SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 11, 2001
CarrAmerica Realty Corporation
(Exact name of registrant as specified in its charter)
Maryland 1-11706 52-1796339
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
1850 K Street, NW, Suite 500
Washington, DC 20006
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(202) 729-7500
Not applicable
(Former name or former address, if changed since last report)
Item 5. Other Events
This Current Report on Form 8-K is being filed to provide information
to investors regarding the expected impact on us of the recent terrorist attacks
on New York and Washington, updated tax disclosure and an update on certain
litigation matters that we have previously discussed in our public reports.
Effect of Terrorist Attacks
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We own controlling interests in nine office buildings located in
downtown Washington, D.C. that contain approximately 2.1 million net rentable
square feet, representing approximately 10.6% of the total net rentable square
feet of our consolidated portfolio. These properties contributed approximately
15% of our property operating income for the first six months of 2001. Most of
these properties (like most Class A office buildings in downtown Washington,
D.C.) are located within a one-mile radius of the White House.
While the barbaric attacks on the World Trade Center and the Pentagon
may have taken a severe emotional toll on U.S. citizens, including our
employees, we do not believe that these attacks will have a material adverse
effect on our financial condition or results of operations. In the short term,
it is possible that there may be some uncertainty in terms of rents that are
achieved with respect to newly leased space in downtown Washington, D.C.
properties, in light of these properties' proximity to major U.S. landmarks,
such as the White House. Additional uncertainty may result from the potential
continued closure of Ronald Reagan Washington National Airport, due to security
concerns. No official announcement has yet been made on whether the airport will
reopen, and, as a result, the potential adverse impact on the downtown
Washington, D.C. office market is unclear. However, in the long term, we
continue to believe that the downtown Washington, D.C. office market will be an
extremely attractive market, because of a number of factors that contribute to
long-term stability. These factors include the city's status as the nation's
capital, as well as the major presence of the Federal government, international
agencies and private-sector professional organizations, including law firms. As
a result, the tragic events of September 11 will not have any significant effect
on our investment decisions regarding the downtown Washington, D.C. market, and
we remain committed to maintaining a significant investment in this market.
Updated Tax Disclosure
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As part of an ongoing desire to provide information about us in a
manner that is easier to update on a regular basis, we are filing with this
report a
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description of the material U.S. federal income tax consequences relating to the
taxation of us as a REIT and the ownership and sale of our securities. This
replaces and supersedes prior descriptions of the federal income tax treatment
of us and our stockholders to the extent that they are inconsistent with the
description contained in this Form 8-K.
Updated Litigation Disclosure
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In addition, we are updating in this Form 8-K our previous disclosure
with respect to litigation matters, including certain litigation involving us
and two stockholders of HQ Global Holdings, Inc. ("HQ Global"), a company in
which we currently hold an approximate 17% interest (14% on a fully diluted
basis). This replaces and supersedes prior disclosure regarding this litigation
to the extent it is inconsistent with the disclosure contained in this Form 8-K.
We are currently involved in two separate lawsuits with two
stockholders of HQ Global. The first lawsuit involves the September 1998
conversion of an approximately $111 million loan that we made to HQ Global into
stock of HQ Global. We, along with HQ Global, initiated this lawsuit in the
United States District Court for the District of Columbia in February 1999,
asking the court to declare that the terms of the debt conversion were fair,
after two minority stockholders threatened to challenge the terms of the
conversion. These stockholders had claimed that both the conversion price used
and the methods by which the conversion price was agreed upon between HQ Global
and us were not fair to HQ Global or these stockholders. Thereafter, these two
stockholders filed their own counterclaims against HQ Global, the board of
directors of HQ Global and us. The stockholders asked the court to declare the
conversion void, or in the alternative for compensatory and punitive damages.
On September 12, 2001, the trial court granted these stockholders'
motion for summary judgment, declaring that the shares issued in connection with
the conversion were null and void. While we believe that the trial court
incorrectly interpreted Delaware law in this case and intend to appeal this
decision, we recognize that, in light of the trial court's finding, there is a
reasonable possibility that we will be unsuccessful in overturning the court's
decision. In that event, there are a number of possible outcomes, including a
reduction in our equity interest in HQ Global or a cash payment by us to these
stockholders. We currently believe that the value of any loss we may incur from
this decision should not exceed $10 million. We are still assessing the
possible impact of this decision (if it should stand) on our overall investment
in HQ Global, but at this time we do not believe it will have a material adverse
impact on our overall interest in HQ Global or result in material liability for
us to other third parties, although we cannot assure you that this will be the
case.
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The second lawsuit involves claims filed by these two stockholders in
April 2000 arising out of the June 2000 merger transaction involving HQ Global
and VANTAS Incorporated. In this lawsuit, these two stockholders have brought
claims against HQ Global, the board of directors of HQ Global, FrontLine Capital
Group and us in Delaware Chancery Court. The two stockholders allege that, in
connection with the merger transaction, we breached our fiduciary duties to the
two stockholders and breached a contract with the stockholders. The claim
relates principally to the allocation of consideration paid to us with respect
to our interest in an affiliate of HQ Global that conducts international
executive suites operations. The stockholders asked the court to rescind the
transaction, or in the alternative for compensatory and rescissory damages. The
court recently determined that it would not rescind the merger transaction, but
held open the possibility that compensatory damages could be awarded or that
another equitable remedy might be available. We believe that these claims are
without merit and that we will ultimately prevail in this action, although we
cannot assure you that the court will not find in favor of these stockholders.
We continue to believe, however, that, even if the court finds in favor of these
stockholders, any such adverse result will not have a material adverse effect on
our financial condition or results of operations.
We also are a party to a variety of other legal proceedings in the
ordinary course of business. All of these matters, taken together, are not
expected to have a material adverse impact on us.
Item 7. Exhibits
The following exhibit is filed as part of this report:
99.1 Description of material U.S. federal income tax consequences relating
to the taxation of CarrAmerica Realty Corporation as a REIT and the
ownership and disposition of CarrAmerica Realty Corporation common
stock
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CarrAmerica Realty Corporation
Date: September 26, 2001 By: /s/ Thomas A. Carr
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Thomas A. Carr
President and Chief Executive Officer;
Chairman of the Board of Directors
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EXHIBIT INDEX
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Exhibit Document
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99.1 Description of material U.S. federal income tax consequences
relating to the taxation of CarrAmerica Realty Corporation as a
REIT and the ownership and disposition of CarrAmerica Realty
Corporation common stock