As filed with the Securities and Exchange Commission on December 31, 2002
Registration No. 333-102073
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Amendment No. 1 to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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REALTY INCOME CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 33-0580106
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification Number)
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220 West Crest Street
Escondido, California 92025-1707
(760) 741-2111
(Address, including Zip Code, Telephone Number,
including Area Code, of Registrant's Principal Executive Offices)
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Copies To:
Michael R. Pfeiffer, Esq. William J. Cernius, Esq.
c/o Realty Income Corporation Latham & Watkins
220 West Crest Street 650 Town Center Drive, 20th Floor
Escondido, California 92025-1707 Costa Mesa, California 92626-1925
(760) 741-2111 (714) 540-1235
(Name, Address, including Zip Code, and Telephone Number,
including Area Code, of Agent for Service)
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Approximate date of commencement of
proposed sale to the public:
From time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only securities being registered on this Form S-3 are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being offered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), 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. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Offering Amount of
Securities to be Registered(1) Registered(2)(4) Per Unit Price(2)(3)(4) Registration Fee(4)
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Debt Securities
Preferred Stock, $1.00 par
value per share(5)
Common Stock, $1.00 par value
per share(6)(7)
Total $500,000,000 (8) $500,000,000 $4,808
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(1) This Registration Statement also covers delayed delivery contracts which
may be issued by the Company under which the counterparty may be required
to purchase Debt Securities, Preferred Stock and/or Common Stock.
(2) In U.S. Dollars or the equivalent thereof denominated in one or more
foreign currencies or units of two or more foreign currencies or composite
currencies (such as European Currency Units).
(3) Estimated solely for purposes of calculating the registration fee. No
separate consideration will be received for common stock or preferred stock
that is issued upon conversion of debt securities or preferred stock
registered hereunder, as the case may be. The aggregate maximum public
offering price of all Securities issued pursuant to this Registration
Statement will not exceed $500,000,000.
(4) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended. An amount equal to $41,192.49 was
previously paid as a registration fee in respect of the $148,174,413.50 of
unsold securities of the Registrant being carried forward from a prior
Registration Statement (Registration No. 333-80821) pursuant to Rule 429
under the Securities Act. Pursuant to Rule 457(p) under the Securities Act,
such previously paid registration fee is being offset against the total
registration fee due hereunder. The registration fee that is being paid in
connection with this Registration Statement is $4,808, which fee represents
the total fee for registering the aggregate offering price of the
securities registered hereunder less the fee of $41,192.49 already paid for
unsold securities registered under the prior Registration Statement.
(5) 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.
(6) 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, as the case may be.
(7) Each share of common stock being registered hereunder, if issued prior to
the termination by the Company of its Rights Agreement dated as of June 25,
1998, will include one Common Share Purchase Right. Prior to the occurrence
of certain events, the Common Share Purchase Rights will not be exercised
or evidenced separately from the Common Stock.
(8) Omitted pursuant to General Instruction II.D of Form S-3 under the
Securities Act.
Pursuant to Rule 429 under the Securities Act, the Prospectus included in
this Registration Statement is a combined Prospectus which relates to
Registration Statement No. 333-80821, as amended, previously filed by the
Company on Form S-3 pursuant to which $148,174,413.50 in securities remain
unissued. This Registration Statement constitutes Post-Effective Amendment No. 1
to this prior Registration Statement. The Post-Effective Amendment shall
hereafter become effective in accordance with Section 8(c) of the Securities Act
concurrently with the effectiveness of this Registration Statement. If
securities previously registered under Registration Statement 333-80821 are
offered and sold prior to the effective date of this Registration Statement, the
amount of such previously registered securities so sold will not be included in
the prospectus hereunder.
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
SUBJECT TO COMPLETION, DATED DECEMBER 31, 2002
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.
PROSPECTUS
$500,000,000
REALTY INCOME CORPORATION
DEBT SECURITIES, PREFERRED STOCK AND COMMON STOCK
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Realty Income Corporation may from time to time offer in one or more series
(i) our debt securities, (ii) shares of our preferred stock, $1.00 par value per
share, or (iii) shares of our common stock, $1.00 par value per share, with an
aggregate public offering price of up to $500,000,000 on terms to be determined
at the time of the offering. Our debt securities, our preferred stock and our
common stock (collectively referred to as our securities), may be offered,
separately or together, in separate series, in amounts, at prices and on terms
that will be set forth in one or more prospectus supplements to this prospectus.
The specific terms of the securities with respect to which this prospectus
is being delivered will be set forth in the applicable prospectus supplement and
will include, where applicable:
o in the case of our debt securities, the specific title, aggregate principal
amount, currency, form (which may be registered, bearer, certificated or
global), authorized denominations, maturity, rate (or manner of calculating
the rate) and time of payment of interest, terms for redemption at our
option or repayment at the holder's option, terms for sinking fund
payments, terms for conversion into shares of our preferred stock or common
stock, covenants and any initial public offering price;
o in the case of our preferred stock, the specific designation, preferences,
conversion and other rights, voting powers, restrictions, limitations as to
transferability, dividends and other distributions and terms and conditions
of redemption and any initial public offering price; and
o in the case of our common stock, any initial public offering price.
In addition, the specific terms may include limitations on actual,
beneficial or constructive ownership and restrictions on transfer of the
securities, in each case as may be appropriate to preserve our status as a real
estate investment trust, or REIT, for federal income tax purposes. The
applicable prospectus supplement will also contain information, where
applicable, about United States federal income tax considerations, and any
exchange listing of the securities covered by the prospectus supplement.
Our common stock is traded on the New York Stock Exchange under the symbol
"O." On December 19, 2002, the last reported sale price of the common stock was
$35.19 per share.
Our securities may be offered directly, through agents designated from time
to time by us, or to or through underwriters or dealers. If any agents or
underwriters are involved in the sale of any of our securities, their names, and
any applicable purchase price, fee, commission or discount arrangement between
or among them, will be set forth in the applicable prospectus supplement. None
of our securities may be sold without delivery of the applicable prospectus
supplement describing the method and terms of the offering of those securities.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is December 31, 2002.
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PROSPECTUS
Page
ABOUT THIS PROSPECTUS................................................................................................2
THE COMPANY..........................................................................................................3
USE OF PROCEEDS......................................................................................................4
RATIOS OF EARNINGS TO FIXED CHARGES..................................................................................4
FORWARD-LOOKING STATEMENTS...........................................................................................5
DESCRIPTION OF DEBT SECURITIES.......................................................................................6
DESCRIPTION OF COMMON STOCK.........................................................................................17
GENERAL DESCRIPTION OF PREFERRED STOCK..............................................................................20
RESTRICTIONS ON OWNERSHIP AND TRANSFERS OF STOCK....................................................................26
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS RELATED TO OUR REIT ELECTION........................................28
Taxation of the Company.............................................................................................28
Failure to Qualify..................................................................................................35
Tax Aspects of Partnerships.........................................................................................35
PLAN OF DISTRIBUTION................................................................................................37
STOCKHOLDER RIGHTS PLAN.............................................................................................37
EXPERTS.............................................................................................................38
LEGAL MATTERS.......................................................................................................38
WHERE YOU CAN FIND MORE INFORMATION.................................................................................38
INCORPORATION OF INFORMATION WE FILE WITH THE SEC...................................................................38
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC utilizing a "shelf" registration process. Under this shelf registration
process, we may sell any combination of the securities described in this
prospectus in one or more offerings up to a total dollar amount of $500,000,000.
This prospectus provides you with a general description of the securities we may
offer. Each time we sell securities, we will provide a prospectus supplement
that will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and any prospectus
supplement together with additional information described under the heading
"Where You Can Find More Information."
As allowed by SEC rules, this prospectus does not contain all the
information you can find in the registration statement or the exhibits to the
registration statement. For further information, we refer you to the
registration statement, including its exhibits and schedules. Statements
contained in this prospectus about the provisions or contents of any contract,
agreement or any other document referred to are not necessarily complete. For
each of these contracts, agreements or documents filed as an exhibit to the
registration statement, we refer you to the actual exhibit for a more complete
description of the matters involved. You should not assume that the information
in this prospectus or any applicable prospectus supplement is accurate as of any
date other than the date on the front of those documents. For further
information about us or the securities offered under this prospectus, you should
refer to the registration statement, which you can obtain from the SEC as
described below under the heading "Where You Can Find More Information."
All references to "Realty Income" "our" and "we" in this prospectus mean
Realty Income Corporation and its wholly-owned subsidiaries and other entities
controlled by Realty Income Corporation except where it is clear from the
context that the term means only the issuer, Realty Income Corporation.
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THE COMPANY
Realty Income Corporation, the Monthly Dividend Company (R) a Maryland
corporation ("Realty Income," the "Company," "our" or "we") was organized to
operate as an equity real estate investment trust ("REIT"). Over the past 33
years Realty Income has been acquiring and owning freestanding retail properties
that generate rental revenue under long-term (primarily 15 to 20 years) lease
agreements. Our monthly distributions are supported by the cash flow from 1,199
retail properties leased to regional and national retail chains.
We are a fully integrated, self-administered real estate company with
in-house acquisition, leasing, legal, retail and real estate research, portfolio
management and capital markets expertise.
Our primary business objective is to generate dependable monthly
distributions from a consistent and predictable level of funds from operations
("FFO") per share. Additionally, we seek to increase distributions to
stockholders and FFO per share through both active portfolio management and the
acquisition of additional properties.
Our portfolio management focus includes:
o Contractual rent increases on existing leases;
o Rental increases at the termination of existing leases when market
conditions permit; and
o The active management of our property portfolio, including re-leasing of
vacant properties and selective sales of properties.
Our acquisition of additional properties adheres to a focused strategy of
primarily acquiring properties that are:
o Freestanding, single-tenant, retail locations;
o Leased to regional and national retail chains; and
o Under long-term, net-lease agreements.
As of September 30, 2002, we owned a diversified portfolio:
o Of 1,199 retail properties;
o With an occupancy rate of 98.2%, or 1,178, of the 1,199 properties;
o Leased to 80 different retail chains;
o Doing business in 24 separate retail industries;
o Located in 48 states;
o With approximately 9.9 million square feet of leasable space; and
o With an average leasable retail space of 8,200 square feet.
Of the 1,199 properties in the portfolio, 1,194, or 99.6%, are
single-tenant retail properties with the remaining five being multi-tenant
properties. As of September 30, 2002, 1,173, or 98.2%, of the 1,194
single-tenant properties were leased with a weighted average remaining lease
term (excluding extension options) of approximately 10.2 years.
In addition to our real estate portfolio, at September 30, 2002 our
subsidiary, Crest Net Lease, Inc. ("Crest Net") had invested $9.9 million in a
portfolio of 10 retail properties located in six states. These properties are
held for sale.
We typically acquire, and then lease back, retail store locations from
chain store operators, providing capital to the operators for continued
expansion and other corporate purposes. Our acquisition and investment
activities are concentrated in well-defined target markets and generally focus
on middle-market retailers providing goods and services that satisfy basic
consumer needs.
Our net-lease agreements generally:
o Are for initial terms of 15 to 20 years;
o Require the tenant to pay minimum monthly rents and property operating
expenses (taxes, insurance and maintenance); and
o Provide for future rent increases (typically subject to ceilings) based on
increases in the consumer price index, fixed increases, or additional rent
calculated as a percentage of the tenants' gross sales above a specified
level.
3
We believe that the long-term ownership of an actively managed, diversified
portfolio of retail properties under long-term, net-lease agreements produces
consistent, predictable income. We also believe that a portfolio of long-term
leases that require tenants to be responsible for property expenses generally
produces a more predictable income stream than many other types of real estate
portfolios, while continuing to offer the potential for growth in rental income.
Our net-leased retail properties are primarily leased to regional and
national retail chain store operators. Generally, our properties contain
single-story buildings and adequate parking on site to accommodate peak retail
traffic periods. The properties tend to be on major thoroughfares with
relatively high traffic counts and adequate access, egress and proximity to a
sufficient population base to constitute a suitable market or trade area for the
retailer's business.
We provide sale-leaseback financing primarily to less than investment grade
retail chains. From 1970 through December 31, 2001, we acquired and leased back
to regional and national retail chains 1,158 properties (including 83 properties
that have been sold) and collected approximately 98% of the original contractual
rent obligations on those properties (this information is updated annually at
the end of each year.) We believe that within this market we can achieve an
attractive risk-adjusted return on the financing we provide to retailers.
USE OF PROCEEDS
Unless otherwise described in the applicable prospectus supplement, we
intend to use the net proceeds from the sale of our securities for general
corporate purposes, which may include, among other things, the repayment of
indebtedness, the development and acquisition of additional properties and other
acquisition transactions, and the expansion and improvement of certain
properties in our portfolio.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth ratios of earnings to fixed charges for the
periods shown. The ratios of earnings to fixed charges were computed by dividing
earnings by fixed charges. For this purpose, earnings consist of net income
before interest expense. Fixed charges consist of interest costs (including
capitalized interest) and the amortization of debt issuance costs. In computing
the ratios of earnings to combined fixed charges and preferred stock dividends,
preferred stock dividends consist of dividends on our 9.375% Class B cumulative
redeemable preferred stock and 9.50% Class C cumulative redeemable preferred
stock.
Nine Months
Year Ended December 31, Ended
September 30,
2002
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1997 1998 1999 2000 2001
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Ratio of Earnings to Fixed Charges 5.1 3.8 2.7 2.6 3.5 4.3
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Ratio of Earnings to Combined 5.1 3.8 2.3 2.0 2.6 3.0
Fixed Charges and Preferred Stock
Dividends
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4
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. When used
in this prospectus, the words estimated, anticipated and similar expressions are
intended to identify forward-looking statements. Forward-looking statements are
subject to risks, uncertainties, and assumptions about Realty Income
Corporation, including, among other things:
o Our anticipated growth strategies;
o Our intention to acquire additional properties;
o Our intention to sell properties;
o Our intention to re-lease vacant properties;
o Anticipated trends in our business, including trends in the market for
long-term net leases of freestanding, single-tenant retail properties;
o Future expenditures for development projects; and o Profitability of our
subsidiary, Crest Net Lease, Inc.
Future events and actual results, financial and otherwise, may differ
materially from the results discussed in the forward-looking statements. In
particular, some of the factors that could cause actual results to differ
materially are:
o Our continued qualification as a real estate investment trust;
o General business and economic conditions;
o Competition;
o Interest rates;
o Accessibility of debt and equity capital markets;
o Other risks inherent in the real estate business including tenant defaults,
potential liability relating to environmental matters and illiquidity of
real estate investments; and
o Acts of terrorism and war.
Additional factors that may cause risks and uncertainties include those
discussed in the sections entitled "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
Annual Report on Form 10-K, as amended by the 10-K/A filed on December 19, 2002,
for the fiscal year ended December 31, 2001.
Readers are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date that this prospectus was filed with
the Securities and Exchange Commission. We undertake no obligation to publicly
release the results of any revisions to these forward-looking statements that
may be made to reflect events or circumstances after the date of this prospectus
or to reflect the occurrence of unanticipated events. In light of these risks
and uncertainties, the forward-looking events discussed in this prospectus might
not occur.
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DESCRIPTION OF DEBT SECURITIES
GENERAL
This prospectus describes certain general terms and provisions of our debt
securities. When we offer to sell a particular series of debt securities, we
will describe the specific terms of the series in a prospectus supplement or a
pricing supplement. We will also indicate in the supplement whether the general
terms and provisions described in this prospectus apply to a particular series
of debt securities. Our debt securities will be our direct obligations and they
may be secured or unsecured, senior or subordinated indebtedness. We may issue
our debt securities under one or more indentures and each indenture will be
dated on or before the issuance of the debt securities to which it relates.
Additionally, each indenture must be in the form filed as an exhibit to the
Registration Statement containing this prospectus or in a form incorporated by
reference to this prospectus in a post-effective amendment to the Registration
Statement or a Form 8-K. The form of indenture is subject to any amendments or
supplements that may be adopted from time to time. We will enter into each
indenture with a trustee and the trustee for each indenture may be the same. The
indenture will be subject to, and governed by, the Trust Indenture Act of 1939,
as amended. Because this description of debt securities is a summary, it does
not contain all the information that may be important to you. You should read
all provisions of our indenture and our debt securities to assure that you have
all the important information you need to make any required decisions. All
capitalized terms used, but not defined, in this section shall have the meanings
set forth in the applicable indenture.
TERMS
The particular terms of any series of our debt securities will be described
in a prospectus supplement. Additionally, any applicable modifications of or
additions to the general terms of our debt securities described this prospectus
and in the applicable indenture will also be described in a prospectus
supplement. Accordingly, for a description of the terms of any series of our
debt securities, you must refer to both the prospectus supplement relating those
debt securities and the description of the debt securities set forth in this
prospectus. If any particular terms of our debt securities described in a
prospectus supplement differ from any of the terms described in this prospectus,
then those terms as set forth in the relative prospectus supplement will
control.
Except as set forth in any prospectus supplement, our debt securities may
be issued without limit as to aggregate principal amount, in one or more series,
in each case as established from time to time by our Board of Directors, a
committee of the Board of Directors or as set forth in the applicable indenture
or one or more supplements to the indenture. All of our debt securities of one
series need not be issued at the same time, and unless otherwise provided, a
series may be reopened for issuance of additional debt securities without the
consent of the holders of the debt securities of that series.
Each indenture will provide that we may, but need not, designate more than
one trustee for the indenture, each with respect to one or more series of our
debt securities. Any trustee under an indenture may resign or be removed with
respect to one or more series of our debt securities, and a successor trustee
may be appointed to act with respect to that series. If two or more persons are
acting as trustee to different series of our debt securities, each trustee shall
be a trustee of a trust under the applicable indenture separate and apart from
the trust administered by any other trustee and, except as otherwise indicated
in this prospectus, any action taken by a trustee may be taken by that trustee
with respect to, and only with respect to, the one or more series of debt
securities for which it is trustee under the applicable indenture.
This summary sets forth certain general terms and provisions of the
indenture and our debt securities. For a detailed description of a specific
series of debt securities, you should consult the prospectus supplement for that
series. The prospectus supplement will contain all of the following information:
(1) the title of those debt securities;
(2) the aggregate principal amount of those debt securities and any limit on
the aggregate principal amount;
(3) the price (expressed as a percentage of the principal amount of those debt
securities) at which those debt securities will be issued and, if other
than the principal amount of those debt securities, the portion of the
principal amount payable upon declaration of acceleration of the maturity
thereof, or (if applicable) the portion of the principal amount of those
debt securities that is convertible into common stock or preferred stock,
or the method by which any convertible portion of those debt securities
shall be determined;
6
(4) if those debt securities are convertible, the terms on which they are
convertible, including the initial conversion price or rate and conversion
period and, in connection with the preservation of our status as a REIT,
any applicable limitations on the ownership or transferability of the
common stock or the preferred stock into which those debt securities are
convertible;
(5) the date or dates, or the method for determining the date or dates, on
which the principal of those debt securities will be payable;
(6) the rate or rates (which may be fixed or variable), or the method by which
the rate or rates shall be determined, at which those debt securities will
bear interest, if any;
(7) the date or dates, or the method for determining the date or dates, from
which any interest will accrue, the dates upon which that interest will be
payable, the record dates for payment of that interest, or the method by
which any of those dates shall be determined, the persons to whom that
interest shall be payable, and the basis upon which that interest shall be
calculated if other than that of a 360-day year of twelve 30-day months;
(8) the place or places where the principal of (and premium, if any) and
interest, if any, on debt securities will be payable, where debt securities
may be surrendered for conversion or registration of transfer or exchange
and where notices or demands to or upon us relating to debt securities and
the indenture may be served;
(9) the period or periods, if any, within which, the price or prices at which
and the terms and conditions upon which those debt securities may be
redeemed, as a whole or in part, at our option;
(10) our obligation, if any, to redeem, repay or purchase those debt securities
pursuant to any sinking fund or analogous provision or at the option of a
holder of those debt securities, and the period or periods within which,
the price or prices at which and the terms and conditions upon which those
debt securities will be redeemed, repaid or purchased, as a whole or in
part, pursuant to this obligation;
(11) if other than U.S. dollars, the currency or currencies in which those debt
securities are denominated and payable, which may be a foreign currency or
units of two or more foreign currencies or a composite currency or
currencies, and the terms and conditions relating thereto;
(12) whether the amount of payments of principal of (and premium, if any) or
interest, if any, on those debt securities may be determined with reference
to an index, formula or other method (which index, formula or method may,
but need not, be based on a currency, currencies, currency unit or units or
composite currency or currencies) and the manner in which those amounts
shall be determined;
(13) whether those debt securities will be issued in certificated and/or
book-entry form, and, if in book-entry form, the identity of the depositary
for those debt securities;
(14) whether those debt securities will be in registered or bearer form and, if
in registered form, the denominations thereof if other than $1,000 and any
integral multiple thereof and, if in bearer form, the denominations thereof
and terms and conditions relating thereto;
(15) the applicability, if any, of the defeasance and covenant defeasance
provisions described herein or set forth in the applicable indenture, or
any modification of the indenture;
(16) any deletions from, modifications of or additions to the events of default
or our covenants with respect to those debt securities;
(17) whether and under what circumstances we will pay any additional amounts on
those debt securities in respect of any tax, assessment or governmental
charge and, if so, whether we will have the option to redeem those debt
securities in lieu of making this payment;
(18) the subordination provisions, if any, relating to those debt securities;
(19) the provisions, if any, relating to any security provided for those debt
securities; and
(20) any other terms of those debt securities.
7
If the applicable prospectus supplement provides, we may issue the debt
securities at a discount below their principal amount and provide for less than
the entire principal amount of the debt securities to be payable upon
declaration of acceleration of the maturity thereof ("Original Issue Discount
Securities"). In those cases, any material U.S. federal income tax, accounting
and other considerations applicable to Original Issue Discount Securities will
be described in the applicable prospectus supplement.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable prospectus supplement, the
debt securities of any series will be issuable in denominations of $1,000 and
integral multiples of $1,000.
Unless otherwise described in the applicable prospectus supplement, we will
pay the principal of (and premium, if any) and interest on any series of debt
securities at the applicable trustee's corporate trust office, the address of
which will be set forth in the applicable prospectus supplement; provided,
however, that, unless otherwise provided in the applicable prospectus
supplement, we may make interest payments (i) by check mailed to the address of
the person entitled to the payment as that address appears in the applicable
register for those debt securities, or (ii) by wire transfer of funds to the
person at an account maintained within the United States.
Subject to certain limitations imposed on debt securities issued in
book-entry form, the debt securities of any series will be exchangeable for any
authorized denomination of other debt securities of the same series and of a
like aggregate principal amount and tenor upon surrender of those debt
securities at the office of any transfer agent we designate for that purpose. In
addition, subject to certain limitations imposed on debt securities issued in
book-entry form, the debt securities of any series may be surrendered for
conversion or registration of transfer thereof at the office of any transfer
agent we designate for that purpose. Every Debt Security surrendered for
conversion, registration of transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer and the person requesting that
transfer must provide evidence of title and identity satisfactory to us and the
applicable transfer agent. No service charge will be made for any registration
of transfer or exchange of any debt securities, but we may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith. We may at any time rescind the designation of any transfer
agent appointed with respect to the debt securities of any series or approve a
change in the location through which any transfer agent acts, except that we
will be required to maintain a transfer agent in each place of payment for that
series. We may at any time designate additional transfer agents with respect to
any series of debt securities.
Neither we nor any trustee shall be required to
o issue, register the transfer of or exchange debt securities of any series
if that Debt Security may be among those selected for redemption during a
period beginning at the opening of business 15 days before the mailing or
first publication, as the case may be, of notice of redemption of those
debt securities and ending at the close of business on
1. the day of mailing of the relevant notice of redemption if the debt
securities of that series are issuable only in registered form, or
2. the day of the first publication of the relevant notice of redemption
if the debt securities of that series are issuable in bearer form, or
3. the day of mailing of the relevant notice of redemption if those debt
securities are issuable in registered form and there is no
publication; or
o register the transfer of or exchange any Debt Security in registered form,
or portion thereof, so selected for redemption, in whole or in part, except
the unredeemed portion of any Debt Security being redeemed in part; or
o exchange any Debt Security in bearer form so selected for redemption,
except in exchange for a Debt Security of that series in registered form
that is simultaneously surrendered for redemption; or
8
o issue, register the transfer of or exchange any Debt Security that has been
surrendered for repayment at the holder's option, except the portion, if
any, of that Debt Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Each indenture will provide that we will not consolidate with, sell, lease
or convey all or substantially all of our assets to, or merge with or into, any
person unless
o either we shall be the continuing entity, or the successor person (if not
us) formed by or resulting from the consolidation or merger or which shall
have received the transfer of the assets shall be a corporation organized
and existing under the laws of the United States or any State thereof and
shall expressly assume (1) our obligation to pay the principal of (and
premium, if any) and interest on all the debt securities issued under the
indenture and (2) the due and punctual performance and observance of all
the covenants and conditions contained in the indenture and in the debt
securities;
o immediately after giving effect to the transaction and treating any
indebtedness that becomes our obligation or the obligation of any
Subsidiary as a result of the transaction having occurred, and treating any
liens on any property or assets of ours or any Subsidiary that are
incurred, created or assumed as a result of the transaction having occurred
or as having been created, incurred or assumed, by us or the Subsidiary at
the time of the transaction, no event of default under the indenture, and
no event that, after notice or the lapse of time, or both, would become an
event of default, shall have occurred and be continuing; and
o an officers' certificate and legal opinion covering these conditions shall
be delivered to the trustee.
CERTAIN COVENANTS
Existence. Except as permitted under the heading above, entitled "--Merger,
Consolidation or Sale of Assets," we will be required under each indenture to do
or cause to be done all things necessary to preserve and keep in full force and
effect our corporate existence, all material rights (by charter, by-laws and
statute) and all material franchises; provided, however, that we shall not be
required to preserve any right or franchise if our Board of Directors determines
that the preservation thereof is no longer desirable in the conduct of our
business.
Maintenance of Properties. Each indenture will require us to cause all of
our material properties used or useful in the conduct of our business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will require us
to make or cause to be made all necessary repairs, renewals, replacements,
betterments and improvements to those properties, as in our judgment may be
necessary so that the business carried on in connection with those properties
may be properly and advantageously conducted at all times; provided, however,
that we and our Subsidiaries shall not be prevented from selling or otherwise
disposing of these properties for value in the ordinary course of business.
Insurance. Each indenture will require us and each of our Subsidiaries, to
keep in force upon all of our properties and operations policies of insurance
carried with responsible companies in amounts and covering all risks as shall be
customary in the industry in accordance with prevailing market conditions and
availability.
Payment of Taxes and Other Claims. Each indenture will require us to pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (a) all taxes, assessments and governmental charges levied or
imposed on us, our income, profits or property, or any Subsidiary, its income,
profits or property and (b) all lawful claims for labor, materials and supplies
that, if unpaid, might by law become a lien upon our property or the property of
any Subsidiary; provided, however, that we shall not be required to pay or
discharge or cause to be paid or discharged any tax, assessment, charge or claim
the amount, applicability or validity of which we are contesting in good faith
through appropriate proceedings.
Provisions of Financial Information. Whether or not we are subject to
Section 13 or 15(d) of the Exchange Act, we will be required by each indenture,
within 15 days after each of the respective dates by which we would have been
required to file annual reports, quarterly reports and other documents with the
Commission if we were subject to those Sections of the Exchange Act to:
9
o transmit by mail to all holders of debt securities issued under the
indenture, as their names and addresses appear in the applicable register
for those debt securities, without cost to the holders, copies of the
annual reports, quarterly reports and other documents that we would have
been required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act if we were subject to those Sections;
o file with the applicable trustee copies of the annual reports, quarterly
reports and other documents that we would have been required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act if we
were subject to those Sections; and
o supply promptly, upon written request and payment of the reasonable cost of
duplication and delivery, copies of these documents to any prospective
holder of the debt securities.
Except as may otherwise be provided in the prospectus supplement relating
to any series of debt securities, the term "Subsidiary", as used in the
indenture means any other Person of which more than 50% of (a) the equity or
other ownership interests or (b) the total voting power of shares of capital
stock or other ownership interests entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers, trustees or
general or managing partners thereof is at the time owned by us or one or more
of our Subsidiaries or a combination thereof.
Additional Covenants. If we make any additional covenants with respect to
any series of debt securities, those covenants will be set forth in the
prospectus supplement relating to those debt securities.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable indenture, each indenture will
provide that the following events are "events of default" for any series of debt
securities issued under it:
o default for 30 days in the payment of any installment of interest on any
Debt Security of that series;
o default in the payment of the principal of (or premium, if any, on) any
Debt Security of that series when due, whether at stated maturity or by
declaration of acceleration, notice of redemption, notice of option to
elect repayment or otherwise;
o default in making any sinking fund payment as required for any Debt
Security of that series;
o default in the performance of any of our other covenants contained in the
indenture (other than a covenant added to the indenture solely for the
benefit of a series of debt securities issued thereunder other than that
series), which continues for 60 days after we receive written notice from
the trustee or the holders of at least 25% in principal amount of the
outstanding debt securities of that series;
o default under any bond, debenture, note or other evidence of indebtedness
for money borrowed by us or any of our Subsidiaries (including obligations
under leases required to be capitalized on the balance sheet of the lessee
under generally accepted accounting principles, but not including any
indebtedness or obligations for which recourse is limited to property
purchased) in an aggregate principal amount in excess of $25,000,000 or
under any mortgage, indenture or instrument under which there may be issued
or by which there may be secured or evidenced any indebtedness for money
borrowed by us or any of our Subsidiaries (including leases, but not
including indebtedness or obligations for which recourse is limited to
property purchased) in an aggregate principal amount in excess of
$25,000,000, whether the indebtedness exists at the date of the relevant
indenture or shall thereafter be created, which default shall have resulted
in the indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise have become due and payable or which
default shall have resulted in the obligation being accelerated, without
the acceleration having been rescinded or annulled;
o we, or any Significant Subsidiary of ours, experience a certain event of
bankruptcy, insolvency or reorganization, or court appointment of a
receiver, liquidator or trustee; and
o any other Event of Default provided with respect to a particular series of
debt securities.
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The term "Significant Subsidiary" as used above has the meaning ascribed to
the term in Regulation S-X promulgated under the Securities Act, as the
Regulation was in effect on January 1, 2002.
If an event of default under any indenture with respect to debt securities
of any series at the time outstanding occurs and is continuing, then the
applicable trustee or the holders of not less than 25% in principal amount of
the outstanding debt securities of that series may declare the principal amount
(or, if the debt securities of that series are Original Issue Discount
Securities or Indexed Securities, that portion of the principal amount as may be
specified in the terms thereof) of all the debt securities of that series to be
due and payable immediately by written notice thereof to us (and to the
applicable trustee if given by the holders). However, at any time after the
declaration of acceleration with respect to debt securities of a series has been
made, but before a judgment or decree for payment of the money due has been
obtained by the applicable trustee, the holders of not less than a majority of
the principal amount of the outstanding debt securities of that series may
rescind and annul the declaration and its consequences if:
o we shall have deposited with the applicable trustee all required payments
of the principal of (and premium, if any) and interest on the debt
securities of that series (other than principal and premium, if any, and
interest which have become due solely as a result of the acceleration),
plus certain fees, expenses, disbursements and advances of the applicable
trustee; and
o all events of default, other than the nonpayment of accelerated principal
(or specified portion thereof), premium, if any, and interest with respect
to debt securities of that series have been cured or waived as provided in
the indenture.
Each indenture will also provide that the holders of not less than a
majority in principal amount of the outstanding debt securities of any series
may waive any past default with respect to that series and its consequences,
except:
o a default in the payment of the principal of (or premium, if any) or
interest on any Debt Security of that series; or
o a default in respect of a covenant or provision contained in the indenture
that cannot be modified or amended without the consent of the holder of
each outstanding Debt Security of the series affected by the default.
Each indenture will require each trustee to give notice of a default under
the indenture to the holders of debt securities within 90 days unless the
default shall have been cured or waived, subject to certain exceptions;
provided, however, that the trustee may withhold notice to the holders of any
series of debt securities of any default 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 the payment of any sinking fund
installment in respect of any Debt Security of that series) if specified
Responsible Officers of the trustee consider a withholding to be in those
holders' interest.
Each indenture will provide that no holders of debt securities of any
series may institute any proceedings, judicial or otherwise, with respect to the
indenture or for any remedy thereunder, except in the case of failure of the
trustee, for 60 days, to act after it has received a written request to
institute proceedings in respect of an event of default from the holders of not
less than 25% in principal amount of the outstanding debt securities of that
series, as well as an offer of indemnity reasonably satisfactory to it, and no
direction inconsistent with the written request has been given to the trustee
during the 60-day period by holders of a majority in principal amount of the
outstanding debt securities of that series. This provision will not prevent,
however, any holder of debt securities from instituting suit for the enforcement
of payment of the principal of (and premium, if any) and interest on those debt
securities at the respective due dates thereof.
Each indenture will provide that, subject to provisions in the Trust
Indenture Act of 1939 relating to its duties in case of default, the trustee is
under no obligation to exercise any of its rights or powers under the indenture
at the request or direction of any holders of any series of the debt securities
then outstanding under the indenture, unless those holders shall have offered to
the trustee reasonable security or indemnity. The holders of not less than a
majority in principal amount of the outstanding debt securities of any series
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee, or of exercising any trust
or power conferred upon the trustee; provided that the direction shall not
conflict with any rule of law or the indenture, and provided further that the
trustee may refuse to follow any direction that may involve the trustee in
personal liability or that may be unduly prejudicial to the holders of debt
securities of that series not joining in the direction to the trustee.
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Within 120 days after the close of each fiscal year, we will be required to
deliver to the trustee a certificate, signed by one of several specified
officers, stating whether or not the officer has knowledge of any default under
the indenture and, if so, specifying each default and the nature and status
thereof.
MODIFICATION OF THE INDENTURE
Modifications and amendments of any indenture will be permitted with the
consent of the holders of not less than a majority in principal amount of all
outstanding debt securities of each series issued under the indenture affected
by the modification or amendment; provided, however, that no modification or
amendment may, without the consent of the holder of each Debt Security affected
thereby,
o change the stated maturity of the principal of, or any installment of
principal of, or interest (or premium, if any) on, any Debt Security;
o reduce the principal amount of, or the rate or amount of interest on, or
any premium payable on redemption of, any Debt Security, or reduce the
amount of principal of an Original Issue Discount Security that would be
due and payable upon declaration of acceleration of the maturity of the
Original Issue Discount Security or would be provable in bankruptcy, or
adversely affect any right of repayment at the option of the holder of any
Debt Security (or reduce the amount of premium payable upon any repayment);
o change the place of payment, or the coin or currency, for payment of
principal of (or premium, if any) or interest on any Debt Security;
o impair the right to institute suit for the enforcement of any payment on or
with respect to any Debt Security when due;
o reduce the above-stated percentage of outstanding debt securities of any
series necessary to modify or amend the indenture to waive compliance with
certain provisions of the indenture or certain defaults and consequences
under the indenture or to reduce the quorum or voting requirements set
forth in the indenture; or
o modify any of the foregoing provisions or any of the provisions relating to
the waiver of certain past defaults or certain covenants, except to
increase the required percentage to effect the action or to provide that
certain other provisions may not be modified or waived without the consent
of the holder of each outstanding Debt Security affected thereby.
The holders of a majority in aggregate principal amount of outstanding debt
securities of any series may, on behalf of all holders of debt securities of
that series waive, insofar as that series is concerned, our compliance with
certain restrictive covenants in the applicable indenture.
We, along with the trustee, shall be permitted to modify and amend an
indenture without the consent of any holder of debt securities for any of the
following purposes:
o to evidence the succession of another person to our obligations under the
indenture;
o to add to our covenants for the benefit of the holders of all or any series
of debt securities or to surrender any right or power conferred upon us in
the indenture;
o to add events of default for the benefit of the holders of all or any
series of debt securities;
o to add or change any provisions of the indenture to facilitate the issuance
of, or to liberalize certain terms of, debt securities in bearer form, or
to permit or facilitate the issuance of debt securities in uncertificated
form, provided that this action shall not adversely affect the interests of
the holders of the debt securities of any series in any material respect;
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o to change or eliminate any provisions of the indenture, provided that any
such change or elimination does not apply to any outstanding debt
securities of a series created prior to the date of the amendment or
supplement that are entitled to the benefit of that provision;
o to secure the debt securities;
o to establish the form or terms of debt securities of any series, including
the provisions and procedures, if applicable, for the conversion of debt
securities into common stock or preferred stock;
o to provide for the acceptance of appointment by a successor trustee or
facilitate the administration of the trusts under the indenture by more
than one trustee;
o to cure any ambiguity, defect or inconsistency in the indenture or to make
any other provisions with respect to matters or questions arising under the
indenture, provided, however, that this action shall not adversely affect
the interests of holders of debt securities of any series in any material
respect; or
o to supplement any of the provisions of the indenture to the extent
necessary to permit or facilitate defeasance, covenant defeasance and
discharge of any series of debt securities, provided, however, that this
action shall not adversely affect the interests of the holders of the debt
securities of any series in any material respect.
Each indenture will provide that in determining whether the holders of the
requisite principal amount of outstanding debt securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
described in the indenture or whether a quorum is present at a meeting of
holders of debt securities,
o the principal amount of an Original Issue Discount Security that shall be
deemed to be outstanding shall be the amount of the principal of that
security that would be due and payable as of the date of the determination
upon declaration of acceleration of the maturity thereof;
o the principal amount of any Debt Security denominated in a foreign currency
that shall be deemed outstanding shall be the U.S. dollar equivalent,
determined on the issue date for the Debt Security, of the principal amount
(or, in the case of an Original Issue Discount Security, the U.S. dollar
equivalent on the issue date of the Debt Security of the amount determined
as provided in (a) above);
o the principal amount of an Indexed Security that shall be deemed
outstanding shall be the principal face amount of the Indexed Security at
original issuance, unless otherwise provided with respect to the Indexed
Security in the applicable indenture; and
o debt securities owned by us or any other obligor upon the debt securities
or any affiliate of ours or of the other obligor shall be disregarded.
Each indenture will contain provisions for convening meetings of the
holders of debt securities of a series. A meeting may be permitted to be called
at any time by the trustee, and also, upon our request or request of the holders
of at least 10% in principal amount of the outstanding debt securities of a
series, in any case upon notice given as provided in the indenture. Except for
any consent or waiver that must be given by the holder of each Debt Security
affected thereby, any resolution presented at a meeting or at an adjourned
meeting duly reconvened at which a quorum is present, may be adopted by the
affirmative vote of the holders of a majority in principal amount of the
outstanding debt securities of that series; provided, however, that, except as
referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the holders of a specified percentage, which is less
than a majority, in principal amount of the outstanding debt securities of the
series may be adopted at a meeting or adjourned meeting duly reconvened at which
a quorum is present by the affirmative vote of the holders of the specified
percentage in principal amount of the outstanding debt securities of that
series. Any resolution passed or decision taken at any meeting of holders of
debt securities of any series duly held in accordance with the indenture will be
binding on all holders of debt securities of that series. The persons holding or
representing a majority in principal amount of the outstanding debt securities
of a series shall constitute a quorum for a meeting of holders of that series;
provided, however, that if any action is to be taken at a meeting with respect
to a consent or waiver that may be given by the holders of not less than a
specified percentage in principal amount of the outstanding debt securities of
that series, the persons holding or representing the specified percentage in
principal amount of the outstanding debt securities of that series will
constitute a quorum.
13
Notwithstanding the foregoing provisions, each indenture will provide that
if any action is to be taken at a meeting of holders of debt securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver or other action that the indenture expressly provides may be
made, given or taken by the holders of that series and one or more additional
series: (a) there shall be no minimum quorum requirement for the meeting and (b)
the principal amount of the outstanding debt securities of all those series that
are entitled to vote in favor of the request, demand, authorization, direction,
notice, consent, waiver or other action shall be taken into account in
determining whether the request, demand, authorization, direction, notice,
consent, waiver or other action has been made, given or taken under the
indenture.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable prospectus supplement, upon
our request any indenture shall cease to be of further effect with respect to
any series of debt securities issued under the indenture specified in our
request (except as to certain limited provisions of the indenture which shall
survive) when either (a) all debt securities of that series have been delivered
to the trustee for cancellation or (b) all debt securities of that series have
become due and payable or will become due and payable within one year (or are
scheduled for redemption within one year) and we have irrevocably deposited with
the applicable trustee, in trust, funds in the currency or currencies, currency
unit or units or composite currency or currencies in which those debt securities
are payable an amount sufficient to pay the entire indebtedness on those debt
securities in respect of principal (and premium, if any) and interest to the
date of the deposit (if those debt securities have become due and payable) or to
the stated maturity or redemption date, as the case may be.
Each indenture will provide that, unless otherwise indicated in the
applicable prospectus supplement, we may elect either to:
o defease and be discharged from any and all obligations with respect to any
series of debt securities (except for the obligation to pay additional
amounts, if any, upon the occurrence of certain events of tax with respect
to payments on the debt securities and the obligations to register the
transfer or exchange of the debt securities, to replace temporary or
mutilated, destroyed, lost or stolen debt securities, to maintain an office
or agency in respect of the debt securities and to hold money for payment
in trust) ("defeasance"); or
o be released from our obligations with respect to certain covenants (which
will be described in the relevant prospectus supplement) applicable to the
debt securities under the applicable indenture (which may include, subject
to a limited exception, the covenants described under "--Certain
Covenants"), and any omission to comply with these obligations shall not
constitute a default or an event of default with respect to those debt
securities ("covenant defeasance"),
in either case upon our irrevocable deposit with the applicable trustee, in
trust, of an amount, in the currency or currencies, currency unit or units or
composite currency or currencies in which those debt securities are payable at
stated maturity, or Government Obligations (as defined below), or both,
applicable to those debt securities that through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium, if any) and interest on
those debt securities, and any mandatory sinking fund or analogous payments on
those debt securities, on the scheduled due dates.
A trust may only be established if, among other things, we have delivered
to the applicable trustee an opinion of counsel (as specified in the applicable
indenture) to the effect that the holders of those debt securities will not
recognize income, gain or loss for U.S. federal income tax purposes as a result
of the defeasance or covenant defeasance and will be subject to U.S. federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if the defeasance or covenant defeasance had not
occurred. Additionally, in the case of defeasance, an opinion of counsel must
refer to and be based on a ruling of the Internal Revenue Service (the "IRS") or
a change in applicable U.S. federal income tax law occurring after the date of
the applicable indenture. In the event of defeasance, the holders of those debt
securities will thereafter be able to look only to the trust fund for payment of
principal (and premium, if any) and interest.
14
"Government Obligations" means securities that are (a) direct obligations
of the United States of America or the government which issued the foreign
currency in which the debt securities of a particular series are payable, for
the payment of which its full faith and credit is pledged, or (b) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or the government which issued the foreign
currency in which the debt securities of that series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or the other government, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any Government Obligation or a specific payment of interest on or
principal of any Government Obligation held by a custodian for the account of
the holder of a depository receipt; provided, however, that (except as required
by law) the custodian is not authorized to make any deduction from the amount
payable to the holder of the depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by the
depository receipt.
Unless otherwise provided in the applicable prospectus supplement, if after
we have deposited funds and/or Government Obligations to effect defeasance or
covenant defeasance with respect to debt securities of any series,
o the holder of a Debt Security of that series is entitled to, and does,
elect pursuant to the applicable indenture or the terms of that Debt
Security to receive payment in a currency, currency unit or composite
currency other than that in which the deposit has been made in respect of
that Debt Security or
o a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which the deposit has been made,
then the indebtedness represented by that Debt Security will be deemed to have
been, and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest on that Debt Security as they
become due out of the proceeds yielded by converting the amount so deposited in
respect of that Debt Security into the currency, currency unit or composite
currency in which the Debt Security becomes payable as a result of the election
or Conversion Event based on the applicable market exchange rate. "Conversion
Event" means the cessation of use of:
o a currency, currency unit or composite currency both by the government of
the country which issued the currency and for the settlement of
transactions by a central bank or other public institution of or within the
international banking community;
o the ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Communities;
or
o any currency unit or composite currency other than the ECU for the purposes
for which it was established.
Unless otherwise provided in the applicable prospectus supplement, all
payments of principal of (and premium, if any) and interest on any Debt Security
that is payable in a foreign currency that ceases to be used by its government
of issuance shall be made in U.S. dollars.
In the event we effect a covenant defeasance with respect to any debt
securities and those debt securities are declared due and payable because of the
occurrence of any event of default, other than the event of default described in
clause 4 under "--Events of Default, Notice and Waiver" with respect to the
specified sections of the applicable indenture (which sections would no longer
be applicable to those debt securities) or clause 7 thereunder with respect to
any other covenant as to which there has been covenant defeasance, the amount in
currency, currency unit or composite currency in which those debt securities are
payable, and Government Obligations on deposit with the applicable trustee, may
not be sufficient to pay amounts due on those debt securities at the time of the
acceleration resulting from the event of default. We would, however, remain
liable to make payment of the amounts due at the time of acceleration.
The applicable prospectus supplement may further describe the provisions,
if any, permitting the defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the debt
securities of or within a particular series.
15
CONVERSION RIGHTS
The terms and conditions, if any, upon which the debt securities are
convertible into common stock or preferred stock will be set forth in the
applicable prospectus supplement relating to those debt securities. The terms
will include whether the debt securities are convertible into common stock or
preferred stock, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at our option or
the option of the holders, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of the
debt securities and any restrictions on conversion, including restrictions
directed at maintaining our REIT status.
UNCLAIMED PAYMENTS
We will be repaid for all amounts we pay to a paying agent or a trustee for
the payment of the principal of or any premium or interest on any Debt Security
that remains unclaimed at the end of two years after the principal, premium or
interest has become due and payable, and the holder of that Debt Security may
look only to us for payment of the principal, premium or interest.
GLOBAL SECURITIES
The debt securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary identified in the applicable
prospectus supplement relating to that series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to a series of
debt securities will be described in the applicable prospectus supplement
relating to that series.
16
DESCRIPTION OF COMMON STOCK
We have authority to issue 100,000,000 shares of our common stock, $1.00
par value per share. As of December 19, 2002, we had outstanding 34,871,617
shares of our common stock.
GENERAL
The following description of our common stock sets forth certain general
terms and provisions of our common stock to which any prospectus supplement may
relate, including a prospectus supplement providing that our common stock will
be issuable upon conversion of our debt securities or our preferred stock. The
statements below describing our common stock are in all respects subject to and
qualified in their entirety by reference to the applicable provisions of our
charter and Bylaws.
TERMS
Subject to the preferential rights of any other shares or series of stock
and to the provisions of our charter regarding the restrictions on transfer of
stock, holders of our common stock are entitled to receive dividends when, as
and if authorized and declared by our board of directors out of assets legally
available therefor. Payment and authorization of dividends on our common stock
and purchases of those shares by us may be subject to certain restrictions if we
fail to pay dividends on the preferred stock. If we were to experience
liquidation, dissolution or winding up, holders of our common stock would be
entitled to share equally and ratably in any assets available for distribution
to them, after payment or adequate provision for payment of our debts and other
liabilities and the preferential amounts owing with respect to any of our
outstanding preferred stock.
Subject to the provisions of our charter regarding the restrictions on
transfer of stock, each outstanding share of our common stock entitles the
holder to one vote on all matters submitted to a vote of stockholders, including
the election of directors and, except as provided with respect to any other
class or series of stock, the holders of such shares will possess the exclusive
voting power. Our board of directors is divided into three classes of directors.
The terms of the Class I, Class II and Class III directors will expire in 2004,
2005 and 2003, respectively. Each class is chosen for three-year terms upon the
expiration of their current terms and each year one class of directors will be
elected by the stockholders. The staggered terms of directors may reduce the
possibility of a tender offer or an attempt to change control of us even though
a tender offer or change in control might be in the best interest of the
stockholders.
Holders of our common stock do not have cumulative voting rights in the
election of directors, which means that holders of more than 50% of all the
shares of our common stock voting for the election of directors can elect all
the directors of the class standing for election at the time if they choose to
do so and the holders of the remaining shares cannot elect any directors of that
class. Holders of shares of common stock do not have preemptive rights, which
means they have no right under the Charter, Bylaws, or Maryland law to acquire
any additional shares of common stock that may be issued by us at a subsequent
date. Holders of shares of common stock have no preference, conversion,
exchange, sinking fund, or redemption rights. Under Maryland law, stockholders
generally are not liable for the corporation's debts or obligations. All shares
of common stock now outstanding are, and additional shares of common stock
offered will be when issued, fully paid and nonassessable.
Under the Maryland General Corporation Law or MGCL, a Maryland corporation
generally cannot dissolve, amend its charter, merge, 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. Our charter provides that any such action shall be effective if
approved by the affirmative vote of holders of shares entitled to cast a
majority of all the votes entitled to be cast on the matter.
Our charter authorizes our board of directors to reclassify any unissued
shares of our common stock into other classes or series of stock and to
establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption for each such class or series.
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MARYLAND BUSINESS COMBINATION LAW
Under the 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 or associate of the corporation who
beneficially owned ten percent or more of the voting power at any time within
the preceding two years, in each case referred to as 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 common shares. The business combination
provisions of the MGCL do not apply, however, to business combinations that are
approved or exempted by the Board of Directors prior to the time that the
interested stockholder becomes an interested stockholder. These provisions of
the MGCL may delay, defer or prevent a transaction or a change in control of us
that might involve a premium price for the common stock or otherwise be in the
best interests of the stockholders.
MARYLAND CONTROL SHARE ACQUISITIONS LAW
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror or by officers or directors who
are employees of the corporation. "Control Shares" are shares of stock which, if
aggregated with all other such shares of stock previously acquired by the
acquiror or in respect of which the acquiror is able to exercise or direct the
exercise of voting power (except solely by virtue of a revocable proxy), would
entitle the acquiror to exercise voting power in electing directors within one
of the following ranges of voting power; (i) one-tenth or more but less than one
third, (ii) one-third or more but less than a majority, or (iii) a majority or
more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained
stockholder approval. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any
and all of the control shares (except those for which the voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of stockholders at
which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a stockholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
"Control share acquisition" does not include (1) shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction or (b) acquisitions exempted by the charter or bylaws of the
corporation, adopted at anytime before the acquisition of the shares.
As permitted by the MGCL, the Bylaws contain a provision exempting the
Company from the control share acquisition statute any and all acquisitions by
any person of the Company's share of stock. There can be no assurance that such
provision will not be amended or eliminated by the Board of Directors at any
time in the future.
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RESTRICTIONS ON OWNERSHIP
For us to qualify as a REIT under the Internal Revenue Code of 1986, as
amended, not more than 50% in value of our outstanding stock may be owned,
actually or constructively, by five or fewer individuals (defined in the Code to
include certain entities) during the last half of a taxable year. To assist us
in meeting this requirement and certain other requirements relating to our tax
status as a REIT, we may take certain actions to limit the actual, beneficial or
constructive ownership by a single person or entity of our outstanding equity
securities.
TRANSFER AGENT
The registrar and transfer agent for our common stock is The Bank of New
York.
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GENERAL DESCRIPTION OF PREFERRED STOCK
We are authorized to issue 20,000,000 shares of preferred stock, $1.00 par
value per share. As of December 19, 2002, we had outstanding 2,745,700 shares of
9.375% Class B cumulative redeemable preferred stock and 1,380,000 shares of
9.5% Class C cumulative redeemable preferred stock.
GENERAL
The following description of our preferred stock sets forth certain general
terms and provisions of our preferred stock to which any prospectus supplement
may relate. The statements below describing our preferred stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of our Charter (including any applicable articles
supplementary designating terms of a series of preferred stock) and our Bylaws.
You should review the articles supplementary for the Class B cumulative
redeemable preferred stock and the articles supplementary for the Class C
cumulative redeemable preferred stock, copies of which may be obtained as
described below under "Where You Can Find More Information."
Our charter authorizes our board of directors to classify any unissued
shares of preferred stock and to reclassify any previously classified but
unissued shares of any class or series, as authorized by our board of directors.
Prior to issuance of shares of each series, our board is required by the MGCL
and our charter to set, subject to the provisions of our charter regarding the
restrictions on transfer of stock, the terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
such series. Thus, the board could authorize the issuance of shares of preferred
stock with terms and conditions which could have the effect of delaying,
deferring or preventing a transaction or a change in control of us that might
involve a premium price for holders of our common stock or otherwise be in their
best interest. We have no present plans to issue any additional preferred stock.
Any additional preferred stock will, when issued, be fully paid and
nonassessable and will have no preemptive rights. The following discussion is
applicable to any additional preferred stock that we may issue.
You should refer to the prospectus supplement relating to the preferred
stock offered thereby for specific terms of and other information concerning the
preferred stock, including:
(1) the title of the preferred stock;
(2) the number of shares of the preferred stock offered, the liquidation
preference per share and the offering price of the preferred stock;
(3) the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to the preferred stock;
(4) whether the preferred stock is cumulative or not and, if cumulative, the
date from which dividends on the preferred stock shall accumulate;
(5) the procedures for any auction and remarketing, if any, for the preferred
stock;
(6) the provision for a sinking fund, if any, for the preferred stock;
(7) any voting rights of the preferred stock;
(8) the provision for redemption, if applicable, of the preferred stock;
(9) any listing of the preferred stock on any securities exchange;
(10) the terms and conditions, if applicable, upon which the preferred stock
will be convertible into common stock, including the conversion price (or
manner of calculation thereof);
(11) a discussion of federal income tax considerations applicable to the
preferred stock;
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(12) any limitations on actual, beneficial or constructive ownership and
restrictions on transfer, in each case as may be appropriate to preserve
our REIT status;
(13) the relative ranking and preferences of the preferred stock as to dividend
rights and rights upon liquidation, dissolution or winding up of our
affairs;
(14) whether liquidation preferences on preferred stock will be counted as
liabilities of ours in determining whether distributions to junior
stockholders can be made under the MGCL;
(15) any limitations on issuance of any series or class of preferred stock
ranking senior to or on a parity with such series or class of preferred
stock as to dividend rights and rights upon liquidation, dissolution or
winding up of our affairs; and
(16) any other specific terms, preferences, rights, limitations or restrictions
of the preferred stock.
RANK
Unless otherwise specified in the applicable prospectus supplement, the
preferred stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of our affairs rank:
o senior to all classes or series of common stock and to all equity
securities ranking junior to the preferred stock with respect to dividend
rights or rights upon liquidation, dissolution or winding us up;
o on a parity with all equity securities issued by us the terms of which
specifically provide that such equity securities rank on a parity with the
preferred stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of our affairs; and
o junior to all equity securities issued by us the terms of which
specifically provide that such equity securities rank senior to the
preferred stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of our affairs.
For these purposes, the term "equity securities" does not include
convertible debt securities.
DIVIDENDS
Holders of shares of our preferred stock of each series or class shall be
entitled to receive, when, as and if authorized by our board of directors and
declared, out of our assets legally available for payment, cash dividends at
rates and on dates as will be set forth in the applicable prospectus supplement.
Each dividend shall be payable to holders of record as they appear on our stock
transfer books on the record dates as shall be fixed by our board of directors.
Dividends on any series or class of our preferred stock may be cumulative
or noncumulative, as provided in the applicable prospectus supplement.
Dividends, if cumulative, will be cumulative from and after the date set forth
in the applicable prospectus supplement. If our board of directors fails to
authorize a dividend payable on a dividend payment date on any series or class
of preferred stock for which dividends are noncumulative, then the holders of
such series or class of preferred stock will have no right to receive a dividend
in respect of the dividend period ending on that dividend payment date, and we
will have no obligation to pay the dividend accrued for such period, whether or
not dividends on such series or class are declared or paid for any future
period.
If any shares of preferred stock of any series or class are outstanding, no
full dividends shall be authorized or paid or set apart for payment on the
preferred stock of any other series or class ranking, as to dividends, on a
parity with or junior to the preferred stock of that series or class for any
period unless:
o the series or class of preferred stock has a cumulative dividend, then 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 preferred stock of such series or class for all past
dividend periods and the then current dividend period; or
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o the series or class of preferred stock does not have a cumulative dividend,
then full dividends for the then current dividend period have been or
contemporaneously are authorized and paid or authorized and a sum
sufficient for the payment thereof is set apart for the payment on the
preferred stock of such series or class.
When dividends are not paid in full (or a sum sufficient for the full
payment is not set apart) upon the shares of preferred stock of any series or
class and the shares of any other series or class of preferred stock ranking on
a parity as to dividends with the preferred stock of that series or class, then
all dividends authorized on shares of preferred stock of that series or class
and any other series or class of preferred stock ranking on a parity as to
dividends with that preferred stock shall be authorized pro rata so that the
amount of dividends authorized per share on the preferred stock of that series
or class and such other series or class of preferred stock shall in all cases
bear to each other the same ratio that accrued dividends per share on the shares
of preferred stock of such series or class (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if the
preferred stock does not have a cumulative dividend) and such other series or
class of 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 or
payments on preferred stock of such series or class that may be in arrears.
Except as provided in the immediately preceding paragraph, unless: if that
series or class of preferred stock has a cumulative dividend, full cumulative
dividends on the preferred stock of such series or class 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; and if that series or class of preferred stock
does not have a cumulative dividend, full dividends on the preferred stock of
such series or class have been or contemporaneously are authorized and paid or
authorized and a sum sufficient for the payment thereof is set apart for payment
for the then current dividend period, then no dividends (other than in the
common stock or other stock of ours ranking junior to the preferred stock of
that series or class 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 on the common stock or any other stock of ours ranking junior to or on a
parity with the preferred stock of that series or class as to dividends or upon
liquidation, nor shall the common stock or any other stock of ours ranking
junior to or on a parity with the preferred stock of that series or class as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any amounts be paid to or made available for a sinking
fund for the redemption of any shares of any such stock) by us (except by
conversion into or exchange for other stock of ours ranking junior to the
preferred stock of that series or class as to dividends and upon liquidation).
Any dividend payment made on shares of a series or class of preferred stock
shall first be credited against the earliest accrued but unpaid dividend due
with respect to shares of that series or class that remains payable.
REDEMPTION
If the applicable prospectus supplement so states, the shares of preferred
stock will be subject to mandatory redemption or redemption at our option, as a
whole or in part, in each case on the terms, at the times and at the redemption
prices set forth in that prospectus supplement.
The prospectus supplement relating to a series or class of preferred stock
that is subject to mandatory redemption will specify the number of shares of
that preferred stock that shall be redeemed by us in each year commencing after
a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accumulated and unpaid dividends thereon
(which shall not, if such preferred stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in cash
or other property, as specified in the applicable prospectus supplement. If the
redemption price for preferred stock of any series or class is payable only from
the net proceeds of the issuance of our stock, the terms of that preferred stock
may provide that, if no such stock shall have been issued or to the extent the
net proceeds from any issuance are insufficient to pay in full the aggregate
redemption price then due, that preferred stock shall automatically and
mandatorily be converted into shares of our applicable stock pursuant to
conversion provisions specified in the applicable prospectus supplement.
Notwithstanding the foregoing, unless:
o if the series or class of preferred stock has a cumulative dividend, full
cumulative dividends on all outstanding shares of such series or class of
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;
and
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o if the series or class of preferred stock does not have a cumulative
dividend, full dividends on the preferred stock of that series or class
have been or contemporaneously are authorized and paid or authorized and a
sum sufficient for the payment thereof is set apart for payment for the
then current dividend period, then no shares of that series or class of
preferred stock shall be redeemed unless all outstanding shares of
preferred stock of that series or class are simultaneously redeemed;
provided, however, that the foregoing shall not prevent the purchase or
acquisition of shares of preferred stock of that series or class to
preserve our REIT status or pursuant to a purchase or exchange offer made
on the same terms to holders of all outstanding shares of preferred stock
of that series or class.
If fewer than all the outstanding shares of preferred stock of any series
or class are to be redeemed, the number of shares to be redeemed will be
determined by us and those shares may be redeemed pro rata from the holders of
record of those shares in proportion to the number of those shares held by such
holders (with adjustments to avoid redemption of fractional shares) or any other
equitable method determined by us.
Notice of redemption will be mailed at least 30, but not more than 60, days
before the redemption date to each holder of record of a share of preferred
stock of any series or class to be redeemed at the address shown on our stock
transfer books. Each notice shall state:
o The redemption date;
o The number of shares and series or class of the preferred stock to be
redeemed;
o The redemption price;
o The place or places where certificates for the preferred stock are to be
surrendered for payment of the redemption price;
o That dividends on the shares to be redeemed will cease to accumulate on the
redemption date; and
o The date on which the holder's conversion rights, if any, as to that shares
shall terminate.
If fewer than all the shares of preferred stock of any series or class are
to be redeemed, the notice mailed to each holder thereof shall also specify the
number of shares of preferred stock to be redeemed from each holder and, upon
redemption, a new certificate shall be issued representing the unredeemed shares
without cost to the holder thereof. If notice of redemption of any shares of
preferred stock has been given and if the funds necessary for the redemption
have been set aside by us in trust for the benefit of the holders of any shares
of preferred stock so called for redemption, then from and after the redemption
date dividends will cease to accrue on the shares of preferred stock, the shares
of preferred stock shall no longer be deemed outstanding and all rights of the
holders of the shares will terminate, except the right to receive the redemption
price. In order to facilitate the redemption of shares of preferred stock of any
series or class, the board of directors may fix a record date for the
determination of shares of the series or class of preferred stock to be
redeemed.
Notwithstanding the foregoing, the persons who were holders of record of
shares of any class or series of preferred stock at the close of business on a
record date for the payment of dividends will be entitled to receive the
dividend payable on the corresponding dividend payment date notwithstanding the
redemption of those shares after the record date and on or prior to the dividend
payment date or our default in the payment of the dividend due on that dividend
payment date. In that case, the amount payable on the redemption of those shares
of preferred stock will not include that dividend. Except as provided in the
preceding sentence and except to the extent that accrued and unpaid dividends
are payable as part of the redemption price, we will make no payment or
allowance for unpaid dividends, whether or not in arrears, on shares of
preferred stock called for redemption.
Subject to applicable law and the limitation on purchases when dividends on
a series or class of preferred stock are in arrears, we may, at any time and
from time to time, purchase any shares of such series or class of preferred
stock in the open market, by tender or by private agreement.
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LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation or dissolution of us or
winding up of our affairs, then, before any distribution or payment will be made
to the holders of common stock or any other series or class of stock ranking
junior to any series or class of the preferred stock in the distribution of
assets upon any liquidation, dissolution or winding up of our affairs, the
holders of that series or class of preferred stock shall be entitled to receive
out of our assets legally available for distribution to shareholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable prospectus supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which shall not include any accumulation in respect
of unpaid dividends for prior dividend periods if the preferred stock does not
have a cumulative dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of preferred stock will
have no right or claim to any of our remaining assets. If, upon any such
voluntary or involuntary liquidation, dissolution or winding up, the legally
available assets are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of any series or class of preferred
stock and the corresponding amounts payable on all shares of other classes or
series of stock of the Company ranking on a parity with that series or class of
preferred stock in the distribution of assets upon liquidation, dissolution or
winding up, then the holders of that series or class of preferred stock and all
other such classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
any series or class of preferred stock, our remaining assets will be distributed
among the holders of any other classes or series of stock ranking junior to that
series or class of preferred stock upon liquidation, dissolution or winding up,
according to their respective rights and preferences and in each case according
to their respective number of shares. For those purposes, the consolidation or
merger of us with or into any other entity, or the sale, lease, transfer or
conveyance of all or substantially all of our property or business, shall not be
deemed to constitute a liquidation, dissolution or winding up of our affairs.
VOTING RIGHTS
Except as may be set forth in the applicable prospectus supplement,
whenever dividends on any shares of preferred stock shall be in arrears for six
or more quarterly dividend periods, whether or not consecutive, the number of
directors constituting our Board of Directors will be automatically increased by
two and the holders of such series or class of preferred stock (voting
separately as a class with all other classes or series of preferred stock upon
which like voting rights have been conferred and are exercisable in the election
of those two directors) will be entitled to vote for the election of a total of
two additional directors to our Board of Directors at a special meeting called
by Realty Income at the request of the holders of record of at least 10% of the
outstanding shares of any class or series of preferred stock upon which voting
rights have been conferred and are exercisable (unless the request is received
less than 90 days before the date fixed for the next annual or special meeting
of shareholders, in which case the vote will be held at the earlier of the next
annual or special meeting of shareholders), and at each subsequent annual
meeting until all dividends accumulated on those shares of preferred stock for
all past dividend periods and the then current dividend period shall have been
fully paid or declared and a sum sufficient for the payment thereof set aside
for payment. In that case, the right of the preferred stock to elect those two
directors will cease and the term of office of the two directors will
automatically terminate and the number of directors constituting the Board of
Directors will be reduced accordingly.
If a special meeting is not called by us within 30 days after a request
from the holders of preferred stock as described above, then the holders of
record of at least 10% of the outstanding shares of any class or series of
preferred stock upon which voting rights have been conferred and are exercisable
may designate a holder to call the meeting at our expense.
So long as any shares of any class or series of preferred stock remain
outstanding, we shall not, without the consent or the affirmative vote of the
holders of at least two-thirds of the shares of any class or series of preferred
stock outstanding that is affected by the following at the time given in person
or by proxy, either in writing or at a meeting (with each series or class of
preferred stock that is affected by the following voting separately as a class):
o Authorize, create or issue, or increase the authorized or issued amount of,
any class or series of stock ranking prior to that series or class of
preferred stock with respect to payment of dividends or the distribution of
assets on liquidation, dissolution or winding up, or reclassify any of our
authorized stock into any such shares, or create, authorize or issue any
obligation or security convertible into, exchangeable or exerciseable for,
or evidencing the right to purchase any such shares;
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o Amend, alter or repeal any of the provisions of our charter, including the
articles supplementary for such series or class of preferred stock, so as
to materially and adversely affect any right, preference, privilege or
voting power of such series or class of preferred stock or the holders
thereof; or
o Enter into any share exchange that affects such series or class of
preferred stock or consolidate with or merge into any other entity, or
permit any other entity to consolidate with or merge into us, unless in
each such case described in this clause each share of such series or class
of preferred stock remains outstanding without a material adverse change to
its terms and rights or is converted into or exchanged for preferred stock
of the surviving or resulting entity having preferences, rights, dividends,
voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption identical to those of such series or
class of preferred stock;
provided that any amendment to our charter to authorize any increase in the
amount of the authorized preferred stock or common stock or the issuance of any
other class or series of preferred stock or any increase in the amount of
authorized or outstanding shares of such series or class or any other series or
class of preferred stock in each case ranking on a parity with or junior to the
preferred stock of such series or class with respect to payment of dividends and
the distribution of assets upon liquidation, dissolution and winding up, shall
not be deemed to materially and adversely affect any right, preference,
privilege or voting power of the series or class of preferred stock or the
holders thereof.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which the vote would otherwise be required shall be
effected, all outstanding shares of such series or class of preferred stock
shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been deposited in trust to effect the redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series or class
of preferred stock are convertible into shares of common stock will be set forth
in the applicable prospectus supplement. The terms will include the number of
shares of common stock into which the preferred stock is convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
preferred stock or us, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of the
preferred stock.
RESTRICTIONS ON OWNERSHIP
For us to qualify as a REIT under the Code, not more than 50% in value of
our outstanding capital stock may be owned, actually or constructively, by five
or fewer individuals (defined in the Code to include certain entities) during
the last half of a taxable year. To assist us in meeting this requirement and
certain other requirements relating to our tax status as a REIT, we may take
certain actions to limit the actual, beneficial or constructive ownership by a
single person or entity of our outstanding equity securities.
TRANSFER AGENT
The transfer agent and registrar for any series or class of preferred stock
will be set forth in the applicable prospectus supplement.
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RESTRICTIONS ON OWNERSHIP AND TRANSFERS OF STOCK
INTERNAL REVENUE CODE REQUIREMENTS
To maintain our REIT status under the Code, no more than 50% in value of
our outstanding shares of stock may be owned, actually or constructively, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year. In addition, if we, or an owner of 10%
or more of us, actually or constructively owns 10% or more of a tenant of ours
(or a tenant of any partnership in which we are a partner), the rent received by
us (either directly or through any such partnership) from that tenant will not
be qualifying income for purposes of the REIT gross income tests of the Code. A
REIT's stock must also be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of twelve months or during a proportionate part
of a shorter taxable year.
TRANSFER RESTRICTIONS IN CHARTER
Because we expect to continue to qualify as a REIT, our charter contains
restrictions on the ownership and transfer of common stock which are intended to
assist us in complying with applicable Code requirements. Our charter provides
that, subject to certain specified exceptions, no person or entity may own, or
be deemed to own by virtue of the applicable constructive ownership provisions
of the Code, more than 9.8% (by number or value, whichever is more restrictive)
of the outstanding shares of common stock, appropriately referred to as the
ownership limit. The constructive ownership rules of the Code are complex, and
may cause shares of common stock owned actually or constructively by a group of
related individuals and/or entities to be constructively owned by one individual
or entity. As a result, the acquisition of less than 9.8% of the shares of
common stock (or the acquisition of an interest in an entity that owns, actually
or constructively, common stock) by an individual or entity, could nevertheless
cause that individual or entity, or another individual or entity, to
constructively own more than 9.8% of our outstanding common stock and thus
violate the ownership limit, or any other limit as provided in our charter or as
otherwise permitted by our board of directors. Our board of directors may, but
in no event is required to, exempt from the ownership limit to a particular
stockholder if it determines that such ownership will not jeopardize our status
as a REIT. As a condition of such exemption, the board of directors may require
a ruling from the Internal Revenue Service or an opinion of counsel satisfactory
to it and/or undertakings or representations from the applicant with respect to
preserving the our REIT status.
Our charter further prohibits (i) any person from actually or
constructively owning shares of our stock that would result in our being
"closely held" under Section 856(h) of the Code or otherwise cause us to fail to
qualify as a REIT, and (ii) any person from transferring shares of our stock if
such transfer would result in shares of our stock being beneficially owned by
fewer than 100 persons (determined without reference to any rules of
attribution).
Any person who acquires or attempts to acquire actual or constructive
ownership of shares of our stock that will violate any of the foregoing
restrictions on transferability and ownership is required to give notice to us
immediately and provide us with such other information as we may request in
order to determine the effect of such transfer on our status as a REIT. The
foregoing restrictions on transferability and ownership will not apply if our
Board of Directors determines that it is no longer in our best interest to
attempt to qualify, or to continue to qualify, as a REIT and such determination
is approved by a two thirds vote of our stockholders as required by our charter.
Except as otherwise described above, any change in the ownership limit would
require an amendment to the charter.
EFFECT OF VIOLATION OF TRANSFER PROVISIONS
According to our charter, if any purported transfer of common stock or any
other event would otherwise result in any person violating the ownership limit
or such other limit as provided in the charter or as otherwise permitted by our
board of directors, or result in our being "closely held" under Section 856(h)
of the Code or otherwise cause us to fail to qualify as a REIT, then the number
of shares that would otherwise cause such violation or result will be
transferred automatically to a trust, the beneficiary of which will be a
qualified charitable organization selected by us as beneficiary. Such automatic
transfer shall be deemed to be effective as of the close of business on the
business day prior to the date of such violative transfer. Within 20 days of
receiving notice from us of the transfer of shares to the trust, the trustee of
the trust (who shall be designated by us and be unaffiliated with us and any
prohibited transferee or prohibited owner) will be required to sell such shares
to a person or entity who could own the shares without violating the ownership
limit, or any other limit as provided in our charter or as otherwise permitted
by our board of directors, and distribute to the prohibited transferee or
prohibited owner, as applicable, an amount equal to the lesser of the price paid
by the prohibited transferee or prohibited owner for such shares or the net
sales proceeds received by the trust for such shares.
26
In the case of any event other than a transfer, or in the case of a
transfer for no consideration (such as a gift), the trustee will be required to
sell such shares to a qualified person or entity and distribute to the
prohibited owner an amount equal to the lesser of the market price (described in
our charter) of such shares as of the date of such event or the net sales
proceeds received by the trust for such shares. In either case, any proceeds in
excess of the amount distributable to the prohibited transferee or prohibited
owner, as applicable, will be distributed to the beneficiary. Prior to a sale of
any such shares by the trust, the trustee will be entitled to receive, in trust
for the beneficiary, all dividends and other distributions paid by us with
respect to such excss shares, and also will be entitled to exercise all voting
rights with respect to such shares.
Subject to Maryland law, effective as of the date that such shares have
been transferred to the trust, the trustee shall have the authority (at the
trustee's sole discretion) (i) to rescind as void any vote cast by a prohibited
transferee or prohibited owner, as applicable, prior to the discovery by us that
such shares have been transferred to the trust and (ii) to recast such vote in
accordance with the desires of the trustee acting for the benefit of the
beneficiary. However, if we have already taken irreversible corporate action,
then the trustee shall not have the authority to rescind and recast that vote.
Any dividend or other distribution paid to the prohibited transferee or
prohibited owner (prior to the discovery by us that such shares had been
automatically transferred to a trust as described above) will be required to be
repaid to the trustee upon demand for distribution to the beneficiary. In the
event that the transfer to the trust as described above is not automatically
effective (for any reason) to prevent violation of the ownership limit or any
other limit as provided in our charter or as otherwise permitted by our board of
directors, then our charter provides that the transfer of the excess shares will
be void.
In addition, shares of our stock held in the trust shall be deemed to have
been offered for sale to us, or our designee, at a price per share equal to the
lesser of (i) the price per share in the transaction that resulted in such
transfer to the trust (or, in the case of a devise or gift, the market price at
the time of such devise or gift) and (ii) the market price on the date we or our
designee, accepts such offer. We shall have the right to accept such offer until
the trustee has sold the shares of stock held in the trust. Upon such a sale to
us, the interest of the Beneficiary in the shares sold shall terminate and the
trustee shall distribute the net proceeds of the sale to the prohibited
transferee or prohibited owner.
If any purported transfer of shares of common stock would cause us to be
beneficially owned by fewer than 100 persons, such transfer will be null and
void in its entirety and the intended transferee will acquire no rights to the
stock.
All certificates representing shares of our common stock will bear a legend
referring to the restrictions described above. The foregoing ownership
limitations could delay, defer or prevent a transaction or a change in control
of Realty Income that might involve a premium price for the common stock or
otherwise be in the best interest of stockholders.
COMPLIANCE WITH TREASURY REGULATIONS
As set forth in the Treasury Regulations, every owner of a specified
percentage (or more) of the outstanding shares of our common stock must file a
completed questionnaire with us containing information regarding their ownership
of such shares. Under current Treasury Regulations, the percentage will be set
between 0.5% and 5.0%, depending upon the number of record holders of our shares
of common stock. Under our charter, each stockholder shall upon demand be
required to disclose to us in writing such information as we may request in
order to determine the effect, if any, of such stockholder's actual and
constructive ownership of common stock on our status as a REIT and to ensure
compliance with the ownership limit, or any other limit as provided in our
charter or as otherwise permitted by our board of directors.
27
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS RELATED TO OUR REIT ELECTION
The following is a summary of the federal income tax considerations related
to our REIT election which are anticipated to be material to purchasers of the
securities offered by this prospectus. This summary is based on current law, is
for general information only and is not tax advice. Your tax treatment will vary
depending upon the terms of the specific securities that you acquire, as well as
your particular situation. This discussion does not attempt to address any
aspects of federal income taxation relevant to your ownership of the securities
offered by this prospectus. Instead, the material federal income tax
considerations relevant to your ownership of the securities offered by this
prospectus may be provided in the applicable prospectus supplement that relates
to those securities.
The information in this section is based on:
o the Internal Revenue Code;
o current, temporary and proposed Treasury regulations promulgated under the
Internal Revenue Code;
o the legislative history of the Internal Revenue Code;
o current administrative interpretations and practices of the Internal
Revenue Service; and
o court decisions
in each case, as of the date of this prospectus. In addition, the administrative
interpretations and practices of the Internal Revenue Service include its
practices and policies as expressed in private letter rulings which are not
binding on the Internal Revenue Service, except with respect to the particular
taxpayers who requested and received these rulings. Future legislation, Treasury
regulations, administrative interpretations and practices and/or court decisions
may adversely affect the tax considerations contained in this discussion. Any
change could apply retroactively to transactions preceding the date of the
change. We have not requested, and do not plan to request, any rulings from the
Internal Revenue Service concerning our tax treatment, and the statements in
this prospectus are not binding on the Internal Revenue Service or any court.
Thus, we can provide no assurance that the tax considerations contained in this
discussion will not be challenged by the Internal Revenue Service or if
challenged, will be sustained by a court.
The summary below does not consider the effect of any foreign, state, local
or other tax laws that may be applicable to us or a purchaser of our securities.
You are urged to consult the applicable prospectus supplement, as well as your
tax advisor, regarding the tax consequences to you of:
o the acquisition, ownership and sale or other disposition of the securities
offered under this prospectus, including the federal, state, local, foreign
and other tax consequences;
o our election to be taxed as a REIT for federal income tax purposes; and
o potential changes in the tax laws.
TAXATION OF THE COMPANY
General. We elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code, commencing with our taxable year ending December 31,
1994. We believe we have been organized and have operated in a manner which
allows us to qualify for taxation as a REIT under the Internal Revenue Code
commencing with our taxable year ending December 31, 1994. However, our
qualification and taxation as a REIT depend upon our ability to meet the various
qualification tests imposed under the Internal Revenue Code. Accordingly, we
cannot assure you that we have operated or will continue to operate in a manner
so as to qualify or remain qualified as a REIT. See " --Failure to Qualify."
The sections of the Internal Revenue Code and the corresponding Treasury
regulations that relate to the qualification and operation of a REIT are highly
technical and complex. This summary is qualified in its entirety by the
applicable Code provisions, rules and regulations promulgated thereunder, and
administrative and judicial interpretations thereof.
28
As a condition to the closing of each offering of equity securities offered
under this prospectus, except as otherwise specified in the applicable
prospectus supplement, our tax counsel will render an opinion to the
underwriters of that offering to the effect that, commencing with our taxable
year ending December 31, 1994, we have been organized and have operated in
conformity with the requirements for qualification and taxation as a REIT, and
our proposed method of operation will enable us to continue to meet the
requirements for qualification and taxation as a REIT under the Internal Revenue
Code. It must be emphasized that this opinion will be based on various
assumptions and representations as to factual matters, including representations
to be made by us in one or more factual certificates to be provided by one or
more of our officers. Our tax counsel will have no obligation to update its
opinion subsequent to its date. In addition, this opinion will be based upon our
factual representations set forth in this prospectus and in the applicable
prospectus supplement. Moreover, our qualification and taxation as a REIT
depends upon our ability to meet the various qualification tests imposed under
the Internal Revenue Code discussed below, including through actual annual
operating results, asset diversification, distribution levels and diversity of
stock ownership, the results of which have not been and will not be reviewed by
our tax counsel. Accordingly, no assurance can be given that our actual results
of operation for any particular taxable year will satisfy those requirements.
Further, the anticipated income tax treatment described in this prospectus may
be changed, perhaps retroactively, by legislative, administrative or judicial
action at any time.
If we qualify for taxation as a REIT, we generally will not be required to
pay federal corporate income taxes on our net income that is currently
distributed to our stockholders. This treatment substantially eliminates the
"double taxation" that ordinarily results from investment in a corporation.
Double taxation means taxation once at the corporate level when income is earned
and once again at the stockholder level when this income is distributed. We will
be required to pay federal income tax, however, as follows:
o We will be required to pay tax at regular corporate rates on any
undistributed "REIT taxable income," including undistributed net capital
gains.
o We may be required to pay the "alternative minimum tax" on our items of tax
preference.
o If we have: (a) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in the
ordinary course of business; or (b) other nonqualifying income from
foreclosure property, we will be required to pay tax at the highest
corporate rate on this income. Foreclosure property is generally defined as
property acquired through foreclosure or after a default on a loan secured
by the property or a lease of the property.
o We will be required to pay a 100% tax on any net income from prohibited
transactions. Prohibited transactions are, in general, sales or other
taxable dispositions of property, other than foreclosure property, held
primarily for sale to customers in the ordinary course of business.
o If we fail to satisfy the 75% gross income test or the 95% gross income
test discussed below, but nonetheless maintain our qualification as a REIT
because certain other requirements are met, we will be subject to a tax
equal to (a) the greater of (i) the amount by which 75% of our gross income
exceeds the amount qualifying under the 75% gross income test described
below and (ii) the amount by which 90% of our gross income exceeds the
amount qualifying under the 95% gross income test described below,
multiplied by (b) a fraction intended to reflect our profitability.
o We will be required to pay a 4% excise tax to the extent we fail to
distribute during each calendar year at least the sum of (a) 85% of our
REIT ordinary income for the year, (b) 95% of our REIT capital gain net
income for the year, and (c) any undistributed taxable income from prior
periods.
o If we acquire any asset from a corporation which is or has been a C
corporation in a transaction in which the basis of the asset in our hands
is determined by reference to the basis of the asset in the hands of the C
corporation, and we subsequently recognize gain on the disposition of the
asset during the ten-year period beginning on the date on which we acquired
the asset, then we will be required to pay tax at the highest regular
corporate tax rate on this gain to the extent of the excess of (a) the fair
market value of the asset over (b) our adjusted basis in the asset, in each
case determined as of the date on which we acquired the asset. A C
corporation is generally defined as a corporation required to pay full
corporate-level tax. The results described in this paragraph with respect
to the recognition of gain assume that we will make or refrain from making
an election under the Treasury regulations under Section 337 of the
Internal Revenue Code, depending upon the time of the acquisition.
29
o We will be required to pay a 100% tax on any "redetermined rents,"
"redetermined deductions" or "excess interest." In general, redetermined
rents are rents from real property that are overstated as a result of
services furnished by any of our "taxable REIT subsidiaries" to any of our
tenants. Redetermined deductions and excess interest represent amounts that
are deducted by any of our taxable REIT subsidiaries for amounts paid to us
that are in excess of the amounts that would have been deducted based on
arm's-length terms. See "--Taxation of the Company-Ownership of Interests
in Taxable REIT Subsidiaries" and "--Penalty Tax."
Requirements for Qualification as a REIT. The Internal Revenue Code defines
a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates to
evidence beneficial ownership;
(3) that would be taxable as a domestic corporation but for Sections 856
through 860 of the Internal Revenue Code;
(4) that is not a financial institution or an insurance company within the
meaning of the Internal Revenue Code;
(5) that is beneficially owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of which is owned,
actually or constructively, by five or fewer individuals, including
specified entities, during the last half of each-taxable year; and
(7) that meets other tests, described below, regarding the nature of its
income and assets and the amount of its distributions.
The Internal Revenue Code provides that all of conditions (1) to (4) 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. Conditions (5) and (6) do not apply
until after the first taxable year for which an election is made to be taxed as
a REIT. For purposes of condition (6), pension funds and other specified
tax-exempt entities generally are treated as individuals, except that a
"look-through" exception applies with respect to pension funds.
We believe that we have satisfied conditions (1) through (7) during the
relevant time periods. In addition, our charter provides for restrictions
regarding ownership and transfer of shares. These restrictions are intended to
assist us in continuing to satisfy the share ownership requirements described in
(5) and (6) above. These ownership and transfer restrictions are described in
"Restrictions on Ownership and Transfer of Capital Stock" in this prospectus.
These restrictions, however, may not ensure that we will, in all cases, be able
to satisfy the share ownership requirements described in (5) and (6) above. If
we fail to satisfy these share ownership requirements, except as provided in the
next sentence, our status as a REIT will terminate. If, however, we comply with
the rules contained in the Treasury regulations that require us to ascertain the
actual ownership of our shares, and we do not know, or would not have known
through the exercise of reasonable diligence, that we failed to meet the
requirement described in condition (6) above, we will be treated as having met
this requirement. See "--Failure to Qualify."
In addition, we may not maintain our status as a REIT unless our taxable
year is the calendar year. We have and will continue to have a calendar taxable
year.
Ownership of a Partnership Interest. We own and operate one or more
properties through a partnership. Treasury regulations provide that if we are a
partner in a partnership, we will be deemed to own our proportionate share of
the assets of the partnership. Also, we will be deemed to be entitled to our
proportionate share of the income of the partnership. The character of the
assets and gross income of the partnership retains the same character in our
hands for purposes of Section 856 of the Internal Revenue Code, including
satisfying the gross income tests and the asset tests. In addition, for these
purposes, the assets and items of income of any partnership in which we own a
direct or indirect interest include the partnership's share of assets and items
of income of any partnership in which it owns an interest. We have included a
brief summary of the rules governing the federal income taxation of partnerships
and their partners below in " --Tax Aspects of Partnerships." The treatment
described above also would apply with respect to the ownership of interests in
limited liability companies or other entities that are treated as partnerships
for tax purposes. We have direct control of the partnership in which we are a
partner, and intend to continue to operate it in a manner consistent with the
requirements for qualification as a REIT.
30
Ownership of Interests in Qualified REIT Subsidiaries. We own and operate a
number of properties through our wholly-owned subsidiary that we believe will be
treated as a "qualified REIT subsidiary" under the Internal Revenue Code, and we
may own additional qualified REIT subsidiaries in the future. A corporation will
qualify as a qualified REIT subsidiary if we own 100% of its outstanding stock
and if we do not elect with the subsidiary to treat it as a "taxable REIT
subsidiary," described below. A corporation that is a qualified REIT subsidiary
is not treated as a separate corporation, and all assets, liabilities and items
of income, deduction and credit of a qualified REIT subsidiary are treated as
assets, liabilities and items of income, deduction and credit (as the case may
be) of the parent REIT for all purposes under the Internal Revenue Code
(including all REIT qualification tests). Thus, in applying the requirements
described in this prospectus, the subsidiaries in which we own a 100%
interest (other than any taxable REIT subsidiaries) will be ignored, and all
assets, liabilities and items of income, deduction and credit of such
subsidiaries will be treated as our assets, liabilities and items of income,
deduction and credit. A qualified REIT subsidiary is not subject to federal
income tax and our ownership of the stock of such a subsidiary will not violate
the REIT asset tests, described below under "--Asset Tests."
Ownership of Interests in Taxable REIT Subsidiaries. A taxable REIT
subsidiary is a corporation other than a REIT in which a REIT directly or
indirectly holds stock and that has made a joint election with the REIT to be
treated as a taxable REIT subsidiary. A taxable REIT subsidiary also includes
any corporation other than a REIT with respect to which a taxable REIT
subsidiary owns, directly or indirectly, securities possessing more than 35% of
the total voting power or value of the outstanding securities of such
corporation. A taxable REIT subsidiary may generally engage in any business,
including the provision of customary or noncustomary services to tenants of its
parent REIT, except that a taxable REIT subsidiary may not directly or
indirectly operate or manage a lodging or health care facility or directly or
indirectly provide to any other person (under a franchise, license or otherwise)
rights to any brand name under which any lodging or health care facility is
operated. A taxable REIT subsidiary is subject to federal income tax, and state
and local income tax where applicable, as a regular C corporation. In addition,
a taxable REIT subsidiary may be prevented from deducting interest on debt that
is directly or indirectly funded by its parent REIT if certain tests regarding
the taxable REIT subsidiary's debt-to-equity ratio and interest expense are
satisfied. Crest Net Lease is our wholly-owned subsidiary. We have jointly
elected with Crest Net Lease to have it be treated as a taxable REIT subsidiary,
and we may own interests in other taxable REIT subsidiaries in the future. See
"--Asset Tests."
Income Tests. We must satisfy two gross income requirements annually to
maintain our qualification as a REIT:
o First, each taxable year we must derive directly or indirectly at least 75%
of our gross income, excluding gross income from prohibited transactions,
from (a) certain investments relating to real property or mortgages on real
property, including "rents from real property" and, in some circumstances,
interest, or (b) some types of temporary investments; and
o Second, each taxable year we must derive at least 95% of our gross income,
excluding gross income from prohibited transactions, from (a) the real
property investments described above, and (b) dividends, interest and gain
from the sale or disposition of stock or securities.
For these purposes, the term "interest" generally does not include any
amount received or accrued, directly or indirectly, if the determination of all
or some of the amount depends in any way on the income or profits of any person.
An amount received or accrued generally will not be excluded from the term
"interest," however, solely by reason of being based on a fixed percentage or
percentages of receipts or sales.
Rents we receive from a tenant will qualify as "rents from real property"
for the purpose of satisfying the gross income requirements for a REIT described
above only if all of the following conditions are met:
31
o The amount of rent must not be based in whole or in part on the income or
profits of any person. However, an amount we receive or accrue generally
will not be excluded from the term "rents from real property" solely by
reason of being based on a fixed percentage or percentages of receipts or
sales;
o We, or an actual or constructive owner of 10% or more of our stock, must
not actually or constructively own 10% or more of the interests in the
assets or net profits of the tenant, or, if the tenant is a corporation,
10% or more of the total combined voting power of all classes of stock
entitled to vote or 10% or more of the total value of all classes of stock
of the tenant. Rents received from such tenant that is a taxable REIT
subsidiary, however, will not be excluded from the definition of "rents
from real property" if at least 90% of the space at the property to which
the rents relate is leased to third parties, and the rents paid by the
taxable REIT subsidiary are comparable to rents paid by our other tenants
for comparable space;
o Rent attributable to personal property, leased in connection with a lease
of real property, is not greater than 15% of the total rent received under
the lease. If this requirement is not met, then the portion of rent
attributable to personal property will not qualify as "rents from real
property;" and
o We generally must not operate or manage the property or furnish or render
services to the tenants of the property, subject to a 1% de minimis
exception, other than through an independent contractor from whom we derive
no revenue. We may, however, directly perform certain services that are
"usually or customarily rendered" in connection with the rental of space
for occupancy only and are not otherwise considered "rendered to the
occupant" of the property. Examples of such services include the provision
of light, heat, or other utilities, trash removal and general maintenance
of common areas. In addition, we may employ a taxable REIT subsidiary,
which may be wholly or partially owned by us, to provide both customary and
non-customary services to our tenants without causing the rent we receive
from those tenants to fail to qualify as "rents from real property." Any
amounts we receive from a taxable REIT subsidiary with respect to the
taxable REIT subsidiary's provision of non-customary services will,
however, be nonqualified income under the 75% gross income test and, except
to the extent received through the payment of dividends, the 95% REIT gross
income test.
We generally do not intend to receive rent which fails to satisfy any of
the above conditions. Notwithstanding the foregoing, we may have taken and may
continue to take actions which fail to satisfy one or more of the above
conditions to the extent that we determine, based on the advice of our tax
counsel, that those actions will not jeopardize our status as a REIT.
We believe that the aggregate amount of our nonqualifying income, from all
sources, in any taxable year will not exceed the limit on nonqualifying income
under the gross income tests. If we fail to satisfy one or both of the 75% or
95% gross income tests for any taxable year, we may nevertheless qualify as a
REIT for the year if we are entitled to relief under the Internal Revenue Code.
Generally, we may avail ourselves of the relief provisions if:
o our failure to meet these tests was due to reasonable cause and not due to
willful neglect;
o we attach a schedule of the sources of our income to our federal income tax
return; and
o any incorrect information on the schedule was not due to fraud with intent
to evade tax.
It is not possible, however, to state whether in all circumstances we would
be entitled to the benefit of these relief provisions. For example, if we fail
to satisfy the gross income tests because nonqualifying income that we
intentionally accrue or receive exceeds the limits on nonqualifying income, the
Internal Revenue Service could conclude that our failure to satisfy the tests
was not due to reasonable cause. If these relief provisions do not apply to a
particular set of circumstances, we will not qualify as a REIT. As discussed
above in " --Taxation of the Company--General," even if these relief provisions
apply, and we retain our status as a REIT, a tax would be imposed with respect
to our nonqualifying income. We may not always be able to maintain compliance
with the gross income tests for REIT qualification despite our periodic
monitoring of our income.
Penalty Tax. Any redetermined rents, redetermined deductions or excess
interest we generate will be subject to a 100% penalty tax. In general,
redetermined rents are rents from real property that are overstated as a result
of services furnished by our taxable REIT subsidiary to any of our tenants, and
redetermined deductions and excess interest represent amounts that are deducted
by a taxable REIT subsidiary for amounts paid to us that are in excess of the
amounts that would have been deducted based on arm's-length negotiations. Rents
we receive will not constitute redetermined rents if they qualify for the safe
harbor provisions contained in the Internal Revenue Code. Safe harbor provisions
are provided where generally:
32
o Amounts are received by a REIT for services customarily furnished or
rendered in connection with the rental of real property;
o Amounts are excluded from the definition of impermissible tenant service
income as a result of satisfying the 1% de minimis exception;
o The taxable REIT subsidiary renders a significant amount of similar
services to unrelated parties and the charges for such services are
substantially comparable;
o Rents paid to the REIT by tenants who are not receiving services from the
taxable REIT subsidiary are substantially comparable to the rents paid by
the REIT's tenants leasing comparable space who are receiving such services
from the taxable REIT subsidiary and the charge for the services is
separately stated; or
o The taxable REIT subsidiary's gross income from the service is not less
than 150% of the subsidiary's direct cost in furnishing or rendering the
service.
Prohibited Transaction Income. Any gain that we realize on the sale of any
property held as inventory or other property held primarily for sale to
customers in the ordinary course of business will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. Our gain would
include our share of any gain realized by any partnership, limited liability
company or qualified REIT subsidiary in which we own an interest. This
prohibited transaction income may also adversely affect our ability to satisfy
the income tests for qualification as a REIT. Under existing law, whether
property is held as inventory or primarily for sale to customers in the ordinary
course of a trade or business depends on all the facts and circumstances
surrounding the particular transaction. We intend to hold our properties for
investment with a view to long-term appreciation and to engage in the business
of acquiring, developing and owning our properties. We have made and may in the
future make occasional sales of the properties as are consistent with our
investment objectives. We do not intend to enter into any sales that are
prohibited transactions. The Internal Revenue Service may contend, however, that
one or more of these sales is subject to the 100% penalty tax.
We have disposed of, and may in the future dispose of, properties in
transactions intended to qualify as like-kind exchanges under the Code,
resulting in the deferral of gain for federal income tax purposes. The failure
of any such transaction to qualify as a like kind exchange could subject us to
federal income tax, possibly including the 100% prohibited transaction tax,
depending on the facts and circumstances surrounding the particular transaction.
Asset Tests. At the close of each quarter of our taxable year, we also must
satisfy four tests relating to the nature and diversification of our assets:
o First, at least 75% of the value of our total assets, including assets held
by our qualified REIT subsidiary and our allocable share of the assets held
by any partnership or other entity treated like a partnership for federal
income purposes in which we own an interest, must be represented by real
estate assets, cash, cash items and government securities. For purposes of
this test, the term "real estate assets" generally means real property
(including interests in real property and interests in mortgages on real
property) and shares (or transferable certificates of beneficial interest)
in other REITs, as well as any stock or debt instrument attributable to the
investment of the proceeds of a stock offering or a public debt offering
with a term of at least five years, but only for the one-year period
beginning on the date the REIT receives such proceeds;
o Second, not more than 25% of the value of our total assets may be
represented by securities, other than those securities included in the 75%
asset test;
33
o Third, of the securities included in the 25% asset test, the value of any
one issuer's securities may not exceed 5% of the value of our total assets,
and we may not own more than 10% by vote or value of any one issuer's
outstanding securities. For years prior to 2001, the 10% limit applies only
with respect to voting securities of any issuer and not to the value of the
securities of any issuer; and
o Fourth, not more than 20% of the value of our total assets may be
represented by the securities of one or more taxable REIT subsidiaries. The
10% value limitation and the 20% asset test are part of recently enacted
legislation and are effective for taxable years ending after December 31,
2000.
We own 100% of the outstanding stock of Crest Net Lease. Crest Net Lease
elected, together with us, to have it be treated as a taxable REIT subsidiary.
So long as Crest Net Lease qualifies as a taxable REIT subsidiary, we will not
be subject to the 5% asset test, 10% voting securities limitation or 10% value
limitation with respect to our ownership of securities in Crest Net Lease. We or
Crest Net Lease may acquire securities in other taxable REIT subsidiaries in the
future. We believe that the aggregate value of our taxable REIT subsidiaries
will not exceed 20% of the aggregate value of our gross assets. With respect to
each issuer in which we currently own an interest that does not qualify as a
REIT, a qualified REIT subsidiary or a taxable REIT subsidiary, we believe that
(1) the value of the securities of any such issuer has not exceeded 5% of the
total value of our assets and (2) our ownership of the securities of any such
issuer has complied with the 10% voting securities limitation and 10% value
limitation. No independent appraisals have been obtained to support these
conclusions. In addition, there can be no assurance that the Internal Revenue
Service will not disagree with our determinations of value.
The asset tests must be satisfied not only on the date that we (directly or
through our partnership) acquire securities in the applicable issuer, but also
each time we increase our ownership of securities of such issuer, including as a
result of increasing our interest in a partnership or limited liability company
which owns such securities. For example, our indirect ownership of securities of
an issuer may increase as a result of our acquisition of or capital
contributions to a partnership or limited liability company. After initially
meeting the asset tests at the close of any quarter, we will not lose our status
as a REIT for failure to satisfy the asset tests at the end of a later quarter
solely by reason of changes in asset values. If we fail to satisfy an asset test
because we acquire securities or other property during a quarter (including as a
result of an increase in our interests in a partnership or limited liability
company), we can cure this failure by disposing of sufficient nonqualifying
assets within 30 days after the close of that quarter. Although we believe that
we have satisfied the asset tests and plan to take steps to ensure that we
satisfy such tests for any quarter with respect to which testing is to occur,
there can be no assurance that such steps will always be successful or will not
require a reduction in our overall interest in an issuer (including in a taxable
REIT subsidiary). If we fail to timely cure any noncompliance with the asset
tests, we would cease to qualify as a REIT.
Annual Distribution Requirements. To maintain our qualification as a REIT,
we are required to distribute dividends, other than capital gain dividends, to
our stockholders in an amount at least equal to the sum of:
o 90% (95% for taxable years beginning before January 1, 2001) of our "REIT
taxable income"; and
o 90% (95% for taxable years beginning before January 1, 2001) of our after
tax net income, if any, from foreclosure property; minus
o the excess of the sum of specified items of our noncash income items over
5% of "REIT taxable income" as described below.
Our "REIT taxable income" is computed without regard to the dividends paid
deduction and our net capital gain. In addition, for purposes of this test,
non-cash income means income attributable to leveled stepped rents, original
issue discount on purchase money debt, or a like-kind exchange that is later
determined to be taxable.
In addition, if we dispose of any asset we acquired from a corporation
which is or has been a C corporation in a transaction in which our basis in the
asset is determined by reference to the basis of the asset in the hands of that
C corporation, within the ten-year period following our acquisition of such
asset, we would be required to distribute at least 90% (95% for taxable years
beginning before January 1, 2001) of the after-tax gain, if any, we recognized
on the disposition of the asset, to the extent that gain does not exceed the
excess of (a) the fair market value of the asset on the date we acquired the
asset over (b) our adjusted basis in the asset on the date we acquired the
asset.
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We must pay these distributions in the taxable year to which they relate,
or in the following taxable year if they are declared before we timely file our
tax return for that year and paid on or before the first regular dividend
payment following their declarations. Except as provided below, these
distributions are taxable to our stockholders, other than tax-exempt entities in
the year in which paid. This is so even though these distributions relate to the
prior year for purposes of our 90% distribution requirement. The amount
distributed must not be preferential. To avoid being preferential, every
stockholder of the class of stock to which a distribution is made must be
treated the same as every other stockholder of that class, and no class of stock
may be treated other than according to its dividend rights as a class. To the
extent that we do not distribute all of our net capital gain or distribute at
least 90% (95% for taxable years beginning before January 1, 2001), but less
than 100%, of our "REIT taxable income," as adjusted, we will be required to pay
tax on the undistributed amount at regular ordinary and capital gain corporate
tax rates. We believe we have made, and intend to continue to make, timely
distributions sufficient to satisfy these annual distribution requirements.
We expect that our "REIT taxable income" will be less than our cash flow
because of depreciation and other non-cash charges included in computing our
"REIT taxable income." Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy our distribution
requirements. We may not have sufficient cash or other liquid assets to meet
these distribution requirements, however, because of timing differences between
the actual receipt of income and actual payment of deductible expenses, and the
inclusion of income and deduction of expenses in determining our taxable income.
If these timing differences occur, we may need to arrange for short-term, or
possibly long-term, borrowings or need to pay dividends in the form of taxable
stock dividends in order to meet the distribution requirements.
We may be able to rectify an inadvertent failure to meet the 90%
distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which we may include in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, we will be required to
pay interest based upon the amount of any deduction taken for deficiency
dividends.
In addition, we will be required to pay a 4% excise tax on the excess of
our required distribution for a calendar year over the amounts we actually
distribute for such year. The amount of our required distribution during each
calendar year (or in the case of distributions with declaration and record dates
falling in the last three months of the calendar year, by the end of January
immediately following such year) equals the sum of 85% of our REIT ordinary
income for such year, 95% of our REIT capital gain net income for the year and
any undistributed taxable income from prior periods. Any REIT taxable income and
net capital gain on which this excise tax is imposed for any year will be
treated as an amount distributed during that year for purposes of calculating
such tax.
Distributions with declaration and record dates falling in the last three
months of the calendar year, which are paid to our stockholders by the end of
January immediately following that year, will be treated for federal income tax
purposes as having been paid on December 31 of the prior year.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions of the Internal Revenue Code do not apply, we will be required
to pay tax, including any alternative minimum tax, on our taxable income at
regular corporate rates. Distributions to stockholders in any year in which we
fail to qualify as a REIT will not be deductible by us and we will not be
required to distribute any amounts to our stockholders. As a result, we
anticipate that our failure to qualify as a REIT would reduce the cash available
for distribution by us to our stockholders. In addition, if we fail to qualify
as a REIT, all distributions to stockholders will be taxable at ordinary income
rates to the extent of our current and accumulated earnings and profits. In this
event, corporate distributees may be eligible for the dividends-received
deduction. Unless entitled to relief under specific statutory provisions, we
will also be disqualified from taxation as a REIT for the four taxable years
following the year in which we lose our qualification. It is not possible to
state whether in all circumstances we would be entitled to this statutory
relief.
TAX ASPECTS OF PARTNERSHIPS
General. We currently own an interest in a partnership and may own
interests in additional partnerships in the future. Our ownership interest in
this partnership involves special tax considerations. These special tax
considerations include, for example, the possibility that the Internal Revenue
Service might challenge the status of the partnership in which we own an
interest as a partnership, as opposed to an association taxable as a
corporation, for federal income tax purposes. If a partnership in which we own
an interest were treated as an association, it would be taxable as a corporation
and therefore be subject to an entity-level tax on its income. In this
situation, the character of our assets and items of gross income would change,
and could prevent us from satisfying the REIT asset tests or the REIT income
tests. This, in turn, would prevent us from qualifying as a REIT. In addition, a
change in the tax status of one or more of the partnerships in which we own an
interest might be treated as a taxable event. If so, we might incur a tax
liability without any related cash distributions.
35
Treasury regulations that apply for tax periods beginning on or after
January 1, 1997, provide that a domestic business entity not otherwise organized
as a corporation and that has at least two members may elect to be treated as a
partnership for federal income tax purposes. Unless it elects otherwise, an
eligible entity in existence prior to January 1, 1997, will have the same
classification for federal income tax purposes that it claimed under the entity
classification Treasury regulations in effect prior to this date. In addition,
an eligible entity that did not exist or did not claim a classification prior to
January 1, 1997, will be classified as a partnership for federal income tax
purposes unless it elects otherwise. The partnership in which we own an interest
intends to claim classification as a partnership under these Treasury
regulations. As a result, we believe that this partnership will be classified as
a partnership for federal income tax purposes. The treatment described above
would also apply with respect to our ownership of interests in limited liability
companies that are treated as partnerships for tax purposes.
Allocations of Income, Gain, Loss and Deduction. A partnership or limited
liability company agreement will generally determine the allocation of income
and losses among partners or members. These allocations, however, will be
disregarded for tax purposes if they do not comply with the provisions of
Section 704(b) of the Internal Revenue Code and the Treasury regulations.
Generally, Section 704(b) of the Internal Revenue Code and the related Treasury
regulations require that partnership and limited liability company allocations
respect the economic arrangement of the partners and members. If an allocation
is not recognized for federal income tax purposes, the relevant item will be
reallocated according to the partners' or members' interests in the partnership
or limited liability company. This reallocation will be determined by taking
into account all of the facts and circumstances relating to the economic
arrangement of the partners or members with respect to such item. The
allocations of taxable income and loss in the partnership in which we own an
interest are intended to comply with the requirements of Section 704(b) of the
Internal Revenue Code and the Treasury regulations thereunder.
Tax Allocations With Respect to the Properties. Under Section 704(c) of the
Internal Revenue Code, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership or
limited liability company in exchange for an interest in the partnership or
limited liability company must be allocated in a manner so that the contributing
partner or member is charged with the unrealized gain or benefits from the
unrealized loss associated with the property at the time of the contribution.
The amount of the unrealized gain or unrealized loss is generally equal to the
difference between the fair market value or book value and the adjusted tax
basis of the contributed property at the time of contribution. These allocations
are solely for federal income tax purposes. These allocations do not affect the
book capital accounts or other economic or legal arrangements among the partners
or members. The partnership in which we own an interest was formed by way of
contributions of appreciated property. The partnership agreement requires that
allocations be made in a manner consistent with Section 704(c) of the Internal
Revenue Code.
OTHER TAX CONSEQUENCES
We may be required to pay tax in various state or local jurisdictions,
including those in which we transact business. Our state and local tax treatment
may not conform to the federal income tax consequences discussed above.
Consequently, you should consult your tax advisors regarding the effect of state
and local tax laws on an investment in the Company.
36
PLAN OF DISTRIBUTION
We 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.
Underwriters may offer and sell the securities at a fixed price or prices,
which may be changed, at prices relating to the prevailing market prices at the
time of sale or at negotiated prices. We also may, from time to time, authorize
underwriters acting as our agents to offer and sell the securities upon the
terms and conditions as are set forth in the applicable prospectus supplement.
In connection with the sale of securities, underwriters may be deemed to have
received compensation from us in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of securities for
whom they may act as agent. Underwriters may sell securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agent. Any underwriting compensation paid by
us to underwriters or agents in connection with the offering of Securities, and
any discounts, concessions or commissions allowed by underwriters to
participating dealers, will be set forth in the applicable prospectus
supplement. Underwriters, dealers and agents participating in the distribution
of the securities may be deemed to be underwriters, and any discounts and
commissions received by them and any profit realized by them on resale of the
securities may be deemed to be underwriting discounts and commissions, under the
Securities Act. Any such underwriter or agent will be identified, and such
compensation received from us will be described, in the applicable prospectus
supplement.
Underwriters, dealers and agents may be entitled, under agreements entered
into with us, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
Certain of the underwriters, dealers and agents and their affiliates may be
customers of, engage in transactions with and perform services for us and our
subsidiaries in the ordinary course of business.
Unless otherwise specified in the related prospectus supplement, each
series of securities will be a new issue with no established trading market,
other than the common stock. Our common stock is currently listed on the NYSE.
Unless otherwise specified in the related prospectus supplement, any shares of
common stock sold pursuant to a prospectus supplement will be listed on the
NYSE, subject to official notice of issuance. We may elect to list any series of
debt securities or preferred stock on an exchange or Nasdaq, but are not
obligated to do so. It is possible that one or more underwriters may make a
market in a series of securities, but will not be obligated to do so and may
discontinue any market making at any time without notice. Therefore, there can
be no assurance as to the liquidity of, or the trading market for, the
securities.
STOCKHOLDER RIGHTS PLAN
On June 10, 1998, our Board of Directors declared a dividend distribution
of one preferred share purchase right, or right, for each outstanding share of
our common stock to stockholders of record at the close of business on July 1,
1998. When exercisable, each right entitles the registered holder to purchase
from us one one-hundredth (1/100th) of a share of our Class A Junior
Participating Preferred Stock, or Class A Preferred Stock, at a price of $104.50
per one one-hundredth of a Class A Preferred share, subject to adjustment.
Initially, the rights will be attached to all outstanding shares of our common
stock, and no separate rights certificates will be distributed. Our Board of
Directors also authorized the issuance of one right with respect to each share
of our common stock that we issue between June 10, 1998 and the earliest of the
Distribution Date, the Redemption Date and the Final Expiration Date (all as
defined in the Rights Agreement, dated as of June 25, 1998 between us and The
Bank of New York). Each share of our common stock offered hereby will have upon
issuance one right attached.
The rights will become exercisable and will detach from our common stock
upon the earlier of (i) the tenth day after the public announcement that any
person or group has acquired beneficial ownership of 15% or more of our common
stock, or (ii) the tenth business day after any person or group commences, or
announces an intention to commence, a tender or exchange offer which, if
consummated, would result in the beneficial ownership by a person or group of
15% or more of our common stock; the earlier of (i) and (ii) is referred to as
the Distribution Date. If a person or group acquires beneficial ownership of 15%
or more of our outstanding common stock (except pursuant to certain cash tender
offers for all outstanding common stock approved by our Board of Directors) or
if we are the surviving corporation in a merger and our common stock is not
changed or exchanged, each right will entitle the holder, subject to exceptions,
to purchase, at the right's then current exercise price, that number of shares
of our common stock having a market value equal to twice the exercise price.
Similarly, if after the rights become exercisable, we merge or consolidate with,
or sell 50% or more of our assets or earning power to, another person, each
right will then entitle the holder to purchase, at the right's then current
exercise price, that number of shares of the stock of the acquiring company
which at the time of such transaction would have a market value equal to twice
the exercise price.
37
The rights may be redeemed in whole, but not in part, at a price of $0.01
per right by our Board of Directors at any time until ten days following the
public announcement that a person or group has acquired beneficial ownership of
15% or more of our outstanding common stock. The Board of Directors may, under
certain circumstances, extend the period during which the rights are redeemable
or postpone the Distribution Date. The rights will expire on July 1, 2008,
unless earlier redeemed.
For a more complete summary of the terms of the rights, the Rights
Agreement and the Class A Preferred Stock, you should review the information in
our Form 8-A filed with the SEC on June 26, 1998, which is incorporated by
reference in this prospectus. The summary of selected provisions of
the rights, the Rights Agreement and the Class A Preferred Stock appearing above
and in the Form 8-A is not complete, and those summaries are qualified in their
entirety by reference to the Rights Agreement and the articles supplementary
establishing the Class A Preferred Stock. You should review the Rights Agreement
and the articles supplementary for the Class A Preferred Stock, copies of which
may be obtained as described below under "Where You Can Find More Information."
EXPERTS
The consolidated financial statements and financial statement schedule of
Realty Income Corporation and subsidiaries as of December 31, 2001 and 2000, and
for each of the years in the three-year period ended December 31, 2001, have
been incorporated by reference herein in reliance upon the reports of KPMG LLP,
independent accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the securities will be passed upon for us by Ballard Spahr
Andrews & Ingersoll, LLP and Latham & Watkins.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information that we have filed at the SEC's public reference rooms. You may read
and copy any document we file with the SEC at its public reference facilities at
450 Fifth Street, N.W., Washington, D.C. 20549. You may also obtain copies of
this information by mail from the public reference section of the SEC, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference facilities. Our SEC filings are also available to the public
from commercial document retrieval services and at the web site maintained by
the SEC at http://www.sec.gov. You may inspect information that we file with The
New York Stock Exchange at the offices of The New York Stock Exchange at 20
Broad Street, New York, New York 10005.
We have filed with the SEC a Registration Statement on Form S-3 under the
Securities Act of 1933. This prospectus does not contain all of the information
set forth in the registration statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
o Incorporated documents are considered part of this prospectus;
o We can disclose important information to you by referring you to those
documents; and
o Information that we file with the SEC will automatically update and
supersede this prospectus.
38
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 (the "Exchange Act"):
o Our Annual Report on Form 10-K, as amended by the 10-K/A filed on December
19, 2002, for the year ended December 31, 2001;
o Our Quarterly Report on Form 10-Q for the quarters ended March 31, 2002,
June 30, 2002 and September 30, 2002;
o Our Current Reports on Form 8-K filed July 24, 2002, August 9, 2002 and
October 30, 2002;
o Our Definitive Proxy Statement on Schedule 14A dated March 28, 2002;
o The description of our 8 1/4% Monthly Income Senior Notes contained in our
Registration Statement on Form 8-A (File No. 001-13374), including any
subsequently filed amendments and reports filed for the purpose of updating
the description.
o The description of our Class A Junior Participating Preferred Stock
Purchase Rights contained in our Registration Statement on Form 8-A (File
No. 001-13374) filed on June 26, 1998;
o The description of our 9 3/8% Class B Cumulative Redeemable Preferred Stock
contained in our Registration Statement on Form 8-A (File No. 001-13374),
including any subsequently filed amendments and reports filed for the
purpose of updating the description; and
o The description of our 9 1/2% Class C Cumulative Redeemable Preferred Stock
contained in our Registration Statement on Form 8-A (File No. 001-13374),
including any subsequently filed amendments and reports filed for the
purpose of updating the description.
If any statement in this prospectus is inconsistent with a
statement in one of the incorporated documents referred to above, then the
statement in the incorporated document will be deemed to have been superseded by
the statement in this prospectus.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus but before
the end of the offering:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by writing or telephoning us at the following address:
Realty Income Corporation
Attention: Investor Relations
220 West Crest Street
Escondido, CA 92025-1707
(760) 741-2111
39
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses, other than
underwriting discounts and commissions, in connection with the offerings of the
Securities being registered hereby. All amounts shown are estimates except the
Securities Act Registration fee.
Securities Act Registration Fee $ 4,808
Printing and Engraving Expenses $ 30,000
Legal Fees and Expenses $100,000
Accounting Fees and Expenses $ 25,000
Miscellaneous $ 30,000
---------
Total $189,808
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from
o actual receipt of an improper benefit or profit in money, property or
services or
o active and deliberate dishonesty established by a final judgment as being
material to the cause of action. Our charter contains such a provision
which eliminates such liability to the maximum extent permitted by the
MGCL.
Our charter authorizes us, to the maximum extent permitted by Maryland law,
to obligate ourselves to indemnify and to pay or reimburse reasonable expenses
in advance of final disposition of a proceeding to any present or former
director or officer or any individual who, while serving as one of our directors
and at our request, serves or has served another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or other enterprise from and against any claim or
liability to which that person may become subject or which that person may incur
by reason of his or her status as one of our present or former director or
officer. Our bylaws obligate us, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to any present or former director or officer
who is made a party to the proceeding by reason of his service in that capacity
or any individual who, while serving as one of our directors and at our request,
serves or has served another corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a director, officer, partner or trustee of such corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
other enterprise and who is made a party to the proceeding by reason of his
service in that capacity. Our charter and bylaws also permit us to indemnify and
advance expenses to any person who served a predecessor of ours in any of the
capacities described above and to any employee or agent of ours or our
predecessor.
The MGCL requires a corporation (unless its charter provides otherwise,
which our 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. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (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 corporation and (b) a written undertaking by him or on
his behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
II-1
We have entered into indemnification agreements with our executive officers
and directors. The indemnification agreements require, among other matters, that
we indemnify our executive officers and directors to the fullest extent
permitted by law and advance to the executive officers and directors all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. Under the indemnification agreements, we must
also indemnify and advance all expenses incurred by executive officers and
directors seeking to enforce their rights under the indemnification agreements
and may cover executive officers and directors under our directors' and
officers' liability insurance. Although the form of indemnification agreement
offers substantially the same scope of coverage afforded by law, it provides
greater assurance to directors and executive officers that indemnification will
be available, because, as a contract, it cannot be modified unilaterally in the
future by our board of directors or the stockholders to eliminate the rights it
provides.
ITEM 16. EXHIBITS
See Exhibit Index.
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, as amended (the "Securities Act");
(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 Securities and Exchange Commission (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 for the in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that subparagraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in the periodic reports filed with or furnished to
the Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are
incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby further undertakes that, for the purposes
of determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of
the Exchange Act (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.
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(c) Insofar as indemnification for liabilities arising under the Securities Act
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 Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under
subsection (a) of section 310 of the Trust Indenture Act (the "Act") in
accordance with the rules and regulations prescribed by the Commission
under section 305(b)(2) of the Act.
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SIGNATURES
Pursuant to the requirements of the Securities Act, we certify that we have
reasonable grounds to believe that we meet all of the requirements for filing on
Form S-3 and have duly caused this Amendment No. 1 to Registration Statement to
be signed on our behalf by the undersigned, thereunto duly authorized, in the
City of Escondido, State of California, on December 20, 2002.
REALTY INCOME CORPORATION
By: /s/ Michael R. Pfeiffer
-------------------------------------
Michael R. Pfeiffer
Executive Vice-President, General Counsel and Secretary
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on December 31, 2002.
Signature Title
* Vice Chairman of the Board and Chief Executive Officer
--------------------------------------------
Thomas A. Lewis
* Executive Vice President, Chief Financial Officer and Treasurer
--------------------------------------------
Paul M. Meurer (Principal Financial Officer)
* Vice President, Controller (Principal Accounting Officer)
--------------------------------------------
Gregory J. Fahey
* Chairman of the Board
--------------------------------------------
William E. Clark
* Director
--------------------------------------------
Donald R. Cameron
* Director
--------------------------------------------
Roger P. Kuppinger
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Signature
* Director
--------------------------------------------
Michael D. McKee
* Director
--------------------------------------------
Willard H. Smith Jr.
* Director
--------------------------------------------
Kathleen R. Allen, Ph.D.
*By: /s/Michael R. Pfeiffer
----------------------
Michael R. Pfeiffer
Attorney-in-fact
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EXHIBIT INDEX
EXHIBIT
NUMBER
1.1 Form of Underwriting Agreement for Debt Securities*
1.2 Form of Underwriting Agreement for Equity Securities*
3.1 Articles of Incorporation (filed as Appendix B to our Proxy Statement
dated March 28, 1997 (the "Proxy Statement") filed with the Commission
on March 28, 1997 and incorporated herein by reference)
3.2 Bylaws (filed as Appendix C to the Company's 1997 Proxy Statement and
incorporated herein by reference)
3.3 Articles Supplementary of the Class A Junior Participating Preferred
Stock of Realty Income Corporation (filed as exhibit A of exhibit 1 to
Realty Income's registration statement on Form 8-A, dated June 26,
1998, and incorporated herein by reference).
3.4 Articles Supplementary to the Articles of Incorporation of Realty
Income Corporation classifying and designating the Class B Preferred
Stock (as filed as exhibit 4.1 to Realty Income's Form 8-K, dated
May 24, 1999, and incorporated herein by reference).
3.5 Articles Supplementary to the Articles of Incorporation of Realty
Income Corporation classifying and designating the Class C Preferred
Stock (filed as exhibit 4.1 to Realty Income's Form 8-K, dated
July 29, 1999, and incorporated herein by reference).
4.1 Form of indenture (filed as exhibit 4.1 to our Registration Statement
on Form S-3 dated August 25, 1997, and incorporated herein by
reference).
4.2 Form of Debt Security*
4.3 Form of Articles Supplementary for Preferred Stock*
4.4 Form of Preferred Stock Certificate*
4.5 Pricing Committee Resolutions and Form of 7.75% Notes due 2007 (filed
as Exhibit 4.2 to the Company's Form 8-K dated May 5, 1997 and
incorporated herein by reference).
4.6 Indenture dated as of May 6, 1997 between the Company and The Bank of
New York (filed as Exhibit 4.1 to the Company's Form 8-K dated May 5,
1997 and incorporated herein by reference).
4.7 First Supplemental Indenture dated as of May 28, 1997, between the
Company and The Bank of New York (filed as Exhibit 4.3 to the
Company's Form 8-B and incorporated herein by reference).
4.8 Rights Agreement, dated as of June 25, 1998, between Realty Income
Corporation and The Bank of New York (filed as exhibit 1 to the
Company's registration statement on Form 8-A, dated June 26, 1998, and
incorporated herein by reference).
4.9 Pricing Committee Resolutions (filed as exhibit 4.2 to Realty Income's
Form 8-K, dated October 27, 1998 and incorporated herein by
reference).
4.10 Form of 8.25% Notes due 2008 (filed as an exhibit to Realty Income's
Form 8-K, dated October 27, 1998 and incorporated herein by
reference).
4.11 Indenture dated as of October 28, 1998 between Realty Income and The
Bank of New York (filed as exhibit 4.2 to Realty Income's Form 8-K,
dated October 27, 1998 and incorporated herein by reference).
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4.12 Pricing Committee Resolutions and Form of 8% Notes due 2009 (filed as
exhibit 4.2 to Realty Income's Form 8-K, dated January 21, 1999, and
incorporated herein by reference).
5.1 Opinion of Ballard Spahr Andrews & Ingersoll regarding the validity of
the certain of the Securities being registered
5.2 Opinion of Latham & Watkins regarding the validity of the certain of
the Securities being registered
8.1 Opinion of Latham & Watkins regarding tax matters
12 Statement of Computation of Ratios of Earnings to Fixed Charges
23.1 Consent of KPMG LLP
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5.1)
23.3 Consent of Latham & Watkins (included in Exhibit 8.1)
24 Power of Attorney (included on signature page to the Registration
Statement)
25 Statement of Eligibility of trustee on Form T-1*
-----------------------
* To be filed by amendment or by a report on Form 8-K pursuant to Regulation
S-K, Item 601(b) in connection with the offering of the applicable offered
securities.
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