. For the
fiscal year ended December 31, 1996, the Company derived approximately 33.4% and
19.5% of its revenues from HEALTHSOUTH and Columbia, respectively.
The Company believes it is an important source of capital for the
healthcare industry and intends to continue investing in a high-quality
portfolio of properties managed by established operators of rehabilitation,
alternate-site care, long-term care and acute-care facilities. The Company
diversifies its portfolio by operator, geography, facility type and healthcare
industry segment. The Company identifies potential investment opportunities
through (i) the relationship of certain members of its Board of Directors with
HEALTHSOUTH, MedPartners and Integrated Health (Richard M. Scrushy, Michael D.
Martin and Larry R. House are also directors of HEALTHSOUTH, Larry R. House,
Richard M. Scrushy and Larry D. Striplin, Jr. are also directors of MedPartners
and Robert N. Elkins is also a director of Integrated Health), (ii)
relationships of its management and Board of Directors with other healthcare
operators and developers, and (iii) brokers and other industry contacts. Leases
with HEALTHSOUTH, MedPartners and Integrated Health are entered into on terms
which the Company believes to be no less favorable than its Leases with
unrelated lessees with similar credit characteristics.
S-3
<PAGE> 6
The Company's primary objective is to provide current income for
distribution to stockholders. The Company has increased or maintained its
quarterly distributions to common stockholders in every quarter in which it has
operated since its initial public offering on June 30, 1994.
<TABLE>
<CAPTION>
DISTRIBUTIONS
PER SHARE
-------------
<S> <C>
1995:
First Quarter............................................. .425
Second Quarter............................................ .445
Third Quarter............................................. .445
Fourth Quarter............................................ .445
1996:
First Quarter............................................. .445
Second Quarter............................................ .455
Third Quarter............................................. .46
Fourth Quarter............................................ .465
1997:
First Quarter............................................. .47
Second Quarter............................................ .475
</TABLE>
THE OFFERING
Securities Offered.................. 3,000,000 shares of % Series A
Cumulative Preferred Stock ("Series A
Preferred Stock"). Application has been
made to list the shares of Series A
Preferred Stock on the NYSE under the
symbol "CCT PrA." See "Underwriting."
Use of Proceeds..................... The net proceeds from the sale of the
Series A Preferred Stock will be used
to reduce indebtedness under the Bank
Credit Facility. See "Use of Proceeds."
Ranking............................. With respect to the payment of
dividends and amounts upon liquidation,
the Series A Preferred Stock will rank
senior to the Company's common stock,
par value $.001 per share ("Common
Stock"), which is the only stock of the
Company currently outstanding. See
"Description of Series A Preferred
Stock -- Dividends" and "-- Liquidation
Preference."
Dividends........................... Dividends on the Series A Preferred
Stock are cumulative from the date of
original issue and are payable
quarterly, commencing on ,
1997, at the rate of % per annum
of the $25 liquidation preference
(equivalent to a fixed annual rate of
$ per share). See "Description of
Series A Preferred Stock -- Dividends."
Liquidation Rights.................. Equivalent to $25 per share of Series A
Preferred Stock, plus an amount equal
to accrued and unpaid dividends
(whether or not authorized). See
"Description of Series A Preferred
Stock -- Liquidation Preference."
S-4
<PAGE> 7
Redemption.......................... Except in certain circumstances
relating to the preservation of the
Company's status as a REIT (see
"Description of Capital
Stock -- Restrictions on Ownership" in
the accompanying Prospectus), the
Series A Preferred Stock is not
redeemable prior to , 2002.
On and after , 2002, the
Series A Preferred Stock will be
redeemable for cash at the option of
the Company, in whole or in part, at a
redemption price of $25 per share, plus
dividends accrued and unpaid to the
redemption date. The redemption price
(other than the portion thereof
consisting of accrued and unpaid
dividends) shall be payable solely out
of the sale proceeds of other stock of
the Company, which may include other
series of Preferred Stock, and from no
other source. See "Description of
Series A Preferred
Stock -- Redemption."
Voting Rights....................... Holders of Series A Preferred Stock
will have no voting rights except as
described herein. Whenever dividends on
any shares of Series A Preferred Stock
shall be in arrears for six or more
quarterly periods, the holders of such
shares (voting separately as a class
with all other series of parity
Preferred Stock upon which like voting
rights have been conferred and are
exercisable) will be entitled to vote
for the election of two additional
directors of the Company until all
dividends accumulated on such shares of
Series A Preferred Stock have been
fully paid or authorized and a sum
sufficient for the payment thereof set
aside for payment. In addition, certain
changes to the terms of the Series A
Preferred Stock that would be
materially adverse to the rights of
holders of Series A Preferred Stock
cannot be made without the affirmative
vote of holders of two-thirds of the
outstanding Series A Preferred Stock.
See "Description of Series A Preferred
Stock -- Voting Rights."
S-5
<PAGE> 8
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JUNE 30,
1994
(INCEPTION) YEAR ENDED SIX MONTHS
TO DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, --------------------- -----------------------
1994(1) 1995 1996 1996 1997
-------------- --------- --------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $ 8,240 $ 24,707 $ 35,952 $ 16,320 $ 24,255
Expenses:
Interest............................ 1,439 8,787 8,812 3,886 5,963
Depreciation and amortization....... 1,502 4,697 6,315 2,885 4,052
Other operating..................... 536 1,515 1,911 811 1,552
--------- --------- --------- ---------- ----------
Total expenses.............. 3,477 14,999 17,038 7,582 11,568
--------- --------- --------- ---------- ----------
Net income............................ $ 4,763 $ 9,708 $ 18,914 $ 8,738 $ 12,687
========= ========= ========= ========== ==========
Net income per share.................. $ 0.80 $ 1.55 $ 1.71 $ .84 $ .86
========= ========= ========= ========== ==========
OTHER DATA:
Funds from operations(2).............. $ 5,628 $ 12,523 $ 22,633 $ 10,296 $ 15,428
Weighted average shares outstanding... 5,980 6,271 11,086 10,368 14,785
Weighted average shares outstanding
(fully diluted)..................... -- 8,597 13,159 12,799 17,414
Dividends distributed................. $ 5,083 $ 12,519 $ 12,431 $ 9,533 $ 14,774
Dividends distributed per share....... $ 0.85 $ 1.76 $ 1.825 $ 0.90 $ 0.95
Net cash provided by operating
activities.......................... $ 5,168 $ 14,041 $ 22,425 $ 8,869 $ 16,459
Net cash used in investing
activities.......................... $ 165,964 $ 74,753 $ 111,399 $ 69,939 $ 157,009
Net cash provided by financing
activities.......................... $ 161,126 $ 61,056 $ 92,421 $ 61,902 $ 140,162
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1997
------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate properties, net............ $151,328 $207,257 $303,997 $274,327 $408,534
Mortgage notes receivable.............. 13,224 24,989 39,326 30,366 88,055
Total assets........................... 166,364 240,625 356,695 316,088 518,365
Bank credit facility................... 67,500 30,225 68,500 81,200 107,727
Mortgage notes payable(3).............. -- -- 23,228 23,300 40,139
10.50% Convertible subordinated
debentures........................... -- 43,947 17,657 33,797 7,098
6.55% Convertible subordinated
debentures........................... -- -- -- -- 67,934
Total stockholders' equity............. 98,389 163,747 241,556 173,098 280,713
</TABLE>
- ---------------
See footnotes on the next page
S-6
<PAGE> 9
(1) The Company commenced operations on June 30, 1994.
(2) Funds from operations ("FFO") represents net income (computed in accordance
with generally accepted accounting principles), less gains from sales of
property and rental income recognized on a straight-line basis on those
leases with scheduled rent increases, plus depreciation and amortization.
FFO should not be considered as an alternative to net income or any other
generally accepted accounting principle measurement of performance as an
indicator of operating performance or as an alternative to cash flows from
operations, investing and financing activities as a measure of liquidity.
The Company believes that FFO is an important supplemental measure of the
operating performance of a REIT's portfolio considering the fact that
historical cost accounting implicitly assumes that the value of real estate
assets diminishes predictably over time. FFO provides an alternative
measurement criteria, exclusive of certain non-cash items included in GAAP
income, by which to evaluate the performance of such investments.
Additionally, FFO is consistent with measures used by analysts to evaluate
the Company and other REITs. The Company therefore discloses FFO, although
it is a measurement that is not defined by generally accepted accounting
principles. The Company's measure may not be comparable to similarly titled
measures used by other REITs. Consequently, the Company's FFO may not
provide a meaningful measure of the Company's performance as compared to
that of other REITs. FFO is computed as follows:
<TABLE>
<CAPTION>
FOR PERIOD FROM YEAR ENDED YEAR ENDED SIX MONTHS ENDED
INCEPTION TO DECEMBER 31, DECEMBER 31, -----------------------------
DECEMBER 31, 1994 1995 1996 JUNE 30, 1996 JUNE 30, 1997
----------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Net income........... $4,762,734 $ 9,708,391 $18,913,689 $ 8,737,932 $12,686,897
Add: depreciation
and
amortization.... 1,501,906 4,696,838 6,315,077 2,884,934 4,051,690
Less: gain on sale
of asset........ -- -- (197,191) (193,672) --
Less: straight-line
rental income... (636,397) (1,881,926) (2,398,760) (1,132,812) (1,310,871)
---------- ----------- ----------- ----------- -----------
Fund from
operations......... $5,628,243 $12,523,303 $22,632,815 $10,296,382 $15,427,916
========== =========== =========== =========== ===========
</TABLE>
(3) Nonrecourse indebtedness of Capstone of Las Vegas, Ltd., an Alabama limited
partnership of which Capstone Capital of Las Vegas, Inc., an Alabama
corporation and a wholly-owned subsidiary of the Company, is the general
partner and Capstone of Virginia, Ltd., an Alabama limited partnership of
which Capstone Capital of Virginia, Inc., an Alabama corporation and a
wholly-owned subsidiary of the Company, is the general partner.
S-7
<PAGE> 10
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Series A
Preferred Stock offered hereby are estimated to be approximately $
million, after deduction of underwriting discounts and commissions and estimated
Offering expenses payable by the Company (approximately $ million assuming
the Underwriters' over-allotment option is exercised in full). The Company
intends to use the net proceeds to reduce the outstanding balance under its Bank
Credit Facility, which was approximately $130.8 million as of September 15,
1997.
Borrowings under the Bank Credit Facility bear interest at a rate chosen by
the Company from either the base rate of NationsBank or the Eurodollar rate plus
a percentage that varies from 1.00% to 1.625%. At September 15, 1997, the
weighted average interest rate under the Bank Credit Facility was 6.870%. The
Company has used borrowings under the Bank Credit Facility primarily for the
acquisition of or investment in the Investments. The Company expects to borrow
under the Bank Credit Facility in the future to make additional acquisitions and
investments. The Bank Credit Facility will be available until June 24, 2000, and
the principal balance outstanding thereunder will mature on that date.
S-8
<PAGE> 11
CAPITALIZATION
The following sets forth the capitalization of the Company as of June 30,
1997, on an actual basis, and on an adjusted basis to give effect to the sale of
Series A Preferred Stock offered hereby, after deducting underwriting discounts
and commissions and estimated Offering expenses payable by the Company, and the
use of the net proceeds therefrom to reduce the outstanding balance under the
Bank Credit Facility. See "Use of Proceeds." The information set forth below
should be read in conjunction with the Company's historical consolidated
financial statements and notes thereto included in the documents incorporated
herein by reference.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------
ACTUAL AS ADJUSTED
------------- ------------
<S> <C> <C>
Indebtedness:
Bank credit facility...................................... $ 107,727,000 $ 35,547,000
Mortgage loans............................................ 40,139,323 40,139,323
10.50% Convertible subordinated debentures................ 7,098,000 7,098,000
6.55% Convertible subordinated debentures................. 67,934,295 67,934,295
------------- ------------
Total Indebtedness................................ $ 222,898,618 $150,718,618
============= ============
Stockholders' equity:
Preferred Stock, $.001 par value per share, 10,000,000
shares authorized; none issued and outstanding actual; and
3,000,000 shares issued and outstanding, as adjusted
(aggregate liquidation preference $75,000,000)............ $ -- $ 3,000
Common Stock, $.001 par value per share; 50,000,000
authorized; 16,205,672 issued and outstanding............. 16,206 16,206
Additional paid-in capital.................................. 280,890,725 353,067,725
Loans to officers to finance stock purchases................ (286,944) (286,944)
Retained earnings........................................... 92,580 92,580
------------- ------------
Total stockholders' equity........................ 280,712,567 352,892,567
------------- ------------
Total capitalization.............................. $ 503,611,185 $503,611,185
============= ============
</TABLE>
- ---------------
(1) Does not include (a) 440,186 shares of Common Stock reserved for issuance
upon conversion of $7,098,000 aggregate principal amount of the 10.50%
Debentures, subject to adjustment in certain events, (b) 2,950,787 shares of
Common Stock reserved for issuance upon conversion of $74,750,000 aggregate
principal amount of the Company's 6.55% Debentures subject to adjustment in
certain events, (c) 645,000 shares of Common Stock reserved for issuance
pursuant to the Company's 1994 Stock Incentive Plan, and (d) 993,311 shares
of Common Stock reserved for issuance pursuant to the Company's Dividend
Reinvestment Plan.
S-9
<PAGE> 12
DESCRIPTION OF SERIES A PREFERRED STOCK
This description of the particular terms of the Series A Preferred Stock
supplements the description of the general terms and provisions of the Preferred
Stock set forth in the accompanying Prospectus, to which description reference
is hereby made. The following summary of the terms and provisions of the Series
A Preferred Stock does not purport to be complete and is qualified in its
entirety by reference to the pertinent sections of the Charter and the Articles
Supplementary classifying the Series A Preferred Stock (the "Articles
Supplementary"), each of which is available from the Company.
GENERAL
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock in one or more series, with such terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption, in each
case, if any, as are permitted by Maryland law and as the Board of Directors of
the Company may determine by filing articles supplementary to the Company's
Charter (the "Charter"), without any further vote or action by the Company's
stockholders. See "Description of Capital Stock -- Preferred Stock" in the
accompanying Prospectus. The Series A Preferred Stock is a series of the
Company's Preferred Stock.
DIVIDENDS
Holders of shares of the Series A Preferred Stock shall be entitled to
receive, when and as authorized and declared by the Board of Directors, out of
funds legally available for the payment of dividends, cumulative preferential
cash dividends at the rate of % per annum of the $25 per share liquidation
preference (equivalent to a fixed annual rate of $ per share). Such
dividends shall be cumulative from the date of original issue and shall be
payable quarterly in arrears on or before the 15th day of each March, June,
September and December or, if not a business day, the next succeeding business
day (each, a "Dividend Payment Date"). The first dividend, which will be paid on
, 1997, will be for less than a full quarter. Such dividend and any
dividend payable on the Series A Preferred Stock for any partial dividend period
will be computed on the basis of a 360-day year consisting of twelve 30-day
months. Dividends will be payable to holders of record as they appear in the
stock records of the Company at the close of business on the applicable record
date, which shall be the first day of the calendar month in which the applicable
Dividend Payment Date falls or on such other date designated by the Board of
Directors of the Company for the payment of dividends that is not more than 30
nor less than 10 days prior to such Dividend Payment Date (each, a "Record
Date"). The Series A Preferred Stock will rank senior to the Company's Common
Stock with respect to the payment of dividends.
No dividends on shares of Series A Preferred Stock shall be authorized by
the Board of Directors of the Company or paid or set apart for payment by the
Company at such time as the terms and provisions of any agreement of the
Company, including any agreement relating to its indebtedness, prohibits such
authorization, payment or setting apart for payment or provides that such
authorization, payment or setting apart for payment would constitute a breach
thereof of a default thereunder, or if such authorization or payment shall be
restricted or prohibited by law.
Notwithstanding the foregoing, dividends on the Series A Preferred Stock
will accrue whether or not the Company has earnings, whether or not there are
funds legally available for the payment of such dividends and whether or not
such dividends are authorized. Accrued but unpaid dividends on the Series A
Preferred Stock will accumulate as of the Dividend Payment Date on which they
first become payable. Except as set forth in the next sentence, no dividends
will be authorized or paid or set apart for payment on any stock of the Company
or any other series of Preferred Stock ranking, as to dividends, on a parity
with or junior to the Series A Preferred Stock (other than a dividend in shares
of the Company's Common Stock or in shares of any other class of stock ranking
junior to the Series A Preferred Stock as to dividends and upon liquidation) for
any period unless full cumulative dividends have been or contemporaneously are
authorized and paid or authorized and a sum sufficient for the payment thereof
is set apart for such payment on the Series A Preferred Stock for all past
dividend periods and the then current dividend period. When dividends are not
S-10
<PAGE> 13
paid in full (or a sum sufficient for such full payment is not so set apart)
upon the Series A Preferred Stock and the shares of any other series of
Preferred Stock ranking on a parity as to dividends with the Series A Preferred
Stock, all dividends authorized upon the Series A Preferred Stock and any other
series of Preferred Stock ranking on a parity as to dividends with the Series A
Preferred Stock shall be authorized pro rata so that the amount of dividends
authorized per share of Series A Preferred Stock and such other series of
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Series A Preferred Stock and such other
series of Preferred Stock (which shall not include any accrual in respect to
unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend) bear to each other. No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment or
payments on the Series A Preferred Stock which may be in arrears.
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Series A Preferred Stock have been or
contemporaneously are authorized and paid or authorized and a sum sufficient for
the payment thereof is set apart for payment for all past dividend periods and
the then current dividend period, no dividends (other than in shares of Common
Stock or other shares of stock of the Company ranking junior to the Series A
Preferred Stock as to dividends and upon liquidation) shall be authorized or
paid or set aside for payment nor shall any other distribution be declared or
made upon the Common Stock, or stock of the Company ranking junior to or on a
parity with the Series A Preferred Stock as to dividends or upon liquidation,
nor shall any shares of Common Stock, or any other shares of stock of the
Company ranking junior to or on a parity with the Series A Preferred Stock as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any monies be paid to or made available for a sinking fund
for the redemption of any such shares) by the Company (except by conversion into
or exchange for other stock of the Company ranking junior to the Series A
Preferred Stock as to dividends and upon liquidation). Holders of shares of the
Series A Preferred Stock shall not be entitled to any divided, whether payable
in cash, property or stock, in excess of full cumulative dividends on the Series
A Preferred Stock as provided above. Any dividend payment made on shares of the
Series A Preferred Stock shall first be credited against the earliest accrued
but unpaid dividend due with respect to such shares which remains payable. See
"Description of Capital Stock -- Preferred Stock -- Dividends" in the
accompanying Prospectus.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, the holders of shares of Series A Preferred Stock
are entitled to be paid out of the assets of the Company legally available for
distribution to its stockholders a liquidation preference of $25 per share, plus
an amount equal to any accrued and unpaid dividends to the date of payment,
before any distribution of assets is made to holders of Common Stock or any
other class or series of stock of the Company that ranks junior to the Series A
Preferred Stock as to liquidation rights. Holders of Series A Preferred Stock
will be entitled to written notice of any such liquidation. After payment of the
full amount of the liquidating distributions to which they are entitled, the
holders of Series A Preferred Stock will have no right or claim to any of the
remaining assets of the Company. The consolidation or merger of the Company with
or into any other corporation, trust or entity or of any other corporation with
or into the Company, or the sale, lease or conveyance of all or substantially
all of the property or business of the Company, shall not be deemed to
constitute a liquidation, dissolution or winding up of the Company. For further
information regarding the rights of the holders of the Series A Preferred Stock
upon the liquidation, dissolution or winding up of the Company, see "Description
of Capital Stock -- Preferred Stock -- Liquidation" in the accompanying
Prospectus.
REDEMPTION
The Series A Preferred Stock is not redeemable prior to , 2002.
However, in order to ensure that the Company remains a qualified REIT for
federal income tax purposes, Series A Preferred Stock will be subject to the
Charter, pursuant to which Series A Preferred Stock owned by a stockholder in
excess of the Ownership Limit (as defined in the accompanying Prospectus) will
automatically be converted into Excess
S-11
<PAGE> 14
Shares, and the Company will have the right to purchase Excess Shares from the
holder. See "Description of Capital Stock -- Restrictions on Ownership" In the
accompanying Prospectus. On and after , 2002, the Company, at its
option upon not less than 30 nor more than 60 days' written notice, may redeem
shares of the Series A Preferred Stock, in whole or in part, of any time or from
time to time, for cash at a redemption price of $25 per share, plus all accrued
and unpaid dividends thereon to the date fixed for redemption (except as
provided below), without interest. The redemption price of the Series A
Preferred Stock (other than the portion thereof consisting of accrued and unpaid
dividends) is payable solely out of the sale proceeds of other capital stock of
the Company, which may include other series of Preferred Stock, and from no
other source. For purposes of the preceding sentence, "capital stock" means any
equity securities (including Common Stock and Preferred Stock), shares,
interest, participation or other ownership interests (however designated) and
any rights (other than debt securities convertible into or exchangeable for
equity securities) or options to purchase any of the foregoing. Holders of
shares of Series A Preferred Stock to be redeemed shall surrender the
certificates representing such shares of Series A Preferred Stock at the place
designated in such notice and shall be entitled to the redemption price and any
accrued and unpaid dividends payable upon such redemption following such
surrender. If notice of redemption of any shares of Series A Preferred Stock has
been given and if the funds necessary for such redemption have been set aside by
the Company in trust for the benefit of the holders of any shares of Series A
Preferred Stock so called for redemption, then from and after the redemption
date dividends will cease to accrue on such shares of Series A Preferred Stock,
such shares of Series A Preferred Stock shall no longer be deemed outstanding
and all rights of the holders of such shares will terminate, except the right to
receive the redemption price. If less than all of the outstanding shares of
Series A Preferred Stock is to be redeemed, shares of the Series A Preferred
Stock to be redeemed shall be selected pro rata (as nearly as may be practicable
without creating fractional shares) or by any other equitable method determined
by the Company.
Unless full cumulative dividends on all shares of Series A Preferred Stock
shall have been or contemporaneously are authorized and paid or authorized 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 of Series A
Preferred Stock shall be redeemed unless all outstanding shares of Series A
Preferred Stock are simultaneously redeemed and the Company shall not purchase
or otherwise acquire directly or indirectly any shares of Series A Preferred
Stock (except by exchange for stock of the Company ranking junior to the Series
A Preferred Stock as to dividends and upon liquidation); provided, however, that
the foregoing shall not prevent the purchase by the Company of Excess Shares in
order to ensure that the Company remains qualified as a REIT for federal income
tax purposes, as described under "Description of Capital Stock -- Restrictions
on Ownership" in the accompanying Prospectus, or the purchase or acquisition of
shares of Series A Preferred Stock pursuant to a purchase or exchange offer made
on the same terms to holders of all outstanding shares of Series A Preferred
Stock.
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 the Company, 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 of Series A
Preferred Stock to be redeemed at their respective addresses as they appear on
the stock transfer records of the Company. No failure to give such notice or any
defect thereto or in the mailing thereof shall affect the validity of the
proceedings for the redemption of any shares of Series A Preferred Stock except
as to the holder to whom notice was defective or not given. Each notice shall
state: (i) the redemption date; (ii) the redemption price; (iii) the number of
shares of Series A Preferred Stock to be redeemed; (iv) the place or places
where the certificates representing the shares of Series A Preferred Stock 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 less
than all of the shares of Series A Preferred Stock held by any holder is to be
redeemed, the notice mailed to such holder shall also specify the number of
shares of Series A Preferred Stock held by such holder to be redeemed.
Immediately prior to any redemption of Series A Preferred Stock, the
Company shall pay, in cash, any accumulated and unpaid dividends through the
redemption date, unless a redemption date falls after a Record
S-12
<PAGE> 15
Date and prior to the corresponding Dividend Payment Date, in which case each
holder of Series A Preferred Stock at the close of business on such Record Date
shall be entitled to the dividend payable on such shares on the corresponding
Dividend Payment Date notwithstanding the redemption of such shares before such
Dividend Payment Date. Except as provided above, the Company will make no
payment or allowance for unpaid dividends, whether or not in arrears, on Series
A Preferred Stock which is redeemed.
The Series A Preferred Stock has no stated maturity and will not be subject
to any sinking fund or mandatory redemption, However, in order to ensure than
the Company remains a qualified REIT for federal income tax purposes, Series A
Preferred Stock owned by a stockholder in excess of the Ownership Limit will
automatically be converted into Excess Shares, and the Company will have the
right to purchase Excess Shares from the holder. Excess Shares issued upon
conversion of shares of Series A Preferred Stock may be redeemed, in whole or in
part, at any time when outstanding shares of Series A Preferred Stock are being
redeemed, for cash at a redemption price of $25 per share, plus all accrued and
unpaid dividends on the shares of Series A Preferred Stock, which were converted
into such Excess Shares, through the date of such conversion, without interest.
Such Excess Shares shall be redeemed in such proportion and in accordance with
such procedures as shares of Series A Preferred Stock are being redeemed.
VOTING RIGHTS
Holders of the Series A Preferred Stock will not have any voting rights,
except as set forth below.
Whenever dividends on any shares of Series A Preferred Stock shall be in
arrears for six or more quarterly periods (a "Preferred Dividend Default"), the
holders of such shares of Series A Preferred Stock (voting together as a class
with all other series of Preferred Stock ranking on a parity with the Series A
Preferred Stock as to dividends or upon liquidation ("Parity Preferred") upon
which like voting rights have been conferred and are exercisable) will be
entitled to vote for the election of a total of two additional directors of the
Company (the "Preferred Stock Directors") at a special meeting called by the
holders of record of at least 20% of the shares of Series A Preferred Stock or
the holders of record of at least 20% of shares of any series of Parity
Preferred so in arrears (unless such request is received less than 90 days
before the date fixed for the next annual or special meeting of the
stockholders) or at the next annual meeting of stockholders, and at each
subsequent annual meeting until all dividends accumulated on such shares of
Series A Preferred Stock for the past dividend periods and the dividend for the
then current dividend period shall have been fully paid or authorized and a sum
sufficient for the payment thereof set aside for payment. If and when all
accumulated dividends and the dividend for the then current dividend period on
the Series A Preferred Stock shall have been paid in full or set aside for
payment in full, the holders thereof shall be divested of the foregoing voting
rights (subject to revesting in the event of each and every Preferred Dividend
Default) and, if all accumulated dividends and the dividend for the then current
dividend period have been paid in full or set aside for payment in full on all
series of Parity Preferred upon which like voting rights have been conferred and
are exerciseable, the term of office of each Preferred Stock Director so elected
shall immediately terminate. Any Preferred Stock Director may be removed at any
time with or without cause by, and shall not be removed otherwise than by the
vote of, the holders of record of a majority of the outstanding shares of the
Series A Preferred Stock and all series of Parity Preferred upon which like
voting rights have been conferred and are exercisable (voting together as a
class). So long as a Preferred Dividend Default shall continue, any vacancy in
the office of a Preferred Stock Director may be filled by written consent of the
Preferred Stock Director remaining in office, or if none remains in office, by a
vote of the holders of record of a majority of the outstanding shares of Series
A Preferred Stock when they have the voting rights described above (voting
together as a class with all series of Parity Preferred upon which like voting
rights have been conferred and are exercisable). The Preferred Stock Directors
shall each be entitled to one vote per director on any matter.
So long as any shares of Series A Preferred Stock remain outstanding, the
Company will not, without the affirmative vote or consent of the holders of at
least two-thirds of the shares of the Series A Preferred Stock outstanding at
the time, given in person or by proxy, either in writing or at a meeting (voting
separately as a class), (a) authorize or create, or increase the authorized or
issued amount of, any class or series of stock ranking prior to the Series A
Preferred Stock with respect to payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up or reclassify any authorized
stock of the Company into such shares,
S-13
<PAGE> 16
or create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (b) amend, alter or repeal
the provisions of the Charter or the Articles Supplementary, whether by merger,
consolidation or otherwise (an "Event"), so as to materially and adversely
affect any right, preference, privilege or voting power of the Series A
Preferred Stock or the holders thereof; provided, however, with respect to the
occurrence of any Event set forth in (b) above, so long as the Series A
Preferred Stock remains outstanding with the terms thereof materially unchanged,
the occurence of any such Event shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting power of holders of the
Series A Preferred Stock and provided further that (i) any increase in the
amount of the authorized Preferred Stock or the creation or issuance of any
other series of Preferred Stock, or (ii) any increase in the amount of
authorized shares of such series, in each case ranking on a parity with or
junior to the Series A Preferred Stock with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up, shall
not be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of Series A Preferred Stock shall have been
redeemed or called for redemption upon proper notice and sufficient funds shall
have been deposited in trust to effect such redemption.
CONVERSION
The Series A Preferred Stock is not convertible into or exchangeable for
any other property or securities of the Company, except that the shares of
Series A Preferred Stock may be converted into Excess Shares, in accordance with
the Charter. See "Description of Capital Stock -- Restrictions on Ownership" in
the accompanying Prospectus.
RESTRICTIONS ON OWNERSHIP
For information regarding restrictions on ownership of the Series A
Preferred Stock, see "Description of Capital Stock -- Restrictions on Ownership"
in the accompanying Prospectus.
TRANSFER AGENT
The transfer agent, registrar and dividend disbursing agent for the Series
A Preferred Stock will be AmSouth Bank, Birmingham, Alabama.
S-14
<PAGE> 17
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain federal income tax considerations is based
on current law, is for general information only, and is not tax advice. This
discussion does not purport to deal with all aspects of taxation that may be
relevant to particular stockholders in light of their personal investment or tax
circumstances, or to certain types of stockholders (including insurance
companies, tax exempt organizations, financial institutions or broker dealers,
foreign corporations and persons who are not citizens or residents of the United
States) subject to special treatment under the federal income tax laws. In
addition, this section does not discuss foreign, state or local taxation.
This discussion does address the taxation of the Company or the impact on
the Company of its election to be taxed as a REIT. Such matters are discussed in
the accompanying Prospectus under "Federal Income Tax Considerations," which
also contains a general discussion of certain tax consequences of owning and
disposing of stock in the Company. Prospective investors should consult, and
must depend on, their own tax advisors regarding the state, local, foreign and
other tax consequences of holding and disposing of Series A Preferred Stock.
DISTRIBUTIONS ON SERIES A PREFERRED STOCK
As long as the Company qualifies as a REIT, distributions that are made to
its stockholders out of the Company's current accumulated earnings and profits,
and that are not designated as capital gain dividends, generally will be taxed
to stockholders as ordinary income, either in the year of payment or, with
respect to distributions declared in the last quarter of any year and paid by
January 31 of the following year, in the year of declaration, and will not be
eligible for the dividends received deduction for corporations. The Company's
earnings and profits will be allocated first to any outstanding Preferred Stock.
A distribution of net capital gain by the Company generally will be treated as
long term capital gain to stockholders to the extent properly designated by the
Company as a capital gain dividend and regardless of the length of time a
stockholder has held such stockholder's Series A Preferred Stock. Under Section
291 of the Code, however, corporate stockholders may be required to treat up to
20% of any such capital gain as ordinary income. Corporate stockholders of a
REIT generally are required to treat the portion of a capital gain distribution
attributable to the gain from the REIT's sale or exchange of depreciable real
property as subject to the 20% ordinary income rule of Section 291 of the Code.
Capital gain distributions also are not eligible for the dividends received
deduction for corporations. A dividend in excess of current or accumulated
earnings and profits will constitute a nontaxable return of capital to the
extent of the stockholder's basis in such stockholder's Series A Preferred
Stock, and will be applied to reduce the stockholder's basis in the Series A
Preferred Stock. To the extent such a dividend is greater than such basis, it
will be treated as capital gain to those stockholders holding their Series A
Preferred Stock as capital assets. The Company will notify stockholders as to
the portions of each distribution which, in its judgment, constitute ordinary
income, capital gain distributions or return of capital. Should the Company
incur ordinary or capital losses, stockholders will not be entitled to include
such losses in their own income tax returns.
REDEMPTION OF SERIES A PREFERRED STOCK
A redemption of shares of Series A Preferred Stock for cash generally will
be treated as a sale or exchange if the holder of such redeemed shares does not
own, actually or constructively within the meaning of Section 318 of the Code,
any stock of the Company other than the redeemed Series A Preferred Stock. If a
holder does own, actually or constructively, such other stock (including Series
A Preferred Stock not redeemed), a redemption of Series A Preferred Stock may be
treated as a dividend to the extent of the Company's current or accumulated
earnings and profits. Such dividend treatment would not apply if the redemption
were "not essentially equivalent to a dividend" with respect to the holder under
Section 302(b)(1) of the Code. A distribution to a holder will be "not
essentially equivalent to a dividend" if it results in a "meaningful reduction"
in the holder's stock interest in the Company. For this purpose, a redemption of
Series A Preferred Stock that results in a reduction in the proportionate
interest in the Company (taking into account any ownership of Common Stock and
any stock constructively owned) of a holder whose relative stock interest in the
Company is minimal and who exercises no control over corporate
S-15
<PAGE> 18
affairs should be regarded as a meaningful reduction in the holder's stock
interest in the Company. If the redemption of the Series A Preferred Stock for
cash is not treated as a distribution taxable as a dividend, the redemption will
result in capital gain or loss equal to the difference between the amount of
cash received by the holder and the holder's adjusted tax basis in the Series A
Preferred Stock redeemed.
If a redemption of Series A Preferred Stock is treated as a distribution
that is taxable as a dividend, the holder's adjusted tax basis in the redeemed
Series A Preferred Stock will be transferred to any remaining stock holdings in
the Company. If the holder does not retain any stock ownership in the Company,
the holder may lose such basis entirely.
TAXPAYER RELIEF ACT OF 1997
On August 5, 1997, President Clinton signed into law the Taxpayer Relief
Act of 1997 (H.R. 2014) (the "Act"). Certain provisions of the Act are
summarized in the accompanying Prospectus under "Federal Income Tax
Considerations."
One provision of the Act allows a REIT to elect to retain, rather than
distribute, its net long-term capital gains and to pay the tax on such gains,
while its stockholders include their proportionate share of such undistributed
long-term capital gain in income and receive a credit for their share of the
corresponding tax paid by the REIT.
Another provision of the Act provides new lower capital gains rates for
capital gains recognized by individuals with respect to assets that have a
holding period of more than 18 months. The Act allows the IRS to prescribe
regulations on the application of the new capital gains rates to sales of
capital assets by pass-thru entities such as REITs. To date, no such regulations
have been prescribed and it remains unclear how the new capital gains rates will
apply to capital gain dividends and to capital gains that are retained by the
REIT. Investors are urged to consult their own tax advisors with respect to the
new rules contained in the Act.
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<PAGE> 19
UNDERWRITING
Upon the terms and subject to the conditions contained in the Underwriting
Agreement, each of the Underwriters named below (each, an "Underwriter," and,
together, the "Underwriters") has agreed to purchase, and the Company has agreed
to sell to each Underwriter, the number of shares of Series A Preferred Stock
set forth opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
Smith Barney Inc............................................
PaineWebber Incorporated....................................
J.C. Bradford & Co..........................................
Cowen & Company.............................................
---------
Total............................................. 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Series A Preferred
Stock offered hereby are subject to approval of certain legal matters by its
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all the shares of Series A Preferred Stock offered hereby (other
than those covered by the over-allotment option described below) if any of such
shares of Series A Preferred Stock are taken.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the shares of Series A Preferred Stock to the public at the
public offering price set forth on the cover of this Prospectus Supplement and
to certain dealers at such price, less a concession not in excess of $. per
share. Each Underwriter may allow, and such dealers may re-allow, a concession
not in excess of $. per share to certain other dealers. After the initial
offering of the shares of Series A Preferred Stock to the public, the offering
price and other selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 calendar days from the date of this Prospectus Supplement, to
purchase up to an aggregate of 450,000 additional shares of Series A Preferred
Stock at the same price per share as the Company receives for the shares of
Series A Preferred Stock that each Underwriter has agreed to purchase. The
Underwriters may exercise such option only to cover overallotments made in
connection with the sale of the shares of Series A Preferred Stock offered
hereby. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of Series A Preferred Stock as the number
of shares of Series A Preferred Stock set forth opposite such Underwriter's name
in the preceding table bears to the total number of shares of Series A Preferred
Stock in such table.
In connection with this offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more shares of Series A Preferred Stock
than the total amount shown on the list of Underwriters and participations which
appears above) and may effect transactions which stabilize, maintain or
otherwise affect the market price of the shares of Series A Preferred Stock at
levels above those which might otherwise prevail in the open market. Such
transactions may include placing bids for the shares of Series A Preferred Stock
or effecting purchases of the shares of Series A Preferred Stock for the purpose
of pegging, fixing or maintaining the price of the shares of Series A Preferred
Stock or for the purpose of reducing a syndicate short position created in
connection with the offering. A syndicate short position may be covered by
exercise of the option described above in lieu of or in addition to open market
purchases. In addition, the contractual arrangements among the Underwriters
include a provision whereby, if the Underwriters purchase shares of Series A
Preferred Stock in the open market for the account of the underwriting syndicate
and the securities purchased can be traced to a particular Underwriter or member
of the selling group, the underwriting syndicate may require the Underwriter or
selling group member in question to purchase the shares of Series A Preferred
Stock in question at the cost price to the syndicate or may recover from (or
decline to pay to) the Underwriter or the selling group member in question the
selling concession applicable to the securities in question. The Underwriters
are not required to engage in any of these activities and any such activities,
if commenced, may be discontinued at any time.
S-17
<PAGE> 20
The Company has applied to the NYSE for listing of the Series A Preferred
Stock under the symbol "CCT PrA." Trading of the Series A Preferred Stock on the
NYSE is expected to commence within a 30 day period after initial delivery of
the Series A Preferred Stock. Prior to the Offering, there has been no public
market for the Series A Preferred Stock. While the Underwriters have advised the
Company that they intend to make a market in the Series A Preferred Stock prior
to commencement of trading on the NYSE, they are under no obligation to do so
and may discontinue market making at any time without notice. No assurance can
be given that a market for the Series A Preferred Stock will exist prior to
commencement of trading or at any other time.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended.
The Underwriters have engaged and may in the future engage in investment
banking services for the Company.
LEGAL MATTERS
The validity of the shares of Series A Preferred Stock offered hereby will
be passed upon for the Company by Sirote & Permutt, P.C., Birmingham, Alabama,
and for the Underwriters by Dewey Ballantine, New York, New York. As to certain
matters of Maryland law, Sirote & Permutt, P.C. and Dewey Ballantine will rely
upon an opinion of Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland.
S-18
<PAGE> 21
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1997
$525,000,000
CAPSTONE CAPITAL CORPORATION
[CAPTSONE CAPITAL CORPORATION LOGO]
DEBT SECURITIES, PREFERRED STOCK, COMMON STOCK AND WARRANTS
------------------------
Capstone Capital Corporation (the "Company") may offer from time to time,
together or separately, in one or more series (i) debt securities ("Debt
Securities"), which may be either senior debt securities (the "Senior Debt
Securities") or subordinated debt securities (the "Subordinated Debt
Securities"), (ii) shares of Preferred Stock of the Company ("Preferred Stock"),
(iii) shares of Common Stock of the Company ("Common Stock"), and (iv) Warrants
to purchase shares of Preferred Stock, Common Stock or Debt Securities (the
"Warrants") (the Debt Securities, Preferred Stock, Common Stock and Warrants are
collectively referred to as the "Securities"), at an aggregate initial offering
price not to exceed U.S. $525,000,000, in amounts, at prices and on terms to be
determined at the time of sale. The Debt Securities, Preferred Stock, Common
Stock and Warrants may be offered separately or together, in separate series, in
amounts, at prices and on terms to be set forth in a supplement or supplements
to this Prospectus (a "Prospectus Supplement").
The accompanying Prospectus Supplement will set forth with regard to the
particular Securities in respect of which this Prospectus is being delivered (i)
in the case of Debt Securities, the title, aggregate principal amount,
denominations (which may be in United States dollars, or in any other currency,
currencies or currency unit, including the European Currency Unit), maturity,
rate, if any (which may be fixed or variable), or method of calculation thereof,
time of payment of any interest, any terms for redemption at the option of the
Company or the holder, any terms for sinking fund payments, rank, any conversion
or exchange rights, any listing on a securities exchange, and the initial public
offering price and any other terms in connection with the offering and sale of
such Debt Securities, (ii) in the case of Preferred Stock, the specific title,
the aggregate amount and the stated value, any dividend (including the method of
calculating the payment of dividend), liquidation, redemption, conversion,
voting or other rights and the initial offering price (iii) in the case of
Common Stock, the number of shares of Common Stock, the initial offering price
and the terms of the offering thereof, and (iv) in the case of Warrants, the
duration, offering price, exercise price and detachability. The Prospectus
Supplement will also contain information, as applicable, about material U.S.
federal income tax considerations relating to the Securities in respect of which
this Prospectus is being delivered.
The Common Stock of the Company is listed on the New York Stock Exchange
("NYSE") under the symbol "CCT". The Prospectus Supplement will also contain
information, where applicable, as to any listing on a securities exchange of the
Securities covered by such Prospectus Supplement. There is no guarantee that a
public market will develop or be sustained with respect to the Debt Securities,
Preferred Stock or Warrants.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Company may sell Securities to or through underwriters, and also may
sell Securities directly to other purchasers or through agents. The accompanying
Prospectus Supplement will set forth the names of any underwriters or agents
involved in the sale of the Securities in respect of which this Prospectus is
being delivered, the amounts of Securities, if any, to be purchased by
underwriters and the compensation, if any, of such underwriters or agents. See
"Plan of Distribution" herein.
The date of this Prospectus is , 1997
<PAGE> 22
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITERS, AGENTS OR DEALERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER
TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY AND ITS SUBSIDIARIES
SINCE THE DATE HEREOF OR THE INFORMATION CONTAINED HEREIN IS CORRECT AT ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, the exhibits and schedules forming a part thereof and the reports,
proxy statements and other information filed by the Company with the Commission
in accordance with the Exchange Act can be inspected and copied at the
Commission's public reference section, 450 Fifth Street, NW, Room 1024,
Washington, DC 20549, and at the following regional offices of the Commission:
Seven World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can also be obtained at prescribed rates by
writing to the Public Reference Section of the Commission, 450 Fifth Street, NW,
Washington, D.C. 20549. In addition, the Company's Common Stock is listed on the
NYSE and similar information concerning the Company can be inspected and copied
at the offices of the NYSE, 20 Broad Street, New York, New York 10005. The
Commission maintains an Internet web site that contains reports, proxy and
information statements and other information regarding registrants, including
the Company, that file electronically with the Commission (http://www.sec.gov).
This Prospectus constitutes a part of a registration statement on Form S-3
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"). As permitted by
the rules and regulations of the Commission, this Prospectus omits certain of
the information contained in the Registration Statement and reference is hereby
made to the Registration Statement and related exhibits for further information
with respect to the Company and the Securities offered hereby. Statements
contained herein concerning the provisions of any documents filed as an exhibit
to the Registration Statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of such
document so filed. Each such statement is qualified in its entirety by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's (i) Current Report on Form 8-K (filed on March 4, 1997), (ii)
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (filed on
March 31, 1997) and Forms 10-K/A (filed on August 29, 1997 and September 16,
1997), (iii) Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1997 (filed on May 15, 1997) and Form 10-Q/A (filed on August 29, 1997),
(iv) Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997
(filed on August 14, 1997) and Form 10-Q/A (filed on August 29, 1997) and (v)
the description of the Common Stock and the description of certain provisions of
Maryland Law and the Company's Articles of Incorporation and Bylaws, both
contained in the Company's Registration Statement of Form 8-A, dated June 21,
1994, and the information thereby incorporated by reference contained in the
Company's Registration Statement on Form S-11, dated March 23, 1995, are hereby
incorporated by reference into this Prospectus. The file number for the
Company's filings under the Exchange Act is 1-11345. All other documents filed
by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange
Act subsequent to the date of this Prospectus and prior to the termination of
the offering of any Securities shall be deemed to be incorporated by reference
in this Prospectus and to be part hereof from the date of filing such documents
(provided, however, that the
2
<PAGE> 23
information referred to in Item 402(a)(8) of Regulation S-K of the Commission
shall not be deemed specifically incorporated by reference herein).
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner of the Securities,
to whom this Prospectus is delivered, upon written or oral request. Requests
should be made to Mr. Malcolm E. McVay, Chief Financial Officer of the Company,
1000 Urban Center Drive, Suite 630, Birmingham, Alabama 35242 (telephone number:
(205) 967-2092).
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<PAGE> 24
THE COMPANY
The Company is a real estate investment trust ("REIT") which owns, leases
and invests in a diversified portfolio of healthcare properties. As of March 31,
1997, the Investments consisted of (i) 72 healthcare properties leased to 18
healthcare operators (the "Leased Properties") and (ii) 22 mortgage loans on
healthcare properties (the "Mortgage Loans"). The Investments are located in 18
states primarily in the southeastern and western regions of the United States
and represent a variety of facility types in diverse healthcare industry
segments. The Investments, including commitments to invest certain of which have
been partially funded, have grown from approximately $115 million at inception
on June 30, 1994 to approximately $697 million on July 31, 1997.
The Company was incorporated in Maryland in March 1994. The Company's
principal executive offices are located at 1000 Urban Center Drive, Suite 630,
Birmingham, Alabama 35242, and its telephone number is (205) 967-2092.
RISK FACTORS
The following section and the "Risk Factors" section, if any, of the
accompanying Prospectus Supplement summarize the material risks related to an
investment in the Securities. Prospective purchasers of any of the Securities
offered hereby should consider carefully, in addition to the other information
contained or incorporated by reference in this Prospectus, the following risk
factors in evaluating the Company and its business and an investment in such
Securities. This Prospectus (including the documents incorporated by reference
herein) and the accompanying Prospectus Supplement contain, in addition to
historical information, forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed below, as well as those discussed elsewhere in this
Prospectus.
DEPENDENCE ON LESSEES, BORROWERS AND GUARANTORS FOR REVENUE
The Company's revenues are derived primarily from rent under the leases and
payments under the Mortgage Loans, and therefore any defaults by the lessees,
borrowers or their guarantors in their obligations to the Company will result in
lower revenues and less cash available for repayment of indebtedness and
distribution to stockholders. For the year ended December 31, 1996, the Company
derived approximately 33.4% and 19.5% of its revenues from HEALTHSOUTH
Corporation ("HEALTHSOUTH") and Columbia/HCA Healthcare Corporation,
respectively. The guarantors' obligations are unsecured and may be structurally
subordinated to their secured indebtedness to the extent of the assets securing
such indebtedness. While the Company has not established any definitive credit
criteria, the Company evaluates the creditworthiness of lessees, borrowers and
guarantors based upon a review of publicly available financial and other
information, as well as a due diligence review of the individual financial
statements and other non-financial information provided by lessees, borrowers
and guarantors, to the extent available, and other data customarily reviewed
when a company makes an acquisition or significant investment. The operating
results of properties underlying existing Investments and any future
acquisitions depend upon various factors over which the Company has no control
and which may affect the present or future cash flows of the Company. Those
factors include general economic conditions, changes in the supply of, or demand
for, competing healthcare facilities, changes in occupancy levels, the ability
of lessees and borrowers through rate increases or otherwise to absorb increases
in operating expenses, and changes in government regulations and zoning laws.
Leases representing approximately 95% of the Company's total Investments as
of June 30, 1997, expire at various times between 2004 and 2012. No assurance
can be given that a lessee will exercise any option to renew its lease upon the
expiration of the initial term. In such an instance, the Company may not be able
to locate a qualified purchaser or a qualified replacement tenant, as a result
of which it would lose a source of revenue while remaining responsible for the
payment of its obligations.
DEVELOPMENT PROJECTS
Investments in facilities under development subject the Company to risks
related to possible delays in construction, cost of materials, financing
availability, volatility in interest rates, labor availability, compliance with
development agreements and funding arrangements and ability of the completed
facility to generate the
4
<PAGE> 25
cash flow necessary to make payments to the Company under the leases or Mortgage
Loans, as applicable. Because development projects relate to properties under
construction and which have no operating history, these investments generally
involve greater risks than the sale and leaseback of operating properties.
The Company also from time to time makes Mortgage Loans for the
construction of, and funds the development of, certain healthcare facilities. In
addition to the risks applicable to development projects generally as discussed
in the preceding paragraph, Mortgage Loans made in connection with the
development projects subject the Company to the risk of default by the borrower
during construction, which could require the Company to incur additional costs
to foreclose its mortgage and/or advance additional funds to complete
construction.
The Company attempts to minimize the risks associated with development
activities and construction loans, including obtaining additional forms of
security and collateral beyond that provided by the leases and term Mortgage
Loans, such as irrevocable letters of credit from financial institutions,
payment and performance completion bonds or completion guarantees and corporate
and personal loan guarantees. No assurance, however, can be given that such
additional security will be sufficient.
ILLIQUIDITY OF REAL ESTATE INVESTMENTS.
The Investments are subject to risks typically associated with investments
in real estate. Equity investments in real estate are relatively illiquid, and,
therefore, the ability of the Company to vary its portfolio in response to
changed conditions will be limited.
LACK OF INDUSTRY DIVERSIFICATION
While the Company is authorized to invest in various types of
income-producing real estate and real estate-related loans, its current strategy
is to invest in healthcare-related properties. The Company derives all of its
operating income from investments in healthcare-related properties.
Consequently, the Company currently has chosen not to include assets selected to
reduce risks associated with an investment in real estate in the healthcare
industry, and is subject to the risks associated with investments in a single
industry. An economic downturn in the healthcare industry, significant decreases
in Medicare and Medicaid or other payor reimbursements or adoption of adverse
federal or state regulation could adversely affect the ability of the lessees,
borrowers and guarantors to generate the cash flow necessary to make payments to
the Company under the leases or Mortgage Loans, as applicable.
RELIANCE ON GOVERNMENT REIMBURSEMENT
A significant portion of the revenue of the lessees, borrowers and
guarantors is derived, directly or indirectly, from government reimbursement
programs, such as Medicare and Medicaid. While the specific portion with respect
to each lessee, borrower and guarantor varies and changes over time,
approximately one-third to two-thirds of the revenue of each of the Company's
existing lessees, borrowers and guarantors is derived from such programs.
Although lease and loan payments to the Company are not linked to the level of
government reimbursement, to the extent that changes in these programs have a
material adverse effect on the lessees, borrowers and guarantors, such changes
could adversely affect their ability to make lease and loan payments. The
Medicare program is highly regulated and subject to frequent and substantial
changes. In recent years, fundamental changes in the Medicare program (including
the implementation of a prospective payment system ("Prospective Payment System"
or "PPS") in which facilities are reimbursed generally a flat amount based on a
patient's diagnosis and not based on the facility's cost for inpatient services
at medical surgical hospitals) have resulted in reduced levels of payment for a
substantial portion of healthcare services. The Medicaid program is a
federally-mandated, state-run program providing benefits to low income and other
eligible persons and is funded through a combination of state and federal
funding. The method of reimbursement under Medicaid varies from state to state,
but is typically based on rates negotiated between the provider and the state,
or is based on per diem or per diagnosis rates similar to Medicare. In addition,
in recent years both the Medicare and Medicaid programs have made substantial
efforts to increase the proportion of beneficiaries participating in managed
care plans. These plans receive a flat annual fee for each enrollee and
negotiate reimbursement rates with selected healthcare providers. Increased
reliance on such plans by Medicare and Medicaid could lead to reduced payment
rates for providers and reduced utilization of
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<PAGE> 26
healthcare resources regardless of other reimbursement policies adopted by these
programs. Moreover, healthcare facilities have experienced increasing pressures
from private payors attempting to control healthcare costs that have reduced
reimbursement to levels approaching that of government payors.
Considerable uncertainties surround the future determination of payment
levels under government reimbursement programs. In addition, future budget
reductions in government-financed programs could significantly reduce payments
made to lessees, borrowers and guarantors within a short period of time, and
there can be no assurance that future payment rates will be sufficient to cover
cost increases in providing services to patients. Reductions in payments
pursuant to government healthcare programs could have an adverse impact on a
lessee's, borrower's or guarantor's financial condition and, therefore, could
adversely affect the ability of such lessee, borrower or guarantor to generate
the cash flow necessary to make payments to the Company under the leases and
Mortgage Loans, as applicable.
HEALTHCARE COST CONTROL EFFORTS
The healthcare industry is undergoing significant changes as government and
third party payors adopt techniques, including managed care, to control the
cost, utilization and delivery of healthcare services. In addition to extensive
existing governmental healthcare regulation, there are numerous initiatives at
the federal and state levels for comprehensive reforms affecting the payment for
and availability of healthcare services. Aspects of certain of these healthcare
proposals, such as further reductions in Medicare and Medicaid payments and
increased use of managed care, if adopted, could adversely affect the Company by
reducing the lessees', borrowers' or guarantors' ability to generate the cash
flow necessary to make payments to the Company under the leases and Mortgage
Loans, as applicable. Other cost-control initiatives regarding the cost and
delivery of healthcare are also currently being considered, and reductions in
payments to physicians or other changes in reimbursement for healthcare services
by other third-party payors could materially adversely affect the financial
condition of the sublessees. Substantially all of the tenants or sublessees
under leases are in the medical profession and the Company believes that such
tenants are dependent on payment for their services by third-party payors. No
assurance can be given whether or to what extent any of the healthcare proposals
will be enacted into law, or the effect any such proposals or subsequent
legislation or other changes regarding healthcare would have on the financial
condition of the tenants or owners of the healthcare facilities underlying the
Investments and their ability to generate the cash flow necessary to make
payments to the Company under the leases or Mortgage Loans, as applicable, or to
renew leases.
POTENTIAL ADVERSE IMPACT OF GOVERNMENT REGULATION OF HEALTHCARE INDUSTRY
The healthcare industry is highly regulated by federal, state and local
laws, state and local licensing requirements, facility inspections,
reimbursement policies, regulations concerning capital and other expenditures,
certification requirements and other laws, regulations and rules. The failure of
any lessee, borrower or their sublessees or tenants to comply with such laws,
requirements and regulations could affect such lessee's or borrower's ability to
operate the healthcare facilities underlying the Investments and thereby
adversely affect their ability to generate the cash flow necessary to make
payments to the Company under the leases or Mortgage Loans, as applicable.
POTENTIAL OPERATOR LOSS OF LICENSE OR CERTIFICATION
Healthcare operators are subject to federal and state laws and regulations
which govern financial and other arrangements between healthcare providers.
These laws prohibit certain direct and indirect payments or fee-splitting
arrangements between healthcare providers that are designed to induce or
encourage the referral of patients to, or the recommendation of, a particular
provider for medical products and services. They also require compliance with a
variety of safety, health and other requirements relating to the conditions of
the licensed facility and quality of care provided. Possible sanctions for
violation of these laws and regulations include loss of license or
certification, the imposition of civil monetary and criminal penalties and
potential exclusion from Medicare and Medicaid programs, any of which could
adversely affect the ability of an operator to generate the cash flow necessary
to make payments to the Company under the leases or Mortgage Loans, as
applicable.
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<PAGE> 27
In certain circumstances, conviction of abusive or fraudulent behavior with
respect to one facility may subject other facilities under common control or
ownership to disqualification from participation in the Medicare and Medicaid
programs.
Because this area of the law currently is subject to intense scrutiny,
additional laws and regulations may be enacted which could require changes in
certain operations of lessees, borrowers, guarantors or sublessees. For example,
a tenant's loss of license or Medicare/Medicaid certification could result in
the Company or a lessee or borrower having to obtain another tenant for the
affected healthcare facilities underlying the Investments. No assurances can be
given that the Company or any lessee, borrower or guarantor could contract with
such a tenant on a timely basis or on acceptable terms and a failure to do so
could have an adverse effect on the Company's revenues.
LIMITATIONS ON TRANSFERS AND ALTERNATIVE USES OF INVESTMENTS
Transfers of operations of certain healthcare facilities are subject to
regulatory approvals not required for transfers of other types of commercial
operations and other types of real estate. In addition, certain of the
healthcare facilities underlying the Investments are special purpose facilities
that may not be easily adaptable to non-healthcare-related uses.
POTENTIAL IMPACT OF REDUCED OCCUPANCY RATES IN HOSPITALS ADJACENT TO ANCILLARY
HOSPITAL FACILITIES
Most of the hospitals adjacent to the ancillary hospital facilities owned
by the Company or securing Mortgage Loans are less than fully occupied on an
inpatient basis. The increased use of managed care by both government and
private third party payors has and is expected to continue to constrain
utilization of healthcare facilities. Despite such occupancy rates, however, the
Company believes that operating cash flow produced by such hospitals will
adequately cover lease and loan payments to the Company. If the inpatient
occupancy rate at any such hospital were to deteriorate to a level at which
operating cash flow would be insufficient to cover payments to the Company under
leases and Mortgage Loans, as applicable, with respect to such ancillary
hospital facility the Company would have to rely upon the general credit of the
lessee, borrower, or related guarantor. Investments in facilities under
development subject the Company to risks related to possible delays in
construction, cost of materials, financing availability, volatility in interest
rates, labor availability, compliance with development agreements and funding
arrangements. Development projects and construction loans generally involve
greater risks than the sale and leaseback.
PROXIMITY TO HOSPITALS
A significant number of the healthcare facilities underlying the
Investments are in close proximity to one or more hospitals. The relocation or
closure of a hospital could make the Investments in such area less desirable to
doctors affiliated with such hospital and affect a lessee's, borrower's or any
sublessee's ability to renew leases and attract new tenants.
ABILITY TO INCUR ADDITIONAL DEBT
As of June 30, 1997, the Company had outstanding indebtedness of
approximately $110.6 million under its $170 million line of credit from
NationsBank of Georgia, N.A., as agent for a consortium of bank lenders (the
"Bank Credit Facility"), approximately $7.1 million of 10.5% Convertible
Subordinated Debentures due 2002 (the "10.5% Debentures"), approximately $67.9
million of 6.55% Convertible Subordinated Debentures due 2002 (the "6.55%
Debentures"), and approximately $40.1 million in mortgage notes payable. The
Bank Credit Facility, 10.5% Debentures and 6.55% Debentures are unsecured.
Approximately 10.2% of the Company's Investments were encumbered by mortgages as
of June 30, 1997. The Company's total debt to capital ratio at June 30, 1997,
was 44.2%. The Bank Credit Facility contains customary negative covenants,
including (i) maintenance of minimum consolidated tangible net worth; (ii)
maintenance of minimum financial ratios; (iii) limitations on the ability to
incur additional indebtedness except as permitted therein; (iv) prohibitions on
the sale, lease or transfer of assets in excess of $5 million unless such sale,
lease or transfer does not create a default thereunder; (v) prohibitions on
capital expenditures in excess of $3 million with respect to any one property
and $20 million in the aggregate during each fiscal year, excluding acquisitions
of new facilities and (vi) prohibitions on any merger, consolidation or
liquidation of the Company except in the
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case of the merger of subsidiaries of the Company or a merger in which the
Company is the survivor, provided such merger does not cause a default
thereunder.
The Company may borrow additional funds and mortgage its properties in
connection with the acquisition of additional properties and for purposes of
funding other capital and operating expenditures, including expenditures
relating to the renovation, modification or expansion of the Leased Properties.
In addition, the Company could be required to borrow money and/or mortgage its
properties to fund any cash shortfall in order to meet its obligation to
distribute 95% of the Company's REIT taxable income. See " -- Consequences of
Failure to Continue to Qualify as a REIT" and "Federal Income Tax
Considerations -- Taxation of the Company." The Company's current policy limits
the incurrence of debt (secured or unsecured) to 70% of total capitalization.
However, this limitation can be changed by the Board of Directors without
stockholder approval. Moreover, there are no provisions in the Company's Amended
and Restated Articles of Incorporation (the "Charter") or Bylaws of the Company,
as amended (the "Bylaws"), which require such limitation. The degree to which
the Company is leveraged could have important consequences to holders of the
Securities, including, but not limited to, the following: (i) a substantial
portion of the Company's cash flow from operations must be dedicated to debt
service and will not be available for operations and other purposes and (ii) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or general corporate purposes may be
impaired.
The degree of risk associated with borrowings will increase to the extent
that the Company borrows on terms involving variable interest rates and/or
"balloon" payments at maturity. Borrowings under the Bank Credit Facility bear
interest at a rate chosen by the Company from either the base rate of
NationsBank or the Eurodollar rate plus a percentage that varies from 1% to
1.625%. At June 30, 1997, the Company had variable interest rate indebtedness
aggregating approximately $110.6 million under the Bank Credit Facility. Future
indebtedness may also bear interest at a floating rate. Increases in interest
rates could increase the Company's interest expense, which could adversely
affect the Company's ability to pay dividends to stockholders. The Bank Credit
Facility matures on June 24, 2000. The Company intends to renew the Bank Credit
Facility or repay the outstanding balance at that time with proceeds from a
refinancing or from a sale of debt or equity securities. There can be no
assurances that the lenders will agree to renew the Bank Credit Facility on
terms favorable to the Company or that the Company will be able to obtain
refinancing proceeds or proceeds from the sale of debt or equity securities.
The Indentures (as defined herein) with respect to the Debt Securities do
not contain any provisions that limit the Company's ability to incur
indebtedness. Holders of Debt Securities will not have the benefit of any
specific covenants or provisions in the applicable Indenture or Debt Securities
that would protect them in the event the Company engages in or becomes the
subject of a highly leveraged transaction, other than any covenants described in
any Prospectus Supplement, and the limitations on mergers, consolidations and
transfers of substantially all of the Company's properties and assets as an
entirety to any person as described below under "Description of Debt
Securities -- Consolidation, Merger and Sale of Assets." Such covenants may not
be waived or modified by the Company or its Board or Directors, although holders
of Debt Securities could waive or modify such covenants as more fully described
below under "Description of Debt Securities -- Modification and Waiver."
ENVIRONMENTAL RISKS AND COST OF REMEDIATION
Under various federal, state and local environmental laws, ordinances and
regulations, an owner of real property may be liable for the costs of removal or
remediation of certain hazardous or toxic substances at, under or disposed of in
connection with such property, as well as certain other potential costs relating
to hazardous or toxic substances (including injuries to persons and adjacent
property as well as fines). Most, if not all, of these laws, ordinances and
regulations contain stringent enforcement provisions including, but not limited
to, the authority to impose substantial administrative, civil and criminal fines
and penalties upon violators. Such laws often impose liability without regard to
whether the owner knew of, or was responsible for, the presence or disposal of
such substances and may be imposed on the owner in connection with the
activities of an operator of the property. The cost of any required remediation,
removal, fines or personal or property damages and the owner's liability
therefor could exceed the value of the property and/or the aggregate assets of
the owner or affect an operator's ability to satisfy its financial obligations
to the Company under the Leased
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<PAGE> 29
Properties or Mortgage Loans. In addition, the presence of such substances, or
the failure to properly dispose of or remediate such substances, may adversely
affect the owner's ability to sell or lease such property or to borrow using
such property as collateral. In addition, under the laws of some states and
under the Comprehensive Environmental Response, Compensation and Liability Act,
a lender may be held liable under certain circumstances as an "owner" or
"operator" for costs of addressing releases or threatened releases of hazardous
substances at a property in which the lender holds a security interest.
Operations at the healthcare facilities underlying the Investments have
been and will continue to be subject to numerous federal, state and local
environmental laws, ordinances and regulations, including those relating to the
generation, segregation, handling, packaging and disposal of radioactive
materials and other medical wastes as well as facility siting, construction,
occupational training and safety, disposal of non-medical wastes, underground
storage tanks and ash emissions from incinerators. In addition, certain of the
Investments were built prior to the time prohibitions on the use of asbestos in
building construction were enacted and other such facilities may be acquired by
the Company in the future.
Although property acquisition agreements, leases and mortgage loans
generally require the seller, lessee or borrower, as the case may be, to
indemnify the Company for certain environmental liabilities, the scope of such
obligations may be limited, and there can be no assurance that any such seller,
lessee or borrower will be able to fulfill its indemnification obligations. Nor
can there be any assurance that those indemnities will be sufficient to cover
any liability for any or all of the environmental liabilities that may exist in
connection with the healthcare facilities underlying the Investments.
DEPENDENCE ON KEY PERSONNEL AND BOARD OF DIRECTORS
The Company is dependent on the efforts of its executive officers, John W.
McRoberts, William C. Harlan and Malcolm E. McVay. The loss of the services of
any one of these individuals could have a material adverse effect on the
performance of the Company. The Company has entered into an employment agreement
with John W. McRoberts. In addition, the Company identifies potential investment
opportunities, in part, through the relationships of certain members of its
Board of Directors with HEALTHSOUTH, MedPartners, Inc. ("MedPartners") and
Integrated Health Systems, Inc. ("Integrated Health") (Richard M. Scrushy,
Michael D. Martin and Larry R. House are also directors of HEALTHSOUTH, Larry R.
House, Richard M. Scrushy and Larry D. Striplin, Jr. are also directors of
MedPartners and Robert N. Elkins is also a director of Integrated Health).
Leases with HEALTHSOUTH, MedPartners and Integrated Health are entered into on
terms no less favorable than leases from unrelated lessees with similar credit
criteria. Accordingly, while there is no assurance that the Company would be
able to obtain additional investments from such entities, the Company believes
that it would continue to maintain such relationships if such individuals no
longer served as directors of the Company.
CONFLICTS OF INTEREST
Five of the Company's nine directors, Richard M. Scrushy, Michael D.
Martin, Robert N. Elkins, Larry R. House and Larry D. Striplin, Jr., are
executive officers and/or directors of certain existing lessees and guarantors
(the "Interested Directors") including HEALTHSOUTH, Integrated Health and
MedPartners (collectively the "Interested Lessees"). The Company paid
HEALTHSOUTH $31.5 million in 1996 to acquire Leased Properties. The Company
received rental income during the period from January 1 through June 30, 1997 of
$6.5 million, $1.6 million, and $2.2 million from HEALTHSOUTH, Integrated Health
and MedPartners, respectively.
There may from time to time be disputes between the Company as landlord and
the Interested Lessees and their subsidiaries as tenants with respect to
maintenance, repairs, defaults and similar items. It is also possible that the
Company will engage in other transactions with the Interested Lessees, such as
purchasing additional properties from the Interested Lessees and their
subsidiaries and leasing back all or a portion of such additional properties. As
a result, conflicts of interest may arise in the Interested Directors' duties to
the stockholders of the Company and to the stockholders of Interested Lessees.
Officers of the Company spend substantially all of their time managing the
Company and do not compete with the Company's business. All of the nonemployee
directors of the Company are engaged, and may engage in the future, in the
ownership, management or operation of other companies for their own accounts.
9
<PAGE> 30
Accordingly, certain conflicts of interest may arise with respect to the
allocation of the time and efforts of such persons between their own activities
and the activities of the Company. All of the nonemployee directors are involved
with healthcare companies which own or operate properties that may compete with
the Company's properties.
The Company's Bylaws require that any transactions (including a property
acquisition or loan) between the Company and any of its officers and directors
or their affiliates be approved by a majority of the directors not interested in
such transaction.
COMPETITION
The Company believes that it is one of 13 publicly traded real estate
investment trusts (REITs) currently investing primarily in income-producing real
estate with an emphasis on healthcare-related facilities, many of which have
greater financial resources than the Company. The Company competes with each of
these REITs in seeking attractive investment opportunities in healthcare-related
facilities throughout the United States.
The Company also competes with real estate partnerships, healthcare
providers and other lenders, including, but not limited to, banks and insurance
companies, many of which have greater financial resources than the Company, in
the acquisition, leasing and financing of healthcare facilities located
throughout the United States. There can be no assurance that suitable
investments will be identified or that investments can be consummated on
commercially reasonable terms.
CONSEQUENCES OF FAILURE TO CONTINUE TO QUALIFY AS A REIT
The Company was organized and has elected, and believes that it has been
operated and intends to operate, so as to qualify as a REIT for U.S. federal
income tax purposes under Sections 856 through 860 of the Internal Revenue Code
of 1986, as amended to the date hereof (the "Code"). See "Federal Income Tax
Considerations." If the Company qualifies as a REIT, it will generally be
allowed a deduction for dividends paid to its stockholders in computing its
federal taxable income. This treatment substantially eliminates the "double
taxation" of corporate earnings. If in any taxable year the Company does not
qualify as a REIT under the Code, it will be taxed as a corporation and
distributions to stockholders will not be deductible by the Company in computing
taxable income. In addition, unless the Company is entitled to relief under
certain statutory provisions, the Company will be disqualified from electing
treatment as a REIT for the four succeeding years following the year in which
qualification was lost. Failure to qualify as a REIT under the Code, even in one
taxable year, could dramatically affect the Company's ability to pay interest on
Debt Securities and dividends to stockholders.
To qualify as a REIT under the Code, the Company is required, among other
things, to distribute at least 95% of its "REIT taxable income" to stockholders
each year and to satisfy certain requirements on a continuing basis, which
requirements may substantially affect day-to-day decision making by the Company.
No assurance can be given that the Company will at all times satisfy these
tests. Possible timing differences between receipt of income and payment of
expenses, and the inclusion and deduction of such amounts in determining taxable
income, could require the Company to reduce its dividends below the level
necessary to maintain its qualification as a REIT, which would adversely affect
the Company's ability to maintain REIT status. See "Federal Income Tax
Considerations -- Taxation of the Company."
Even if the Company qualifies as a REIT, certain transactions or other
events could result in the imposition of federal tax at rates ranging from 4% to
100% on certain types of the Company's income or gains.
ANTITAKEOVER EFFECT OF OWNERSHIP LIMIT AND POWER TO ISSUE ADDITIONAL SHARES
For the Company to qualify as a REIT under the Code in any taxable year, no
more than 50% in value of its outstanding stock may be owned directly, or
indirectly by attribution, by five or fewer individuals (as defined in the Code
to include certain entities) at any time during the second half of the Company's
taxable year (other than during the first year for which the Company elects to
be treated as a REIT). In addition, the outstanding stock must be owned by 100
or more persons during at least 335 days of a taxable year of 12 months or
during a proportional part of a shorter taxable year (other than during the
first year for which the Company elects to be treated as a REIT). See "Federal
Income Tax Considerations."
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<PAGE> 31
Because of the stock ownership requirements applicable to REITs, the
Company's Charter contains restrictions on transfer of its stock. Such
restrictions authorize the Company to refuse to transfer stock to any person, if
as a result of such transfer such person or entity would beneficially own stock
in excess of 9.8% in number or value of the outstanding stock of the Company.
Such provisions may inhibit market activity and the resulting opportunity for
stockholders to realize a premium for their Securities that might otherwise
exist if a stockholder were attempting to assemble a block of stock in excess of
9.8% in number or value of the outstanding stock. Also, there can be no
assurance that such provisions will in fact enable the Company to meet the
relevant REIT stock ownership requirements.
The Company's Charter authorizes the Board of Directors to cause the
Company to issue additional authorized but unissued shares of Common Stock or
Preferred Stock and to classify or reclassify any unissued shares of Common
Stock or Preferred Stock and to set the preferences, rights and other terms of
such classified or unclassified shares. See "Description of Capital Stock."
Although the Board of Directors has no such intention at the present time, it
could establish a series of Preferred Stock that could, depending on the terms
of such series, delay or impede a transaction or a change of control of the
Company that might involve a premium price for the Common Stock or otherwise be
in the best interest of the stockholders. The Charter and Bylaws of the Company
also contain other provisions that may delay or impede a transaction or a change
of control of the Company that might involve a premium price for the Common
Stock or otherwise be in the best interest of the stockholder.
MARYLAND BUSINESS COMBINATION LAW
Under the Maryland General Corporation Law ("MGCL"), certain "business
combinations" (including certain issuances of equity securities) between a
Maryland corporation and any person who beneficially owns ten percent or more of
the voting power of the corporation's shares or an affiliate of the corporation
who, at any time within the two-year period prior to the date in question, was
the beneficial owner of ten percent or more of the voting power of the
then-outstanding voting stock of the corporation (an "Interested Stockholder")
or an affiliate thereof are prohibited for five years after the most recent date
on which the Interested Stockholder becomes an Interested Stockholder.
Thereafter, any such business combination must be approved by two super-majority
stockholder votes unless, among other conditions, the corporation's common
stockholders receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously paid
by the Interested Stockholder for its shares.
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Securities
for acquisitions and repayment, reduction and/or refinancing of other
indebtedness, including acquisition indebtedness, working capital, capital
expenditures and for general corporate purposes.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
AND COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS
For purposes of calculating the following ratios, (i) earnings represent
income from continuing operations before income taxes, plus fixed charges, and
(ii) fixed charges represent interest expense on all indebtedness (including
amortization of deferred debt issuance costs) and the portion of operating lease
rental expense that is representative of the interest factor (deemed to be
one-third of operating lease rentals). There were no shares of Preferred Stock
outstanding during any of the periods below indicated and therefore the ratio of
earnings to combined fixed charges and Preferred Stock dividend requirements
would have been the same as the ratio of earnings to fixed charges for each
period indicated.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED FROM JUNE 30, 1994
ENDED DECEMBER 31, (INCEPTION)
JUNE 30, ------------- THROUGH
1997 1996 1995 DECEMBER 31, 1994
------------- ----- ----- ------------------
<S> <C> <C> <C> <C>
Ratio of earnings to fixed charges............... 2.7x 3.0x 2.0x 4.0x
</TABLE>
11
<PAGE> 32
DESCRIPTION OF DEBT SECURITIES
The following description summarizes the material terms and provisions of
the Debt Securities, other than pricing information, to which this Prospectus
and any applicable Prospectus Supplement may relate. The particular terms of the
Debt Securities being offered and the extent to which such general provisions
may apply will be set forth in the applicable Indenture or in one or more
indentures supplemental thereto and described in a Prospectus Supplement
relating to such Debt Securities. The Forms of the Senior Indenture (as defined
herein) and the Subordinated Indenture (as defined herein) have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
GENERAL
The Debt Securities may be either senior Debt Securities ("Senior Debt
Securities") or subordinated Debt Securities ("Subordinated Debt Securities").
The Debt Securities will be issued under one or more indentures (the
"Indentures"). Senior Securities and Subordinated Securities will be issued
pursuant to separate indentures (respectively, a "Senior Indenture" and a
"Subordinated Indenture"), in each case between the Company and a trustee (a
"Trustee"). The Indentures will be subject to and governed by the Trust
Indenture Act of 1939, as amended (the "TIA"). The statements made under this
heading relating to the Debt Securities and the Indentures are summaries of the
anticipated provisions thereof, do not purport to be complete and are qualified
in their entirety by reference to the Indentures and such Debt Securities. All
section references appearing herein are to sections of each Indenture unless
otherwise indicated and capitalized terms used but not defined below shall have
the respective meanings set forth in each Indenture.
Unless otherwise specified in the applicable Prospectus Supplement or
Prospectus Supplements, the Debt Securities will be general unsecured
obligations of the Company. The Indentures do not limit the aggregate amount of
Debt Securities which may be issued thereunder, and Debt Securities may be
issued thereunder from time to time in separate series up to the aggregate
amount from time to time authorized by the Company for each series. (Section
301) Unless otherwise specified in the Prospectus Supplement or Prospectus
Supplements, the Senior Debt Securities when issued will be unsubordinated
obligations of the Company and will rank equally and ratably with all other
unsecured and unsubordinated indebtedness of the Company. The Subordinated Debt
Securities when issued will be subordinated in right of payment to the prior
payment in full of all Senior Debt (as defined herein and in the Subordinated
Indenture) of the Company as described below under "-- Subordination of
Subordinated Debt Securities" and in the Prospectus Supplement applicable to an
offering of Subordinated Debt Securities. (Article Fifteen)
The applicable Prospectus Supplement or Prospectus Supplements pursuant to
which any Debt Securities are offered will describe the following terms of the
Debt Securities in respect of which this Prospectus is being delivered: (1) the
title of such Debt Securities; (2) any limit on the aggregate principal amount
of such Debt Securities; (3) the person to whom any interest on any Debt
Security of the series shall be payable if other than the person in whose name
the Debt Security is registered on the regular record date; (4) the date or
dates on which such Debt Securities will mature; (5) the rate or rates of
interest, if any, or the method of calculation thereof, which such Debt
Securities will bear, the date or dates from which any such interest will
accrue, the interest payment dates on which any such interest on such Debt
Securities will be payable and the regular record date for any interest payable
on any interest payment date; (6) the place or places where the principal of,
premium, if any, and interest on such Debt Securities will be payable; (7) the
period or periods within which, the events upon the occurrence of which, and the
price or prices at which, such Debt Securities may, pursuant to any optional or
mandatory provisions, be redeemed or purchased, in whole or in part, by the
Company and any terms and conditions relevant thereto; (8) the obligations of
the Company, if any, to redeem or repurchase such Debt Securities pursuant to
any sinking fund provision or analogous provision or at the option of the
holders and the period or periods within which, and the other terms and
conditions upon which, such Debt Securities shall be redeemed, repaid or
repurchased, in whole or in part, pursuant to such obligations; (9) the
denominations in which any such Debt Securities will be issuable, if other than
denominations of $1,000, and any integral multiple thereof; (10) any index or
formula used to determine the amount of payments of principal of and any premium
and interest on such Debt Securities; (11) the currency, currencies or currency
unit or units of payment of principal of and any premium and
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<PAGE> 33
interest on such Debt Securities if other than U.S. dollars; (12) if the
principal of, or premium, if any, or interest on such Debt Securities is to be
payable, at the election of the Company or a holder thereof, in one or more
currencies or currency units other than that or those in which such Debt
Securities are stated to be payable, the currency, currencies or currency units
in which payment of the principal of and any premium and interest on Debt
Securities of such series as to which such election is made shall be payable,
and the periods within which and the terms and conditions upon which such
election is to be made; (13) if other than the principal amount thereof, the
portion of the principal amount of such Debt Securities of the series which will
be payable upon acceleration of the maturity thereof; (14) if the principal
amount of any Debt Securities which will be payable at the maturity thereof will
not be determinable as of any date prior to such maturity, the amount which will
be deemed to be the outstanding principal amount of such Debt Securities; (15)
the applicability of any provisions described below under "Defeasance"; (16)
whether any of such Debt Securities are to be issuable in permanent global form
("Global Security") and, if so, the terms and conditions, if any, upon which
interests in such Securities in global form may be exchanged, in whole or in
part, for the individual Debt Securities represented thereby; (17) the
applicability of any covenant with respect to such Debt Securities and the
applicability of any provisions described below under "Events of Default" and
any additional Events of Default applicable thereto; (18) any covenants
applicable to such Debt Securities; (19) the terms and conditions, if any,
pursuant to which the Debt Securities are convertible or exchangeable into
shares of Common Stock or other Securities; (20) any change in the subordination
provisions contained en of the Subordinated Indenture with respect to such Debt
Securities; and (21) any other terms of such Debt Securities not inconsistent
with the provisions of the Indentures. (Section 301)
Debt Securities may be issued at a discount from their principal amount.
U.S. federal income tax considerations and other special considerations
applicable to any such original issue discount Securities will be described in
the applicable Prospectus Supplement.
If the purchase price of any of the Debt Securities is denominated in a
foreign currency or currencies or a foreign currency unit or units or if the
principal of and any premium and interest on any series of Debt Securities is
payable in a foreign currency or currencies or a foreign currency unit or units,
the restrictions, elections, general tax considerations, specific terms and
other information with respect to such issue of Debt Securities will be set
forth in the applicable Prospectus Supplement.
Since the Company is a holding company, the rights of the Company, and
hence the right of creditors of the Company (including the holders of Debt
Securities), to participate in any distribution of the assets of any subsidiary
upon its liquidation or reorganization or otherwise is necessarily subject to
the prior claims of creditors of any such subsidiary, except to the extent that
claims of the Company itself as a creditor of the subsidiary may be recognized.
The Indentures do not contain any provisions that limit the Company's
ability to incur indebtedness. Holders of Debt Securities will not have the
benefit of any specific covenants or provisions in the applicable Indenture or
Debt Securities that would protect them in the event the Company engages in or
becomes the subject of a highly leveraged transaction, other than any covenants
described in any Prospectus Supplement, and the limitations on mergers,
consolidations and transfers of substantially all of the Company's properties
and assets as an entirety to any person as described below under
"-- Consolidation, Merger and Sale of Assets." Such covenants may not be waived
or modified by the Company or its Board or Directors, although holders of Debt
Securities could waive or modify such covenants as more fully described below
under "-- Modification and Waiver."
CONVERSION OR EXCHANGE OF DEBT SECURITIES
If so indicated in the applicable Prospectus Supplement with respect to a
particular series of Debt Securities, such series will be convertible or
exchangeable into shares of Common Stock or other securities on the terms and
conditions set forth in the Subordinated Indenture and in such Prospectus
Supplement. Such terms shall include provisions as to whether conversion is
mandatory, at the option of the holder or at the option of the Company, and may
include provisions pursuant to which the number of shares of Common Stock or
other securities of the Company to be received by the holders of Debt Securities
would be calculated
13
<PAGE> 34
according to the market price of the Common Stock or other securities of the
Company as of a time stated in the Prospectus Supplement. Certain restrictions
on ownership may apply in the event of a conversion or exchange. Such
restrictions will be indicated in any Prospectus Supplement with respect to the
Debt Securities to which such restrictions relate. See "Description of Capital
Stock -- Restrictions on Ownership."
FORM, EXCHANGE, REGISTRATION, CONVERSION, TRANSFER AND PAYMENT
Unless otherwise indicated in the applicable Prospectus Supplement, the
Debt Securities will be issued only in fully registered form in denominations of
$1,000 or integral multiples thereof. (Section 302) Unless otherwise indicated
in the applicable Prospectus Supplement, payment of principal, premium, if any,
and interest on the Debt Securities will be payable, and the exchange,
conversion and transfer of Debt Securities will be registerable, at the office
or agency of the Company or the Trustee maintained for such purposes and at any
other office or agency maintained for such purpose. (Section 1002) No service
charge will be made for any registration of transfer or exchange of the Debt
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge imposed in connection therewith. (Section 305)
All monies paid by the Company to a paying agent for the payment of
principal of and any premium or interest on any Debt Security which remain
unclaimed for two years after such principal, premium or interest has become due
and payable may be repaid to the Company and thereafter the holder of such Debt
Security may look only to the Company for payment thereof. (Section 1003)
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on behalf
of, a depositary (the "Global Depositary") or its nominee identified in the
applicable Prospectus Supplement. In such a case, one or more Global Securities
will be issued in a denomination or aggregate denomination equal to the portion
of the aggregate principal amount of outstanding Debt Securities of the series
to be represented by such Global Security or Securities. Unless and until it is
exchanged in whole or in part for Debt Securities in registered form, a Global
Security may not be registered for transfer or exchange except as a whole by the
Global Depositary for such Global Security to a nominee of such Global
Depositary or by a nominee of such Global Depositary to such Global Depositary
or another nominee of such Global Depositary or by such Global Depositary or any
nominee to a successor Global Depositary or a nominee of such successor Global
Depositary and except in the circumstances described in the applicable
Prospectus Supplement. (Section 305)
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the applicable Prospectus Supplement. The Company expects
that the following provisions will apply to depositary arrangements, although no
assurance can be given that such will be the case.
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Security to be deposited with
or on behalf of a Global Depositary will be represented by a Global Security
registered in the name of such Global Depositary or its nominee. Upon the
issuance of such Global Security, and the deposit of such Global Security with
or on behalf of the Global Depositary for such Global Security, the Global
Depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of the Debt Securities represented by such Global
Security to the accounts of institutions that have accounts with such Global
Depositary or its nominee ("participants"). The accounts to be credited will be
designated by the underwriters or agents for the sale of such Debt Securities or
by the Company, if such Debt Securities are offered and sold directly by the
Company. Ownership of beneficial interests in such Global Security will be
limited to participants or persons that may hold interests through participants.
Ownership of beneficial interests by participants in such Global Security will
be shown on, and the transfer of that ownership interest will be effected only
through, records maintained by the Global Depositary or its nominee for such
Global Security. Ownership of beneficial interests in such Global Security by
persons that hold through participants will be shown on, and the transfer of
such ownership interests within such participant will be effected only through,
records maintained by such participant. The laws of some
14
<PAGE> 35
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. The foregoing limitations and
such laws may impair the ability to transfer beneficial interests in such Global
Securities.
So long as the Global Depositary for a Global Security, or its nominee, is
the registered owner of such Global Security, such Global Depositary or such
nominee, as the case may be, will be considered the sole owner or holder of the
Securities represented by such Global Security for all purposes under the
applicable Indenture. Except as set forth below, unless otherwise specified in
the applicable Prospectus Supplement, owners of beneficial interests in such
Global Security will not be entitled to have Debt Securities of the series
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of Debt Securities of such series in
certificated form and will not be considered the holders thereof for any
purposes under the applicable Indenture. Accordingly, each person owning a
beneficial interest in such Global Security must rely on the procedures of the
Global Depositary and, if such person is not a participant, on the procedures of
the participant through which such person owns its interest, to exercise any
rights of a holder under the applicable Indenture. The Company understands that
under existing industry practices, if the Company requests any action of holders
or an owner of a beneficial interest in such Global Security desires to give any
notice or take any action a holder is entitled to give or take under the
applicable Indenture, the Global Depositary would authorize the participants to
give such notice or take such action, and participants would authorize
beneficial owners owning through such participants to give such notice or take
such action or would otherwise act upon the instructions of beneficial owners
owning through them.
If the Global Depositary for Debt Securities of a series is at any time
unwilling, unable or ineligible to continue as Global Depositary and a successor
Global Depositary is not appointed by the Company within 90 days or an Event of
Default under the applicable Indenture has occurred and is continuing, the
Company will issue Debt Securities of such series in definitive form in exchange
for the Global Security or Securities representing the Debt Securities of such
series. In addition, the Company may at any time and in its sole discretion,
subject to any limitations described in the applicable Prospectus Supplement,
determine not to have any Debt Securities of a series represented by one or more
Global Securities and, in such event, will issue Debt Securities of such series
in definitive form in exchange for the Global Security or Securities
representing such Debt Securities. Further, if the Company so specifies with
respect to the Debt Securities of a series, an owner of a beneficial interest in
a Global Security representing Debt Securities of such series may, on terms
acceptable to the Company and the Global Depositary for such Global Security,
receive Debt Securities of such series in definitive form in exchange for such
beneficial interest, subject to any limitations described in the applicable
Prospectus Supplement relating to such Debt Securities. In any such instance, an
owner of a beneficial interest in a Global Security will be entitled to physical
delivery in definitive form of Debt Securities of the series represented by such
Global Security equal in principal amount to such beneficial interest and to
have such Debt Securities registered in its name (if the Debt Securities of such
series are issuable as registered securities).
Principal of and any premium and interest on a Global Security will be
payable in the manner described in the applicable Prospectus Supplement.
CERTAIN COVENANTS OF THE COMPANY
The Company will be subject to certain covenants respecting (i) payment of
principal of, premium, if any and interest on the Debt Securities, (ii)
maintenance of an office or agency where Debt Securities may be surrendered for
registration of transfer or exchange or surrendered for conversion and where
notices and demands to or upon the Company in respect of the Debt Securities,
and the Indenture may be served, (iii) the holding of monies for Debt Securities
payments in trust, (iv) delivery of certificates to the Trustee by the Company
regarding defaults, (v) maintenance of the Company's corporate existence, (vi)
maintenance of the Company's properties and (vii) payment of taxes and other
claims by the Company. If so indicated in the applicable Prospectus Supplement
with respect to a particular series of Debt Securities, the Company will be
subject to the additional covenants described therein.
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EVENTS OF DEFAULT
Unless otherwise indicated in the applicable Prospectus Supplement, the
following constitute Events of Default under the Indentures with respect to Debt
Securities of any series: (a) failure to pay principal of or premium, if any, on
any Debt Security of that series when due; (b) failure to pay any interest on
any Debt Security of that series when due, continued for 30 days; (c) failure in
the deposit of any sinking fund payment in respect of any Debt Security of that
series; (d) failure to perform any other covenant of the Company in the
Indentures (other than a covenant included in the applicable Indenture solely
for the benefit of a series of Debt Securities other than that series),
continued for 60 days after written notice to the Company as provided in the
applicable Indenture; (e) acceleration of the maturity of indebtedness of the
Company or any of its subsidiaries having an outstanding principal amount of at
least $5,000,000 or a failure to pay such indebtedness at its stated maturity
after demand therefor, provided that within 10 days after such acceleration or
maturity the Trustee or holders of at least 25% in aggregate principal amount of
the Debt Securities of such series then outstanding have given notice thereof
and demand for the discharge of such acceleration or repayment at maturity; (f)
a final judgment or final judgments that exceed $5,000,000 for the payment of
money have been entered by a court or courts of competent jurisdiction against
the Company and/or any subsidiary of the Company and such judgment or judgments
have not been discharged within 30 days after all rights to appeal have been
exhausted; and (g) certain events of bankruptcy, insolvency or reorganization
respecting the Company or its Subsidiaries. (Section 501) The applicable
Prospectus Supplement with respect to Debt Securities of any series will
indicate any other Event or Events of Default with respect to Debt Securities of
that series.
Unless otherwise indicated in the applicable Prospectus Supplement, if (i)
an Event of Default with respect to outstanding Debt Securities of any series
shall occur and be continuing (other than an Event of Default described in
clause (g) of the foregoing paragraph), either the applicable Trustee or the
holders of not less than 25% in principal amount of the outstanding Debt
Securities of that series by notice as provided in the Indentures may declare
the principal amount (or, if the Debt Securities of that series are original
issue discount Securities, such portion of the principal amount as may be
specified in the terms of that series) of all Debt Securities of that series to
be due and payable immediately or (ii) an Event of Default described in clause
(g) of the foregoing paragraph occurs with respect to outstanding Debt
Securities of any series, all principal of, premium, if any, and accrued and
unpaid interest on all Debt Securities of that series (or, if the Debt
Securities of that series are original issue discount securities, such portion
of the principal amount as may be specified in the terms of that series) shall
be immediately due and payable without any declaration by the Trustee or
holders. (Section 502) However, at any time after a declaration of acceleration
with respect to Debt Securities of any series has been made, but before a
judgment or decree based on such acceleration has been obtained, the holders of
a majority in principal amount of the outstanding Debt Securities of that series
may, under certain circumstances, rescind and annul such acceleration. (Section
502) For information as to waiver or defaults, see "-- Modification and Waiver"
below.
The Indentures provide that, subject to the duty of the applicable Trustee
thereunder during an Event of Default to act with the required standard of care,
such Trustee will be under no obligation to exercise any of its rights or powers
under the applicable Indenture at the request or direction of any of the
holders, unless such holders shall have offered to such Trustee reasonable
security or indemnity. (Section 603) Subject to certain provisions, including
those requiring security or indemnification of the Trustees, the holders of a
majority in principal amount of the outstanding Debt Securities of any series
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustees, or exercising any trust or
power conferred on such Trustees, with respect to the Debt Securities of that
series. (Section 512)
No holder of a Debt Security of any series will have the right to institute
any proceeding with respect to the Indentures or for any remedy thereunder,
unless (i) such holder shall have previously given to the applicable Trustee
written notice of a continuing Event of Default (as defined) with respect to
Debt Securities of that series; (ii) the holders of not less than 25% in
aggregate principal amount of the outstanding Debt Securities of the same series
shall have made written request, and offered reasonable indemnity, to the
applicable Trustee to institute proceedings in respect of such Event of Default
in its own name as trustee under the applicable Indenture; (iii) the Trustee
shall have failed to institute such proceedings within 60 days; and
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(iv) the Trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding Debt Securities of the same series
a direction inconsistent with such request; provided, however, that such
limitations do not apply to a suit instituted by a holder of a Debt Security for
enforcement of payment of the principal of and any premium and interest on such
Debt Security on or after the respective due dates expressed in such Debt
Security, or in the case of convertible Debt Securities, for enforcement of a
right of conversion. (Section 507, Section 508)
The Company will be required to furnish to the Trustees annually a
statement as to the performance by the Company of its obligations under the
Indentures and as to any default in such performance. (Section 1004)
MODIFICATION AND WAIVER
Without the consent of any holder of outstanding Debt Securities, the
Company and the applicable Trustee may amend or supplement the applicable
Indenture or Debt Securities to cure any ambiguity, defect or inconsistency, or
to make certain specified changes and other changes that do not adversely affect
the rights of any holder of Debt Securities. Other modifications and amendments
of the Indentures may be made by the Company and the applicable Trustee only
with the consent of the holders of not less than a majority in aggregate
principal amount of the outstanding Debt Securities of each series affected
thereby; provided, however, that no such modification or amendment may, without
the consent of the holder of each outstanding Debt Security affected thereby:
(a) change the stated maturity of the principal of, or any installment of
principal of, or interest on, any Debt Security; (b) reduce the principal amount
of, the rate of interest on, or the premium, if any, payable upon the redemption
or repurchase of, any Debt Security; (c) reduce the amount of principal of an
original issue discount Security payable upon acceleration of the maturity
thereof; (d) change the place or currency of payment of principal of, or
premium, if any, or interest on any Debt Security; (e) impair the right to
institute suit for the enforcement of any payment on or with respect to any Debt
Security on or after the stated maturity or redemption date thereof; (f) modify
the conversion provisions applicable to convertible Debt Securities in a manner
adverse to the holders thereof; (g) modify the subordination provisions
applicable to any series of Debt Securities in a manner adverse to the holders
thereof; or (h) reduce the percentage in principal amount of outstanding Debt
Securities of any series, the consent of the holders of which is required for
modification or amendment of the Indentures or for waiver of compliance with
certain provisions of the applicable Indenture or for waiver of certain
defaults. (Section 902)
The holders of at least a majority in aggregate principal amount of the
outstanding Debt Securities of any series may on behalf of the holders of all
Debt Securities of that series waive, insofar as that series is concerned,
compliance by the Company with certain covenants of the Indentures. The holders
of not less than a majority in principal amount of the outstanding Debt
Securities of any series may, on behalf of the holders of all Debt Securities of
that series, waive any past default under the applicable Indenture with respect
to that series, except a default in the payment of the principal of, or premium,
if any, or interest on, any Debt Security of that series or in respect of a
provision which under such applicable Indenture cannot be modified or amended
without the consent of the holder of each outstanding Debt Security of that
series affected. (Section 513)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of any holders of outstanding Debt
Securities, may consolidate with or merge into, or transfer or lease its assets
substantially as an entirety to, any Person, and any other Person may
consolidate with or merge into, or transfer or lease its assets substantially as
an entirety to, the Company, provided that (a) the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or
which acquires or leases the assets of the Company substantially as an entirety
assumes the Company's obligations on the Debt Securities and under the Indenture
relating thereto and (b) after giving effect to such transaction no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have happened and be continuing. (Section 801) A
Prospectus Supplement may set forth any additional provisions regarding a
consolidation with, merger into, or transfer or lease of its assets
substantially as an entirety to, any Person (or of such Person with, into or to
the Company).
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DEFEASANCE
If so indicated in the applicable Prospectus Supplement with respect to the
Debt Securities of a series, the Company, at its option (i) will be discharged
from any and all obligations in respect of the Debt Securities of such series
(except for certain obligations to register the transfer or exchange of Debt
Securities of such series, to replace destroyed, stolen, lost or mutilated Debt
Securities of such series, and to maintain an office or agency in respect of the
Debt Securities and hold monies for payment in trust) or (ii) will be released
from its obligations to comply with any covenants that may be specified in the
applicable Prospectus Supplement with respect to the Debt Securities of such
series, and the occurrence of an event described in clause (d) under "Events of
Default" above with respect to any defeased covenants shall no longer be an
Event of Default, if in either case the Company irrevocably deposits with the
applicable Trustee, in trust, money or U.S. Government Obligations that through
the payment of interest thereon and principal thereof in accordance with their
terms will provide money in an amount sufficient to pay all of the principal of
and premium, if any, and any interest on the Debt Securities of such series on
the dates such payments are due (which may include one or more redemption dates
designated by the Company) in accordance with the terms of such Debt Securities.
(Section 1302, Section 1303) Such a trust may only be established if, among
other things, (a) no Event of Default or event which with the giving of notice
or lapse of time, or both, would become an Event of Default under the applicable
Indenture shall have occurred and be continuing on the date of such deposit, (b)
no Event of Default described under clause (g) under "Events of Default" above
or event which with the giving of notice or lapse of time, or both, would become
and Event of Default described under such clause (g) shall have occurred and be
continuing at any time during the period ending on the 91st day following such
date of deposit, and (c) the Company shall have delivered an opinion of counsel
to the effect that the holders of the Debt Securities will not recognize gain or
loss for U.S. federal income tax purposes as a result of such deposit or
defeasance and will be subject to U.S. federal income tax in the same manner as
if such deposit and defeasance had not occurred, which opinion of counsel, in
the case of a deposit and defeasance of such Indenture with respect to the Debt
Securities of any series as described under clause (i) above, shall be based on
either (A) a ruling to such effect that the Company has received from, or that
has been published by, the Internal Revenue Service or (B) a change in the
applicable federal income tax law, occurring after the date of the applicable
Indenture, to such effect. (Section 1304) In the event the Company omits to
comply with its remaining obligations under such Indenture after a defeasance of
such Indenture with respect to the Debt Securities of any series as described
under clause (ii) above and the Debt Securities of such series are declared due
and payable because of the occurrence of any undefeased Event of Default, the
amount of money and U.S. Government Obligations on deposit with the applicable
Trustee may be insufficient to pay amounts due on the Debt Securities of such
series at the time of the acceleration resulting from such Event of Default.
However, the Company will remain liable for such payments.
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the Prospectus Supplement, the following
provisions will apply to the Subordinated Debt Securities.
Payment of principal of, premium, if any, and interest on the Subordinated
Debt Securities will, to the extent set forth in the Subordinated Indenture, be
subordinate in right of payment to all Senior Debt, including the Senior Debt
Securities. (Section 1501) The Prospectus Supplement will set forth as of the
most recent practicable date the aggregate amount of outstanding indebtedness
that by the terms of the Subordinated Debt Securities will be senior to the
Subordinated Debt Securities. Except as may otherwise be provided in the
applicable Prospectus Supplement, there will be no limitation on the Company's
ability to issue additional Senior Debt.
Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshalling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, the holders of Senior Debt will first be
entitled to receive payment in full of principal of (and premium, if any) and
interest, if any, on such Senior Debt before the holders of the Subordinated
Debt Securities will be entitled to receive or retain any payment in respect of
the principal of (and premium, if any)
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or interest, if any, on the Subordinated Debt Securities. (Section 1502). By
reason of such subordination, in the event of liquidation or insolvency of the
Company, holders of Subordinated Debt Securities may recover less, ratably, than
holders of Senior Debt.
In the event of the acceleration of the maturity of any Subordinated Debt
Securities, the holders of all Senior Debt outstanding at the time of such
acceleration will be entitled to receive payment in full of all amounts due or
to become due in respect of all Senior Debt, or provision shall have been made
for such payment in cash, before the holders of the Subordinated Debt Securities
will be entitled to receive any payment upon the principal of (or premium, if
any) or interest, if any, on the Subordinated Debt Securities. (Section 1503)
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the Subordinated Debt Securities may be made if there shall
have occurred and be continuing a default in any payment with respect to Senior
Debt. In addition, during the continuance of any non-payment default or event of
default with respect to Senior Debt in an aggregate principal amount of at least
$10 million pursuant to which the maturity thereof is or may be accelerated, or
in the event any judicial proceeding shall be pending with respect to any such
default, then upon receipt by the Trustee of notice thereof from the holder of
such Senior Debt, unless and until (i) such default or event of default shall
have been cured or waived or shall have ceased to exist, or (ii) certain events
of bankruptcy or insolvency or reorganization involving the Company or any
subsidiary of the Company shall have occurred and be continuing, or (iii) such
Senior Debt shall have been paid in full (each of clauses (i), (ii) and (iii)
being a "Termination Event"), no payment or distribution will be made by or on
behalf of the Company on account of or with respect to the Subordinated Debt
Securities (except for those funds held in trust for the benefit of the holders
of any Subordinated Debt Securities to such holders) during a period (a
"Blockage Period") commencing on the date of receipt of such notice by the
Trustee and ending 179 days thereafter. In addition, so long as no Termination
Event shall have occurred, upon the occurrence of either such a payment or a
non-payment default, neither the Trustee nor any holder of the Subordinated Debt
Securities may take any action to accelerate the maturity of the Subordinated
Debt Securities during any Blockage Period (with respect to a payment default,
the Blockage Period shall be deemed to commence on the date which is the first
date payment should have been made). Notwithstanding anything herein to the
contrary, (a) in no event will a Blockage Period extend beyond 179 days from the
date the payment on the Subordinated Debt Securities was due and (b) there must
be 180 days in any 365 day period during which no Blockage Period is in effect.
Not more than one Blockage Period may have commenced with respect to the
Subordinated Debt Securities during any period of 365 consecutive days. No
default or event of default that existed or was continuing on the date of
commencement of any Blockage period with respect to the Senior Debt initiating
such Blockage Period may be, or be made, the basis of the commencement of any
other Blockage period by the holders of such Senior Debt, whether or not within
a period of 365 consecutive days, unless such default or event of default has
been cured or waived for a period of not less than 90 consecutive days. (Section
1504)
For purposes of the subordination provisions, the payment, issuance and
delivery of cash, property or securities (other than stock and certain
subordinated securities of the Company) upon conversion of a Subordinated Debt
Security will be deemed to constitute payment on account of the principal of
such Subordinated Debt Security. By reason of these provisions, in the event of
a default on any Senior Debt, whether now outstanding or hereafter issued,
payments of principal of, premium, if any and interest on Subordinated Debt
Securities may not be permitted to be made, and the obligations thereunder may
not be able to be accelerated, until such Senior Debt is paid in full or such
event of default is cured or waived. (Section 1515)
"Senior Debt" is defined to mean the principal, premium, if any, unpaid
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceeding), fees, charges,
expenses, reimbursement and indemnification obligations, and all other amounts
payable under or in respect of Indebtedness (as defined) of the Company, whether
any such Indebtedness exists as of the date of the Subordinated Indenture or is
created, incurred, assumed or guaranteed after such date, other than (i)
Indebtedness that by its terms or by operation of law is subordinated to or on a
parity with the Subordinated
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Debt Security, (ii) Indebtedness owed to a subsidiary or partnership of the
Company, and (iii) Indebtedness owing in respect of the Company's 10.5%
Debentures and the Company's 6.55% Debentures. (Section 101)
"Indebtedness" with respect to any Person is defined to mean:
(i) any debt (a) for money borrowed, or (b) evidenced by a bond, note,
debenture, or similar instrument (including purchase money obligations)
given in connection with the acquisition of any business, property or
assets, whether by purchase, merger, consolidation or otherwise, but shall
not include any account payable or other obligation created or assumed by a
Person in the ordinary course of business in connection with the obtaining
of materials or services, or (c) which is a direct or indirect obligation
which arises as a result of banker's acceptances or bank letters of credit
issued to secure obligations of such Person, or to secure the payment of
revenue bonds issued for the benefit of such Person, whether contingent or
otherwise;
(ii) any debt of others described in the preceding clause (i) which
such Person has guaranteed or for which it is otherwise liable;
(iii) the obligation of such Person as lessee under any lease of
property which is reflected on such Person's balance sheet as a capitalized
lease; and
(iv) any deferral, amendment, renewal, extension, supplement or
refunding of any liability of the kind described in any of the preceding
clauses (i), (ii) and (iii);
provided, however, that, in computing the Indebtedness of any Person, there
shall be excluded any particular indebtedness if, upon or prior to the maturity
thereof, there shall have been deposited with a depository in trust money (or
evidence of Indebtedness, if permitted by the instrument creating such
Indebtedness) in the necessary amount to pay, redeem or satisfy such
Indebtedness as it becomes due, and the amount so deposited shall not be
included in any computation of the assets of such Person. (Section 101)
STRUCTURAL SUBORDINATION
The Indentures do not limit or prohibit the incurrence of indebtedness or
liabilities by any of the Company's subsidiaries or partnerships. Certain of the
Company's operations are conducted through subsidiaries or partnerships, which
are separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Debt Securities or to make any
funds available therefor, whether by dividends, loans or other payments. The
Debt Securities will be structurally subordinated to all indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
the Company's subsidiaries and partnerships. Any right of the Company to receive
assets of any such subsidiary or partnership upon the liquidation or
reorganization of any such subsidiary or partnership (and the consequent rights
of the holders of Debt Securities to participate in those assets) will be
structurally subordinated to the claims of that subsidiary's or partnership's
creditors.
DESCRIPTION OF CAPITAL STOCK
The following descriptions summarize the material terms and provisions of
the Company's capital stock. Complete descriptions of the Company's
capitalization are set forth in the Company's Charter and Bylaws, which
documents have been incorporated by reference as exhibits to the Registration
Statement.
For the Company to qualify as a REIT under the Code, not more than 50% of
the value of the outstanding stock may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year and the stock 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). Accordingly, the Charter
contains provisions that restrict the ownership and transfer of shares of stock.
See " -- Restrictions on Ownership."
The Charter authorizes the issuance of up to 60,000,000 shares, consisting
of 50,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and 10,000,000 shares of Preferred Stock, par
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value $.001 per share ("Preferred Stock"). As of June 30, 1997, the Company had
16,205,672 shares of Common Stock and no shares of Preferred Stock outstanding.
PREFERRED STOCK
The following is a description of certain general terms and provisions of
the Preferred Stock. The particular terms of any series of Preferred Stock will
be described in the applicable Prospectus Supplement. This summary does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of the Charter and the articles supplementary relating to each series
of the Preferred Stock, which will be filed as an exhibit to or incorporated by
reference in the Registration Statement of which this Prospectus is a part at or
prior to the time of issuance of such series of the Preferred Stock (the
"Articles Supplementary").
The Preferred Stock authorized by the Charter 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 and conditions of
redemption as may be fixed by the Board of Directors. Under certain
circumstances, the issuance of Preferred Stock could have the effect of
delaying, deferring or preventing a change of control of the Company and may
adversely affect the voting and other rights of the holders of Common Stock. The
Charter authorizes the Board of Directors to classify or reclassify any unissued
shares of Preferred Stock by setting or changing the designations, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
distributions, qualifications and terms and conditions of redemption of such
Preferred Stock.
The Preferred Stock shall have the dividend, liquidation, redemption and
voting rights set forth below unless otherwise described in a Prospectus
Supplement relating to a particular series of the Preferred Stock. The
applicable Prospectus Supplement will describe the following terms of the series
of Preferred Stock in respect of which this Prospectus is being delivered: (1)
the title of such Preferred Stock and the number of shares offered; (2) the
amount of liquidation preference per share; (3) the initial public offering
price at which such Preferred Stock will be issued; (4) the dividend rate (or
method of calculation), the dates on which dividends shall be payable and the
dates from which dividends shall commence to cumulate, if any; (5) any
redemption or sinking fund provisions; (6) any conversion or exchange rights;
(7) any additional voting, dividend, liquidation, redemption, sinking fund and
other rights, preferences, privileges, limitations and restrictions; (8) any
listing of such Preferred Stock on any securities exchange; (9) a discussion of
U.S. federal income tax considerations applicable to such Preferred Stock; (10)
the relative ranking and preferences of such Preferred Stock as to dividend
rights and rights upon liquidation, dissolution or winding up of the affairs of
the Company; (11) any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company; and (12) any limitations on direct or beneficial
ownership and restrictions on transfer, in each case as may be appropriate to
preserve the status of the Company as a REIT.
General
The Preferred Stock offered hereby will be issued in one or more series.
The Preferred Stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The liquidation preference is
not indicative of the price at which the Preferred Stock will actually trade on
or after the date of issuance.
Rank
The Preferred Stock shall, with respect to dividend rights and rights upon
liquidation, dissolution and winding up of the Company, rank prior to the Common
Stock and to all other classes and series of equity securities of the Company
now or hereafter authorized, issued or outstanding (the Common Stock and such
other classes and series of equity securities collectively may be referred to
herein as the "Junior Stock"), other than any classes or series of equity
securities of the Company which by their terms specifically provide for a
ranking on a parity with (the "Parity Stock") or senior to (the "Senior Stock")
the Preferred Stock as to
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dividend rights and rights upon liquidation, dissolution or winding up of the
Company. The Preferred Stock shall be junior to all outstanding debt of the
Company. The Preferred Stock shall be subject to creation of Senior Stock,
Parity Stock and Junior Stock to the extent not expressly prohibited by the
Charter.
Dividends
Holders of Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of assets of the Company legally
available for payment, dividends, or distributions in cash, property or other
assets of the Company or in Securities of the Company or from any other source
as the Board of Directors in their discretion shall determine and at such dates
and at such rates per share per annum as described in the applicable Prospectus
Supplement. Such rate may be fixed or variable or both. Each declared dividend
shall be payable to holders of record as they appear at the close of business on
the books of the Company on such record dates, not more than 90 calendar days
preceding the payment dates therefor, as are determined by the Board of
Directors (each of such dates, a "Record Date").
Such dividends may be cumulative or noncumulative, as described in the
applicable Prospectus Supplement. If dividends on a series of Preferred Stock
are noncumulative and if the Board of Directors fails to declare a dividend in
respect of a dividend period with respect to such series, then holders of such
Preferred Stock will have no right to receive a dividend in respect of such
dividend period, and the Company will have no obligation to pay the dividend for
such period, whether or not dividends are declared payable on any future
dividend payment dates. If dividends of a series of Preferred Stock are
cumulative, the dividends on such shares will accrue from and after the date set
forth in the applicable Prospectus Supplement.
No full dividends shall be declared or paid or set apart for payment on
Preferred Stock of any series ranking, as to dividends, on a parity with or
junior to the series of Preferred Stock offered by the applicable Prospectus
Supplement for any period unless full dividends for the immediately preceding
dividend period on such Preferred Stock (including any accumulation in respect
of unpaid dividends for prior dividend periods, if dividends on such Preferred
Stock are cumulative) have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof is set apart for such
payment. When dividends are not so paid in full (or a sum sufficient for such
full payment is not so set apart) upon such Preferred Stock and any other
Preferred Stock of the Company ranking on a parity as to dividends with the
Preferred Stock, dividends upon such Preferred Stock and dividends on such other
Preferred Stock ranking on a parity with the Preferred Stock shall be declared
pro rata so that the amount of dividends declared per share on such Preferred
Stock and such other Preferred Stock ranking on a parity with the Preferred
Stock shall in all cases bear to each other the same ratio that accrued
dividends for the then-current dividend period per share on such Preferred Stock
(including any accumulation in respect of unpaid dividends for prior dividend
periods, if dividends on such Preferred Stock are cumulative) and accrued
dividends, including required or permitted accumulations, if any, on shares of
such other Preferred Stock, bear to each other. No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment(s) on
Preferred Stock which may be in arrears. Unless full dividends on the series of
Preferred Stock offered by the applicable Prospectus Supplement have been
declared and paid or set apart for payment for the immediately preceding
dividend period (including any accumulation in respect of unpaid dividends for
prior dividend periods, if dividends on such Preferred Stock are cumulative),
(a) no cash dividend or distribution (other than in shares of Junior Stock) may
be declared, set aside or paid on the Junior Stock, (b) the Company may not,
directly or indirectly, repurchase, redeem or otherwise acquire any shares of
its Junior Stock (or pay any monies into a sinking fund for the redemption of
any shares) except by conversion into or exchange for Junior Stock, and (c) the
Company may not, directly or indirectly, repurchase, redeem or otherwise acquire
any Preferred Stock or Parity Stock (or pay any monies into a sinking fund for
the redemption of any shares of any such stock) otherwise than pursuant to pro
rata offers to purchase or a concurrent redemption of all, or a pro rata
portion, of the outstanding Preferred Stock and shares of Parity Stock (except
by conversion into or exchange for Junior Stock).
Any dividend payment made on a series of Preferred Stock shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series.
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Redemption
The terms, if any, on which Preferred Stock of any series may be redeemed
will be set forth in the applicable Prospectus Supplement.
Liquidation
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company, the holders of a series of Preferred
Stock will be entitled, subject to the rights of creditors, but before any
distribution or payment to the holders of Common Stock, or any Junior Stock on
liquidation, dissolution or winding up of the Company, to receive a liquidating
distribution in the amount of the liquidation preference per share as set forth
in the applicable Prospectus Supplement plus accrued and unpaid dividends for
the then-current dividend period (including any accumulation in respect of
unpaid dividends for prior dividend periods, if dividends on such series of
Preferred Stock are cumulative). If the amounts available for distribution with
respect to the Preferred Stock and all other outstanding Parity Stock are not
sufficient to satisfy the full liquidation rights of all the outstanding
Preferred Stock and Parity Stock, then the holders of each series of such stock
will share ratably in any such distribution of assets in proportion to the full
respective preferential amount (which in the case of Preferred Stock may include
accumulated dividends) to which they are entitled. After payment of the full
amount of the liquidation distribution, the holders of Preferred Stock will not
be entitled to any further participation in any distribution of assets by the
Company.
Voting
The Preferred Stock of a series will not be entitled to vote, except as
described below or in the applicable Prospectus Supplement. Without the
affirmative vote of a majority of the Preferred Stock then outstanding (voting
separately as a class together with any Parity Stock), the Company may not (i)
increase or decrease the aggregate number of authorized shares of such class or
any security ranking prior to the Preferred Stock, (ii) increase or decrease the
par value of the shares of holders of such class, or (iii) alter or change the
voting or other powers, preferences or special rights of such class so as to
affect them adversely. An amendment which increases the number of authorized
shares of or authorizes the creation or issuance of other classes or series of
Junior Stock or Parity Stock, or substitutes the surviving entity in a merger,
consolidation, reorganization or other business combination for the Company,
shall not be considered to be such an adverse change.
No Other Rights
The shares of a series of Preferred Stock will not have any preferences,
voting powers or relative, participating, optional or other special rights
except as set forth above or in the applicable Prospectus Supplement, the
Charter and in the applicable Articles Supplementary or as otherwise required by
law.
Transfer Agent and Registrar
The transfer agent for each series of Preferred Stock will be described in
the related Prospectus Supplement.
COMMON STOCK
Subject to the preferential rights of any other shares or series of stock
and to the provisions of the Charter regarding Excess Shares (as defined
herein), holders of shares of Common Stock will be entitled to receive dividends
on such stock as the Board of Directors may declare out of assets legally
available for the payment of dividends. See "-- Restrictions on Ownership". Upon
issuance against full payment of the purchase price therefor, the Common Stock
will be fully paid and nonassessable and have no preferences or conversion,
exchange or preemptive rights. In the event of any liquidation, dissolution or
winding-up of the Company, the holders of shares of Common Stock are entitled to
share ratably in any of the Company's assets remaining after the satisfaction of
all obligations and liabilities of the company and after required distributions
to holders
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of Preferred Stock, if any. The Common Stock is subject to restrictions on
transfer under certain circumstances. See "-- Restrictions on Ownership."
Subject to the provisions of the Charter regarding Excess Shares, each
share of Common Stock will be entitled to one vote on all matters voted upon by
the holders of Common Stock. Holders of shares of Common Stock will have no
cumulative voting rights. The Company's Bylaws provide that the President, Chief
Executive Officer or a majority of the Board may call a special meeting and the
Secretary of the Company must call a special meeting of stockholders upon
written request of stockholders entitled to cast at least 25% of all votes
entitled to be cast at the meeting.
Pursuant to the MGCL, a corporation generally cannot dissolve, amend its
charter, merger, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's charter. The Charter of the
Company contains no such provision. As permitted by the MGCL, the Charter of the
Company provides that the affirmative vote of the holders of at least 90% of the
"voting stock" of the Company, voting together as a single class, shall be
required to repeal or amend any provision relating to removal of directors, the
limit on ownership and Excess Shares, amendment of the Charter and limitation of
liability and indemnification of directors and officers.
The Charter authorizes the Board of Directors to reclassify any unissued
shares of Common Stock into other series of stock and to establish the number of
shares in each series and to fix the designation, conversion or other rights,
voting powers, restrictions, limitations as to distributions, preferences,
qualifications or terms or conditions of redemption of such shares of each such
series.
The Common Stock of the Company is listed on the NYSE under the symbol
"CCT." The transfer agent for the Common Stock is AmSouth Bank, Birmingham,
Alabama.
RESTRICTIONS ON OWNERSHIP
The Charter contains a number of provisions which restrict the ownership
and transfer of shares and which are designed to safeguard the Company against
an inadvertent loss of REIT status. For the Company to qualify as a REIT under
the Code in any taxable year after the first year of its election to be treated
as a REIT, (i) not more than 50% in value of its outstanding Stock (as defined
below) may be owned, directly or indirectly (after application of certain
complex attribution rules), by five or fewer individuals at any time during the
last half of its taxable year, and (ii) its Stock 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.
In connection with the foregoing, if the Board of Directors shall, at any
time and in good faith, believe that direct or indirect ownership (as determined
under applicable federal tax attribution rules) of at least 9.8% or more in
number or value of the outstanding Common Stock and/or Preferred Stock
(collectively, the "Stock") has or may become concentrated in the hands of one
beneficial owner, the Board of Directors has the power to refuse to transfer or
issue Stock to a person whose acquisition of such Stock would cause a beneficial
holder to hold in excess of 9.8% in number or value of the outstanding Stock.
Further, any transfer of Stock that would create a beneficial owner of more than
9.8% in number or value of the outstanding Stock shall be deemed null and void,
and the intended transferee shall be deemed never to have had an interest
therein.
If at any time there is a transfer in violation of such restrictions, the
shares of Stock held by such person in excess of the 9.8% limitation (the
"Excess Shares") shall be deemed automatically to have been converted into a
class separate and distinct from the class or series from which converted and
from any other class of Excess Shares, each such class being designated "Excess
Shares of [Name of Stockholder]." Excess Shares shall be issued and outstanding
but shall have no voting rights. No dividends shall be paid with respect to
Excess Shares. The Company shall have the right to redeem Excess Shares for the
lesser of the amount paid by the intended transferee for the Excess Shares or
the market price. The market price for any Stock so
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<PAGE> 45
purchased shall be equal to (i) the average daily per share closing sales price
of a share of stock of the class of the Company from which such Excess Share was
converted, if then listed on a national securities exchange or on the Nasdaq
National Market or (ii) if such shares are not so listed, the market price shall
be the mean between the average per share closing bid prices and asked prices,
in each case during the 30-day period ending on the business day prior to the
redemption date. If no such closing sales prices or quotations are available,
the purchase price shall be the price determined by the Board of Directors in
good faith.
The Board of Directors of the Company may exempt certain persons from these
restrictions, if evidence satisfactory to the Board of Directors is presented
showing that such exemption will not jeopardize the Company's status as a REIT
under the Code. As a condition of such exemption, the Board of Directors may
require a ruling from the Internal Revenue Service and/or an opinion of counsel
satisfactory to it and/or representations and undertakings from the applicant
with respect to preserving the REIT status of the Company.
The foregoing restrictions on transferability and ownership will not apply
if the Board of Directors determines that it is no longer in the best interests
of the Company to attempt to qualify, or to continue to qualify, as a REIT.
ANTITAKEOVER EFFECT OF OWNERSHIP LIMIT AND POWER TO ISSUE ADDITIONAL SHARES
For the Company to qualify as a REIT under the Code in any taxable year, no
more than 50% in value of its outstanding stock may be owned directly, or
indirectly by attribution, by five or fewer individuals (as defined in the Code
to include certain entities) at any time during the second half of the Company's
taxable year (other than during the first year for which the Company elects to
be treated as a REIT). In addition, the outstanding stock must be owned by 100
or more persons during at least 335 days of a taxable year of 12 months or
during a proportional part of a shorter taxable year (other than during the
first year for which the Company elects to be treated as a REIT). See "Federal
Income Tax Considerations."
Because of the stock ownership requirements applicable to REITs, the
Company's Charter contains restrictions on transfer of its stock. Such
restrictions authorize the Company to refuse to transfer stock to any person, if
as a result of such transfer such person or entity would beneficially own stock
in excess of 9.8% in number or value of the outstanding stock of the Company.
Such provisions may inhibit market activity and the resulting opportunity for
stockholders to realize a premium for their Securities that might otherwise
exist if a stockholder were attempting to assemble a block of stock in excess of
9.8% in number or value of the outstanding stock. Also, there can be no
assurance that such provisions will in fact enable the Company to meet the
relevant REIT stock ownership requirements.
The Company's Charter authorizes the Board of Directors to cause the
Company to issue additional authorized but unissued shares of Common Stock or
Preferred Stock and to classify or reclassify any unissued shares of Common
Stock or Preferred Stock and to set the preferences, rights and other terms of
such classified or unclassified shares. Although the Board of Directors has no
such intention at the present time, it could establish a series of Preferred
Stock that could, depending on the terms of such series, delay or impede a
transaction or a change of control of the Company that might involve a premium
price for the Common Stock or otherwise be in the best interest of the
stockholders. The Charter and Bylaws of the Company also contain other
provisions that may delay or impede a transaction or a change of control of the
Company that might involve a premium price for the Common Stock or otherwise be
in the best interest of the stockholder.
MARYLAND BUSINESS COMBINATION LAW
Under the MGCL, certain "business combinations" (including certain
issuances of equity securities) between a Maryland corporation and any
Interested Stockholder or an affiliate thereof are prohibited for five years
after the most recent date on which the Interested Stockholder becomes an
Interested Stockholder. Thereafter, any such business combination must be
approved by two super-majority stockholder votes unless, among other conditions,
the corporation's common stockholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the same
form as previously paid by the Interested Stockholder for its shares.
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DESCRIPTION OF WARRANTS
The Company has no Warrants outstanding (other than options issued under
the Company's 1994 Stock Incentive Plan), as of July 18, 1997. The Company may
issue Warrants for the purchase of Preferred Stock, Common Stock or Debt
Securities. Warrants may be issued independently or together with any other
Securities offered by any Prospectus Supplement and may be attached to or
separate from such Securities. Each series of Warrants will be issued under a
separate warrant agreement (each, a "Warrant Agreement") to be entered into
between the Company and a warrant agent specified in the applicable Prospectus
Supplement (the "Warrant Agent"). The Warrant Agent will act solely as an agent
of the Company in connection with the Warrants of such series and will not
assume any obligation or relationship of agency or trust for or with any
provisions of the Warrants offered hereby. Further terms of the Warrants and the
applicable Warrant Agreements will be set forth in the applicable Prospectus
Supplement.
The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered, and shall set
forth the following: (1) The title of such Warrants; (2) The aggregate number of
such Warrants; (3) The price or prices at which such Warrants will be issued;
(4) The designation, number of terms of the shares of Preferred Stock, Common
Stock or Debt Securities purchasable upon exercise of such Warrants; (5) The
designation and terms of the Securities, if any, with which such Warrants are
issued and the number of such Warrants issued with each such Security; (6) The
date, if any, on and after which such Warrants and the related Preferred Stock,
Common Stock or Debt Securities will be separately transferable; (7) The price
at which each share of Preferred Stock, Common Stock or Debt Securities
purchasable upon exercise of such Warrants may be purchased; (8) The date on
which the right to exercise such Warrants shall commence and the date on which
such right shall expire; (9) The minimum or maximum amount of such 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
consequences; and (12) Any other terms of such Warrants, including terms,
procedures and limitations relating to the exchange and exercise of such
Warrants.
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FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion represents a summary of the material U.S. federal
income tax consequences relating to the purchase, ownership and disposition of
the Securities. In addition, set forth below is a general discussion of the
material U.S. federal income tax considerations relating to the treatment of the
Company as a REIT and ownership of Securities therein. The discussion is based
on the Code, current and proposed Treasury Regulations promulgated thereunder,
administrative rulings and applicable judicial decisions, all of which are
subject to change, possibly with retroactive effect. The discussion does not
purport to deal with all aspects of federal income taxation that may be relevant
to particular holders of Securities in view of their personal circumstances and,
except as otherwise specifically indicated, is not addressed to certain types of
holders subject to special treatment under federal income tax law, such as
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, persons that hold Securities that are a hedge or that are hedged
against currency risks or that are part of a "straddle" or "conversion"
transaction, and foreign persons.
In the opinion of Sirote & Permutt, P.C., the Company was and is organized
in conformity with the requirements for qualification as a REIT and its proposed
method of operation as described in this Prospectus permits it to meet the
requirements for qualification and taxation as a REIT under the Code.
Qualification of the Company as a REIT will depend upon its ability to meet,
through actual annual and other operating results, the various qualification
tests imposed under the Code, as discussed below. Such opinion assumes, although
no assurance can be given, that the actual results of the Company's operations
for any one taxable year will satisfy such requirements. See "-- Taxation of the
Company -- Failure to Qualify" below.
PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY ARE URGED TO
CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE SPECIFIC FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES RELATING TO THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE SECURITIES.
TAXATION OF THE COMPANY
The Company was organized and has elected, and believes that it has been
operated and intends to operate so as to, qualify as a REIT for federal income
tax purposes under Sections 856 through 860 of the Code (the "REIT Provisions of
the Code"). No assurance can be given, however, that the Company will continue
to be operated in a manner so as to remain qualified as an REIT.
In brief, if certain detailed conditions imposed by the REIT Provisions of
the Code are met, entities such as the Company that invest primarily in real
estate and that otherwise would be treated for federal income tax purposes as
corporations subject to regular corporate income tax are generally not taxed at
the corporate level on their "REIT taxable income" that is distributed to
stockholders. This treatment substantially eliminates the "double taxation" (at
both the corporate and stockholder levels) that generally results from the use
of corporate investment vehicles.
If the Company were to fail to qualify as a REIT in any year, it would be
subject to federal income tax at regular corporate income tax rates as if it
were a regular domestic corporation, and its stockholders would be taxed in the
same manner as stockholders of regular corporations. In this event, the Company
could be subject to potentially significant tax liabilities and therefore the
amount of cash available to make distributions to its stockholders would be
reduced.
General. Provided the Company qualifies for taxation as a REIT under the
Code, the Company, generally will not be subject to federal income tax on that
portion of its ordinary income or capital gain that is currently distributed to
its stockholders. The Company will be subject to federal income tax, however, as
follows: First, the Company will be taxed at regular corporate rates on any
undistributed "REIT taxable income," including undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference, if any. Third, if the
Company has net income from the sale or other disposition of foreclosure
property that is held primarily for sale to customers in
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the ordinary course of business or other nonqualifying income from foreclosure
property, it will be subject to tax on such income at the highest corporate
rate. Fourth, any net income that the Company has from prohibited transactions
(which are, in general, certain sales or other dispositions of property other
than foreclosure property held primarily for sale to customers in the ordinary
course of business) will be subject to a 100% tax. Fifth, if the Company was to
fail to satisfy either the 75% or 95% gross income tests (as discussed below),
and nonetheless maintains its qualification as a REIT because certain other
requirements have been met, it would be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the 75% or
95% gross income tests, multiplied by a fraction intended to reflect the
Company's profitability. Sixth, if the Company fails to distribute during each
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from preceding periods, then the Company would be
subject to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed. Seventh, provided certain federal tax elections
are made, if, during the 10-year period commencing on the day on which assets
having a net unrealized built-in gain are acquired by the Company from a C
corporation in a transaction in which the Company inherits the tax basis in such
assets from the C corporation, the Company recognizes a gain from the
disposition of all or a portion of such assets, then the Company will be subject
to tax at the highest regular corporate rate on the excess, if any, of the fair
market value over the adjusted basis of any such asset disposed of determined as
of the beginning of the relevant 10-year period.
Requirements for Qualification as a REIT. To qualify as a REIT for a
taxable year under the Code, the Company must elect or have in effect an
election to be so treated and must meet certain other requirements, as
summarized below, including percentage tests relating to the sources of its
gross income, the nature of the Company's assets, and the distribution of its
income to stockholders. Such election, if properly made and assuming continuing
compliance with the qualification tests described herein, will continue in
effect for subsequent taxable years.
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, but for the REIT Provisions of
the Code, as an association taxable as a domestic corporation, (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, determined without reference to any rules of attribution (the
"share ownership" test), (6) which is not closely held as determined under the
personal holding company stock ownership test of Section 542(a) (as applied with
certain modifications), and (7) which meets certain other tests described below
regarding the nature of its income and assets. The Code provides that conditions
(1) through (4), inclusive, must be met during the entire taxable year and that
condition (5) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
By reason of condition (6) above, the Company will fail to qualify as a REIT for
a taxable year if at any time during the last half of such year more than 50% in
value of its outstanding stock is owned directly or indirectly (including under
certain complex ownership attribution rules) by five or fewer individuals (the
"five or fewer test"). For purposes of the five or fewer test, any stock held by
a qualified trust described in Section 401(a) of the Code will be treated as if
the stock is held directly by the beneficiaries of the trust in proportion to
their actual interest in the trust rather than as held by the trust. The five or
fewer test and the share ownership test do not apply to the first taxable year
for which an election is made to be treated as a REIT. As previously described,
the Company's Charter provides for restrictions regarding the transfer of Common
Stock that are intended to assist the Company in continuing to satisfy the share
ownership test and the five or fewer test described in (5) and (6) above. See
"Description of Capital Stock -- Restrictions on Ownership."
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company has a calendar year taxable year.
If a REIT owns a qualified REIT subsidiary, the Code provides that the
qualified REIT subsidiary is disregarded for federal income tax purposes, and
all assets, liabilities, and items of income, deduction and
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credit of the qualified REIT subsidiary are treated as assets, liabilities and
such items of the REIT itself. A qualified REIT subsidiary is a corporation of
which all of the outstanding capital stock is owned by the REIT.
Gross Income Tests. There are two separate percentage tests relating to
the sources of the Company's gross income which must be satisfied annually.
1. The 75% Test. At least 75% of the Company's gross income from the
taxable year must be "qualifying income." Qualifying income generally
includes (i) rents from real property (except as modified below), (ii)
interest on obligations collateralized by mortgages on, or interest in real
property, (iii) gains from the sale or other disposition of interests in
real property and real estate mortgages, other than gain from property held
primarily for sale to customers in the ordinary course of the Company's
trade or business ("dealer property"), (iv) dividends or other
distributions on shares in other REITs, as well as gain from the sale of
such shares, (v) abatements and refunds of real property taxes, (vi) income
from the operation, and gain from the sale of property reduced to
possession following a lessee's default under the terms of a lease of
property acquired at or in lieu of a foreclosure of the mortgage
collateralized by such property ("foreclosure property"), (vii) commitment
fees received for agreeing to make loans collateralized by mortgages on
real property or to purchase or lease real property, and (viii) certain
qualified temporary investment income attributable to the investment of new
capital received by the Company in exchange for its shares during the
one-year period following the receipt of such new capital.
2. The 95% Test. In addition to deriving 75% of its gross income from
the sources listed above, at least 95% of the Company's gross income for
the taxable year must be derived from the above-described qualifying
income, or from dividends, interest or gains from the sale or disposition
of stock or other securities that are not dealer property. Dividends and
interest on any obligations not collateralized by an interest in real
property are included for purposes of the 95% test, but not for purposes of
the 75% test. Similarly, any payments made to the Company by a financial
institution pursuant to a rate protection agreement that hedges variable
rate indebtedness incurred by the Company to acquire or carry real estate
assets will be included as qualifying income for purposes of the 95% gross
income test, but not for purposes of the 75% test.
For purposes of determining whether the Company complies with the 75%
and 95% income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property,
excluding sales of foreclosure property and certain sales of dealer
property exempted from the prohibited transaction tax by virtue of a
limited safe harbor rule.
In order to qualify as rents from real property, the amount of rent
received generally must not be based on the income or profits of any
person, but may be based on a fixed percentage or percentages of receipts
or sales. The Code also provides that rents will not qualify as rents from
real property, in satisfying the gross income tests, if the REIT owns 10%
or more of the tenant, whether directly or pursuant to certain attribution
rules. The Company intends to lease property only under circumstances such
that substantially all rents from such property would qualify as rents from
real property. Although it is possible that a tenant could sublease space
to a sublessee in which the REIT is deemed to own directly or indirectly
10% or more of the tenant, the Company believes that as a result of the
provisions in the Articles of Incorporation limiting ownership to 9.8% such
occurrence would be unlikely. Application of the 10% ownership rule is,
however, dependent upon complex attribution rules provided in the Code and
circumstances beyond the control of the Company. Ownership, directly or by
attribution, by an unaffiliated third party of more than 10% of the
Company's Common Stock and more than 10% of the stock of any lessee or
sublessee would result in a violation of the rule.
In order to qualify as interest on obligations secured by mortgages on
real property, the amount of interest received generally must not be based
on the income or profits of any person, but may be based on a fixed
percentage or percentages of receipts or sales.
In addition, the Company must not manage its properties or furnish or
render services to the tenants of its properties, except through an
independent contractor from whom the Company derives no income. There is an
exception to this rule permitting a REIT to perform directly certain
customary tenant services
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which are "reasonable and customary" in the geographic area in which the
services are performed. The Company anticipates that any services provided
for tenants will meet this requirement.
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. Generally, this 15% test is
applied separately to each lease. The portion of rental income treated as
attributable to personal property is determined according to the ratio of
the tax basis of the personal property to the total tax basis of the
property which is rented. The determination of what fixtures and other
property constitute personal property for federal tax purposes is difficult
and imprecise. The Company does not believe that it will have 15% in value
of any of its real properties classified as personalty. If however, rent
payments do not qualify, for reasons discussed above, as rents from real
property for purposes of Section 856 of the Code, it will be more difficult
for the Company to meet the 95% or 75% gross income tests.
The Company may temporarily invest its working capital in short-term
investments, including shares in other REITs or interests in real estate
mortgage investment conduits. Although the Company will use its best
efforts to ensure that its income generated by these investments will be of
a type which satisfies the 75% and 95% gross income tests, there can be no
assurance in this regard. Moreover, the Company may realize short-term
capital gain upon sale or exchange of such investments. The Company
generally expects to meet the 75% and 95% gross income tests through the
rental of the property it acquires.
If the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, the Company may nevertheless qualify as
a REIT for such year if it is entitled to relief under certain provisions
of the Code. It is not possible, however, to know whether the Company would
be entitled to the benefit of these relief provisions as the application of
the relief provisions is dependent on future facts and circumstances. If
these relief provisions apply, a special tax generally equal to 100% is
imposed upon the net income attributable to the greater of the amount by
which the Company failed the 75% or 95% gross income tests, multiplied by a
fraction intended to reflect the Company's profitability.
Asset Tests. At the close of each quarter of the Company's taxable year,
the Company must also satisfy three tests relating to the nature of its assets.
First, at least 75% of the value of the Company's total assets must consist of
real estate assets (including interests in real property and interests in
mortgages on real property as well as its allocable share of real estate assets
held by joint ventures or partnerships in which the Company participates, if
any), cash, cash items and government securities. Second, not more than 25% of
the Company's total assets may be represented by securities other than those
includible in the 75% asset class. Finally, of the investments included in the
25% asset class, the value of any one issuer's securities owned by the Company
may not exceed 5% of the value of the Company's total assets, and the Company
may not own more than 10% of any one issuer's outstanding voting securities. The
Company may own 100% of another corporation, provided such other corporation
constitutes a qualified REIT subsidiary under the REIT Provisions of the Code.
As noted above, in such as case the separate existence of the qualified REIT
subsidiary is ignored for federal income tax purposes and the assets, income,
gain, loss and other attributes of such entity are treated as being owned or
generated directly by the Company.
The Company will not fail to meet the Asset Tests described above at the
close of any quarter merely because of a change in the value of its assets in a
subsequent quarter unless, subject to a 30 day grace period ending after the
close of such subsequent quarter, such change exists immediately after the
acquisition of any security or other property and is wholly or partly the result
of such an acquisition during such quarter. The Company intends to maintain
adequate records as to the value of its assets in order to maintain compliance
with the Asset Tests.
Annual Distribution Requirements. The Company, in order to continue to
qualify as a REIT, is required to distribute dividends (other than capital gain
dividends) to its stockholders in an amount equal to or greater than the excess
of (A) the sum of (i) 95% of the Company's "REIT taxable income" (computed
without regard to the dividends paid deduction and the Company's net capital
gain) and (ii) 95% of the net income, if any, (after tax) from foreclosure
property, over (B) the sum of certain non-cash income (from certain imputed
rental income and income from transactions inadvertently failing to qualify as
like-kind exchanges).
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To the extent that the Company does not distribute all of its net long-term
capital gain and all of its REIT taxable income, it will be subject to tax
thereon. In addition, the Company will be subject to a 4% excise tax to the
extent it fails within a calendar year to make required distributions to its
stockholders of 85% of its ordinary income and 95% of its capital gain net
income plus the excess, if any, of the grossed up required distribution for the
preceding calendar year over the amount treated as distributed for such
preceding calendar year. For this purpose, "grossed up required distribution"
for any calendar year is the sum of the taxable income of the Company for the
taxable year (without regard to the deduction for dividends paid) and all
amounts from earlier years that are not treated as having been distributed under
the provision. Dividends declared in the last quarter of the year (October,
November or December) and paid during the following January, will be treated as
having been paid and received on December 31.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirements due to
timing differences between actual receipt of income and actual payment of
deductible expenses or dividends on the one hand and the inclusion of such
income and deduction of such expenses or dividends in arriving at REIT taxable
income of the Company on the other hand. The problem of inadequate cash to make
required distributions could also occur as a result of the repayment in cash of
principal amounts due on the Company's outstanding debt, particularly in the
case of balloon repayments or as a result of capital losses on short-term
investments of working capital. Therefore, the Company might find it necessary
to arrange for short-term, or possibly long-term, borrowing or new equity
financing. If the Company were unable to arrange such borrowing or financing as
might be necessary to provide funds for required distributions, its REIT status
could be jeopardized.
Under certain circumstances, the Company may be able to rectify a failure
to meet the annual REIT distribution requirements for a taxable year by paying
deficiency dividends to stockholders within a specified period.
Share Ownership Test. As described above, the Company's stock must be held
by a minimum of 100 persons for at least approximately 92% of the days in each
taxable year subsequent to 1994. In addition, at all times during the second
half of each taxable year subsequent to 1994, no more than 50% in value of the
shares of beneficial interest of the Company may be owned, directly or
indirectly, and by applying certain constructive ownership rules, by five or
fewer individuals. In order to assist in complying with this test, the Company
has placed certain restrictions on the transfer of the stock to prevent further
concentration of share ownership. Moreover, to evidence compliance with these
requirements, the Company must maintain records which disclose the actual
ownership of its outstanding stock. In fulfilling its obligations to maintain
records, the Company must and will demand written statements each year from the
record holders of designated percentages of its Common Stock disclosing the
actual owners of such stock. A list of those persons failing or refusing to
comply with such demand must be maintained as a part of the Company's records. A
stockholder failing or refusing to comply with the Company's written demand must
submit with his tax returns a similar statement disclosing the actual ownership
of stock and certain other information. In addition, the Company's Charter
provides restrictions regarding the transfer of its shares that are intended to
assist the Company in continuing to satisfy the share ownership requirements.
Other REIT Issues. With respect to property acquired from and leased back
to the same or an affiliated party of a lessee, the IRS could assert that the
Company realized prepaid rental income in the year of purchase to the extent
that the value of the leased property exceeds the purchase price paid by the
Company for that property. In litigated cases involving sale-leasebacks which
have considered this issue, courts have concluded that buyers have realized
prepaid rent where both parties acknowledged that the purported purchase price
for the property was substantially less than fair market value and the purported
rents were substantially less than the fair market rentals. Because of the lack
of clear precedent and the inherently factual nature of the inquiry, complete
assurance cannot be given that IRS could not successfully assert the existence
of prepaid rental income. The value of and fair market rent for properties
involved in sale-leasebacks are inherently factual matters and always subject to
challenge.
Subject to a safe harbor exception for annual sales of up to seven
properties (or properties with a basis of up to 10% of the REIT's assets) that
have been held for four years, gain from the sale of a property held for
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sale to customers in the ordinary course of business is subject to a 100% tax.
The simultaneous exercise of rights of first refusal granted to certain Lessees
or other events could result in sales of properties by the Company that exceed
this safe harbor. However, the Company believes that in such event, it will not
have held such properties for sale to customers in the ordinary course of
business.
Depreciation of Properties. For tax purposes, the Company's real property
generally is expected to be depreciated over 40 years and 20 years for buildings
and land improvements, respectively, utilizing the straight-line method of
depreciation. Personal property is expected to be depreciated over seven years
utilizing the straight-line method of depreciation.
Failure to Qualify. If the Company fails to qualify for taxation as an
REIT in any taxable year and the relief provisions do not apply, the Company
will be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to stockholders in any
year in which the Company fails to qualify will not be deductible by the
Company, nor will they be required to be made. In such event, to the extent of
current or accumulated earnings and profits, all distributions to stockholders
will be taxable as ordinary income, and, subject to certain limitations in the
Code, corporate distributees may be eligible for the dividends received
deduction. Failure to qualify and to maintain qualification as a REIT would
force the Company to significantly reduce its distributions and possibly incur
substantial indebtedness or liquidate substantial investments in order to pay
the resulting corporate taxes. In addition, the Company, once having obtained
REIT status and having lost such status, would not be eligible to elect REIT
status for the four subsequent taxable years, unless its failure to maintain its
qualification was due to reasonable cause and not willful neglect, and certain
other requirements were satisfied. In order to elect again to be taxed as a
REIT, the Company would be required to distribute all of its earnings and
profits accumulated in any non-REIT taxable year.
TAXPAYER RELIEF ACT OF 1997
On August 5, 1997, President Clinton signed into law the Taxpayer Relief
Act of 1997 (H.R. 2014), which will have the effect of modifying certain
REIT-related Code provisions for tax years of the Company beginning on or after
January 1, 1998. Some of the potentially significant REIT-related changes
contained in this legislation include: (i) the rule disqualifying a REIT for any
year in which it fails to comply with certain regulations requiring the REIT to
monitor its stock ownership is replaced with an intermediate financial penalty;
(ii) the rule disqualifying a REIT in any year that it is "closely held" does
not apply if during such year the REIT complied with certain regulations which
require the REIT to monitor its stock ownership, and the REIT did not know or
have reason to know that it was closely held; (iii) a REIT is permitted to
render a de minimis amount of impermissible services to tenants in connection
with the management of property and still treat amounts received with respect to
such property (other than certain amounts relating to such services) as
qualified rent; (iv) the rules regarding attribution to partnerships for
purposes of defining qualified rent and independent contractors are modified so
that attribution occurs only when a partner owns a 25% or greater interest in
the partnership; (v) the 30% gross income test is repealed; (vi) any corporation
wholly-owned by a REIT is permitted to be treated as a qualified REIT subsidiary
regardless of whether such subsidiary has always been owned by the REIT; (vii) a
REIT may elect to retain, rather than distribute, its net long-term capital
gains and pay the tax on such gains, while its shareholders include their
proportionate share of the undistributed long-term capital gains in income and
receive a credit for their share of the tax paid by the REIT; (viii) the class
of excess noncash items for purposes of the REIT distribution requirements is
expanded; and (ix) certain other Code provisions relating to REITs are amended.
Some or all of the provisions could affect both the Company's operations and its
ability to maintain its REIT status for its taxable years beginning in 1998.
TAXATION OF HOLDERS OF DEBT SECURITIES
As used herein, the term "U.S. Holder" means a holder of a Debt Security
who (for U.S. federal income tax purposes) is (i) a citizen (or, if certain
conditions are met, a former citizen) or resident of the United States, (ii) a
corporation or partnership created or organized under the laws of the United
States or any state thereof, (iii) an estate the income of which is includable
in gross income for federal income tax purposes
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regardless of source or (iv) a trust if a court within the United States is able
to exercise primary supervision over the administration of the trust and one or
more U.S. fiduciaries has the authority to control all substantial decisions of
the trust. "Non-U.S. Holder" means a holder of a Debt Security other than a U.S.
Holder.
U.S. Holders
Payments of Interest. Interest on a Debt Security will be taxable to a
U.S. Holder as ordinary income at the time it is received or accrued, depending
on the holder's method of accounting for tax purposes.
Purchase, Sale and Retirement of the Debt Securities. A U.S. Holder's tax
basis in a Debt Security will generally be its U.S. dollar cost. A U.S. Holder
will generally recognize gain or loss on the sale or retirement of a Debt
Security equal to the difference, if any, between the amount realized on the
sale or retirement and the U.S. Holder's adjusted tax basis in the Debt
Security. Except to the extent attributable to accrued but unpaid interest and
assuming that the Debt Security is held as capital asset at all relevant times,
gain or loss recognized on the sale or retirement of a Debt Security generally
will be capital gain or loss and generally will be long-term capital gain or
loss if the Debt Security was held for more than one year.
Non-U.S. Holders
This discussion assumes that the Debt Security is not subject to the rules
of Section 871(h)(4)(A) of the Code (relating to interest payments that are
determined by reference to the income, profits, changes in the value of property
or other attributes of the debtor or a related party).
Under present U.S. federal income and estate tax law, and subject to the
discussion of backup withholding below:
(i) payments of principal, premium (if any) and interest by the
Company or any of its paying agents to any holder of a Debt Security that
is a Non-U.S. Holder will not be subject to U.S. federal withholding tax
if, in the case of interest (a) the beneficial owner of the Debt Security
does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company entitled to vote, (b)
the beneficial owner of the Debt Security is not a controlled foreign
corporation that is related to the Company through stock ownership, and (c)
either (A) the beneficial owner of the Debt Security certifies to the
Company or its agent, under penalties of perjury, that it is not a U.S.
person and provides its name and address or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds the Debt Security certifies to the Company or its
agent under penalties of perjury that such statement has been received from
the beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof;
(ii) a Non-U.S. Holder of a Debt Security will not be subject to U.S.
federal income or withholding tax on any gain realized on the sale or
exchange of a Debt Security unless such holder is an individual who is
present in the United States for 183 days or more in the taxable year of
disposition and certain conditions are met; and
(iii) a Debt Security held by an individual who at death is not a
citizen or resident of the United States will not be includible in the
individual's gross estate for purposes of the U.S. federal estate tax as a
result of the individual's death if (a) the individual did not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote and (b) the income on the
Debt Security would not have been effectively connected with a United
States trade or business of the individual at the time of the individual's
death.
Recently proposed Internal Revenue Service Treasury regulations (the
"Proposed Regulations") would provide alternative methods for satisfying the
certification requirement described in clause (i)(c) above. The Proposed
Regulations also would require, in the case of Debt Securities held by a foreign
partnership, that (x) the certification described in clause (i)(c) above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. A look-through rule would apply in the case of tiered
partnerships. The Proposed
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Regulations are proposed to be effective for payments made after December 31,
1997. There can be no assurance that the Proposed Regulations will be adopted or
as to the provisions that they will include if and when adopted in temporary or
final form.
Information Reporting and Backup Withholding
U.S. Holders. In general, information reporting requirements will apply to
payments of principal, any premium and interest on a Debt Security and the
proceeds of the sale of a Debt Security before maturity within the United States
to non-corporate U.S. Holders, and "backup withholding" at a rate of 31% will
apply to such payments if the U.S. Holder fails to provide an accurate taxpayer
identification number or to report all interest and dividends required to be
shown on its federal income tax returns.
Non-U.S. Holders. Information reporting and backup withholding will not
apply to payments of principal, premium (if any) and interest made by the
Company or a paying agent to a Non-U.S. Holder on a Debt Security if the
certification described in clause (i)(c) under "Non-U.S. Holders" above is
received, provided that the payor does not have actual knowledge that the holder
is a U.S. person.
Payments of the proceeds from the sale by a Non-U.S. Holder of a Debt
Security made to or through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the broker is a U.S.
person, a controlled foreign corporation for U.S. federal income tax purposes or
a foreign person 50% or more of whose gross income is effectively connected with
a United States trade or business for a specified three-year period, information
reporting may apply to such payments. Payments of the proceeds from the sale of
a Debt Security to or through the United States office of a broker is subject to
information reporting and backup withholding unless the holder or beneficial
owner certifies as to its non-United States status or otherwise establishes an
exemption from information reporting and backup withholding.
Original Issue Discount and Other Special Federal Tax Rules Applicable to Debt
Securities
The applicable Prospectus Supplement will contain a discussion of any
special U.S. federal income tax rules with respect to Debt Securities that are
issued at a discount or premium or as a unit with other Securities, have a
maturity of one year or less, provide for conversion rights, contingent
payments, early redemption or payments that are denominated in or determined by
reference to a currency other than the U.S. dollar or otherwise subject to
special U.S. federal income tax rules.
TAXATION OF DOMESTIC STOCKHOLDERS
Taxation of Taxable Domestic Stockholders. As used herein, the term
"domestic stockholder" means a stockholder of the Company who, for U.S. federal
income tax purposes, is (i) a citizen (or, if certain conditions are met, a
former citizen) or resident of the United States, (ii) a corporation or
partnership created or organized under the laws of the United States or any
state thereof, (iii) an estate the income of which is includable in gross income
for federal income tax purposes regardless of source or (iv) a trust if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more U.S. fiduciaries has the authority
to control all substantial decisions of the trust. As long as the Company
qualifies as a REIT, distributions other than capital gain dividends (including
reinvestments pursuant to the Company's dividend reinvestment plan, if any) made
to the Company's taxable domestic stockholders out of current and accumulated
earnings and profits will be taken into account by them as ordinary income, and
corporate stockholders will not be eligible for the dividends received
deduction. Distributions that are designated as capital gain dividends will be
taxed as long-term capital gains to the extent they do not exceed the Company's
actual net capital gain for the taxable year, although corporate stockholders
may be required to treat up to 20% of any such capital gain dividend as ordinary
income. Distributions in excess of the Company's current and accumulated
earnings and profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of a stockholder's shares of stock. To the
extent that such distributions exceed the adjusted basis of a stockholder's
shares of stock, they will be included in income as long-term capital gain (or
short-term capital gain if the shares of stock have been held for not more than
one year) assuming the shares
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of stock are a capital asset in the hands of the stockholder. Stockholders may
not include, in their respective income tax returns, any net operating losses or
capital losses of the Company.
Dividends declared by the Company in the last quarter of the calendar year
(October through December) to stockholders of record on a date in such quarter
shall be treated as both paid by the Company and received by such stockholders
on December 31 of such year, provided that the Company actually pays such
dividends during January of the following calendar year.
In general, any gain or loss recognized by a stockholder on the sale or
other taxable disposition of shares of stock will be treated as capital gain or
loss, provided the shares are a capital asset in the hands of the seller. In
general, any loss upon a sale or exchange of shares of stock by a stockholder
who has held such shares for not more than six months (after applying certain
rules), will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such stockholder as
long-term gain.
Tax preference and other items which are treated differently for regular
and alternative minimum tax purposes are to be allocated between a REIT and its
stockholders under regulations which are to be prescribed. It is likely that
these regulations would require tax preference items to be allocated to the
Company's stockholders with respect to any accelerated depreciation claimed by
the Company.
The Taxpayer Relief Act of 1997 (the "Act") alters the taxation of capital
gain income. Under the Act, individuals who hold certain investments for more
than 18 months may be taxed at a maximum long-term capital gain rate of 20% on
the sale or exchange of those investments. Individuals who hold certain assets
for more than 12 months but less than 18 months may be taxed at a maximum
mid-term capital gain rate of 28% on the sale or exchange of those investments.
The Act also provides a maximum rate of 25% for "unrecaptured section 1250 gain"
for individuals, special rules for "qualified 5-year gain," as well as other
changes to prior law. The Act allows the IRS to prescribe regulations on how the
Act's new capital gain rates will apply to sales of capital assets by "pass-thru
entities," which include REITs such as the Company. To date regulations have not
yet been prescribed, and it remains unclear how the Act's new rates will apply
to capital gain dividends or undistributed capital gains, including for example
the extent, if any, to which capital gain dividends or undistributed capital
gains from the Company will be taxed to individuals at the new rates for
mid-term capital gains and unrealized section 1250 recapture, rather than the
long-term capital gain rates. Investors are urged to consult their own tax
advisors with respect to the new rules contained in the Act.
Taxation of Tax-Exempt Domestic Stockholders. As a general rule, amounts
distributed by a REIT to a tax-exempt entity do not constitute unrelated
business taxable income ("UBTI") and thus distributions by the Company to a
stockholder that is a tax-exempt entity should not constitute UBTI, provided
that the tax-exempt entity has not financed the acquisition of stock with
"acquisition indebtedness" within the meaning of the Code and the tax-exempt
entity's shares of stock are not otherwise used in an unrelated trade or
business of the tax-exempt entity. Similarly, gain from the sale of stock by a
stockholder that is a tax-exempt entity should not generally constitute UBTI
unless the tax-exempt stockholder has held such stock as a "dealer" under the
Code or has financed the acquisition of such stock with "acquisition
indebtedness." If a REIT constitutes a "pension-held REIT" in a taxable year,
distributions by such REIT to a tax-exempt employee's pension trust that owns
more than 10% of the REIT may be treated as UBTI in an amount equal to the
percentage of gross income of the REIT that is derived from an "unrelated trade
or business" (determined as if the REIT were a pension trust and subject to
certain de minimis rules) divided by the gross income of the REIT for the year
in which the dividends are paid. This rule only applies, however, if (i) the
percentage of the gross income derived from the REIT for the year in which the
dividends are paid is at least five percent, (ii) the REIT qualifies as a REIT
only because the pension trust is not treated as a single individual for
purposes of the "five-or-fewer" rule (see "--Taxation of the
Company -- Requirements for Qualification as a REIT") and (iii) (A) one pension
trust owns more than 25% of the value of the REIT, or, (B) a group of pension
trusts individually holding more than 10 percent of the value of the REIT
collectively own more than 50 percent of the value of the REIT. The Company does
not expect that it will constitute a "pension-held REIT" in part because the
ownership limits in the Company's Charter (assuming no waiver of such limits by
the Board of Directors) would prevent such a pension trust from acquiring stock
in excess of the Ownership Limit.
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TAXATION OF FOREIGN STOCKHOLDERS
The following is a discussion of certain anticipated U.S. federal income
and estate tax consequences of the ownership and disposition of stock applicable
to Non-U.S. Holders of such shares. A "Non-U.S. Holder" is any person other than
(i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in the United States or under the laws of the
United States or of any state thereof, (iii) an estate whose income is
includible in gross income for U.S. federal income tax purposes regardless of
its source or (iv) a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more U.S. fiduciaries has the authority to control all substantial decisions of
the trust. The discussion is based on current law and is for general information
only. The discussion addresses only certain and not all aspects of U.S. federal
income and estate taxation.
Ordinary Dividends. The portion of dividends received by Non-U.S. Holders
payable out of the Company's earnings and profits which are not attributable to
capital gains of the Company and which are not effectively connected with a U.S.
trade or business of the Non-U.S. Holder will be subject to U.S. withholding tax
at the rate of 30% (unless reduced by an applicable treaty). In general, and
subject to the discussion below, Non-U.S. Holders will not be considered engaged
in a U.S. trade or business solely as a result of their ownership of stock. In
cases where the dividend income from a Non-U.S. Holder's investment in stock is
(or is treated as) effectively connected with the Non-U.S. Holder's conduct of a
U.S. trade or business, the Non-U.S. Holder generally will be subject to U.S.
tax at graduated rates, in the same manner as U.S. stockholders are taxed with
respect to such dividends (and may also be subject to the 30% branch profits tax
in the case of a Non-U.S. Holder that is a foreign corporation).
To determine the applicability of a tax treaty providing for a lower rate
of withholding, dividends paid to an address in a foreign country are presumed
under current Treasury Regulations to be paid to a resident of that country
absent knowledge that the presumption is not warranted. Treasury regulations
proposed in April 1996 would require non-U.S. Holders to file a "withholding
certificate" with the Company's withholding agent certifying such holder's
entitlement to benefits under a treaty. Such certificates would contain the
holder's name and address and other pertinent information and the basis for any
reduced rate claimed. These withholding certificates would be required in the
case of dividends paid after December 31, 1997 (December 31, 1999, in the case
of dividends paid to accounts in existence on or before the date that is 60 days
after the proposed regulations are published as final regulations.) Under
certain treaties, lower withholding rates generally applicable to dividends do
not apply to dividends distributed by a REIT, such as the Company.
Non-Dividend Distributions. Distributions by the Company which exceed its
current and accumulated earnings and profits will not be taxable to the extent
such distributions are not in excess of the Non-U.S. Holder's adjusted basis in
its shares, but rather will reduce (but not below zero) the adjusted basis for
such shares. To the extent such distributions exceed the adjusted basis of a
Non-U.S. Holder's shares of stock, the distributions will give rise to U.S. tax
liability if the Non-U.S. Holder would otherwise be subject to tax on gain from
the sale or disposition of shares in the Company, 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 profits,
the distribution will be subject to withholding at the rate applicable to
dividends. The Non-U.S. Holder may seek a refund of such amounts from the IRS,
however, if it is subsequently determined that such distribution was, in fact,
in excess of current and accumulated earnings and profits of the Company.
Capital Gain Dividends. Under the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA"), a distribution made by the Company to a Non-U.S. Holder,
to the extent attributable to gains from dispositions of United States Real
Property Interests ("USRPIs") will be considered effectively connected with a
U.S. trade or business of the Non-U.S. Holder and subject to U.S. income tax at
the rate applicable to U.S. individuals or corporations, without regard to
whether such distribution is designated as a capital gain dividend. In addition,
the Company will be required to withhold tax equal to 35% of the amount of
dividends to the extent such dividends constitute USRPI capital gains.
Distributions subject to FIRPTA may also be subject to a 30% branch profits tax
in the hands of a foreign corporate stockholder that is not entitled to treaty
exemption.
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Dispositions of Stock. Unless the stock constitutes a USRPI, a sale of
stock by a Non-U.S. Holder will generally not be subject to U.S. taxation under
FIRPTA. The stock will not constitute a USRPI in the hands of a Non-U.S. Holder
if the Company constitutes a "domestically controlled REIT." A domestically
controlled REIT means a REIT in which, at all times during a specified testing
period, less than 50% in value of its shares is held directly or indirectly by
Non-U.S. Holders. At present, the Company believes that it is and will continue
to be a domestically controlled REIT, and therefore that the sale of Common
Stock will not be subject to taxation under FIRPTA. Because the stock is
publicly traded, however, no assurance can be given the Company will in fact be
a domestically controlled REIT.
If the Company does not constitute a domestically controlled REIT, a
Non-U.S. Holder's sale of stock will generally not be subject to tax under
FIRPTA as a sale of a USRPI, provided that (i) the Company's stock is "regularly
traded" (as defined by applicable Treasury Regulations) on an established
securities market (e.g., the NYSE, on which the Common Stock is listed) and (ii)
the selling Non-U.S. Holder held 5% or less of the Company's outstanding stock
at all times during a specified testing period.
If gain on the sale of stock were subject to taxation under FIRPTA, the
Non-U.S. Holder would generally be subject to the same treatment as a U.S.
stockholder with respect to such gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals) and the purchaser of stock could be required to withhold 10% of the
purchase price and remit such amount to the IRS.
Capital gains recognized by a Non-U.S. Holder that are not subject to
FIRPTA nonetheless will generally be subject to current U.S. federal income
taxation if: (i) the Non-U.S. Holder's investment in stock is effectively
connected with a U.S. trade or business conducted by such Non-U.S. Holder or
(ii) the Non-U.S. Holder 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.
Estate Tax. Stock owned or treated as owned by an individual who is not a
citizen or resident of the United States (as specially defined for U.S. federal
estate tax purposes) at the time of death will be includible in the individual's
gross estate for U.S. federal estate tax purposes, unless an applicable estate
tax treaty provides otherwise. Such individual's estate may be subject to U.S.
federal estate tax on the property includible in the estate for U.S. federal
estate tax purposes.
OTHER TAX CONSEQUENCES
The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the stock of the Company.
The Company will report to its stockholders and the IRS the amount of
dividends paid or deemed paid during each calendar year, and the amount of tax
withheld, if any.
There may be other federal, state, local or foreign income, or estate and
gift tax considerations applicable to the circumstances of a particular
investor. Stockholders should consult their own tax advisors with respect to
such matters.
PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more underwriters for public
offering and sale by them or may sell the Securities 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. The
Company has reserved the right to sell the Securities directly to investors on
its own behalf in those jurisdictions where it is authorized to do so.
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Underwriters may offer and sell the Securities at a fixed price or prices
that may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The Company
also may, from time to time, authorize dealers, acting as the Company's agents,
to offer and sell the Securities upon such terms and conditions as set forth in
the related Prospectus Supplement. In connection with the sale of the
Securities, underwriters may receive compensation from the Company in the form
of underwriting discounts or commissions and may also receive commissions from
purchasers of the Securities for whom they may act as agent. Underwriters may
sell the Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concession or commissions from the
underwriters and/or commissions (which may be changed from time to time) from
the purchasers for whom they may act as agents.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of the Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. 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 entered into with the Company, to
indemnification against and contribution towards certain civil liabilities,
including any liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit agreements by
certain institutions to purchase the Securities from the Company at the public
offering price set forth in the related Prospectus Supplement pursuant to
delayed delivery contracts ("Contracts") providing for payment and delivery on
the date or dates stated in a Prospectus Supplement. Each Contract will be for
an amount specified in the applicable Prospectus Supplement. Institutions with
whom Contracts, when authorized, may be made include commercial and savings
banks, insurance companies, pension funds, investment companies, educational and
charitable institutions and other institutions, but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except that (i) the purchase by an institution of the Securities covered by
Contracts will not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject and (ii)
if the Securities are being sold to Underwriters, the Company shall have sold to
such Underwriters such amount specified in the applicable Prospectus Supplement.
Any Securities issued hereunder (other than Common Stock) will be new
issues of securities with no established trading market. Any underwriters or
agents to or through whom such Securities are sold by the Company for public
offering and sale may make a market in such Securities, but such underwriters or
agents will not be obligated to do so and may discontinue any market at any time
without notice. No assurance can be given as to the liquidity of the trading
market for any such Securities.
Certain of the underwriters, dealers or agents and their associates may
engage in transactions with, and perform services for, the Company and certain
of its affiliates in the ordinary course of business.
LEGAL MATTERS
Sirote & Permutt, P.C., Birmingham, Alabama, counsel to the Company, will
render an opinion with respect to the validity of the Securities offered hereby.
In rendering such opinion, Sirote & Permutt, P.C., will rely upon the opinion of
Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland, as to certain matters of
Maryland law.
38
<PAGE> 59
EXPERTS
The Consolidated Financial Statements and schedules of Capstone Capital
Corporation as of December 31, 1996 and 1995 and for the years ended December
31, 1996 and 1995, and for the period from June 30, 1994 (inception) to December
31, 1994, have been incorporated by reference herein and in the registration
statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. To the extent that
KPMG Peat Marwick LLP, audits and reports on financial statements of Capstone
Capital Corporation issued at future dates, and consents to the use of their
report thereon, such financial statements also will be incorporated by reference
in the registration statement in reliance upon their reports and said authority.
39
<PAGE> 60
======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary.............. S-3
Use of Proceeds............................ S-8
Capitalization............................. S-9
Description of Series A Preferred Stock.... S-10
Certain Federal Income Tax
Considerations........................... S-15
Underwriting............................... S-17
Legal Matters.............................. S-18
PROSPECTUS
Available Information...................... 2
Incorporation of Certain Documents by
Reference................................ 2
The Company................................ 4
Risk Factors............................... 4
Use of Proceeds............................ 11
Consolidated Ratios of Earnings to Fixed
Charges and Combined Fixed Charges
and Preferred Stock Dividend
Requirements............................. 11
Description of Debt Securities............. 12
Description of Capital Stock............... 20
Description of Warrants.................... 26
Federal Income Tax Considerations.......... 27
Plan of Distribution....................... 37
Legal Matters.............................. 38
Experts.................................... 39
</TABLE>
======================================================
======================================================
3,000,000 SHARES
[CAPSTONE CAPITAL CORPORATION LOGO]
CAPSTONE CAPITAL
CORPORATION
% SERIES A CUMULATIVE
PREFERRED STOCK
------------
PROSPECTUS SUPPLEMENT
, 1997
------------
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
J.C. BRADFORD & CO.
COWEN & COMPANY
======================================================
<PAGE> 61
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the fees and expenses to be incurred in
connection with the issuance and distribution of the securities being
registered, other than the underwriting discounts and commissions, are as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $151,515
Blue Sky Fees and Expenses.................................. 15,000
Legal Fees and Expenses..................................... 130,000
Accounting Fees............................................. 65,000
Printing and Engraving Costs................................ 80,000
Transfer Agent's Fee........................................ 2,000
Miscellaneous Expenses...................................... 6,485
--------
Total............................................. $450,000
========
</TABLE>
- ---------------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Bylaws ("Bylaws") obligate it, to the
fullest extent permitted by Maryland law, to indemnify and advance expenses to
its present and former directors or officers.
The Maryland General Corporation Law ("MGCL") requires a corporation
(unless its charter provides otherwise, which the Company's charter does not) to
indemnify a director or officer who has been successful, on the merits or
otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity. Section 2-418 also generally permits a
corporation to indemnify its present and former directors and officers, among
others, who are made a party to any proceeding by reason of their service in
these or other capacities, unless it is established that (i) the act or omission
of such person was material to the matter giving rise to the proceeding and was
committed in bad faith or was the result of active and deliberate dishonesty; or
(ii) such person actually received an improper personal benefit in money,
property or services; or (iii) in the case of any criminal proceeding, such
person had reasonable cause to believe that the act or omission was unlawful.
The indemnification may include judgments, penalties, fines, settlements and
reasonable expenses actually incurred by the director in connection with the
proceeding. However, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation. In addition, the MGCL
requires the Company, as a condition to advancing expenses, to obtain (a) a
written affirmation by the director or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by the Company as
authorized by the Bylaws and (b) a written statement by or on his behalf to
repay the amount paid or reimbursed by the Company if it shall ultimately be
determined that the standard of conduct was not met. The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent
creates a rebuttable presumption that the director did not meet the requisite
standard of conduct required for permitted indemnification. The termination of
any proceeding by judgment, order or settlement, however, does not create a
presumption that the director failed to meet the requisite standard of conduct
for permitted indemnification. Indemnification under the provisions of the MGCL
is not deemed exclusive of any other rights, by indemnification or otherwise, to
which a director or officer may be entitled under the charter, Bylaws,
resolution of stockholders or directors, contract or otherwise.
II-1
<PAGE> 62
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1 -- Underwriting Agreement
3.1 -- Form of Articles Supplementary of the Company classifying
the % Series A Cumulative Preferred Stock
*4.1 -- Specimen of Common Stock Certificate incorporated by
reference (pursuant to the provisions of Rule 411(c)) to
Exhibit 4 to the Company's Form S-11 Registration Statement
No. 33-77788, dated April 15, 1994.
*4.2 -- Form of Indenture for Senior Debt Securities.
*4.3 -- Form of Senior Debt Security (included in Exhibit 4.2).
*4.4 -- Form of Indenture for Subordinated Debt Securities.
*4.5 -- Form of Subordinated Debt Security (included in Exhibit 4.4)
4.6 -- Form of Series A Cumulative Preferred Stock Certificate
5.1 -- Opinion of Sirote & Permutt, P.C.
5.2 -- Opinion of Ballard Spahr Andrews & Ingersoll.
5.3 -- Opinion of Sirote & Permutt, P.C.
8 -- Tax Opinion of Sirote & Permutt, P.C.
*12 -- Statement Regarding Computation of Consolidated Ratios of
Earnings to Fixed Charges and Combined Fixed Charges and
Preferred Stock Dividend Requirements
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of Sirote & Permutt, P.C. (see Exhibits 5.1, 5.3 and
8).
23.3 -- Consent of Ballard Spahr Andrews & Ingersoll (see Exhibit
5.2).
*24 -- Powers of Attorney (included in Page II-6).
*25 -- Statement of Eligibility of Trustee on Form T-1
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this Item 17
do not apply if the registration statement is on Form S-3, Form S-8, or
Form F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Exchange Act that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-2
<PAGE> 63
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or, otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 64
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Birmingham, State of Alabama, on the 17th day of
September, 1997.
CAPSTONE CAPITAL CORPORATION
By: /s/ JOHN W. MCROBERTS
------------------------------------
John W. McRoberts
President and Chief Executive
Officer
II-4
<PAGE> 65
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board of September 17, 1997
- ----------------------------------------------------- Directors
Richard M. Scrushy
/s/ JOHN W. MCROBERTS President, Chief Executive September 17, 1997
- ----------------------------------------------------- Officer and Director
John W. McRoberts (Principal Executive
Officer)
* Chief Financial Officer September 17, 1997
- ----------------------------------------------------- (Principal Financial and
Malcolm E. McVay Accounting Officer)
* Director September 17, 1997
- -----------------------------------------------------
Michael D. Martin
* Director September 17, 1997
- -----------------------------------------------------
Robert N. Elkins
* Director September 17, 1997
- -----------------------------------------------------
Eric R. Hanson
* Director September 17, 1997
- -----------------------------------------------------
Larry D. Striplin, Jr.
* Director September 17, 1997
- -----------------------------------------------------
Barry Morton
* Director September 17, 1997
- -----------------------------------------------------
George E. Bogle
* Director September 17, 1997
- -----------------------------------------------------
Larry R. House
*By: /s/ JOHN W. MCROBERTS September 17, 1997
------------------------------------------------
John W. McRoberts
Power of Attorney
</TABLE>
II-5
<PAGE> 66
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <C> <S> <C>
1 -- Underwriting Agreement......................................
3.1 -- Form of Articles Supplementary of the Company classifying
the % Series A Cumulative Preferred Stock.................
*4.1 -- Specimen of Common Stock Certificate incorporated by
reference (pursuant to the provisions of Rule 411(c)) to
Exhibit 4 to the Company's Form S-11 Registration Statement
No. 33-77788, dated April 15, 1994..........................
*4.2 -- Form of Indenture for Senior Debt Securities................
*4.3 -- Form of Senior Debt Security (included in Exhibit 4.2)......
*4.4 -- Form of Indenture for Subordinated Debt Securities..........
*4.5 -- Form of Subordinated Debt Security (included in Exhibit
4.4)........................................................
4.6 -- Form of Series A Cumulative Preferred Stock Certificate.....
5.1 -- Opinion of Sirote & Permutt, P.C............................
5.2 -- Opinion of Ballard Spahr Andrews & Ingersoll................
5.3 -- Opinion of Sirote & Permutt, P.C............................
8 -- Tax Opinion of Sirote & Permutt, P.C........................
*12 -- Statement Regarding Computation of Consolidated Ratios of
Earnings to Fixed Charges and Combined Fixed Charges and
Preferred Stock Dividend Requirements.......................
23.1 -- Consent of KPMG Peat Marwick LLP............................
23.2 -- Consent of Sirote & Permutt, P.C. (see Exhibits 5.1, 5.3 and
8)..........................................................
23.3 -- Consent of Ballard Spahr Andrews & Ingersoll (see Exhibit
5.2)........................................................
*24 -- Powers of Attorney (included in Page II-6)..................
*25 -- Statement of Eligibility of Trustee on Form T-1.............
</TABLE>
<PAGE> 1
EXHIBIT 1
FORM OF UNDERWRITING AGREEMENT
CAPSTONE CAPITAL CORPORATION
Shares
Preferred Stock
UNDERWRITING AGREEMENT
[Date]
SMITH BARNEY INC.
[Co-Managers]
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Capstone Capital Corporation, a Maryland corporation (the "Company")
qualified for federal income tax purposes as a real estate investment trust
pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended (the "Code"), proposes to issue and sell an aggregate of
shares of its Preferred Stock, liquidation preference per share (the
"Firm Shares") to you (collectively the "Underwriters"). The Company also
proposes to sell to you, upon the terms and conditions set forth in Section 2
hereof, up to an additional shares of Preferred Stock (the "Additional
Shares") to cover over-allotments, if any. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "Shares."
The Company wishes to confirm as follows its agreements with you in
connection with the several purchases of the Shares by the Underwriters.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement (file number 333-31639) on
Form S-3 under the Act (the "registration statement"), including a prospectus
subject to completion relating to the Shares, and such amendments to such
registration statement as may have been required prior to the date hereof have
been similarly prepared and have been filed with the Commission. Such
registration statement, as so amended, and any post-effective amendments
thereto, have been declared by the Commission to be effective under the Act.
Such registration statement, as amended at the date of this Agreement meets the
requirements set forth in Rule 415(a)(1)(x) under the Act and complies in all
other material respects with said Rule. The
<PAGE> 2
Company will next file with the Commission pursuant to Rule 424(b) under the Act
a final prospectus supplement to the basic prospectus included in such
registration statement, as so amended, describing the Shares and the offering
thereof, in such form as has been provided to or discussed with, and approved by
the Underwriters.
The term "Registration Statement" as used in this Agreement means the
registration statement, as amended at the time it became effective, as
supplemented or amended prior to the execution of this Agreement, including (i)
all financial schedules and exhibits thereto and (ii) all documents incorporated
by reference or deemed to be incorporated by reference therein. If it is
contemplated, at the time this Agreement is executed, that a post-effective
amendment to the registration statement will be filed and must be declared
effective before the offering of the Shares may commence, the term "Registration
Statement" as used in this Agreement means the registration statement as amended
by said post-effective amendment. The term "Basic Prospectus" as used in this
Agreement means the prospectus included in the Registration Statement. The term
"Prepricing Prospectus" as used in this Agreement means any preliminary form of
the prospectus (as defined herein) subject to completion, specifically relating
to the Shares, in the form filed with, or transmitted for filing to, the
Commission pursuant to the Rules and Regulations. The term "Prospectus
Supplement" as used in this Agreement means any prospectus supplement
specifically relating to the Shares, in the form first filed with, or
transmitted for filing to, the Commission pursuant to Rule 424 under the Act
after the execution of this agreement. The term "Prospectus" as used in this
Agreement means the Basic Prospectus together with the Prospectus Supplement
except that if such Basic Prospectus is amended or supplemented on or prior to
the date on which the Prospectus Supplement was first filed pursuant to Rule 424
after the execution of this agreement, the term "Prospectus" shall refer to the
Basic Prospectus as so amended or supplemented and as supplemented by the
Prospectus Supplement. Any reference in this Agreement to the registration
statement, the Registration Statement, the Basic Prospectus, any Prepricing
Prospectus, any Prospectus Supplement or the Prospectus shall be deemed to refer
to and include the documents incorporated by reference therein pursuant to Item
12 of Form S-3 under the Act, as of the date of the registration statement, the
Registration Statement, the Basic Prospectus, such Prepricing Prospectus, such
Prospectus Supplement or the Prospectus, as the case may be, and any reference
to any amendment or supplement to the registration statement, the Registration
Statement, the Basic Prospectus, any Prepricing Prospectus, any Prospectus
Supplement or the Prospectus shall be deemed to refer to and include any
documents filed after such date under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") which, upon filing, are incorporated by reference
therein, as required by paragraph (b) of Item 12 of Form S-3. As used herein,
the term "Incorporated Documents" means the documents which at the time are
incorporated by reference in the registration statement, the Registration
Statement, the Basic Prospectus, any Prepricing Prospectus, any Prospectus
Supplement, the Prospectus, or any amendment or supplement thereto.
2. AGREEMENTS TO SELL AND PURCHASE. Subject to such adjustments
as you may determine to avoid fractional shares, the Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
the Underwriters and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not jointly,
to purchase from the Company, at a purchase price of $ per share (the "purchase
price per share"), the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto.
2
<PAGE> 3
The Company also agrees, subject to all the terms and conditions set
forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions set forth herein, the Underwriters shall
have the right to purchase from the Company, at the purchase price per share,
pursuant to an option (the "over-allotment option") which may be exercised at
any time prior to 9:00 P.M., New York City time, on the 30th day after the date
of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the New York Stock Exchange is
open for trading) up to an aggregate of Additional Shares. Additional Shares may
be purchased only for the purpose of covering overallotments made in connection
with the offering of the Firm Shares.
3. TERMS OF PUBLIC OFFERING. The Company has been advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement has become
effective and this Agreement has been entered into, as in your judgment is
advisable and initially to offer the Shares upon the terms set forth in the
Prospectus.
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, at 10:00
A.M., New York City time, on (the "Closing Date"). The place of closing for the
Firm Shares and the Closing Date may be varied by agreement between you and the
Company.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the aforementioned office
of Smith Barney Inc. at such time on such date (the "Option Closing Date"),
which may be the same as the Closing Date but shall in no event be earlier than
the Closing Date nor earlier than two nor later than ten business days after the
giving of the notice hereinafter referred to, as shall be specified in a written
notice from you on behalf of the Underwriters to the Company of the
Underwriters' determination to purchase a number, specified in such notice, of
Additional Shares. The place of closing for any Additional Shares and the Option
Closing Date for such Shares may be varied by agreement between you and the
Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Option Closing Date, as the case may be, against payment of the purchase
price therefor in immediately available funds.
5. AGREEMENTS OF THE COMPANY. The Company agrees with the
Underwriters as follows:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the Registration Statement or a post-effective
amendment thereto to be declared effective before the offering of the Shares may
commence, the Company will endeavor to cause the
3
<PAGE> 4
Registration Statement or such post-effective amendment to become effective as
soon as possible and will advise you promptly and, if requested by you, will
confirm such advice in writing, when the Registration Statement or such
post-effective amendment has become effective.
(b) The Company will advise you promptly and, if
requested by you, will confirm such advice in writing: (i) of any request by the
Commission for amendment of or a supplement to the Registration Statement, any
Prepricing Prospectus, any Prospectus Supplement or the Prospectus or for
additional information; (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction or the
initiation of any proceeding for such purpose; and (iii) within the period of
time referred to in paragraph (f) below, of any change in the Company's
condition (financial or other), business, prospects, properties, net worth or
results of operations, or of the happening of any event, which makes any
statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the making
of any additions to or changes in the Registration Statement or the Prospectus
(as then amended or supplemented) in order to state a material fact required by
the Act or the regulations thereunder to be stated therein or necessary in order
to make the statements therein not misleading, or of the necessity to amend or
supplement the Prospectus (as then amended or supplemented) to comply with the
Act or any other law. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will
make every reasonable effort to obtain the withdrawal of such order at the
earliest possible time.
(c) The Company will furnish to you, without charge (i)
two signed copies of the registration statement as originally filed with the
Commission and of each amendment thereto, including financial statements and all
exhibits to the registration statement, (ii) such number of conformed copies of
the registration statement as originally filed and of each amendment thereto,
but without exhibits, as you may request, (iii) such number of copies of the
Incorporated Documents, without exhibits, as you may request, and (iv) two
copies of the exhibits to the Incorporated Documents.
(d) The Company will not file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus or,
prior to the end of the period of time referred to in the first sentence in
subsection (f) below, file any document which, upon filing becomes an
Incorporated Document, of which you shall not previously have been advised or to
which, after you shall have received a copy of the document proposed to be
filed, you shall object.
(e) Prior to the execution and delivery of this
Agreement, the Company has delivered to you, without charge, in such quantities
as you have requested, copies of each form of the Prepricing Prospectus and of
each form of the Prospectus Supplement. The Company consents to the use, in
accordance with the provisions of the Act and with the securities or Blue Sky
laws of the jurisdictions in which the Shares are offered by the Underwriters
and by dealers, prior to the date of the Prospectus, of each Prepricing
Prospectus and each Prospectus Supplement so furnished by the Company.
(f) As soon after the execution and delivery of this
Agreement as possible and thereafter from time to time for such period as in the
opinion of counsel for the Underwriter a prospectus is required by the Act to be
delivered in connection with sales by the Underwriter or
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<PAGE> 5
any dealer, the Company will expeditiously deliver to each Underwriter and each
dealer, without charge, as many copies of the Prospectus (and of any amendment
or supplement thereto) as you may request. The Company consents to the use of
the Prospectus (and of any amendment or supplement thereto) in accordance with
the provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several Underwriters and by
all dealers to whom Shares may be sold, both in connection with the offering and
sale of the Shares and for such period of time thereafter as the Prospectus is
required by the Act to be delivered in connection with sales by any Underwriter
or dealer. If during such period of time any event shall occur that in the
judgment of the Company or in the opinion of counsel for the Underwriters is
required to be set forth in the Prospectus (as then amended or supplemented) or
should be set forth therein in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or if it
is necessary to supplement or amend the Prospectus (or to file under the
Exchange Act any document which, upon filing, becomes an Incorporated Document)
in order to comply with the Act or any other law, the Company will forthwith
prepare and, subject to the provisions of paragraph (d) above, file with the
Commission an appropriate supplement or amendment thereto, and will
expeditiously furnish to the Underwriters and dealers a reasonable number of
copies thereof. In the event that the Company and you agree that the Prospectus
should be amended or supplemented, the Company, if requested by you, will
promptly issue a press release announcing or disclosing the matters to be
covered by the proposed amendment or supplement.
(g) The Company will cooperate with you and, if
applicable, with counsel for the Underwriters in connection with the
registration or qualification of the Shares for offering and sale by the
Underwriters and by dealers under the securities or Blue Sky laws of such
jurisdictions as you may designate and will file such consents to service of
process or other documents necessary or appropriate in order to effect such
registration or qualification; provided that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not now
otherwise required to be so qualified or to take any action which would subject
it to service of process in suits, other than those arising out of the offering
or sale of the Shares, in any jurisdiction where it is not now so subject.
(h) The Company will make generally available to its
securityholders a consolidated earnings statement, which need not be audited,
covering a twelve-month period commencing after the effective date of the
Registration Statement and ending not later than 15 months thereafter, as soon
as practicable after the end of such period, which consolidated earnings
statement shall satisfy the provisions of Section 11(a) of the Act.
(i) During the period of five years hereafter, the
Company will furnish to you (i) as soon as available, a copy of each report of
the Company mailed to stockholders or filed with the Commission, and (ii) from
time to time such other information concerning the Company as you may request.
(j) If this Agreement shall terminate or shall be
terminated after execution pursuant to any provisions hereof (otherwise than
pursuant to the second paragraph of Section 10 hereof or by notice given by you
terminating this Agreement pursuant to Section 10 or Section 11 hereof) or if
this Agreement shall be terminated by the Underwriters because of any failure or
refusal on the part of the Company to comply with the terms or fulfill any of
the conditions of this Agreement, the Company agrees to reimburse the
Underwriters for all out-of-pocket
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<PAGE> 6
expenses (including fees and expenses of counsel for the Underwriters) incurred
by you in connection herewith.
(k) The Company will apply the net proceeds from the sale
of the Shares to be sold by it hereunder substantially in accordance with the
description thereof set forth in the Prospectus Supplement.
(l) The Company will timely file the Prospectus pursuant
to Rule 424(b) under the Act and will advise you of the time and manner of such
filing.
(m) Except as provided in this Agreement, the Company
will not offer, sell, contract to sell or otherwise dispose of any common stock
or any securities convertible into or exercisable or exchangeable for common
stock or grant any options or warrants to purchase common stock (except pursuant
to the grant or exercise of options under the Company's Stock Incentive or
option plan(s) and shares of Common Stock issuable upon conversion of the
Company's 10 1/2% Convertible Subordinated Debentures due 2002 or the 6.55%
Convertible Subordinated Debentures due 2002) for the period of 90 days after
the date of the Prospectus, without the prior written consent of Smith Barney
Inc.
(n) The Company has furnished or will furnish to you
"lock-up" letters, in form and substance satisfactory to you, signed by all of
its current officers, certain of its current directors and each of its
stockholders designated by you.
(o) Except as stated in this Agreement and in any
Prepricing Prospectus, Prospectus Supplement and Prospectus, the Company has not
taken, nor will it take, directly or indirectly, any action designed to or that
might reasonably be expected to cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Shares.
(p) The Company will use its best efforts to have the
Shares listed, subject to notice of issuance, on the New York Stock Exchange
("NYSE") on or before the Closing Date and to maintain the listing of the Shares
on the NYSE for a period of three years after the Closing Date.
(q) The Company will use its best efforts to continue to
qualify as a real estate investment trust ("REIT") under Sections 856 through
860 of the Code.
(r) The Company will not file any registration statement
with the Commission for the registration of any securities of the Company for a
period of 30 days after the date of the Prospectus Supplement without the prior
written consent of Smith Barney Inc.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Underwriters that:
(a) No order preventing or suspending the use of any
Prepricing Prospectus has been issued and no proceeding for that purpose has
been instituted or threatened by the Commission or the securities authority of
any state or other jurisdiction. No stop order suspending the effectiveness of
the Registration Statement or any part thereof has been issued and
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<PAGE> 7
no proceeding for that purpose has been instituted or threatened by the
Commission or the securities authority of any state or other jurisdiction.
(b) The execution and delivery of, and the performance by
the Company of its obligations under, this Agreement, have been duly authorized
by all necessary corporate action of the Company, and, at the Closing Date or
the related Option Closing Date (as the case may be), this Agreement will have
been duly executed and delivered by the Company, and this Agreement will
constitute a valid and binding instrument of the Company enforceable against the
Company in accordance with its respective terms, subject to the effect of
bankruptcy, insolvency, moratorium, fraudulent conveyance, reorganization and
similar laws relating to creditors' rights generally and to the application of
equitable principles in any proceeding, whether at law or in equity, except as
rights to indemnity and contribution hereunder may be limited by federal or
state securities laws.
(c) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act. The Commission
has not issued any order preventing or suspending the use of any Prepricing
Prospectus.
(d) The Company and the transactions contemplated by this
Agreement meet the requirements for using Form S-3 under the Act. The
registration statement in the form in which it became or becomes effective and
also in such form as it may be when any post-effective amendment thereto shall
become effective and the Prospectus and any supplement or amendment thereto,
including the Prospectus Supplement, when filed with the Commission under Rule
424(b) under the Act, complied or will comply in all material respects with the
provisions of the Act and did not or will not at any such times contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except that this representation and warranty does not apply to statements in or
omissions from the registration statement or the Prospectus or any supplement or
amendment thereto made in reliance upon and in conformity with information
relating to the Underwriter furnished to the Company in writing by or on behalf
of the Underwriter through you expressly for use therein.
(e) The Incorporated Documents heretofore filed, when
they were filed (or, if any amendment with respect to any such document was
filed, when such amendment was filed), conformed in all material respects with
the requirements of the Act, the Exchange Act and the respective rules and
regulations thereunder; any further Incorporated Documents so filed will, when
they are filed, conform in all material respects with the requirements of the
Act, the Exchange Act and the respective rules and regulations thereunder; no
such document when it was filed (or, if an amendment with respect to any such
document was filed, when such amendment was filed), contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; and no such further document, when it is filed, will contain an
untrue statement of a material fact or will omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading.
(f) The Company has not distributed and, prior to the
later to occur of (i) the Closing Date and (ii) completion of the distribution
of the Shares, will not distribute any offering
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<PAGE> 8
material in connection with the offering and sale of the Shares other than the
Registration Statement, the Prepricing Prospectus, the Prospectus Supplement,
the Prospectus or other materials, if any, permitted by the Act.
(g) All outstanding capital stock of the Company has been
duly authorized and validly issued, is fully paid and nonassessable and is free
of any preemptive or similar rights; the Shares to be issued and sold by the
Company have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor in accordance with the terms hereof, will
be validly issued, fully paid and nonassessable and free of any preemptive or
similar rights; and the capital stock of the Company conforms to the description
thereof in the Registration Statement and the Prospectus. Application has been
made to list the Shares on the NYSE. The form of certificate for the Shares will
comply with all applicable legal and NYSE requirements.
(h) Except as disclosed in the Prospectus, there are no
outstanding options, warrants or other rights calling for the issuance of, nor
any commitment, plan or arrangement to issue, any shares of capital stock of the
Company or any security convertible into or exchangeable or exercisable for
capital stock of the Company.
(i) No holder of any security of the Company or any other
person has the right, contractual or otherwise, which right has not been waived
by the holder thereof, (A) to cause the Company to sell or otherwise issue to
them, or to permit them to underwrite the sale of, the Shares, or (B) as a
result of the filing of the registration statement or the consummation of the
transactions contemplated by this Agreement, to require registration under the
Act of any shares of Common Stock or other securities of the Company.
(j) The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of Maryland with
full corporate power and authority to own, lease and operate its properties and
to conduct its business as presently conducted and as disclosed in the
Registration Statement and the Prospectus, and is duly registered and qualified
to conduct its business and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not and will not have a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Company and the Subsidiaries (as hereinafter defined) taken as
a whole (a "Material Adverse Effect"). The term "Subsidiary" or "Subsidiaries"
means (A) a corporation, a majority of the voting or capital stock of which is,
at the time, directly or indirectly owned by the Company and (B) any other
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or other entity (other than a corporation)
(collectively, a "Person") in which the Company, directly or indirectly, (i)
owns a majority of the equity interest thereof and (ii) has the power to elect
or direct the election of a majority of the members of the governing body of
such Person or otherwise has control over such Person (e.g., as the general or
managing partner of a partnership).
(k) The Company is organized and operates in a manner so
as to qualify as a REIT under the Code; the Company elected to be taxed as a
REIT commencing with the Company's taxable year ended December 31, 1994 and will
continue to so elect.
(l) Each Subsidiary is duly organized, validly existing
and in good standing in the jurisdiction of its incorporation, if a corporation,
and is legally formed and validly existing
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<PAGE> 9
under the laws of the jurisdiction of its organization, if a partnership,
association or business organization, with full corporate or organizational
power and authority to own, lease and operate its properties and to conduct its
business as presently conducted. Each Subsidiary is duly registered and
qualified to conduct its business (and, if a corporation, is in good standing)
in each jurisdiction or place where the nature of its properties or the conduct
of its business requires such registration or qualification, except where the
failure so to register or qualify does not and will not have a Material Adverse
Effect; all the outstanding shares of capital stock of each Subsidiary that is a
corporation have been duly authorized and validly issued, are fully paid and
nonassessable, and all ownership interests in each Subsidiary that is not a
corporation have been validly created pursuant to the partnership or other
agreements or organizational documents of each such Subsidiary, and the shares
or other interests owned by the Company are owned by the Company directly, or
indirectly through one of the other Subsidiaries, free and clear of any lien,
adverse claim, security interest, equity or other encumbrance.
(m) There are no legal or governmental proceedings
pending or, to the knowledge of the Company, threatened, against the Company or
any of the Subsidiaries, or to which the Company or any of the Subsidiaries, or
to which any of their respective properties is subject, that are required to be
disclosed in the Registration Statement or the Prospectus but are not disclosed
as required, and there are no agreements, indentures, leases or other
instruments that are required to be disclosed in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement or any
Incorporated Document that are not disclosed or filed as required by the Act or
the Exchange Act.
(n) Neither the Company nor any of the Subsidiaries is
(i) in violation of its certificate or articles of incorporation, by-laws,
partnership agreements, or other organizational documents, or (ii) in violation
of any law, ordinance, administrative or governmental rule or regulation
applicable to the Company or any of the Subsidiaries, including any lending or
banking law, governmental rule or regulation, or of any decree of any court or
governmental agency or body having jurisdiction over the Company or any of the
Subsidiaries, or (iii) in default in any material respect in the performance of
any obligation, agreement or condition contained in any bond, debenture, note or
any other evidence of indebtedness or in any material agreement, indenture,
lease, mortgage or other instrument to which the Company or any of the
Subsidiaries is a party or by which any of them or any of their respective
properties may be bound.
(o) Neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby (i) requires
any consent, approval, authorization or other order of or registration or filing
with, any court, regulatory body, administrative agency or other governmental
body, agency or official (except such as may be required for the registration of
the Shares under the Act and the Exchange Act and compliance with the securities
or Blue Sky laws of various jurisdictions, all of which have been or will be
effected in accordance with this Agreement) or conflicts or will conflict with
or constitutes or will constitute a breach of, or a default under, the
certificate or articles of incorporation, bylaws, partnership agreements, or
other organizational documents, of the Company or any of the Subsidiaries or
(ii) conflicts or will conflict with or constitutes or will constitute a breach
of, or a default under, any agreement, indenture, lease, mortgage or other
instrument to which the Company or any of the Subsidiaries is a party or by
which any of them or any of their respective properties may be bound, or
violates or will violate any statute, law, regulation or filing or judgment,
injunction, order or decree
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<PAGE> 10
applicable to the Company or any of the Subsidiaries or any of their respective
properties, or will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the
Subsidiaries pursuant to the terms of any agreement or instrument to which any
of them is a party or by which any of them may be bound or to which any of the
property or assets of any of them is subject.
(p) The accountants, KPMG Peat Marwick LLP, who have
certified or shall certify the financial statements included or incorporated by
reference in the Registration Statement and the Prospectus (or any amendment or
supplement thereto) are independent public accountants as required by the Act,
the Exchange Act and the respective rules and regulations thereunder.
(q) The financial statements, together with related
schedules and notes, included or incorporated by reference in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), present
fairly the consolidated financial position, results of operations and changes in
financial position of the Company and the Subsidiaries on the basis stated in
the Registration Statement at the respective dates or for the respective periods
to which they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and data included
or incorporated by reference in the Registration Statement and the Prospectus
(and any amendment or supplement thereto) are accurately presented and prepared
on a basis consistent with such financial statements and the books and records
of the Company and the Subsidiaries. The other financial and statistical
information and data included in the Registration Statement and the Prospectus
(and any amendment or supplement thereto) are accurately presented and prepared
on a basis consistent with such financial statements and the books and records
of the Company and the Subsidiaries.
(r) Except as disclosed in the Registration Statement and
the Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any change in the capital
stock, or material increase in the short-term debt or long-term debt, of the
Company or any of the Subsidiaries, or any material adverse change, or any
development involving or which may reasonably be expected to involve, a
prospective material adverse change in the condition (financial or other),
business, prospects, properties, net worth or results of operation of the
Company and the Subsidiaries taken as a whole.
(s) The Company or the Subsidiaries has good and
marketable title to all of the property (real and personal) disclosed in the
Prospectus as being owned by them, free and clear of all liens, claims, security
interests or other encumbrances except such as are disclosed in the Registration
Statement and the Prospectus or in any other document previously made available
to the Underwriter or to their counsel or such as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company or the Subsidiaries, and all
the property disclosed in the Prospectus as being held under lease by the
Company and each of the Subsidiaries is held by it under valid,
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<PAGE> 11
subsisting and enforceable leases, free and clear of all liens, claims, security
interests and other encumbrances.
(t) The Company and the Subsidiaries have title insurance
on all real properties described in the Prospectus as owned or leased by them
(collectively, the "Properties"), in an amount at least equal to the aggregate
acquisition price paid by the Company or the Subsidiaries for such Properties
and the cost of construction of the improvements located on such properties.
(u) The Company and the Subsidiaries have title insurance
on each Mortgage Loan (as defined in the Prospectus) in an amount at least equal
to the aggregate principal amount of each such Mortgage Loan.
(v) The mortgages and deeds of trust encumbering the
Properties are not cross-defaulted or cross-collateralized to any property not
owned directly or indirectly by the Company.
(w) The Company and each of the Subsidiaries has such
permits, licenses, franchises and authorizations of governmental or regulatory
authorities ("permits") as are necessary to own its respective properties and to
conduct its business as presently conducted and in the manner disclosed in the
Prospectus, including the necessary lending or banking law permits, subject to
such qualifications as may be set forth in the Prospectus; the Company and each
of the Subsidiaries has fulfilled and performed all its material obligations
with respect to such permits and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination thereof or
results in any other material impairment of the rights of the holder of any such
permit, subject in each case to such qualification as may be set forth in the
Prospectus; and, except as disclosed in the Prospectus, none of such permits
contains any restriction that is materially burdensome to the Company or any of
the Subsidiaries.
(x) Except as disclosed in the Prospectus, the Company
and the Subsidiaries own or possess all patents, trademarks, trademark
registrations, service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights disclosed in the
Prospectus as being owned by them or any of them or necessary for the conduct of
their respective businesses, and the Company is not aware of any claim to the
contrary or any challenge by any other person to the rights of the Company and
the Subsidiaries with respect to the foregoing.
(y) Insurance, including property and casualty insurance,
in favor of the Company or the Subsidiaries, as the case may be, is in effect
and will be maintained with respect to the Properties, with insurers of
recognized financial responsibility, against such losses and risks in an amount
and on such terms as is reasonable and customary for business of the type
conducted by the Company, the Subsidiaries or lessees, sub-lessees or mortgagors
of the Properties, as the case may be; all policies of insurance insuring the
Company, the Subsidiaries, and lessees, sub-lessees or mortgagors of the
Properties, as the case may be, or their respective businesses, assets
(including the property and casualty insurance on the Properties), employees,
officers and directors are in full force and effect; the Company, each of the
Subsidiaries, and, to the best knowledge of the Company, each lessee, sub-lessee
and mortgagor of the Properties is in compliance with the terms of such policies
and instruments in all material respects; neither the Company nor any of the
Subsidiaries, or, to the best knowledge of the Company, no lessee, sub-
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<PAGE> 12
lessee or mortgagor of the Properties has received from any insurance company
written notice of any material defects or deficiencies affecting the
insurability of any of the Properties; and there are no claims by the Company,
any of the Subsidiaries or, to the best knowledge of the Company, any lessee,
sub-lessee or mortgagor under any such policy or instrument as to which any
insurance company is denying liability or defending under a reservation of
rights clause.
(z) The Company and the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(aa) Neither the Company nor any of its Subsidiaries nor
any employee or agent of the Company or any Subsidiary has made any payment of
funds of the Company or any Subsidiary or received or retained any funds in
violation of any law, rule or regulation.
(bb) The Company and each of the Subsidiaries have filed
all tax returns required to be filed, which returns are complete and correct,
and neither the Company nor any Subsidiary is in default in the payment of any
taxes which were payable pursuant to said returns or any assessments with
respect thereto.
(cc) No holder of any security of the Company has any
right to require registration of shares of Common Stock or any other security of
the Company because of the consummation of the transactions contemplated by this
Agreement.
(dd) The Company is not now, and, after sale of the Shares
to be sold by the Company hereunder and application of the net proceeds from
such sale as described in the Prospectus under the caption "Use of Proceeds,"
will not be, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(ee) The Company and the Subsidiaries and, to the
Company's knowledge, the owner and operator of any property on which the Company
or the Subsidiaries holds a mortgage and the operator of any property owned by
the Company or the Subsidiaries (i) are in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment, or hazardous or
toxic substances or wastes, pollutants or contaminants (as regulated by such
laws and regulations) ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals under applicable Environmental Laws required in
connection with their businesses, properties or assets as conducted or
contemplated to be conducted as described in the Registration Statement, and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or approvals
would not, singly or in the aggregate, have a Material Adverse Effect.
(ff) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling, treatment, spill, discharge,
leak, emission, injection,
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<PAGE> 13
dumping, or release of hazardous or toxic substances or wastes, pollutants or
contaminants by the Company or the Subsidiaries or, to the knowledge of the
Company, by any other person, at, to, or from any property (including the
Properties) now or previously owned or operated by the Company or the
Subsidiaries or now or previously subject to a mortgage held by the Company or
the Subsidiaries, except for any such storage, disposal, generation,
manufacture, refinement, transportation, handling, treatment, spill, discharge,
leak, emission, injection, dumping, or release which would not have, or could
not be reasonably likely to have singularly or in the aggregate, a Material
Adverse Effect; and, to the knowledge of the Company, there has been no spill,
discharge, leak, emission, injection, escape, dumping, or release at any other
location of any hazardous or toxic substances or wastes, pollutants or
contaminants generated at any property (including the Properties) now or
previously owned or operated by the Company or the Subsidiaries or now or
previously subject to a mortgage held by the Company or the Subsidiaries, except
for any such spill, discharge, leak, emission, injection, dumping, or release
which would not have, or could not be reasonably likely to have, singularly or
in the aggregate, a Material Adverse Effect.
(gg) The Company has filed all reports and other documents
required to be filed by it under the Exchange Act.
(hh) Each of the Subsidiaries constitutes either a
partnership for federal income tax purposes or a "qualified REIT subsidiary"
within the meaning of Section 856(i) of the Code.
(ii) None of the assets of the Company or the Subsidiaries
constitute, nor will such assets, as of the Closing Date, constitute "plan
assets," as such term is defined in the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").
(jj) Subject to the provisions of applicable law, none of
the Subsidiaries is currently prohibited, directly or indirectly, from paying
any dividends to the Company, from making any other distributions on such
Subsidiary's capital stock or from repaying to the Company any loans or advances
to such Subsidiary's property or assets to the Company.
(kk) The information and disclosures regarding the
Company's directors and officers, contained in the Company's Proxy Statement for
the Annual Meeting of Stockholders held in May 1997, (i) are accurate and
consistent with the information provided to the Company by each director and
officer for that purpose and (ii) did not omit to disclose any fact that should
have been so disclosed under the rules and regulations of the Exchange Act
governing Proxy Statement disclosure obligations.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each of you and each other Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or in
any Prospectus Supplement or in the Registration Statement or the Prospectus or
in any amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of
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<PAGE> 14
or are based upon any untrue statement or omission or alleged untrue statement
or omission which has been made therein or omitted therefrom in reliance upon
and in conformity with the information relating to such Underwriter furnished in
writing to the Company by or on behalf of any Underwriter through you expressly
for use in connection therewith; provided, however, that the indemnification
contained in this paragraph (a) with respect to any Prepricing Prospectus shall
not inure to the benefit of the Underwriter (or to the benefit of any person
controlling the Underwriter) on account of any such loss, claim, damage,
liability or expense arising from the sale of the Shares by such Underwriter to
any person if a copy of the Prospectus shall not have been delivered or sent to
such person within the time required by the Act and the regulations thereunder,
and the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact contained in such Prepricing Prospectus was
corrected in the Prospectus, provided that the Company has delivered the
Prospectus to the several Underwriters in requisite quantity on a timely basis
to permit such delivery or sending. The foregoing indemnity agreement shall be
in addition to any liability which the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought
against any Underwriter or any person controlling any Underwriter in respect of
which indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company, and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Underwriter or any such controlling person shall
have the right to employ separate counsel in any such action, suit or proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling person
unless (i) the Company has agreed in writing to pay such fees and expenses, (ii)
the Company has failed to assume the defense and employ counsel, or (iii) the
named parties to any such action, suit or proceeding (including any impleaded
parties) include both such Underwriter or such controlling person and the
Company and such Underwriter or such controlling person shall have been advised
by its counsel that representation of such indemnified party and the Company by
the same counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same counsel has
been proposed) due to actual or potential differing interests between them (in
which case the Company shall not have the right to assume the defense of such
action, suit or proceeding on behalf of such Underwriter or such controlling
person). It is understood, however, that the Company shall, in connection with
any one such action, suit or proceeding or separate but substantially similar or
related actions, suits or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all such Underwriters and controlling persons not
having actual or potential differing interests with you or among themselves,
which firm shall be designated in writing by Smith Barney Inc., and that all
such fees and expenses shall be reimbursed as they are incurred. The Company
shall not be liable for any settlement of any such action, suit or proceeding
effected without its written consent, but if settled with such written consent,
or if there be a final judgment for the plaintiff in any such action, suit or
proceeding, the Company agrees to indemnify and hold harmless any Underwriter,
to the extent provided in the preceding paragraph, and any such controlling
person from and against any loss, claim, damage, liability or expense by reason
of such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly,
to indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, and any person who controls the Company within the
meaning of Section 15 of the Act or Section
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20(a) of the Exchange Act, to the same extent as the foregoing indemnity from
the Company to each Underwriter, but only with respect to information relating
to such Underwriter furnished in writing by or on behalf of such Underwriter
through you expressly for use in the Registration Statement, the Prospectus, any
Prepricing Prospectus, any Prospectus Supplement, or any amendment or supplement
thereto. If any action, suit or proceeding shall be brought against the Company,
any of its directors, any such officer, or any such controlling person based on
the Registration Statement, the Prospectus or any Prepricing Prospectus, any
Prospectus Supplement, or any amendment or supplement thereto, and in respect of
which indemnity may be sought against any Underwriter pursuant to this paragraph
(c), such Underwriter shall have the rights and duties given to the Company by
paragraph (b) above (except that if the Company shall have assumed the defense
thereof such Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Underwriters' expense), and the
Company, its directors, any such officer, and any such controlling person shall
have the rights and duties given to the Underwriters by paragraph (b) above. The
foregoing indemnity agreement shall be in addition to any liability which any
Underwriter may otherwise have.
(d) If the indemnification provided for in this Section 7
is unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault of the Company on the
one hand and the Underwriters on the other hand shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or by the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
(e) The Company and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 7 were
determined by a pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in paragraph
(d) above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in paragraph (d)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
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<PAGE> 16
total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(f) No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses
for which an indemnified party is entitled to indemnification or contribution
under this Section 7 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any person
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter or any person controlling any Underwriter, or to the Company, its
directors or officers, or any person controlling the Company, shall be entitled
to the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7.
8. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The several
obligations of the Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the registration statement or a post-effective
amendment thereto to be declared effective before the offering of the Shares may
commence, the registration statement or such post-effective amendment shall have
become effective not later than 5:30 P.M., New York City time, on the date
hereof, or at such later date and time as shall be consented to in writing by
you, and all filings, if any, required by Rules 424 and 430A under the Act shall
have been timely made; no stop order suspending the effectiveness of the
registration statement shall have been issued and no proceeding for that purpose
shall have been instituted or, to the knowledge of the Company or the
Underwriter, threatened by the Commission, and any request of the Commission for
additional information (to be included in the registration statement or the
prospectus or otherwise) shall have been complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement,
there shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company or the Subsidiaries not contemplated by the Prospectus, which in your
opinion, would materially adversely affect the market for the Shares, or (ii)
any event or development relating to or involving the Company or any officer or
director of the Company which makes any statement made in the Prospectus untrue
or which, in the opinion of the Company and its counsel or the Underwriter and
its counsel, requires the making of any addition to or change in the
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<PAGE> 17
Prospectus in order to state a material fact required by the Act or any other
law to be stated therein or necessary in order to make the statements therein
not misleading, if amending or supplementing the Prospectus to reflect such
event or development would, in your opinion, materially adversely affect the
market for the Shares.
(c) You shall have received on the Closing Date, an
opinion of Sirote & Permutt, P.C., special counsel for the Company, dated the
Closing Date and addressed to you, to the effect that:
(i) The Company is a corporation duly
incorporated and validly existing in good standing under the laws of the State
of Maryland with full corporate power to own, lease and operate its properties
and to conduct its business as presently conducted and as disclosed in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), and is duly registered and qualified to conduct its business and is in
good standing in each jurisdiction or place where the nature of its properties
or the conduct of its business requires such registration or qualification,
except where the failure so to register or qualify does not have a Material
Adverse Effect;
(ii) To the best knowledge of such counsel, after
reasonable inquiry, the Company has no subsidiaries other than the Subsidiaries.
Each of the Subsidiaries is duly organized, validly existing and in good
standing in the jurisdiction of its incorporation, if a corporation, and is
legally formed and validly existing under the laws of the jurisdiction of its
organization, if a partnership, association or business organization, with full
corporate or organizational power and authority to own, lease and operate its
properties and to conduct its business as presently conducted and as disclosed
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) and is duly registered and qualified to conduct its business
and is in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify does not have
a Material Adverse Effect; all the outstanding shares of capital stock of each
Subsidiary that is a corporation have been duly authorized and validly issued
and are fully paid and nonassessable, and all ownership interests in each
Subsidiary that is not a corporation have been validly created pursuant to the
partnership or other agreements or organizational documents of each such
Subsidiary. Except as described in the Registration Statement and the Prospectus
(and any amendment or supplement thereto), all of such shares and interests in
the Subsidiaries owned by the Company are owned by the Company directly, or
indirectly through one of the other Subsidiaries, free and clear of any
perfected security interest, or, to the best knowledge of such counsel after
reasonable inquiry, any other security interest, lien, adverse claim, equity or
other encumbrance;
(iii) The authorized and outstanding stock of the
Company is as set forth under the caption "Capitalization" in the Prospectus;
and the authorized stock of the Company conforms in all material respects as to
legal matters to the description thereof contained in the Prospectus under the
captions "Description of Series A Preferred Stock" and "Description of Capital
Stock";
(iv) All the shares of stock of the Company
outstanding prior to the issuance of the Shares to be issued and sold by the
Company hereunder, have been duly authorized and validly issued, are fully paid
and nonassessable and are free of any preemptive or similar rights;
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<PAGE> 18
(v) The Shares to be issued and sold to the
Underwriters by the Company hereunder (i) have been duly authorized and, when
issued and delivered to the Underwriters against payment therefor in accordance
with the terms hereof, will be validly issued, fully paid and nonassessable and
free of any preemptive, or to the best knowledge of such counsel, similar rights
that entitle or will entitle any person to acquire any Shares upon the issuance
thereof by the Company and (ii) conform in all material respects to the
descriptions thereof in the Prospectus and (iii) have been duly authorized for
listing by the New York Stock Exchange upon official notice of issuance;
(vi) The form of certificates for the Shares
conforms to the requirements of the Maryland General Corporation Law;
(vii) Except as disclosed in the Prospectus, there
are no outstanding options, warrants or other rights calling for the issuance
of, and such counsel does not know of, any commitment, plan or arrangement to
issue, any shares of stock of the Company or any security convertible into or
exchangeable or exercisable for stock of the Company;
(viii) No holder of any security of the Company or
any other person has the right, contractual or otherwise, which right has not
been waived by the holder thereof, (A) to cause the Company to sell or otherwise
issue to them, or to permit them to underwrite the sale of, the Shares or (B) as
a result of the filing of the Registration Statement or consummation of
transactions contemplated by this Agreement, to require registration under the
Act of any shares of Common Stock or other securities of the Company;
(ix) The Registration Statement and all
post-effective amendments, if any, have become effective under the Act and, to
the best knowledge of such counsel, no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose are pending before or contemplated by the Commission; and any required
filing of the Prospectus pursuant to Rule 424(b) has been made in accordance
with Rule 424(b);
(x) The Company has full corporate power to
enter into this Agreement and to issue, sell and deliver the Shares to be sold
by it to the Underwriters as provided herein, and this Agreement has been duly
authorized, executed and delivered by the Company and is a valid, legal and
binding agreement of the Company, enforceable against the Company in accordance
with its respective terms, subject to the qualification that the enforceability
of the Company's obligations hereunder and thereunder may be limited by
bankruptcy, insolvency, reorganization, moratorium, and other laws relating to
or affecting creditors' rights generally and by general equitable principles and
except as enforcement of rights to indemnity and contribution hereunder may be
limited by federal or state securities laws or principles of public policy;
(xi) Neither the Company nor any of the
Subsidiaries is (i) in violation of its respective certificate or articles of
incorporation, bylaws, partnership agreements, or other organizational
documents; or (ii) to the best knowledge of such counsel after reasonable
inquiry, is (A) in default in the performance of any material obligation,
agreement or condition contained in any bond, debenture, note or other evidence
of indebtedness or in any material agreement, indenture, lease, or other
instrument known to such counsel to which such person is a party or by which any
of them or their respective properties may be bound, or (B) in violation of
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<PAGE> 19
any law, ordinance, administrative or governmental rule or regulation, including
any lending or banking law, governmental rule or regulation, applicable to the
Company or any Subsidiary or of any decree of any court or governmental agency
or body having jurisdiction over the Company or any of the Subsidiaries;
(xii) Neither the issuance, offer, sale or
delivery of the Shares, the execution, delivery or performance of this
Agreement, compliance by the Company with the provisions hereof nor consummation
by the Company of the transactions contemplated hereby conflicts or will
conflict with or constitutes or will constitute a breach of, or a default under,
the certificate or articles of incorporation, bylaws, partnership agreements or
other organizational documents, of the Company or any of the Subsidiaries or any
agreement, indenture, lease, mortgage or other instrument to which the Company
or any of the Subsidiaries is a party or by which any of them or any of their
respective properties is bound that is an exhibit to the Registration Statement
or to any Incorporated Document, or is known to such counsel after reasonable
inquiry, or will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the
Subsidiaries, nor will any such action result in any violation of any existing
law, regulation, ruling (assuming compliance with all applicable state
securities and Blue Sky laws), judgment, injunction, order or decree known to
such counsel after reasonable inquiry, applicable to the Company, the
Subsidiaries or any of their respective properties;
(xiii) Except as disclosed in the Prospectus (or
any supplement thereto), to the best knowledge of such counsel after due
inquiry, there are no legal or governmental proceedings pending or threatened
against the Company or any of the Subsidiaries, or to which the Company or any
of the Subsidiaries, or any of their property, is subject, which are required to
be disclosed in the Registration Statement or Prospectus (or any amendment or
supplement thereto);
(xiv) No consent, approval, authorization or other
order of, or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency, or official is
required on the part of the Company (except as have been obtained under the Act,
the Exchange Act and under state securities or Blue Sky laws governing the
purchase and distribution of the Shares) for the valid issuance and sale of the
Shares to the Underwriter as contemplated by this Agreement;
(xv) Such counsel does not know of any
agreements, indentures, leases or other instruments required to be disclosed in
the Registration Statement or the Prospectus (or any amendment or supplement
thereto) or to be filed as an exhibit to the Registration Statement or any
Incorporated Document that are not disclosed or filed as required, and such
agreements, indentures, lease or other instruments as are summarized in the
Registration Statement or the Prospectus are fairly summarized in all respects;
(xvi) The Registration Statement and the
Prospectus and any supplements or amendments thereto (except for the financial
statements and the notes thereto and the schedules and other financial and
statistical data included therein, as to which such counsel need not express any
opinion) comply as to form in all material respects with the requirements of the
Act; and each of the Incorporated Documents (except for the financial statements
and the notes thereto and the schedules and other financial and statistical data
included therein, as to
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which counsel need not express any opinion) when filed complied as to form in
all material respects with the Exchange Act and the rules and regulations of the
Commission thereunder;
(xvii) The Company and each of the Subsidiaries are
duly licensed or authorized in each jurisdiction where they are required to be
so licensed or authorized to conduct their respective businesses; the Company
and each of the Subsidiaries have all other necessary orders, consents,
approvals, permits, licenses, franchises and authorizations of and from all
regulatory authorities to conduct their respective businesses as presently
conducted, including the necessary lending or banking law permits, and, to the
best of such counsel's knowledge after due inquiry, neither the Company nor any
of the Subsidiaries has received any notification from any regulatory authority
to the effect that any additional approval is required to be obtained by the
Company or any of the Subsidiaries;
(xviii) The statements in the Registration Statement
and Prospectus under the captions "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business,"
"Management," "Description of Debt Securities", "Description of Series A
Preferred Stock" and "Description of Capital Stock," insofar as such statements
constitute summaries of the legal matters, documents or proceedings referred to
therein, fairly present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the matters referred to
therein;
(xix) The Company is not, and after the sale of
the Shares and the application of the net proceeds therefrom as disclosed in the
Prospectus under the caption "Use of Proceeds" will not be, an "investment
company" within the meaning of the 1940 Act;
(xx) The Company has filed all reports and other
documents required to be filed by it under the Exchange Act;
(xxi) None of the assets of the Company or the
Subsidiaries constitute "plan assets," as such term is defined in ERISA;
(xxii) The Company was and is organized in
conformity with the requirements for qualification as a REIT and its proposed
method of operation, as described in the Prospectus, permits it to meet the
requirements for qualification under the Code;
(xxiii) The discussion in the Prospectus under the
caption "Federal Income Tax Considerations" is accurate in all material respects
and fairly summarizes the federal income tax considerations that are likely to
be material to holders of the Common Stock who are not subject to special
treatment under the tax laws; and
(xxiv) Each of the Subsidiaries constitutes either
a partnership for federal income tax purposes or a "qualified REIT subsidiary"
within the meaning of Section 856(i) of the Code.
In addition, such counsel shall state that they have participated in
the preparation of the Registration Statement and the Prospectus, including
review and discussion of the contents thereof (including review and discussion
of the contents of all Incorporated Documents), and nothing has come to the
attention of such counsel that has caused them to believe that the Registration
Statement (including the Incorporated Documents), at the time the Registration
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<PAGE> 21
Statement became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus, as of its
date and as of the Closing Date or the Option Closing Date, as the case may be,
or that any amendment or supplement to the Prospectus, as of its respective
date, and as of the Closing Date or the Option Closing Date, as the case may be,
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements herein,
in the light of the circumstances under which they were or are made, not
misleading (it being understood that such counsel need express no opinion with
respect to the financial statements and the notes thereto and the schedules and
other financial and statistical data included in the Registration Statement or
the Prospectus or any Incorporated Document).
Such counsel shall also reaffirm as of the Closing Date their opinion
filed as Exhibit 8 to the Registration Statement.
In rendering their opinion as aforesaid, counsel may rely upon an
opinion, dated the Closing Date, of Ballard Spahr Andrews & Ingersoll with
respect to Maryland law and may rely upon other opinions, each dated the Closing
Date, of other counsel retained by them or the Company as to laws of any
jurisdiction other than the United States or the State of Alabama, provided that
(1) each such local counsel is acceptable to the Underwriters, (2) such reliance
is expressly authorized by each opinion so relied upon and a copy of each such
opinion is delivered to the Underwriters and is in form and substance
satisfactory to it and its counsel, and (3) counsel shall state in their opinion
that they believe that they and the Underwriters are justified in relying
thereon.
(d) You shall have received on the Closing Date an
opinion of Dewey Ballantine, counsel for the Underwriters, dated the Closing
Date and addressed to you, with respect to the matters referred to in clauses
(v)(other than subclause (ii) and (iii) thereof), (ix), (x) and (xvi) of the
foregoing paragraph (c) and the third to last paragraph of the foregoing
paragraph (c), and such other related matters as you may request. In rendering
their opinion as aforesaid, such counsel may rely on the opinion, dated the
Closing Date and any Option Closing Date, of Ballard Spahr Andrews & Ingersoll
with respect to Maryland law.
(e) You shall have received letters addressed to you and
dated the date hereof and the Closing Date from KPMG Peat Marwick LLP,
independent certified public accountants, substantially in the forms heretofore
approved by you.
(f) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there shall
not have been any change in the capital stock of the Company nor any material
increase in the short-term or long-term debt of the Company (other than in the
ordinary course of business) from that set forth or contemplated in the
Registration Statement or the Prospectus (or any amendment or supplement
thereto); (iii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectus (or
any amendment or supplement thereto), except as may otherwise be stated in the
Registration Statement and Prospectus (or any amendment or supplement thereto),
any material adverse change in the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company and the
Subsidiaries taken as a whole; (iv) the Company
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and the Subsidiaries shall not have any liabilities or obligations, direct or
contingent (whether or not in the ordinary course of business), that are
material to the Company and the Subsidiaries, taken as a whole, other than those
reflected in the Registration Statement or the Prospectus (or any amendment or
supplement thereto); and (v) all the representations and warranties of the
Company contained in this Agreement shall be true and correct on and as of the
date hereof and on and as of the Closing Date as if made on and as of the
Closing Date, and you shall have received a certificate, dated the Closing Date
and signed by the chief executive officer and the chief financial officer of the
Company (or such other officers as are acceptable to you), to the effect set
forth in this Section 8(f) and in Section 8(g) hereof.
(g) The Company shall not have failed at or prior to the
Closing Date to have performed or complied with any of its agreements herein
contained and required to be performed or complied with by it hereunder at or
prior to the Closing Date.
(h) Prior to the Closing Date, the Shares which the
Company agrees to sell pursuant to this Agreement shall have been listed,
subject to notice of issuance, on the New York Stock Exchange.
(i) The Company shall have furnished or caused to be
furnished to you such further certificates and documents as you shall have
requested.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and your counsel.
Any certificate or document signed by any officer of the Company and
delivered to you, or to counsel for the Underwriters, shall be deemed a
representation and warranty by the Company to each Underwriter as to the
statements made therein.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option Closing
Date of the conditions set forth in this Section 8, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (g) shall be dated the Option
Closing Date in question and the opinions called for by paragraphs (c) and (d)
shall be revised to reflect the sale of Additional Shares.
9. EXPENSES. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, each Prospectus
Supplement, the Prospectus, and each amendment or supplement to any of them;
(ii) the printing (or reproduction) and delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of the
registration statement, each Prepricing Prospectus, each Prospectus Supplement,
the Prospectus, the Incorporated Documents, and all amendments or supplements to
any of them, as may be reasonably requested for use in connection with the
offering and sale of the Shares; (iii) the preparation, printing,
authentication, issuance and delivery of certificates for the Shares, including
any stamp taxes in connection with the original issuance and sale of the Shares;
(iv) the printing (or reproduction) and delivery of this Agreement, the
preliminary and supplemental Blue Sky Memoranda and all other agreements or
documents printed (or reproduced) and delivered in connection with the offering
of the Shares;
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(v) if applicable, the listing of the Shares on the New York Stock Exchange;
(vi) the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of the several states as provided in Section
5(g) hereof (including the reasonable fees, expenses and disbursements of
counsel relating to the preparation, printing or reproduction, and delivery of
the preliminary and supplemental Blue Sky Memoranda and such registration and
qualification); (vii) if applicable, the filing fees and the fees and expenses
of counsel for the Underwriters in connection with any filings required to be
made with the National Association of Securities Dealers, Inc.; (viii) the
transportation and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective purchasers of
the Shares; and (ix) the fees and expenses of the Company's accountants and the
fees and expenses of counsel (including local and special counsel) for the
Company.
10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto to be
declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the registration statement or such
post-effective amendment has been released by the Commission. Until such time as
this Agreement shall have become effective, it may be terminated by the Company,
by notifying you, or by you, by notifying the Company.
If any one or more of the Underwriters shall fail or refuse to purchase
Securities which it or they are obligated to purchase hereunder on the Closing
Date, and the aggregate number of Securities that such defaulting Underwriter or
Underwriters are obligated but fail or refuse to purchase is not more than
one-tenth of the aggregate number of Securities which the Underwriters are
obligated to purchase on the Closing Date, each non-defaulting Underwriter shall
be obligated, severally, in the proportion which the number of Firm Securities
set forth opposite its name in Exhibit A hereto bears to the aggregate number of
Firm Securities set forth opposite the names of all non-defaulting Underwriters
or in such other proportion as you may specify in accordance with Section 20 of
the Master Agreement Among Underwriters of Smith Barney Inc., to purchase the
Securities which such defaulting Underwriter or Underwriters are obligated, but
fail or refuse, to purchase. If any one or more of the Underwriters shall fail
or refuse to purchase Securities which it or they are obligated to purchase on
the Closing Date and the aggregate number of Securities with respect to which
such default occurs is more than one-tenth of the aggregate number of Securities
which the Underwriters are obligated to purchase on the Closing Date and
arrangements satisfactory to you and the Company for the purchase of such
Securities by one or more non-defaulting Underwriters or other party or parties
approved by you and the Company are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case which does not
result in termination of this Agreement, either you or the Company shall have
the right to postpone the Closing Date, but in no event for longer than seven
days, in order that the required changes, if any, in the Registration Statement
and the Prospectus or any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any defaulting Underwriter
from liability in respect of any such default of any such Underwriter under this
Agreement. The term "Underwriter" as used in this Agreement includes, for all
purposes of this Agreement, any party not listed in Schedule I hereto who, with
your approval and the approval of the Company, purchases Shares which a
defaulting Underwriter is obligated, but fails or refuses, to purchase.
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Any notice under this Section 10 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
11. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company, by notice to the Company, if prior to the Closing
Date or any Option Closing Date (if different from the Closing Date and then
only as to the Additional Shares), as the case may be, (i) trading in the Common
Stock of the Company shall be suspended or subject to any restriction or
limitation not in effect on the date of this Agreement, (ii) trading in
securities generally on the New York Stock Exchange, the American Stock Exchange
or the Nasdaq National Market shall have been suspended or materially limited,
(iii) there shall have been any downgrading in the rating of any debt securities
or preferred stock of the Company by any "nationally recognized statistical
rating organization" (as defined for purposes of Rule 436(g) under the Act), or
any public announcement that any such organization has under surveillance or
review its rating of any debt securities or preferred stock of the Company
(other than an announcement with positive implications of a possible upgrading,
and no implication of a possible downgrading, of such rating), (iv) a general
moratorium on commercial banking activities in New York shall have been declared
by either federal or state authorities, or (v) there shall have occurred any
outbreak or escalation of hostilities or other international or domestic
calamity, crisis or change in political, financial or economic conditions, the
effect of which on the financial markets of the United States is such as to make
it, in your judgment, impracticable or inadvisable to commence or continue the
offering of the Shares at the offering price to the public set forth on the
cover page of the Prospectus or to enforce contracts for the resale of the
Shares by the Underwriters. Notice of such termination may be given to the
Company by telegram, telecopy or telephone and shall be subsequently confirmed
by letter.
12. INFORMATION FURNISHED BY THE UNDERWRITERS. The only
Information furnished by or on behalf of the Underwriters through you (as such
information is referred to in Sections 6(b) and 7 hereof) shall be the
statements set forth in the last paragraph on the cover page, the stabilization
legend on the inside cover page, and the statements in the first, third and
fifth paragraphs under the caption "Underwriting" in the Prospectus Supplement.
13. MISCELLANEOUS. Except as otherwise provided in Sections 5, 10
and 11 hereof, notice given pursuant to any provision of this Agreement shall be
in writing and shall be delivered (i) if to the Company, at the office of the
Company at Capstone Capital Corporation, 1000 Urban Center Drive, Suite 630,
Birmingham, Alabama 35242, Attention: John W. McRoberts, with a copy to Sirote &
Permutt, P.C., 2222 Arlington Avenue South, Birmingham, Alabama 35205,
Attention: John H. Cooper, Esq.; or (ii) if to you, care of Smith Barney Inc.,
388 Greenwich Street, New York, New York 10013, Attention: Manager, Investment
Banking Division, with a copy to Dewey Ballantine, 1301 Avenue of the Americas,
New York, New York 10019, Attention: Frederick W. Kanner, Esq.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 7 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from any Underwriter of any of the Shares in his
status as such purchaser.
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14. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
CAPSTONE CAPITAL CORPORATION
By
-----------------------------------
Name:
Title:
Confirmed as of the date first
above mentioned.
SMITH BARNEY INC.
[Co-Managers]
As Representatives of the Several Underwriters
By: SMITH BARNEY INC.
By
----------------------
Name:
Title:
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SCHEDULE I
Capstone Capital Corporation
- --------------------------------------------------------------------------------
Number of Firm
Underwriter Shares to be Purchased
- ----------- ----------------------
- --------------------------------------------------------------------------------
Smith Barney Inc.
- --------------------------------------------------------------------------------
Total
- --------------------------------------------------------------------------------
26
<PAGE> 1
EXHIBIT 3.1
ARTICLES SUPPLEMENTARY
OF
CAPSTONE CAPITAL CORPORATION
Capstone Capital Corporation, a corporation organized and
existing under the laws of the State of Maryland (the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority granted to and vested in the
Board of Directors of the Corporation (the "Board of Directors") in accordance
with Article V of the charter of the Corporation, including these Articles
Supplementary (the "Charter"), the Board of Directors, by unanimous written
consent dated September ____, 1997, adopted resolutions classifying 3,000,000
shares (the "Shares"), of Preferred Stock (as defined in the Charter) as a
separate class of stock, ____% Series A Cumulative Preferred Stock, $.001 par
value per share ("Series A Preferred Stock") with the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends or
other distribution qualifications, and terms and conditions of redemption set
forth below.
SECOND: The preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of the shares of the Series A Preferred Stock are as follows:
A. Certain Definitions.
Unless the context otherwise requires, the terms defined in this
paragraph (A) shall have, for all purposes of the provision of the Charter in
respect of the Series A Preferred Stock, the meanings herein specified (with
terms defined in the singular having comparable meanings when used in the
plural).
Business Day. The term "Business Day" shall mean any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a day on which banking
institutions in New York City are authorized or required by law, regulation or
executive order to close.
Code. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
Common Stock. The term "Common Stock" shall mean the common stock,
$.001 par value per share, of the Corporation.
Dividend Payment Date. The term "Dividend Payment Date" shall have the
meaning set forth in subparagraph (2) of paragraph (B) below.
Dividend Period. The term "Dividend Period" shall mean the period
from, and including, the Initial issue Date to, but not including, the first
Dividend Payment Date and thereafter, each quarterly
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period from, and including, the Dividend Payment Date to, but not including,
the next Dividend Payment Date.
Excess Shares. The term "Excess Shares" shall have the meaning set
forth in Article ____ of the Charter.
Initial Issue Date. The term "Initial Issue Date" shall mean the date
that shares of Series A Preferred Stock are first issued by the Corporation.
IRS. The term "IRS" shall mean the United States Internal Revenue
Service.
Liquidation Preference. The term "Liquidation Preference" shall mean
$25.00 per share.
Ownership Limit. The term "Ownership Limit" shall mean no more than
9.8% of the outstanding shares of Preferred Equity Stock.
Person. The term "Person" shall mean an individual, corporation,
partnership estate, trust (including a trust qualified under Section 401(a) or
501(c)(17) of the Code), a portion of a trust permanently set aside for or to
be used exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock Corporation or other entity and also includes a group as that
term is used for purposes of section 13(d)(3) of the Securities Exchange Act of
1934, as amended; but does not include an underwriter which participates in a
public offering of the Series A Preferred Stock or any interest therein,
provided that such ownership by such underwriter would not result in the
Corporation being "closely held" within the meaning of Section 856(h) of the
Code, or otherwise result in the Corporation failing to qualify as a REIT.
Record Date. The term "Record Date" shall mean the first day of the
calendar month in which the applicable Dividend Payment Date falls or on such
other date designated by the Board of Directors of the Corporation for the
payment of the dividends that is not more than 30 nor less than 10 days prior
to such Dividend Payment Date.
Redemption Date. The term "Redemption Date" shall have the meaning
set forth in subparagraph (2) of paragraph (D) below.
Redemption Price. The term "Redemption Price" shall mean a price per
share equal to $25.00 together with accrued and unpaid dividends, if any,
thereon to the Redemption Date.
REIT. The term "REIT" shall mean a real estate investment trust under
Section 856 of the Code.
Series A Preferred Stock. The term "Series A Preferred Stock" shall
mean the _____% Series A Cumulative Preferred Stock, $.001 par value per
share, of the Corporation.
B. Rank. The Series A Preferred Stock shall, with respect to dividend
rights and rights upon liquidation, dissolution or winding up of the
Corporation, rank (a) senior to all classes or series of Common Stock of the
Corporation, and to all equity securities ranking junior to such Series A
Preferred Stock; (b) on a parity with all equity securities issued by the
Corporation the terms of which specifically provide that such equity securities
rank on a parity with the Series A Preferred Stock; and (c) junior to
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<PAGE> 3
all equity securities issued by the Corporation the terms of which specifically
provide that such equity securities rank senior to the Series A Preferred
Stock. The term "equity securities" shall not include convertible debt
securities.
C. Dividends.
1. The record holders of the then outstanding shares of Series A
Preferred Stock shall be entitled to receive cumulative preferential cash
dividends, when and as authorized by the Board of Directors of the Corporation,
out of funds legally available for payment of dividends, at the rate of ______%
per annum of the Liquidation Preference (equivalent to a fixed annual amount of
$_____ per share).
2. Dividends on shares of Series A Preferred Stock shall accrue
and be cumulative from the Initial Issue Date. Dividends shall be payable
quarterly in arrears on or before March 15, June 15, September 15 and December
15 of each year or, if not a Business Day, the next succeeding Business Day
(each, a "Dividend Payment Date"), commencing on _____________, 1997. The
amount of dividends payable on Series A Preferred Stock for each full Dividend
Period shall be computed by dividing by four (4) the annual dividend rate set
forth in subparagraph (1) of this paragraph (C) above. Dividends payable in
respect of the first Dividend Period and any subsequent Dividend Period which
is less than a full Dividend Period in length will be computed on the basis of
a 360-day year consisting of twelve 30-day months. Dividends shall be paid to
the holders of record of the Series A Preferred Stock as their names appear on
the stock transfer records of the Corporation at the close of business on the
Record Date for such dividend. Dividends in respect of any past Dividend
Periods that are in arrears may be authorized and paid at any time to holders
of record on the Record Date thereof. Any dividend payment made on shares of
Series A Preferred Stock shall be first credited against the earliest accrued
but unpaid dividend due which remains payable.
3. No dividends on shares of Series A Preferred Stock shall be
authorized by the Board of Directors of the Corporation or paid or set apart
for payment by the Corporation at such time as the terms and provisions of any
agreement of the Corporation, including any agreement relating to its
indebtedness, prohibits such authorization, payment or setting apart for
payment or provides that such authorization, payment or setting apart for
payment would constitute a breach thereof or a default thereunder, or if such
authorization or payment shall be restricted or prohibited by law.
4. Notwithstanding the foregoing, dividends on the Series A
Preferred Stock will accrue whether or not the terms and provisions set forth
in subparagraph (3) of this paragraph (C) hereof at any time prohibit the
current payment of dividends, whether or not there are funds legally available
for the payment of such dividends and whether or not such dividends are
authorized. Accrued but unpaid dividends on the Series A Preferred Stock will
accumulate as of the Dividend Payment Date on which they first become payable.
Except as set forth in the next sentence, no dividends will be authorized or
paid or set apart for payment on any stock of the Corporation or any other
series of Preferred Stock ranking, as to dividends, on a parity with or junior
to the Series A Preferred Stock (other than a dividend in shares of the Common
Stock or in shares of any other class of stock ranking junior to the Series A
Preferred Stock as to dividends and upon liquidation) for any period unless
full cumulative dividends have been or contemporaneously are authorized and
paid or authorized and a sum sufficient for the payment thereof is set apart
for such payment on the Series A Preferred Stock 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 Series A
Preferred Stock and the shares of any other series of Preferred Stock ranking
on a parity as to dividends with the Series A Preferred Stock, all dividends
authorized upon the Series A Preferred Stock and any other series of Preferred
Stock
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<PAGE> 4
ranking on a parity as to dividends with the Series A Preferred Stock shall be
authorized pro rata so that the amount of dividends authorized per share of
Series A Preferred Stock and such other series of Preferred Stock shall in all
cases bear to each other the same ratio that accrued dividends per share on the
Series A Preferred Stock and such other series of Preferred Stock (which shall
not include any accrual in respect of unpaid dividends for prior Dividend
Periods if such Preferred Stock does not have a cumulative dividend) bear to
each other. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on the Series A Preferred Stock
which may be in arrears.
5. Except as provided in subparagraph (4) of this paragraph (C),
unless full cumulative dividends on the Series A Preferred Stock have been or
contemporaneously are authorized and paid or authorized and a sum sufficient
for the payment thereof is set apart for payment for all past Dividend Periods
and the then current Dividend Period, no dividends (other than in shares of
Common Stock or other shares of stock ranking junior to the Series A Preferred
Stock as to dividends and upon liquidation) shall be authorized or paid or set
aside for payment nor shall any other distribution be authorized or made upon
the Common Stock, or any other stock of the Corporation ranking junior to or on
a parity with the Series A Preferred Stock as to dividends or upon liquidation,
nor shall any shares of Common Stock, or any other shares of stock of the
Corporation ranking junior to or on a parity with the Series A Preferred Stock
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 the Corporation
(except by conversion into or exchange for other stock of the Corporation
ranking junior to the Series A Preferred Stock as to dividends and upon
liquidation). Holders of shares of the Series A Preferred Stock shall not be
entitled to any dividend, whether payable in cash, property or stock, in excess
of full cumulative dividends on the Series A Preferred Stock as provided above.
Any dividend payment made on shares of the Series A Preferred Stock shall first
be credited against the earliest accrued but unpaid dividend due with respect
to such shares which remains payable.
6. If, for any taxable year, the Corporation elects to designate
as "capital gain dividends" (as defined in Section 856 of the Code) any portion
the "Capital Gains Amount") of the dividends paid or made available for the
year to holders of all classes of stock (the "Total Dividends"), then the
Portion of Capital Gains Amount that shall be allocable to holders of the
Series A Preferred Stock shall be the amount that the total dividends paid or
made available to the holders of the Series A Preferred Stock for the year
bears to the Total Dividends.
D. Liquidation Preference.
1. Upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, the holders of Series A Preferred
Stock shall be entitled to receive out of the assets of the Corporation legally
available for distribution to its stockholders a distribution in cash or
property at its fair market value as determined by the Board of Directors of
the Corporation in the amount of the Liquidation Preference per share plus an
amount equal to all dividends accrued and unpaid thereon to the date of such
liquidation, dissolution or winding up, before any distribution of assets is
made to holders of Common Stock or any other class or series of stock of the
Corporation that ranks junior to the Series A Preferred Stock as to liquidation
rights.
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<PAGE> 5
2. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the legally available assets of the
Corporation are insufficient to pay the amount of the Liquidation Preference
per share plus an amount equal to all dividends accrued and unpaid on all
outstanding shares of the Series A Preferred Stock and the corresponding
amounts payable on each class or series of stock ranking on a parity with the
Series A Preferred Stock as to the distribution of assets upon liquidation,
dissolution or winding up of the affairs of the Corporation, then the holders
of the Series A Preferred Stock and all such other classes or series of stock
shall share ratably in any such distribution of assets in proportion to the
full liquidating distributions to which they would otherwise be respectively
entitled.
3. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of the Series A Preferred
Stock will have no right or claim to any of the remaining assets of the
Corporation.
4. Written notice of any such liquidation, dissolution or winding
up of the Corporation, stating the payment date or dates when, and the place or
places where, the amounts distributable in such circumstances shall be payable,
shall be given by first class mail, postage prepaid, not less than 30 nor more
than 60 days prior to the payment date stated therein, to each record holder of
the Series A Preferred Stock at the respective addresses of such holders as the
same shall appear on the stock transfer records of the Corporation.
5. Neither the consolidation or merger of the Corporation with or
into any other corporation, trust or entity or of any other corporation with or
into the Corporation, nor the sale, lease or conveyance of all or substantially
all of the property or business of the Corporation to another corporation or
any other entity, shall be deemed to constitute a liquidation,
6. In determining whether a distribution by dividend, redemption
or other acquisition of shares of the Corporation or otherwise is permitted
under Maryland law, no effect shall be given to amounts that would be needed,
if the Corporation were to be dissolved at the time of the distribution, to
satisfy the preferential rights upon dissolution of shareholders whose
preferential rights on dissolution are superior to those receiving the
distribution.
E. Redemption by the Corporation.
1. Right of Optional Redemption. The Series A Preferred Stock is
not redeemable prior to ____________, 2002. However, in order to ensure that
the Corporation remains a qualified REIT for Federal income tax purposes, the
Series A Preferred Stock will be subject to the provisions of Article VII of
the Charter, pursuant to which Series A Preferred Stock owned by a stockholder
in excess of the Ownership Limit will automatically be converted into Excess
Shares, and the Corporation will have the right to purchase Excess Shares from
the holder. On and after ___________ , 2002, the Corporation, at its option
upon not less than 30 nor more than 60 days written notice, may redeem shares
of the Series A Preferred Stock, in whole or in part, at any time or from time
to time, for cash at the Redemption Price (except as provided in subparagraph
(___) of this paragraph (E)), without interest. If less than all of the
outstanding Series A Preferred Stock is to be redeemed, the Series A Preferred
Stock to be redeemed shall be selected pro rata (as nearly as may be
practicable without creating fractional shares) or by any other equitable
method determined by the Corporation.
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<PAGE> 6
2. Limitations on Redemptions.
(a) The Redemption Price of the Series A Preferred Stock
(other than any portion thereof consisting of accrued and unpaid dividends) may
be paid solely from the sale of proceeds of the capital stock of the
Corporation and not from any other source. For purposes of the preceding
sentence, "capital stock" means any equity securities (including Common Stock
and Preferred Stock) shares, interests, participation or other ownership
interests (however designated) and any rights (other than debt securities
convertible into or exchangeable for equity securities) or options to purchase
any of the foregoing.
(b) Unless full cumulative dividends on all shares of
Series A Preferred Stock shall have been or contemporaneously are authorized
and paid or authorized 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 of Series A Preferred Stock shall be redeemed unless all outstanding
shares of Series A Preferred Stock are simultaneously redeemed, and the
Corporation shall not purchase or otherwise acquire directly or indirectly any
shares of Series A Preferred Stock (except by exchange for capital stock of the
Corporation ranking junior to the Series A Preferred Stock as to dividends and
upon liquidation); provided, however, that the foregoing shall not prevent the
purchase by the Corporation of Excess Shares in order to ensure that the
Corporation remains qualified as a REIT for Federal income tax purposes or the
purchase or acquisition of shares of Series A Preferred Stock pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
shares of Series A Preferred Stock.
3. Immediately prior to any redemption of Series A Preferred
Stock, the Corporation shall pay, in cash, any accumulated and unpaid dividends
through the redemption date, unless a redemption date falls after a Dividend
Record Date and prior to the corresponding Dividend Payment Date, in which case
each holder of Series A Preferred Stock at the close of business on such
Dividend Record Date shall be entitled to the dividend payable on such shares
on the corresponding Dividend Payment Date notwithstanding the redemption of
such shares before such Dividend Payment Date. Except as provided above, the
Corporation will make no payment or allowance for unpaid dividends, whether or
not in arrears, on Series A Preferred Stock which is redeemed.
4. Procedure for Redemption.
(a) 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 the Corporation, 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 Series A Preferred Stock to be redeemed at their respective addresses as
they appear on the stock transfer records of the Corporation. No failure to
give such notice or any defect thereto or in the mailing thereof shall affect
the validity of the proceedings for the redemption of any shares of Series A
Preferred Stock except as to the holder to whom notice was defective or not
given.
(b) In addition to any information required by law or by
the applicable rules of any exchange upon which Series A Preferred Stock may be
listed or admitted to trading, such notice shall state: (i) the Redemption
Date; (ii) the Redemption Price; (iii) the number of shares of Series A
Preferred Stock to be redeemed; (iv) the place or places where the certificates
representing the shares of Series A
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<PAGE> 7
Preferred Stock 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 less than all of the Series A Preferred Stock held by any
holder is to be redeemed, the notice mailed to such holder shall also specify
the number of shares of Series A Preferred Stock held by such holder to be
redeemed.
(c) If notice of redemption of any shares of Series A
Preferred Stock has been given and if the funds necessary for such redemption
have been set aside by the Corporation in trust for the benefit of the holders
of any shares of Series A Preferred Stock so called for redemption, then from
and after the Redemption Date dividends will cease to accrue on such shares of
Series A Preferred Stock, such shares of Series A Preferred Stock shall no
longer be deemed outstanding and all rights of the holders of such shares will
terminate, except the right to receive the Redemption Price. Holders of Series
A Preferred Stock to be redeemed shall surrender such Series A Preferred Stock
at the place designated in such notice and, upon surrender in accordance with
said notice of the certificates for shares of Series A Preferred Stock so
redeemed (properly endorsed or assigned for transfer, if the Corporation shall
so require and the notice shall so state), such shares of the Series A
Preferred Stock shall be redeemed by the Corporation at the Redemption Price.
In case fewer than all the shares of the Series A Preferred Stock represented
by any such certificate are redeemed, a new certificate or certificates shall
be issued representing the unredeemed shares of Series A Preferred Stock
without cost to the holder thereof.
5. The deposit of funds with a bank or trust corporation for the
purpose of redeeming Series A Preferred Stock shall be irrevocable except
that:
(a) the Corporation shall be entitled to receive from
such bank or trust corporation the interest or other earnings, if any, earned
on any money so deposited in trust, and the holder of any shares redeemed shall
have no claim to such interest or other earnings; and
(b) any balance of monies so deposited by the Corporation
and unclaimed by the holders of the Series A Preferred Stock entitled thereto
at the expiration of two (2) years from the applicable Redemption Date shall be
repaid, together with any interest or other earnings earned thereon, to the
Corporation, and after any such repayment, the holders of the shares entitled
to the funds so repaid to the Corporation shall look only to the Corporation
for payment without interest or other earnings.
6. No Series A Preferred Stock may be redeemed except with funds
legally available for the payment of the Redemption Price.
7. The shares of Series A Preferred Stock are subject to the
provisions of Article VII of the Charter, including without limitation, the
provisions for redemption of Excess Shares. In addition to the redemption
rights set forth in Section 7.4(f) of Article VII of the Charter, Excess Shares
issued upon conversion of shares of Series A Preferred Stock pursuant to such
Article VII may be redeemed, in whole or in part, at any time when outstanding
shares of Series A Preferred Stock are being redeemed, for cash at the
Redemption Price, which were converted into such Excess Shares, through the
date of such conversion, without interest. Such Excess Shares shall be
redeemed in such proportion and in accordance with such procedures as shares of
Series A Preferred Stock are being redeemed.
8. Any shares of Series A Preferred Stock that shall at any time
have been redeemed shall, after such redemption, have the status of authorized
but unissued preferred stock, without designation as to series until such
shares are once more designated as part of a particular series by the Board of
Directors of the Corporation.
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<PAGE> 8
F. Voting Rights.
1. Holders of the Series A Preferred Stock will not have any
voting rights, except as set forth below.
2. Whenever dividends on any shares of Series A Preferred Stock
shall be in arrears for six or more quarterly periods (a "Preferred Dividend
Default"), the holders of such shares of Series A Preferred Stock (voting
together as a class with all other series of Preferred Stock ranking on a
parity with the Series A Preferred Stock as to dividends or upon liquidation
("Parity Preferred") upon which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of a total of two
additional directors of the Corporation (the "Preferred Stock Directors") at a
special meeting called by the holders of record of at least 20% of the Series A
Preferred Stock or the holders of record of at least 20% of any series of
Parity Preferred so in arrears (unless such request is received less than 90
days before the date fixed for the next annual or special meeting of the
stockholders) or at the next annual meeting of stockholders, and at each
subsequent annual meeting until all dividends accumulated on such shares of
Series A Preferred Stock for the past Dividend Periods and the dividend for the
then current Dividend Period shall have been fully paid or authorized and a sum
sufficient for the payment thereof set aside for payment.
3. If and when all accumulated dividends and the dividend for
the then current dividend period on the Series A Preferred Stock shall have
been paid in full or set aside for payment in full, the holders thereof shall
be divested of the foregoing voting rights (subject to revesting in the event
of each and every Preferred Dividend Default) and, if all accumulated dividends
and the dividend for the then current Dividend Period have been paid in full or
set aside for payment in full on all series of Parity Preferred upon which like
voting rights have been conferred and are exercisable, the term of office of
each Preferred Stock Director so elected shall immediately terminate. Any
Preferred Stock Director may be removed at any time with or without cause by,
and shall not be removed otherwise than by the vote of, the holders of record
of a majority of the outstanding shares of the Series A Preferred Stock when
they have the voting rights described above (voting together as a class with
all series of Parity Preferred upon which like voting rights have been
conferred and are exercisable). So long as a Preferred Dividend Default shall
continue, any vacancy in the office of a Preferred Stock Director may be filled
by written consent of the Preferred Stock Director remaining in office, or if
none remains in office, by a vote of the holders of record of a majority of the
outstanding shares of Series A Preferred Stock when they have the voting rights
described above (voting together as a class with all series of Parity Preferred
upon which like voting rights have been conferred and are exercisable). The
Preferred Stock Directors shall each be entitled to one vote per director on
any matter.
4. So long as any shares of Series A Preferred Stock remain
outstanding, the Corporation will not, without the affirmative vote or consent
of the holders of at least two-thirds of the shares of the Series A Preferred
Stock outstanding at the time, given in person or by proxy, either in writing
or at a meeting (voting separately as a class), (a) authorize or create, or
increase the authorized or issued amount of, any class or series of stock
ranking prior to the Series A Preferred Stock with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or
winding up or reclassify any authorized stock of the Corporation into such
shares, or create, authorize or issue any obligation or security convertible
into or evidencing the right to purchase any such shares; or (b) amend, alter
or repeal the provisions of the Articles or these Articles Supplementary,
whether by merger, consolidation or
8
<PAGE> 9
otherwise (an "Event"), so as to materially and adversely affect any right,
preference, privilege or voting power of the Series A Preferred Stock or the
holders thereof; provided, however, with respect to the occurrence of any Event
set forth in (b) above, so long as the Series A Preferred Stock remains
outstanding with the terms thereof materially unchanged, the occurrence of any
such Event shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting power of holders of the Series A Preferred
Stock and provided further that (i) any increase in the amount of the
authorized Preferred Stock or the creation or issuance of any other series of
Preferred Stock, or (ii) any increase in the amount of authorized shares of
such series, in each case ranking on a parity with or junior to the Series A
Preferred Stock with respect to payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers.
5. 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 Series A Preferred Stock
shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been deposited in trust to effect such redemption.
E. Conversion.
The Series A Preferred Stock is not convertible into or exchangeable
for any other property or securities of the Corporation, except that the shares
of Series A Preferred Stock may be converted into Excess Shares, in accordance
with Article VII of the Charter.
THIRD: These Articles Supplementary have been approved by the Board
of Directors in the manner and by the vote required by law.
FOURTH: These Articles Supplementary shall be effective at the time
the State Department of Assessments and Taxation of Maryland accepts these
Articles Supplementary for record.
9
<PAGE> 10
IN WITNESS WHEREOF, CAPSTONE CAPITAL CORPORATION has caused these
presents to be signed in its name and on its behalf by its President, and its
corporate seal to be hereunto affixed and attested by its Secretary, and the
said officers of the Corporation further acknowledge these Articles
Supplementary to be the corporate act of the Corporation and, state under
penalties of perjury that to the best of their knowledge, information and
belief the matters and facts therein set forth with respect to approval are
true in all material respects.
CAPSTONE CAPITAL CORPORATION
By:______________________________________
Its:__________________________
Attest:
By:_________________________________
Its:_______________________
10
<PAGE> 1
EXHIBIT 4.6
<TABLE>
<S> <C> <C>
CAPSTONE CAPITAL CORPORATION
[CCA ] % SERIES A CUMULATIVE PREFERRED STOCK [SHARES]
INCORPORATED UNDER THE LAWS THIS CERTIFICATES TRANSFERABLE IN NEW YORK, NEW YORK OR BIRMINGHAM, ALABAMA SEE REVERSE FOR
OF THE STATE OF MARYLAND CERTAIN LEGENDS
CUSIP 14066R
THIS CERTIFIES THAT
is the registered holder of
FULLY-PAID AND NON-ASSESSABLE SHARES OF SERIES A CUMULATIVE PREFERRED STOCK, PAR VALUE $.001 PER SHARE OF
CERTIFICATE OF STOCK
=========================================== CAPSTONE CAPITAL CORPORATION ===========================================
transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
IN WITNESS WHEREOF, the Corporation has caused the fascimile signatures of its duly authorized officers and the facsimile
of its seal to be printed hereon.
Dated:
/s/ MALCOLM E. MCVAY /s/ JOHN W. McROBERTS
VICE PRESIDENT, CHIEF FINANCIAL OFFICER [CAPSTONE CAPITAL CORPORATION SEAL] PRESIDENT AND
AND SECRETARY CHIEF EXECUTIVE OFFICER
Coregistered and Regulated
AMSOUTH BANK OF ALABAMA
By Transfer Agent
and Registrar,
Authorized Signature
</TABLE>
<PAGE> 2
CAPSTONE CAPITAL CORPORATION
IF NECESSARY TO EFFECT COMPLIANCE BY THE CORPORATION WITH CERTAIN
PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THE TRANSFER OF
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE PROHIBITED UPON THE TERMS AND
CONDITIONS SET FORTH IN THE ARTICLES OF INCORPORATION AND BYLAWS OF THE
CORPORATION. THE CORPORATION WILL FURNISH A COPY OF SUCH TERMS AND CONDITIONS
TO THE REGISTERED HOLDER OF THIS CERTIFICATE UPON REQUEST AND WITHOUT CHARGE,
TO ENABLE THE CORPORATION TO ENSURE THAT IT COMPLIES WITH THE PROVISIONS OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE HOLDER OF THE SHARES
REPRESENTED BY THIS CERTIFICATE AND ANY PROPOSED TRANSFEREE OF SUCH HOLDER
SHALL UPON DEMAND DISCLOSE TO THE CORPORATION IN WRITING SUCH INFORMATION AS
THE CORPORATION MAY DEEM NECESSARY FOR SUCH PURPOSES.
THE CORPORATION HAS THE AUTHORITY TO ISSUE STOCK OF MORE THAN ONE
CLASS. THE CORPORATION WILL, ON REQUEST AND WITHOUT CHARGE, FURNISH A FULL
STATEMENT OF THE DESIGNATIONS AND ANY PREFERENCES, CONVERSION AND OTHER RIGHTS,
VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS, QUALIFICATIONS, AND
TERMS AND CONDITIONS OF REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE
CORPORATION IS AUTHORIZED TO ISSUE.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian ___________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act __________________
in common (State)
</TABLE>
Additional abbreviations may also be used through not in the above list
For value received, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ shares
of the Common Stock represented by the within certificate, and do hereby
irrevocably constitute and appoint ___________________________________________,
Attorney to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated:
Signature:
______________________________________
Notice: The signature to this assignment
must correspond with the name as written
upon the face of the certificate in
every particular, without alteration or
enlargement or any change whatever.
Signature guaranteed:
______________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO B.F.C. RULE 17Ad-16.
<PAGE> 1
EXHIBIT 5.1
(205) 930-5108
July 18, 1997
Capstone Capital Corporation
1000 Urban Center Drive, Suite 630
Birmingham, Alabama 35242
Ladies and Gentlemen:
We have acted as counsel to Capstone Capital Corporation, a
Maryland corporation (the "Company"), in connection with the Company's
Registration Statement on Form S-3 (the "Registration Statement") filed by the
Company on July 18, 1997 with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"). The
Registration Statement relates to the issuance and sale from time to time,
pursuant to Rule 415 of the General Rules and Regulations promulgated under the
Act of $500,168,750 of (i) debt securities, which may be either senior debt
securities (the "Senior Debt Securities") or subordinated debt securities (the
"Subordinated Debt Securities") (collectively, the "Debt Securities"); (ii)
shares of preferred stock of the Company, par value $0.001 per share (the
"Preferred Stock"); (iii) shares of common stock of the Company, par value
$0.001 per share (the "Common Stock"); and (iv) warrants to purchase shares of
Preferred Stock, Common Stock or Debt Securities (the "Warrants"). The Debt
Securities, Preferred Stock, Common Stock, and Warrants are hereinafter referred
to collectively as the "Securities."
This opinion is furnished in accordance with the requirements
of Item 601(b)(5) of Regulation S-K under the Act.
The Securities will be sold or delivered from time to time as
set forth in the Registration Statement, any amendment thereto, the prospectus
contained therein (the "Prospectus") and supplements to the Prospectus (the
"Prospectus Supplements").
<PAGE> 2
Capstone Capital Corporation
July 18, 1997
Page 2
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement and the form of each of the Securities, (ii) the
Certificate of Incorporation of the Company as in effect on the date hereof;
(iii) the By-laws of the Company as in effect on the date hereof; and (iv)
resolutions adopted by the Board of Directors of the Company (the "Board
Resolutions") authorizing the Securities, the form of underwriting agreement
(the "Underwriting Agreement") proposed to be entered into by the Company and
the representatives of the several underwriters to be named therein, the
issuance and sale of the Securities and the proper officers of the Company to
determine the final form and terms of the Securities. We have also examined, and
have relied as to matters of fact upon, originals or copies, certified or
otherwise identified to our satisfaction, of such corporate records, agreements,
documents and other instruments and such certificates or comparable documents of
public officials and of officers and representatives of the Company, and have
made such other and further investigations, as we have deemed relevant and
necessary as a basis for the opinions hereinafter set forth.
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, we have assumed that such parties had the power, corporate or other, to
enter into and perform all obligations thereunder and have also assumed the due
authorization by all requisite actions, corporate or other, and execution and
delivery by such parties of such documents and the validity and binding effect
thereof. As to any facts material to the opinions expressed herein that were not
independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Company and others.
In addition, we have assumed that (i) a Prospectus Supplement
will have been prepared and filed with the Commission describing the Securities
offered thereby; (ii) all Securities issued will be issued and sold in
compliance with applicable federal and state securities laws and solely in the
manner stated in the Registration Statement and the appropriate Prospectus
Supplement; (iii) a definitive purchase, underwriting or similar agreement with
respect to any Securities will have been duly authorized and validly executed
and delivered by the Company and the other parties thereto; (iv) the Debt
Securities, and any Warrants therefor, when issued, will have been authorized
and approved by the Board of Directors of the Company;(v) the Preferred Stock,
and any Warrants therefor, when issued, will be authorized pursuant to the
Certificate of Incorporation of the Company, and the issuance thereof and the
consideration to be received therefor, will have been authorized, determined and
approved by the Board of Directors of the Company pursuant to the Maryland
General Corporation Law; (vi) the Common Stock, and any Warrants therefor, when
issued, will be authorized pursuant to the Certificate
<PAGE> 3
Capstone Capital Corporation
July 18, 1997
Page 3
of Incorporation of the Company, and the issuance thereof and the consideration
to be received therefor, will have been authorized, determined and approved by
the Board of Directors of the Company pursuant to the Maryland General
Corporation Law; and (vii) any Debt Securities, Common Stock or Preferred Stock
issuable upon conversion, exchange or exercise of the Securities will be duly
authorized, created and, if appropriate, reserved for issuance upon such
conversion, exchange or exercise and will satisfy all conditions set forth in
clause (iv), (v) and (vi) of this paragraph;
Based on the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion that:
1. With respect to the Debt Securities, when (i) the terms of
the Debt Securities and of their issuance and sale have been duly established as
contemplated by the Board Resolutions in conformity with the indentures relating
to the Debt Securities (the "Indentures") so as not to violate any applicable
law or result in a default under or breach of any agreement or instrument
binding upon the Company and so as to comply with any requirement or restriction
imposed by any court or governmental body having jurisdiction over the Company,
(ii) the Indentures have been duly authorized and validly executed and delivered
by the Company to the trustees thereunder (the "Trustees"), (iii) the Indentures
have been duly qualified under the Trust Indenture Act of 1939, as amended, (iv)
the Registration Statement has become effective under the Act, and (v) the Debt
Securities have been duly executed and authenticated in accordance with the
terms of the Indentures and delivered and sold as contemplated by the
Registration Statement and any Prospectus Supplement relating thereto, against
receipt of adequate consideration therefor, (1) the Debt Securities will
constitute valid and legally binding obligations of the Company enforceable
against the Company in accordance with their terms, except to the extent that
enforcement thereof may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to creditors' rights generally and (b) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity) and except that enforcement thereof may also be
limited by (x) requirements that a claim with respect to any Debt Securities
denominated other than in United States dollars (or a foreign currency or
foreign currency unit judgment in respect of such claim) be converted into
United States dollars at a rate of exchange prevailing on a date determined
pursuant to applicable law or (y) governmental authority to limit, delay or
prohibit the making of payments in foreign currency or currency units or
payments outside the United States and (2) if Common Stock is issuable upon
conversion of any convertible Debt Securities, the Common Stock issuable upon
conversion of such convertible Debt Securities will be validly issued, fully
paid and nonassessable, assuming that the conversion of the convertible Debt
Securities is in accordance with the terms of the Indenture relating thereto and
that the Common Stock is issued for consideration at least equal to the par
value thereof and otherwise in accordance with the Maryland General Corporation
Law.
<PAGE> 4
Capstone Capital Corporation
July 18, 1997
Page 4
2. The shares of Preferred Stock have been duly authorized and
when (i) the Registration Statement has become effective under the Act and (ii)
the shares of Preferred Stock have been duly executed, countersigned, delivered
and sold by the Company in the transactions contemplated by the Registration
Statement and any Prospectus Supplement relating thereto, and the consideration
therefor has been received by the Company, such shares of Preferred Stock will
be validly issued, fully paid and nonassessable.
3. The shares of Common Stock have been duly authorized and
when (i) the Registration Statement has become effective under the Act and (ii)
the shares of Common Stock have been duly executed, countersigned, delivered and
sold by the Company in the transactions contemplated by the Registration
Statement and any Prospectus Supplement relating thereto, and the consideration
therefor has been received by the Company, such shares of Common Stock will be
validly issued, fully paid and nonassessable.
4. The Company has authority pursuant to its Certificate of
Incorporation to issue the Warrants to be registered under the Registration
Statement. The shares of Common Stock, shares of Preferred Stock, and Debt
Securities issuable upon exercise of the Warrants will have been duly and
validly authorized (a) upon the adoption by the Board of Directors of a
resolution in form and content as required by applicable law, (b) upon
compliance with the applicable provisions of the Act and such state "blue sky"
or securities laws as may be applicable, and (c) with respect to such shares of
Preferred Stock, upon the adoption by the Company's Board of Directors and the
due execution and filing by the Company with the Maryland General Corporation
Law of Articles Supplementary establishing the preferences, limitations and
relative voting and other rights of each series of Preferred Stock prior to
issuance thereof. The shares of Common Stock, shares of Preferred Stock, and
Debt Securities issuable upon exercise of the Warrants, when duly and validly
authorized and when issued in the manner contemplated by the Registration
Statement and/or applicable Prospectus Supplement and in accordance with the
terms of the warrant agreement relating to such Warrants and at a price therein
provided for, will be legally issued, fully paid and nonassessable.
In rendering the opinions expressed herein, we have assumed
without investigation that, with respect to each offer, issuance, sale, and
delivery by the Company of Securities and each purchase by the purchasers
thereof, (a) at the time thereof and at all times subsequent thereto, such
offer, issuance, sale, delivery, and purchase did not violate, result in a
breach of, or conflict with any law, rule, regulation, order, judgment, or
decree, in each case whether then or subsequently in effect; (b) at the time
thereof and at all times subsequent thereto, the persons authorizing each such
offer, issuance, sale, delivery or purchase, did not violate any fiduciary or
other duty owed by them; (c) no event has taken place subsequent to any such
offer, issuance, sale, delivery or purchase, or will take place which would
cause any such offer, issuance, sale, delivery, or purchase, not to comply with
any law, rule, regulation, order, judgement, decree,
<PAGE> 5
Capstone Capital Corporation
July 18, 1997
Page 5
or duty, or which would permit the Company or any other party at any time
thereafter to cancel, rescind, or otherwise avoid any such offer, issuance,
sale, delivery or purchase; (d) there was no misrepresentation, omission, or
deceit by the Company, or any such other party, in connection with any such
offer, issuance, sale, delivery or purchase; (e) each offer, issuance, sale,
delivery or purchase is governed by the laws of the State of Maryland; (f) each
other party to such offer, issuance, sale, delivery or purchase (1) had the
power, authority, and the capacity to consummate such purchase, (2) duly
authorized such purchase, and each such transaction, (3) has duly and validly
taken all necessary corporate or other proceedings of the directors (or a
committee of directors), stockholders, and all other bodies to authorize the
purchase, and (4) has not violated or breached any term of the certificate of
incorporation, bylaws or other governing documents by any such purchaser.
In connection with our opinion set forth in paragraph 1 hereof
with respect to the Debt Securities, we are not rendering any opinion with
respect to any provisions of the Debt Securities dealing with (a) choice of law,
(b) severability, (c) exculpation, (d) indemnification and contribution, (e)
arbitration, (f) restriction of available remedies or attempts to establish a
remedy, or (g) release of unmatured claims.
Members of our firm are admitted to the bar in the State of
Alabama, and we do not express any opinion as to the laws of any other
jurisdiction. In rendering this opinion with respect to Maryland law, we are
relying on the opinion of Ballard Spahr Andrews & Ingersoll. The Securities may
be issued from time to time on a delayed or continuous basis, and this opinion
is limited to the laws, including the rules and regulations, as in effect on the
date hereof.
We hereby consent to the filing of this opinion with the
Commission as an exhibit to the Registration Statement and to the reference to
our firm appearing under the heading "Legal Matters" in the Registration
Statement.
Very truly yours,
SIROTE & PERMUTT, P.C.
/s/ Sirote & Permutt, P.C.
<PAGE> 1
EXHIBIT 5.2
July 18, 1997
Sirote & Permutt, P.C.
2222 Arlington Avenue South
Birmingham, Alabama 35205
Re: Capstone Capital Corporation: Registration
Statement on Form S-3: $500,168,750 Aggregate
Offering Price of Debt Securities, Preferred
Stock, Common Stock and Warrants
Ladies and Gentlemen:
We have served as Maryland counsel to Capstone Capital Corporation, a
Maryland corporation (the "Company"), in connection with certain matters of
Maryland law arising out of the registration of the following securities of
the Company having an aggregate initial offering price of up to $500,168,750
(collectively, the "Securities"): (a) debt securities ("Debt Securities"),
which may be either senior debt securities (the "Senior Debt Securities") or
subordinated debt securities (the "Subordinated Debt Securities"), (b) shares
of common stock, $.001 par value per share, of the Company ("Common Stock"),
(c) shares of preferred stock, $.01 par value per share, of the Company
("Preferred Stock"), and (d) warrants (the "Warrants") to purchase shares of
Common Stock or Preferred Stock or Debt Securities, covered by the
above-referenced Registration Statement, and all amendments thereto (the
"Registration Statement"), filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "1933 Act"). Unless otherwise defined herein, capitalized terms
used herein shall have the meanings assigned to them in the Registration
Statement.
In connection with our representation of the Company, and as a basis
for the opinion hereinafter set forth, we have
<PAGE> 2
Sirote & Permutt, P.C.
July 18, 1997
Page 2
examined originals, or copies certified or otherwise identified to our
satisfaction, of the following documents (collectively, the "Documents"):
1. The Registration Statement and the related form of prospectus
included therein in the form in which it was transmitted to the Commission
under the 1933 Act;
2. The charter of the Company (the "Charter"), certified as of a
recent date by the State Department of Assessments and Taxation of Maryland
(the "SDAT");
3. The Bylaws of the Company, certified as of a recent date by its
Secretary;
4. Resolutions adopted by the Board of Directors of the Company
(the "Board") relating to the sale, issuance and registration of the
Securities, certified as of a recent date by the Secretary of the Company (the
"Resolutions");
5. The form of certificate representing a share of Common Stock,
certified as of a recent date by the Secretary of the Company;
6. The form of certificate representing a share of Preferred
Stock, certified as of a recent date by the Secretary of the Company;
7. A certificate of the SDAT as to the good standing of the
Company, dated as of a recent date;
8. A certificate executed by the Secretary of the Company, dated
as of the date hereof; and
9. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed, and so far
as is known to us there are no facts inconsistent with, the following:
<PAGE> 3
Sirote & Permutt, P.C.
July 18, 1997
Page 3
1. Each individual executing any of the Documents, whether on behalf
of such individual or another person, is legally competent to do so.
2. Each individual executing any of the Documents on behalf of a party
(other than the Company) is duly authorized to do so.
3. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding.
4. All Documents submitted to us as originals are authentic. All
Documents submitted to us as certified or photostatic copies conform to the
original documents. All signatures on all such Documents are genuine. All
public records reviewed or relied upon by us or on our behalf are true and
complete. All statements and information contained in the Documents are true
and complete. There are no oral or written modifications or amendments to the
Documents, by action or conduct of the parties or otherwise.
5. The outstanding shares of stock of the Company have not been and
will not be transferred in violation of any restriction or limitation contained
in the Charter. The Securities will not be transferred in violation of any
restriction or limitation contained in the Charter.
6. In accordance with the Resolutions, the issuance of, and certain
terms of, the Securities to be issued by the Company from time to time will be
approved by the Board or a duly authorized committee thereof in accordance with
the Maryland General Corporation Law (with such approval referred to herein as
the "Corporate Proceedings").
The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
<PAGE> 4
Sirote & Permutt, P.C.
July 18, 1997
Page 4
Based upon the foregoing, and subject to the assumptions, limitations
and qualifications stated herein, it is our opinion that:
1. The Company is a corporation duly incorporated and existing under
and by virtue of the laws of the State of Maryland and is in good standing with
the SDAT.
2. Upon the completion of all Corporate Proceedings relating to the
Securities that are shares of Common Stock (including shares of Common Stock
which may be issued upon exercise of Warrants or conversion of shares of
Preferred Stock or Debt Securities) (the "Common Securities") and the due
execution, countersignature and delivery of certificates representing Common
Securities and assuming that the sum of (a) all shares of Common Stock issued
as of the date hereof, (b) any shares of Common Stock issued between the date
hereof and the date on which any of the Common Securities are actually issued
(not including any of the Common Securities), and (c) the Common Securities
will not exceed the total number of shares of Common Stock that the Company is
authorized to issue, the Common Securities are duly authorized and, when and if
delivered against payment therefor in accordance with the Resolutions and the
Corporate Proceedings, will be validly issued, fully paid and nonassessable.
3. Upon the completion of all Corporate Proceedings relating to the
Securities that are shares of Preferred Stock (including shares of Preferred
Stock which may be issued upon exercise of Warrants or conversion of Debt
Securities) (the "Preferred Securities") and the due execution,
countersignature and delivery of certificates representing Preferred Securities
and assuming that the sum of (a) all shares of Preferred Stock issued as of
the date hereof, (b) any shares of Preferred Stock issued between the date
hereof and the date on which any of the Preferred Securities are actually
issued (not including any of the Preferred Securities), and (c) the Preferred
Securities will not exceed the total number of shares of Preferred Stock that
the Company's authorized to issue, the Preferred Securities are duly authorized
and, when and if delivered against payment therefor in accordance with the
Resolutions and the Corporate Proceedings, will be validly issued, fully paid
and nonassessable.
<PAGE> 5
Sirote & Permutt, P.C.
July 15, 1997
Page 5
4. Upon the completion of all Corporate Proceedings relating to
the Securities that are Warrants, the issuance of the Warrants will be duly
authorized by all necessary corporate action and when duly executed and
delivered by the Company against payment therefor and countersigned by the
applicable Warrant Agent in accordance with the applicable Warrant Agreement and
delivered to and paid for by the purchasers of the Warrants in the manner
contemplated by the Registration Statement and/or the applicable Prospectus
Supplement, the Warrants will be validly issued.
5. Upon the completion of all Corporate Proceedings relating to the
Securities that are Debt Securities (including Debt Securities which may be
issued upon exercise of Warrants), the issuance of the Debt Securities will have
been duly authorized by all necessary corporate action.
The foregoing opinion is limited to the laws of the State of Maryland
and we do not express any opinion herein concerning any other law. The opinion
expressed herein is subject to the effect of judicial decisions which may
permit the introduction of parol evidence to modify the terms or the
interpretation of agreements. We express no opinion as to compliance with the
securities (or "blue sky") laws of the State of Maryland.
We assume no obligation to supplement this opinion if any applicable
law changes after the date hereof or if we become aware of any fact that might
change the opinion expressed herein after the date hereof.
This opinion is being furnished to you for submission to the
Commission as an exhibit to the Registration Statement and, accordingly, may
not be relied upon by, quoted in any manner to, or delivered to any other
person or entity without, in each instance, our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the 1933 Act.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll
<PAGE> 1
EXHIBIT 5.3
Sirote & Permutt, P.C.
2222 Arlington Ave. South
Birmingham, AL 35205
(205) 933-7111
September 16, 1997
Capstone Capital Corporation
1000 Urban Center Drive
Birmingham, Alabama 35242
Re: Registration Statement on Form S-3
Registration No. 333-31639
Gentlemen:
We have acted as your counsel in connection with the
preparation of a registration statement on Form S-3 filed with the Securities
and Exchange Commission on July 18, 1997, as subsequently amended (the
"Registration Statement"), in connection with the registration of up to
3,450,000 shares of % Series A Cumulative Preferred Stock, $.001 par value per
share (the "Shares"), of Capstone Capital Corporation, a Maryland corporation
(the "Company"), which are to be sold to the underwriters represented by Smith
Barney Inc., PaineWebber Incorporated, J.C. Bradford & Co. and Cowen & Company
(the "Representatives"), pursuant to the Underwriting Agreement between the
Company and the Representatives filed as Exhibit 1 to the Registration Statement
(the "Underwriting Agreement").
In connection with this opinion, we have examined and relied
upon such records, documents and other instruments as in our judgment are
necessary and appropriate in order to express the opinions hereinafter set forth
and have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, and the conformity to original documents
of all documents submitted to us as certified or photostatic copies.
Based upon the foregoing, we are of the opinion that the
Shares, when issued and
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Capstone Capital Corporation
September 16, 1997
Page 2
delivered in the manner and on the terms described in the Registration Statement
and the Underwriting Agreement (after the Registration Statement is declared
effective), will be duly authorized, validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and further consent to the reference to us under the
caption "Legal Matters" in the prospectus included in the Registration
Statement.
Very truly yours,
/s/ SIROTE & PERMUTT, P.C.
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EXHIBIT 8
(205) 930-5108
July 18, 1997
Capstone Capital Corporation
1000 Urban Center Drive
Suite 630
Birmingham, Alabama 35242
Ladies and Gentlemen:
We have acted as counsel to Capstone Capital Corporation, a
Maryland corporation (the "Company"), in connection with the Company's
Registration Statement on Form S-3 (the "Registration Statement") filed by the
Company on July 18, 1997 with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"). The
Registration Statement relates to the issuance and sale from time to time,
pursuant to Rule 415 of the General Rules and Regulations promulgated under the
Act of $500,168,750 of (i) debt securities, which may be either senior debt
securities (the "Senior Debt Securities") or subordinated debt securities (the
"Subordinated Debt Securities") (collectively, the "Debt Securities"); (ii)
shares of preferred stock of the Company, par value $0.001 per share (the
"Preferred Stock"); (iii) shares of common stock of the Company, par value
$0.001 per share (the "Common Stock"); and (iv) warrants to purchase shares of
Preferred Stock, Common Stock or Debt Securities (the "Warrants"). The Debt
Securities, Preferred Stock, Common Stock and Warrants are hereinafter referred
to collectively as the "Securities."
In connection with the Registration Statement, we have been
asked to provide opinions on certain federal income tax matters described in the
Prospectus and whether the Company is presently qualified as a real estate
investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue
Code of 1986, as amended (the "Code"), for its taxable year ended December 31,
1996. Capitalized terms used in this opinion and not otherwise defined herein
have the meaning set forth in the Prospectus.
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July 18, 1997
Page 2
In rendering the following opinions, we have examined such
statutes, regulations, records, certificates and other documents as we have
considered necessary or appropriate as a basis for such opinions, including the
following: (1) the Prospectus and the Registration Statement (including the
Exhibits thereto) and (2) the Certificate of Incorporation and By-laws of the
Company as in effect on the date hereof. We have also examined such additional
records, documents, certificates and other instruments and made such
investigations of fact and law as in our judgment are necessary or appropriate
to enable us to render the opinion expressed below. In our examination, we have
assumed that documents that have been reviewed in proposed form will be executed
in substantially the form of the proposed agreements we have reviewed. We have
also assumed the genuineness of all signatures, the proper execution of all
documents, the authenticity of all documents submitted to us as originals, the
conformity to originals of documents submitted to us as copies, and the
authenticity of the originals of any copies.
The opinions set forth herein are based on relevant provisions
of the Code, existing and proposed Treasury Regulations promulgated thereunder,
and applicable court decisions and administrative determinations, all as in
effect on the date hereof and all of which may be subject to changes which might
effect the conclusions set forth herein.
In addition, the Company has provided us with a certificate
(the "Officer's Certificate"), executed by a duly authorized officer of the
Company setting forth certain representations relating to the formation and
operations of the Company. For purposes of our opinions, we have not made an
independent investigation of the facts set forth in the Officer's Certificate.
In rendering our opinion, we have made the following
assumptions:
1. The Shares of Common Stock outstanding will continue to be owned by over 100
stockholders, as defined under Section 856(a)(5) of the Code; and five or fewer
stockholders have not owned, directly or indirectly under the rules of Section
544 as modified by Section 856(h) of the Code, at any time since the completion
of the initial public offering of 5,800,000 shares of Common Stock on June 30,
1994, over 50% in value of the stock of the Company; and no stockholder will
own, directly or indirectly, over 9.8% in value of the outstanding stock of the
Company.
2. Except as provided herein, the Company has and will comply
with any and all procedural requirements for REIT status set forth in Sections
856 through 860 of the Code and the regulations thereunder, including the timely
making of such elections and disclosing of such
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July 18, 1997
Page 3
information as is required on the federal tax return filed by the Company for
the taxable year ended December 31, 1996. The Company has requested the
information required to be requested from certain stockholders within 30 days of
the close of each fiscal year under Treasury Regulation 1.857-8(e).
3. The Company has purchased real estate and entered into
leases providing for qualified rents (including qualified rents under Section
856(d)(6) of the Code) with respect to such properties and has made mortgage
loans secured by real estate.
4. Additional properties acquired will constitute "real estate
assets" and any other investments made by the Company will be made in a manner
to satisfy the asset test of Section 856(c) of the Code.
5. The income from additional leases entered into or acquired
and the income from other investments will not cause the Company to fail to
satisfy the income tests of Section 856(c) of the Code.
6. The Company met the requirements under Code Section 858 as
to the timing of the distribution and made the proper election to have a
sufficient portion of its first quarter 1997 dividend be deemed made in 1996 for
purposes of the distribution requirements of Section 857.
7. The Company will actually operate in accordance with its
past and proposed method of operation as described in the Prospectus.
8. The Company had no "C" corporation earnings and profits at
December 31, 1996.
9. The representation of the Company's certificate dated as of
July 18, 1997, are accurate and correct.
On the basis of and in reliance on the foregoing, under
current law, including relevant statutes, regulations and judicial and
administrative precedent (which law is subject to change on a retroactive
basis), in our opinion the Company has been organized in conformity with the
requirements for qualification as a REIT under the Code, and its method of
operation as described in the Prospectus enables it to meet the requirements for
qualification and taxation as a REIT under the Code at this time.
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July 18, 1997
Page 4
In addition, in our opinion, the discussion in the Prospectus
under the heading "Federal Income Tax Considerations," to the extent that it
constitutes matters of law or legal conclusions, is correct in all material
respects.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of the name of our firm therein and
under the caption "Federal Income Tax Considerations" in the Prospectus filed as
a part of the Registration Statement.
Yours very truly,
SIROTE & PERMUTT, P.C.
/s/ Sirote & Permutt, P.C.
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Stockholders and Board of Directors
Capstone Capital Corporation:
We consent to the use of our reports incorporated by reference herein and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Birmingham, Alabama
September 16, 1997
