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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 1998
REGISTRATION NO. 333-41437
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2 TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FOREST CITY ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Ohio 1100 Terminal Tower, 34-0863886
(STATE OR OTHER JURISDICTION OF 50 Public Square (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) Cleveland, Ohio 44113-2203 -- (216) 621-6060 IDENTIFICATION NUMBER)
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICES)
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WILLIAM M. WARREN
General Counsel, Senior Vice President and Assistant Secretary
1100 Terminal Tower,
50 Public Square
Cleveland, Ohio 44113-2203
(216) 621-6060
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPY TO:
DAVID P. PORTER
Jones, Day, Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
(216) 586-3939
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time as determined by market conditions and other factors, after the
effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE AGGREGATE OFFERING MAXIMUM AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED(1)(2) PRICE PER UNIT(3) OFFERING PRICE(2)(3) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
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Debt Securities(4).............................
Preferred Stock, without par value(4)..........
Depositary Shares(5)...........................
Class A Common Stock, par value $.33 1/3 per
share(4).....................................
Total.......................................... $250,000,000 100% $250,000,000(5) $73,750.00(7)
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(1) In United States dollars or the equivalent thereof in any other currency,
currency unit or units, or composite currency or currencies.
(2) Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
constituting a part of this Registration Statement also relates to
$167,890,000 of the Registrant's securities registered under Registration
Statement 333-22695 and for which a filing fee of $50,875.76 has previously
been paid.
(3) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933 and exclusive of accrued
interest and dividends, if any.
(4) Also includes such indeterminate amounts of Debt Securities and Preferred
Stock and indeterminate number of shares of Class A Common Stock as may be
issued upon conversion of or exchange for any Debt Securities or Preferred
Stock that are subject to this Registration Statement.
(5) In the event Forest City Enterprises, Inc. elects to offer to the public
fractional interests in shares of the Preferred Stock registered hereunder,
Depositary Receipts will be distributed to those persons purchasing such
fractional interests and shares of Preferred Stock will be issued to the
Depositary under the Deposit Agreement. No separate consideration will be
received for the Depositary Shares.
(6) No separate consideration will be received for the Debt Securities,
Preferred Stock, or the Class A Common Stock issuable upon conversion of or
in exchange for any securities registered hereunder that provide for
conversion or exchange into such securities.
Pursuant to Rule 429 under the Securities Act of 1933, the prospectus included
in this registration statement is a combined prospectus relating also to
Registration Statement No. 333-22695.
(7) Previously paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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EXPLANATORY NOTE
This Registration Statement contains one form of prospectus to be used in
connection with offerings of Debt Securities, Preferred Stock, Depositary
Shares, and Class A Common Stock of Forest City Enterprises, Inc.
Each offering of securities made under this Registration Statement will be
made pursuant to this Prospectus, with the specific terms of the securities
offered thereby in an accompanying Prospectus Supplement.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 27, 1998
$417,890,000
FOREST CITY ENTERPRISES, INC.
DEBT SECURITIES, PREFERRED STOCK, DEPOSITARY SHARES, AND CLASS A COMMON STOCK
Forest City Enterprises, Inc., an Ohio corporation ("Forest City" or the
"Company"), may from time to time offer together or separately its (a) debt
securities, in one or more series, which may be senior debt securities (the
"Senior Debt Securities"), senior subordinated debt securities (the "Senior
Subordinated Debt Securities") or junior subordinated debt securities (the
"Junior Subordinated Debt Securities" and, together with the Senior Subordinated
Debt Securities, the "Subordinated Debt Securities" and, together with the
Senior Debt Securities, the "Debt Securities"), (b) shares of its preferred
stock, without par value (the "Preferred Stock"), which may be issued in the
form of Depositary Shares (as defined herein) evidenced by Depositary Receipts
(as defined herein), and (c) shares of its Class A Common Stock, par value
$.33 1/3 per share (the "Class A Common Stock"). The Debt Securities, Preferred
Stock, and Class A Common Stock, are referred to herein collectively as the
"Offered Securities."
The Offered Securities may be issued in one or more series or issuance and
will be limited to $417,890,000 aggregate public offering price (or its
equivalent, based on the applicable exchange rate at the time of sale, in one or
more foreign currencies, currency units or composite currencies as shall be
designated by Forest City).
Specific terms of the particular Offered Securities in respect of which this
Prospectus is being delivered will be set forth in an accompanying Prospectus
Supplement (the "Prospectus Supplement"), which will describe, without
limitation and where applicable, the following: (a) in the case of the Debt
Securities, the specific designation, aggregate principal amount, denominations,
maturity, premium, if any, interest rate (which may be fixed or variable) or
method of calculating interest, if any, place or places where principal,
premium, if any, and interest, if any, on such Debt Securities will be payable,
the currency in which principal, premium, if any, and interest, if any, on such
Debt Securities will be payable, any terms of redemption, any sinking fund
provisions, terms for any conversion or exchange into other Offered Securities,
initial public offering or purchase price, methods of distribution and other
special terms, (b) in the case of Preferred Stock, the specific designation,
stated value and liquidation preference per share and number of shares offered,
dividend rate (which may be fixed or variable) or method of calculating
dividends, place or places where dividends will be payable, any terms of
redemption, any sinking fund provisions, terms for any conversion or exchange
into other Offered Securities, initial public offering or purchase price,
methods of distribution and other special terms, (c) in the case of Class A
Common Stock, the number of shares offered, initial public offering or purchase
price, methods of distribution and other special terms, and (d) in the case of
Depositary Shares, the fractional share of Preferred Stock represented by each
such Depositary Share.
The Debt Securities will be unsecured. Accordingly, holders of the Debt
Securities should look only to the assets of Forest City for payments of
interest and principal and premium, if any. The Senior Debt Securities will be
senior unsecured obligations of Forest City, the Senior Subordinated Debt
Securities will be subordinated in right of payment to all senior debt of Forest
City, and the Junior Subordinated Debt Securities will be subordinated to the
Senior Subordinated Debt Securities, to the extent described herein and in the
applicable Prospectus Supplement relating thereto. The Debt Securities may be
denominated in United States dollars or, at the option of Forest City if so
specified in the applicable Prospectus Supplement, in one or more foreign
currencies or currency units. The Debt Securities may only be issued in
registered form or in the form of one or more global debt securities unless
otherwise specified in the applicable Prospectus Supplement. If so specified in
the applicable Prospectus Supplement, Debt Securities of a series may be issued
in whole or in part in the form of one or more temporary or permanent global
debt securities.
The Prospectus Supplement also will contain information, as applicable,
about certain United States Federal income tax considerations relating to the
Offered Securities.
The Offered Securities may be sold through agents, underwriters or dealers
as designated from time to time, directly to purchasers, or through a
combination of such methods. See "Plan of Distribution." If agents of Forest
City or any dealers or underwriters are involved in the sale of the Offered
Securities in respect of which this Prospectus is being delivered, the names of
such agents, dealers or underwriters and any applicable commissions or discounts
will be set forth in or may be calculated from the Prospectus Supplement with
respect to such Offered Securities.
This Prospectus may not be used to consummate sales of Offered Securities
unless accompanied by a Prospectus Supplement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is , 1998.
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AVAILABLE INFORMATION
Forest City is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material can also be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants, such as Forest City, that file electronically with the Commission
and the address of such Web site is http://www.sec.gov. Additionally, the Class
A Common Stock of Forest City, par value $.33 1/3 per share, and the Class B
Common Stock of Forest City, par value $.33 1/3 per share, are listed on the New
York Stock Exchange under the symbols FCEA and FCEB, respectively and such
reports, proxy statements and other information concerning Forest City are also
available for inspection at the offices of the New York Stock Exchange located
at 20 Broad Street, New York, NY 10005.
Forest City has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Offered Securities.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. For further information with
respect to Forest City and the Offered Securities, reference is made to the
Registration Statement and the exhibits and the financial statements, notes and
schedules filed as a part thereof or incorporated by reference therein, which
may be inspected at the public reference facilities of the Commission, at the
address set forth above. Statements made in this Prospectus concerning the
contents of any documents referred to herein are not necessarily complete, and
in each instance are qualified in all respects by reference to the copy of such
document filed as an exhibit to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Forest City with the Commission are
incorporated into this Prospectus by reference:
1. Forest City's Annual Report on Form 10-K for the fiscal year ended
January 31, 1997 (File No. 1-4372);
2. Forest City's Quarterly Report on Form 10-Q for the fiscal quarter ended
April 30, 1997;
3. Forest City's Quarterly Report on Form 10-Q for the fiscal quarter ended
July 31, 1997;
4. Forest City's Quarterly Report on Form 10-Q for the fiscal quarter ended
October 31, 1997; and
5. Description of Forest City's Class A Common Stock contained in its
Registration Statement on Form 10 (File No. 1-4372).
Each document or report filed by Forest City pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering described herein shall be deemed to be
incorporated by reference into this Prospectus and to be a part of this
Prospectus from the date of filing of such document.
Forest City will provide without charge to any person, including any
beneficial owners, to whom this Prospectus is delivered, on the written or oral
request of such person, a copy of any or all documents incorporated by reference
herein (other than exhibits not specifically incorporated by
2
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reference into the texts of such documents). Requests for such documents should
be directed to: Forest City Enterprises, Inc., 1100 Terminal Tower, 50 Public
Square, Cleveland, Ohio 44113-2203, Attention: Secretary (telephone:
216-621-6060).
Any statement contained herein, or in a document all or a portion of which
is incorporated or deemed to be incorporated by reference herein, shall be
deemed to be modified or superseded for purposes of the Registration Statement
and this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Registration Statement or this Prospectus.
3
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FOREST CITY
Forest City Enterprises, Inc. (with its Subsidiaries, the "Company" or
"Forest City") is one of the leading real estate development companies in the
United States. It develops, acquires, owns and manages commercial and
residential real estate projects in 21 states and the District of Columbia. At
October 31, 1997, the Company had $2.8 billion in consolidated assets, of which
approximately $2.6 billion was invested in commercial and residential real
estate.
The Company is organized into the four principal business groups:
- The Commercial Group, which develops, acquires, owns and operates
shopping centers, office buildings and mixed-use projects including
hotels.
- The Residential Group, which develops, acquires, owns and operates the
Company's multi-family properties.
- The Land Group, which owns and develops raw land into master planned
communities and other residential developments for resale.
- The Lumber Trading Group, which operates the Company's lumber wholesaling
business.
Forest City was incorporated in Ohio in 1960 as a successor to a business
started in 1921. The address of Forest City's principal executive offices is
1100 Terminal Tower, 50 Public Square, Cleveland, Ohio 44113-2203; its telephone
number is (216)621-6060.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of
the Company for the periods indicated. For the purpose of computing such ratio,
"earnings" consist of income from continuing operations before provision for
income taxes and extraordinary gain, plus fixed charges, and distributed income
from less than 50%-owned companies carried at equity, amortization of previously
capitalized interest, equity method losses where the debt obligations are not
guaranteed, less net capitalized interest of consolidated subsidiaries. "Fixed
charges" comprise interest on long-term and short-term debt, capitalized
interest, amortization of loan procurement costs and the portion of rents
representative of an appropriate interest factor.
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NINE MONTHS
ENDED
OCTOBER 31, YEAR ENDED JANUARY 31,
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1997 1996 1997 1996 1995 1994 1993
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Ratio of Earnings to Fixed Charges................ -- 1.14 1.11 1.10 -- 1.04 1.08
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To date, Forest City has not issued any shares of Preferred Stock;
therefore, the ratio of earnings to combined fixed charges and preferred stock
dividends is the same as the ratio of earnings to fixed charges and are not
separately presented. Total fixed charges exceeded the Company's adjusted
earnings by $8 million and $28 million for the nine months ended October 31,
1997 and the fiscal year ended January 31, 1995, respectively. For the nine
months ended October 31, 1997, earnings, as adjusted, includes income of $15
million from a lawsuit settlement related to Toscana, a 563-unit apartment
complex, and a $39 million loss related to sales of Toscana ($36 million) and a
partnership interest ($3 million), but does not include an extraordinary gain of
$18 million related to the sale of Toscana. For the year ended January 31, 1995,
earnings, as adjusted, includes a loss of $31 million related to the sale of
Park LaBrea Towers but does not include an extraordinary gain of $60 million,
also related to the sale of Park LaBrea Towers. The Company has sources of funds
other than earnings from operations, principally from depreciation and
amortization that are available to cover fixed charges.
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USE OF PROCEEDS
Except as otherwise set forth in the applicable Prospectus Supplement,
Forest City intends to use the net proceeds from the sale of Offered Securities
for general corporate purposes, which may include repayment of indebtedness,
additions to working capital, capital expenditures and acquisitions or for such
other purposes as may be specified in the applicable Prospectus Supplement. A
more detailed description of the use of proceeds of any specific offering of
Offered Securities will be set forth in the Prospectus Supplement pertaining to
such offering.
DESCRIPTION OF SENIOR DEBT SECURITIES
The Senior Debt Securities are to be issued under an Indenture (the "Senior
Indenture"), between the Company and The Bank of New York, as Trustee (the
"Trustee"), a copy of the form of such Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The particular terms
of Senior Debt Securities which are offered by a Prospectus Supplement will be
described in such Prospectus Supplement.
The following summaries of certain provisions of the Indenture do not
purport to be complete and are subject, and are qualified in their entirety by
reference, to all the provisions of the Indenture, including the definitions
therein of certain terms and to the description of the terms thereof included in
the Prospectus Supplement relating to the Senior Debt Securities. Wherever
particular Sections or defined terms of the Indenture are referred to herein or
in a Prospectus Supplement, such Sections or defined terms are incorporated by
reference herein or therein, as the case may be.
The Company currently conducts substantially all of its operations through
subsidiaries. The Company's ability to pay principal and interest on the Senior
Debt Securities is dependent upon the ability of its subsidiaries to distribute
their income to the Company. Certain of these subsidiaries are subject to
financial covenants that may limit or prohibit their ability to make loans,
advances, dividends or distributions to the Company.
The Senior Debt Securities will rank pari passu in right of payment with
all other existing and future senior unsecured indebtedness of the Company,
including the Company's Guaranty (the "Guaranty") of the borrowings under the
Forest City Rental Properties Corporation Credit Agreement dated as of December
10, 1997 among Forest City Rental Properties Corporation, a wholly owned
subsidiary of the Company, and the banks party thereto, as amended (the "FCRPC
Credit Agreement"). The Senior Debt Securities will be effectively subordinated
to all existing and future senior secured indebtedness of the Company, to the
extent of the value securing such indebtedness.
Although the Senior Debt Securities are senior obligations of the Company,
they are effectively subordinated to all existing and future indebtedness and
other liabilities (including trade payables and capital lease obligations) of
the Company's subsidiaries, including the borrowings under the FCRPC Credit
Agreement. At January 31, 1998, approximately $2.0 billion of indebtedness
issued or guaranteed by subsidiaries of the Company was outstanding in addition
to borrowings under the FCRPC Credit Agreement. Except for the borrowings and
guaranties permitted under the FCRPC Credit Agreement, all indebtedness issued
or guaranteed by subsidiaries of the Company is nonrecourse to the Company.
The FCRPC Credit Agreement will prohibit the payment of principal and
interest on the Senior Debt Securities during the existence and continuation of
a payment default under the FCRPC Credit Agreement or the Guaranty. In the event
of a continuing non-payment default, the Guaranty prohibits FCRPC from making
any distribution to the Company except as are necessary to pay interest (but not
principal) on the Senior Debt Securities and taxes. The Guaranty also prohibits
the Company's redemption or defeasance of the Senior Debt Securities without the
consent of the lenders under the FCRPC Credit Agreement.
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GENERAL
The Senior Debt Securities will be senior unsecured obligations of the
Company.
The Prospectus Supplement will set forth the price or prices at which the
Senior Debt Securities to be offered will be issued and will describe the
following terms of such Senior Debt Securities: (1) the title of such Senior
Debt Securities; (2) any limit on the aggregate principal amount of such Senior
Debt Securities; (3) the Person to whom any interest on a Senior Debt Security
shall be payable, if other than the Person in whose name that Senior Debt
Security (or one or more predecessor Senior Debt Securities) is registered at
the close of business on the Regular Record Date for such interest; (4) the date
or dates on which the principal of any such Senior Debt Securities will be
payable; (5) the rate or rates at which any of such Senior Debt Securities will
bear interest, if any, the date or dates from which any such interest will
accrue, the Interest Payment Dates on which any such interest will be payable
and the Regular Record Date for any such interest payable on any Interest
Payment Date; (6) the place or places where the principal of and any premium and
interest on any of such Senior Debt Securities will be payable; (7) the period
or periods within which, the price or prices at which and the terms and
conditions on which any of such Senior Debt Securities may be redeemed, in whole
or in part, at the option of Forest City; (8) the obligation of the Company, if
any, to repurchase or redeem the Senior Debt Securities upon the happening of an
event or at the option of the Holder; (9) if other than the entire principal
amount thereof, the portion of the principal amount of any of such Senior Debt
Securities which will be payable upon declaration of acceleration of the
Maturity thereof; (10) if the principal amount payable at the Stated Maturity of
any of such Senior Debt Securities will not be determinable as of any one or
more dates prior to the Stated Maturity, the amount which will be deemed to be
such principal amount as of any such date for any purpose, including the
principal amount thereof which will be due and payable upon any Maturity other
than the Stated Maturity or which will be deemed to be Outstanding as of any
such date (or, in any such case, the manner in which such deemed principal
amount is to be determined); (11) if applicable, that such Senior Debt
Securities, in whole or in any specified part, are defeasible pursuant to the
provisions of the Indenture described under "Defeasance and Covenant
Defeasance -- Defeasance and Discharge" or "-- Covenant Defeasance," or under
both such captions; (12) whether any of such Senior Debt Securities will be
issuable in whole or in part in the form of one or more Global Securities, as
defined in the Senior Indenture, and, if so, the respective Depositaries for
such Global Securities, the form of any legend or legends to be borne by any
such Global Security and any circumstances under which any such Global Security
may be exchanged in whole or in part for Senior Debt Securities registered, and
any transfer of such Global Security in whole or in part may be registered, in
the names of Persons other than the Depositary for such Global Security or its
nominee; (13) any addition to or change in the Events of Default applicable to
any of such Senior Debt Securities and any change in the right of the Trustee or
the Holders to declare the principal amount of any of such Senior Debt
Securities due and payable; and (14) the covenants applicable to such Senior
Debt Securities. (Section 301)
Unless otherwise set forth in the Prospectus Supplement relating to the
Senior Debt Securities, the Senior Debt Securities will be issued only in fully
registered form, without coupons, in denominations of $1,000 and any integral
multiple thereof. (sec. 302) No service charge will be made for any registration
of transfer or exchange of the Senior Debt Securities, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. (sec. 305)
RESTRICTIVE COVENANTS
Covenants applicable to the Senior Debt Securities will be set forth in the
Prospectus Supplement relating to such Senior Debt Securities.
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EVENTS OF DEFAULT
Unless otherwise set forth in the Prospectus Supplement relating to the
Senior Debt Securities, the following will be Events of Default under the Senior
Indenture: (a) failure to pay principal of (or premium, if any, on) any Senior
Debt Security when due; (b) failure to pay any interest on any Senior Debt
Security when due, continued for 30 days; (c) failure to perform or observe
covenants of the Company in the Senior Indenture with respect to dispositions of
assets, mergers, consolidations and sales of all or substantially all of the
assets of the Company, and a change of control of the Company, each as specified
in the Prospectus Supplement relating to the Senior Debt Securities; (d) failure
to perform certain other covenants of the Company in the Senior Indenture,
continued for 30 days after written notice as provided in the Senior Indenture;
(e) the rendering of a final judgment or judgments (not subject to appeal)
against the Company or any Subsidiary of the Company in an amount in excess of
$10 million which remains undischarged or unstayed for a period of 45 days after
the date on which the right to appeal has expired; (f) certain events in
bankruptcy, insolvency or reorganization; and (g) any other Event of Default
specified in the Prospectus Supplement relating to the Senior Debt Securities.
(sec. 501) Subject to the provisions of the Senior Indenture relating to the
duties of the Trustee in case an Event of Default (as defined) shall occur and
be continuing, the Trustee will be under no obligation to exercise any of its
rights or powers under the Senior Indenture at the request or direction of any
of the Holders, unless such Holders shall have offered to the Trustee reasonable
indemnity. (sec. 603) Subject to such provisions for the indemnification of the
Trustee, the Holders of a majority in aggregate principal amount of the
Outstanding Senior Debt Securities will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee. (sec. 512)
If an Event of Default (other than an Event of Default described in clause
(f) above) with respect to the Senior Debt Securities at the time Outstanding
shall occur and be continuing, either the Trustee or the Holders of at least 25%
in aggregate principal amount of the Outstanding Senior Debt Securities may
accelerate the maturity of all Senior Debt Securities; provided, however, that
after such acceleration, but before a judgment or decree based on acceleration,
the Holders of a majority in aggregate principal amount of Outstanding Senior
Debt Securities may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the non-payment of accelerated
principal, have been cured or waived as provided in the Senior Indenture. (sec.
502) For information as to waiver of defaults, see "Modification and Waiver".
No Holder of any Senior Debt Security will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
such Holder shall have previously given to the Trustee written notice of a
continuing Event of Default (as defined) and unless also the Holders of at least
25% in aggregate principal amount of the Outstanding Senior Debt Securities
shall have made written request, and offered reasonable indemnity, to the
Trustee to institute such proceeding as trustee, and the Trustee shall not have
received from the Holders of a majority in aggregate principal amount of the
Outstanding Senior Debt Securities a direction inconsistent with such request
and shall have failed to institute such proceeding within 60 days. (sec. 507)
However, such limitations do not apply to a suit instituted by a Holder of a
Senior Debt Security for enforcement of payment of the principal of and premium,
if any, or interest on such Note on or after the respective due dates expressed
in such Note. (sec. 508)
The Company will be required to furnish to the Trustee a statement as to
the performance by the Company of certain of its obligations under the Indenture
and as to any default in such performance. (sec. 1020)
MODIFICATION AND WAIVER
Unless otherwise set forth in the Prospectus Supplement relating to Senior
Debt Securities, modifications and amendments of the Indenture may be made by
the Company and the Trustee with
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the consent of the Holders of a majority in aggregate principal amount of the
Outstanding Senior Debt Securities; provided, however, that no such modification
or amendment may, without the consent of the Holder of each Outstanding Senior
Debt Security affected thereby, (a) change the Stated Maturity of the principal
of, or any installment of interest on, any Senior Debt Security, (b) reduce the
principal amount of, or the premium or interest on, any Senior Debt Security,
(c) change the place or currency of payment of principal of, or premium or
interest on, any Senior Debt Security, (d) impair the right to institute suit
for the enforcement of any payment on or with respect to any Senior Debt
Security, (e) reduce the above-stated percentage of Outstanding Senior Debt
Securities necessary to modify or amend the Indenture, (f) reduce the percentage
of aggregate principal amount of Outstanding Senior Debt Securities necessary
for waiver of compliance with certain provisions of the Indenture or for waiver
of certain defaults, or (g) modify any other provisions of the Indenture set
forth in the Prospectus Supplement relating to such Senior Debt Securities.
(sec. 902)
The Holders of a majority in aggregate principal amount of the Outstanding
Senior Debt Securities may waive compliance by the Company with certain
restrictive provisions of the Indenture. (sec. 1021) The Holders of a majority
in aggregate principal amount of the Outstanding Senior Debt Securities may
waive any past default under the Indenture, except a default in the payment of
principal, premium or interest or any other default specified in the Prospectus
Supplement relating to such Senior Debt Securities. (sec. 513)
DEFEASANCE AND COVENANT DEFEASANCE
If and to the extent indicated in the Prospectus Supplement, Forest City
may elect, at its option at any time, to have the provisions of Section 1202,
relating to defeasance and discharge of indebtedness, or Section 1203, relating
to defeasance of certain restrictive covenants in the Indenture, applied to the
Senior Debt Securities. (Section 1201)
DEFEASANCE AND DISCHARGE
The Indenture will provide that, upon Forest City's exercise of its option
(if any) to have Section 1202 applied to any Senior Debt Securities, Forest City
will be discharged from all its obligations with respect thereto, except for
certain obligations to exchange or register the transfer of Senior Debt
Securities, to replace stolen, lost or mutilated Senior Debt Securities, to
maintain paying agencies and to hold moneys for payment in trust, upon the
deposit in trust for the benefit of the Holders of such Senior Debt Securities
of money or U.S. Government Obligations, or both, which, through the payment of
principal and interest in respect thereof in accordance with their terms, will
provide money in an amount sufficient to pay the principal of and any premium
and interest on such Senior Debt Securities on the Stated Maturity in accordance
with the terms of the Indenture and such Senior Debt Securities. Such defeasance
or discharge may occur only if, among other things, Forest City has delivered to
the Trustee an Opinion of Counsel to the effect that Forest City has received
from, or there has been published by, the United States Internal Revenue Service
a ruling, or there has been a change in tax law, in either case to the effect
that Holders of such Senior Debt Securities will not recognize gain or loss for
Federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to Federal income tax on the same amount, in the
same manner and at the same times as would have been the case if such deposit,
defeasance and discharge were not to occur. (Sections 1202 and 1204)
COVENANT DEFEASANCE
The Indenture will provide that, upon Forest City's exercise of its option
(if any) to have Section 1203 applied to any Senior Debt Securities, Forest City
may omit to comply with certain restrictive covenants, including any that may be
described in the Prospectus Supplement relating to the Senior Debt Securities,
and the occurrence of certain Events of Default will be deemed not to be or
result in an Event of Default, in each case with respect to such Senior Debt
Securities. Forest
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City, in order to exercise such option, will be required to deposit, in trust
for the benefit of the Holders of such Senior Debt Securities, money or U.S.
Government Obligations, or both, which, through the payment of principal and
interest in respect thereof in accordance with their terms, will provide money
in an amount sufficient to pay the principal of and any premium and each
installment of interest on such Senior Debt Securities on the Stated Maturity in
accordance with the terms of the Indenture and such Senior Debt Securities.
Forest City will also be required, among other things, to deliver to the Trustee
an Opinion of Counsel to the effect that holders of such Senior Debt Securities
will not recognize gain or loss for Federal income tax purposes as a result of
such deposit and defeasance of certain obligations and will be subject to
Federal income tax on the same amount, in the same manner and at the same times
as would have been the case if such deposit and defeasance were not to occur.
In the event Forest City exercised this option with respect to any Senior
Debt Securities and such Senior Debt Securities were declared due and payable
because of the occurrence of any Event of Default, the amount of money and U.S.
Government Obligations so deposited in trust would be sufficient to pay amounts
due on such Senior Debt Securities at the time of their Stated Maturity but may
not be sufficient to pay amounts due on such Senior Debt Securities upon any
acceleration resulting from such Event of Default. In such case, Forest City
would remain liable for such payments. (Sections 1203 and 1204)
NOTICES
Notices to Holders of Senior Debt Securities will be given by mail to the
addresses of such Holders as they may appear in the Security Register. (Sections
101 and 106)
TITLE
Forest City, the Trustee and any agent of Forest City or the Trustee may
treat the Person in whose name a Senior Debt Security is registered as the
absolute owner thereof (whether or not such Senior Debt Security may be overdue)
for the purpose of making payment and for all other purposes. (Section 308)
RELATIONSHIP WITH THE TRUSTEE
The Bank of New York is Trustee under the Senior Indenture and is also a
lender to subsidiaries of the Company of non-recourse project debt.
GOVERNING LAW
The Indenture and the Senior Debt Securities will be governed by, and
construed in accordance with, the law of the State of New York. (Section 112)
DESCRIPTION OF SUBORDINATED DEBT SECURITIES
The Senior Subordinated Debt Securities are to be issued under an Indenture
(the "Senior Subordinated Indenture"), between Forest City, as issuer, and
National City Bank, as Trustee (the "Senior Subordinated Trustee"). The Junior
Subordinated Debt Securities will be issued pursuant to a separate Indenture
(the "Junior Subordinated Indenture" and, together with the Senior Subordinated
Trustee, the "Subordinated Trustee"), also between Forest City, as issuer, and
National City Bank, as Trustee. The Senior Subordinated Indenture and Junior
Subordinated Indenture are sometimes referred to collectively as the
"Subordinated Indentures." A copy of the form of each Subordinated Indenture is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The Subordinated Debt Securities may be issued from time to time in one or
more series. The particular terms of each series of Subordinated Debt
Securities, or of Subordinated Debt Securities forming a part of a series, which
are offered by a Prospectus Supplement, will be described in such Prospectus
Supplement.
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The following summaries of certain provisions of the Subordinated
Indentures do not purport to be complete and are subject, and are qualified in
their entirety by reference, to all the provisions of the Subordinated
Indentures, including the definitions therein of certain terms, and, with
respect to any particular Subordinated Debt Securities, to the description of
the terms thereof included in the Prospectus Supplement relating thereto.
Wherever particular Sections or defined terms of the Indentures are referred to
herein or in a Prospectus Supplement, such Sections or defined terms are
incorporated by reference herein or therein, as the case may be.
The Company currently conducts substantially all of its operations through
subsidiaries. The Company's ability to pay principal and interest on the
Subordinated Debt Securities is dependent upon the ability of its subsidiaries
to distribute their income to the Company. Certain of these subsidiaries are
subject to capital adequacy restrictions and financial covenants.
The Junior Subordinated Debt Securities will be subordinated in right of
payment to all Senior Debt (as defined herein) and the Senior Subordinated Debt
Securities will be subordinated in right of payment to all Senior Indebtedness
(as defined herein). See "--Subordination of Subordinated Debt Securities". The
only Senior Debt or Senior Indebtedness now outstanding is the Guaranty of
borrowings under the FCRPC Credit Agreement. FCRPC may borrow up to $225 million
under the FCRPC Credit Agreement; as of January 31, 1998, $114 million was
outstanding under the FCRPC Credit Agreement.
The Holders of Subordinated Debt Securities (including Senior Subordinated
Debt Securities) will also be structurally subordinated to the creditors of the
Company's subsidiaries. At January 31, 1998, approximately $2.0 billion of
indebtedness issued or guaranteed by subsidiaries of the Company was outstanding
in addition to borrowings under the FCRPC Credit Agreement. Except for the
borrowings and guaranties permitted under the FCRPC Credit Agreement, all
indebtedness issued or guaranteed by subsidiaries of the Company is nonrecourse
to the Company.
GENERAL
The Subordinated Indentures will provide that Subordinated Debt Securities
in separate series may be issued thereunder from time to time without limitation
as to aggregate principal amount. Forest City may specify a maximum aggregate
principal amount for the Subordinated Debt Securities of any series. (Section
301) The Subordinated Debt Securities are to have such terms and provisions
which are not inconsistent with the Subordinated Indentures, including as to
maturity, principal and interest, as Forest City may determine.
The applicable Prospectus Supplement will set forth whether the
Subordinated Debt Securities offered will be Senior Subordinated Debt Securities
or Junior Subordinated Debt Securities, the price or prices at which the
Subordinated Debt Securities to be offered will be issued and will describe the
following terms of such Subordinated Debt Securities: (1) the title of such
Subordinated Debt Securities and the series of which such Subordinated Debt
Securities shall be a part; (2) the aggregate principal amount of such
Subordinated Debt Securities and any limit on the aggregate principal amount of
such Subordinated Debt Securities or the series of which they are a part; (3)
the Person to whom any interest on a Subordinated Debt Security of the series
shall be payable, if other than the Person in whose name that Subordinated Debt
Security (or one or more predecessor Subordinated Debt Securities) is registered
at the close of business on the Regular Record Date for such interest; (4) the
date or dates on which the principal of any of such Subordinated Debt Securities
will be payable; (5) the rate or rates at which any of such Subordinated Debt
Securities will bear interest, if any, the date or dates from which any such
interest will accrue, the Interest Payment Dates on which any such interest will
be payable and the Regular Record Date for any such interest payable on any
Interest Payment Date; (6) the place or places where the principal of and any
premium and interest on any of such Subordinated Debt Securities will be
payable; (7) the period or periods within which, the price or prices at which
and the terms and conditions on which any of such Subordinated Debt Securities
may be redeemed, in whole or in part, at the option of
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Forest City; (8) the obligation, if any, of Forest City to redeem or purchase
any of such Subordinated Debt Securities pursuant to any sinking fund or
analogous provision or at the option of the Holder thereof, and the period or
periods within which, the price or prices at which and the terms and conditions
on which any of such Subordinated Debt Securities will be redeemed or purchased,
in whole or in part, pursuant to such obligation; (9) the denominations in which
any of such Subordinated Debt Securities will be issuable, if other than
denominations of $1,000 and any integral multiple thereof; (10) if the amount of
principal of or any premium or interest on any of such Subordinated Debt
Securities may be determined with reference to an index or pursuant to a
formula, the manner in which such amounts will be determined; (11) if other than
the currency of the United States of America, the currency, currencies or
currency units in which the principal of or any premium or interest on any of
such Subordinated Debt Securities will be payable (and the manner in which the
equivalent of the principal amount thereof in the currency of the United States
of America is to be determined for any purpose, including for the purpose of
determining the principal amount deemed to be Outstanding at any time); (12) if
the principal of or any premium or interest on any of such Subordinated Debt
Securities is to be payable, at the election of Forest City or the Holder
thereof, in one or more currencies or currency units other than those in which
such Subordinated Debt Securities are stated to be payable, the currency,
currencies or currency units in which payment of any such amount as to which
such election is made will be payable, the periods within which and the terms
and conditions upon which such election is to be made and the amount so payable
(or the manner in which such amount is to be determined); (13) if other than the
entire principal amount thereof, the portion of the principal amount of any of
such Subordinated Debt Securities which will be payable upon declaration of
acceleration of the Maturity thereof; (14) if the principal amount payable at
the Stated Maturity of any of such Subordinated Debt Securities will not be
determinable as of any one or more dates prior to the Stated Maturity, the
amount which will be deemed to be such principal amount as of any such date for
any purpose, including the principal amount thereof which will be due and
payable upon any Maturity other than the Stated Maturity or which will be deemed
to be Outstanding as of any such date (or, in any such case, the manner in which
such deemed principal amount is to be determined); (15) if applicable, that such
Subordinated Debt Securities, in whole or any specified part, are defeasible
pursuant to the provisions of the relevant Indenture described under "Defeasance
and Covenant Defeasance -- Defeasance and Discharge" or "Defeasance and Covenant
Defeasance -- Covenant Defeasance," or under both such captions; (16) if
applicable, the terms of any right to convert Subordinated Debt Securities into
shares of Class A Common Stock of Forest City or other securities or property;
(17) whether any of such Subordinated Debt Securities will be issuable in whole
or in part in the form of one or more Global Securities, as defined in the
applicable Indenture, and, if so, the respective Depositaries for such Global
Securities, the form of any legend or legends to be borne by any such Global
Security in addition to or in lieu of the legend referred to under "Form,
Exchange and Transfer" or "Global Securities" and, if different from those
described under such captions, any circumstances under which any such Global
Security may be exchanged in whole or in part for Securities registered, and any
transfer of such Global Security in whole or in part may be registered, in the
names of Persons other than the Depositary for such Global Security or its
nominee; (18) any addition to or change in the Events of Default applicable to
any of such Subordinated Debt Securities and any change in the right of the
Subordinated Trustee or the Holders to declare the principal amount of any of
such Debt Securities due and payable; (19) any addition to or change in the
covenants applicable to such Debt Securities; and (20) any other terms of such
Subordinated Debt Securities not inconsistent with the provisions of the
relevant Indenture. (Section 301)
Subordinated Debt Securities may be sold at a substantial discount to their
principal amount. Certain special United States Federal income tax
considerations (if any) applicable to Subordinated Debt Securities sold at an
original issue discount will be described in the applicable Prospectus
Supplement under "United States Taxation." In addition, certain special United
States Federal income tax or other considerations (if any) applicable to any
Subordinated Debt Securities which
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are denominated in a currency or currency unit other than United States dollars
will be described in the applicable Prospectus Supplement.
CONVERSION RIGHTS
The terms on which Subordinated Debt Securities of any series are
convertible into Common Stock or other securities or property will be set forth
in the Prospectus Supplement relating thereto. Such terms shall include
provisions as to whether conversion is mandatory or at the option of the holder
and may include provisions pursuant to which the number of shares of Common
Stock or other securities or property to be received by the Holders of
Subordinated Debt Securities upon conversion would be calculated according to
the market price of Common Stock or other securities or property as of a time
stated in the applicable Prospectus Supplement. (Article Fourteen)
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the Prospectus Supplement, the following
provisions will apply to the Subordinated Debt Securities.
SENIOR SUBORDINATED DEBT SECURITIES
The Senior Subordinated Debt Securities will, to the extent set forth in
the Senior Subordinated Indenture, be subordinate in right of payment to the
prior payment in full of all Senior Indebtedness, which includes the guaranty by
Forest City of the obligations under the Credit Agreement. Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution, winding
up, reorganization, assignment for the benefit of creditors, marshalling of
assets or any bankruptcy, insolvency, debt restructuring or similar proceedings
in connection with any insolvency or bankruptcy proceeding of Forest City, the
holders of Senior Indebtedness will first be entitled to receive payment in full
of all amounts due thereon or to be due thereon, if any, on such Senior
Indebtedness before the Holders of the Senior Subordinated Debt Securities will
be entitled to receive or retain any payment in respect of the principal of (and
premium, if any) or interest, if any, on the Senior Subordinated Debt
Securities. (Section 1502)
By reason of such subordination, in the event of liquidation or insolvency,
Holders of Senior Subordinated Debt Securities may recover less than holders of
Senior Indebtedness and may recover more than the Holders of Junior Subordinated
Debt Securities.
In the event of the acceleration of the maturity of any Senior Subordinated
Debt Securities, the holders of all Senior Indebtedness outstanding at the time
of such acceleration will first be entitled to receive payment in full of all
amounts due thereon before the Holders of the Senior Subordinated Debt
Securities will be entitled to receive any payment upon the principal of (or
premium, if any) or interest, if any, on the Senior Subordinated Debt
Securities. (Section 1503)
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the Senior Subordinated Debt Securities may be made if there
shall have occurred and be continuing a default in any payment with respect to
Senior Indebtedness, or an event of default with respect to any Senior
Indebtedness resulting in the acceleration of the maturity thereof, or if any
judicial proceeding shall be pending with respect to any such default. (Section
1504) For purposes of the subordination provisions, the payment, issuance and
delivery of cash, property or securities (other than stock and certain
subordinated securities of Forest City) upon conversion of a Senior Subordinated
Debt Security will be deemed to constitute payment on account of the principal
of such Senior Subordinated Debt Security.
JUNIOR SUBORDINATED DEBT SECURITIES
The Junior Subordinated Debt Securities will, to the extent set forth in
the Junior Subordinated Indenture, be subordinate in right of payment to the
prior payment in full of all Senior Debt. Upon any
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payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of Forest City, the holders of Senior Debt will first be
entitled to receive payment in full of all amounts due thereon or to be due
thereon, if any, on such Senior Debt before the Holders of the Junior
Subordinated Debt Securities will be entitled to receive or retain any payment
in respect of the principal of (and premium, if any) or interest, if any, on the
Junior Subordinated Debt Securities. (Section 1502)
By reason of such subordination, in the event of liquidation or insolvency,
Holders of Junior Subordinated Debt Securities may recover less than holders of
Senior Debt and may recover less than the Holders of the Senior Subordinated
Debt Securities.
In the event of the acceleration of the maturity of any Junior Subordinated
Debt Securities, the holders of all Senior Debt outstanding at the time of such
acceleration will first be entitled to receive payment in full of all amounts
due thereon before the Holders of the Junior Subordinated Debt Securities will
be entitled to receive any payment upon the principal of (or premium, if any) or
interest, if any, on the Junior Subordinated Debt Securities. (Section 1503)
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the Junior Subordinated Debt Securities may be made if there
shall have occurred and be continuing a default in any payment with respect to
Senior Debt, or an event of default with respect to any Senior Debt resulting in
the acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default. (Section 1504) For purposes of the
subordination provisions, the payment, issuance and delivery of cash, property
or securities (other than stock and certain subordinated securities of Forest
City) upon conversion of a Junior Subordinated Debt Security will be deemed to
constitute payment on account of the principal of such Junior Subordinated Debt
Security.
DEFINITIONS
Unless otherwise indicated in the applicable Prospectus Supplement, the
following definitions are applicable to the Subordinated Indentures relating to
the Subordinated Debt Securities. Reference is made to the relevant Subordinated
Indenture for the full definition of each term.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services,
(v) all indebtedness of the Person, whether incurred on or prior to the date of
the relevant Subordinated Indenture or thereafter incurred, for claims in
respect of derivative products, including interest rate, foreign exchange rate
and commodity forward contracts, options and swaps and similar arrangements; and
(vi) every obligation of the type referred to in the foregoing clauses (i)
through (v) of another Person and all dividends of another Person the payment of
which, in either case, such Person has guaranteed or is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise; provided that such
definition shall not include trade accounts payable or accrued liabilities
arising in the ordinary course of business.
"Senior Debt" means the principal of (and premium, if any) and interest if
any, (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to Forest City to the extent that such
claim for post-petition interest is allowed in such proceeding) on Debt, whether
incurred on or prior to the date of the Junior Subordinated Indenture or
thereafter created, assumed or incurred, unless, in the instrument creating or
evidencing the same or pursuant
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to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Junior Subordinated Debt Securities or to
other Debt which is pari passu with, or subordinated to, the Junior Subordinated
Debt Securities; provided, however, that Senior Debt shall not be deemed to
include (a) any Debt which, when incurred and without respect to any election
under Section 1111(b) of the Bankruptcy Reform Act of 1978, was without recourse
to Forest City, (b) Debt to any employee of Forest City, and (c) the Junior
Subordinated Debt Securities.
"Senior Indebtedness" means (i) the principal of (and premium, if any) and
interest on all indebtedness for borrowed money of Forest City other than the
Subordinated Debt Securities, whether incurred on or prior to the date of the
Senior Subordinated Indenture or thereafter incurred, except obligations that by
their terms are not superior in right of payment to the Senior Subordinated
Securities or to other indebtedness which is pari passu with, or subordinated
to, the Senior Subordinated Securities and (ii) any deferrals, renewals or
extensions of any such indebtedness for money borrowed. The term "indebtedness
for money borrowed" as used in the foregoing sentence means any obligation of,
or any obligation guaranteed by, Forest City for the repayment of borrowed
money, whether or not evidenced by bonds, debentures, notes or other written
instruments, and any deferred obligation for the payment of the purchase price
of property or assets.
ADDITIONAL TERMS
Neither Subordinated Indenture limits or prohibits the incurrence of
additional Senior Debt or Senior Indebtedness, either of which may include
indebtedness that is senior to the Subordinated Debt Securities, but subordinate
to other obligations of Forest City. In connection with the future issuances of
Offered Securities, the Subordinated Indentures may be amended or supplemented
to limit the amount of indebtedness incurred by Forest City. See "-- Restrictive
Covenants." The Senior Subordinated Debt Securities, when issued, will
constitute Senior Debt. The guaranty by Forest City of the obligations of Forest
City Rental Properties Corporation under the Credit Agreement constitutes both
Senior Debt and Senior Indebtedness.
The Prospectus Supplement may further describe the provisions, if any,
applicable to the subordination of the Subordinated Debt Securities of a
particular series.
FORM, EXCHANGE AND TRANSFER
The Subordinated Debt Securities of each series will be issuable only in
fully registered form, without coupons, and, unless otherwise specified in the
applicable Prospectus Supplement, only in denominations of $1,000 and integral
multiples thereof. (Section 302)
At the option of the Holder, subject to the terms of the relevant
Subordinated Indenture and the limitations applicable to Global Securities,
Subordinated Debt Securities of each series will be exchangeable for other
Subordinated Debt Securities of the same series of any authorized denomination
and of a like tenor and aggregate principal amount. (Section 305)
Subject to the terms of the relevant Subordinated Indenture and the
limitations applicable to Global Securities, Subordinated Debt Securities may be
presented for exchange as provided above or for registration of transfer (duly
endorsed or with the form of transfer endorsed thereon duly executed) at the
office of the Security Registrar or at the office of any transfer agent
designated by Forest City for such purpose. No service charge will be made for
any registration of transfer or exchange of Subordinated Debt Securities, but
Forest City may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. Such transfer or exchange
will be effected upon the Security Registrar or such transfer agent, as the case
may be, being satisfied with the documents of title and identity of the person
making the request. Forest City has appointed National City Bank as Security
Registrar. Any transfer agent (in addition to the Security Registrar) initially
designated by Forest City for any Subordinated Debt Securities will be named in
the applicable Prospectus Supplement. (Section 305) Forest City may at any time
designate additional transfer agents or rescind the designation of any transfer
agent or approve a
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change in the office through which any transfer agent acts, except that Forest
City will be required to maintain a transfer agent in each Place of Payment for
the Subordinated Debt Securities of each series. (Section 1002)
If the Subordinated Debt Securities of any series (or of any series and
specified terms) are to be redeemed in part, Forest City will not be required to
(i) issue, register the transfer of, or exchange, any Subordinated Debt Security
of that series (or of that series and specified terms, as the case may be)
during a period beginning at the opening of business 15 days before the day of
mailing of a notice of redemption of any such Subordinated Debt Security that
may be selected for redemption and ending at the close of business on the day of
such mailing or (ii) register the transfer of or, exchange, any Subordinated
Debt Security so selected for redemption, in whole or in part, except the
unredeemed portion of any such Subordinated Debt Security being redeemed in
part. (Section 305)
GLOBAL SECURITIES
Some or all of the Subordinated Debt Securities of any series may be
represented, in whole or in part, by one or more global securities which will
have an aggregate principal amount equal to that of the Subordinated Debt
Securities represented thereby (a "Global Security"). Each Global Security will
be registered in the name of a depositary (the "Depositary") or a nominee
thereof identified in the applicable Prospectus Supplement, will be deposited
with such Depositary or nominee or a custodian thereof and will bear a legend
regarding the restrictions on exchanges and registration of transfer thereof
referred to below and any such other matters as may be provided for pursuant to
the applicable Subordinated Indenture.
Notwithstanding any provision of the relevant Subordinated Indenture or any
Subordinated Debt Security described herein, no Global Security may be exchanged
in whole or in part for Subordinated Debt Securities registered, and no transfer
of a Global Security in whole or in part may be registered, in the name of any
Person other than the Depositary for such Global Security or any nominee of such
Depositary unless (i) the Depositary has notified Forest City that it is
unwilling or unable to continue as Depositary for such Global Security or has
ceased to be qualified to act as such as required by the relevant Indenture,
(ii) there shall have occurred and be continuing an Event of Default with
respect to the Subordinated Debt Securities represented by such Global Security
or (iii) there shall exist such circumstances, if any, in addition to or in lieu
of those described above as may be described in the applicable Prospectus
Supplement. All securities issued in exchange for a Global Security or any
portion thereof will be registered in such names as the Depositary may direct.
(Sections 204 and 305)
As long as the Depositary, or its nominee, is the registered Holder of a
Global Security, the Depositary or such nominee, as the case may be, will be
considered the sole owner and Holder of such Global Security and the
Subordinated Debt Securities represented thereby for all purposes under the
Subordinated Debt Securities and the relevant Subordinated Indenture. Except in
the limited circumstances referred to above, owners of beneficial interests in a
Global Security will not be entitled to have such Global Security or any
Subordinated Debt Securities represented thereby registered in their names, will
not receive or be entitled to receive physical delivery of certificated
Subordinated Debt Securities in exchange therefor and will not be considered to
be the owners or Holders of such Global Security or any Subordinated Debt
Securities represented thereby for any purpose under the Subordinated Debt
Securities or the relevant Subordinated Indenture. All payments of principal of
and any premium and interest on a Global Security will be made to the Depositary
or its nominee, as the case may be, as the Holder thereof. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. These laws may impair the
ability to transfer beneficial interests in a Global Security.
Ownership of beneficial interests in a Global Security will be limited to
institutions that have accounts with the Depositary or its nominee
("participants") and to persons that may hold
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beneficial interests through participants. In connection with the issuance of
any Global Security, the Depositary will credit, on its book-entry registration
and transfer system, the respective principal amounts of Subordinated Debt
Securities represented by the Global Security to the accounts of its
participants. Ownership of beneficial interests in a Global Security will be
shown only on, and the transfer of those ownership interests will be effected
only through, records maintained by the Depositary (with respect to
participants' interests) or any such participant (with respect to interests of
persons held by such participants on their behalf). Payments, transfers,
exchanges and other matters relating to beneficial interests in a Global
Security may be subject to various policies and procedures adopted by the
Depositary from time to time. None of Forest City, the Subordinated Trustee or
any agent of Forest City or the Subordinated Trustee will have any
responsibility or liability for any aspect of the Depositary's or any
participant's records relating to, or for payments made on account of,
beneficial interests in a Global Security or for maintaining, supervising or
reviewing any records relating to such beneficial interests.
PAYMENT AND PAYING AGENTS
Unless otherwise indicted in the applicable Prospectus Supplement, payment
of interest on a Subordinated Debt Security on any interest Payment Date will be
made to the Person in whose name such Subordinated Debt Security (or one or more
Predecessor Debt Securities) is registered at the close of business on the
Regular Record Date for such interest. (Section 307)
Unless otherwise indicated in the applicable Prospectus Supplement,
principal of and any premium and interest on the Subordinated Debt Securities of
a particular series will be payable at the office of such Paying Agent or Paying
Agents as Forest City may designate for such purpose from time to time. Unless
otherwise indicated in the applicable Prospectus Supplement, the corporate trust
office of the Subordinated Trustee in The City of New York will be designated as
the Company's sole Paying Agent for payments with respect to Subordinated Debt
Securities of each series. Any other Paying Agents initially designated by
Forest City for the Subordinated Debt Securities of a particular series will be
named in the applicable Prospectus Supplement. Forest City may at any time
designate additional Paying Agents or rescind the designation of any Paying
Agent or approve change in the office through which any Paying Agent acts,
except that Forest City will be required to maintain a Paying Agent in each
Place of Payment for the Subordinated Debt Securities of a particular series.
(Section 1002)
All moneys paid by Forest City to a Paying Agent for the payment of the
principal of or any premium or interest on any Subordinated Debt Security which
remain unclaimed at the end of two years after such principal, premium or
interest has become due and payable will be repaid to Forest City, and the
Holder of such Subordinated Debt Security thereafter may look only to Forest
City for payment thereof. (Section 1003)
RESTRICTIVE COVENANTS
Covenants specific to a particular series of Subordinated Debt Securities
will be included in the applicable Prospectus Supplement.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Subordinated Indentures will provide that Forest City may not
consolidate with or merge into, or convey, transfer or lease its properties and
assets substantially as an entirety to, any Person (a "Successor Person"), and
may not permit any Person to merge into, or convey, transfer or lease its
properties and assets substantially as an entirety to, Forest City, unless (i)
the Successor Person (if any) is a corporation, partnership, trust or other
entity organized and validly existing under the laws of any domestic
jurisdiction and assumes Forest City's obligations on the Subordinated Debt
Securities and under the Subordinated Indentures, (ii) immediately after giving
effect to the transaction, and treating any indebtedness which becomes an
obligation of Forest City or any
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Subsidiary as a result of the transaction as having been incurred by it at the
time of the transaction, no Event of Default, and no event which, after notice
or lapse of time or both, would become an Event of Default, shall have occurred
and be continuing, (iii) if, as a result of the transaction, property of Forest
City would become subject to a Lien that would not be permitted by the relevant
Indenture, Forest City takes such steps as shall be necessary to secure the
Subordinated Debt Securities, if any, equally and ratably with (or prior to) the
indebtedness secured by such Lien and (iv) certain other conditions are met.
(Section 801)
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default under the
relevant Subordinated Indenture with respect to Subordinated Debt Securities of
any series: (a) failure to pay principal of or any premium on any Subordinated
Debt Security of that series when due, whether or not such payment is prohibited
by the subordination provisions of the relevant Subordinated Indenture; (b)
failure to pay any interest on any Subordinated Debt Securities of that series
when due, continued for 30 days, whether or not such payment is prohibited by
the subordination provisions of the relevant Indenture; (c) failure to deposit
any sinking fund payment, when due, in respect of any Subordinated Debt Security
of that series, whether or not such deposit is prohibited by the subordination
provisions of the relevant Subordinated Indenture; (d) failure to perform any
other covenant of Forest City in the relevant Subordinated Indenture (other than
a covenant included in the relevant Subordinated Indenture solely for the
benefit of a series other than that series), continued for 60 days after written
notice has been given by the Subordinated Trustee, or the Holders of at least
10% in aggregate principal amount of the Outstanding Subordinated Debt
Securities of that series, as provided in the relevant Indenture; (e) failure to
pay when due (subject to any applicable grace period) the principal of, or
acceleration of, any indebtedness for money borrowed by Forest City, if, in the
case of any such failure, such indebtedness has not been discharged or, in the
case of any such acceleration, such indebtedness has not been discharged or such
acceleration has not been rescinded or annulled, in each case, within 10 days
after written notice has been given by the Subordinated Trustee, or the Holders
of at least 10% in principal amount of the Outstanding Subordinated Debt
Securities of that series, as provided in the relevant Indenture; (f) certain
events in bankruptcy, insolvency or reorganization; and (g) any other Event of
Default specified in the applicable Prospectus Supplement. (Section 501)
If any Event of Default (other than an Event of Default described in clause
(f) above) with respect to the Subordinated Debt Securities of any series at the
time Outstanding shall occur and be continuing, either the Subordinated Trustee
or the Holders of at least 25% in aggregate principal amount of the Outstanding
Subordinated Debt Securities of that series by notice as provided in the
relevant Indenture may declare the principal amount of the Subordinated Debt
Securities of that series (or, in the case of any Subordinated Debt Security
that is an Original Issue Discount Security or the principal amount of which is
not then determinable, such portion of the principal amount of such Subordinated
Debt Security, or such other amount in lieu of such principal amount, as may be
specified in the terms of such Subordinated Debt Security) to be due and payable
immediately. If an Event of Default described in clause (f) above with respect
to the Subordinated Debt Securities of any series at the time Outstanding shall
occur, the principal amount of all the Subordinated Debt Securities of that
series (or, in the case of any such Original Issue Discount Security or other
Subordinated Debt Security, such specified amount) will automatically, and
without any action by the Subordinated Trustee or any Holder, become immediately
due and payable. After any such acceleration, but before a judgment or decree
based on acceleration, the Holders of a majority in aggregate principal amount
of the Outstanding Subordinated Debt Securities of that series may, under
certain circumstances, rescind and annul such acceleration if all Events of
Default, other than the non-payment of accelerated principal (or other specified
amount), have been cured or waived as provided in the relevant Indenture.
(Section 502) For information as to waiver of defaults, see "Modification and
Waiver."
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Subject to the provisions of the relevant Subordinated Indenture relating
to the duties of the Subordinated Trustee in case an Event of Default shall
occur and be continuing, the Subordinated Trustee will be under no obligation to
exercise any of its rights or powers under the relevant Subordinated Indenture
at the request or direction of any of the Holders, unless such Holders shall
have offered to the Subordinated Trustee reasonable indemnity. (Section 603)
Subject to such provisions for the indemnification of the Subordinated Trustee,
the Holders of a majority in aggregate principal amount of the Outstanding
Subordinated Debt Securities of any series will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Subordinated Trustee or exercising any trust or power conferred on the
Subordinated Trustee with respect to the Subordinated Debt Securities of that
series. (Section 512)
No Holder of a Subordinated Debt Security of any series will have any right
to institute any proceeding with respect to the relevant Subordinated Indenture,
or for the appointment of a receiver or a trustee, or for any other remedy
thereunder, unless (i) such Holder has previously given to the Subordinated
Trustee written notice of a continuing Event of Default with respect to the
Subordinated Debt Securities of that series, (ii) the Holders of at least 25% in
aggregate principal amount of the Outstanding Subordinated Debt Securities of
that series have made a written request, and such Holder or Holders have offered
reasonable indemnity, to the Subordinated Trustee to institute such proceeding
as trustee and (iii) the Subordinated Trustee has failed to institute such
proceeding, and has not received from the Holders of a majority in aggregate
principal amount of the Outstanding Subordinated Debt Securities of that series
a direction inconsistent with such request, within 60 days after such notice,
request and offer. (Section 507) However, such limitations do not apply to a
suit instituted by a Holder of a Subordinated Debt Security for the enforcement
of payment of the principal of or any premium or interest on such Subordinated
Debt Security on or after the applicable due date specified in such Debt
Security. (Section 508)
Forest City will be required to furnish to the Subordinated Trustee
annually a statement by certain of its officers as to whether or not Forest
City, to their knowledge, is in default in the performance or observance of any
of the terms, provisions and conditions of each Subordinated Indenture and, if
so, specifying all such known defaults. (Section 1004)
MODIFICATION AND WAIVER
Modifications and amendments of the relevant Indenture may be made by
Forest City and the Subordinated Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Outstanding Subordinated Debt
Securities of each series affected by such modification or amendment; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each Outstanding Subordinated Debt Security affected thereby, (a)
change the Stated Maturity of the principal of, or any installment of principal
of or interest on, any Subordinated Debt Security, (b) reduce the principal
amount of, or any premium or interest on, any Subordinated Debt Security, (c)
reduce the amount of principal of an Original Issue Discount Security or any
other Subordinated Debt Security payable upon acceleration of the Maturity
thereof, (d) change the place or currency of payment of principal of, or any
premium or interest on, any Subordinated Debt Security, (e) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Subordinated Debt Security, (f) in the case of Subordinated Debt Securities,
modify the subordination provisions in a manner adverse to the Holders of the
Subordinated Debt Securities, (g) reduce the percentage in principal amounts of
Outstanding Subordinated Debt Securities of any series, the consent of whose
Holders is required for modification or amendment of the relevant Subordinated
Indenture, (h) reduce the percentage in principal amount of Outstanding
Subordinated Debt Securities of any series necessary for waiver of compliance
with certain provisions of the relevant Subordinated Indenture or for waiver of
certain defaults, (i) modify such provisions with respect to modification and
waiver, or (j) in the case of convertible Subordinated Debt Securities, make any
change that adversely affects the right to convert any Subordinated Debt
Security as provided in the relevant Subordinated Indenture or Prospectus
Supplement (except as permitted by
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the relevant Subordinated Indenture or to decrease the conversion price of any
such Subordinated Debt Security). (Section 902)
Each Subordinated Indenture will provide that the Holders of a majority in
aggregate principal amount of the Outstanding Subordinated Debt Securities of
any series may waive compliance by Forest City with certain restrictive
provisions of such Subordinated Indenture. The Holders of a majority in
principal amount of the Outstanding Subordinated Debt Securities of any series
may waive any past default under the relevant Subordinated Indenture, except a
default in the payment of principal, premium or interest and certain covenants
and provisions of the relevant Subordinated Indenture which cannot be amended
without the consent of the Holder of each Outstanding Subordinated Debt Security
of such series affected. (Section 513) In addition, each Subordinated Indenture
will provide that any consents or waivers sought from Holders of Subordinated
Debt Securities may be obtained in connection with a tender offer or exchange
offer for any series of Outstanding Subordinated Debt Securities or in
consideration of payments of money or other value, provided that such tender
offer, exchange offer or offer of consideration or other value is made to all
Holders of the Outstanding Subordinated Debt Securities of such series on the
same terms. (Section 908)
Each Subordinated Indenture will provide that in determining whether the
Holders of the requisite principal amount of the Outstanding Subordinated Debt
Securities have given or taken any direction, notice, consent, waiver or other
action under such Subordinated Indenture as of any date, (i) the principal
amount of an Original Issue Discount Security that will be deemed to be
Outstanding will be the amount of the principal thereof that would be due and
payable as of such date upon acceleration of the Maturity thereof to such date,
(ii) if, as of such date, the principal amount payable at the Stated Maturity of
a Subordinated Debt Security is not determinable (for example, because it is
based on an index), the principal amount of such Subordinated Debt Security
deemed to be Outstanding as of such date will be an amount determined in the
manner prescribed for such Subordinated Debt Security and (iii) the principal
amount of a Subordinated Debt Security denominated in one or more foreign
currencies or currency units that will be deemed to be Outstanding will be the
U.S. dollar equivalent, determined as of such date in the manner prescribed for
such Debt Security, of the principal amount of such Debt Security (or, in the
case of a Subordinated Debt Security described in clause (i) or (ii) above, of
the amount described in such clause). Certain Subordinated Debt Securities,
including those for whose payment or redemption money has been deposited or set
aside in trust for the Holders and those that have been fully defeased pursuant
to Section 1302, will not be deemed to be Outstanding. (Section 101)
Except in certain limited circumstances, Forest City will be entitled to
set any day as a record date for the purpose of determining the Holders of
Outstanding Subordinated Debt Securities of any series entitled to give or take
any direction, notice, consent, waiver or other action under each Subordinated
Indenture, in the manner and subject to the limitations provided in the
Subordinated Indentures. In certain limited circumstances, the Subordinated
Trustee will be entitled to set a record date for action by Holders. If a record
date is set for any action to be taken by Holders of a particular series, such
action may be taken only by persons who are Holders of Outstanding Subordinated
Debt Securities of that series on the record date. To be effective, such action
must be taken by Holders of the requisite principal amount of such Subordinated
Debt Securities within a specified period following the record date. For any
particular record date, this period will be 180 days or such other shorter
period as may be specified by Forest City (or the Subordinated Trustee, if it
set the record date), and may be shortened or lengthened (but not beyond 180
days) from time to time. (Section 104)
DEFEASANCE AND COVENANT DEFEASANCE
If and to the extent indicated in the applicable Prospectus Supplement,
Forest City may elect, at its option at any time, to have the provisions of
Section 1302, relating to defeasance and discharge of indebtedness, or Section
1303, relating to defeasance of certain restrictive covenants in the
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relevant Subordinated Indenture, applied to the Subordinated Debt Securities of
any series, or to any specified part of a series. (Section 1301)
DEFEASANCE AND DISCHARGE
The Subordinated Indentures will provide that, upon Forest City's exercise
of its option (if any) to have Section 1302 applied to any Subordinated Debt
Securities, Forest City will be discharged from all its obligations with respect
thereto, including the provisions of Article Fifteen of the relevant
Subordinated Indenture relating to subordination, except for certain obligations
to exchange or register the transfer of Subordinated Debt Securities, to replace
stolen, lost or mutilated Subordinated Debt Securities, to maintain paying
agencies and to hold moneys for payment in trust, upon the deposit in trust for
the benefit of the Holders of such Subordinated Debt Securities of money or U.S.
Government Obligations, or both, which, through the payment of principal and
interest in respect thereof in accordance with their terms, will provide money
in an amount sufficient to pay the principal of and any premium and interest on
such Subordinated Debt Securities on the respective Stated Maturities in
accordance with the terms of the Subordinated Indentures and such Subordinated
Debt Securities. Such defeasance or discharge may occur only if, among other
things, Forest City has delivered to the Subordinated Trustee an Opinion of
Counsel to the effect that Forest City has received from, or there has been
published by, the United States Internal Revenue Service a ruling, or there has
been a change in tax law, in either case to the effect that Holders of such
Subordinated Debt Securities will not recognize gain or loss for Federal income
tax purposes as a result of such deposit, defeasance and discharge and will be
subject to Federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit, defeasance and discharge
were not to occur. (Sections 1302 and 1304)
COVENANT DEFEASANCE
The Subordinated Indentures will provide that, upon Forest City's exercise
of its option (if any) to have Section 1303 applied to any Subordinated Debt
Securities, Forest City may omit to comply with certain restrictive covenants,
including any that may be described in the applicable Prospectus Supplement, and
the occurrence of certain Events of Default, which are described above in clause
(d) (with respect to such restrictive covenants) and clause (e) under "Events of
Default" and any that may be described in the applicable Prospectus Supplement,
will be deemed not to be or result in an Event of Default, in each case with
respect to such Subordinated Debt Securities, and the provisions of Article
Fifteen relating to subordination will cease to be effective with respect to any
Subordinated Debt Securities. Forest City, in order to exercise such option,
will be required to deposit, in trust for the benefit of the Holders of such
Subordinated Debt Securities, money or U.S. Government Obligations, or both,
which, through the payment of principal and interest in respect thereof in
accordance with their terms, will provide money in an amount sufficient to pay
the principal of and any premium and interest on such Subordinated Debt
Securities on the respective Stated Maturities in accordance with the terms of
the relevant Subordinated Indenture and such Subordinated Debt Securities.
Forest City will also be required, among other things, to deliver to the
Subordinated Trustee an Opinion of Counsel to the effect that holders of such
Subordinated Debt Securities will not recognize gain or loss for Federal income
tax purposes as a result of such deposit and defeasance of certain obligations
and will be subject to Federal income tax on the same amount, in the same manner
and at the same times as would have been the case if such deposit and defeasance
were not to occur. In the event Forest City exercised this option with respect
to any Subordinated Debt Securities and such Subordinated Debt Securities were
declared due and payable because of the occurrence of any Event of Default, the
amount of money and U.S. Government Obligations so deposited in trust would be
sufficient to pay amounts due on such Debt Securities at the time of their
respective Stated Maturities but may not be sufficient to pay amounts due on
such Subordinated Debt Securities upon any acceleration resulting from such
Event of Default. In such case, Forest City would remain liable for such
payments. (Sections 1303 and 1304)
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NOTICES
Notices to Holders of Subordinated Debt Securities will be given by mail to
the addresses of such Holders as they may appear in the Security Register.
(Sections 101 and 106)
TITLE
Forest City, the Subordinated Trustee and any agent of Forest City or the
Subordinated Trustee may treat the Person in whose name a Subordinated Debt
Security is registered as the absolute owner thereof (whether or not such
Subordinated Debt Security may be overdue) for the purpose of making payment and
for all other purposes. (Section 308)
RELATIONSHIPS WITH THE TRUSTEE
National City Bank is Trustee under the Senior Subordinated Indenture and
the Junior Subordinated Indenture. National City Bank is also a lender under the
Credit Agreement and is, and likely will be in the future, a lender with respect
to individual projects of the Company's subsidiaries.
GOVERNING LAW
The Subordinated Indentures and the Subordinated Debt Securities will be
governed by, and construed in accordance with, the law of the State of New York.
(Section 112)
DESCRIPTION OF PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which a
Prospectus Supplement may relate. Specific terms of any series of Preferred
Stock offered by a Prospectus Supplement will be described in the applicable
Prospectus Supplement. The description set forth below is subject to and
qualified in its entirety by reference to amendments to the Amended Articles of
Incorporation of Forest City adopted as of October 11, 1983 (the "Articles"),
fixing the preferences, limitations and relative rights of a particular series
of Preferred Stock.
GENERAL
Under the Articles, the Board of Directors of the Company is authorized
without further shareholder action, to provide for the issuance of up to
5,000,000 shares of Preferred Stock, in such series, with such preferences,
conversion or other rights, restrictions, limitations as to dividends,
qualifications or other provisions, as may be fixed by the Board of Directors.
The Preferred Stock will have the dividend, redemption, liquidation,
sinking fund and conversion rights set forth below unless otherwise provided in
the applicable Prospectus Supplement relating to a particular series of
Preferred Stock. Reference is made to the Prospectus Supplement relating to the
particular series of Preferred Stock offered thereby for specific terms,
including: (i) the designation and authorized number of shares of each series;
(ii) the title and liquidation preference per share of such Preferred Stock and
the number of shares offered; (iii) the price at which such series will be
issued; (iv) the dividend rate, the dates on which dividends shall be payable
and the dates from which dividends shall commence to accumulate; (v) any
redemption or sinking fund provisions of such series; (vi) any conversion
rights; and (vii) any additional dividend, liquidation, redemption, sinking fund
and other rights, preferences, privileges, limitations and restrictions of such
series.
The Preferred Stock will, when issued, be fully paid and nonassessable.
Unless otherwise specified in the applicable Prospectus Supplement relating to a
particular series of Preferred Stock, each series will rank on a parity as to
dividends and distributions in the event of a liquidation with each other series
of Preferred Stock and, in all cases, will be senior to the Class A Common Stock
and the Class B Common Stock of Forest City, par value $.33 1/3 per share (the
"Class B Common Stock," and together with the Class A Common Stock, the "Common
Stock").
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DIVIDEND RIGHTS
Holders of Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors, out of assets of the Company
legally available therefor, cash dividends at such rates and on such dates as
are set forth in the applicable Prospectus Supplement relating to such series of
Preferred Stock. Holders of Preferred Stock will be entitled to receive
dividends in preference to and in priority over dividends on account of Common
Stock and will be cumulative from the date determined by the Board of Directors.
If the applicable Prospectus Supplement so provides, as long as any shares
of Preferred Stock are outstanding, no dividends will be declared or paid or any
distributions be made on the Common Stock, unless the accrued dividends on each
series of Preferred Stock have been declared and paid.
Each series of Preferred Stock will be entitled to dividends as described
in the Prospectus Supplement relating to such series, which may be based upon
one or more methods of determination. Different series of Preferred Stock may be
entitled to dividends at different dividend rates or based upon different
methods of determination. Except as provided in the applicable Prospectus
Supplement, no series of Preferred Stock will be entitled to participate in the
earnings or assets of the Company.
RIGHTS UPON LIQUIDATION
Upon any dissolution, liquidation or winding-up of the Company, the holders
of each series of Preferred Stock will be entitled to receive out of the assets
of the Company, whether from capital, surplus or earnings, and before any
distribution of any assets is made on account of Class A Common Stock or Class B
Common Stock, the amount per share fixed by the Board of Directors for such
series of Preferred Stock (as reflected in the applicable Prospectus
Supplement), plus unpaid dividends to the date fixed for distribution. Holders
of Preferred Stock will be entitled to no further participation in any
distribution made in conjunction with any such dissolution, liquidation or
winding-up.
REDEMPTION
A series of Preferred Stock may be redeemable, in whole or in part, at the
option of the Company, and may be subject to mandatory redemption pursuant to a
sinking fund, in each case upon terms, at the times, the redemption prices and
for the types of consideration set forth in the Prospectus Supplement relating
to such series. The Prospectus Supplement relating to a series of Preferred
Stock which is subject to mandatory redemption will specify the number of shares
of such series that will be redeemed by the Company 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 any accrued and unpaid dividends thereon to the
date of redemption.
If, after giving notice of redemption to the holders of a series of
Preferred Stock, the Company deposits with a designated bank funds sufficient to
redeem such Preferred Stock, then from and after such deposit, all shares called
for redemption will no longer be outstanding for any purpose, other than the
right to receive the redemption price and the right, if applicable, to convert
such shares into Class A Common Stock of the Company prior to the date fixed for
redemption. The redemption price will be stated in the Prospectus Supplement
relating to a particular series of Preferred Stock.
Except as indicated in the applicable Prospectus Supplement, the Preferred
Stock is not subject to any mandatory redemption at the option of the holder.
SINKING FUND
The Prospectus Supplement for any series of Preferred Stock will state the
terms, if any, of a sinking fund for the purchase or redemption of that series.
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CONVERSION RIGHTS
The Prospectus Supplement for any series of Preferred Stock will state the
terms, if any, on which shares of that series are convertible into shares of
Class A Common Stock. The Preferred Stock will have no preemptive rights.
VOTING RIGHTS
Under ordinary circumstances, the holders of Preferred Stock have no voting
rights except as required by law. However, if dividends on the Preferred Stock
are in arrears for an aggregate of six quarterly dividends upon such shares, the
holders of the Preferred Stock, voting as a class, will become entitled to elect
two Directors until such time as such arrearages are paid and current dividends
paid or declared and funded.
TRANSFER AGENT AND REGISTRAR
The transfer agent, registrar and dividend disbursement agent for a series
of Preferred Stock will be selected by the Company and be described in the
applicable Prospectus Supplement. The registrar for shares of Preferred Stock
will send notices to shareholders of any meetings at which holders of Preferred
Stock have the right to vote on any matter.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
Forest City may, at its option, elect to offer fractional shares of
Preferred Stock ("Depositary Shares"), rather than full shares of Preferred
Stock. In such event, Forest City will issue to the public receipts for
Depositary Shares, each of which will represent a fraction (to be set forth in
the Prospectus Supplement relating to a particular series of Preferred Stock) of
a share of a particular series of Preferred Stock, as described below.
The shares of any series of Preferred Stock represented by Depositary
Shares will be deposited under a Deposit Agreement (the "Deposit Agreement")
between Forest City and a depositary named in the applicable Prospectus
Supplement (the "Stock Depositary"). Subject to the terms of the Deposit
Agreement, each owner of a Depositary Share will be entitled, in proportion to
the applicable fraction of a share of Preferred Stock represented by such
Depositary Share, to all the rights and preferences of the Preferred Stock
represented thereby (including dividend, voting, redemption, subscription and
liquidation rights).
The Depositary Shares will be evidenced by depositary receipts issued
pursuant to the Deposit Agreement ("Depositary Receipts"). Depositary Receipts
will be distributed to those persons purchasing the fractional shares of
Preferred Stock in accordance with the terms of the offering. Copies of the
forms of Deposit Agreement and Depositary Receipt are filed as exhibits to the
Registration Statement of which this Prospectus is a part. The following summary
of certain provisions of the Deposit Agreement does not purport to be complete
and is subject, and is qualified in its entirety by reference, to all the
provisions of the Deposit Agreement, including the definitions therein of
certain terms, and with respect to any particular Depositary Receipts, to the
description of the terms thereof included in the Prospectus Supplement relating
thereto.
Pending the preparation of definitive Depositary Receipts, the Stock
Depositary may, upon the written order of Forest City, issue temporary
Depositary Receipts substantially identical to (and entitling the holders
thereof to all the rights pertaining to) definitive Depositary Receipts but not
in definitive form. Definitive Depositary Receipts will be prepared thereafter
without unreasonable delay, and temporary Depositary Receipts will be
exchangeable for definitive Depositary Receipts at Forest City's expense.
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DIVIDENDS AND OTHER DISTRIBUTIONS
The Stock Depositary will distribute all cash dividends or other cash
distributions received in respect of the Preferred Stock to the record holders
of Depositary Shares relating to such Preferred Stock in proportion to the
number of such Depositary Shares owned by such holders. The Stock Depositary
will distribute only such amount, however, as can be distributed without
attributing to any holder of Depositary Shares a fraction of one cent, and the
balance not so distributed will be held by the Stock Depositary (without
liability for interest thereon) and will be added to and treated as part of the
sum next received by the Stock Depositary for distribution to record holders of
Depositary Shares.
In the event of a distribution other than in cash, the Stock Depositary
will distribute property received by it to the record holders of Depositary
Shares entitled thereto, in such amounts as are, as nearly as practicable, in
proportion to the number of such Depositary Shares owned by such holder, unless
the Stock Depositary determines that it is not feasible to make such
distribution, in which case the Stock Depositary may, with the approval of
Forest City, adopt such method as it deems equitable and practical, including
the sale of such property and distribute the net proceeds from such sale to such
holders.
The Deposit Agreement will also contain provisions relating to the manner
in which any subscription or similar rights offered by Forest City to holders of
the Preferred Stock shall be made available to the holders of Depositary Shares.
WITHDRAWAL OF PREFERRED STOCK
Upon surrender of Depositary Receipts at the corporate trust office of the
Stock Depositary (unless the related Depositary Shares have previously been
called for redemption), the holder of the Depositary Shares evidenced thereby
will be entitled to delivery at such office to or upon such holder's order, of
the number of whole shares of the related series of Preferred Stock and any
money or other property represented by such Depositary Shares. Holders of
Depositary Shares making such withdrawals will be entitled to receive whole
shares of the related series of Preferred Stock on the basis set forth in the
related Prospectus Supplement for such series of Preferred Stock, but holders of
such whole shares of such Preferred Stock will not thereafter be entitled to
receive Depositary Shares in exchange therefor. If the Depositary Receipts
delivered by the holder evidence a number of Depositary Shares in excess of the
number of Depositary Shares representing the number of whole shares of the
related series of Preferred Stock to be withdrawn, the Stock Depositary will
deliver to such holder at the same time a new Depositary Receipt evidencing such
excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
If a series of Preferred Stock represented by Depositary Shares is subject
to redemption, the Stock Depositary Shares will be redeemed from the proceeds
received by the Stock Depositary resulting from the redemption, in whole or in
part, of such series of Preferred Stock held by the Stock Depositary in
accordance with the terms of the Deposit Agreement. Whenever Forest City redeems
shares of Preferred Stock held by the Stock Depositary, the Stock Depositary
will redeem as of the same redemption date the number of Depositary Shares
representing shares of Preferred Stock so redeemed. If fewer than all the
Depositary Shares are to be redeemed, the Stock Depositary Shares to be redeemed
will be selected by lot or pro rata as may be determined by the Depositary or by
any other method that may be determined by the Stock Depositary to be equitable.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be outstanding and all rights of the holders of the
Depositary Shares will cease, except the right to receive the money, securities,
or other property payable upon such redemption and any money, securities, or
other property to which the holders of such Depositary Shares were entitled
24
<PAGE> 27
upon such redemption upon surrender to the Stock Depositary of the Depositary
Receipts evidencing such Depositary Shares.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the Stock Depositary will mail the information
contained in such notice of meeting to the record holders of the Depositary
Shares relating to such Preferred Stock. Each record holder of such Depositary
Shares on the record date (which will be the same date as the record date for
the Preferred Stock) will be entitled to instruct the Stock Depositary as to the
exercise of the voting rights pertaining to the amount of whole shares of the
Preferred Stock represented by such holder's Depositary Shares. The Stock
Depositary will endeavor, insofar as practicable, to vote the amount of whole
shares of the Preferred Stock represented by such Depositary Shares in
accordance with such instructions, and Forest City will agree to take all
reasonable action which may be deemed necessary by the Stock Depositary in order
to enable the Stock Depositary to do so. The Stock Depositary will abstain from
voting shares of the Preferred Stock to the extent it does not receive specific
instructions from the holder of Depositary Shares representing such Preferred
Stock.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the Deposit Agreement may at any time be amended by agreement
between Forest City and the Stock Depositary. However, any amendment which
materially and adversely alters the rights of the holders of Depositary Shares
will not be effective unless such amendment has been approved by the holders of
at least a majority of the Depositary Shares then outstanding under such Deposit
Agreement. The Deposit Agreement may be terminated by the Stock Depositary or
Forest City only if (i) all outstanding Depositary Shares under such Deposit
Agreement have been redeemed or (ii) there has been a final distribution in
respect of the Preferred Stock in connection with any liquidation, dissolution
or winding up of Forest City and such distribution has been distributed to the
holders of Depositary Receipts.
CHARGES AND EXPENSES OF DEPOSITARY
Forest City will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. Forest City
will pay charges of the Stock Depositary in connection with the initial deposit
of the Preferred Stock and any redemption of the Preferred Stock at the option
of Forest City, and any withdrawals of Preferred Stock by the holders of
Depositary Shares. Holders of Depositary Receipts will pay all other transfer
and other taxes and governmental charges and such other charges as they are
expressly provided in the Deposit Agreement to be for their accounts.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Stock Depositary may resign at any time by delivering to Forest City
notice of its election to do so, and Forest City may at any time remove the
Stock Depositary, any such resignation or removal to take effect upon the
appointment of a successor depositary and its acceptance of such appointment as
provided in the Deposit Agreement. Such successor depositary must be appointed
within 60 days after delivery of the notice of resignation or removal and must
be a bank or trust company having its principal office in the United States of
America and having a combined capital and surplus of at least $50,000,000.
MISCELLANEOUS
Forest City will deliver, at its own expense, all notices and reports
required by law, by the rules of any national securities exchange upon which the
Preferred Stock, the Depositary Shares or the
25
<PAGE> 28
Depositary Receipts are listed or by the Company's Articles to be furnished to
the record holders of Preferred Stock.
As provided in the Deposit Agreement, neither the Stock Depositary nor
Forest City will be liable if it is prevented or delayed by law or any other
circumstance beyond its control in performing its obligations under the Deposit
Agreement. The obligations of Forest City and the Stock Depositary under the
Deposit Agreement will be limited to performance in good faith of their duties
thereunder and they will not be obligated to prosecute or defend any legal
proceeding in respect of any Depositary Shares or Preferred Stock unless
satisfactory indemnity is furnished. Forest City and the Stock Depositary may
rely upon written advice of counsel or accountants, or upon information provided
by persons presenting Preferred Stock for deposit, holders of Depositary
Receipts or other persons believed to be competent and on documents believed to
be genuine.
DESCRIPTION OF COMMON STOCK
The Articles authorize the issuance of (a) 48,000,000 shares of Class A
Common Stock, of which, at February 25, 1998, 9,910,586 shares were issued and
were held of record by 884 shareholders, 313,650 shares were held in treasury
and 9,596,936 shares were outstanding and (b) 18,000,000 shares of Class B
Common Stock, convertible on a share-for-share basis into Class A Common Stock,
of which, at February 25, 1998, 5,531,390 shares were issued and were held of
record by 660 shareholders, 139,050 shares were held in treasury and 5,392,340
shares were outstanding.
The description set forth below of the Class A Common Stock and Class B
Common Stock is subject to and qualified in its entirety by reference to the
Articles.
GENERAL
Except as described below, the shares of Class A Common Stock and the
shares of Class B Common Stock are in all respects identical, and the respective
holders shall be entitled to participate in any dividend, reclassification,
merger, consolidation, reorganization, recapitalization, liquidation,
dissolution or winding up of the affairs of the Company, share-for-share,
without priority or other distinction between classes.
Both the Class A and Class B Common Stock are listed on the New York Stock
Exchange. As of October 31, 1997, Class A Common Stock accounted for
approximately 64% of the total number of shares of Common Stock issued and
outstanding.
DIVIDENDS
The Directors of Forest City are not required to declare a regular cash
dividend in any fiscal year. The Class A Common Stock and Class B Common Stock
will participate equally on a share-for-share basis in any and all cash
dividends paid. No cash dividend can be paid on a class of Common Stock until
provision is made for payment of a dividend of at least an equal amount on a
share-for-share basis on the other class of Common Stock for such fiscal year.
Any extra dividend, special dividend or dividend paid other than cash
(other than a stock dividend) is required to be paid equally to the holders of
Class A Common Stock and the holders of Class B Common Stock on a
share-for-share basis. If the Directors determine to declare any stock dividend
with respect to either class of Common Stock, they must at the same time declare
a proportionate stock dividend with respect to the other class of Common Stock.
If the shares of either class of Common Stock are combined or subdivided, the
shares of the other class of Common Stock must be combined or subdivided in an
equivalent manner. In the discretion of the Directors, dividends payable in
Class A Common Stock may be paid with respect to shares of either class of
Common Stock, but dividends payable in Class B Common Stock may be paid only
with respect to shares of Class B Common Stock.
26
<PAGE> 29
VOTING RIGHTS
The holders of the Class A Common Stock (voting as a separate class) are
entitled to elect 25% of the Directors rounded up to the nearest whole number.
All other Directors are elected by the holders of the Class B Common Stock
voting as a separate class. Cumulative voting for the election of Directors is
provided by Ohio law if notice in writing is given by any shareholder to the
President, a Vice President or the Secretary of the Company not less than
forty-eight hours before the time fixed for the holding of the meeting that such
shareholder desires cumulative voting with respect to the election of directors
by a class of shareholders to which he belongs, and if an announcement of the
giving of such notice is made upon the convening of the meeting by the Chairman
or Secretary or by or on behalf of the shareholder giving such notice, each
holder of shares of that class shall have the right to accumulate such voting
power as he possesses at such election with respect to shares of that class.
Each holder of shares of Class A Common Stock or Class B Common Stock, as the
case may be, shall have as many votes as equal the number of shares of that
class of Common Stock owned by him multiplied by the number of directors to be
elected by the holders of that class of Common Stock. These votes may be
distributed among the total number of directors to be elected by the holders of
that class of Common Stock or distributed among any lesser number, in such
proportion as the holder may desire.
In the event that the number of outstanding shares of Class A Common Stock
is (as of the record date for any shareholder meeting at which Directors will be
elected) less than 10% of the combined outstanding shares of Class A and Class B
Common Stock, then the holders of Class A Common Stock will not have the right
to elect 25% of the Directors. In such event, the holders of the Class A Common
Stock and the holders of the Class B Common Stock would vote together as a
single class in the election of all Directors, with each Class A share having
one vote and each Class B share having ten votes.
Further, in the event that the number of outstanding shares of Class B
Common Stock as of the above-mentioned record date, is less than 500,000 shares,
the holders of Class B Common Stock will lose their rights to elect 75% of the
Directors. In such event, the holders of the Class A Common Stock would continue
to vote as a separate class to elect 25% of the Directors rounded up to the
nearest whole number, and the holders of the Class A and Class B Common Stock
would vote together as a single class in the election of the remaining
Directors, with each Class A share having one vote and each Class B share having
ten votes.
The holders of Class A Common Stock and the holders of Class B Common Stock
are entitled to vote as separate classes (1) for the election of Directors (as
discussed above); (2) to amend the Articles or the Code of Regulations of Forest
City or approve a merger or consolidation of Forest City with or into another
corporation if such amendment, merger or consolidation would adversely affect
the rights of the particular class; and (3) on all matters as to which class
voting may be required by applicable Ohio law. The holders of the Class A Common
Stock vote together with the holders of the Class B Common Stock as a single
class on all matters which are submitted to shareholder vote, except as
discussed above. When all holders of shares of Forest City vote as a single
class, each Class A share has one vote and each Class B share has ten votes.
CONVERSION
Holders of shares of Class B Common Stock are entitled to convert, at any
time and at their election, each share of Class B Common Stock into one share of
Class A Common Stock. Shares of Class A Common Stock are not convertible into
any security of Forest City.
OTHER TERMS
Shareholders of Forest City have no preemptive or other rights to subscribe
for additional shares of voting securities of Forest City (except for the
conversion rights of Class B Common Stock described above and conversion rights
of Preferred Stock, if any). Upon any liquidation, dissolution or winding up of
Forest City, the assets legally available for distribution to holders of all
27
<PAGE> 30
classes of Common Stock are distributable ratably among the holders of the
shares of all classes of Common Stock outstanding at the time. No class of
Common Stock is subject to redemption.
TRANSFER AGENT
National City Bank Corporate Trust Operations Department, Cleveland, Ohio,
currently serves as transfer agent for the Common Stock.
PLAN OF DISTRIBUTION
Forest City may sell Offered Securities to or through underwriters and may
sell Offered Securities directly to other purchasers or through agents.
The distribution of the Offered Securities may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, or at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices.
In connection with the sale of Offered Securities, underwriters may receive
compensation from Forest City or from purchasers of Offered Securities for whom
they may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell Offered 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 agents. Underwriters, dealers and agents that participate in the
distribution of Offered Securities may be deemed to be underwriters, and any
discounts or commissions received by them from Forest City and any profit on the
resale of Offered Securities by them may be deemed to be underwriting discounts
and commissions, under the Securities Act. Any such underwriter or agent will be
identified, and any such compensation received from Forest City will be
described, in the relevant Prospectus Supplement.
Under agreements which may be entered into by Forest City, underwriters and
agents who participate in the distribution of Offered Securities may be entitled
to indemnification by Forest City against certain liabilities, including
liabilities under the Securities Act.
If so indicated in the relevant Prospectus Supplement, Forest City will
authorize underwriters or other persons acting as Forest City's agents to
solicit offers by certain institutions to purchase Offered Securities from
Forest City pursuant to contracts ("Delayed Delivery Contracts") providing for
payment and delivery on a future date. Institutions with which Delayed Delivery
Contracts may be made include commercial and savings banks, insurance companies,
pension funds, investment companies, educational and charitable institutions and
others, but in all cases such institutions must be approved by Forest City. The
obligations of any purchaser under Delayed Delivery Contracts will be subject
only to the conditions that (i) the purchase of the Offered Securities shall not
at the time of delivery be prohibited under the laws of any jurisdiction in the
United States to which such purchaser is subject, and (ii) if the Offered
Securities are being sold to underwriters, Forest City shall have sold to such
underwriters the total principal amount of the Offered Securities less the
principal amount thereof covered by Delayed Delivery Contracts. The underwriters
and such other agents will not have any responsibility in respect of the
validity or performance of such Delayed Delivery Contracts.
Agents, underwriters, and dealers may be customers of, engage in
transactions with, or perform services for, Forest City and its subsidiaries in
the ordinary course of business.
VALIDITY OF THE OFFERED SECURITIES
The validity of the Offered Securities offered hereby will be passed upon
for Forest City by Jones, Day, Reavis & Pogue, Cleveland, Ohio, and for any
underwriters or agents by counsel to be named in the applicable Prospectus
Supplement. Counsel to the underwriters or agents may, in some instances, rely
as to certain matters of Ohio law upon the opinion of Jones, Day, Reavis &
Pogue.
28
<PAGE> 31
EXPERTS
The consolidated financial statements and financial statement schedules of
Forest City and Subsidiaries appearing in Forest City's Annual Report on Form
10-K for the year ended January 31, 1997 have been audited by Coopers & Lybrand
L.L.P., independent accountants as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements and financial statement schedules are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
29
<PAGE> 32
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 27, 1998
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED , 1998
$200,000,000
[FOREST CITY ENTERPRISES LOGO]
% SENIOR NOTES DUE 2008
---------------------
Forest City Enterprises, Inc. (the "Company") is a national real estate
company principally engaged in the development, acquisition, ownership and
management of commercial and residential real estate throughout the United
States. The Company owns approximately $2.6 billion of properties at cost in 21
states and the District of Columbia. As of January 31, 1998, it operated a
portfolio of real estate that consisted of 15.2 million square feet of retail
space at 33 shopping centers, 6.7 million square feet of office space in 21
buildings, five hotels with 1,530 rooms and 32,111 units in 117 apartment
communities, and owned 5,367 acres of land held for improvement and sale.
Interest on the Notes is payable on March and September of each year,
commencing September , 1998. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after March , 2003 at the
redemption prices set forth herein, plus accrued and unpaid interest, if any, to
the date of redemption. In addition, upon the occurrence of one or more Public
Equity Offerings (as defined herein) consummated prior to March , 2001, the
Company may at its option redeem up to 33% of the original aggregate principal
amount of the Notes from the proceeds thereof at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the date of redemption;
provided that immediately after such redemption, at least $130 million of the
original aggregate principal amount of the Notes remains outstanding. Upon a
Change of Control (as defined herein), holders of the Notes may require the
Company to purchase all or a portion of the Notes at a price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase. In addition, in the event of certain asset sales, the Company
may be required to make an offer to purchase Notes at a price equal to 100% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase, with the net proceeds of such asset sales. See "Description of
Notes."
The Notes will be senior unsecured obligations of the Company. The Notes
will rank pari passu in right of payment with all other existing and future
senior unsecured indebtedness of the Company, including the Company's Guaranty
of the borrowings under the Forest City Rental Properties Corporation Credit
Agreement. See "Description of Notes." The Notes will be effectively
subordinated to all existing and future senior secured indebtedness of the
Company, to the extent of the value of the collateral securing such
indebtedness, and will be effectively subordinated to all existing and future
indebtedness and other liabilities of the Company's subsidiaries, including the
borrowings under the Forest City Rental Properties Corporation Credit Agreement.
See "Risk Factors -- Substantial Operations at Subsidiary Level; Structural
Subordination."
The Notes will be represented by one or more global notes registered in the
name of the nominee of The Depository Trust Company ("DTC"). Beneficial
interests in the global notes will be shown on, and transfers thereof will be
effected only through, records maintained by DTC and its participants. Except as
described herein, Notes in definitive form will not be issued.
SEE "RISK FACTORS" BEGINNING ON PAGE S-16 FOR CERTAIN FACTORS RELEVANT TO
AN INVESTMENT IN THE NOTES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) COMPANY(3)
----------------- ------------ -----------
<S> <C> <C> <C>
Per Note.................................................... % % %
Total....................................................... $ $ $
</TABLE>
- ---------------
(1) Plus accrued interest, if any, from , 1998.
(2) Forest City has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(3) Before deducting estimated expenses of $614,000 payable by Forest City.
---------------------
The Notes offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the Notes
will be ready for delivery in book-entry form only through the facilities of DTC
in New York, New York, on or about March , 1998, against payment therefor in
immediately available funds.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MCDONALD & COMPANY
SECURITIES, INC.
---------------------
The date of this Prospectus Supplement is , 1998.
<PAGE> 33
[GRAPHIC]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVERALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH NOTES, AND
THE IMPOSITION OF A PENALTY BID IN CONNECTION WITH THIS OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 34
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial information and
statements, and the notes thereto, and other data included elsewhere or
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus. As used in this Prospectus Supplement, references to the years 1997,
1996, 1995 and 1994 refer to the fiscal years ended January 31, 1998, 1997, 1996
and 1995, respectively; unless otherwise indicated by the context, "Forest City"
or the "Company" refers to Forest City Enterprises, Inc., an Ohio corporation,
together with its consolidated subsidiaries; and the "Offering" refers to the
offering made hereby of $200,000,000 principal amount of % Senior Notes due
2008 (the "Notes").
OVERVIEW
Forest City is one of the leading real estate development companies in the
United States. It develops, acquires, owns and manages commercial and
residential real estate projects in 21 states and the District of Columbia. At
October 31, 1997, the Company had $2.8 billion in consolidated assets, of which
approximately $2.6 billion was invested in commercial and residential real
estate.
The Company has a portfolio diversified both geographically and among
property types, and operates through four principal business groups: the
Commercial Group, the Residential Group, the Land Group and the Lumber Trading
Group. The following table sets forth, by type of property, a summary of the
Company's operating portfolio of commercial, residential and land projects as of
January 31, 1998.
<TABLE>
<CAPTION>
NUMBER
OF REPRESENTATIVE PRINCIPAL
TYPE OF PROPERTY PROPERTIES TOTAL SIZE METROPOLITAN REGIONS
- -------------------------------------- ----------- ------------------- --------------------------------------
<S> <C> <C> <C>
COMMERCIAL GROUP
Shopping Centers.................... 33 15.2 million square New York City (7); California (4);
feet Cleveland (3); Akron, OH (3); Las
Vegas (2) and Tucson (2)
Office Buildings.................... 21 6.7 million Cleveland (9); New York City (6);
leasable square Cambridge, MA (3) and Pittsburgh (2)
feet
Hotels.............................. 5 1,530 rooms Cleveland (2); Pittsburgh (1);
Charleston, WV (1) and Detroit (1)
RESIDENTIAL GROUP
Apartment Communities (1)........... 117 32,111 units Cleveland (21); California (8);
Washington, D.C. (5); Detroit (4);
Philadelphia (2); Cambridge, MA (1)
and Las Vegas (1)
LAND GROUP
Land held for improvement and
sale.............................. -- 5,367 acres Ft. Lauderdale; Las Vegas; Cleveland;
Tucson; Tampa and Charlotte
</TABLE>
- ---------------
(1) Includes 9,402 syndicated senior citizen subsidized units in 57 apartment
communities developed under Federal programs in which the Company holds a
residual interest, none of which are reflected under the caption
"Representative Principal Metropolitan Regions" in the table above.
S-3
<PAGE> 35
The Company's earnings before depreciation, amortization and deferred taxes
("EBDT") grew by 29% to $80.1 million for the nine months ended October 31, 1997
(including $7.0 million of litigation proceeds, net of tax, relating to the sale
of a residential apartment complex) from $62.0 million for the nine months ended
October 31, 1996. Management expects EBDT to grow by 17% to approximately $106
million (including the $7.0 million of litigation proceeds) for the year ended
January 31, 1998 from $90.4 million for the year ended January 31, 1997.* This
growth reflects strong performance in the Company's existing portfolio as a
result of continued high occupancy rates, increased rental rates, the addition
in 1996 of 11 properties to the Company's portfolio, with a total cost of $330.3
million (of which the Company's share was $186.2 million), and the addition in
1997 of 11 properties, with a total cost of $230.8 million (of which the
Company's share was $164.7 million). For a further discussion and a more
complete definition of EBDT, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
At October 31, 1997, the shopping centers, office buildings and hotels
comprising the Commercial Group totaled $1.8 billion or 64% of total assets.
Properties in the Company's Residential Group totaled $619.7 million or 22% of
total assets as of October 31, 1997. For the nine months ended October 31, 1997,
52% of total revenues and 54% of EBDT were generated by the Commercial Group and
23% of total revenues and 32% of EBDT were generated by the Residential Group.
In 1996, 51% of total revenues and 62% of EBDT were generated by the Commercial
Group and 19% of total revenues and 27% of EBDT were generated by the
Residential Group. See "Business -- Commercial Group" and "-- Residential
Group."
The Land Group develops raw land into master planned communities, mixed-use
and other residential developments and currently owns 5,367 acres of undeveloped
land for this purpose. The Company currently has major land development projects
in five states. See "Business -- Land Group." The Lumber Trading Group is one of
the largest lumber wholesalers in North America. See "Business -- Lumber Trading
Group." For the nine months ended October 31, 1997, the combined land and lumber
operations contributed 24% and 7% of revenues and EBDT, respectively, and
constituted 10% of the Company's total assets at October 31, 1997. The Company's
"Corporate" activities relate to its investments in and advances to affiliates
and general corporate items.
The following charts illustrate the division of the Company's business
among its four operating groups and its "Corporate" activities (dollars in
millions).
<TABLE>
FOR THE NINE MONTHS ENDED OCTOBER 31, 1997 AS OF OCTOBER 31, 1997
<S> <C> <C>
Commercial Commercial Commercial
$233.7 $43.6 $1,813.6
52% 54% 64%
Corporate Land Land
$3.7 $0.5 $91.5
1% 1% 3%
Land Lumber Corporate
$12.2 Trading $98.8
3% $5.0 4%
6%
Residential Lumber Trading
$104.1 Corporate $199.2
23% $5.3 7%
7%
Lumber Trading Residential
$94.4 Residential $619.7
21% $25.7 22%
32%
Revenues-$448.1 EBDT-$80.1 Total Assets-$2,822.8
[Revenues Graph] [EBDT Graph] [Total Assets Graph]
</TABLE>
The Company's management strength reflects over 50 years in the real estate
business and the continuity of leadership through three generations of the
Ratner/Miller/Shafran families. The Company's core management team includes 45
senior managers, whose average tenure with the Company is 18 years. The Company
believes that the depth and experience of its management team has been and will
- ---------------
* Represents management's estimate which is subject to change as a result of
computing final results for January 1998 and the Company's normal year-end
audit process. No assurance can be given that the Company will meet this
projection. See "Risk Factors -- Information Concerning Forward-Looking
Statements."
S-4
<PAGE> 36
continue to be vital to the Company's growth and ability to operate through
various real estate cycles. In 1995, Charles A. Ratner, who joined the Company
in 1966, became the Company's third Chief Executive Officer. The Company's
executive officers and directors as a group beneficially owned 2,543,066 shares,
or 26.5%, of the Company's Class A Common Stock, par value $.33 1/3 per share
(the "Class A Common Stock"), (assuming no conversion of the Company's Class B
Common Stock), and 4,006,318 shares, or 74.2%, of the Company's Class B Common
Stock, par value $.33 1/3 per share (the "Class B Common Stock"), outstanding at
December 1, 1997. The total value of such shares as of February 23, 1998 was
approximately $359 million, based on the last reported sale price for Class A
Common Stock ($54.94 per share) on February 23, 1998 and Class B Common Stock
($54.75 per share) on February 20, 1998. See "Risk Factors -- Control by Class B
Common Shareholders" and "-- Conflicts of Interest."
STRONG EBITDA AND EBDT GROWTH
The Company has experienced 18 consecutive years of EBDT growth and strong
growth in earnings before interest expense, income taxes, depreciation and
amortization ("EBITDA")(1) during that period. Management believes this
successful track record is a function of operating a diversified portfolio (both
geographically and by asset class) and management's experience in developing and
operating its business through various real estate cycles.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) EBITDA EBDT
<S> <C> <C>
1980 11.1 27.7
1981 12.5 29.9
1982 17.1 30.1
1983 20.9 32.9
1984 22.8 33
1985 26.1 30.7
1986 31.7 44.9
1987 35.6 57.6
1988 39.9 69.8
1989 44.1 80.5
1990 46.4 91.2
1991 51.2 113.4
1992 77.1 86.7
1993 81 100.1
1994 81.3 117.4
1995 82 141.6
1996 90.4 133.1
1997 106 150
</TABLE>
(1) The Company defines EBITDA as net earnings from operations before interest,
taxes, depreciation and amortization and excludes provision for decline in
real estate, gain (loss) on disposition of properties and extraordinary
gain. The Company's EBITDA is not intended to represent cash flow from
operations as defined by generally accepted accounting principles ("GAAP")
and should not be considered as an alternative to net income as an indicator
of operating performance or to cash flow as a measure of liquidity. The
Company has included information concerning EBITDA as it understands that it
is used by certain investors as one measure of a borrower's historical
ability to service its debt. EBITDA, as presented, may not be comparable to
similarly titled measures reported by other companies, since not all
companies necessarily calculate EBITDA in an identical manner, and therefore
is not necessarily an accurate means of comparison between companies.
(2) Represents management's estimate which is subject to change as a result of
computing final results for January 1998 and the Company's normal year-end
audit process. The estimate includes $15.0 million of litigation proceeds
relating to the sale of an apartment complex in February 1997 (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Sale of Toscana/Extraordinary Gain"). This is a
forward-looking statement and is based on current facts and expectations. No
assurance can be given that the Company will meet this projection. See "Risk
Factors -- Information Concerning Forward-Looking Statements."
(3) Represents management's estimate which is subject to change as a result of
computing final results for January 1998 and the Company's normal year-end
audit process. The estimate includes $7.0 million of litigation proceeds,
net of tax, relating to the sale of an apartment complex in February, 1997
(see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Sale of Toscana/Extraordinary Gain"). This is a
forward-looking statement and is based on current facts and expectations. No
assurance can be given that the Company will meet this projection. See "Risk
Factors -- Information Concerning Forward-Looking Statements."
S-5
<PAGE> 37
DIVERSIFIED TENANT BASE
The Company has a broad and diversified tenant base in 21 states and the
District of Columbia which helps to protect the Company against a downturn in
any particular asset segment. The following table illustrates this diversity as
of January 31, 1998.
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF NUMBER OF NUMBER OF
PROPERTIES STATES TENANTS
---------- --------- -----------
<S> <C> <C> <C>
Shopping Centers....................................... 33 11 900
Office Buildings....................................... 21 5 400
Hotels................................................. 5 4 N/A
Residential............................................ 117 17 & D.C. N/A
</TABLE>
The following tables provide data with respect to the Commercial Group's
largest tenants as of January 31, 1998.
Shopping Centers
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF SHOPPING
NUMBER OF LEASED SHOPPING CENTER BASE
TENANT(1) STORES SQUARE FEET(2) CENTER GLA RENT(3)
--------- --------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
The Limited..................... 69 445,959 5.5% 6.5%
Caldor(4)....................... 2 244,091 3.0 4.2
Woolworth....................... 63 221,792 2.7 3.3
The GAP......................... 15 136,855 1.7 1.6
--------- ---- ----
Total...................... 1,048,697 12.9% 15.6%
========= ==== ====
</TABLE>
- ---------------
(1) The tenant name includes all space associated with the various trade names
for the tenant.
(2) Represents 100% of the square footage of gross leasable area (GLA), not
Forest City's proportionate share.
(3) Represents percentage of Forest City's proportionate share of annualized net
shopping center base rent. Annualized net shopping center base rent equals
contractual rent for the year ended January 31, 1997, adjusted for the
annualized effect of the following significant activity that occurred during
the twelve months ended January 31, 1998: (a) square feet leased by the
Company, (b) square feet of leases where the tenant vacated the space, (c)
square feet of leases that expired but which were renewed by the tenant and
(d) projects completed in 1997.
(4) Caldor currently is in bankruptcy proceedings and has rejected its lease and
closed its 90,000 square foot store at Flatbush Avenue in Brooklyn, New
York. The effect of this lease termination is reflected both in the table
and in footnote (3) above. The Company is redeveloping Flatbush Avenue,
increasing the GLA from 90,000 square feet to 136,000 square feet. Letters
of intent or leases have been signed for 108,000 square feet of this GLA.
The property is expected to re-open in the second half of 1998. See "Risk
Factors -- Dependence on Rental Income From Real Property."
S-6
<PAGE> 38
Office Buildings
<TABLE>
<CAPTION>
PERCENTAGE OF
OFFICE PERCENTAGE OF
LEASED LEASABLE OFFICE BASE
TENANT SQUARE FEET(1) SQUARE FEET RENT(2)
------ -------------- ------------- -------------
<S> <C> <C> <C>
U.S. Government............................................. 544,907 8.1% 13.1%
City of New York............................................ 532,742 7.9 6.6
Brooklyn Union.............................................. 479,527 7.1 8.5
Morgan Stanley & Co., Incorporated.......................... 383,112 5.7 5.9
Federated Investors, Inc. .................................. 345,266 5.1 3.5
SIAC........................................................ 328,759 4.9 5.5
Bear, Stearns & Co., Inc. .................................. 268,086 4.0 3.2
Chase Financial Corp. ...................................... 149,058 2.2 1.9
Forest City Enterprises, Inc. .............................. 106,540 1.6 2.5
Ernst & Young, L.L.P. ...................................... 86,956 1.3 1.4
Goldman, Sachs & Co. ....................................... 76,031 1.1 1.4
Board of Education of the City of New York.................. 63,128 0.9 1.0
Genzyme Corporation......................................... 61,720 0.9 1.7
Aetna....................................................... 57,417 0.9 1.4
----------- ------ ------
Total................................................... 3,483,249 51.7% 57.6%
=========== ====== ======
</TABLE>
- ---------------
(1) Represents 100% of the leasable square feet, not Forest City's proportionate
share.
(2) Represents percentage of Forest City's proportionate share of annualized net
base rent. Annualized net base rent equals the contractual base rent for the
year ended January 31, 1997, adjusted for the annualized effect of the
following activity that occurred during the twelve months ended January 31,
1998: (a) square feet leased by the Company, (b) square feet of leases where
the tenant vacated the space, (c) square feet of leases that expired but
which were renewed by the tenant and (d) projects opened in 1997.
See "Risk Factors -- Dependence on Rental Income From Real Property" and
"-- Reliance on Major Tenants."
S-7
<PAGE> 39
CONSISTENT HISTORY OF MORTGAGE REFINANCINGS
The Company has routinely refinanced its balloon mortgage payments and has
often been successful in obtaining additional capital for redeployment to other
projects. The table below sets forth the Company's refinancings over each of the
past six years (dollars in thousands).
<TABLE>
<CAPTION>
REPAYMENT OF
SCHEDULED
MATURITIES &
VOLUNTARY ACTUAL
PERIOD REFINANCINGS PERCENTAGE REFINANCING PERCENTAGE
- ------ ------------ ---------- ----------- ----------
<C> <S> <C> <C> <C> <C>
1997 Fixed..................... $ 68,069 14.6% $ 376,467 73.8%
Variable.................. 399,362 85.4 133,670 26.2
---------- ----- ---------- -----
Total..................... $ 467,431 100.0% $ 510,137 100.0%
========== ===== ========== =====
1996 Fixed..................... $ 72,235 15.0% $ 240,472 45.8%
Variable.................. 410,193 85.0 284,898 54.2
---------- ----- ---------- -----
Total..................... $ 482,428 100.0% $ 525,370 100.0%
========== ===== ========== =====
1995 Fixed..................... $ 101,441 28.1% $ 148,345 40.4%
Variable.................. 259,979 71.9 218,498 59.6
---------- ----- ---------- -----
Total..................... $ 361,420 100.0% $ 366,843 100.0%
========== ===== ========== =====
1994 Fixed..................... $ 7,594 2.7% $ 60,993 21.1%
Variable.................. 279,284 97.3 228,376 78.9
---------- ----- ---------- -----
Total..................... $ 286,878 100.0% $ 289,369 100.0%
========== ===== ========== =====
1993 Fixed..................... $ 103,217 37.9% $ 188,953 56.4%
Variable.................. 168,842 62.1 146,049 43.6
---------- ----- ---------- -----
Total..................... $ 272,059 100.0% $ 335,002 100.0%
========== ===== ========== =====
1992 Fixed..................... $ 16,850 22.6% $ 16,114 20.0%
Variable.................. 57,560 77.4 64,594 80.0
---------- ----- ---------- -----
Total..................... $ 74,410 100.0% $ 80,708 100.0%
========== ===== ========== =====
</TABLE>
See "Risk Factors -- Substantial Leverage; Ability to Service Debt,"
"-- Credit Facility Covenants," "-- Changes in Interest Rates" and
"-- Tax-Exempt and UDAG Financing."
EXISTING PORTFOLIO
The Company actively manages its portfolio of existing commercial and
residential projects to maximize net operating income by raising rental rates on
expiring leases, increasing occupancy and maintaining tight cost controls.
Comparable Net Operating Income for the Commercial Group's portfolio increased
6.2% from 1994 to 1995, 0.9% from 1995 to 1996 and 4.1% from 1996 to 1997
(projected).* Comparable Net Operating Income for the Residential Group
increased 6.0% from 1994 to 1995, 6.7% from 1995 to 1996 and 6.4% from 1996 to
1997 (projected).* Combined, Comparable Net Operating Income from the Company's
real estate portfolio increased 6.1% from 1994 to 1995, 2.5% from 1995 to 1996
and 4.7% from 1996 to 1997 (projected).* As used in this Prospectus Supplement,
"Comparable Net Operating Income" means increases or decreases in net operating
income from properties that were in operation during 1997 and 1996 or 1996 and
1995 or 1995 and 1994, as the case may be. Occupancy remained relatively
consistent for the shopping center portfolio at 88% for 1995 and 1996 and 89%
for 1997 and for the residential portfolio at 96% for 1995, 1996 and 1997, while
office portfolio occupancy increased from 92% in 1995 to 95% in 1996 and 97% in
1997. The Company's shopping
- ---------------
* Represents management's estimate which is subject to change as a result of
computing final results for January 1998 and the Company's normal year-end
audit process. No assurance can be given that the Company will meet this
projection. See "Risk Factors -- Information Concerning Forward-Looking
Statements."
S-8
<PAGE> 40
center and office leases in effect at January 31, 1997 contained
contractual aggregate net rental increases of $24.6 million and $10.7 million,
respectively, for the years 1997 through 2001 and $22.4 million and $14.3
million, respectively, over the succeeding five years. These net rental
increases will positively affect the Company's EBDT because the Company does not
account for rents on a straight-line basis.
See "Risk Factors -- Real Estate Development and Investment Risks,"
"-- Illiquidity of Real Estate Investment," "-- Dependence on Rental Income From
Real Property," "-- Competition," "-- Environmental Liabilities" and
"-- Partnership Risks."
OPERATING AND ORGANIZATIONAL STRUCTURE
The Company is organized into four principal business groups: Commercial,
Residential, Land and Lumber Trading. Each group operates autonomously, and each
of the Commercial Group and Residential Group has its own development,
acquisition, leasing, property and financial management functions. The Company
believes that this structure permits each group to better focus on its business
and permits key employees to exercise the independent leadership, creativity and
entrepreneurial skills necessary in the real estate business. See "-- New
Property Development and Acquisitions."
For Federal income tax purposes, the Company operates as a "C" corporation,
which distinguishes it from many competitors that operate as tax-qualified real
estate investment trusts ("REITs"). As a "C" corporation, the Company is not
subject to the mandatory distribution requirements imposed on REITs and is able
to reinvest its earnings for expansion and renovation of its existing assets as
well as in new development opportunities. The tax benefits the Company receives
from its depreciation and interest expense deductions significantly reduce its
taxable income. The Company's consolidated tax position and the tax benefits
generated from its real estate operations allow it to reduce the tax payable
with respect to the earnings from its Land and Lumber Trading Groups. At January
31, 1997, the Company had net operating loss carryforwards for tax purposes of
$88.9 million, which expire in the years ending January 31, 2005 through January
31, 2011, and general business credit carryovers of $3.6 million which expire in
the years ending January 31, 2003 through January 31, 2011. In 1996, the Company
did not incur a regular Federal corporate income tax liability; however, the
Company did incur a net Federal alternative minimum income tax liability of
$2,904,000.
NEW PROPERTY DEVELOPMENT AND ACQUISITIONS
The Company believes that new property development and acquisitions will
increase the Company's cash flow and EBDT. The Company believes that
opportunities for new projects exist among all of its property types. The
Company's development activities in recent years have focused on California,
Nevada, the New York City and Washington, D.C. metropolitan areas, and northeast
Ohio. The Company believes that California and Nevada represent long-term growth
markets, that the New York City metropolitan area retail market and Washington,
D.C. metropolitan area residential market are underserved, and that northeast
Ohio presents the opportunity to leverage its large existing portfolio in that
market.*
RECENT OPENINGS
In 1997, the Company opened three new shopping centers with 461,000 square
feet of GLA, one new office building with 317,000 square feet of GLA, acquired
three apartment complexes with 870 units and opened 363 units at four phased
construction apartment complexes. Each of the projects opened in 1997 were on
schedule and on budget.
- ---------------
* This paragraph is a forward-looking statement and is based on current facts
and expectations. The development and acquisition of real estate properties
involves various risks, including an inability to obtain financing or
government entitlements, construction delays and cost overruns. See "Risk
Factors -- Real Estate Development and Investment Risks," "-- Dependence on
Rental Income From Real Property," "-- Changes in Interest Rates,"
"-- Tax-Exempt and UDAG Financing," "-- Reliance on Major Tenants,"
"-- Competition" and "-- Partnership Risks," for a more complete discussion
of the risks associated with the Company's development and acquisition
activities.
S-9
<PAGE> 41
The following table sets forth a summary of certain information regarding
these properties, which the Company expects will provide increased levels of
EBDT and cash flow as they mature (for specific project information, see
"Business -- Commercial Group" and "-- Residential Group").*
<TABLE>
<CAPTION>
COMPANY'S
TOTAL COST SHARE OF
NUMBER OF AT 100% COST GLA/NO. OF
GROUP PROJECTS (IN MIL.) (IN MIL.) TOTAL UNITS
----- --------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Commercial Group
Shopping Centers.................................... 3 $ 81.7 $ 57.2 461,000
Office/Mixed Use.................................... 1 65.2 42.4 317,000
----- ------ ------ -------
Total Commercial Group............................ 4 146.9 99.6 778,000
=======
Residential Group..................................... 7 83.9 65.1 1,233
----- ------ ------ =======
Total............................................. 11 $230.8 $164.7
===== ====== ======
</TABLE>
- ---------------
* This is a forward-looking statement and is based on current facts and
expectations. The development and acquisition of real estate properties
involves various risks, including an inability to obtain financing or
government entitlements, construction delays and cost overruns. See "Risk
Factors -- Real Estate Development and Investment Risks," "-- Dependence on
Rental Income From Real Property," "-- Changes in Interest Rates,"
"-- Tax-Exempt and UDAG Financing," "-- Reliance on Major Tenants,"
"-- Competition" and " --Partnership Risks," for a more complete discussion of
the risks associated with the Company's development and acquisition
activities.
S-10
<PAGE> 42
PROJECTS UNDER CONSTRUCTION/TO BE ACQUIRED
As of January 31, 1998, the Company had 13 properties under construction or
under contract to be acquired. These projects include three shopping centers
with a total of 419,000 square feet of GLA, two office and mixed-use projects
with 448,000 square feet of leasable space, one hotel with 292 rooms under
purchase contract, one residential project with an aggregate of 546 units under
construction, four residential projects with an aggregate of 729 units under
purchase contract and construction of additional phases at two residential
communities to add an aggregate of 640 units.
The following table sets forth a summary of certain information regarding
these projects which are scheduled to open or to be acquired between the first
quarter of 1998 and the second quarter of 1999.* For specific project
information, see "Business -- Commercial Group" and "Residential Group."
<TABLE>
<CAPTION>
COMPANY'S
TOTAL COST SHARE OF
NUMBER OF AT 100% COST GLA/NO. OF
GROUP PROJECTS (IN MIL.) (IN MIL.) TOTAL UNITS
----- --------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Commercial Group
Shopping Centers(1).......................... 3 $218.4 $138.5 419,000
Office/Mixed Use(2).......................... 2 146.9 107.5 448,000
----- ------ ------ ---------
Subtotal.............................. 5 365.3 246.0 867,000
=========
Hotel........................................ 1 32.5 32.5 292 rooms
----- ------ ------ =========
Total Commercial Group................ 6 397.8 278.5
Residential Group.............................. 7 188.9 37.7 1,915
----- ------ ------ =========
Total................................. 13 $586.7 $316.2
===== ====== ======
</TABLE>
- ---------------
(1) One project also includes a 449-room hotel.
(2) One project includes a 210-room hotel and a 950-car garage.
- ---------------
* This sentence and the following table present forward-looking information
concerning various projects under development or subject to purchase contracts
and are based on current facts and expectations. The completion or acquisition
of these projects is subject to significant risks, including cost overruns and
construction delays. See "Risk Factors -- Real Estate Development and
Investment Risks," "-- Dependence on Rental Income From Real Property,"
"-- Changes in Interest Rates," "-- Tax-Exempt and UDAG Financing,"
"-- Reliance on Major Tenants," "-- Competition" and " -- Partnership Risks,"
for a more complete description of the risks associated with the development
and acquisition of these projects.
S-11
<PAGE> 43
PROJECTS UNDER DEVELOPMENT
In addition to projects currently under construction, the Company has a
number of additional projects in various stages of development. For these
projects, the Company has a signed partnership agreement to proceed with the
development, owns or controls the land under an option agreement and has
commenced or, in some cases, completed the entitlement process. Certain
significant hurdles may remain for these projects, including obtaining
financing. See "Risk Factors -- Real Estate Development and Investment
Risks -- Development Risks." At January 31, 1998, the Company had invested
approximately $44 million in these projects.
The following table sets forth certain information regarding these projects
(for specific property information, see "Business -- Commercial Group" and
" -- Residential Group").*
<TABLE>
<CAPTION>
COMPANY'S
TOTAL COST SHARE OF TOTAL
NUMBER OF AT 100% COST SQUARE GLA(1)/NO. OF
PROPERTY PROJECTS (IN MIL.) (IN MIL.) FEET TOTAL UNITS
-------- --------- ---------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Commercial Group
Shopping Centers(2)................... 8 $520.8 $330.1 3,223,000 1,781,000
========= =========
Residential Group....................... 12(3) 275.5 125.6 1,848
---- ------ ------ =========
Total............................... 20 $796.3 $455.7
==== ====== ======
</TABLE>
- ---------------
(1) Represents the total square feet available for lease by the Company.
Remaining square footage is owned by anchors.
(2) One project also includes a 463-room hotel.
(3) Number of projects for the Residential Group includes six assisted living
projects.
- ---------------
* This table presents forward-looking information concerning various projects
under development and is based on current facts and expectations. The
completion of these projects is subject to significant risks, including an
inability to obtain financing or government entitlements, construction delays
and cost overruns. See "Risk Factors -- Real Estate Development and Investment
Risks," "-- Dependence on Rental Income From Real Property," "-- Changes in
Interest Rates," "-- Tax-Exempt and UDAG Financing," "-- Reliance on Major
Tenants," "-- Competition" and "-- Partnership Risks," for a more complete
description of the risks associated with the development of these projects.
S-12
<PAGE> 44
THE OFFERING
SECURITIES OFFERED......... $200,000,000 principal amount of % Senior Notes
due March , 2008 (the "Notes").
MATURITY DATE.............. March , 2008.
INTEREST PAYMENT DATES..... March and September of each year, commencing
September , 1998.
OPTIONAL REDEMPTION BY THE
COMPANY.................. The Notes will be redeemable, in whole or in part,
at the option of the Company, at any time on or
after March , 2003 at the redemption prices set
forth herein, plus accrued and unpaid interest, if
any, to the redemption date. In addition, upon the
occurrence of one or more Public Equity Offerings
(as defined herein) consummated prior to March ,
2001, the Company may at its option redeem up to
33% of the original aggregate principal amount of
the Notes from the proceeds thereof at the
redemption prices set forth herein, plus accrued
and unpaid interest, if any, to the date of
redemption; provided that immediately after such
redemption at least $130 million of the original
aggregate principal amount of the Notes remains
outstanding.
CHANGE OF CONTROL OFFER.... Upon a Change of Control (as defined herein), the
Company is required to offer to purchase the Notes
at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any,
to the purchase date. The FCRPC Credit Agreement
may prohibit the Company's repurchase of the Notes
upon a Change of Control. There can be no assurance
that the Company will be able to repurchase the
Notes in the event of a Change of Control. See
"Risk Factors -- Possible Inability to Repurchase
Notes upon a Change of Control or Certain Asset
Dispositions."
OFFERS TO PURCHASE......... In the event of certain asset sales, the Company
may be required to offer to repurchase the Notes at
a price equal to 100% of their principal amount,
plus accrued and unpaid interest, if any, up to but
excluding the date of purchase, with the net
proceeds of such asset sales. The FCRPC Credit
Agreement may prohibit the Company's repurchase of
the Notes in connection with an asset disposition.
See "Risk Factors -- Possible Inability to
Repurchase Notes upon a Change of Control or
Certain Asset Dispositions."
RANKING.................... The Notes will be senior unsecured obligations of
the Company and will rank pari passu in right of
payment with all other existing and future senior
unsecured obligations of the Company, including the
Company's Guaranty of the borrowings under the
FCRPC Credit Agreement (as defined herein). The
Notes will be effectively subordinated to all
existing and future senior secured indebtedness of
the Company, to the extent of the value of the
collateral securing such indebtedness, and to all
existing and future indebtedness and other
liabilities of the Company's subsidiaries,
including the borrowings under the FCRPC Credit
Agreement. At December 31, 1997, the Company
estimates that its subsidiaries had an aggregate of
$2.7 billion of indebtedness and other liabilities.
The FCRPC Credit Agreement will prohibit payments
on the Notes in the case of a
S-13
<PAGE> 45
continuing payment default under the FCRPC Credit
Agreement or the Company's guaranty thereof. See
"Risk Factors -- Substantial Operations at
Subsidiary Level; Structural Subordination."
PRINCIPAL COVENANTS........ The Indenture will contain certain covenants,
including, but not limited to, covenants limiting:
(i) the incurrence by the Company and its
subsidiaries of additional indebtedness; (ii) the
issuance by subsidiaries of preferred stock; (iii)
certain restricted payments, including the payment
of dividends on and the redemption of capital stock
by the Company; (iv) the creation of liens; (v)
sale and leaseback transactions; (vi) transactions
with affiliates; (vii) the disposition of assets;
(viii) the sale of capital stock of subsidiaries;
and (ix) the Company's ability to consolidate or
merge with or into, or to transfer all or
substantially all of its assets to, another person.
USE OF PROCEEDS BY THE
COMPANY.................. The aggregate net proceeds to the Company from the
Offering are estimated to be approximately $194
million. The Company intends to use such net
proceeds to repay existing bank debt outstanding
under the $225.0 million credit facility under the
FCRPC Credit Agreement (estimated to be
approximately $125 million) and for general
corporate purposes, including the financing of
projects currently under development. See "Use of
Proceeds."
RISK FACTORS............... Prospective purchasers of the Notes should
carefully consider the information set forth under
"Risk Factors."
S-14
<PAGE> 46
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth selected summary historical consolidated
financial data of the Company as of and for the fiscal years ended January 31,
1993, 1994, 1995, 1996 and 1997, and as of and for the nine months ended October
31, 1996 and October 31, 1997. The summary historical consolidated financial
data, excluding the items under "Other selected data" for the fiscal years ended
January 31, 1995, 1996 and 1997, were derived from the Company's audited
consolidated financial statements for such periods (including the accompanying
notes thereto, the "Audited Consolidated Financial Statements"), and should be
read in conjunction with, and are qualified in their entirety by reference to,
the Audited Consolidated Financial Statements appearing elsewhere in this
Prospectus Supplement and incorporated by reference in the accompanying
Prospectus. The summary historical financial data for the nine months ended
October 31, 1996 and October 31, 1997, excluding the items under "Other selected
data," were derived from the Company's unaudited consolidated financial
statements for such periods (including the accompanying notes thereto, the
"Unaudited Consolidated Financial Statements," and, collectively with the
Audited Consolidated Financial Statements, the "Consolidated Financial
Statements"), and should be read in conjunction with, and are qualified in their
entirety by reference to, the Unaudited Consolidated Financial Statements
appearing elsewhere in this Prospectus Supplement and incorporated by reference
in the accompanying Prospectus. The summary historical consolidated financial
data, excluding the items under "Other selected data," set forth below with
respect to the fiscal years ended January 31, 1993 and 1994 are derived from
audited consolidated financial statements of the Company not included or
incorporated by reference herein or in the accompanying Prospectus. See the
Consolidated Financial Statements, "Capitalization," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED FOR THE YEARS ENDED JANUARY 31,
OCTOBER 31, OCTOBER 31, -------------------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS DATA:
Revenues $ 448,078 $ 441,272 $ 610,449 $ 529,433 $ 522,608 $ 519,379 $ 474,469
Operating expenses 259,981 276,034 386,970 305,819 323,736 338,308 310,621
Depreciation and amortization 54,265 52,730 73,304 65,716 65,580 65,309 59,272
Interest expense 96,261 99,401 133,364 130,001 116,821 111,494 111,309
Income tax expense (benefit) (3,398) 10,127 12,951 10,623 (5,964) 4,324 10,464
Earnings (loss) before
extraordinary gain(1) $ 2,332 $ 9,930 $ 9,171 $ 6,939 $ (18,533)(2) $ 2,212(3) $ 12,687
BALANCE SHEET DATA:
Total assets -- cost basis $2,822,802 $2,714,952 $ 2,741,405 $ 2,631,046 $ 2,584,734(4) $ 2,668,057 $ 2,625,404
Long-term debt, including
mortgage debt 2,033,752 1,990,211 1,993,351 1,945,120 1,881,917 2,026,451 1,972,160
Shareholders' equity 278,982 193,541 191,978 189,589 185,560 145,442 143,230
OTHER SELECTED DATA:
Earnings before depreciation,
amortization and deferred
taxes from operations
(EBDT)(5) $ 80,119 $ 61,991 $ 90,404 $ 82,021 $ 81,262 $ 80,979 $ 77,075
Consolidated EBITDA(6) $ 233,903(7) $ 235,193(7) $ 211,483 $ 212,557 $ 188,283 $ 169,212 $ 156,200
Consolidated EBITDA(6) to
Interest Ratio 2.01x(7) 1.95x(7) 1.74x 1.79x 1.77x 1.80x 1.58x
</TABLE>
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(1) Excludes extraordinary gain, net of tax.
(2) The loss before extraordinary gain for the year ended January 31, 1995 was
due primarily to the loss on the sale of Park LaBrea Towers, a residential
complex containing 2,825 units in Los Angeles, California, of approximately
$19,200,000. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(3) The decrease in earnings before extraordinary gain of $10,475,000 from the
year ended January 31, 1993 to the year ended January 31, 1994 was due
primarily to the gain on the sale of an interest in South Bay Galleria, less
a provision for decline in real estate in the year ended January 31, 1993 of
approximately $17,400,000.
(4) The decrease in total assets -- cost basis was due to the sale of Park
LaBrea Towers, partially offset by an increase in other real estate costs.
(5) Earnings before depreciation, amortization and deferred taxes consists of
net earnings (loss), excluding the provision for decline in real estate and
gain (loss) on disposition of properties, net of tax, before deducting the
non-cash charges from rental properties for depreciation and amortization
and deferred taxes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations -- EBDT."
(6) These amounts are calculated in accordance with the definitions set forth in
the Indenture relating to the Notes. This information is provided to
illustrate the operation of certain of the covenants described under
"Description of Notes -- Covenants" and the Company's historical compliance
therewith.
(7) These amounts are calculated with respect to the 12 month periods ended
October 31, 1997 and 1996.
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<PAGE> 47
RISK FACTORS
Prospective purchasers of Notes should carefully review the information
contained elsewhere or incorporated by reference in this Prospectus Supplement
and the accompanying Prospectus and should particularly consider the following
factors:
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company has a relatively high ratio of debt (consisting primarily of
nonrecourse mortgage debt) to total market capitalization (approximately 73% at
January 31, 1998 based on the market value of its outstanding Class A Common
Stock and Class B Common Stock, long-term debt and outstanding mortgage debt at
such date). The Company does not expect a substantial amount of the outstanding
principal of such indebtedness to be repaid prior to maturity or to have funds
on hand sufficient to repay such indebtedness at maturity. As a result, it will
be necessary for the Company to refinance such debt through new debt financings
secured by individual properties or groups of properties, through additional
debt offerings or through equity offerings. If prevailing interest rates or
other factors at the time of refinancing result in higher interest rates, the
Company's interest expense would increase, which would adversely affect the
Company's results of operations and cash flows. In addition, in the event the
Company were unable to secure refinancing of such indebtedness on acceptable
terms, the Company might be forced to dispose of properties on unfavorable
terms, which may result in the recognition of losses upon such dispositions and
may adversely affect the Company's financial position, results of operations and
cash flows. In addition, to the extent the Company's properties are mortgaged to
secure the payment of indebtedness and the Company is unable to make the
required mortgage payments, such properties may be foreclosed upon with a
consequent loss of income and assets to the Company.
At January 31, 1998, the Company had balloon payments in the amount of
approximately $76 million which become due in 1998, $467 million which become
due in 1999 and $301 million which become due in 2000. The Company has obtained
credit enhanced mortgage debt for a number of its properties; generally, the
credit enhancement (for example, a letter of credit) expires prior to the term
of the underlying mortgage debt and must be renewed or replaced to prevent
acceleration of the underlying mortgage debt. The Company treats credit enhanced
indebtedness as expiring in the year the credit enhancement expires. There can
be no assurance that the Company will be able to refinance such indebtedness, to
obtain renewals or replacement of credit enhancement devices, or to otherwise
obtain funds by selling assets or by raising equity. An inability to repay or
refinance such indebtedness when due could cause the mortgage lender to
foreclose on such properties, which could have a material adverse effect on the
Company's financial position, results of operations and cash flows. See
"Description of Certain Indebtedness -- Mortgage Debt Financing."
As of the date of this Prospectus Supplement, the Company has one
non-recourse mortgage totaling $3.3 million (at the Company's ownership
percentage), that is past its stated maturity date. The Company is in the
process of renegotiating this mortgage with the lender and expects to receive an
extension or otherwise refinance this mortgage. There can be no assurance,
however, that the Company will be able to obtain an extension or refinance this
mortgage. If the Company is unsuccessful, the lender could commence foreclosure
proceedings.
In 1997, one of the Company's wholly-owned single-asset limited
partnerships filed for bankruptcy protection under Chapter 11 following
commencement of foreclosure proceedings under two non-recourse mortgage loans (a
first and a second) totaling $17.9 million. The Company continues to manage the
property under court consent. Under a proposed plan of reorganization submitted
by the Company, it is the Company's intent to restructure the debt and obtain
additional time to refinance in order to retain the property. There can be no
assurance that the plan of reorganization will be approved. If the plan of
reorganization is not approved, foreclosure proceedings could re-commence.
Within Tower City Center, the Company has four separate nonrecourse
mortgages on The Avenue and on part of the parking facilities that are
cross-collateralized and cross-defaulted with each other and with the
nonrecourse mortgage on the Ritz-Carlton Hotel and Chase Financial Tower. This
latter
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<PAGE> 48
nonrecourse mortgage may be paid off separately without paying the other four
nonrecourse mortgages. In addition, the Company has separate nonrecourse
mortgages on four projects (Atlantic Center, Bruckner Boulevard, Gun Hill Road
and Flatbush Avenue), in the New York City metropolitan area, each of which is
secured by the pledge of excess cash flow to the other and a contingent
assignment of the partnership interest of the limited partner common to each of
the four entities which own the properties. The Indenture for the Notes will
permit the Company to enter into similar arrangements on similar existing or
future projects. As a result of this cross-collateralization and cross-pledge of
excess cash flow, any particular property covered by either of these
arrangements may be adversely affected by the results of operations of one or
more of the other properties subject to such arrangement. No assurance can be
given that the performance of one or more properties may not adversely affect
the results of operations from, and market value of, the other properties
subject to these arrangements.
CREDIT FACILITY COVENANTS
Forest City has guaranteed the obligations of one of its subsidiaries,
Forest City Rental Properties Corporation ("FCRPC"), under the FCRPC Credit
Agreement pursuant to a Guaranty (as defined under the caption "Description of
Certain Indebtedness -- Forest City Rental Properties Corporation Credit
Agreement"). The Guaranty contains a number of covenants of Forest City,
including a prohibition on consolidations and mergers, limitations on the amount
of indebtedness, guarantees and liens that Forest City may incur and covenants
by Forest City to maintain a specified minimum cash flow coverage ratio,
consolidated shareholder's GAAP equity and EBDT. Under the Guaranty, Forest City
is also restricted from paying dividends on its Common Stock (as defined herein)
and repurchasing Company stock for a combined total in excess of $10,000,000 in
any year. As of January 31, 1998, Forest City was in compliance with its
covenants under the Guaranty and FCRPC was in compliance with its covenants
under the FCRPC Credit Agreement.
The Guaranty contains several provisions which directly or indirectly
restrict payments on the Notes. The Guaranty prohibits Forest City from making
any payments on account of the Notes in the event of a continuing default in the
payment of principal, interest or other charges due on the FCRPC Credit
Agreement. In the event of a continuing default in the payment of principal,
interest or other charges due on the FCRPC Credit Agreement, FCRPC is also
prohibited from making distributions to the Company; such prohibition would
inhibit the Company's ability to make payments on the Notes when due. In the
event of a continuing non-payment default, the Guaranty prohibits FCRPC from
making any distribution to the Company except as is necessary to pay interest
(but not principal) on the Notes and taxes. The Guaranty also prohibits the
Company's redemption or defeasance of the Notes without the consent of the
lenders under the FCRPC Credit Agreement. See "Description of Certain
Indebtedness -- Forest City Rental Properties Corporation Credit Agreement."
A failure to comply with any of the covenants under the Guaranty or a
failure by FCRPC to comply with any of the covenants under the FCRPC Credit
Agreement or any future credit agreements could result in an event of default,
which would trigger the Company's obligation to repay all amounts outstanding
under the FCRPC Credit Agreement, any future credit agreements and the Notes.
The ability of Forest City and FCRPC to comply with these covenants will depend
upon the future economic performance of Forest City and FCRPC. There can be no
assurance that such covenants will not affect Forest City's ability to finance
its future operations or capital needs or to engage in other business activities
that may be desirable to Forest City.
CHANGES IN INTEREST RATES
The Company's business and operating results have been in the past, and may
be in the future, adversely affected by changes in interest rates. For example,
an increase in interest rates will increase the interest payable on the
Company's outstanding variable-rate debt and would result in increased interest
expense if fixed-rate debt is refinanced at higher interest rates.
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<PAGE> 49
To mitigate the effects of significant increases in interest rates on the
amounts payable with respect to the Company's variable-rate debt, the Company
makes use of interest rate exchange agreements, including interest rate caps and
swaps, primarily to manage interest rate risk associated with variable-rate
debt. Under interest rate cap agreements, the Company makes initial premium
payments to the counterparties in exchange for the right to receive payments
from them if interest rates on the related variable-rate debt exceed specified
levels during the agreement period. Parties to interest rate exchange agreements
are subject to market risk for changes in interest rates and risk of credit loss
in the event of nonperformance by the counterparties. Although the Company deals
only with highly rated financial institution counterparties (which, in certain
cases, are also the lenders on the related debt) and does not expect that any
counterparties will fail to meet their obligations, there can be no assurance
that this will not occur.
At January 31, 1998, excluding debt under the FCRPC Credit Agreement, the
Company estimates there was outstanding approximately $1,196 million aggregate
principal amount of fixed-rate debt (including $74 million of UDAG debt), $151
million aggregate principal amount of tax-exempt variable-rate debt and $670
million aggregate principal amount of taxable variable-rate debt.* Of this
variable-rate debt, $283.7 million was subject to interest rate swap agreements
as of January 31, 1998. See "Description of Certain Indebtedness -- Mortgage
Debt Financing." All borrowings under the FCRPC Credit Agreement bear
variable-rate interest. The Company has entered into $318.7 million of interest
rate caps for 1998 and $418.7 million of interest rate caps for 1999 to protect
against significant interest rate increases on its variable rate mortgages and
the FCRPC Credit Agreement.
At January 31, 1998, the Company's fixed-rate debt carried a projected
weighted average interest rate of 7.88%.* Its projected weighted average
variable-rate taxable interest rate was 7.95%.* The Company's projected weighted
average variable-rate tax-exempt debt interest rate was 4.76%.* Its projected
weighted average interest rate on UDAG loans and other government subsidized
financing was 2.25%.* At January 31, 1998, the Company projects that a 100 basis
point increase in taxable interest rates would have increased the pre-tax
interest cost of the Company's taxable variable-rate debt by approximately $3.9
million.* Although tax-exempt interest rates generally increase in an amount
that is smaller than corresponding changes in taxable interest rates, the
Company projects that a 100 basis point increase in tax-exempt interest rates
would have increased the pre-tax interest cost of the Company's tax-exempt
variable-rate debt by approximately $1.5 million.*
TAX-EXEMPT AND UDAG FINANCING
The Company regularly utilizes tax-exempt financing and UDAG loans, which
generally bear interest rates below rates available through conventional taxable
financing. At January 31, 1998, the Company estimates there was outstanding $151
million of tax-exempt bonds and $74 million of UDAG loans.*
There can be no certainty of the continued availability of tax-exempt
bonds, UDAG loans or similar government subsidized financing in the future,
either for new development or acquisitions, or for the refinancing of
outstanding debt. The inability to obtain tax-exempt bonds, UDAG loans or
similar government subsidized financing or the inability to refinance
outstanding debt on favorable terms could significantly affect the Company's
ability to pursue development and acquisition opportunities and could have a
material adverse effect on the Company's financial position, results of
operations and cash flows.
SUBSTANTIAL OPERATIONS AT SUBSIDIARY LEVEL; STRUCTURAL SUBORDINATION.
Forest City holds substantially all of its assets and conducts
substantially all of its operations through its Subsidiaries. Forest City thus
derives substantially all of its operating income and cash flow from its
Subsidiaries and must rely substantially upon distributions from its
Subsidiaries to generate the
- ---------------
* Represents management's estimate which is subject to change as a result of
computing final results for January 1998 and the Company's normal year-end
audit process. No assurance can be given that the Company will meet this
projection. See "Risk Factors -- Information Concerning Forward-Looking
Statements."
S-18
<PAGE> 50
funds necessary to meet its obligations, including the payment of principal of
and interest on the Notes. In addition, in the event of a continuing default on
payment of principal, interest or other charges due under the FCRPC Credit
Agreement, FCRPC will be prohibited from making distributions to the Company;
such prohibition would inhibit the Company's ability to make interest payments
on the Notes when due. In the event of a continuing non-payment default, the
Guaranty prohibits FCRPC from making any distribution to the Company except as
is necessary to pay interest (but not principal) on the Notes and taxes. The
Guaranty will prohibit the payment of principal and interest on the Notes in the
case of a continuing default on the payment of principal, interest or other
charges due under the FCRPC Credit Agreement or Guaranty. See "Risk
Factors -- Substantial Operations at Subsidiary Level; Structural
Subordination."
The Notes will be effectively subordinated in right of payment to all
existing and future senior secured indebtedness of Forest City, to the extent of
the value of the collateral securing such indebtedness. The Notes will be
effectively subordinated to all existing and future indebtedness and other
liabilities of Forest City's Subsidiaries, including the borrowings under the
FCRPC Credit Agreement and the Forest City Trading Group, Inc. Credit Agreement.
The aggregate net revenues and net earnings from Forest City's Subsidiaries for
the nine months ended October 31, 1997 were $447.7 million or all of
consolidated revenues and $21.9 million or all of consolidated net earnings.
Subsidiaries of Forest City had an aggregate net book value of $182.3 million or
65% of consolidated net book value at October 31, 1997.
POSSIBLE INABILITY TO REPURCHASE NOTES UPON A CHANGE OF CONTROL OR CERTAIN ASSET
DISPOSITIONS
In the event of a Change of Control or certain asset dispositions, Forest
City will be required to offer to purchase the Notes. The Guaranty prohibits the
repayment of the Notes if there is a continuing default on payment of principal,
interest or other charges due under the FCRPC Credit Agreement and prohibits
distributions by FCRPC to the Company to pay the principal of the Notes if there
is a continuing non-payment default. As a result of these provisions, the
Company will be unable to repurchase the Notes in the case of a Change of
Control or certain asset dispositions if there is a continuing default on
payment of principal, interest or other charges due under the FCRPC Credit
Agreement. Further, since a Change of Control constitutes an event of default
under the FCRPC Credit Agreement, FCRPC will be prohibited from making payments
to the Company in order to provide the Company with sufficient funds to repay
the Notes in the event of a Change of Control. Because of these provisions,
Forest City may be unable to satisfy its obligations to repurchase the Notes
unless the Company is able to refinance or obtain waivers with respect to the
FCRPC Credit Agreement. Furthermore, even if waivers are obtained, there can be
no assurance that Forest City will have the financial resources necessary to
purchase all of the Notes tendered by the holders thereof in the event of a
Change of Control, particularly if such Change of Control requires Forest City
to refinance, or results in the acceleration of, the FCRPC Credit Agreement or
any other indebtedness. See "Description of Notes" and "Description of Certain
Indebtedness -- Forest City Rental Properties Credit Agreement."
REAL ESTATE DEVELOPMENT AND INVESTMENT RISKS
GENERAL
Real property investments are subject to varying degrees of risk. The
Company's revenues and property values may be adversely affected by various
factors related to the general United States economy, by the economy of the
regions or local areas in which the Company's projects are located, and by local
real estate conditions. Some of the specific factors that can affect the
Company's real estate operations are:
(i) the perceptions of prospective tenants or purchasers of the
attractiveness of specific Company properties;
S-19
<PAGE> 51
(ii) the Company's ability to provide adequate management and
maintenance and to obtain adequate insurance;
(iii) the Company's inability to collect rent due to bankruptcy or
insolvency of tenants or otherwise;
(iv) operating costs that increase over time without the ability to
raise rents or otherwise offset such increases; and
(v) declines in consumer spending associated with recessionary
economies that adversely affect the Company's revenue from its retail
centers.
Real estate values may also be adversely affected by such factors as
zoning, tax or other laws, interest rate levels and the availability of
financing.
DEVELOPMENT RISKS
The Company develops most of its real estate projects. New project
development is subject to a number of risks, including:
(i) an inability to secure sufficient financing on favorable terms,
including an inability to refinance construction loans;
(ii) construction delays or cost overruns, all of which may increase
project development costs;
(iii) not achieving anticipated occupancy or sales levels or
sustaining anticipated lease or sales levels;
(iv) an inability to secure tenants or anchors necessary to support
the project; and
(v) an inability to obtain zoning, occupancy and other required
governmental permits and authorizations.
The Company has in the past elected not to proceed with certain development
projects and anticipates that it will do so again from time to time in the
future. If the Company does not elect to proceed with a development opportunity,
the development costs associated therewith ordinarily will be charged against
income for the then-current period. Any such charge could have a material
adverse effect on the Company's results of operations in the period in which the
charge is taken.
In the construction of new projects, the Company generally guarantees the
lender under the construction loan the lien-free completion of the project. This
guarantee is recourse to the Company and places the risk of construction delays
and cost overruns on the Company. The guarantees are released upon completion of
the project. While the Company has generally been successful in completing
projects on time and on budget, no assurance can be given that the Company will
not be required to make significant expenditures in order to comply with its
lien-free completion obligations.
The Company periodically serves as either the construction manager or the
general contractor for its developments. The construction of real estate
projects entails certain risks, including risks that the project will fail to
conform to building plans, specifications and timetables, which may in turn be
affected by strikes, weather, government regulations and other conditions beyond
the Company's control. In addition, the Company may become liable for uninsured
injuries and accidents occurring during the construction process.
SIGNIFICANT GEOGRAPHIC CONCENTRATION
A significant portion of the Company's properties is geographically
concentrated. The Company has multiple developments and projects in and around
Cleveland, Ohio, New York City, California and Las Vegas, Nevada. As a result,
downturns in the local economy in such areas may have an adverse effect on the
Company's ability to market new developments to prospective purchasers and may
adversely affect rental and lease rates which, in turn, could have a material
adverse effect on the
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<PAGE> 52
Company's results of operations and cash flows. As of October 31, 1997, the
Company's properties located in and around Cleveland, New York City, California
and Las Vegas accounted for 29%, 26%, 11% and 4%, respectively, of the Company's
total assets, and 33%, 21%, 10% and 2%, respectively, of the Company's total
revenues for the nine months ended October 31, 1997.
ILLIQUIDITY OF REAL ESTATE INVESTMENT
Real estate investments are relatively illiquid and therefore may limit the
ability of the Company to react promptly to changes in economic or other
conditions.
DEPENDENCE ON RENTAL INCOME FROM REAL PROPERTY
The Company's results of operations and cash flows would be adversely
affected if a significant number of tenants were unable to meet their
obligations or if the Company were unable to lease a significant amount of space
in its income-producing properties on economically favorable lease terms. In the
event of a default by a tenant, the Company may experience delays in enforcing
its rights as lessor and may incur substantial costs in protecting its
investment. The bankruptcy or insolvency of a major tenant may have an adverse
effect on an income-producing property. See "-- Reliance on Major Tenants."
Two of the Company's major tenants, The Caldor Corporation ("Caldor") and
Petrie's, currently are operating in bankruptcy. As of January 31, 1998, the
Company has two shopping centers in which Caldor is a major tenant, one in
Philadelphia (113,000 square feet) and one in Brooklyn, New York (131,000 square
feet). Caldor has affirmed its leases in Philadelphia and in Brooklyn. Caldor
had operated a third store containing 90,000 square feet on Flatbush Avenue in
Brooklyn. However, as a part of its bankruptcy proceedings, Caldor rejected that
lease and vacated the store during 1997. The Company now is in the process of
redeveloping and expanding this space, has signed letters of intent or leases
for 108,000 square feet out of a total of 136,000 square feet and is in serious
negotiation with tenants on all the remaining space. The Company expects to
re-open this specialty retail center in the second half of 1998. Petrie's was a
tenant in seventeen stores totaling 90,000 square feet in nine of the Company's
malls at January 31, 1997. During 1997, Petrie's vacated 10 stores (64,000
square feet). Petrie's has affirmed its remaining seven leases (26,000 square
feet) in six of the Company's malls. Caldor and Petrie's currently are paying
rent under their respective affirmed leases. No assurance, however, can be given
that Caldor or Petrie's will emerge from bankruptcy or be able to continue to
pay rent. If Caldor or Petrie's ceases operations or ceases to perform under
these leases, the Company's rentals from the shopping centers where either of
them is a tenant will be adversely affected until the Company is able to find a
replacement tenant. No assurance, however, can be given that the Company will be
able to find replacement tenants or achieve rental rates equivalent to those
being paid by Caldor or Petrie's.
During 1996, Handy Andy Home Improvement Centers ("Handy Andy"), formerly
an operator of home improvement centers in 10 Company retail locations,
liquidated under bankruptcy proceedings and rejected all 10 of its leases with
the Company. As of January 31, 1998, the Company had eliminated all future
obligations on five of such leases it had subleased to Handy Andy. Of the
remainder, the Company has executed a sales contract and is awaiting the closing
of one location; another has both an executed lease and strong interest from a
prospective tenant for the balance of the space; the Company's obligations under
one of the leases expire in mid-1998; and there are no current prospects on the
remaining two leases. There can be no assurance that the Company will be able to
find replacement tenants for these remaining two locations.
The Company may also be adversely affected should a non-tenant mall anchor
close or enter bankruptcy. Many mall anchors own their store site and therefore
do not pay rent directly to the Company. However, such anchors typically
contribute towards common area maintenance and other charges through reciprocal
easement agreements, and the loss of such revenues could adversely affect the
Company's results of operations and cash flows. Further, the temporary or
permanent loss of an
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<PAGE> 53
anchor is likely to reduce customer traffic in the mall and cause reduced levels
of percentage rent paid by mall tenants, or cause mall tenants to close or enter
bankruptcy, and could cause the mall to fail to meet debt service requirements.
A number of large department store companies have reorganized under the
bankruptcy laws in recent years. During 1997, Montgomery Ward, an anchor in two
of the Company's shopping centers, entered bankruptcy. As of January 31, 1998,
Montgomery Ward has neither affirmed nor rejected its leases with the Company.
See "Business -- Commercial Group -- Shopping Centers -- Anchor and Significant
Tenants."
RELIANCE ON MAJOR TENANTS
For the year ended January 31, 1998, the contractual base rental revenues
from various operating divisions of The Limited, Inc. ("The Limited") and
Woolworth Corporation ("Woolworth") represented 6.5% and 3.3%, respectively, of
the Company's aggregate contractual shopping center base rental revenues for
such period.
The Company could be adversely affected in the event of the bankruptcy or
insolvency of major tenants such as The Limited or Woolworth, or a significant
downturn in the business of its major tenants. In addition, the Company could be
adversely affected in the event that a major tenant does not renew its leases as
they expire. See "Business -- Commercial Group -- Shopping Centers -- Shopping
Center Leases and Tenant Lease Expirations."
CONTROL BY CLASS B COMMON SHAREHOLDERS
The Company's authorized common stock consists of Class A Common Stock and
Class B Common Stock. The economic rights of each class of Common Stock are
identical, but the voting rights differ. The Class A Common Stock, voting as a
separate class, is entitled to elect 25% of the members of the Board of
Directors, while the Class B Common Stock, voting as a separate class, is
entitled to elect the remaining 75% of the Board of Directors. On all other
matters, each share of Class A Common Stock is entitled to one vote per share
and each share of Class B Common Stock is entitled to ten votes per share.
At December 1, 1997, the Ratner/Miller/Shafran Families, which include
members of the Company's current Board of Directors and certain executive
officers (the "Family Interests"), owned 74.5% of the Class B Common Stock. RMS,
Limited Partnership, which owned 74.2% of the Class B Common Stock, is a limited
partnership, comprised of the Family Interests, with eight individual general
partners, currently consisting of Samuel H. Miller, Co-Chairman of the Board of
Directors and Treasurer of the Company, Charles A. Ratner, President, Chief
Executive Officer and Director, Ronald A. Ratner, Executive Vice President of
the Company and Director, Brian J. Ratner, Senior Vice President-East Coast
Development of the Company and Director, Deborah Ratner Salzberg, Vice President
of Forest City Residential, Inc., a subsidiary of the Company, and Director,
Joan K. Shafran and Joseph Shafran, and one position that is currently vacant.
Nathan Shafran is the father of Joan K. Shafran and Joseph Shafran and the uncle
of Charles A. Ratner, James A. Ratner and Ronald A. Ratner, who are brothers,
and of Albert B. Ratner. Albert B. Ratner is the father of Brian J. Ratner and
Deborah Ratner Salzberg and is first cousin to Charles A. Ratner, James A.
Ratner, Ronald A. Ratner, Joan K. Shafran and Joseph Shafran. Samuel H. Miller
was married to Ruth Ratner Miller (now deceased), a sister of Albert B. Ratner.
The vacant general partnership position relates to shares controlled by the
children of Ruth Ratner Miller. General partners holding 60% of the total voting
power of RMS, Limited Partnership determine how to vote the Class B Common Stock
held by RMS, Limited Partnership. No person may transfer his or her interest in
the Class B Common Stock held by RMS, Limited Partnership without complying with
various rights of first refusal. Moreover, prior to any sale other than to a
partner of RMS, Limited Partnership, the Class B Common Stock must be converted
to Class A Common Stock.
In addition, at December 1, 1997, members of the Family Interests
collectively owned 32.4% of the Class A Common Stock. As a result of their
ownership of the Class B Common Stock, the Family Interests and RMS, Limited
Partnership have the ability to elect a majority of the Board of Directors (and
as a result of their ownership of Class A Common Stock may have the effective
power under normal voting circumstances to elect all of the Board of Directors),
control the management and policies of the
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<PAGE> 54
Company and, in general, to determine (without the consent of the Company's
other shareholders) the outcome of any corporate transaction or other matter
submitted to the shareholders for approval, including mergers, consolidations
and the sale of all or substantially all of the Company's assets, and to prevent
or cause a change in control of the Company. See "Description of Common Stock"
in the accompanying Prospectus.
CONFLICTS OF INTEREST
RMS INVESTMENT CORP.
The Company paid approximately $193,000 as total compensation during 1997
to RMS Investment Corp. ("RMS"), a company engaged in property management and
leasing, controlled by the four children of Charles A. Ratner (the President,
Chief Executive Officer and a Director of the Company), each holding a 4.3%
interest, the two children of James A. Ratner (an Executive Vice President and a
Director of the Company), each holding a 4.3% interest, the two children of
Ronald A. Ratner (an Executive Vice President and a Director of the Company),
each holding a 4.3% interest, the two children of Albert B. Ratner (a
Co-Chairman of the Company's Board of Directors), Deborah Ratner Salzberg (Vice
President of Forest City Residential, Inc. (a subsidiary of the Company) and a
Director of the Company) and Brian J. Ratner (Senior Vice President - East Coast
Development and a Director of the Company), each holding a 12.5% interest, the
two children of Mark Ratner (brother of Charles Ratner, James Ratner and Ronald
Ratner), each holding a 4.3% interest, Albert B. Ratner, as Trustee (11%),
Nathan Shafran (Honorary Vice Chairman of the Board), as Trustee (3.6%), Samuel
H. Miller (a Co-Chairman of the Company's Board of Directors and Treasurer), as
Trustee (14.0%), and Fannye Shafran, as Trustee (3.6%). RMS manages and provides
leasing services to two of the Company's Cleveland-area specialty retail
shopping centers, Golden Gate (260,000 square feet) and Midtown (256,000 square
feet). The rate of compensation for such management services is 4% of all rental
income, plus a leasing fee of 2% to 3% of rental income for the term of the
lease. Management believes these fees are comparable to those other management
companies would charge.
ABSENCE OF NON-COMPETE AGREEMENTS; OWNERSHIP OF COMPETING PROPERTIES BY FAMILY
INTERESTS
Under the Company's current policy, no director, officer or employee,
including members of the Ratner/Miller/Shafran families, is allowed to invest in
a competing real estate opportunity without first obtaining approval of the
Company's Conflict of Interest Committee. However, the Company currently does
not have non-compete agreements with any of its directors, officers or employees
and, upon leaving the Company, any director, officer or employee could compete
with the Company. An exception to the Company's conflict-of-interest policy
permits existing directors, officers and employees, including Albert B. Ratner,
Co-Chairman of the Board of Directors, Samuel H. Miller, Co-Chairman of the
Board of Directors and Treasurer, Charles A. Ratner, President, Chief Executive
Officer and Director, Ronald A. Ratner, Executive Vice President and Director,
Brian J. Ratner, Senior Vice President-East Coast Development and Director, and
Deborah Ratner Salzberg, Vice President of Forest City Residential, Inc. and
Director, James A. Ratner, Executive Vice President and Director, and Nathan
Shafran, Honorary Vice Chairman of the Board, to retain an interest in 15
properties that were acquired before 1960 and one post-1960 acquisition, with a
total cost of $94.0 million. All but one of those properties are located in
Cleveland and are in competition with some of the properties owned by the
Company. The ownership of these properties by these directors, officers and
employees makes it possible that conflicts of interest may arise between them
and the Company. Although no such conflicts are anticipated, areas of possible
conflict may be in the expansion of such properties that may compete with the
Company or the solicitation of tenants for the use of such properties.
COMPETITION
The real estate industry is highly competitive in all major markets. With
regard to the Commercial and Residential Groups, there are numerous other
developers, managers and owners of commercial
S-23
<PAGE> 55
and residential real estate that compete with the Company nationally, regionally
and/or locally in seeking management and leasing revenues, land for development,
properties for acquisition and disposition and tenants for properties, some of
whom may have greater financial resources than the Company. There can be no
assurance that the Company will successfully compete for new projects or have
the ability to react to competitive pressures on existing projects caused by
factors such as declining occupancy rates or rental rates. In addition, tenants
at the Company's retail properties face continued competition in attracting
customers from retailers at other shopping centers, catalogue companies,
warehouse stores, large discounters, outlet malls, wholesale clubs and direct
mail and telemarketers. The existence of competing developers, managers and
owners and competition to the Company's tenants could have a material adverse
effect on the Company's ability to lease space in its properties and on the
rents charged or concessions granted, could materially and adversely affect the
Company's results of operations and cash flows, and could affect the realizable
value of assets upon sale.
With regard to the Lumber Trading Group, the lumber wholesaling business is
highly competitive. Competitors in the lumber brokerage business include
numerous brokers and in-house sales departments of lumber manufacturers, many of
which are larger and have greater resources than the Company.
POTENTIAL LIABILITY FROM SYNDICATED PROPERTIES
As part of its financing strategy, the Company has used syndication as a
financing technique for certain of its residential projects, as well as for an
office building and a hotel. The Company's syndication partner is typically
allocated all, or nearly all, of the low income housing tax credits, in the case
of residential projects, and depreciation expense associated with the project
based on the syndication partner's equity capital contribution to the project.
These syndication partnerships, in the case of residential projects,
typically have required the Company to indemnify, on an after-tax basis, the
syndication partner against the failure to receive, or the recapture of, such
allocated tax credits. In addition, the Company has typically been required to
indemnify the syndication partner, on an after-tax basis, against the failure to
receive, or the disallowance of, the depreciation expense associated with the
project.
While the Company believes that all the necessary requirements for
qualification for such tax credits in the requisite amount have been and will be
met and that its syndication partners will be able to receive depreciation
expense associated with the syndicated properties, no assurance can be given
that this will, in fact, be the case or that the Company will not be required to
indemnify its syndication partners on an after-tax basis for such amounts. Any
such indemnification payment could have a material adverse effect on the
Company's results of operations and cash flows. See "Business -- Residential
Group -- Syndication Activity."
EFFECT OF UNINSURED LOSS
The Company carries comprehensive liability, fire, flood, extended coverage
and rental loss insurance with respect to its properties within insured limits
and policy specifications that it believes are customary for similar properties.
There are, however, certain types of losses (generally of a catastrophic nature,
such as wars or earthquakes) that may be either uninsurable or, in the Company's
judgment, not economically insurable. Should an uninsured loss occur, the
Company could lose both its invested capital in and anticipated profits from the
affected property.
The Company is self-insured as to the first $250,000 of liability coverage
and self-insured on the first $100,000 of property damage. While the Company
believes that its self-insurance reserves are adequate, no assurance can be
given that the Company will not incur losses that exceed these self-insurance
reserves.
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<PAGE> 56
LUMBER PRICES
Lumber prices are highly volatile, and the lumber business is highly
cyclical. The Company's Lumber Trading Group is exposed to the risk of changes
in lumber prices and to downturns in the new home building and home remodeling
markets. While the Company believes that it has in place adequate controls to
effectively manage this risk, no assurance can be given that the Company will
not suffer a loss from changes in lumber prices or a downturn in the new home
building and home remodeling markets. See "Business -- Lumber Trading Group."
ENVIRONMENTAL LIABILITIES
Under various Federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may become
liable for the costs of the investigation, removal and remediation of hazardous
or toxic substances on, under, in or migrating from such property. Such laws
often impose liability without regard to whether the owner or operator knew of,
or was responsible for, the presence of such hazardous or toxic substances. The
presence of hazardous or toxic substances, or the failure to remediate such
substances when present, may adversely affect the owner's ability to sell or
rent such real property or to borrow funds using such real property as
collateral, and may impose unanticipated costs and delays on projects. Persons
who arrange for the disposal or treatment of hazardous or toxic wastes may also
be liable for the costs of the investigation, removal and remediations of such
wastes at the disposal or treatment facility, regardless of whether such
facility is owned or operated by such person. Other Federal, state and local
laws, ordinances and regulations require abatement or removal of certain
asbestos-containing materials in the event of demolition, renovations,
remodeling, damage or decay and impose certain worker protection and
notification requirements and govern emissions of and exposure to asbestos
fibers in the air.
In connection with its ownership, operation and management of its
properties, the Company could be held liable for the environmental response
costs associated with the release of such regulated substances or related
claims, whether by the Company, its tenants, former owners or tenants of the
property, or others. In addition to remediation actions brought by Federal,
state and local agencies, the presence of hazardous substances on a property
could result in personal injury, contribution or other claims by private
plaintiffs. Such claims could result in costs or liabilities which could exceed
the value of such property.
The Company is not aware of any notification by any private party or
governmental authority of any non-compliance, liability or other claim in
connection with environmental conditions at any of its properties that it
believes will involve any expenditure which would be material to the Company,
nor is the Company aware of any environmental condition on any of its properties
that it believes will involve any such material expenditure. However, there can
be no assurance that any such non-compliance, liability, claim or expenditure
will not arise in the future. To the extent that the Company is held liable for
the release of regulated substances by tenants or others, there can be no
assurance that the Company would be able to recover its costs from such persons.
HISTORICAL OPERATING RESULTS
The Company incurred net losses per share of Common Stock in 1994, and its
combined fixed charges exceeded its earnings in 1994 and for the nine months
ended October 31, 1997. Total fixed charges exceeded the Company's adjusted
earnings by $8 million and $28 million for the nine months ended October 31,
1997 and the fiscal year ended January 31, 1995, respectively. For the nine
months ended October 31, 1997, earnings, as adjusted, includes income of $15
million from a lawsuit settlement related to Toscana and a $39 million loss
related to the sale of Toscana ($36 million) and a partnership interest ($3
million), but does not include an extraordinary gain of $18 million related to
the sale of Toscana. For the year ended January 31, 1995, earnings, as adjusted,
includes a loss of $31 million related to the sale of Park LaBrea Towers but
does not include an extraordinary gain of $60
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<PAGE> 57
million, also related to the sale of Park LaBrea Towers. No assurance can be
given that the Company will not experience losses, or that its earnings will be
sufficient to cover fixed charges, in the future.
PARTNERSHIP RISKS
The Company relies on the use of partnerships and limited liability
companies ("LLC") to finance some of its projects, and enters into other such
arrangements to access opportunities not otherwise available to it, such as some
projects in which development rights are owned by a third party who is not
willing to sell its entire interest in the project. The Company, through
wholly-owned subsidiaries, is typically a general partner or managing member in
most of such partnerships or LLC's. A partnership or LLC may involve special
risks associated with the possibility that a partner or member (i) at any time
may have economic or business interests or goals that are inconsistent with
those of the Company, (ii) may, if a general partner or managing member, take
actions contrary to the instructions or requests of the Company or contrary to
the Company's policies or objectives with respect to its real estate investments
or (iii) could experience financial difficulties. If a partner or member of the
Company is unable to fulfill capital obligations, the Company may have to
increase its own financial commitment to the venture.
To the extent the Company is a general partner or managing member, or
otherwise has joint and several liabilities for actions of the partnership or
LLC, actions by the Company's partners or co-members may have the result of
subjecting property owned by the partnership or LLC to liabilities in excess of
those contemplated by the terms of the partnership agreement or operating
agreement or have other adverse consequences. A subsidiary of the Company in its
role as a general partner of a particular partnership or managing member of an
LLC may be jointly and severally liable for the debts and liabilities of that
partnership or LLC, except for nonrecourse mortgages. See "Description of
Certain Indebtedness -- Mortgage Debt Financing."
LITIGATION RISKS
The Company has a 66 2/3% ownership interest in the Pittsburgh Mall, which
is currently under development. One-half of the Company's interest, or 33 1/3%,
is under dispute in litigation pending in Common Pleas Court in Cuyahoga County,
Ohio, between a subsidiary of the Company ("RMI") and Simon DeBartolo Group,
L.P. ("SDG"). SDG has sought injunctive relief concerning its alleged rights to
such interest, as well as $20 million compensatory and $10 million punitive
damages. The Company believes it has meritorious defenses to these claims and
intends to defend against them vigorously. If decided in a manner adverse to
RMI, such litigation could adversely affect the potential value of this project
to the Company. See "Business -- Commercial Group -- Projects Under
Development."
An amended Class Action Complaint has been filed against the Forest City
Trading Group, Inc. (a wholly-owned subsidiary of the Company) and ten of its
subsidiaries, all of whom are in the business of trading lumber. If certified to
the full class, this action could include 300-500 current and former employees.
The allegations include improper calculation and underpayment of commissions.
The Company believes it has meritorious defenses to these claims, and intends to
defend against them vigorously. The Company believes that any exposure will be
limited to the Forest City Trading Group, Inc. and is not expected to have a
material adverse effect upon the financial condition, results of operations or
cash flows of the Company.
The Company, through subsidiaries, owns a 14.6% interest in the Seven Hills
development, located in Henderson, Nevada, which is owned by the Silver Canyon
Partnership and is being developed in conjunction with a golf course. In August,
1997, a class-action lawsuit was filed by the current homeowners in Seven Hills
against the Silver Canyon Partnership, the golf course developers, and other
entities, including the Company. In addition, a separate lawsuit was filed by
some of the production homebuilding companies at Seven Hills, against some of
the same parties, not including the Company. Both suits seek a commitment for
public play on the golf course, as well as damages. The Silver Canyon
Partnership, the Company and its subsidiaries are responding to both suits, and
are attempting to reach
S-26
<PAGE> 58
an appropriate resolution with all parties involved. Sales efforts are
continuing at the Seven Hills development, and because these events are recent,
it is not yet possible to determine the extent of any impact on the
Partnership's financial performance. The Company believes it has meritorious
defenses to these claims and intends to defend against them vigorously. The
Company believes that any exposure will be limited to the Silver Canyon
Partnership and is not expected to have a material adverse effect upon the
financial condition, results of operations or cash flows of the Company.
LACK OF PUBLIC MARKET FOR THE NOTES
The Notes constitute a new issue of securities with no established trading
market. The Company does not intend to apply for listing of the Notes on any
national securities exchange. The Underwriters have advised the Company that
they currently intend to make a market in the Notes. However, they are not
obligated to do so, and any such market-making may be discontinued at any time
without notice. Therefore, no assurance can be given as to the liquidity of the
trading market for the Notes. See "Underwriting."
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this Prospectus Supplement, the
accompanying Prospectus and in documents incorporated therein by reference may
be considered forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
including without limitation the forward-looking statements identified as such
in this Prospectus Supplement and variations in the foregoing statements
whenever they appear in this Prospectus Supplement, the Prospectus and in
documents incorporated therein by reference. Forward-looking statements are made
based upon management's current expectations and belief concerning future
developments and their potential effects upon the Company. There can be no
assurance that future developments affecting the Company will be those
anticipated by management. There are certain important factors that could cause
actual results to differ materially from estimates or expectations discussed in
such forward-looking statements including, without limitation, the matters
discussed in "Risk Factors."
The estimates and projections of results of operation and cash flow for the
year ended January 31, 1998 and for balance sheet data as of January 31, 1998
contained in this Prospectus Supplement are based on unaudited actual results
through December 31, 1997 and estimates and projections for the month of January
1998. Actual results may differ as a result of computing final results for
January 1998 and the Company's normal internal and external audit processes.
S-27
<PAGE> 59
USE OF PROCEEDS
The net proceeds (after deducting estimated expenses of $6 million) to be
received by the Company from the sale of the Notes in this Offering are
estimated to be approximately $194 million. Forest City initially will use the
net proceeds to repay bank debt outstanding under the existing $225.0 million
FCRPC Credit Agreement and for general corporate purposes including the
financing of projects currently under development. At January 31, 1998, $114.0
million was outstanding under the FCRPC Credit Agreement. The borrowings under
the FCRPC Credit Agreement currently bear interest at 2% over The London
Interbank Offered Rate (or 7 5/8% for the month of February 1998). The
indebtedness under the FCRPC Credit Agreement was incurred to finance the
Company's construction and development activities. The Company expects
subsequently to reborrow some or all of the available amounts under the FCRPC
Credit Agreement, and to use such borrowings, together with any remaining
proceeds of this Offering and the proceeds of new mortgage debt financings for
general corporate purposes including the financing of projects currently under
development. See "Strategy For Growth and Competitive Advantages -- New
Development" and "-- Acquisitions."
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<PAGE> 60
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
October 31, 1997, and as adjusted to give effect to the Offering and the
application of the net proceeds therefrom.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 27,096 $ 120,596
========== ==========
Mortgage debt, nonrecourse(1)............................... $1,941,887 $1,941,887
Long-term debt(1)........................................... 91,865 1,365
Notes offered hereby........................................ -- 200,000
Shareholders' equity:
Preferred stock -- convertible, without par value;
5,000,000 shares authorized; no shares issued.......... -- --
Common stock -- $.33 1/3 par value
Class A, 48,000,000 shares authorized; 9,896,486 shares
issued, 9,582,836 outstanding........................ 3,297 3,297
Class B, convertible, 18,000,000 shares authorized;
5,545,490 shares issued, 5,406,440 outstanding....... 1,848 1,848
Additional paid-in capital................................ 119,429 119,429
Retained earnings......................................... 165,893 165,893
Less treasury stock, at cost; 313,650 Class A and 139,050
Class B shares......................................... (11,485) (11,485)
---------- ----------
Total shareholders' equity........................... 278,982 278,982
---------- ----------
Total capitalization.............................. $2,312,734 $2,422,234
========== ==========
</TABLE>
- ---------------
(1) At January 31, 1998, the Company had approximately $2.0 billion of mortgage
debt, nonrecourse and $114.0 million of long-term debt. The $114.0 million
of long term debt is comprised of $60.0 million under the term loan and
$54.0 million of revolving loans, under the FCRPC Credit Agreement.
S-29
<PAGE> 61
THE COMPANY
Forest City is one of the leading real estate development companies in the
United States. It develops, acquires, owns and manages commercial and
residential real estate projects in 21 states and the District of Columbia. At
October 31, 1997, the Company had $2.8 billion in consolidated assets, of which
approximately $2.6 billion was invested in commercial and residential real
estate.
The Company has a portfolio diversified both geographically and among
property types, and operates through four principal business groups: the
Commercial Group, the Residential Group, the Land Group and the Lumber Trading
Group. The following table sets forth, by type of property, a summary of the
Company's operating portfolio of commercial, residential and land projects as of
January 31, 1998.
<TABLE>
<CAPTION>
NUMBER
OF REPRESENTATIVE PRINCIPAL
TYPE OF PROPERTY PROPERTIES TOTAL SIZE METROPOLITAN REGIONS
- -------------------------------------- ----------- ------------------- --------------------------------------
<S> <C> <C> <C>
COMMERCIAL GROUP
Shopping Centers.................... 33 15.2 million square New York City (7); California (4);
feet Cleveland (3); Akron, OH (3); Las
Vegas (2) and Tucson (2)
Office Buildings.................... 21 6.7 million Cleveland (9); New York City (6);
leasable square Cambridge, MA (3) and Pittsburgh (2)
feet
Hotels.............................. 5 1,530 rooms Cleveland (2); Pittsburgh (1);
Charleston, WV (1) and Detroit (1)
RESIDENTIAL GROUP
Apartment Communities (1)........... 117 32,111 units Cleveland (21); California (8);
Washington, D.C. (5); Detroit (4);
Philadelphia (2); Cambridge, MA (1)
and Las Vegas (1)
LAND GROUP
Land held for improvement and
sale.............................. -- 5,367 acres Ft. Lauderdale; Las Vegas; Cleveland;
Tucson; Tampa and Charlotte
</TABLE>
- ---------------
(1) Includes 9,402 syndicated senior citizen subsidized units in 57 apartment
communities developed under Federal programs in which the Company holds a
residual interest, none of which are reflected under the caption
"Representative Principal Metropolitan Regions" in the table above.
The Company's EBDT grew by 29% to $80.1 million for the nine months ended
October 31, 1997 (including $7.0 million of litigation proceeds, net of tax,
relating to the sale of a residential apartment complex) from $62.0 million for
the nine months ended October 31, 1996. Management expects EBDT to grow by 17%
to approximately $106 million (including the $7.0 million of litigation
proceeds) for the year ended January 31, 1998 from $90.4 million for the year
ended January 31, 1997.* This growth reflects strong performance in the
Company's existing portfolio, as a result of continued high occupancy rates,
increased rental rates, the addition in 1996 of 11 properties to the Company's
portfolio with a total cost of $330.3 million (of which the Company's share was
$186.2 million) and the addition in 1997 of 11 properties, with a total cost of
$230.8 million (of which the Company's share was $164.7 million). For a further
discussion of EBDT, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
At October 31, 1997, the shopping centers, office buildings and hotels
comprising the Commercial Group totaled $1.8 billion or 64% of total assets.
Properties in the Company's Residential Group totaled $619.7 million or 22% of
total assets as of October 31, 1997. For the nine months ended October 31, 1997,
52% of total revenues and 54% of EBDT were generated by the Commercial Group and
23% of total revenues and 32% of EBDT were generated by the Residential Group.
In 1996, 51% of total
- ---------------
* Represents management's estimate which is subject to change as a result of
computing final results for January 1998 and the Company's normal year-end
audit process. No assurance can be given that the Company will meet this
projection. See "Risk Factors -- Information Concerning Forward-Looking
Statements."
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<PAGE> 62
revenues and 62% of EBDT were generated by the Commercial Group and 19% of total
revenues and 27% of EBDT were generated by the Residential Group. See
"Business -- Commercial Group" and "-- Residential Group."
The Land Group develops raw land into master planned communities, mixed-use
and other residential developments and currently owns 5,367 acres of undeveloped
land for this purpose. The Company currently has major land development projects
in five states. See "Business -- Land Group." The Lumber Trading Group is one of
the largest lumber wholesalers in North America. See "Business -- Lumber Trading
Group." For the nine months ended October 31, 1997, the combined land and lumber
operations contributed 24% and 7% of revenues and EBDT respectively, and
constituted 10% of the Company's total assets at October 31, 1997. The Company's
"Corporate" activities relate to its investments in and advances to affiliates
and general corporate items.
The Company has experienced 18 consecutive years of EBDT growth and strong
growth in EBITDA(1) during that period. Management believes this successful
track record is a function of operating a diversified portfolio (both
geographically and by asset class) and management's experience in developing and
operating its business through various real estate cycles.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) EBITDA EBDT
<S> <C> <C>
1980 11.1 27.7
1981 12.5 29.9
1982 17.1 30.1
1983 20.9 32.9
1984 22.8 33
1985 26.1 30.7
1986 31.7 44.9
1987 35.6 57.6
1988 39.9 69.8
1989 44.1 80.5
1990 46.4 91.2
1991 51.2 113.4
1992 77.1 86.7
1993 81 100.1
1994 81.3 117.4
1995 82 141.6
1996 90.4 133.1
1997 106 150
</TABLE>
(1) The Company defines EBITDA as net earnings from operations before interest,
taxes, depreciation and amortization and excludes provision for decline in
real estate, gain (loss) on disposition of properties and extraordinary
gain. The Company's EBITDA is not intended to represent cash flow from
operations as defined by GAAP and should not be considered as an alternative
to net income as an indicator of operating performance or to cash flow as a
measure of liquidity. The Company has included information concerning EBITDA
as it understands that it is used by certain investors as one measure of a
borrower's historical ability to service its debt. EBITDA, as presented, may
not be comparable to similarly titled measures reported by other companies,
since not all companies necessarily calculate EBITDA in an identical manner,
and therefore is not necessarily an accurate means of comparison between
companies.
(2) Represents management's estimate which is subject to change as a result of
computing final results for January 1998 and the Company's normal year-end
audit process. The estimate includes $15.0 million of litigation proceeds
relating to the sale of an apartment complex in February 1997 (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Sale of Toscana/Extraordinary Gain"). This is a
forward-looking statement and is based on current facts and expectations. No
assurance can be given that the Company will meet this projection. See "Risk
Factors -- Information Concerning Forward-Looking Statements."
(3) Represents management's estimate which is subject to change as a result of
computing final results for January 1998 and the Company's normal year-end
audit process. The estimate includes $7.0 million of litigation proceeds,
net of tax, relating to the sale of an apartment complex in February, 1997
(see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Sale of Toscana/Extraordinary Gain"). This is a
forward-looking statement and is based on current facts and expectations. No
assurance can be given that the Company will meet this projection. See "Risk
Factors -- Information Concerning Forward-Looking Statements."
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<PAGE> 63
The Company's management strength reflects over 50 years in the real estate
business and the continuity of leadership through three generations of the
Ratner/Miller/Shafran families. The Company's core management team includes 45
senior managers, whose average tenure with the Company is 18 years. The Company
believes that the depth and experience of its management team has been and will
continue to be vital to the Company's growth and ability to operate through
various real estate cycles. In 1995, Charles A. Ratner, who joined the Company
in 1966, became the Company's third Chief Executive Officer. The Company's
executive officers and directors as a group beneficially owned 2,543,066 shares,
or 26.5%, of the Company's Class A Common Stock (assuming no conversions of the
Company's Class B Common Stock) and 4,006,318 shares, or 74.2%, of the Company's
Class B Common Stock outstanding at December 1, 1997. The total value of such
shares as of February 23, 1998 was approximately $359 million, based on the last
reported sale price for Class A Common Stock ($54.94 per share) on February 23,
1998 and Class B Common Stock ($54.75 per share) on February 20, 1998. See "Risk
Factors -- Control by Class B Common Shareholders" and "-- Conflicts of
Interests."
BUSINESS
The Company is organized into the four principal business groups:
- The Commercial Group, which develops, acquires, owns and operates
shopping centers, office buildings and mixed-use projects including
hotels.
- The Residential Group, which develops, acquires, owns and operates the
Company's multi-family properties.
- The Land Group, which owns and develops raw land into master planned
communities and other residential developments for resale.
- The Lumber Trading Group, which operates the Company's lumber wholesaling
business.
Each group operates autonomously, and each of the Commercial Group and
Residential Group has its own development, acquisition, leasing, property and
financial management functions. As a result, each of these groups is able to
perform all of the tasks necessary to develop and maintain a property from
selecting a project site to financing the project to managing the completed
project. The Company believes that this structure permits each group to better
focus on its business and permits key employees to exercise the independent
leadership, creativity and entrepreneurial skills necessary in the real estate
business. The Company's "Corporate" activities relate to its investments in and
advances to affiliates and general corporate items.
The following charts illustrate the division of the Company's business
among its four operating groups and its "Corporate" activities (dollars in
millions).
<TABLE>
FOR THE NINE MONTHS ENDED OCTOBER 31, 1997 AS OF OCTOBER 31, 1997
<S> <C> <C>
Commercial Commercial Commercial
$233.7 $43.6 $1,813.6
52% 54% 64%
Corporate Land Land
$3.7 $0.5 $91.5
1% 1% 3%
Land Lumber Corporate
$12.2 Trading $98.8
3% $5.0 4%
6%
Residential Lumber Trading
$104.1 Corporate $199.2
23% $5.3 7%
7%
Lumber Trading Residential
$94.4 Residential $619.7
21% $25.7 22%
32%
Revenues-$448.1 EBDT-$80.1 Total Assets-$2,822.8
[Revenues Graph] [EBDT Graph] [Total Assets Graph]
</TABLE>
S-32
<PAGE> 64
The Commercial Group and Residential Group are operating units of FCRPC,
which is a wholly owned subsidiary of the Company. FCRPC is the borrower under
the FCRPC Credit Agreement. The Land Group and Lumber Trading Group are
operating units of the Company.
COMMERCIAL GROUP
The Company has developed retail projects for more than 50 years and
office, mixed-use and hotel projects for more than 30 years. Today the
Commercial Group owns a diverse portfolio in both urban and suburban locations
in 12 states. The Commercial Group targets densely populated locations where it
uses its expertise to develop complex projects, often employing public/private
partnerships.
As of January 31, 1998, the Commercial Group owned interests in 59
completed projects, including 33 retail properties, 21 office properties and
five hotels. The Commercial Group also has one property under contract to
purchase and 13 projects under construction or active development, and is
pursuing numerous other development opportunities. The Commercial Group's EBDT
was $43.6 million for the nine months ended October 31, 1997 constituting 54% of
the Company's total EBDT and was $56.2 million in 1996 constituting 62% of the
Company's total EBDT.
SHOPPING CENTERS
The Company opened its first strip shopping center in 1948, and its first
enclosed regional mall in 1962. Since then, it has developed urban retail
centers, entertainment based centers, community centers and power centers
focused on "big box" retailing (collectively, "Specialty Retail Centers"), as
well as regional malls. As of January 31, 1998, the Commercial Group's shopping
center portfolio consisted of 14 regional malls with a GLA of 4.3 million square
feet and 19 Specialty Retail Centers with a total GLA of 3.9 million square
feet.
Malls are generally developed in collaboration with anchor stores that
usually own their own facilities as integral parts of the mall structure and
environment and which do not generate significant direct payments to the
Company. In contrast, anchor stores at specialty retail and power centers
generally are tenants under long-term leases which contribute significant rental
payments to the Company. See "Risk Factors -- Dependence on Rental Income From
Real Property."
While the Company continues to develop regional malls in strong markets,
the Company recently has pioneered the concept of bringing "big box" retailing
to urban locations previously ignored by major retailers. With high population
densities and disposable income levels at or near those of the suburbs, urban
development is proving to be economically advantageous for the Company, for the
tenants who realize high sales per square foot and for the cities, which benefit
from the new jobs created in the urban locations.
Retail projects anchored by entertainment facilities are another growth
area for the Company. See "-- Entertainment: A New Growth Opportunity."
The Company capitalizes on enhanced real estate values associated with
properties that are adjacent to its commercial projects by acquiring such
ancillary properties for resale as undeveloped land prior to development.
EXISTING PORTFOLIO. The Company's existing shopping center portfolio
consists of 14 regional malls containing a total of 11.0 million square feet,
including anchors, and 4.3 million square feet of GLA. The Commercial Group also
owns 19 specialty retail centers (including urban retail centers, power centers,
entertainment-based retail centers and community centers) with total GLA of 3.9
million square feet. The properties are located in 11 states, including seven in
Ohio, nine in New York and four in California.
The Company's regional malls and specialty retail centers were 84% and 91%
leased at the end of 1994, 84% and 94% leased at the end of 1995, 83% and 94%
leased at the end of 1996 and 85% and 92% leased at the end of 1997,
respectively. Forest City aggressively markets vacant mall space to
S-33
<PAGE> 65
temporary tenants to create an improved ambiance and retail mix within the
centers. In its regional malls, the Company also emphasizes the inclusion of
"carts" with distinctive merchandise that add visual and retail interest to the
properties. While these tenants are not under long-term leases, revenue
generated from temporary mall and cart tenants totaled $2.3 million, $2.7
million, $2.8 million and $3.1 million, during fiscal 1994, 1995, 1996 and 1997,
respectively. If square footage occupied by temporary tenants were included, the
regional mall GLA would have been 89% leased at January 31, 1998.
Average sales per square foot of GLA at the Company's regional malls were
$265, $268, $265 and $276 for 1994, 1995, 1996 and 1997, respectively. Sales
figures for specialty retail centers are not computed, as many tenants at
specialty retail centers have no obligation to report sales. The Company's
existing shopping center leases in effect at January 31, 1997, contain
contractual aggregate net rental increases of $24.6 million for the years 1997
through 2001 and $22.4 million over the succeeding five-year period.
The Company maintains tight cost controls and leverages its economies of
scale to minimize operating expenses. At January 31, 1998, the Company's
property level expenses for shopping centers open since February 1, 1994 had
increased at a compounded annual average rate of only 0.7%.
The Company believes its regional shopping centers generally occupy secure
retail niches within their respective marketplaces. The Company's ability to
increase the value of its properties is demonstrated by the fact that net
operating income increased at a compound annual average rate of 4.4% for
regional malls in operation throughout the period from February 1, 1987 to
January 31, 1997. Below are descriptions of some of the Company's shopping
centers.
Antelope Valley Mall, an 839,000 square foot regional shopping center
located in Palmdale, California, opened in 1990 with five department stores.
During 1997, the Company increased its ownership percent from 40% to 78% by
purchasing the partnership interest of one of its partners for $22.1 million.
Tucson Mall, the Company's largest regional mall, opened in 1982. A major
expansion in 1992 added one department store and additional GLA. Today the mall
contains 1,293,000 total square feet with 408,000 square feet of GLA. With six
department stores, including Broadway's and Dillard's, it is the dominant mall
in Southern Arizona. In 1996 and 1997, the mall generated sales per square foot
of GLA of $326 and $334, respectively. The mall was 97% leased at January 31,
1998.
Charleston Mall, the dominant retail center in West Virginia, was the
Company's first urban retail development and its first major public/private
partnership development. The mall's unique three level design allowed for
897,000 total square feet with four department stores, and parking for 5,000
cars located on 22.9 acres in the center of downtown Charleston. The mall was
the key element in the renewal of Charleston's urban core. In 1996 and 1997, the
mall generated sales per square foot of $338 and $354, respectively. The mall
was 94% leased at January 31, 1998.
The Avenue at Tower City, the retail portion of the Company's largest
mixed-use development, is a three level shopping center located in the center of
downtown Cleveland adjacent to the hub of Cleveland's bus and lightrail
transportation system. The 368,000 square foot Avenue was designed as a focal
point for the community and is a key element of Cleveland's downtown
renaissance. In an effort to expand Tower City's tenant mix, the Company
recently signed a long-term lease with Hard Rock Cafe International, Inc. to
build an 11,000 square foot restaurant and retail facility which is expected to
open in the second quarter of 1998.* The mall, which was 92% leased at January
31, 1998, generated sales per square foot of $319 and $300 in 1996 and 1997,
respectively.
- ---------------
* The statements relating to this proposed expansion are forward-looking
statements and are based on current facts and expectations. The completion of
this proposed expansion involves various risks, including construction delays
and cost overruns. See "Risk Factors -- Real Estate Development and Investment
Risks," "-- Dependence on Rental Income From Real Property," "-- Changes in
Interest Rates," "-- Tax-Exempt and UDAG Financing," "-- Reliance on Major
Tenants" and "-- Completion," for a more complete discussion of the risks
associated with the completion of this proposed expansion.
S-34
<PAGE> 66
The Plaza at Robinson Town Center is a 455,000 square foot power center
located in the Company's major development near Pittsburgh's new International
Airport, and is anchored by the only IKEA store in its market. Opened in 1989,
The Plaza, which was 100% leased at January 31, 1998, is the first phase of the
Robinson Town Center plan, which includes 715 acres for mixed-use development.
Approximately 180 acres have been sold as of January 31, 1998 to 17 retailers
who have built in excess of 800,000 square feet of retail space. The Pittsburgh
Mall, a 1,013,000 square foot regional mall, is under active development, and
377 acres have been designated for future retail or commercial use. The Company
expects to begin construction in 1998.* It is anticipated that the Robinson
project, when completed, will be the largest commercial development in western
Pennsylvania.*
At the end of 1996, three of the Company's regional malls, Canton Centre,
Rolling Acres Mall and Summit Park Mall, had been experiencing poor operating
results and were targeted for repositioning. During 1997, the Company made
significant progress at Canton Centre where the leased space increased to 80%
with the signing of a 27,000 square foot lease with Staples scheduled to open in
1998. A marketing study has been completed at Summit Park Mall and plans have
been proposed to change the focus of this center from purely retail to one with
an entertainment theme in an effort to reduce vacancy. In addition to the three
properties referred to above, a specialty retail center, the Gallery at
MetroTech, has experienced operational difficulties. The Company is currently
evaluating the situation at Rolling Acres Mall and Gallery at MetroTech and has
not yet determined a course of action. If these three regional malls were
excluded from the leasing data, the regional malls would have been 87%, 88%, 87%
and 90% leased at the end of 1994, 1995, 1996 and 1997, respectively. If the
three regional malls were excluded from the regional mall sales data, comparable
sales per square foot would have been $286, $290, $288 and $297 for the same
periods.
Expansion and Renovation. The process of creating a desirable environment
for retailers and shoppers requires periodic updating of the physical facilities
of all the retail centers. An integral part of the Company's management of its
existing shopping center portfolio involves expanding and renovating properties
to maintain and enhance their value. Since January 31, 1994, the Company has
expanded, renovated and/or committed to renovate nine shopping centers for a
total cost of $75.2 million ($47.6 million of which is the Company's share).
Examples of this ongoing program include Boulevard Mall in Amherst, New York,
Ballston Common in Arlington, Virginia, South Bay Galleria in Redondo Beach,
California and Courtland Center in Flint, Michigan.
At Boulevard Mall, the first mall developed by the Company, a renovation
program to physically update the property was completed in May, 1997. This will
be the third such program implemented during the 36 year history of this
property. From February 1, 1988 through January 31, 1998, the net operating
income of this mall grew at a compounded annual rate of 4.1%, demonstrating the
ability of older properties to continue to contribute to the Company's growth.
In addition, the property was expanded in 1994 to add a food court containing 12
units at a total cost of approximately $5 million. The property currently is
being further expanded to add a CompUSA and additional tenants for a total of
approximately 130,000 additional square feet at a projected cost of $15
million.**
Ballston Common is an example of how the Company is utilizing its expertise
to add entertainment complexes to existing retail properties to enhance their
appeal to shoppers, making them a "destination" location. The Company increased
its ownership in this property in 1994 from 50% to 100% by
- ---------------
* The statements relating to this project are forward-looking statements and
are based on current facts and expectations. The completion of this project
involves various risks, including an inability to obtain financing or
government entitlements, construction delays and cost overruns. See "Risk
Factors -- Real Estate Development and Investment Risks," "-- Dependence on
Rental Income From Real Property," "-- Changes in Interest Rates,"
"-- Tax-Exempt and UDAG Financing," "-- Reliance on Major Tenants,"
"-- Competition" and "-- Partnership Risks," for a more complete discussion
of the risks associated with the completion of this project.
** The statements relating to these proposed expansions and/or renovations are
forward-looking statements and are based on current facts and expectations.
The completion of these proposed expansions and/or renovations involves
various risks, including construction delays and cost overruns. See "Risk
Factors -- Real Estate Development and Investment Risks," "-- Dependence on
Rental Income From Real Property," "-- Changes in Interest Rates," "--
Tax-Exempt and UDAG Financing," "-- Reliance on Major Tenants" and "--
Completion," for a more complete discussion of the risks associated with the
completion of thee proposed expansions and/or renovations.
S-35
<PAGE> 67
purchasing the interest of its institutional partner. As a result of the
improving demographics in its market and the desire to properly service the
needs of a dense population base, the center is being expanded to add a 69,000
square foot cinema and 22,000 square feet of retail space, which will be leased
entirely to restaurant and entertainment tenants.* The Company believes this
expansion will broaden the market appeal of the mall by capturing the
significant entertainment expenditures of the local population base.
The Company expanded South Bay Galleria in 1997 by adding a 60,000 square
foot cinema to the top of the parking deck. General Cinema, which signed a
20-year lease, was relocated from the adjacent South Bay Southern shopping
center. This relocation will now make it possible for the Company to pursue the
redevelopment of South Bay Southern.
The Company is adding a cinema to Courtland Center. Silver Screen Cinema
executed a 10-year lease to operate a 23,000 square foot cinema (15,000 square
feet of which represents an expansion to the center).
Leasing and Marketing. Most of the Company's leases are structured on a
triple net basis requiring tenants to pay most operating expenses. The Company
strictly controls expenses and capital expenditures to minimize tenant occupancy
costs, allowing for continued base rent appreciation. At January 31, 1998,
property level expenses since February 1, 1994 had increased at a compound
annual average rate of 0.7%, below the average inflation rate for the comparable
period. The Company believes that keeping increases in operating expenses as low
as possible is a way of maintaining a positive long-term landlord/tenant
relationship.
The Company believes its retail sales performance can be positively
impacted by an aggressive and innovative management and marketing program. An
example of the implementation of this program is the Company's arrangement with
leading national retailers such as Disney to bring their special attractions to
the Company's malls, which enhance the competitive advantages of these
properties.
During 1997, the Company executed a total of 262 new and renewal leases
representing 843,000 square feet. These leases have an average base rent of
$24.17 per square foot. Leases for 659,000 square feet of existing GLA were
completed in 1997 at average base rents that were $1.23 per square foot, or 7%,
higher than the previous leases. During 1995 and 1996, the Company executed a
total of 422 new and renewal leases representing 842,000 square feet. These
leases have an average base rent of $22.42 per square foot, generating an
average increase in base rent of $2.61 per square foot, or 13.5%. There can be
no assurance that the Company will be able to sustain the same magnitude of
lease increases in the future.
- ---------------
* The statements relating to these proposed expansions and/or renovations are
forward-looking statements and are based on current facts and expectations.
The completion of these proposed expansions and/or renovations involves
various risks, including construction delays and cost overruns. See "Risk
Factors -- Real Estate Development and Investment Risks," "-- Dependence on
Rental Income From Real Property," "-- Changes in Interest Rates," "--
Tax-Exempt and UDAG Financing," "-- Reliance on Major Tenants" and "--
Completion," for a more complete discussion of the risks associated with the
completion of the proposed expansions and/or renovations.
S-36
<PAGE> 68
The following table summarizes the Company's existing shopping centers as
of January 31, 1998.
<TABLE>
<CAPTION>
YEAR
COMPLETED/ RETAIL SQ. FT.
DATE OF LAST COMPANY INCLUDING
NAME RENOVATION OWNERSHIP(%) LOCATION MAJOR TENANTS DEPT. STORES
---- ------------ ------------ -------- ------------- --------------
<S> <C> <C> <C> <C> <C>
REGIONAL MALLS
Antelope Valley Mall...... 1990 78.0% Palmdale, CA Sears Roebuck and Co.; JC 839,000
Penney's; Gottschalk's; Harris;
Mervyn's
The Avenue at Tower City.. 1990/1996 100.0 Cleveland, OH Dillard's 790,000
Ballston Common........... 1986/1995 100.0 Arlington, VA Hecht's; JC Penney's; Sport and 490,000
Health
Boulevard Mall............ 1962/1997 50.0 Amherst, NY Jenss; JC Penney's; Kaufmann's 772,000
Canton Centre............. 1981/1988 100.0 Canton, OH Kaufmann's; JC Penney's; 680,000
Montgomery Ward
Chapel Hill Mall.......... 1966/1995 50.0 Akron, OH Kaufmann's; JC Penney's; Sears 882,000
Roebuck and Co.
Charleston Town Center.... 1983/1994 50.0 Charleston, WV Kaufmann's; JC Penney's; Sears 897,000
Roebuck and Co.; Montgomery
Ward; Stone and Thomas
Courtland Center.......... 1968/1986 100.0 Flint, MI Crowley's; JC Penney's; 460,000
Mervyn's
Galleria at Sunset........ 1996 60.0 Henderson, NV Dillard's; Robinsons-May; 892,000
Mervyn's; JC Penney's
Manhattan Town Center..... 1987 37.5 Manhattan, KS Dillard's; JC Penney's; Sears 380,000
Roebuck and Co.
Rolling Acres Mall........ 1975 80.0 Akron, OH Kaufmann's; JC Penney's; Sears 1,014,000
Roebuck and Co.; Dillard's;
Target
South Bay Galleria........ 1985 50.0 Redondo Beach, CA Robinsons-May; Mervyn's; 953,000
Nordstrom's; General Cinema
Summit Park Mall.......... 1972 100.0 Wheatfield, NY Bon-Ton; Jenss; Sears Roebuck 695,000
and Co.
Tucson Mall............... 1982/1992 67.5 Tucson, AZ Broadway's; Foley's; Dillard's; 1,293,000
Mervyn's; JC Penney's; Sears
Roebuck and Co.
----------
Subtotal............... 11,037,000
----------
SPECIALTY RETAIL CENTERS
Atlantic Center........... 1996 75.0% Brooklyn, NY Caldor; The Sports Authority; 391,000
Pathmark; OfficeMax; Old Navy
Bowling Green Mall........ 1966 50.0 Bowling Green, KY Kroger; Quality Big Lots 242,000
Bruckner Boulevard........ 1996 70.0 Bronx, NY Pergament; Seaman's; Young 114,000
World; Old Navy
Chapel Hill Suburban...... 1969 50.0 Akron, OH Value City; Petzazz 112,000
Courtyard................. 1990 50.0 Flint, MI V.G.'s Market; Home Depot; 233,000
OfficeMax
Flatbush Avenue........... 1995/1998 80.0 Brooklyn, NY Edward's Supermarket 136,000
Gallery at MetroTech...... 1990 80.0 Brooklyn, NY Toys "R" Us 163,000
Golden Gate............... 1958/1996 50.0 Mayfield Hts., OH OfficeMax; Old Navy; Champs; 260,000
Michael's; Home Place
Grand Avenue.............. 1997 70.0 Queens, NY Edward's Supermarket 100,000
Gun Hill Road............. 1997 70.0 Bronx, NY Home Depot; Sneaker Stadium 147,000
Hunting Park.............. 1996 70.0 Philadelphia, PA Caldor; US Kidz; Payless Shoes 144,000
Marketplace at
Riverpark................ 1996 50.0 Fresno, CA Best Buy; Target; Marshall's; 453,000
JC Penney's
Midtown Plaza............. 1961 50.0 Parma, OH Hills 256,000
Newport Plaza............. 1977 50.0 Newport, KY IGA 157,000
Northern Boulevard........ 1997 70.0 Queens, NY Edward's Supermarket; 214,000
Marshall's; Old Navy
The Plaza at Robinson Town
Center................... 1989 50.0 Pittsburgh, PA T.J. Maxx; IKEA; Hills; 455,000
Marshall's; Sears Roebuck and
Co.
Showcase.................. 1996 20.0 Las Vegas, NV Coca-Cola(R); All Star Cafe 189,000
South Bay Southern........ 1978 100.0 Redondo Beach, CA CompUSA 160,000
Tucson Place.............. 1989 100.0 Tucson, AZ Wal-Mart; Homelife; OfficeMax 276,000
----------
Subtotal............... 4,202,000
----------
Shopping Centers at January 31, 1998 15,239,000
==========
Shopping Centers at January 31, 1997 14,310,000
==========
<CAPTION>
NAME GLA
---- ---
<S> <C>
REGIONAL MALLS
Antelope Valley Mall...... 287,000
The Avenue at Tower City.. 368,000
Ballston Common........... 221,000
Boulevard Mall............ 261,000
Canton Centre............. 254,000
Chapel Hill Mall.......... 321,000
Charleston Town Center.... 360,000
Courtland Center.......... 239,000
Galleria at Sunset........ 294,000
Manhattan Town Center..... 185,000
Rolling Acres Mall........ 365,000
South Bay Galleria........ 385,000
Summit Park Mall.......... 309,000
Tucson Mall............... 408,000
---------
Subtotal............... 4,257,000
---------
SPECIALTY RETAIL CENTERS
Atlantic Center........... 391,000
Bowling Green Mall........ 242,000
Bruckner Boulevard........ 114,000
Chapel Hill Suburban...... 112,000
Courtyard................. 124,000
Flatbush Avenue........... 136,000
Gallery at MetroTech...... 163,000
Golden Gate............... 260,000
Grand Avenue.............. 100,000
Gun Hill Road............. 147,000
Hunting Park.............. 144,000
Marketplace at
Riverpark................ 284,000
Midtown Plaza............. 256,000
Newport Plaza............. 157,000
Northern Boulevard........ 214,000
The Plaza at Robinson Town
Center................... 455,000
Showcase.................. 189,000
South Bay Southern........ 160,000
Tucson Place.............. 276,000
---------
Subtotal............... 3,924,000
---------
Shopping Centers at
January 31, 1998 8,181,000
=========
Shopping Centers at
January 31, 1997 7,674,000
=========
</TABLE>
S-37
<PAGE> 69
ANCHOR AND SIGNIFICANT TENANTS. Anchor stores are a critical factor to the
success of any retail mall. The customer's identification with a property
typically focuses on its anchors. Regional mall anchors generally are department
stores whose merchandise appeals to a broad range of shoppers. Although the
regional malls derive minimal operating income from anchor stores as compared to
mall stores, strong anchors play an important part in generating customer
traffic and in making the centers desirable locations for mall store tenants.
See "Risk Factors -- Dependence on Rental Income from Real Property."
Of the approximately 11.0 million square feet in the Company's regional
malls, approximately 4.6 million square feet or 42% is owned directly by the
mall anchor stores. Each mall anchor that owns its own store typically enters
into a reciprocal easement agreement with the other owners in the retail center
covering, among other things, operating covenants, reciprocal easements,
property operations, initial construction and future expansions.
The following table sets forth anchor stores occupying more than three
sites and the number of square feet owned or leased by such anchors as of
January 31, 1998.
<TABLE>
<CAPTION>
TOTAL
NUMBER OF OCCUPIED
ANCHOR ANCHOR STORES SQUARE FEET
------ ------------- -----------
<S> <C> <C>
JC Penney's...................................... 11 1,469,587
Sears Roebuck and Co............................. 7 1,043,631
May Company/Kaufmann's........................... 8 1,472,478
Dillard's........................................ 5 594,749
Mervyn's/Target.................................. 6 502,578
---------
Total....................................... 5,083,023
=========
</TABLE>
Other retail centers generally have anchor tenants that are large specialty
retailers, such as toy stores, home improvement stores, or grocery stores. Most
such anchors lease their locations from the mall owners under long-term leases.
The following table identifies tenants that lease more than 100,000 square
feet of GLA in the Commercial Group's shopping centers as of January 31, 1998.
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF SHOPPING
NUMBER OF LEASED SHOPPING CENTER BASE
TENANT(1) STORES SQUARE FEET(2) CENTER GLA RENT(3)
--------- --------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
The Limited................... 69 445,959 5.5% 6.5%
Caldor(4)..................... 2 244,091 3.0 4.2
Woolworth..................... 63 221,792 2.7 3.3
The GAP....................... 15 136,855 1.7 1.6
--------- ---- -----
Total.................... 1,048,697 12.9% 15.6%
========= ==== =====
</TABLE>
- ---------------
(1) The tenant name includes all space associated with the various trade names
for the tenant.
(2) Represents 100% of the square footage of GLA, not Forest City's
proportionate share.
(3) Represents percentage of Forest City's proportionate share of annualized net
shopping center base rent. Annualized net shopping center base rent equals
contractual rent for the year ended January 31, 1997, adjusted for the
annualized effect of the following significant activity that occurred during
the twelve months ended January 31, 1998: (a) square feet leased by the
Company, (b) square feet of leases where the tenant vacated the space, (c)
square feet of leases that expired but which were renewed by the tenant and
(d) projects completed in 1997.
(4) Caldor currently is in bankruptcy proceedings and has rejected its lease and
closed its 90,000 square foot store at Flatbush Avenue in Brooklyn, New
York. The effect of this lease termination is reflected both in the table
and in footnote (3) above. The Company is redeveloping Flatbush Avenue,
increasing the GLA from 90,000 square feet to 136,000 square feet. Letters
of intent or leases have been signed for 108,000 square feet of this GLA.
The property is expected to re-open in the second half of 1998. See "Risk
Factors -- Dependence on Rental Income From Real Property."
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<PAGE> 70
SHOPPING CENTER LEASES AND TENANT LEASE EXPIRATIONS. Current mall store
leases generally provide for tenants to pay rent comprised of two elements. The
first element is a fixed "base rent," often subject to increase according to a
schedule agreed upon at the time an agreement to lease is signed. The second
element is "percentage rent," which is based on a percentage of the tenant's
gross sales to the extent that the resultant rent exceeds the "base rent" or
these sales exceed a stated annual amount. While the percentage rent clause is
important in enhancing a shopping center's cash flow and value in an
inflationary environment, the Company's net rental revenue is derived
predominantly from contractual base rent. For the fiscal year ended January 31,
1997, base rent accounted for approximately 96% of total shopping center rental
revenue, excluding cost recoveries.
Scheduled annual expirations over the next ten years for shopping center
leases in place at January 31, 1997 average approximately 6.8% of total leased
mall store GLA, with no single year exceeding 7.8%. The average remaining term
of shopping center leases in place is 5.2 years as of the year ended January 31,
1997. The following table shows lease expirations for the next ten years at the
Company's shopping centers, assuming that none of the tenants exercise their
renewal options. See "Risk Factors -- Reliance on Major Tenants."
<TABLE>
<CAPTION>
PERCENT
NUM. OF SQ. FT. OF TOTAL PERCENT AVG. BASE
LEASES OF LEASES LEASED BASE RENT OF TOTAL RENT/SQ. FT.
EXPIRATION YEAR EXPIRING EXPIRING(1) GLA EXPIRING(2) BASE RENT(2) EXPIRING(3)
--------------- -------- ----------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1997..................... 158 360,095 5.4% 3,865,860 5.1% $16.75
1998..................... 152 405,492 6.1 4,316,756 5.7 9.64
1999..................... 139 504,242 7.6 3,906,283 5.2 12.40
2000..................... 219 519,415 7.8 7,423,471 9.8 21.32
2001..................... 121 371,116 5.6 3,644,718 4.8 13.40
2002..................... 119 400,349 6.0 5,730,837 7.6 9.99
2003..................... 126 426,731 6.4 6,124,636 8.1 21.47
2004..................... 117 432,591 6.5 5,020,284 6.7 11.88
2005..................... 126 499,075 7.5 6,385,690 8.5 19.47
2006..................... 183 508,237 7.6 7,786,562 10.3 20.20
All Other................ 120 2,233,287 33.5 21,260,844 28.2 11.70
----- ---------- ----- ----------- ----- ------
Total............... 1,580 6,660,630 100.0% $75,465,941 100.0% $17.16
===== ========== ===== =========== ===== ======
</TABLE>
- ---------------
(1) Represents 100% of the shopping center's GLA expiring, not Forest City's
proportionate share.
(2) Computed at Forest City's proportionate share of annualized base rent.
Annualized net base rent equals the contractual base rent for the month
ended January 31, 1997 annualized for 12 months, excluding increases in
operating expenses and real estate taxes over the base rent.
(3) Represents contracted net annualized base rent per square foot computed at
100%, rather than at Forest City's proportionate rate.
RECENT OPENINGS. In 1997, the Commercial Group completed three specialty
retail centers, all located in the boroughs of New York City: Gun Hill Road,
Northern Boulevard and Grand Avenue.
Gun Hill Road, in the Bronx, features a Home Depot store and Sneaker
Stadium. This 147,000 square foot center opened in August 1997 at a cost of
$14.3 million and is fully leased. Northern Boulevard, in Queens, is a 214,000
square foot project that opened in November, 1997 at a cost of $42.1 million. It
features such major tenants as Edward's Supermarket, Marshall's and Old Navy.
Grand
S-39
<PAGE> 71
Avenue, also in Queens, is a 100,000 square foot center anchored by Edward's
Supermarket. This neighborhood center opened in December 1997 at a cost of $25.3
million.
<TABLE>
<CAPTION>
COMPANY'S
DEVELOPED (D) DATE TOTAL COST SHARE OF TOTAL
OR OPENED/ COMPANY AT 100% COST SQUARE
PROPERTY LOCATION ACQUIRED (A) ACQUIRED OWNERSHIP (%) (IN MIL.) (IN MIL.) FEET
-------- -------- ------------- -------- ------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Gun Hill Road............ Bronx, NY D Aug-97 70.0% $ 14.3 $ 10.0 147,000
Northern Boulevard....... Queens, NY D Nov-97 70.0% 42.1 29.5 214,000
Grand Avenue............. Queens, NY D Dec-97 70.0% 25.3 17.7 100,000
------ ------ ---------
Total............. $ 81.7 $ 57.2 461,000
====== ====== =========
<CAPTION>
PROPERTY GLA(1)
-------- ---------
<S> <C>
Gun Hill Road............ 147,000
Northern Boulevard....... 214,000
Grand Avenue............. 100,000
---------
Total............. 461,000
=========
</TABLE>
- ---------------
(1) Represents the total square feet available for lease by the Company.
Remaining square footage is owned by anchors.
PROJECTS UNDER CONSTRUCTION. The Commercial Group currently has three
specialty retail centers under construction, all of which are located in urban
centers in the New York metropolitan area. Richmond Avenue, a 76,000 square foot
center in Staten Island, New York will feature Circuit City and Staples. This
center is projected to open in the second quarter of 1998 at a cost of $20
million.* Atlantic Center -- Site V is located in Brooklyn, New York across the
street from the Company's existing Atlantic Center, a 391,000 square foot
specialty retail center. This project is a 47,000 square foot center that will
feature Sneaker Stadium. The project is slated to open in the third quarter of
1998 at a cost of $4 million.* 42 (nd) Street, located in the Times Square area,
is a 296,000 square-foot entertainment complex that will contain Madame
Tussaud's Wax Museum, AMC Theaters and other retailers. This project, expected
to cost $194 million, is scheduled to open in the second quarter of 1999 and
will include a 449-room hotel.*
The following table sets forth additional information regarding shopping
centers under construction.**
<TABLE>
<CAPTION>
ESTIMATED TOTAL COMPANY'S
DEVELOPED(D) DATE OF COST SHARE TOTAL
OR OPENING/ COMPANY AT 100% OF COST SQUARE
PROPERTY LOCATION ACQUIRED(A) ACQUISITION OWNERSHIP(%) (IN MIL.) (IN MIL.) FEET
-------- -------- ------------ ----------- ------------ ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Staten Island,
Richmond Avenue............ NY D Q2-98 70.0% $ 20.1 $ 14.1 76,000
Atlantic Center-Site V..... Brooklyn, NY D Q3-98 70.0% 3.9 2.7 47,000
42nd Street(2)............. Manhattan, NY D Q2-99 70.0% 194.4 121.7 296,000
------- ------- -------
Total............... $ 218.4 $ 138.5 419,000
======= ======= =======
<CAPTION>
PROPERTY GLA(1)
-------- ------
<S> <C>
Richmond Avenue............ 76,000
Atlantic Center-Site V..... 47,000
42nd Street(2)............. 296,000
-------
Total............... 419,000
=======
</TABLE>
- ---------------
(1) Represents the total square feet available for lease by the Company.
Remaining square footage is owned by anchors.
(2) In addition to the 296,000 square feet of GLA, the project also includes a
449-room hotel. The Company's ownership interest in the hotel, which is
expected to open in the fourth quarter of 1999, is 56%.
PROJECTS UNDER DEVELOPMENT. The Company is developing a mixed-use project
in the Battery Park section of New York City that will feature 173,000 square
feet of retail space and a 463-room hotel. A cinema and a supermarket will
anchor the retail space. This project, expected to cost $155 million, is
projected to open in 1999.*
- ---------------
* The statements relating to these projects are forward-looking statements and
are based on current facts and expectations. The completion of these projects
involves various risks, including an inability to obtain financing or
government entitlements, construction delays and cost overruns. See "Risk
Factors -- Real Estate Development and Investment Risks," "-- Dependence on
Rental Income From Real Property," "-- Changes in Interest Rates,"
"-- Tax-Exempt and UDAG Financing," "-- Reliance on Major Tenants,"
"-- Competition" and "-- Partnership Risks," for a more complete discussion of
the risks associated with the completion of these projects.
** This table presents forward-looking information concerning various projects
under development and is based on current facts and expectations. The
completion of these projects is subject to significant risks, including an
inability to obtain financing or required government entitlements, cost
overruns and construction delays. See "Risk Factors -- Real Estate
Development and Investment Risks," "-- Dependence on Rental Income From Real
Property," "-- Changes in Interest Rates," "-- Tax-Exempt and UDAG
Financing," "-- Reliance on Major Tenants," "-- Competition" and
"-- Partnership Risks," for a more complete description of the risks
associated with the development of these projects.
S-40
<PAGE> 72
Columbia Park Center, located in North Bergen, NJ, is a 314,000 square foot
project featuring a cinema and a big-box electronics store. This project is
expected to open in 1999 at a cost of $50 million.*
Kaufman Studios is an 83,000 square foot entertainment project located in
Queens, New York. The project will be anchored by a cinema totaling 65,000
square feet and include other smaller retail stores. This $20 million project is
projected to open in mid-1999.*
The Commercial Group expects to begin construction in the spring of 1998 on
an enclosed regional mall in Temecula, California, an area situated between Los
Angeles and San Diego. The Temecula Mall will comprise 778,000 square feet on
two levels and will feature JC Penney's, Robinsons-May and Sears Roebuck & Co.
as anchors. The project is projected to cost $77 million and is expected to open
in the fourth quarter of 1999.*
Atlantic Terminal is a 377,000 square foot project that is adjacent to the
Company's existing Atlantic Center. The Company expects this $57 million project
to be anchored by a major department store and will feature a cinema and other
retail stores when completed.* This project is expected to open in 2000.*
For a discussion of Galleria at Sunset Expansion see "-- Entertainment: A
New Growth Opportunity."
The Company is also developing a 142,000 square foot complex in a major
retail area in downtown Pasadena, California. This shopping center, adjacent to
Macy's department store, will feature specialty retail, entertainment and
restaurants. This project is expected to open in 2000 at a cost of $35 million.*
The Company is in active development on a regional mall located in suburban
Pittsburgh, Pennsylvania, adjacent to the Company's existing power center in
Robinson Township. This two-level mall, located near the recently completed
Pittsburgh International Airport, has a total of 1,013,000 square feet,
including four department stores which comprise approximately 718,000 square
feet. This project, estimated to cost $91 million, is projected to open in
2000.*
- ---------------
* The statements relating to these projects are forward-looking statements and
are based on current facts and expectations. The completion of these projects
involve various risks, including an inability to obtain financing or
government entitlements, construction delays and cost overruns. See "Risk
Factors -- Real Estate Development and Investment Risks," "-- Dependence on
Rental Income From Real Property," "-- Changes in Interest Rates,"
"-- Tax-Exempt and UDAG Financing," "-- Reliance on Major Tenants,"
"-- Competition" and "-- Partnership Risks," for a more complete discussion of
the risks associated with the completion of these projects.
S-41
<PAGE> 73
The following table sets forth additional information regarding shopping
centers under development.*
<TABLE>
<CAPTION>
TOTAL COMPANY'S
DEVELOPED(D) ESTIMATED COST SHARE TOTAL
OR DATE OF COMPANY AT 100% OF COST SQUARE
PROPERTY LOCATION ACQUIRED(A) OPENING OWNERSHIP(%) (IN MIL.) (IN MIL.) FEET
- -------- -------- ------------ --------- ------------ --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Battery Park City(2).... Manhattan, NY D 1999 70.0% $ 155.1 $ 92.5 173,000
Columbia Park Center.... North Bergen, NJ D 1999 53.5 50.7 26.6 314,000
Kaufman Studios......... Queens, NY D 1999 70.0 20.7 14.5 83,000
Temecula................ Temecula, CA D 1999 75.0 76.8 57.6 778,000
Atlantic Terminal....... Brooklyn, NY D 2000 70.0 57.1 40.0 377,000
Galleria at Sunset
Expansion.............. Henderson, NV D 2000 60.0 34.5 20.7 343,000
Pasadena................ Pasadena, CA D 2000 50.0 34.6 17.3 142,000
Pittsburgh Mall......... Pittsburgh, PA D 2000 66.7 91.3 60.9 1,013,000
------- ------- ----------
Total.................. $ 520.8 $ 330.1 3,223,000
======= ======= ==========
<CAPTION>
PROPERTY GLA(1)
- -------- ----------
<S> <C>
Battery Park City(2).... 173,000
Columbia Park Center.... 314,000
Kaufman Studios......... 83,000
Temecula................ 377,000
Atlantic Terminal....... 213,000
Galleria at Sunset
Expansion.............. 184,000
Pasadena................ 142,000
Pittsburgh Mall......... 295,000
----------
Total.................. 1,781,000
==========
</TABLE>
- ---------------
(1) Represents the total square feet available for lease by the Company.
Remaining square footage is owned by anchors.
(2) In addition to the 173,000 square feet of GLA, the project also includes a
463-room hotel. The Company's ownership interest in the hotel is 56%.
In January, 1998, the Company was chosen to develop the Emporium, a retail
center with approximately 1,000,000 square feet located on Market Street in San
Francisco, California which will feature a Bloomingdale's department store. This
project is in the early stages of pre-development and, therefore, has not been
included in the above table. The Company expects to complete detailed plans for
the project during 1998.**
ENTERTAINMENT: A NEW GROWTH OPPORTUNITY. The Company is capitalizing on the
trend in large metropolitan areas to build new major downtown or waterfront
attractions to revitalize the urban core. In addition, it is working with
communities that seek new multi-million dollar gaming and other entertainment
attractions. The Company believes urban locations will continue to provide
viable entertainment and retail opportunities for developers who know how to
work effectively in public/private partnerships. See "Strategy for Growth and
Competitive Advantages -- New Development."
Forest City's most visible entertainment projects are Showcase located on
The Strip in Las Vegas and 42nd Street located in the Times Square area of New
York City. Showcase, a 189,000 square foot entertainment and retail complex,
opened in December 1996 and is fully leased. The Commercial Group commenced
construction in 1997 at 42nd Street, a 296,000 square foot entertainment and
retail complex. The Company has played an integral role in the New York City and
State of New York governments' programs to revitalize Times Square. The Company
has entered into ground leases with 42nd Street Development Project, Inc. and
New 42nd Street, Inc. and executed leases with Madame Tussaud's Wax Museum, AMC
Theaters, HMV Records and Just For Feet. This project, which also includes a
449-room hotel situated above the retail/entertainment area, is expected to cost
$194 million (of which $13.2 million had been expended at January 31, 1998).**
With respect to 42nd Street, see "-- Projects Under Construction" above.
- ---------------
* This table presents forward-looking information concerning various projects
under construction and is based on current facts and expectations. The
completion of these projects is subject to significant risks, including cost
overruns and construction delays. See "Risk Factors -- Real Estate
Development and Investment Risks," "-- Dependence on Rental Income From Real
Property," "-- Changes in Interest Rates," "-- Tax-Exempt and UDAG
Financing," "-- Reliance on Major Tenants," "-- Competition" and
"-- Partnership Risks," for a more complete description of the risks
associated with the construction of these projects.
** The statements relating to this project are forward-looking statements and
are based on current facts and expectations. The completion of this project
involves various risks, including an inability to obtain financing or
government entitlements, construction delays and cost overruns. See "Risk
Factors -- Real Estate Development and Investment Risks," "-- Dependence on
Rental Income From Real Property," "-- Changes in Interest Rates,"
"-- Tax-Exempt and UDAG Financing," "-- Reliance on Major Tenants,"
"-- Competition" and "-- Partnership Risks," for a more complete discussion
of the risks associated with the completion of this project.
S-42
<PAGE> 74
Forest City has signed an agreement to connect The Galleria at Sunset
located in Henderson, Nevada, with a new hotel/casino and ice rink to be
constructed and owned by Santa Fe Gaming Corporation. This agreement is subject
to various conditions, including Santa Fe Gaming Corp.'s receipt of financing.
The Company has entered into an agreement with MGM Grand, Inc. ("MGM") to
develop approximately 30 acres of land on the Atlantic City boardwalk adjacent
to the Showboat Casino. MGM is working with local authorities to plan and
develop the adjoining casino-zoned land which consists of approximately 40
additional acres. Under the agreement, the Company would build and own a 254,000
square foot entertainment and retail complex as a component of a world class
casino/resort to be constructed by MGM. The agreement with MGM provides that a
portion of the payment to be received by the Company would be paid in shares of
MGM stock. This project is in a very early stage of development, and like the
Company's other projects under development is subject to numerous risks that may
cause it to not be completed in its present form or at all.
OFFICE AND MIXED-USE
In its office development activities, Forest City is primarily a
build-to-suit developer which works with tenants to meet their highly
specialized requirements. The Company's office development has focused primarily
on mixed-use projects in urban developments, often built in conjunction with
hotels and shopping centers or as part of a major office campus. As a result of
this focus on new urban developments, 50% of the Company's office buildings were
built within the last seven years and are concentrated in four new urban
developments located in Brooklyn, Cleveland, Cambridge and Pittsburgh.
EXISTING PORTFOLIO. The Company's existing portfolio of office/mixed-use
projects consists of 21 office buildings containing 6.7 million leasable square
feet, including mixed-use projects with an aggregate of 164,000 gross leasable
square feet of retail space. The majority of Forest City's office space is
located in large, Class A buildings in projects located in major urban centers.
Class A buildings generally are those that have above average size, design,
location and access, attract high quality tenants, are well maintained and
professionally managed, and achieve among the highest rent, occupancy and tenant
retention rates within their markets. The Company's leases are generally
structured on a "gross" basis wherein fixed lease payments are inclusive of net
rent, current operating expenses and current real estate taxes. In addition,
tenants generally pay increases in operating expenses and real estate taxes
above their respective base year amounts.
At January 31, 1995, 1996, 1997 and 1998, occupancy for the Company's
office buildings was 91%, 92%, 95% and 97%, respectively. Average rental rates
for new leases and renewals with existing tenants increased 6.0% from 1994 to
1995 and 36.4% from 1995 to 1996. The Company's office leases in effect at
January 31, 1997, contained contractual aggregate net rent increases of $10.7
million for the years 1997 through 2001 and $14.3 million over the succeeding
five-year period.
The Company maintains tight expense controls and leverages its economies of
scale to minimize operating expenses. The Company's property level expenses for
office buildings open since 1994 have increased at a compound annual average
rate of 0.7%.
The majority of the Company's interests in office and mixed-use projects is
aggregated in four developments located in Brooklyn, Cleveland, Cambridge and
Pittsburgh.
MetroTech. The MetroTech complex, located on 16 acres controlled by the
Company in downtown Brooklyn, currently consists of five high-tech office
buildings (One MetroTech, Two MetroTech, Nine MetroTech, Ten MetroTech and
Eleven MetroTech) with over 1.9 million square feet leased to major tenants such
as Brooklyn Union, Bear Stearns & Co. Inc., Securities Industry Automation
Corp., the Internal Revenue Service and the City of New York. These five
buildings are currently 100% leased. Adjacent to MetroTech is the Company's One
Pierrepont Plaza containing 672,000 square feet and including Morgan Stanley &
Co. Incorporated and Goldman, Sachs & Co. among its major tenants. This project,
in which occupancy is 100%, was the first major office building developed in
Brooklyn in over
S-43
<PAGE> 75
25 years. In addition, the Company sold the development rights to two parcels on
which The Chase Manhattan Bank has built two office buildings. Land and
development rights are available for two additional buildings at MetroTech.
Tower City Center. The Company owns four office buildings, containing
approximately 1.5 million square feet, in Tower City Center in Cleveland, Ohio.
Tower City is connected to Jacobs Field, home of the Cleveland Indians baseball
team and Gund Arena, home of the Cleveland Cavaliers basketball team, and houses
a 368,000 square foot retail center and 11-screen movie theater complex. Tower
City Center is comprised of Terminal Tower, Chase Financial Tower, M.K. Ferguson
Plaza and Skylight Office Tower, and had an occupancy of 95% at January 31,
1998. In addition, the Company owns the 208-room Ritz Carlton in Tower City
Center. Remaining within the Tower City Center complex are 8.5 acres of adjacent
land and air rights available for future development or sale. In 1995, the
Company sold five additional acres for $18.3 million as the site for a future
Federal court house which will be connected to the Tower City Center complex.
During 1997, the Company purchased a 50% interest in a partnership that
owns the building occupied by Dillard's department store in downtown Cleveland
that is connected to The Avenue at Tower City. The Company is in the early
planning stage of renovating this 1,000,000 square foot building. Preliminary
plans call for the top eight floors of this twelve-story building consisting of
approximately 578,000 square feet to be renovated and converted to office space.
The lower portion would remain as retail space.
University Park at MIT. This office complex, located next to MIT in
Cambridge, Massachusetts, currently contains three buildings (the Clark, Jackson
and Richards Buildings) totalling 347,000 square feet which were 100% occupied
at January 31, 1998. Development rights are in place for an additional 800,000
square feet of mixed-use development after completion of the current phase of
the project under construction. See "-- Projects Under Construction."
Liberty Center. This mixed-use project in downtown Pittsburgh, Pennsylvania
is connected to the Pittsburgh convention center. Liberty Center includes
526,000 square feet of office space which was 99% leased at January 31, 1998.
Federated Investors occupies 65% of the available office space under a long-term
lease. The project also includes a 616-room DoubleTree Hotel that was completely
renovated in 1996, 30,258 square feet of retail space and a 498-car parking
facility.
During 1997, the Company acquired the remaining 75% interest in Station
Square, Pittsburgh's premier entertainment destination, at a total cost of $22.0
million. This places the Company in a position to develop the remaining 50 acres
of land as well as manage the two office buildings, retail space and parking
that presently exist. The Company also has entered into a contract to purchase
the Sheraton at Station Square, a 292-room hotel, for approximately $33 million.
This acquisition is expected to close in the first quarter of 1998.*
- ---------------
* The statements relating to the acquisition of this project are forward-looking
statements and are based on current facts and expectations. No assurance can
be given that this project will be acquired, or, if acquired, whether it will
be successful. The acquisition of this project involves various risks,
including an inability to obtain financing or government entitlements,
construction delays and cost overruns. See "Risk Factors -- Real Estate
Development and Investment Risks," "-- Dependence on Rental Income From Real
Property," "-- Changes in Interest Rates," "-- Tax-Exempt and UDAG Financing,"
"-- Reliance on Major Tenants" and "-- Competition," for a more complete
discussion of the risks associated with the completion of this project.
S-44
<PAGE> 76
The following table summarizes the Commercial Group's existing office
buildings as of January 31, 1998.
<TABLE>
<CAPTION>
YEAR LEASABLE
COMPLETED COMPANY SQUARE
NAME OR ACQUIRED OWNERSHIP (%) LOCATION MAJOR TENANTS FEET
---- ----------- -------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
METROTECH CENTER
One MetroTech............. 1991 65.0% Brooklyn, NY Brooklyn Union; Bear, 932,000
Stearns & Co., Inc.
Two MetroTech............. 1990 65.0 Brooklyn, NY Securities Industry 521,000
Automation Corp.
Nine MetroTech............ 1997 65.0 Brooklyn, NY Fire Department -- City of 317,000
New York
Ten MetroTech Center...... 1991 80.0 Brooklyn, NY Internal Revenue Service 409,000
Eleven MetroTech
Center.................. 1995 65.0 Brooklyn, NY E-911 -- City of New York 216,000
One Pierrepont Plaza...... 1988 85.0 Brooklyn, NY Morgan Stanley & Co., 672,000
Incorporated; Goldman,
Sachs & Co.; U.S. Attorney
---------
Subtotal................
3,067,000
---------
TOWER CITY CENTER
Chase Financial Tower..... 1991 95.0% Cleveland, OH Chase Financial 119,000
M.K. Ferguson Plaza(1).... 1990 1.0 Cleveland, OH M.K. Ferguson; Chase 482,000
Financial
Skylight Office Tower..... 1991 92.5 Cleveland, OH Ernst & Young, L.L.P. 321,000
Terminal Tower............ 1983 100.0 Cleveland, OH Forest City Enterprises, 583,000
Inc.
---------
Subtotal................
1,505,000
---------
MIT
Clark Building............ 1989 50.0% Cambridge, MA Oravax 122,000
Jackson Building.......... 1987 100.0 Cambridge, MA Ariad Pharmaceuticals 99,000
Richards Building......... 1990 100.0 Cambridge, MA Genzyme Tissue Repair; 126,000
Alkermes
---------
Subtotal................
347,000
---------
OTHER
Chagrin Plaza I & II...... 1969 66.7% Beachwood, OH National City Bank 116,000
Emery-Richmond............ 1991 50.0 Warrensville Hts., OH Allstate Insurance 5,000
Halle Building............ 1986 75.0 Cleveland, OH Sealy, Inc.; North American 379,000
Refractories Co.
Liberty Center............ 1986 50.0 Pittsburgh, PA Federated Investors 526,000
San Vicente............... 1983 25.0 Brentwood, CA Foote, Cone; Needham, Harper 469,000
Signature Square I........ 1986 50.0 Beachwood, OH Ciuni & Panichi 79,000
Signature Square II....... 1989 50.0 Beachwood, OH Sterling Software 81,000
Station Square............ 1994 100.0 Pittsburgh, PA Woodsons; Grand Concourse 144,000
---------
Subtotal................
1,799,000
---------
Office Buildings at January 31, 1998 6,718,000
=========
Office Buildings at January 31, 1997 6,401,000
=========
</TABLE>
- ---------------
(1) Syndicated. See "Risk Factors -- Potential Liability From Syndicated
Properties."
PRINCIPAL OFFICE TENANTS. The following table sets forth information
concerning each office tenant whose portion of percentage of annualized net
office base rent equaled or exceeded one percent at January 31, 1998. Together,
these tenants represented approximately 52% of total office leasable area and
approximately 58% of total annualized net office base rent at January 31, 1998.
No single office tenant accounted for more than 13.1% of total annualized net
office base rent revenue at January 31, 1998.
S-45
<PAGE> 77
<TABLE>
<CAPTION>
PERCENTAGE OF
OFFICE PERCENTAGE OF
LEASED LEASABLE OFFICE BASE
TENANT SQUARE FEET(1) SQUARE FEET RENT(2)
------ -------------- ------------- -------------
<S> <C> <C> <C>
U.S. Government............................................. 544,907 8.1% 13.1%
City of New York............................................ 532,742 7.9 6.6
Brooklyn Union.............................................. 479,527 7.1 8.5
Morgan Stanley & Co., Incorporated.......................... 383,112 5.7 5.9
Federated Investors, Inc. .................................. 345,266 5.1 3.5
SIAC........................................................ 328,759 4.9 5.5
Bear, Stearns & Co., Inc. .................................. 268,086 4.0 3.2
Chase Financial Corp. ...................................... 149,058 2.2 1.9
Forest City Enterprises, Inc. .............................. 106,540 1.6 2.5
Ernst & Young, L.L.P. ...................................... 86,956 1.3 1.4
Goldman, Sachs & Co. ....................................... 76,031 1.1 1.4
Board of Education of the City of New York.................. 63,128 0.9 1.0
Genzyme Corporation......................................... 61,720 0.9 1.7
Aetna....................................................... 57,417 0.9 1.4
----------- ------ ------
Total................................................... 3,483,249 51.7% 57.6%
=========== ====== ======
</TABLE>
- ---------------
(1) Represents 100% of the leased square feet, not Forest City's proportionate
share.
(2) Represents percentage of Forest City's proportionate share of annualized net
base rent. Annualized net base rent equals the contractual base rent for the
year ended January 31, 1997, adjusted for the annualized effect of the
following activity that occurred during the twelve months ended January 31,
1998: (a) square feet leased by the Company, (b) square feet of leases where
the tenant vacated the space, (c) square feet of leases that expired but
which were renewed by the tenant and (d) projects opened in 1997.
See "Risk Factors -- Dependence on Rental Income From Real Property" and
" -- Reliance on Major Tenants."
RECENT OPENINGS. At the Company's MetroTech complex in Brooklyn, New York,
the 317,000 square-foot Nine MetroTech office building, the headquarters for the
New York City Fire Department, opened in 1997. This project, in which the
Company has a 65% interest, was completed at a total cost of $65.2 million. The
MetroTech complex and the adjoining One Pierrepont Plaza include 3,100,000
square feet of office space in the six buildings in which the Company owns an
interest.
<TABLE>
<CAPTION>
TOTAL COMPANY'S
DEVELOPED(D) DATE COST SHARE TOTAL
OR OPENED/ % OF AT 100% OF COST SQUARE
PROPERTY LOCATION ACQUIRED(A) ACQUIRED OWNERSHIP (IN MIL.) (IN MIL.) FEET
-------- -------- ------------ ----------- ------------ ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Nine Metrotech.............. Brooklyn, NY (D) Oct-97 65.0% $65.2 $42.4 317,000
===== ===== =======
<CAPTION>
PROPERTY GLA(1)
-------- ------
<S> <C>
Nine Metrotech.............. 317,000
=======
</TABLE>
- ---------------
(1) Represents the total square feet available for lease by the Company.
S-46
<PAGE> 78
PROJECTS UNDER CONSTRUCTION. In February 1997, the Company, the designated
developer of University Park at MIT in Cambridge, commenced construction on the
next phase of University Park at MIT. MIT, the ground lessor of this
development, has now joined the Company as a 50% joint venture partner in the
development of the current phase of this project. This new phase, which is
scheduled to open in 1998, will feature a $79 million mixed-use development that
will include 77,000 square feet of office space, a 210-room hotel managed by
DoubleTree, 95,000 square feet of retail space with CompUSA and Star Market as
anchor tenants, and a 950 car parking garage.*
The Company also started construction on University Park at
MIT -- Millennium in late 1997. This project is a 276,000 square foot office
building that is projected to cost $68 million and open in early 1999.* Almost
two-thirds of this building was pre-leased to a major pharmaceutical firm before
construction began.
There is additional land available for future development or sale in the
University Park at MIT development, allowing the Company to continue
capitalizing on the strength of the projects as they grow and mature over time.
The following table sets forth additional information regarding office
buildings under construction.**
<TABLE>
<CAPTION>
ESTIMATED TOTAL COMPANY'S
DEVELOPED(D) DATE OF COST SHARE TOTAL
OR OPENING/ COMPANY AT 100% OF COST SQUARE
PROPERTY LOCATION ACQUIRED(A) ACQUISITION OWNERSHIP(%) (IN MIL.) (IN MIL.) FEET GLA(1)
-------- -------- ------------ ----------- ------------ --------- --------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
University Park at MIT --
Phase II(2)............... Cambridge, MA D Q3-98 50.0% $ 78.8 $ 39.4 172,000 172,000
University Park at MIT --
Millennium................ Cambridge, MA D Q1-99 100.0 68.1 68.1 276,000 276,000
------ ------ ------- -------
Total............... $146.9 $107.5 448,000 448,000
====== ====== ======= =======
</TABLE>
- ---------------
(1) Represents the total square feet available for lease by the Company.
(2) In addition to the 172,000 square feet of GLA, the project also includes a
210-room hotel and a 950-car garage.
PROJECTS UNDER DEVELOPMENT. The Company owns significant entitlements to
further develop its existing projects at MetroTech in Brooklyn, New York, Tower
City Center in Cleveland, Ohio, University Park at MIT in Cambridge,
Massachusetts and Station Square in Pittsburgh, Pennsylvania. See "-- Existing
Portfolio." In addition, the Company, with its 50% partner, is developing
Emerald Corporate Park in Cleveland, Ohio, a 76-acre mixed-use project adjacent
to Cleveland Hopkins International Airport.
- ---------------
* The statements relating to these projects are forward-looking statements and
are based on current facts and expectations. The completion of these
projects involves various risks, including construction delays and cost
overruns. See "Risk Factors -- Real Estate Development and Investment
Risks," "-- Dependence on Rental Income From Real Property," "-- Changes in
Interest Rates," "-- Tax-Exempt and UDAG Financing," "-- Reliance on Major
Tenants" and "-- Competition," for a more complete discussion of the risks
associated with the completion of these projects.
** This table presents forward-looking information concerning projects under
construction and is based on current facts and expectations. The completion
of these projects is subject to significant risks, including cost overruns
and construction delays. See "Risk Factors -- Real Estate Development and
Investment Risks," "-- Dependence on Rental Income From Real Property,"
"-- Changes in Interest Rates," "-- Tax-Exempt and UDAG Financing,"
"-- Reliance on Major Tenants," "-- Competition" and "-- Partnership Risks,"
for a more complete description of the risks associated with the completion
of these projects.
S-47
<PAGE> 79
OFFICE BUILDING TENANT LEASE EXPIRATIONS. Over the subsequent five year
period, scheduled annual expirations of office leases in place at January 31,
1997 averaged approximately 7.3% per year of Forest City's total occupied
leasable office area with no single year exceeding 10.3%. The average remaining
term of significant office leases (leases of 20,000 square feet or more) at
January 31, 1997 was 8.3 years. The following table shows lease expirations for
the ten year period commencing 1997 and thereafter at the Company's office
buildings, based on leases existing at January 31, 1997, assuming that none of
the tenants exercises any of their renewal options.
<TABLE>
<CAPTION>
PERCENT PERCENT
NUM. OF SQ. FT. OF TOTAL OF TOTAL AVG. BASE
LEASES OF LEASES LEASED BASE RENT BASE RENT/SQ. FT.
EXPIRATION YEAR EXPIRING EXPIRING(1) SQ. FT. EXPIRING(2) RENT(2) EXPIRING(3)
--------------- -------- ----------- ---------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
1997................. 100 349,641 5.7% $ 3,960,378 5.0% $17.96
1998................. 78 494,080 8.1 5,617,422 7.1 16.43
1999................. 57 253,646 4.1 3,756,058 4.8 20.35
2000................. 47 627,235 10.3 9,303,522 11.8 22.42
2001................. 50 491,060 8.0 7,428,825 9.4 21.86
2002................. 32 291,903 4.8 4,423,824 5.6 18.51
2003................. 17 339,148 5.6 4,534,350 5.8 26.95
2004................. 18 531,177 8.7 7,208,830 9.1 20.17
2005................. 11 171,480 2.8 2,462,982 3.1 20.12
2006................. 9 114,526 1.9 1,015,449 1.3 21.27
Thereafter........... 19 2,446,481 40.0 29,120,067 37.0 19.53
--- --------- ----- ----------- ----- ------
Total........... 438 6,110,377 100.0% $78,831,707 100.0% $20.17
=== ========= ===== =========== ===== ======
</TABLE>
- ---------------
(1) Represents 100% of the office building's leasable area expiring, not Forest
City's proportionate share.
(2) Computed at Forest City's proportionate share of annualized base rent.
Annualized net base rent equals the contractual base rent for the month
ended January 31, 1997, annualized for 12 months, excluding increases in
operating expenses and real estate taxes over the base rent.
(3) Represents contractual net annualized base rent per square foot computed at
100%, rather than Forest City's proportionate share.
S-48
<PAGE> 80
HOTELS
EXISTING PORTFOLIO. The Company currently has an ownership interest in
five hotels, with a total of 1,530 rooms: the DoubleTree at Liberty Center in
Pittsburgh, Pennsylvania; the Ritz-Carlton and Budgetel in Cleveland, Ohio; the
Charleston Marriott in Charleston, West Virginia; and the DoubleTree at
Millender Center in Detroit, Michigan. Average occupancy and room rates were 72%
and $104, respectively, during calendar year 1997, and 72% and $100,
respectively, during calendar year 1996.
The following table summarizes the Company's existing hotels as of January
31, 1998.
<TABLE>
<CAPTION>
DATE OF
OPENING/ COMPANY
NAME ACQUISITION OWNERSHIP(%) LOCATION ROOMS
---- ----------- ------------ -------- -----
<S> <C> <C> <C> <C>
Budgetel.............................................. 1982 28.4% Mayfield Hts., OH 102
Charleston Marriott................................... 1983 95.0 Charleston, WV 354
DoubleTree at Liberty Center.......................... 1986 50.0 Pittsburgh, PA 616
DoubleTree at Millender Center(1)..................... 1985 4.0 Detroit, MI 250
Ritz-Carlton.......................................... 1990 95.0 Cleveland, OH 208
-----
Hotel Rooms at January 31, 1998 and 1997 1,530
=====
</TABLE>
- ---------------
(1) Project included in the Company's syndication program. See "Risk Factors --
Potential Liability From Syndicated Properties."
PROJECTS TO BE ACQUIRED. The Company has entered into a contract to
purchase the Sheraton at Station Square, a 292-room hotel in Pittsburgh,
Pennsylvania, for $32.5 million. This hotel is located in Pittsburgh's premier
entertainment destination of which the Company now owns 100%. This acquisition
is expected to close in the first quarter of 1998.*
<TABLE>
<CAPTION>
ESTIMATED TOTAL COMPANY'S
DEVELOPED(D) DATE OF COST SHARE
OR OPENING/ COMPANY AT 100% OF COST NUMBER
PROPERTY LOCATION ACQUIRED(A) ACQUISITION OWNERSHIP(%) (IN MIL.) (IN MIL.) OF ROOMS
-------- -------- ------------ ----------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sheraton -- Station Square......... Pittsburgh, PA A Q1-98 100.0% $32.5 $32.5 292 rooms
===== ===== =========
</TABLE>
The Company has 951 hotel rooms currently under construction or under
contract to acquire. In addition, the Company has 463 rooms under development.
Upon completion of these projects, the Company will have an interest in 9 hotels
with a total of 2,944 rooms.*
Each of the Company's hotels, with the exception of Budgetel in Mayfield
Hts., Ohio, is developed in conjunction with a mixed-use project located in an
urban center.
- ---------------
* The statements relating to these projects are forward-looking statements and
are based on current facts and expectations. No assurance can be given that
any of these projects will be completed or acquired, or, if completed or
acquired, whether they will be successful. The completion or acquisition of
these projects involves various risks, including an inability to obtain
financing or government entitlements, construction delays and cost overruns.
See "Risk Factors -- Real Estate Development and Investment Risks,"
"-- Dependence on Rental Income From Real Property," "-- Changes in Interest
Rates," "-- Tax-Exempt and UDAG Financing," "-- Reliance on Major Tenants" and
"-- Competition," for a more complete discussion of the risks associated with
the completion of these projects.
S-49
<PAGE> 81
RESIDENTIAL GROUP
The Company's Residential Group develops, acquires, owns, leases and
manages residential rental property in 17 states and the District of Columbia.
The Company has been engaged in apartment community development for over 50
years, beginning in northeast Ohio, and gradually expanding nationally. Its
portfolio includes mature middle-market apartments in geographically attractive
suburbs, newer and higher end apartments in unique urban locations and newer
apartments in the suburbs. The Residential Group, which focuses on large
apartment complexes, does not develop or operate single-family housing or
condominium projects.
The Residential Group's experience in managing its buildings plays a vital
role in increasing revenues and the profitability of its portfolio. The Group's
management concentrates on increasing the cash flow and long-term value of its
existing real estate by seeking to increase rental rates, improving occupancy
and reducing operating expenses, as well as employing refinancing strategies and
making appropriate capital expenditures for expansion and renovation of these
assets when it is economically advantageous.
The Residential Group contributed 27% and 32% of the Company's EBDT in 1996
and the nine months ended October 31, 1997, respectively, and constituted 23%
and 22% of the Company's total assets at January 31, 1997 and October 31, 1997,
respectively. As of January 31, 1998, the Residential Group owned interests in
117 completed residential communities with 32,111 units, (including 57 projects
with 9,402 units in which the Company holds a residual interest only). In
addition, at January 31, 1998, the Residential Group had four properties under
contract to purchase, and also had 15 residential communities in active
construction or development. Since 1990, the Residential Group has added 25
properties with 8,748 units to its portfolio, at a total cost of $311.9 million.
Historically, the Residential Group's apartment portfolio grew primarily
through developing and constructing new apartment communities. In recent years,
the Residential Group has been able to capitalize on a number of acquisition
opportunities as distressed properties in desirable locations became available.
In other cases, attractive acquisition possibilities have arisen for existing
properties that are in good condition but that present opportunities to increase
value by restructuring the financing or repositioning the asset for a different
tenant base. Since 1992, the Company has acquired an interest in 15 residential
properties with 5,904 units. The Company acquired these projects at a total cost
of $188.7 million, or an average cost per unit of $38,293, substantially below
the estimated replacement cost. The Company invested $42.1 million of its own
equity capital in connection with such acquisitions and, at October 31, 1997,
consistent with its financing strategy, had withdrawn $16.1 million of its
equity through refinancings or syndication proceeds. Approximately 28% of the
total project costs of these properties was financed with tax-exempt bonds.
In many of its activities, the Residential Group, like the Commercial
Group, capitalizes on the Company's experience in working with Federal, state
and local government agencies and government financing programs. The Residential
Group has developed or acquired 13 projects through the use of tax-exempt loans,
and developed or renovated six urban and suburban projects through the use of
UDAG or other types of government-subsidized financing and grants. At October
31, 1997, the Residential Group had approximately $274 million of tax-exempt
financing outstanding (of which the Company's portion was $135 million,
primarily due to the effects of syndication) and $62 million in UDAG or other
government subsidized loans (of which the Company's portion was $14 million,
primarily due to the effects of syndication).
EXISTING PORTFOLIO
The Company's Residential Group consists of 32,111 units in which Forest
City has an ownership interest, including 9,402 units of syndicated senior
citizen subsidized housing that the Company manages and in which it owns a
residual interest. These 9,402 units generated net income from fees and cash
flow participation of $3.1 million, $2.0 million, $2.1 million and $2.1 million
in 1994, 1995, 1996 and
S-50
<PAGE> 82
1997 (projected), respectively.* They also paid management fees of $3.2 million,
$3.4 million, $3.6 million and $3.6 million in 1994, 1995, 1996 and 1997
(projected), respectively, to the Company's apartment management division.*
At January 31, 1995, 1996, 1997 and 1998, excluding 9,402 units of
syndicated senior citizen subsidized housing referred to above (which are over
99% occupied), average occupancy at the Company's residential communities
remained consistent at 96%. Average comparable rental rates increased in these
same properties at a compound annual rate of 4.0% from 1994 to 1997
(projected).* From February 1, 1994 to January 31, 1998 (projected), average
comparable operating expenses increased at a compounded annual rate of 2.5%.
Comparable Net Operating Income grew 6.0%, 6.7% and 6.4% in 1995, 1996 and 1997
(projected), respectively, over the prior year.*
The Company is currently in the process of renovating Colony Woods, a 396
unit garden apartment complex located in the affluent Seattle suburb of
Bellevue, Washington. The renovation involves extensive interior and exterior
renovation and will allow the property to be repositioned in its market.
Bellevue is experiencing strong growth, with local market rents increasing 5% to
7% and occupancy ranging from 96% to 99%. The Company expects to complete the
renovation of the leasing/management office and the first phase of the apartment
renovation program, consisting of 55 units, in the first quarter of 1998.** The
entire project is scheduled for completion in the third quarter of 1998.**
The Company has successfully completed other residential acquisitions where
it substantially renovated and repositioned the property.
In 1996, the Knolls, located in Orange County, California, reopened
following 15 months of renovation. This gated 260-unit townhome complex reached
stabilization in June of 1997. The Residential Group received extensive
assistance from local authorities, which used public programs to move the
existing tenants into other housing to facilitate the renovation, provide $3.7
million in grant funds and provide $3.8 million in low cost financing.
As a long-term owner, the Residential Group has successfully repositioned
many of its properties that have been affected by local demographic changes or
the aging of the facility. For example, the Midtown Towers located in Parma,
Ohio, opened in 1969 as a conventional elevator-midrise apartment project that
targeted a mostly senior-citizen tenant base. By 1990, the building's
demographics had changed to include a far higher proportion of families with
children, in part due to changes in Federal housing laws. In response to these
changes, during 1993 the Company refinanced the facility and renovated it to
appeal to a more stable family-oriented tenant base and has achieved a 93%
occupancy rate for 1996 and 1997. Another example of repositioning is the
Hamptons, located in Beachwood, Ohio and opened in 1969. Over time, the tenant
base aged and vacancies became difficult to fill. Following renovations
completed in 1996, the Hamptons was repositioned for a broader tenant base, and
has achieved a 94% occupancy rate at January 31, 1998.
The Residential Group strives to maintain high occupancy rates while
increasing rental rates. One of the ways that this is accomplished is through
the addition of amenities that enhance tenant appeal at relatively low cost. In
addition to the fitness centers and other recreational facilities, including
swimming pools, available at a majority of the Company's apartment communities,
the Company provides additional complimentary amenities that meet the needs of
its tenants. At the Knolls, Laurels, Midtown Towers and Waterford Village, the
Company operates learning centers which provide child care and tutoring
services, as well as organized entertainment and athletic activities for
children of residents. At the Oaks, One Franklintown, Queenswood and Surfside
Towers, the Company provides shuttle bus
- ---------------
* Represents management's estimate which is subject to change as a result of
computing final results for January 1998 and the Company's normal year-end
audit process. No assurance can be given that the Company will meet this
projection. See "Risk Factors -- Information Concerning Forward-Looking
Statements."
** The statements relating to this project are forward-looking statements and
are based on current facts and expectations. The completion of this project
involves various risks, including an inability to obtain financing or
government entitlements, construction delays and cost overruns. See "Risk
Factors -- Real Estate Development and Investment Risks," "-- Dependence on
Rental Income From Real Property," "-- Changes in Interest Rates,"
"-- Tax-Exempt and UDAG Financing," "-- Reliance on Major Tenants,"
"-- Competition" and "-- Partnership Risks," for a more complete discussion
of the risks associated with the completion of this project.
S-51
<PAGE> 83
services to community residents. To increase security, the Company has installed
continuously staffed front desks at eight properties. The Lenox Club, Lenox Park
and Millender Center also provide concierge services, including travel and
entertainment arrangements. These amenities attract new tenants, and the Company
believes it is more than able to recover the costs of these complimentary
amenities through increased rental and occupancy rates.
S-52
<PAGE> 84
The following is a complete list of the Residential Group's existing
communities as of January 31, 1998:
<TABLE>
<CAPTION>
DATE OF
OPENING/ COMPANY
NAME ACQUISITION OWNERSHIP(%) LOCATION UNITS
---- --------------------------- -------------------- ---------------------- --------
<S> <C> <C> <C> <C>
Bayside Village I, II & III...... 1988-1989 50.0% San Francisco, CA 862
Big Creek........................ 1996/1997 50.0 Parma Hts., OH 160
Boot Ranch....................... 1991 50.0 Tampa, FL 236
Boulevard Towers................. 1969 50.0 Amherst, NY 402
Camelot.......................... 1967 50.0 Parma, OH 150
Chapel Hill Towers............... 1969 50.0 Akron, OH 402
Cherry Tree...................... 1996/1997 50.0 Strongsville, OH 276
Chestnut Lake.................... 1969 50.0 Strongsville, OH 789
Clarkwood........................ 1963 50.0 Warrensville Hts., OH 568
Classic Residence by Hyatt....... 1990 50.0 Chevy Chase, MD 339
Classic Residence by Hyatt....... 1989 50.0 Teaneck, NJ 221
Colony Woods..................... 1997 100.0 Bellevue, WA 396
Copper Creek..................... 1992 20.0 Houston, TX 300
Deer Run I & II.................. 1987-1989 43.0 Twinsburg, OH 562
Emerald Palms.................... 1996 100.0 Miami, FL 419
Enclave(1)....................... 1997 1.0 San Jose, CA 69
Fenimore Court(1)................ 1982 0.5 Detroit, MI 144
Fort Lincoln II.................. 1979 45.0 Washington, D.C. 176
Fort Lincoln III & IV............ 1981 24.9 Washington, D.C. 306
Granada Gardens.................. 1966 50.0 Warrensville Hts., OH 940
Greenbriar....................... 1992 20.0 Houston, TX 400
Hamptons......................... 1969 50.0 Beachwood, OH 649
Highlands I & II................. 1988-1990 100.0 Grand Terrace, CA 556
Hunter's Hollow.................. 1990 50.0 Strongsville, OH 208
Independence Place I............. 1976 50.0 Parma Hts., OH 202
Kennedy Lofts(1)................. 1990 0.5 Cambridge, MA 142
Knolls(1)........................ 1995 1.0 Orange, CA 260
Laurels.......................... 1995 100.0 Justice, IL 520
Lenox Club(1).................... 1991 0.5 Arlington, VA 385
Lenox Park(1).................... 1992 0.5 Silver Spring, MD 406
Liberty Hills.................... 1979-1986 50.0 Solon, OH 396
Metropolitan..................... 1989 100.0 Los Angeles, CA 270
Midtown Towers................... 1969 50.0 Parma, OH 635
Millender Center(1).............. 1985 4.0 Detroit, MI 339
Museum Towers.................... 1997 89.0 Philadelphia, PA 286
Noble Towers..................... 1979 50.0 Pittsburgh, PA 133
Oaks............................. 1994 100.0 Bryan, TX 248
One Franklintown................. 1988 100.0 Philadelphia, PA 335
Palm Villas...................... 1991 100.0 Henderson, NV 350
Panorama Towers.................. 1978 99.0 Los Angeles, CA 154
Parmatown........................ 1972-1973 100.0 Parma, OH 412
Pavilion(1)...................... 1992 0.5 Chicago, IL 1,115
Pebble Creek..................... 1995-1996 50.0 Twinsburg, OH 148
Peppertree....................... 1993 100.0 College Station, TX 208
Pine Ridge Valley................ 1967-1974 50.0 Willoughby, OH 1,147
Queenswood(1).................... 1990 0.7 Corona, NY 296
Regency Towers................... 1994 100.0 Jackson, NJ 372
Shippan Avenue................... 1980 100.0 Stamford, CT 148
Studio Colony.................... 1986 80.0 Los Angeles, CA 450
Surfside Towers.................. 1970 50.0 Eastlake, OH 246
Tam-A-Rac I, II & III............ 1991-1997 50.0 Willoughby, OH 454
Trolley Plaza.................... 1981 100.0 Detroit, MI 351
Trowbridge....................... 1988 53.3 Southfield, MI 304
Twin Lakes Towers................ 1966 50.0 Denver, CO 254
Village Green.................... 1994-1995 25.0 Beachwood, OH 360
Vineyards........................ 1995 100.0 Broadview Hts., OH 336
Waterford Village(1)............. 1994 1.0 Indianapolis, IN 520
White Acres...................... 1966 50.0 Richmond Hts., OH 473
Whitehall Terrace................ 1997 100.0 Kent, OH 188
Woodforest Glen.................. 1992 20.0 Houston, TX 336
--------
Subtotal..................... 22,709
Syndicated Senior Citizens
Subsidized Housing(2).......... 9,402
--------
Apartments at January 31, 1998 32,111
========
Apartments at January 31, 1997 31,441
========
</TABLE>
- ---------------
(1) Syndicated. See "-- Syndication Activity" and "Risk Factors -- Potential
Liability From Syndicated Properties."
(2) Syndicated, subsidized units in 57 communities in which the Company holds a
residual interest only. See "Risk Factors -- Potential Liability From
Syndicated Properties."
S-53
<PAGE> 85
RECENT OPENINGS/ACQUISITIONS
In 1997, the Company acquired three residential projects with a total of
870 units: Museum Towers, a 12 year old, 286-unit high rise complex in
Philadelphia, Pennsylvania for a cost of $25.6 million; Colony Woods, a 19 year
old, 396-unit garden type complex in Bellevue, Washington for a cost of $15.7
million; and Whitehall Terrace, a 19 year old, 188-unit garden type complex in
Kent, Ohio for a cost of $6.6 million. Occupancy for 1997 for Museum Towers and
Whitehall Terrace was 98% and 92%, respectively. Colony Woods is currently under
major rehabilitation which is expected to be completed in August, 1998 at a
total cost of $12 million.* Museum Towers was financed by assuming $20.4 million
of variable rate tax exempt bonds. Colony Woods was financed with $20.9 million
of variable rate conventional debt that will cover both the initial purchase and
rehabilitation. Whitehall Terrace was financed with $5.0 million of 7.3% fixed
rate conventional debt. Also, in 1997, the Company added new phases at three
Cleveland, Ohio-area apartment complexes, including 62 units at the Tam-A-Rac
complex in Willoughby, 144 units at the Cherry Tree development in Strongsville
and 88 units at the Big Creek development in Parma Heights. Occupancy for these
developments in 1997 was 95%, 90%, and 85%, respectively. The total cost of
these new phases was $15.7 million.
Construction began in 1996 on The Enclave, a 637-unit apartment complex in
San Jose, California. The first units of the property opened in the fourth
quarter of 1997. The total cost of this project is estimated at $77 million.* As
of January 31, 1998, 69 units were available for occupancy. The Enclave, along
with Third Street, a second San Jose project described under "-- Projects Under
Development" will address rental housing needs in one of the country's strongest
and fastest growing markets. Current occupancy rates in the San Jose residential
rental market range from 96% to 98%.
The following table sets forth additional information regarding residential
properties opened or acquired in 1997.
<TABLE>
<CAPTION>
COMPANY'S
DEVELOPED (D) TOTAL COST SHARE OF
OR DATE COMPANY AT 100% COST NO. OF TOTAL
PROPERTY LOCATION ACQUIRED (A) OPENED/ACQUIRED OWNERSHIP(%) (IN MIL.) (IN MIL.) UNITS
-------- -------- ------------- ---------------- ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tam-A-Rac............ Willoughby, OH D 1997(1) 50.0% $ 3.2 $ 1.6 62
Cherry Tree.......... Strongsville, OH D 1997(1) 50.0 7.3 3.7 144
Big Creek............ Parma Hts., OH D 1997(1) 50.0 5.2 2.6 88
Museum Towers........ Philadelphia, PA A May-97 89.0 25.6 22.8 286
Colony Woods......... Bellevue, WA A May-97 100.0 27.7 27.7 396
Whitehall Terrace.... Kent, OH A Oct-97 100.0 6.6 6.6 188
The Enclave(2)(3).... San Jose, CA D Dec-97/Jan-98(1) 1.0 8.3 .1 69
------ ------ ------
Total............ $ 83.9 $ 65.1 1,233
====== ====== ======
</TABLE>
- ---------------
(1) Part of a phased construction process.
(2) Project included in the Company's syndication program. Under this program,
the Company maintains a substantial economic interest in the project. See
"-- Syndication Activity" and "Risk Factors -- Potential Liability From
Syndicated Properties."
(3) When completed in 1998, The Enclave will have a total of 637 units.
UNDER CONSTRUCTION/TO BE ACQUIRED
The development cycle for the Company's residential projects typically is
less than three years from conception to initial occupancy. Accordingly, the
Residential Group's project pipeline can increase or decrease significantly over
a relatively short timeframe.
- ---------------
* The statements concerning the Company's development of these projects are
forward-looking statements and are based on current facts and expectations. No
assurance can be given that any of these projects will be developed or
acquired or, if developed or acquired, whether they will be successful. The
development and acquisition of these projects is subject to significant risks,
including an inability to obtaining financing or government entitlements, cost
overruns and construction delays. See "Risk Factors -- Real Estate Development
and Investment Risks," "-- Dependence on Rental Income From Real Property,"
"-- Changes in Interest Rates," "-- Tax-Exempt and UDAG Financing," "--
Reliance on Major Tenants," "-- Competition" and "-- Partnership Risks," for a
more complete description of the risks associated with the development and
acquisition of these projects.
S-54
<PAGE> 86
Construction began in 1997 on The Grand, a 546-unit luxury high rise in
Bethesda, Maryland, part of the Washington, D.C. metropolitan area, another fast
growing residential market. It is expected that the first units of this $82
million project will open in the fall of 1998 and will increase the Company's
portfolio in this market to six communities totaling 2,158 units.* Obtaining the
entitlements necessary for The Enclave and the Third Street projects in San
Jose, California and The Grand in Bethesda, Maryland evidence the Company's
ability to work closely with local governments and to capitalize on development
opportunities in dynamic urban areas.
During the first quarter of 1998, the Residential Group expects to enter a
new market by completing the transaction to purchase four garden type apartment
complexes comprising 729 units in Hamptons, Virginia for approximately $34
million.* The contract prices for Bridgewater, a new 216 unit complex,
Arboretum, a one year old, 184 unit complex, Silver Hills, a one year old, 153
unit complex and Trellis, a 23 year old, 176 unit complex which was renovated in
1996 and 1997, are approximately $14 million, $9 million, $5 million and $6
million, respectively.
A 72-unit expansion is under construction at Big Creek which capitalizes on
the Company's northeast Ohio property base, and is an example of the Company's
long-term, phased development programs. When completed in 1999, Big Creek will
have 516 total units.*
The total cost of projects under construction or under contract to acquire
is estimated to be $189 million, of which $165 million has been, or is expected
to be, financed with tax-exempt bonds.*
The following table sets forth additional information regarding residential
properties under construction or to be acquired.**
<TABLE>
<CAPTION>
ESTIMATED TOTAL COST COMPANY'S
DEVELOPED(D) DATE OF OPENING/ COMPANY AT 100% SHARE OF COST NO. OF
PROPERTY LOCATION OR ACQUIRED(A) ACQUISITION OWNERSHIP(%) (IN MIL.) (IN MIL.) TOTAL UNITS
-------- -------- -------------- ---------------- ------------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Big Creek............ Parma Hts., OH D 1998(1) 50.0% $ 4.2 $ 2.1 72
Enclave(2)........... San Jose, CA D 1998(1) 1.0 68.6 0.7 568
Bridgewater.......... Hamptons, VA A Q1-98 100.0 13.8 13.8 216
Arboretum............ Hamptons, VA A Q1-98 100.0 9.1 9.1 184
Silver Hills......... Hamptons, VA A Q1-98 100.0 5.3 5.3 153
Trellis.............. Hamptons, VA A Q1-98 100.0 6.0 6.0 176
The Grand(2)......... Bethesda, MD D Q4-98 .9 81.9 0.7 546
------ ----- -----
Total............ $188.9 $37.7 1,915
====== ===== =====
</TABLE>
- ---------------
(1) Part of a phased construction process.
(2) Project included in the Company's syndication program. Under this program,
the Company maintains a substantial economic interest in the project. See
"-- Syndication Activity" and "Risk Factors -- Potential Liability From
Syndicated Properties."
- ---------------
* The statements concerning the Company's development of these projects are
forward-looking statements and are based on current facts and expectations.
No assurance can be given that any of these projects will be developed or
acquired or, if developed or acquired, whether they will be successful. The
development and acquisition of these projects is subject to significant
risks, including an inability to obtaining financing or government
entitlements, cost overruns and construction delays. See "Risk Factors --
Real Estate Development and Investment Risks," "-- Dependence on Rental
Income From Real Property," "-- Changes in Interest Rates," "-- Tax-Exempt
and UDAG Financing," "-- Reliance on Major Tenants," "-- Competition" and
"-- Partnership Risks," for a more complete description of the risks
associated with the development and acquisition of these projects.
** This table presents forward-looking information concerning various projects
under construction or subject to purchase contracts and is based on current
facts and expectations. The completion or acquisition of these projects is
subject to significant risks, including an inability to obtain financing or
government entitlements, cost overruns and construction delays. See "Risk
Factors--Real Estate Development and Investment Risks," "-- Dependence on
Rental Income From Real Property," "-- Changes in Interest Rates,"
"-- Tax-Exempt and UDAG Financing," "-- Reliance on Major Tenants,"
"-- Competition" and "-- Partnership Risks," for a more complete description
of the risks associated with the development and acquisition of these
projects.
S-55
<PAGE> 87
PROJECTS UNDER DEVELOPMENT
The Company expects to begin construction in 1998 on Third Street, a second
San Jose apartment complex with 316 units, at a projected cost of $52 million.*
In addition, the Residential Group will continue development at two Cleveland
area projects, Big Creek and Tam-A-Rac.
The Tobacco Row project presents a unique opportunity in a historic area
overlooking the James River in Richmond, Virginia. This development is comprised
of a series of historic warehouse buildings. The Tobacco Row District was
established to utilize historic tax credits and tax exempt bonds for commercial
and residential development without restrictions on tenant income and market
rents. Forest City controls eight buildings in the district and plans to begin
development of the first two buildings in 1998 and 1999.*
The Company is also increasing its presence in the senior housing industry
through new congregate and assisted living communities.
The Company believes that the nation's aging population provides an area of
continued growth in the residential business. The Company's congregate living
residences provide amenities to their residents which typically include meals
served two times daily, housekeeping, including linen services, 24-hour
security, concierge service and transportation to off-site shopping and social
activities. In addition, residents have access to on-site retail stores, such as
pharmacy and convenience stores and beauty salons. Social directors arrange
educational and social programs for residents which include guest speakers from
outside of the facility. Financial counseling and exercise programs also are
available. Assisted living residences typically provide a higher level of
personal care services.
Through separate joint ventures with Classic Residences by Hyatt and a
local Detroit developer, the Company currently owns 50% or more of three
congregate living facilities containing 864 units, with an aggregate occupancy
rate of 98%. As a result of the strong performance of these properties,
including a 17% increase in net operating income in 1996 versus 1995 and a 8%
increase in net operating income in 1997 (projected) versus 1996, the
Residential Group is proceeding with development of a third joint venture
congregate facility with Classic Residences by Hyatt in the Riverdale section of
The Bronx, New York.*
The Residential Group also has entered into a joint venture to develop
assisted living communities in the greater New York City metropolitan area. The
Company believes that the age and economic status of the area's population
provides a favorable base for such projects. The prototype for each building
will range from 75 to 150 units with a cost per building of $13 million to $20
million. The Company now controls five sites located in Nassau and Westchester
Counties, where it is actively pursuing development of assisted living projects,
and anticipates commencing construction on the first site in late 1998. These
buildings will take approximately one year to build and one additional year to
rent up.*
- ---------------
* The statements concerning the Company's development of these projects are
forward-looking statements and are based on current facts and expectations. No
assurance can be given that any of these projects will be developed or, if
developed, whether they will be successful. The development of these projects
is subject to significant risks, including an inability to obtain financing or
government entitlements, cost overruns and construction delays. See "Risk
Factors -- Real Estate Development and Investment Risks," "-- Dependence on
Rental Income From Real Property," "-- Changes in Interest Rates,"
"-- Tax-Exempt and UDAG Financing," "-- Reliance on Major Tenants,"
"-- Competition" and "-- Partnership Risks," for a more complete description
of the risks associated with the development of these projects.
S-56
<PAGE> 88
The total cost of projects under active development is estimated to be $276
million of which $87 million is expected to be financed by tax-exempt bonds.*
The following table sets forth additional information regarding residential
projects under active development.**
<TABLE>
<CAPTION>
COMPANY'S
DEVELOPED(D) ESTIMATED TOTAL COST SHARE
OR DATE OF COMPANY AT 100% OF COST NO.
PROPERTY LOCATION ACQUIRED(A) OPENING OWNERSHIP (%) (IN MIL.) (IN MIL.) OF UNITS
- -------- -------- ------------ --------- ------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Big Creek................. Parma Hts., OH D 1998/1999 50.0% $ 16.8 $ 8.4 284
Tam-A-Rac................. Willoughby, OH D 1998/1999 50.0 3.2 1.6 62
Riverdale................. Bronx, NY D 1999 50.0 66.2 33.1 300
Third Street(1)........... San Jose, CA D 1999 1.0 51.8 0.5 316
Tobacco Row -- Phase
I(1).................... Richmond, VA D 1999 1.0 18.0 .2 195
Tobacco Row -- Phase
II(1)................... Richmond, VA D 1999/2000 1.0 17.5 .2 91
Assisted living(2)........ New York D Various 80.0 102.0 81.6 600
Metropolitan Area
------ ------ -----
Total................. $275.5 $125.6 1,848
====== ====== =====
</TABLE>
- ---------------
(1) Project included in the Company's syndication program. Under this program,
the Company maintains a substantial economic interest in the project. See
"-- Syndication Activity" and "Risk Factors -- Potential Liability From
Syndicated Properties."
(2) Assisted living consists of six projects.
SYNDICATION ACTIVITY
The Company has financed a number of real estate projects through
syndication. Syndication is an important part of the Company's capital strategy.
See "Strategy for Growth and Competitive Advantages -- Capital Strategy." In a
typical syndication, the Company develops a property, obtains nonrecourse
mortgage financing and invests the required equity. Prior to construction, the
Company enters into a partnership agreement with the syndication partner,
typically a large, sophisticated institutional or corporate investor. The
partner usually contributes all or a substantial amount of the equity required
for the project, allowing the Company to reduce its equity requirement.
The syndication partner is allocated the majority of the low income housing
tax credits and tax losses associated with the project. The transaction is
structured in the form of a limited partnership, with the Company as general
partner retaining control of the project. The cash flow rights of the
syndication partner consist of a small preferred return on its initial equity
and a minor participation in the remaining cash flow. The Company earns a
management fee and retains the remaining majority interest in the cash flow and
residual value. Syndicated properties generated $916,000 of operating income in
1996 and $799,000 for the nine months ended October 31, 1997. As of October 31,
1997, the Company had received $7.7 million of distributions in excess of its
original investment in these projects.
In the event of a sale, the syndication partner normally receives the
return of its initial equity plus a minor participation in the net proceeds.
When the property is refinanced, the syndication partner normally receives a
minor participation in the net refinancing proceeds.
The Company believes that syndications effectively represent a form of
tax-efficient financing in which the Company may only have a nominal ownership
interest but retains the same economic potential as projects structured with
more traditional forms of financing.
- ---------------
* This is a forward-looking statement and is based on current facts and
expectations. The development of these projects involves various risks,
including an inability to obtain financing or government entitlements, cost
overruns and construction delays. See "Risk Factors -- Real Estate and
Development and Investment Risks," "-- Dependence on Rental Income From Real
Property," "-- Changes in Interest Rates," "-- Tax-Exempt and UDAG
Financing," "-- Reliance on Major Tenants," "-- Competition" and
"-- Partnership Risks," for a more complete discussion of the risks
associated with the Company's development of these projects.
** This table presents forward-looking information concerning various projects
under development and is based on current facts and expectations. The
completion of these projects is subject to significant risks, including an
inability to obtain financing or government entitlements, cost overruns and
construction delays. See "Risk Factors -- Real Estate Development and
Investment Risks," "-- Dependence in Rental Income From Real Property,"
"-- Changes in Interest Rates," "-- Tax-Exempt and UDAG Financing,"
"-- Reliance on Major Tenants," "-- Competition" and "-- Partnership Risks,"
for a more complete description of the risks associated with the development
of these projects.
S-57
<PAGE> 89
The syndication partnerships are not consolidated in the Company's
Consolidated Financial Statements. Accordingly, neither the assets nor the
mortgage debt relating to these partnerships are reflected on the Company's
consolidated balance sheet. Since the Company reports only a nominal ownership
in the project, the Company's net cash investment in the projects is reflected
as an investment in, and advance to, affiliates. Any cash received from
operations is reported as income received.
If the Company's syndicated properties had not been syndicated, the total
real estate assets and mortgage debt included in the Company's consolidated
balance sheet at October 31, 1997 would have increased $309.6 million and $234.7
million, respectively.
The Company expects to continue syndicating certain development properties
in the future as a means of financing its ownership in them where it is
economically appropriate.
These syndication partnerships typically have required the Company to
indemnify, on an after tax basis, the syndication partner against the failure to
receive, or the recapture of, allocated tax credits. In addition, the Company
has typically been required to indemnify the syndication partner, on an after
tax basis, against the failure to receive or the disallowance of the
depreciation expense associated with the project. See "Risk Factors -- Potential
Liability From Syndicated Properties."
LAND GROUP
The Company has been in the land business since the 1930's. The Land Group
acquires and sells both raw land and developed lots to residential, commercial
and industrial customers. The Land Group projects attract national, regional and
local builders. The Land Group contributed $2.9 million, $4.2 million, $3.9
million and $0.5 million of the Company's EBDT in 1994, 1995, 1996 and the nine
months ended October 31, 1997, respectively, representing 4%, 5%, 4% and 1% of
total EBDT in those periods. At October 31, 1997, the Land Group constituted 3%
of the Company's total assets and had approximately 5,367 acres of land in
inventory.
Historically, the Land Group's activities focused on land development
projects in northeast Ohio. Over time, the Group's activities expanded to
larger, more complex projects, and regional expansion into western New York
State. In the last ten years, the Group has extended its activities on a
national basis, first in Arizona, and more recently in Florida and Nevada.
The Company has three developments in the fast-growing Southeast/Broward
County area of Florida. As of January 31, 1998, the Company owns a total of 607
acres with a potential of over 1,600 additional lots at these developments. The
Company's highly-successful Silver Lakes development in Pembroke Pines, Florida,
which was built adjacent to former stone quarries that have been converted into
lakes, is in its last year of development. The Land Group has successfully
completed the final sales of residential lots in 1997 and is currently marketing
the balance of 33 commercially zoned acres. This project, which received a
Florida Quality Development award, will include more than 5,100 new homes upon
completion.* The Land Group's 447 acre Silver Shores project and 127 acre North
29 project, located adjacent to Silver Lakes, are currently under development
and will enable the Company to build on the momentum created by Silver Lakes.
The Land Group has re-entered the Tampa, Florida market with the recent
acquisition of 457 acres. The Group is currently developing this property which
will include 657 residential lots.
As part of its strategy to take advantage of the fast-growing Las Vegas
metropolitan area, the Company is in the third year of developing Seven Hills, a
1,300 acre Rees Jones golf course community development with a total potential
for 3,400 lots.* The Company currently has six builders on the site
- ---------------
* The statements concerning the Company's development of these projects are
forward-looking statements and are based on current facts and expectations. No
assurance can be given that any of these projects will be developed or, if
developed, whether they will be successful. The development of these projects
is subject to significant risks, including an inability to obtaining financing
or government entitlements, cost overruns and construction delays. See "Risk
Factors -- Real Estate Development and Investment Risks," "-- Dependence on
Rental Income From Real Property," "-- Changes in Interest Rates," "-- Tax-
Exempt and UDAG Financing," "-- Reliance on Major Tenants," "-- Competition"
and "--Partnership Risks," for a more complete description of the risks
associated with the development of these projects.
S-58
<PAGE> 90
and has sold over 1,500 lots as of December 31, 1997. The Company expects the
total cost of this project (in which the Company has a 14.6% interest) to be
$148.8 million, of which $81.7 million had been expended as of December 31,
1997.*
In Northeast Ohio, the Land Group is currently engaged in four major
development projects as well as 15 smaller projects. The 905 acre Ethan's Green
commenced active development in 1986. Since then, the Company has sold 877
acres, which have been developed with approximately 1,400 single family homes
and 550 apartment units. The remaining 28 acres are expected to be sold in
1998.** The Ethan Green project has been supplemented by an additional adjoining
134 acre property known as The Ledges. Construction of The Ledges began in 1997.
This property is owned by Granite Development Partners, L.P., as discussed
below.
The Land Group began its national expansion in Tucson, following the
Commercial Group's success in developing a mall and adjacent properties there.
The Company anticipates that a first phase of 569 lots for single family homes
will start in 1998 at Tangerine Crossing, located north of Tucson. This project
is comprised of 309 acres owned in fee, with an adjacent 929 acres of
state-owned land subject to a commercial holding lease in favor of the Company.
In 1993, the Company formed Granite Development Partners, L.P. as a vehicle
to finance land development. Granite owns 10 properties and a partial interest
in two additional properties with an aggregate book value as of October 31, 1997
of $9.8 million. Granite's principal asset is the Seven Hills project. The
Company owned 100% of Granite until December 1996, when holders of warrants
exercised their rights and acquired 56.25% of Granite. The Land Group's assets
and mortgages payable declined from $120.9 million and $60.5 million,
respectively, at January 31, 1996 to $91.5 million and $24.0 million,
respectively, at October 31, 1997. This decrease is primarily the result of the
Company's reduced interest in Granite.
In addition to the sales activities of the Land Group, the Company also
sells land acquired by its Commercial Group and Residential Group adjacent to
their respective projects. Proceeds from such land sales are included in the
revenues and assets of such Groups. See "-- Commercial Group" and
"-- Residential Group."
LUMBER TRADING GROUP
The Company's original business was selling lumber to homebuilders. The
Company expanded this business in 1969 through its acquisition of Forest City
Trading Group, Inc., which is a lumber wholesaler to customers in all 50 states
and in all Canadian provinces. Through ten strategically located independent
trading companies in the United States and Canada, employing 343 traders, Forest
City sold the equivalent of seven billion board feet of lumber in 1996, with a
gross sales volume of nearly $3 billion, making the Company one of the largest
lumber wholesalers in North America. The Lumber Trading Group constituted 7% of
the Company's total assets at October 31, 1997, and contributed $5.0 million,
$2.6 million, $3.0 million, and $5.1 million of the Company's EBDT for the nine
months ended October 31, 1997 and in 1994, 1995 and 1996, respectively,
representing 6%, 3%, 4% and 6% of total EBDT in those periods.
The Lumber Trading Group currently has offices in nine states and
Vancouver, British Columbia. The Company opens offices in response to the
changing demands of the lumber industry. In 1996, the Lumber Trading Group
opened offices in Utah and Texas. The new Houston, Texas office is part of the
- ---------------
* The statements concerning the Company's development of this project are
forward-looking statements and are based on current facts and expectations.
No assurance can be given that any of this project will be developed or, if
developed, whether they will be successful. The development of these projects
is subject to significant risks, including an inability to obtaining
financing or government entitlements, cost overruns and construction delays.
See "Risk Factors -- Real Estate Development and Investment Risks," "--
Dependence on Rental Income From Real Property," "-- Changes in Interest
Rates," "-- Tax- Exempt and UDAG Financing," "-- Reliance on Major Tenants,"
"-- Competition" and "--Partnership Risks," for a more complete description
of the risks associated with the development of this project.
** This statement is a forward-looking statement and is based on current facts
and expectations. No assurance can be made that this property will be sold.
See "Risk Factors -- Real Estate Development and Investment Risks," and
"Information Regarding Forward-Looking Statements."
S-59
<PAGE> 91
Lumber Trading Group's strategic initiative to increase its participation in the
southern pine market, which is growing in popularity as logging restrictions
limit production in the Pacific Northwest.
The Lumber Trading Group's core business is supplying lumber for new home
construction and to the repair and remodeling markets. Approximately 70% of the
Lumber Trading Group's sales for 1997 involve back-to-back trades in which the
Company brings together a buyer and seller for an immediate purchase and sale.
The balance of transactions are trades in which the Company takes a short-term
ownership position and is at risk for lumber market fluctuations.
The Lumber Trading Group has a program in place to hedge its exposure to
lumber prices. While this hedging does not completely eliminate the Lumber
Trading Group's exposure to lumber price volatility, the Company believes this
hedging, and its other internal controls, are sufficient to effectively manage
this risk. See "Risk Factors -- Lumber Prices."
The Lumber Trading Group seeks to increase income through cost controls,
including the use of information services and aggressive control of freight and
shipping costs. The Lumber Trading Group has developed state of the art systems
for freight management, trader information, cash and credit management and
communications, certain of which it sells to others. The Company believes that
the Lumber Trading Group's size and technology provide it with a competitive
advantage.
S-60
<PAGE> 92
STRATEGY FOR GROWTH AND COMPETITIVE ADVANTAGES
The Company's strategic objective is to maximize shareholder value by
investing in new real estate development and acquisitions at returns greater
than the cost of capital, and increasing the value of its existing portfolio by
growing net operating income. The Company believes that its capital strategy and
operating and organizational structure are integral factors in achieving this
objective, and that as a result of its geographic and property type
diversification its growth is not dependent on any one locale or property type.
MAXIMIZING VALUE FROM EXISTING PROPERTIES
The Company actively manages its portfolio of existing commercial and
residential projects to maximize net operating income by raising rental rates on
expiring leases, increasing occupancy, and maintaining tight cost controls.
Comparable Net Operating Income for the Commercial Group's portfolio increased
6.2% from 1994 to 1995, 0.9% from 1995 to 1996, and 4.1% from 1996 to 1997
(projected).* Comparable Net Operating Income for the Residential Group
increased 6.0% from 1994 to 1995, 6.7% from 1995 to 1996, and 6.4% from 1996 to
1997 (projected).* Combined, Comparable Net Operating Income from the Company's
real estate portfolio increased 6.1% from 1994 to 1995, 2.5% from 1995 to 1996,
and 4.7% from 1996 to 1997 (projected).* As used in this Prospectus Supplement,
"Comparable Net Operating Income" means increases or decreases in net operating
income from properties that were in operation during 1997 and 1996 or 1996 and
1995 or 1995 and 1994, as the case may be. Occupancy remained relatively
consistent for the shopping center portfolio at 88% for 1995 and 1996 and 89%
for 1997 and for the residential portfolio at 96% for 1995, 1996 and 1997 while
office portfolio occupancy increased from 92% in 1995 to 95% in 1996 and 97% in
1997. The Company's existing shopping center and office leases in effect as of
January 31, 1997, contained contractual aggregate net rental increases of $24.6
million and $10.7 million, respectively, for the years 1997 through 2001 and
$22.4 million and $14.3 million, respectively, over the succeeding five years.
These net rental increases will positively affect the Company's EBDT because the
Company does not account for rents on a straight-line basis.
The Company also maintains tight cost controls and leverages its economies
of scale to minimize operating expenses. The Company has a variety of measures
in place to control costs, including a national purchasing policy for the
Residential Group. The Company also aggressively challenges real estate tax
assessments, and has an energy group specifically focused on reducing the
Company's energy costs. At January 31, 1998 (projected), the Company's property
level expenses for properties open since February 1, 1994, had increased at a
compounded annual average rate of 1.2% for its shopping centers, office
buildings and apartment communities, which was less than the rate of inflation
during those years.*
The Company continually reinvests in its properties where appropriate to
maintain and increase value. The Company expands or renovates properties when it
believes such an investment will achieve an attractive return or is appropriate
to maintain the property's value and market position. Since January 31, 1994,
the Company has invested or committed to invest, at its ownership percent, $40.7
million in expansions at seven shopping centers, $6.9 million in renovations at
four shopping centers and $20.2 million in renovations at seven apartment
communities.
Recurring capital expenditures permit the Company's properties to remain
competitive, attract and retain tenants and maintain or increase rental rates.
On average, the Company spends approximately $12 million per year for recurring
capital expenditures, including tenant improvement costs, to maintain its
commercial and residential properties. The majority of such expenditures in the
Commercial Group are for tenant improvements, which vary from year to year based
on lease expirations. Recurring capital
- ---------------
* Represents management's estimate which is subject to change as a result of
computing final results for January 1998 and the Company's normal year-end
audit process. No assurance can be given that the Company will meet this
projection. See "Risk Factors -- Information Concerning Forward-Looking
Statements."
S-61
<PAGE> 93
expenditures total approximately $4 million per year for the Residential Group's
properties ($250 per residential unit), and approximately $8 million per year
for the Commercial Group's properties.
See "Risk Factors -- Real Estate Development and Investment Risks,"
"-- Illiquidity of Real Estate Investment," "-- Dependence on Rental Income From
Real Property," "-- Competition," "-- Environmental Liabilities" and
"-- Partnership Risks."
NEW DEVELOPMENT
The Company expects to grow primarily through real estate development,
which it believes will maximize shareholder value over the long term by
providing attractive rates of return on the Company's investment.
The Company has a proven track record in developing new real estate
projects. Since January 31, 1988, the Company has grown its real estate assets
at cost from $1.1 billion to $2.6 billion while adding 66 properties to its
portfolio. It currently has 13 projects under construction or under contract to
acquire with a total estimated cost of $586.7 million (of which the Company's
share will be $316.2 million). The projects include three shopping centers, two
office buildings, one hotel and seven residential apartment communities that
will add 867,000 square feet of gross leasable area ("GLA") and 292 hotel rooms
to the Company's commercial portfolio and 1,915 units to its residential
portfolio.*
In addition, the Company has eight shopping centers and 12 residential
apartment communities under active pre-construction development that are
expected to open over the next four years.* The Company expects the total cost
of these projects to be approximately $807 million (of which the Company's share
will be $430 million).* In each instance, the Company has a signed partnership
agreement to proceed with the development, owns or controls the land under an
option agreement and has commenced or, in some cases, completed the entitlement
process.
The Company believes its 50-year history of real estate development and its
experienced management team give the Company distinct advantages over its
competitors in developing new projects. All 11 of the commercial and residential
projects that were opened by the Company in 1997 were completed on-time and
on-budget.
The Company's development program focuses principally on growing or
underserved markets where entitlements are difficult to obtain or where other
factors favor the Company's extensive experience in working with local
governments and regulatory agencies. The Company believes its experience with
governments and government financing programs is a competitive advantage,
especially with respect to its urban development strategy, where public/private
partnerships are crucial.
The Company's development activities also are enhanced by its experience in
managing a diversified portfolio and its ability to move quickly to develop more
than one property type in growth markets.
See "Risk Factors -- Real Estate Development and Investment Risks," "--
Significant Geographic Concentration," "-- Illiquidity of Real Estate
Investment," "-- Dependence on Rental Income From Real Property" and "--
Partnership Risks."
ACQUISITIONS
The Company recently has taken advantage of acquisition opportunities,
principally in the residential apartment area. These opportunities arose as a
result of a downturn in the residential apartment market in the early 1990s,
which made it more economical to buy and renovate existing properties than to
build new projects. Accordingly, in the last five years, the Company has focused
on the acquisition of
- ---------------
* This is a forward-looking statement and is based on current facts and
expectations. The development and acquisition of real estate properties
involves various risks, including an inability to obtain financing or
government entitlements, construction delays and cost overruns. See "Risk
Factors -- Real Estate Development and Investment Risks," "-- Dependence on
Rental Income From Real Property," "-- Changes in Interest Rates,"
"-- Tax-Exempt and UDAG Financing," "-- Reliance on Major Tenants," "--
Competition" and "-- Partnership Risks," for a more complete discussion of the
risks associated with the Company's development and acquisition activities.
S-62
<PAGE> 94
distressed properties in desirable locations and on existing properties that are
in good condition but that present other opportunities to add value by
restructuring the financing or repositioning the asset for a different tenant
base. Since 1992, the Company has acquired an interest in 15 residential
properties with 5,904 units. The average occupancy for these projects in 1997
was 92%. Approximately 28% of the total project costs of these properties were
financed with tax-exempt bonds. The Company currently has contracts to purchase
four residential properties, with an aggregate of 729 units, at an aggregate
purchase price of $34.2 million, and is actively exploring other opportunities.
In addition to acquisitions by the Residential Group, the Commercial Group has
complemented its development program through the acquisition of increased
ownership positions in its existing projects. During 1997, the Company acquired
the remaining 75% ownership interest in Station Square, an entertainment project
located on the Monongahela River in downtown Pittsburgh, PA and increased its
ownership interest from 40% to 78% at Antelope Valley Mall, a regional shopping
center located in Palmdale, California. See "Risk Factors -- Real Estate
Development and Investment Risks," "-- Significant Geographic Concentration,"
"-- Illiquidity of Real Estate Investment," "-- Dependence on Rental Income From
Real Property" and "-- Partnership Risks."
CAPITAL STRATEGY
The Company believes that its capital strategy is an important aspect of
maximizing returns to shareholders and that project returns should be evaluated
in the context of the cost of capital and risk associated with each project. The
Company utilizes nonrecourse mortgage financing as its primary source of
capital. As part of its financing strategy, the Company employs a wide variety
of financing techniques to fund new developments and acquisitions, including
taxable and tax-exempt financing, syndications, joint venture securitizations
and government-subsidized loans and incentives. The Company finances its
projects at the time of construction or acquisition, primarily using
variable-rate debt. It refinances the projects, generally with fixed-rate debt,
upon stabilization when values allow the Company to withdraw some or all of its
initial cash investment in the project. The Company continually evaluates its
mature properties for opportunities to withdraw capital through additional
refinancings. The capital generated by such refinancings is then reinvested in
new projects. Other than indebtedness under the FCRPC Credit Agreement (as
defined under the caption "Description of Certain Indebtedness -- Forest City
Rental Properties Corporation Credit Agreement") and these Notes, all of the
Company's mortgage indebtedness is nonrecourse. See "Description of Certain
Indebtedness -- Mortgage Debt Financing."
As part of its financing strategy, the Company has made significant use of
tax-exempt financing. At January 31, 1998, the Company estimates there was
approximately $151 million of tax-exempt financing outstanding, with a weighted
average interest rate of 4.76%, including the costs of credit enhancement.* In
addition, the Company estimates there was Urban Development Action Grant
("UDAG") loans and other government-subsidized funding of $74 million
outstanding at January 31, 1998, with a weighted average interest rate of
2.25%.* The availability and cost of such financing is integral to the Company's
analysis of the attractiveness of a project. The Company estimates that the use
of these types of financings will lower the weighted average interest rate on
the Company's mortgage debt by approximately 43 basis points at January 31,
1998.*
The Company also has used syndication as a financing technique for its
residential projects. Syndication permits the Company to withdraw a substantial
portion of its invested capital from a project while retaining a significant
interest in the property's cash flow and residual value. The Company's
syndicated properties are generally financed using tax-exempt bonds. Syndicated
properties generated $916,000 of operating income in 1996, and generated
$799,000 of operating income in the nine months ended October 31, 1997. As of
October 31, 1997, the Company had received $7.7 million of distribu-
- ---------------
* Represents management's estimate which is subject to change as a result of
computing final results for January 1998 and the Company's normal year-end
audit process. No assurance can be given that the Company will meet this
projection. See "Risk Factors -- Information Concerning Forward-Looking
Statements."
S-63
<PAGE> 95
tions in excess of its original investment in these projects. See
"Business -- Residential Group -- Syndication Activity" and "Risk
Factors -- Potential Liability From Syndicated Properties."
Reflecting the advantages of these financing techniques, the Company's
projected overall weighted average interest rate on its mortgage debt was 7.47%
at January 31, 1998.* See "-- New Development," "Use of Proceeds," "Business,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Risk Factors -- Credit Facility Covenants," "-- Changes in
Interest Rates" and "-- Tax-Exempt and UDAG Financing."
OPERATING AND ORGANIZATIONAL STRUCTURE
For Federal income tax purposes, the Company operates as a "C" corporation,
which distinguishes it from many competitors that operate as tax-qualified real
estate investment trusts ("REITs"). As a "C" corporation, the Company is not
subject to the mandatory distribution requirements imposed on REITs and is able
to reinvest its earnings in new development opportunities. The tax benefits the
Company receives from its depreciation and interest expense deductions
significantly reduce its taxable income. The Company's consolidated tax position
and the tax benefits generated from its real estate operations allow it to
reduce the tax payable with respect to the earnings from its Land and Lumber
Trading Groups. At January 31, 1997, the Company had net operating loss
carryforward for tax purposes of $88.9 million, which expire in the years ending
January 31, 2005 through January 31, 2011, and general business credits
carryovers of $3.6 million, which expire in the years ending January 31, 2003
through January 31, 2011. In 1996, the Company did not incur a Federal corporate
income tax liability, the Company did incur a net Federal alternative minimum
tax liability of $2,904,000.
- ---------------
* Represents management's estimate which is subject to change as a result of
computing final results for January 1998 and the Company's normal year-end
audit process. No assurance can be given that the Company will meet this
projection. See "Risk Factors -- Information Concerning Forward-Looking
Statements."
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<PAGE> 96
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The following selected historical consolidated financial data should be
read in conjunction with, and are qualified in their entirety by reference to,
the Consolidated Financial Statements appearing elsewhere in this Prospectus
Supplement and incorporated by reference in the accompanying Prospectus. The
selected historical consolidated financial data excluding the items under "Other
selected data" with respect to the fiscal years ended January 31, 1993, 1994,
1995, 1996 and 1997 are derived from the Audited Consolidated Financial
Statements. The selected historical financial data set forth below, excluding
the items under "Other selected data" for the nine months ended October 31, 1996
and October 31, 1997 were derived from the Company's Unaudited Consolidated
Financial Statements for such periods. The selected historical consolidated
financial data, excluding the items under "Other selected data" with respect to
the fiscal years ended January 31, 1993 and 1994 are derived from audited
consolidated financial statements of the Company not included or incorporated by
reference herein or in the accompanying Prospectus. See the Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED FOR THE YEARS ENDED JANUARY 31,
OCTOBER 31, OCTOBER 31, -------------------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS DATA:
Revenues $ 448,078 $ 441,272 $ 610,449 $ 529,433 $ 522,608 $ 519,379 $ 474,469
Operating expenses 259,981 276,034 386,970 305,819 323,736 338,308 310,621
Depreciation and
amortization 54,265 52,730 73,304 65,716 65,580 65,309 59,272
Interest expense 96,261 99,401 133,364 130,001 116,821 111,494 111,309
Income tax expense
(benefit) (3,398) 10,127 12,951 10,623 (5,964) 4,324 10,464
Earnings (loss) before
extraordinary gain(1) 2,332 9,930 9,171 6,939 (18,533)(2) 2,212(3) 12,687
BALANCE SHEET DATA:
Total assets -- cost
basis $2,822,802 $2,714,952 $ 2,741,405 $ 2,631,046 $ 2,584,734(4) $ 2,668,057 $ 2,625,404
Long-term debt,
including mortgage
debt 2,033,752 1,990,211 1,993,351 1,945,120 1,881,917 2,026,451 1,972,160
Shareholders' equity 278,982 193,541 191,978 189,589 185,560 145,442 143,230
OTHER SELECTED DATA:
Earnings before
depreciation,
amortization and
deferred taxes from
operations (EBDT)(5) $ 80,119 $ 61,991 $ 90,404 $ 82,021 $ 81,262 $ 80,979 $ 77,075
Consolidated EBITDA(6) 233,903(7) 235,193(7) $ 211,483 $ 212,557 $ 188,283 $ 169,212 $ 156,200
Consolidated EBITDA(6)
to Interest Ratio 2.01x(7) 1.95x(7) 1.74x 1.79x 1.77x 1.80x 1.58x
</TABLE>
- ---------------
(1) Excludes extraordinary gain, net of tax.
(2) The loss before extraordinary gain for the year ended January 31, 1995 was
due primarily to the loss on the sale of Park LaBrea Towers, a residential
complex containing 2,825 units in Los Angeles, California, of approximately
$19,200,000. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(3) The decrease in earnings before extraordinary gain of $10,475,000 from the
year ended January 31, 1993 to the year ended January 31, 1994 was due
primarily to the gain on the sale of an interest in South Bay Galleria, less
a provision for decline in real estate in the year ended January 31, 1993 of
approximately $17,400,000.
(4) The decrease in total assets -- cost basis was due to the sale of Park
LaBrea Towers, partially offset by an increase in other real estate costs.
(5) Earnings before depreciation, amortization and deferred taxes consists of
net earnings (loss), excluding the provision for decline in real estate and
gain (loss) on disposition of properties, net of tax, before deducting the
non-cash charges from rental properties for depreciation and amortization
and deferred taxes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations -- EBDT."
(6) These amounts are calculated in accordance with the definitions set forth in
the Indenture relating to the Notes. This information is provided to
illustrate the operation of certain of the covenants described under
"Description of Notes -- Covenants" and the Company's historical compliance
therewith.
(7) These amounts are calculated with respect to the 12 month periods ended
October 31, 1997 and 1996.
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<PAGE> 97
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company develops, acquires, owns and manages commercial and residential
real estate properties in 21 states and the District of Columbia. The Company
owns a portfolio that is diversified both geographically and by property types
and operates through four principal business groups: Commercial Group,
Residential Group, Land Group and Lumber Trading Group.
The Company uses an additional measure, along with net earnings, to report
its operating results. This measure, referred to as Earnings Before
Depreciation, Amortization and Deferred Taxes ("EBDT"), is not a measure of
operating results or cash flows from operations as defined by generally accepted
accounting principles. However, the Company believes that EBDT provides
additional information about its operations and, along with net earnings, is
necessary to understand its operating results. The Company's view is that EBDT
is also an indicator of the Company's ability to generate cash to meet its
funding requirements. EBDT is defined and discussed in detail under "Results of
Operations -- EBDT."
EBDT for the nine months ended October 31, 1997 grew to $80,119,000 from
$61,991,000 for the comparable period of 1996. EBDT for the nine months ended
October 31, 1997 grew primarily as a result of a litigation settlement related
to Toscana, a 563-unit apartment complex in Irvine, California
($6,991,000 -- see "Sale of Toscana/Extraordinary Gain" below), improved
operations and acquisitions of apartment units by the Residential Group
($2,745,000), improved operations and the openings of new properties in the
Commercial Group ($4,795,000), results of Lumber Trading Group ($1,299,000) and
an increase in capitalized interest on development projects ($4,659,000). In
addition, the increase in the provision for current income taxes for the nine
months ended October 31, 1997 in the Commercial Group of $5,085,000 over the
comparable period in 1996 is due primarily to 1996 net operating loss benefits
generated by taxable income on the sale of Beachwood Place which were allocated
to operating earnings. The income from the sale of Beachwood Place was reported
in 1996 as Gain on Disposition of Properties, net of tax, and is not a component
of EBDT. This increase in current taxes was offset by a decrease of $5,841,000
compared to 1996 in Corporate Activities which is attributable primarily to
higher tax benefits in the current year and a refund of alternative minimum tax
for 1996 received in 1997.
RESULTS OF OPERATIONS
The Company reports its results of operations by each of its four principal
business groups as it believes it provides the most meaningful understanding of
the Company's financial performance.
The major components of EBDT are Revenues, Operating Expenses and Interest
Expense, each of which is discussed below. Net Operating Income ("NOI") is
defined as Revenues less Operating Expenses. See the information in the table
"Earnings before Depreciation, Amortization and Deferred Taxes" at the end of
this Management's Discussion and Analysis of Financial Condition and Results of
Operations.
COMMERCIAL GROUP
REVENUES. Revenues of the Commercial Group increased $1,047,000, or .5%,
to $233,713,000 in the nine months ended October 31, 1997 compared to
$232,666,000 for the comparable period of 1996. This increase is primarily the
result of property openings including Atlantic Center in Brooklyn, New York
($5,983,000), Bruckner Boulevard in the Bronx, New York ($1,343,000), Gun Hill
Road in the Bronx ($462,000), Marketplace at Riverpark in Fresno, California
($738,000), and Showcase in Las Vegas, Nevada ($1,173,000). In addition,
Galleria at Sunset in Henderson, Nevada, the Marriott hotel in Charleston, West
Virginia and the Ritz-Carlton hotel in Cleveland, Ohio realized increased
revenues in the first nine months of 1997 over the prior year of $920,000,
$833,000 and $1,182,000, respectively. Comparable office building revenues
increased by $1,516,000. These increases were partially offset by
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<PAGE> 98
1996 land sales which did not recur ($8,830,000) and reductions in revenues from
Beachwood Place which was sold in 1996 ($1,389,000) and the closing of the Handy
Andy stores that were the Company's tenants ($3,032,000).
OPERATING AND INTEREST EXPENSES. During the nine months ended October 31,
1997, operating expenses decreased $4,123,000, or 3.4%, and interest expense
increased $4,374,000, or 6.7%, over the comparable period in 1996 to
$117,310,000 and $69,969,000, respectively from $121,433,000 and $65,595,000
respectively. The decrease in operating expenses was attributable primarily to
costs associated with the sale of land in 1996 ($7,531,000) which did not recur
in 1997 and costs associated with properties which were sold or closed during
1996 ($1,863,000), partially offset by expenses associated with the opening of
new retail properties ($3,155,000) and costs associated with increased hotel
occupancy ($1,747,000). The increase in interest expense was attributable
primarily to the opening of new properties.
RESIDENTIAL GROUP
REVENUES. Revenues for the Residential Group increased by $18,726,000, or
21.9% in the nine months ended October 31, 1997 to $104,087,000 from $85,361,000
for the comparable period in 1996. This increase reflects proceeds from the
Toscana litigation settlement ($15,000,000 -- see "Sale of Toscana/Extraordinary
Gain" below), development fees from The Knolls ($1,145,000) and the acquisitions
of Emerald Palms ($1,021,000), Museum Tower ($1,600,000) and Colony Woods
($619,000). In addition, revenues for comparable properties improved over last
year ($3,906,000) as a result of a 4% increase in average rental rates, offset
by the loss of revenue due to the sale of Toscana ($5,289,000).
OPERATING AND INTEREST EXPENSES. Operating expenses increased by $520,000,
or 1.1%, to $46,915,000 in the nine months ended October 31, 1997 from
$46,395,000 in the comparable period of 1996. Interest expense decreased by
$1,877,000, or 7.7%, to $22,477,000 in the nine months ended October 31, 1997
from $24,354,000 for the comparable period of 1996. The increase in operating
expenses is attributable primarily to the acquisitions of Museum Tower
($706,000), Colony Woods ($423,000) and Emerald Palms ($453,000), real estate
taxes at The Laurels in Justice, Illinois ($332,000) and normal inflationary
growth on the portfolio (approximately $800,000), partially offset by a decrease
in operating expenses due to the sale of Toscana ($2,214,000). The decrease in
interest expenses is primarily the result of the sale of Toscana ($3,049,000),
partially offset by increases due to acquisition mortgages (approximately
$1,200,000).
LAND GROUP
REVENUES. Revenues for the Land Group decreased by $15,983,000, or 56.7%,
to $12,224,000 in the nine months ended October 31, 1997 from $28,207,000 in the
comparable period in 1996. This decrease was attributable primarily to 1996 land
sale activity at Silver Lakes in Fort Lauderdale, Florida and a significant sale
of land located in Miami, Florida in the third quarter of 1996, both of which
did not recur in 1997. Sales of land and related earnings vary from period to
period, depending on management's decisions regarding the disposition of
significant land holdings. It is anticipated that Land Group revenues for the
year ending January 31, 1998 will be comparable to revenues for the prior year.*
OPERATING AND INTEREST EXPENSES. Operating expenses and interest expense
decreased by $13,240,000 and $862,000 (or 56.3% and 16.7%), respectively, in the
nine months ended October 31, 1997 to $10,274,000 and $4,303,000, respectively,
from $23,514,000 and $5,165,000, respectively, in the nine months ended October
31, 1996. The decrease in operating expenses reflects the fluctuation in
- ---------------
* This is a forward-looking statement and is based on current facts and
expectations. The development and acquisition of real estate properties
involves various risks, including an inability to obtain financing or
government entitlements, construction delays and cost overruns. See "Risk
Factors -- Real Estate Development and Investment Risks," "-- Dependence on
Rental Income From Real Property," "-- Changes in Interest Rates,"
"-- Tax-Exempt and UDAG Financing," "-- Reliance on Major Tenants,"
"-- Competition" and "-- Partnership Risks," for a more complete discussion of
the risks associated with the Company's development and acquisition
activities.
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<PAGE> 99
sales volume from the prior year. The decrease in interest expense was due
primarily to the reduction of principal of approximately $6,000,000 throughout
1996 on the acquisition and development mortgages relating to the Silver Lakes
project and the reduction of interest rate on certain mortgages on the Seven
Hill project in Henderson, Nevada.
LUMBER TRADING GROUP
REVENUES. Revenues of the Lumber Trading Group increased by $4,756,000, or
5.3%, to $94,377,000 in the nine months ended October 31, 1997 from $89,621,000
in the nine months ended October 31, 1996. The increase was due primarily to an
increase in volume at Forest City/Babin ($2,694,000) and the sale of a facsimile
business ($2,179,000).
OPERATING AND INTEREST EXPENSES. Operating expenses in the Lumber Trading
Group increased in the nine months ended October 31, 1997 by $2,751,000, or
3.5%, to $82,172,000 from $79,421,000 in the nine months ended October 31, 1996.
This increase reflected the fluctuation in variable expenses due to increased
sales volume. Interest expense for the nine months ended October 31, 1997
decreased by $135,000, or 3.3%, to $3,949,000 from $4,084,000 in the same period
for 1996. This decrease in interest expense was the result of a reduced rate of
interest on the Lumber Trading Group's line of credit from an average of 8.49%
for the nine months ended October 31, 1996 to 7.13% for the nine months ended
October 31, 1997, partially offset by an increase of approximately $8,000,000 in
the average borrowings for the same period which were the result of increased
average physical inventory levels.
CORPORATE ACTIVITIES
REVENUES. Revenues of the Corporate Activities decreased $1,740,000, or
32.1%, for the nine months ended October 31, 1997 to $3,677,000 compared to
$5,417,000 for the same period in 1996. Corporate Activities revenues consists
primarily of interest income on advances made by the Company on behalf of its
partners, and vary from year to year depending on interest rates and the amount
of loans outstanding.
OPERATING AND INTEREST EXPENSES. Operating expenses decreased $1,946,000,
or 25.8%, in the nine months ended October 31, 1997 to $5,611,000 from
$7,557,000 for the comparable period of 1996. This decrease was primarily the
result of adjustments to estimated accruals. Interest expense, net of
capitalized interest on development projects, decreased $4,640,000 for the nine
months ended October 31, 1997 to ($4,437,000) from $203,000 for the nine months
ended October 31, 1996. Interest expense consists primarily of interest expense
on the term loan and revolving credit facility that has not been allocated to a
principal business unit, net of interest capitalized on development projects.
LOSS ON DISPOSITION OF PROPERTIES
During the second quarter of 1997, the Company sold its interest in
Woodridge, a land development project in suburban Chicago, Illinois and recorded
a loss on disposition of $1,894,000, after tax. During the first quarter of
1997, the Company recorded a loss on disposition of Toscana, as discussed in the
next paragraph.
SALE OF TOSCANA/EXTRAORDINARY GAIN
During February 1997, the Company sold Toscana, a 563-unit apartment
complex in Irvine, California, back to the original land owner and settled
litigation related to the property. As a result, the Company recorded operating
income of $9,157,000, after tax, a loss on disposition of property of
$21,462,000, after tax, and an extraordinary gain of $14,187,000, after tax,
related to the extinguishment of a portion of the property's nonrecourse
mortgage debt. The net result of these transactions to the Company is after-tax
income of $1,882,000. Proceeds from the litigation settlement resulted in an
increase to EBDT of $6,991,000 for the nine months ended October 31, 1997.
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<PAGE> 100
NET EARNINGS
For the nine months ended October 31, 1997, the Company's net earnings were
$16,519,000 compared to net earnings of $12,830,000 for the nine months ended
October 31, 1996.
EBDT
Earnings Before Depreciation, Amortization and Deferred Taxes ("EBDT") is
defined as net earnings from operations before depreciation, amortization and
deferred taxes on income, and excludes provision for decline in real estate,
gain (loss) on disposition of properties and extraordinary gain. The Company
excludes depreciation and amortization expense from EBDT because they are
non-cash items and the Company believes the values of its properties, in
general, have appreciated, over time, in excess of their original cost. Deferred
income taxes are excluded because they are a non-cash item. Payment of income
taxes has not been significant and is not expected to be significant in the
foreseeable future. The provision for decline in real estate is excluded from
EBDT because it is a non-cash item that varies from year to year based on
factors unrelated to the Company's overall financial performance. The Company
excludes gain (loss) on the disposition of properties from EBDT because it
develops and acquires properties for long-term investment, not short-term
trading gains. As a result, the Company views dispositions of properties other
than commercial outlots or land held by the Land Group as nonrecurring items.
Extraordinary gains are generally the result of the restructuring of nonrecourse
debt obligations and are not considered to be a component of the Company's
operating results.
FINANCIAL CONDITION AND LIQUIDITY
On May 20, 1997, the Company sold 1,955,000 shares of its Class A Common
Stock at $42 per share and realized net proceeds, after offering costs, of
$76,084,000. The proceeds were used to repay the outstanding balance on the
revolving credit facility ($71,000,000) and the remainder was allocated for
working capital.
On December 10, 1997, and as amended on January 20, 1998, the Company
replaced its $37,500,000 term loan due July 1, 2001 and its $80,000,000
revolving credit facility with a Forest City Rental Properties Corporation
("FCRPC," a significant subsidiary of the Company) credit agreement. The FCRPC
Credit Agreement, with a group of nine banks, consists of a $60,000,000 term
loan due January 1, 2004 and a $165,000,000 revolving credit facility maturing
December 10, 2000. Quarterly principal payments of $2,500,000 on the term loan
will commence April 1, 1998. The revolving credit facility allows for up to
$30,000,000 in outstanding letters of credit, which reduces the revolving credit
available to the Company. The maturity date of the revolving credit facility may
be extended for an additional year annually beginning December 10, 1998 by
unanimous consent of the banks and may be converted to a four-year term loan at
its maturity. As of January 31, 1998, the Company had $114,000,000 of recourse
debt outstanding, comprised of borrowings of $60,000,000 on the term loan and
$54,000,000 on the revolving credit facility.
The new credit agreement provides, among other things, for 1) interest
rates ranging from 1/4% to 3/4% over the prime rate or 2% to 2 1/2% over the
London Interbank Offered Rate ("LIBOR"); 2) maintenance of debt service coverage
ratios, specified level of net worth and cash flow (as defined) and 3)
restriction on dividend payments. In addition, the Company has purchased
interest rate caps for the debt under the FCRPC Credit Agreement in the amount
of $25,000,000 for 1998 and $45,000,000 for 1999. The FCRPC Credit Agreement is
being further amended in connection with this Offering. See "Description of
Certain Indebtedness -- Forest City Rental Properties Corporation Credit
Agreement."
The Company believes that its sources of liquidity and capital are
adequate. The Company's principal sources of funds are cash provided by
operations, the revolving credit facility and refinancings of existing
properties. The Company's principal use of funds are the financing of new
developments, capital expenditures and payments on non-recourse mortgage debt on
real estate.
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<PAGE> 101
The Lumber Trading Group is financed separately from the rest of the
Company's principal business groups, and the financing obligations of Lumber
Trading Group are not recourse to the Company. Accordingly, the liquidity of
Lumber Trading Group is discussed separately below under "Lumber Trading Group
Liquidity."
MORTGAGE REFINANCINGS
During the year ended January 31, 1998, the Company completed $614,000,000
in financings, including $433,000,000 in refinancings, $115,000,000 for new
development projects and $66,000,000 in acquisition mortgages. The Company has
extended or refinanced virtually all of the debt maturing prior to January 31,
1998. The Company is actively pursuing the refinancing of the debt which matures
within the next 12 months. In addition, the Company is attempting to extend the
maturities and/or refinance the debt that is coming due in 1999 and 2000,
generally pursuing long-term fixed rate debt to take advantage of the recent low
interest rate levels.
INTEREST RATE EXPOSURE
At January 31, 1998, the composition of nonrecourse mortgage debt was
estimated to be as follows:*
<TABLE>
<CAPTION>
AMOUNT RATE(1)
-------------- -------
(IN THOUSANDS)
<S> <C> <C>
Fixed....................................................... $1,122,445 7.88%
Variable --
Swapped(2)................................................ 283,695 7.97%
Adjustable................................................ 386,546 7.94%
Tax-Exempt................................................ 151,241 4.76%
UDAG and other subsidized loans (fixed)..................... 73,473 2.25%
---------- -----
$2,017,400 7.47%
========== =====
</TABLE>
- ---------------
(1) The weighted average interest rates shown above include both the base index
and the lender margin.
(2) Interest rates swaps have an average term of 2.1 years as of January 31,
1998.
With respect to taxable variable-rate debt, the Company generally attempts
to obtain interest rate protection for such debt with a maturity in excess of
one year. The Company has purchased interest rate cap protection for its
variable-rate debt portfolio in the amount of $293,675,000 and $373,675,000 for
the fiscal years ending January 31, 1999 and 2000, respectively. The Company
generally does not hedge tax-exempt debt because, since 1990, the base rate of
this type of financing has averaged only 3.80% and has never exceeded 7.90%.
At January 31, 1998, the Company estimates that a 100 basis point increase
in taxable interest rates would increase the annual pre-tax interest cost of the
Company's taxable variable-rate debt by approximately $3,900,000.* Although
tax-exempt rates generally increase in an amount that is smaller than
corresponding changes in taxable interest rates, the Company estimates that a
100 basis point increase in tax-exempt interest rates would increase the annual
pre-tax interest cost of the Company's tax-exempt variable-rate debt by
approximately $1,500,000.*
LUMBER TRADING GROUP LIQUIDITY
The Lumber Trading Group is separately financed with two lines of credit
and an accounts receivable sale program. These credit facilities are without
recourse to the Company.
- ---------------
* Represents management's estimate which is subject to change as a result of
computing final results for January 1998 and the Company's normal year-end
audit process. See "Risk Factors -- Information Concerning Forward-Looking
Statements."
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<PAGE> 102
The Lumber Trading Group's two lines of credit total a $46,000,000
commitment. These credit lines are secured by the assets of the Lumber Trading
Group and are used by the Lumber Trading Group to finance its working capital
needs. At October 31, 1997, the Lumber Trading Group had $34,700,000 of
available credit under these facilities.
The Lumber Trading Group also has sold an undivided ownership interest in a
pool of accounts receivable of up to a maximum of $90,000,000 and uses this
program to finance its working capital needs. At October 31, 1997, $49,000,000
had been sold under this accounts receivable program.
The Company believes that the amounts available under these credit
facilities, together with the accounts receivable sale program, will be
sufficient to meet the Lumber Trading Group's liquidity needs.
CASH FLOWS
Net cash provided by operating activities was $60,972,000 and $81,243,000
for the nine months ended October 31, 1997 and 1996, respectively. The decrease
in cash provided by operating activities in 1997 compared to 1996 is primarily
the result of the reduction in accounts payable and accrued expenses of
$55,290,000 primarily from the Lumber Trading Group and an increase in land held
for development or sale of $9,724,000, offset by receipt of the $10,000,000
Toscana litigation settlement and a $31,802,000 increase in the collection of
notes and accounts receivable primarily from the Lumber Trading Group.
Net cash used in investing activities totaled $237,120,000 and $130,649,000
for the nine months ended October 31, 1997 and 1996, respectively. Capital
expenditures, other than development and acquisition activities, totaled
$31,609,000 (including both recurring and investment capital expenditures) in
the nine months ended October 31, 1997 and were financed primarily with cash
provided by operating activities. In the nine months ended October 31, 1997, net
cash used in investing activities reflected the Company's use of $178,390,000 of
funds for acquisition and development activities, which were financed with
approximately $141,000,000 in new mortgage indebtedness and borrowings on the
revolving credit facility. In addition, $27,121,000 was used for investments in
and advances to affiliates, and includes investments in syndicated residential
projects including The Grand in North Bethesda, Maryland ($9,700,000) and The
Enclave in San Jose, California ($1,600,000); Land Group's investments in Silver
Shores ($1,700,000) in Ft. Lauderdale, Florida and Seven Hills in Henderson,
Nevada ($800,000); advances to the Company's New York affiliate for equity
contributions for development projects ($8,400,000); and refundable deposits for
financing commitments, net of refunds of previous deposits ($4,000,000).
Net cash provided by financing activities totaled $161,942,000 and
$37,755,000 in the nine months ended October 31, 1997 and 1996, respectively.
Net proceeds from the sale of 1,955,000 shares of Class A Common Stock in May of
1997 were $76,084,000, which were initially used to repay $71,000,000 of
borrowings under the FCRPC Credit Agreement. The Company's refinancing of
mortgage indebtedness is discussed above in "Mortgages Refinancings" and
borrowings under new mortgage indebtedness for acquisition and development
activities is included in the preceding paragraph discussing net cash used in
investing activities. In addition, net cash provided by financing activities in
the nine months ended October 31, 1997 reflected net repayment of $3,937,000 on
Lumber Trading Group's lines of credit, repayment of a $6,365,000 note payable
relating to the purchase of the Company's additional 33 1/3% interest in the
Pittsburgh Mall and assumption of a $5,521,000 note related to the sale of the
Land Group's interest in Woodridge. In addition, financing activities for the
nine months ended October 31, 1997 include the release of $3,600,000 in
restricted cash related to the financing of Atlantic Center in Brooklyn, New
York, payment of deferred financing costs of $5,448,000, purchase of 77,700
shares of treasury stock for $2,896,000 and payment of $2,590,000 of dividends.
SHELF REGISTRATION
On December 3, 1997, the Company filed a shelf registration statement with
the Securities and Exchange Commission for the potential offering on a delayed
basis of up to $250,000,000 in debt or
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<PAGE> 103
equity securities. This registration is in addition to the shelf registration
filed March 4, 1997 of up to $250,000,000 in debt or equity securities. The
Company sold approximately $82,000,000 of the earlier shelf registration through
an equity offering completed on May 20, 1997 and currently the Company has
available approximately $418,000,000 of debt, equity or any combination thereof.
STOCK SPLIT, DIVIDENDS, CAPITALIZATION AND TREASURY STOCK PURCHASE
A three for two stock split of both the Company's Class A and Class B
Common Stock, was effective February 17, 1997 to shareholders of record at the
close of business on February 3, 1997. The stock split was effected as a stock
dividend.
Quarterly cash dividends of $.06 per share (post-split) on shares of both
Class A and Class B Common Stock were paid on March 17, June 16 and September
15, 1997. The fourth 1997 quarterly dividend of $.06 per share on shares of both
Class A and Class B Common Stock was paid on December 15, 1997 to shareholders
of record at the close of business on December 1, 1997. The first 1998 quarterly
dividend of $.07 per share on shares of both Class A and Class B Common Stock
will be paid on March 16, 1998 to shareholders of record at the close of
business on March 2, 1998.
On June 10, 1997, the shareholders approved an amendment to the Company's
Articles of Incorporation to increase the Company's capitalization to a)
48,000,000 shares of Class A Common Stock from 16,000,000 shares; b) 18,000,000
shares of Class B Common Stock from 6,000,000 shares; and c) 5,000,000 shares of
preferred stock from 1,000,000 shares.
On August 18, 1997, the Company purchased 77,700 shares of Class A Common
Stock owned by Richard Miller, Aaron Miller and Gabrielle Miller, the children
of Samuel H. Miller, the Company's Co-Chairman of the Board of Directors, and
Ruth Miller, who died on November 26, 1996. The repurchase provided funds
necessary to pay taxes on the estate of Ruth Miller. The shares were purchased
at a price of $36.50 per share for an aggregate purchase price of $2,836,050
plus 8.0% interest from May 7, 1997 to August 18, 1997, less any dividends paid
between those two dates, for a total of $2,896,000.
NEW ACCOUNTING STANDARDS
In February 1997, FASB issued SFAS 128 "Earnings per Share," which is
effective for fiscal years ending after December 15, 1997. This Statement
simplifies the standards for computing earnings per share ("EPS") and makes them
comparable to international EPS standards. The Company will adopt the provisions
of SFAS 128 in its 1997 Annual Report, but does not expect this statement to
have a material impact on EPS.
In June 1997, FASB issued SFAS 131 "Disclosures about Segments of an
Enterprise and Related Information," which is effective for periods beginning
after December 15, 1997. This statement provides guidance on the determination
of reporting segments and requires interim financial statement disclosure. The
Company does not anticipate that significant changes to the segment information
historically provided in its annual financial statements will occur as a result
of the adoption of SFAS 131. Beginning with the Company's quarterly report on
Form 10-Q for the quarter ending April 30, 1998, the Company will include
interim segment information.
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<PAGE> 104
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES FOR THE NINE
MONTHS ENDED OCTOBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
LUMBER
COMMERCIAL GROUP RESIDENTIAL GROUP LAND GROUP TRADING GROUP
------------------- ------------------ ----------------- -----------------
1997 1996 1997 1996 1997 1996 1997 1996
-------- -------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $233,713 $232,666 $104,087 $85,361 $12,224 $28,207 $94,377 $89,621
Operating expenses, including
depreciation and amortization for
non-real estate Groups........... 117,310 121,433 46,915 46,395 10,274 23,514 82,172 79,421
Interest expense................... 69,969 65,595 22,477 24,354 4,303 5,165 3,949 4,084
Income tax provision (benefit)..... 2,858(a) (2,227) 9,039(b) (1,442) (2,897) (187) 3,260 2,419
-------- -------- -------- ------- ------- ------- ------- -------
190,137 184,801 78,431 69,307 11,680 28,492 89,381 85,924
-------- -------- -------- ------- ------- ------- ------- -------
Earnings before depreciation,
amortization and deferred taxes
(EBDT)........................... $ 43,576 $ 47,865 $ 25,656 $16,054 $ 544 $ (285) $ 4,996 $ 3,697
======== ======== ======== ======= ======= ======= ======= =======
Reconciliation to net earnings:
Earnings before depreciation,
amortization and deferred taxes
(EBDT)...........................
Depreciation and
amortization -- real estate
Groups...........................
Deferred taxes -- real estate
Groups...........................
Provision for decline in real
estate, net of tax...............
Gain (loss) on disposition of
properties, net of tax...........
Extraordinary gain, net of tax.....
Net earnings.......................
<CAPTION>
CORPORATE ACTIVITIES TOTAL
--------------------- -------------------
1997 1996 1997 1996
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues........................... $ 3,677 $ 5,417 $448,078 $441,272
Operating expenses, including
depreciation and amortization for
non-real estate Groups........... 5,611 7,557 262,282 278,320
Interest expense................... (4,437) 203 96,261 99,401
Income tax provision (benefit)..... (2,844)(c) 2,997 9,416 1,560
------- ------- -------- --------
(1,670) 10,757 367,959 379,281
------- ------- -------- --------
Earnings before depreciation,
amortization and deferred taxes
(EBDT)........................... $ 5,347 $(5,340) $ 80,119 $ 61,991
======= ======= ======== ========
Reconciliation to net earnings:
Earnings before depreciation,
amortization and deferred taxes
(EBDT)........................... $ 80,119 $ 61,991
Depreciation and
amortization -- real estate
Groups........................... (51,964) (50,444)
Deferred taxes -- real estate
Groups........................... (2,467) (5,049)
Provision for decline in real
estate, net of tax............... -- (6,714)
Gain (loss) on disposition of
properties, net of tax........... (23,356) 10,146
Extraordinary gain, net of tax..... 14,187 2,900
-------- --------
Net earnings....................... $ 16,519 $ 12,830
======== ========
</TABLE>
- ---------------
(a) Increase in income tax provision in the Commercial Group for the nine months
ended October 31, 1997 over the comparable period in 1996 is due primarily
to 1996 net operating loss benefits generated by taxable income on the sale
of Beachwood Place which were allocated to operating earnings. The sale of
Beachwood Place was reported in 1996 as Gain on Disposition of Properties,
net of tax, and is not a component of EBDT.
(b) Increase in income tax provision in the Residential Group for the nine
months ended October 31, 1997 over the comparable period of 1996 is
primarily attributable to $15 million in litigation proceeds related to the
sale of Toscana which was recorded in 1997 (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Sale of
Toscana/Extraordinary Gain").
(c) Decrease in income tax provision in Corporate Activities for the nine months
ended October 31, 1997 compared to the same period on 1996 is attributable
primarily to higher tax benefits in the current year and a refund of
Alternative Minimum Tax for 1996 received in 1997.
S-73
<PAGE> 105
FOREST CITY RENTAL PROPERTIES CORPORATION
REAL ESTATE ACTIVITY(1)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31,
----------------------------------------------------------------------------------------------
1998 PROJECTED* 1997 1996 1995 1994 1993 1992
--------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL REAL ESTATE -- END OF
YEAR
Completed rental
properties, before
depreciation............. $2,386,000 $2,227,859 $2,085,284 $1,995,629(2) $2,101,528 $2,045,946 $1,878,394
Projects under
development.............. 253,000 215,960 246,240 230,802 214,111 188,187 316,771
---------- ---------- ---------- ---------- ---------- ---------- ----------
2,639,000 2,443,819 2,331,524 2,226,431 2,315,639 2,234,133 2,195,165
Accumulated depreciation... (435,000) (387,733) (338,216) (293,465) (272,518) (232,905) (193,683)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Rental properties, net of
depreciation............. $2,204,000 $2,056,086 $1,993,308 $1,932,966 $2,043,121 $2,001,228 $2,001,482
========== ========== ========== ========== ========== ========== ==========
ACTIVITY DURING THE YEAR
Completed rental properties
Additions................ $ 169,000 $ 160,690 $ 89,028 $ 77,265 $ 50,384 $ 200,440 $ 279,319
Acquisitions............. 102,000 22,264 28,587 32,811 5,198 -- --
Dispositions............. (113,000) (40,379) (27,960) (215,975)(2) -- (32,888) (1,201)
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 158,000 $ 142,575 $ 89,655 $ (105,899) $ 55,582 $ 167,552 $ 278,118
---------- ---------- ---------- ---------- ---------- ---------- ----------
Projects under development
New development.......... 180,000 98,403 58,798 49,585 54,317 39,045 199,346
Transferred to completed
rental properties...... (143,000) (128,683) (43,360) (32,894) (28,393) (167,629) (267,617)
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 37,000 $ (30,280) $ 15,438 $ 16,691 $ 25,924 $ (128,584) $ (68,271)
---------- ---------- ---------- ---------- ---------- ---------- ----------
INCREASE (DECREASE) IN RENTAL
PROPERTIES, AT COST........ $ 195,000 $ 112,295 $ 105,093 $ (89,208)(2) $ 81,506 $ 38,968 $ 209,847
========== ========== ========== ========== ========== ========== ==========
<CAPTION>
JANUARY 31,
------------------------------------
1991 1990 1989
---------- ---------- ----------
<S> <C> <C> <C>
TOTAL REAL ESTATE -- END OF
YEAR
Completed rental
properties, before
depreciation............. $1,600,276 $1,145,591 $1,003,795
Projects under
development.............. 385,042 451,211 203,563
---------- ---------- ----------
1,985,318 1,596,802 1,207,358
Accumulated depreciation... (160,616) (136,192) (113,004)
---------- ---------- ----------
Rental properties, net of
depreciation............. $1,824,702 $1,460,610 $1,094,354
========== ========== ==========
ACTIVITY DURING THE YEAR
Completed rental properties
Additions................ $ 462,796 $ 147,546 $ 213,130
Acquisitions............. 28,143 -- --
Dispositions............. (36,254) (5,750) (17,987)
---------- ---------- ----------
$ 454,685 $ 141,796 $ 195,152
---------- ---------- ----------
Projects under development
New development.......... 387,582 363,448 183,721
Transferred to completed
rental properties...... (453,751) (115,800) (196,228)
---------- ---------- ----------
$ (66,169) $ 247,648 $ (12,507)
---------- ---------- ----------
INCREASE (DECREASE) IN RENTAL
PROPERTIES, AT COST........ $ 388,516 $ 389,444 $ 182,645
========== ========== ==========
</TABLE>
- ---------------
(1) The table includes real estate activity for Forest City Rental Properties
Corporation only, and does not include the real estate activity relating to
the Company's Land Group.
(2) Reflects the sale of Park LaBrea Towers, a residential complex containing
2,825 units in Los Angeles, California.
* Represents management's estimate which is subject to change as a result of
computing final results for January 1998 and the Company's normal year-end
audit process. No assurance can be given that the Company will meet these
projections. See "Risk Factors -- Information Concerning Forward-Looking
Statements."
S-74
<PAGE> 106
PROPERTIES
The following tables provide summary information regarding the Company's
real estate portfolio as of January 31, 1998.
SHOPPING CENTERS -- EXISTING PORTFOLIO
<TABLE>
<CAPTION>
YEAR
COMPLETED/ RETAIL SQ. FT.
DATE OF LAST COMPANY INCLUDING
NAME RENOVATION OWNERSHIP(%) LOCATION MAJOR TENANTS DEPT. STORES
---- ------------ ------------ -------- ------------- --------------
<S> <C> <C> <C> <C> <C>
REGIONAL MALLS
Antelope Valley Mall... 1990 78.0% Palmdale, CA Sears Roebuck and Co.; JC 839,000
Penney's; Gottschalk's; Harris;
Mervyn's
The Avenue at Tower
City.................. 1990/1996 100.0 Cleveland, OH Dillard's 790,000
Ballston Common........ 1986/1995 100.0 Arlington, VA Hecht's; JC Penney's; Sport and 490,000
Health
Boulevard Mall......... 1962/1997 50.0 Amherst, NY Jenss; JC Penney's; Kaufmann's 772,000
Canton Centre.......... 1981/1988 100.0 Canton, OH Kaufmann's; JC Penney's; 680,000
Montgomery Ward
Chapel Hill Mall....... 1966/1995 50.0 Akron, OH Kaufmann's; JC Penney's; Sears 882,000
Roebuck and Co.
Charleston Town
Center................ 1983/1994 50.0 Charleston, WV Kaufmann's; JC Penney's; Sears 897,000
Roebuck and Co.; Montgomery Ward;
Stone and Thomas
Courtland Center....... 1968 100.0 Flint, MI Crowley's; JC Penney's; Mervyn's 460,000
Galleria at Sunset..... 1996 60.0 Henderson, NV Dillard's; Robinsons-May; 892,000
Mervyn's; JC Penney's
Manhattan Town Center.. 1987 37.5 Manhattan, KS Dillard's; JC Penney's; Sears 380,000
Roebuck and Co.
Rolling Acres Mall..... 1975 80.0 Akron, OH Kaufmann's; JC Penney's; Sears 1,014,000
Roebuck and Co.; Dillard's; Target
South Bay Galleria..... 1985 50.0 Redondo Beach, CA Robinsons-May; Mervyn's; 953,000
Nordstrom's; General Cinema
Summit Park Mall....... 1972 100.0 Wheatfield, NY Bon-Ton; Jenss; Sears Roebuck and 695,000
Co.
Tucson Mall............ 1982/1992 67.5 Tucson, AZ Broadway's; Foley's; Dillard's; 1,293,000
Mervyn's; JC Penney's; Sears
Roebuck and Co.
----------
Subtotal............ 11,037,000
----------
SPECIALTY RETAIL CENTERS
Atlantic Center........ 1996 75.0% Brooklyn, NY Caldor; The Sports Authority; 391,000
Pathmark; OfficeMax; Old Navy
Bowling Green Mall..... 1966 50.0 Bowling Green, KY Kroger; Quality Big Lots 242,000
Bruckner Boulevard..... 1996 70.0 Bronx, NY Pergament; Seaman's; Young World; 114,000
Old Navy
Chapel Hill Suburban... 1969 50.0 Akron, OH Value City; Petzazz 112,000
Courtyard.............. 1990 50.0 Flint, MI V.G.'s Market; Home Depot; 233,000
OfficeMax
Flatbush Avenue........ 1995/1998 80.0 Brooklyn, NY Edward's Supermarket 136,000
Gallery at MetroTech... 1990 80.0 Brooklyn, NY Toys "R" Us 163,000
Golden Gate............ 1958/1996 50.0 Mayfield Hts., OH OfficeMax; Old Navy; Champs; 260,000
Michael's; Home Place
Grand Avenue........... 1997 70.0 Queens, NY Edward's Supermarket 100,000
Gun Hill Road.......... 1997 70.0 Bronx, NY Home Depot; Sneaker Stadium 147,000
Hunting Park........... 1996 70.0 Philadelphia, PA Caldor; US Kidz; Payless Shoes 144,000
Marketplace at
Riverpark............. 1996 50.0 Fresno, CA Best Buy; Target; Marshall's; JC 453,000
Penney's
Midtown Plaza.......... 1961 50.0 Parma, OH Hills 256,000
Newport Plaza.......... 1977 50.0 Newport, KY IGA 157,000
Northern Boulevard..... 1997 70.0 Queens, NY Edward's Supermarket; Marshall's; 214,000
Old Navy
The Plaza at Robinson
Town Center........... 1989 50.0 Pittsburgh, PA T.J. Maxx; IKEA; Hills; 455,000
Marshall's; Sears Roebuck and Co.
Showcase............... 1996 20.0 Las Vegas, NV Coca-Cola(R); All Star Cafe 189,000
South Bay Southern..... 1978 100.0 Redondo Beach, CA CompUSA 160,000
Tucson Place........... 1989 100.0 Tucson, AZ Wal-Mart; Homelife; OfficeMax 276,000
----------
Subtotal............ 4,202,000
----------
Shopping Centers at January 31, 1998 15,239,000
==========
Shopping Centers at January 31, 1997 14,310,000
==========
<CAPTION>
NAME GLA
---- ---
<S> <C>
REGIONAL MALLS
Antelope Valley Mall... 287,000
The Avenue at Tower
City.................. 368,000
Ballston Common........ 221,000
Boulevard Mall......... 261,000
Canton Centre.......... 254,000
Chapel Hill Mall....... 321,000
Charleston Town
Center................ 360,000
Courtland Center....... 239,000
Galleria at Sunset..... 294,000
Manhattan Town Center.. 185,000
Rolling Acres Mall..... 365,000
South Bay Galleria..... 385,000
Summit Park Mall....... 309,000
Tucson Mall............ 408,000
---------
Subtotal............ 4,257,000
---------
SPECIALTY RETAIL CENTER
Atlantic Center........ 391,000
Bowling Green Mall..... 242,000
Bruckner Boulevard..... 114,000
Chapel Hill Suburban... 112,000
Courtyard.............. 124,000
Flatbush Avenue........ 136,000
Gallery at MetroTech... 163,000
Golden Gate............ 260,000
Grand Avenue........... 100,000
Gun Hill Road.......... 147,000
Hunting Park........... 144,000
Marketplace at
Riverpark............. 284,000
Midtown Plaza.......... 256,000
Newport Plaza.......... 157,000
Northern Boulevard..... 214,000
The Plaza at Robinson
Town Center........... 455,000
Showcase............... 189,000
South Bay Southern..... 160,000
Tucson Place........... 276,000
---------
Subtotal............ 3,924,000
---------
Shopping Centers at
January 31, 1998 8,181,000
=========
Shopping Centers at
January 31, 1997 7,674,000
=========
</TABLE>
S-75
<PAGE> 107
OFFICE BUILDINGS -- EXISTING PORTFOLIO
<TABLE>
<CAPTION>
YEAR LEASABLE
COMPLETED COMPANY SQUARE
NAME OR ACQUIRED OWNERSHIP (%) LOCATION MAJOR TENANTS FEET
---- ----------- -------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
METROTECH CENTER
One MetroTech............. 1991 65.0% Brooklyn, NY Brooklyn Union; Bear Stearns 932,000
& Co., Inc.
Two MetroTech............. 1990 65.0 Brooklyn, NY Securities Industry 521,000
Automation Corp.
Nine MetroTech............ 1997 65.0 Brooklyn, NY Fire Department -- City of 317,000
New York
Ten MetroTech Center...... 1991 80.0 Brooklyn, NY Internal Revenue Service 409,000
Eleven MetroTech
Center.................. 1995 65.0 Brooklyn, NY E-911 -- City of New York 216,000
One Pierrepont Plaza...... 1988 85.0 Brooklyn, NY Morgan Stanley & Co. 672,000
Incorporated; Goldman,
Sachs & Co.; U.S. Attorney
---------
Subtotal................
3,067,000
---------
TOWER CITY CENTER
Chase Financial Tower..... 1991 95.0% Cleveland, OH Chase Financial 119,000
M.K. Ferguson Plaza(1).... 1990 1.0 Cleveland, OH M.K. Ferguson; Chase 482,000
Financial
Skylight Office Tower..... 1991 92.5 Cleveland, OH Ernst & Young, L.L.P 321,000
Terminal Tower............ 1983 100.0 Cleveland, OH Forest City Enterprises, 583,000
Inc.
---------
Subtotal................
1,505,000
---------
MIT
Clark Building............ 1989 50.0% Cambridge, MA Oravax 122,000
Jackson Building.......... 1987 100.0 Cambridge, MA Ariad Pharmaceuticals 99,000
Richards Building......... 1990 100.0 Cambridge, MA Genzyme Tissue Repair; 126,000
Alkermes
---------
Subtotal................
347,000
---------
OTHER
Chagrin Plaza I & II...... 1969 66.7% Beachwood, OH National City Bank 116,000
Emery-Richmond............ 1991 50.0 Warrensville Hts., OH All State Insurance 5,000
Halle Building............ 1986 75.0 Cleveland, OH Sealy, Inc.; North American 379,000
Refractories Co.
Liberty Center............ 1986 50.0 Pittsburgh, PA Federated Investors 526,000
San Vicente............... 1983 25.0 Brentwood, CA Foote, Cone; Needham, Harper 469,000
Signature Square I........ 1986 50.0 Beachwood, OH Ciuni & Panichi 79,000
Signature Square II....... 1989 50.0 Beachwood, OH Sterling Software 81,000
Station Square............ 1994 100.0 Pittsburgh, PA Woodsons; Grand Concourse 144,000
---------
Subtotal................
1,799,000
---------
Office Buildings at January 31, 1998 6,718,000
=========
Office Buildings at January 31, 1997 6,401,000
=========
</TABLE>
HOTELS -- EXISTING PORTFOLIO
<TABLE>
<CAPTION>
DATE OF
OPENING/ COMPANY
NAME ACQUISITION OWNERSHIP (%) LOCATION ROOMS
---- ----------- ------------- -------- -----
<S> <C> <C> <C> <C> <C>
Budgetel............................... 1982 28.4% Mayfield Hts., OH 102
Charleston Marriott.................... 1983 95.0 Charleston, WV 354
DoubleTree at Liberty Center........... 1986 50.0 Pittsburgh, PA 616
DoubleTree at Millender Center(1)...... 1985 4.0 Detroit, MI 250
Ritz-Carlton........................... 1990 95.0 Cleveland, OH 208
-----
Hotel Rooms at January 31, 1998 and 1997 1,530
=====
</TABLE>
- ---------------
(1) Syndicated. See "Risk Factors -- Potential Liability From Syndicated
Properties."
S-76
<PAGE> 108
APARTMENTS -- EXISTING PORTFOLIO
<TABLE>
<CAPTION>
DATE OF
OPENING/ COMPANY
NAME ACQUISITION OWNERSHIP (%) LOCATION UNITS
---- ----------- ---------------- --------------------- -----
<S> <C> <C> <C> <C>
Bayside Village I, II & III.................... 1988-1989 50.0% San Francisco, CA 862
Big Creek...................................... 1996/1997 50.0 Parma Hts., OH 160
Boot Ranch..................................... 1991 50.0 Tampa, FL 236
Boulevard Towers............................... 1969 50.0 Amherst, NY 402
Camelot........................................ 1967 50.0 Parma, OH 150
Chapel Hill Towers............................. 1969 50.0 Akron, OH 402
Cherry Tree.................................... 1996/1997 50.0 Strongsville, OH 276
Chestnut Lake.................................. 1969 50.0 Strongsville, OH 789
Clarkwood...................................... 1963 50.0 Warrensville Hts., OH 568
Classic Residence by Hyatt..................... 1990 50.0 Chevy Chase, MD 339
Classic Residence by Hyatt..................... 1989 50.0 Teaneck, NJ 221
Colony Woods................................... 1997 100.0 Bellevue, WA 396
Copper Creek................................... 1992 20.0 Houston, TX 300
Deer Run I & II................................ 1987-1989 43.0 Twinsburg, OH 562
Emerald Palms.................................. 1996 100.0 Miami, FL 419
Enclave(1)..................................... 1997 1.0 San Jose, CA 69
Fenimore Court(1).............................. 1982 0.5 Detroit, MI 144
Fort Lincoln II................................ 1979 45.0 Washington, D.C. 176
Fort Lincoln III & IV.......................... 1981 24.9 Washington, D.C. 306
Granada Gardens................................ 1966 50.0 Warrensville Hts., OH 940
Greenbriar..................................... 1992 20.0 Houston, TX 400
Hamptons....................................... 1969 50.0 Beachwood, OH 649
Highlands I & II............................... 1988-1990 100.0 Grand Terrace, CA 556
Hunter's Hollow................................ 1990 50.0 Strongsville, OH 208
Independence Place I........................... 1976 50.0 Parma Hts., OH 202
Kennedy Lofts(1)............................... 1990 0.5 Cambridge, MA 142
Knolls(1)...................................... 1995 1.0 Orange, CA 260
Laurels........................................ 1995 100.0 Justice, IL 520
Lenox Club(1).................................. 1991 0.5 Arlington, VA 385
Lenox Park(1).................................. 1992 0.5 Silver Spring, MD 406
Liberty Hills.................................. 1979-1986 50.0 Solon, OH 396
Metropolitan................................... 1989 100.0 Los Angeles, CA 270
Midtown Towers................................. 1969 50.0 Parma, OH 635
Millender Center(1)............................ 1985 4.0 Detroit, MI 339
Museum Towers.................................. 1997 89.0 Philadelphia, PA 286
Noble Towers................................... 1979 50.0 Pittsburgh, PA 133
Oaks........................................... 1994 100.0 Bryan, TX 248
One Franklintown............................... 1988 100.0 Philadelphia, PA 335
Palm Villas.................................... 1991 100.0 Henderson, NV 350
Panorama Towers................................ 1978 99.0 Los Angeles, CA 154
Parmatown...................................... 1972-1973 100.0 Parma, OH 412
Pavilion(1).................................... 1992 0.5 Chicago, IL 1,115
Pebble Creek................................... 1995-1996 50.0 Twinsburg, OH 148
Peppertree..................................... 1993 100.0 College Station, TX 208
Pine Ridge Valley.............................. 1967-1974 50.0 Willoughby, OH 1,147
Queenswood(1).................................. 1990 0.7 Corona, NY 296
Regency Towers................................. 1994 100.0 Jackson, NJ 372
Shippan Avenue................................. 1980 100.0 Stamford, CT 148
Studio Colony.................................. 1986 80.0 Los Angeles, CA 450
Surfside Towers................................ 1970 50.0 Eastlake, OH 246
Tam-A-Rac I, II & III.......................... 1990-1997 50.0 Willoughby, OH 454
Trolley Plaza.................................. 1981 100.0 Detroit, MI 351
Trowbridge..................................... 1988 53.3 Southfield, MI 304
Twin Lakes Towers.............................. 1966 50.0 Denver, CO 254
Village Green.................................. 1994-1995 25.0 Beachwood, OH 360
Vineyards...................................... 1995 100.0 Broadview Hts., OH 336
Waterford Village(1)........................... 1994 1.0 Indianapolis, IN 520
White Acres.................................... 1966 50.0 Richmond Hts., OH 473
Whitehall Terrace.............................. 1997 100.0 Kent, OH 188
Woodforest Glen................................ 1992 20.0 Houston, TX 336
------
Subtotal................................... 22,709
Senior Citizens Apartments(2).................. 9,402
------
Apartments at January 31, 1998 32,111
======
Apartments at January 31, 1997 31,441
======
</TABLE>
- ---------------
(1) Syndicated. See "Business -- Residential Group -- Syndication Activity" and
"Risk Factors -- Potential Liability From Syndicated Properties."
(2) Syndicated, subsidized units in 57 communities in which the Company holds a
residual interest only. See "Risk Factors -- Potential Liability From
Syndicated Properties."
S-77
<PAGE> 109
DESCRIPTION OF CERTAIN INDEBTEDNESS
MORTGAGE DEBT FINANCING
The Company utilizes nonrecourse mortgage indebtedness, where the property
is the sole security for each mortgage loan, as its primary source of capital.
At October 31, 1997, the Company had approximately $1.9 billion of total
mortgage indebtedness outstanding (all of which is nonrecourse), representing
95.5% of the Company's total debt. The Company has 4 separate non-recourse
mortgages that are cross-collateralized and cross-defaulted and 4 separate
mortgages that are cross-collateralized by excess cash flows and a pledge of
limited partnership interests. The nonrecourse, non-cross-collateralized nature
of the Company's mortgage indebtedness generally ensures that adverse results at
one project will not affect the Company's other assets.
At January 31, 1998, the Company had a weighted average interest rate on
its outstanding mortgage debt of 7.47% (projected).* Outlined below is a
schedule of the Company's projection of its portion of outstanding mortgage debt
by maturity and weighted average interest rate by category as of January 31,
1998 (dollars in thousands).*
<TABLE>
<CAPTION>
FIXED
TO MATURITY VARIABLE(1) TAX EXEMPT UDAG TOTAL
----------- ----------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
1998.................................... $ 27,282 $ 78,756 $ 2,394 $ 243 $ 108,675
1999.................................... 180,161 314,558 1,326 243 496,288
2000.................................... 93,210 112,788 115,928 243 322,169
2001.................................... 71,305 39,499 31,593 10,668 153,065
2002.................................... 46,840 99,847 0 760 147,447
Thereafter.............................. 703,647 24,793 0 61,316 789,756
---------- -------- -------- ------- ----------
Ownership Total......................... $1,122,445 $670,241 $151,241 $73,473 $2,017,400
========== ======== ======== ======= ==========
Weighted Average Rate................... 7.88% 7.95%(2) 4.76% 2.25% 7.47%
</TABLE>
- ---------------
(1) These amounts are prior to the effect of interest rate swaps described below
which effectively reduce the amount of variable rate debt to $386.5 million.
(2) Rate includes the effect of approximately $284 million of interest rate
swaps.
The table above includes both the projected regularly scheduled annual
amortization payments as well as the balloon payments due at maturity. The
$151.2 million of Tax-Exempt debt shown above represents credit enhanced
variable-rate bonds that generally adjust interest rates weekly. Although the
underlying bonds have maturities that extend beyond 2001, the schedule reflects
the maturity date of the credit enhancement. Of the $670.2 million of taxable
variable-rate debt shown above, approximately $284 million is subject to
interest rate swap agreements with an average rate of 7.97% and average term of
2.1 years, effectively converting that portion of the variable-rate debt to a
fixed-rate through the maturity of the swap. As part of the Company's policy of
mitigating the risks of significant increases in interest rates, the Company has
purchased additional interest rate cap protection for the upcoming years. For
1998 and 1999, the Company has purchased $293.7 million and $373.7 million in
interest rate cap protection. See "Risk Factors -- Changes in Interest Rates."
In a typical development financing, the Company utilizes nonrecourse
mortgage debt for approximately 80% of the cost of a new project at the time of
construction, funding the remaining capital through equity invested by the
Company. The financing is generally a variable-rate construction loan with a
three to seven year maturity, permitting the Company to refinance without the
payment of penalties. Under the terms of such loan, the Company guarantees, on a
recourse basis, the lien-free completion of each project. Once the construction
is completed, the Company's completion guaranty is
- ---------------
* Represents management's estimate which is subject to change as a result of
computing final results for January 1998 and the Company's normal year-end
audit process. No assurance can be given that the Company will meet this
projection. See "Risk Factors -- Information Concerning Forward-Looking
Statements."
S-78
<PAGE> 110
released. Upon the completion and stabilization of each project, the Company
refinances the initial construction loan, obtaining a permanent, generally
fixed-rate, nonrecourse mortgage.
The Company routinely has significant balloon mortgage payments due in each
year. Historically, the Company has been successful in refinancing this
indebtedness. As discussed under "Strategy for Growth and Competitive
Advantages -- Capital Strategy," an important part of the Company's financing
strategy is to obtain capital through refinancing for redeployment in other
projects.
As a result of the increase in valuation typically created by the lease up
of the project, the initial refinancing often can generate funds in excess of
the initial construction mortgage, thereby reducing the Company's initial cash
investment in the project. The next refinancing, typically within seven years,
generally permits the Company to withdraw substantially all of, if not more
than, its equity investment in the project. Subsequent refinancings of mature
properties continue to provide new capital on a tax-free basis to help fund new
projects.
The table below sets forth the Company's refinancings over the past six
years (dollars in thousands).
<TABLE>
<CAPTION>
REPAYMENT OF
SCHEDULED
MATURITIES &
VOLUNTARY ACTUAL
PERIOD REFINANCINGS PERCENTAGE REFINANCING PERCENTAGE
- ------ ---------------------- ---------- ----------- ----------
<C> <S> <C> <C> <C> <C>
1997 Fixed...................... $ 68,069 14.6% $ 376,467 73.8%
Variable................... 399,362 85.4 133,670 26.2
---------- ----- ---------- -----
Total...................... $ 467,431 100.0% $ 510,137 100%
========== ===== ========== =====
1996 Fixed...................... $ 72,235 15.0% $ 240,472 45.8%
Variable................... 410,193 85.0 284,898 54.2
---------- ----- ---------- -----
Total...................... $ 482,428 100.0% $ 525,370 100.0%
========== ===== ========== =====
1995 Fixed...................... $ 101,441 28.1% $ 148,345 40.4%
Variable................... 259,979 71.9 218,498 59.6
---------- ----- ---------- -----
Total...................... $ 361,420 100.0% $ 366,843 100.0%
========== ===== ========== =====
1994 Fixed...................... $ 7,594 2.7% $ 60,993 21.1%
Variable................... 279,284 97.3 228,376 78.9
---------- ----- ---------- -----
Total...................... $ 286,878 100.0% $ 289,369 100.0%
========== ===== ========== =====
1993 Fixed...................... $ 103,217 37.9% $ 188,953 56.4%
Variable................... 168,842 62.1 146,049 43.6
---------- ----- ---------- -----
Total...................... $ 272,059 100.0% $ 335,002 100.0%
========== ===== ========== =====
1992 Fixed...................... $ 16,850 22.6% $ 16,114 20.0%
Variable................... 57,560 77.4 64,594 80.0
---------- ----- ---------- -----
Total...................... $ 74,410 100.0% $ 80,708 100.0%
========== ===== ========== =====
</TABLE>
See "Risk Factors -- Substantial Leverage; Ability to Service Debt,"
"-- Credit Facility Covenants," "-- Changes in Interest Rates" and
"-- Tax-Exempt and UDAG Financing."
FOREST CITY RENTAL PROPERTIES CORPORATION CREDIT AGREEMENT
FCRPC, a wholly owned subsidiary of the Company, is a party to a Credit
Agreement, dated as of December 10, 1997, and amended as of January 20, 1998
(hereinafter referred to as FCRPC Credit Agreement), with the lenders named
therein, KeyBank National Association, as Administrative Agent and National City
Bank, as Syndication Agent for the lenders thereunder. FCRPC and the Company
have entered into a binding letter agreement (the "Letter Agreement") with the
lenders pursuant to which the FCRPC Credit Agreement and the Guaranty will be
amended concurrently with the Offering to, among other things, permit the
Offering.
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<PAGE> 111
Set forth below is a summary of certain terms of the FCRPC Credit Agreement
and the Guaranty, each as modified to reflect the amendments described in the
Letter Agreement. The summary does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the FCRPC Credit Agreement,
the Guaranty and the Letter Agreement, which are included as exhibits to the
Registration Statement of which the accompanying Prospectus is a part. For the
purposes of the following discussion, capitalized terms used herein and not
otherwise defined have the meanings assigned to them in the FCRPC Credit
Agreement, the Guaranty or the Letter Agreement, as the case may be.
GENERAL
The FCRPC Credit Agreement, as amended, will provide for aggregate
facilities of up to $225.0 million, consisting of a revolving credit facility
(the "Revolving Credit Facility") of up to $225.0 million (including letters of
credit of up to $30.0 million), under which Revolving Loans may be borrowed on a
revolving basis until December 10, 2000 (such date, unless extended by the
lenders and FCRPC, the "Termination Date"), at which time the Revolving Loans
will mature, subject to FCRPC's right at such time to borrow Additional Term
Loans to repay the outstanding Revolving Loans, with such Additional Term Loans
being payable in 16 equal consecutive quarterly installments commencing on the
first Quarterly Date after such Additional Term Loans are made. The FCRPC Credit
Agreement had previously provided for $60.0 million in Initial Term Loans of
which, at January 31, 1998, $60.0 million aggregate principal amount of Term
Loans were outstanding under the FCRPC Credit Agreement. All of the Term Loans,
along with all amounts of Revolving Loans outstanding at the time of the
Offering will be repaid with the proceeds from the Offering, with the Term Loans
being retired. At January 31, 1998, the Company had letters of credit
outstanding under the prior FCRPC Credit Agreement in the amount of $16.2
million.
The Company has purchased interest rate caps for the debt under the FCRPC
Credit Agreement in the amount of $25.0 million for 1998 and $45.0 million for
1999.
Borrowings under the FCRPC Credit Agreement are unsecured borrowings of
FCRPC. The Company has unconditionally guaranteed the obligations of FCRPC under
the FCRPC Credit Agreement pursuant to the Guaranty.
The FCRPC Credit Agreement, as amended, will provide for a quarterly
reduction of $2.5 million in aggregate Revolving Loan Commitments commencing
April 1, 1998.
PREPAYMENTS
Loans outstanding under the FCRPC Credit Agreement may be prepaid in whole
or in part without penalty, subject to customary provisions for payment of
breakage and similar costs in the case of prepayment of Loans which bear
interest based on the LIBOR Rate Option. Revolving Loans which are prepaid may
be re-borrowed prior to the Termination Date.
INTEREST RATES
Term Loans under the FCRPC Credit Agreement bear interest at rates, at
FCRPC's election, of (i) LIBOR plus a spread ranging between 200 and 250 basis
points based upon the time after the Closing Date or (ii) Prime Rate plus a
spread ranging between 25 and 75 basis points based upon the time after the
Closing Date. Revolving Loans under the FCRPC Credit Agreement bear interest at
rates, at FCRPC's election, of (i) LIBOR plus a spread of 200 basis points or
(ii) Prime Rate plus a spread of 25 basis points.
FEES
The Commitment Fee is calculated at the rate of three-eighths of one
percent per annum ( 3/8%) on the average daily unborrowed amount of the
Revolving Loan Commitment, payable on April 1, 1998 and on each Quarterly Date
thereafter. In addition, FCRPC paid a Closing Fee of $787,000, and is obligated
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to pay an Administrative Agent Fee and Syndication Agent Fee in an agreed
customary amount on a quarterly basis. Upon execution of the amendment to the
FCRPC Credit Agreement contemplated by the Letter Agreement, FCRPC will pay to
the lenders a fee of $150,000.
COVENANTS
The FCRPC Credit Agreement contains customary affirmative and negative
covenants, including (i) restrictions on FCRPC or any of its Subsidiaries
leasing, selling or otherwise transferring all or a substantial part of its
assets, or subject to certain exceptions, being involved in any consolidation or
merger; (ii) restrictions prohibiting FCRPC or any of its Subsidiaries from
creating, assuming or suffering to exist any indebtedness for borrowed money or
any Funded Indebtedness of any kind, subject to exceptions for, among other
things, certain nonrecourse indebtedness, and certain permitted subordinated
indebtedness; (iii) restrictions on liens of FCRPC and its Subsidiaries; (iv)
restrictions on advances and loans by FCRPC and its Subsidiaries, subject to
certain exceptions for, among other things, advances or loans secured by
mortgages or made in the ordinary course in connection with the acquisition or
development of properties; and (v) restrictions on guarantees by FCRPC or any of
its Subsidiaries, subject to certain exceptions. The FCRPC Credit Agreement also
prohibits FCRPC from permitting the Debt Service Coverage Ratio for the four
consecutive quarters ending January 31, 1998, April 30, 1998, July 31, 1998 and
October 31, 1998 to be less than 1.15:1.00 and for January 31, 1999 and each
January 31, April 30, July 31 and October 31 thereafter to be less than
1.20:1.00.
The FCRPC Credit Agreement, as amended, will prohibit payment by FCRPC of
(a) any dividends (in cash or otherwise) or any other distributions in respect
of its capital stock, or any loans by FCRPC to the Company (any such dividends,
distributions or loans are referred to hereinafter as "Distributions"), in the
event of and during the continuance of any failure by FCRPC or the Company to
make payment of principal, interest or any other charge due, whether at maturity
or by acceleration, under the FCRPC Credit Agreement or the Guaranty (a "Payment
Default"), and (b) of any Distributions in excess of the sum of amounts
sufficient to pay, when due, all interest payments in respect on the Notes and
amounts sufficient to pay, when due, all taxes of the Company, in the event of
and during the continuance of any Event of Default under the FCRPC Credit
Agreement or the Guaranty other than a Payment Default, with the further
understanding that any such Distributions permitted by the foregoing shall be
applied by the Company strictly to the permitted uses specified above.
EVENTS OF DEFAULT
The FCRPC Credit Agreement contains customary Events of Default, including
a failure to pay principal or interest, a failure to comply with certain
covenants, a material inaccuracy of a representation or warranty, a default on
any other recourse indebtedness after any applicable cure period, a default
under any nonrecourse indebtedness which has a material adverse effect on FCRPC,
a Guaranty Default or "Change of Ownership Event," which would include a "Change
of Control" under the Notes.
GUARANTY OF FOREST CITY
Under the Guaranty of Payment of Debt, made and issued as of December 10,
1997 and as amended as of January 20, 1998 (the "Guaranty"), between the Company
and the syndicate of banks that are parties to the FCRPC Credit Agreement, the
Company has guaranteed on a recourse basis the punctual and full payment of all
obligations under the FCRPC Credit Agreement and the prompt observance and
performance of all covenants, undertakings, obligations and agreements set forth
in the FCRPC Credit Agreement and the notes issued in connection therewith. The
Guaranty contains a number of affirmative and negative covenants, including (i)
a covenant that the Company will not permit the Cash Flow Coverage Ratio (as
defined in the FCRPC Credit Agreement) for any fiscal year to be less than
1.75:1.00 and for any four consecutive quarters to be less than 1.50:1.00; (ii)
a covenant of the Company to not permit the Consolidated Shareholders' GAAP
Equity (as defined in the FCRPC Credit Agreement) to be less than (a) on each
Fiscal Quarterly Date (as defined in the FCRPC Credit Agreement) other than
January 31, 1998 the sum of (x) $250 million, (y) 100% of the cash proceeds from
any sale or issuance of equity, and (z) 25% of the Company's consolidated net
income for such
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period, and (b) on each January 31 Fiscal Quarterly Date thereafter, the sum of
(x) $250 million, (y) 100% of the cash proceeds from any sale or issuance of
equity, and (z) 50% of the Company's consolidated net income for such period;
(iii) a covenant of the Company not to permit its EBDT (as defined in the FCRPC
Credit Agreement) at any time to fall below (a) $95 million for the fiscal year
ending January 31, 1998, (b) $100 million for the fiscal year ending January 31,
1999, (c) $105 million for the fiscal year ending January 31, 2000, and (d) $110
million for the fiscal year ending January 31, 2001 and each January 31
thereafter; (iv) restrictive covenants including limitations on the amount of
indebtedness, guarantees and liens that the Company or any Subsidiary (other
than FCRPC and its Subsidiaries) may incur or have outstanding, and (v)
restrictions on dividends and stock repurchases, subject to certain exceptions,
under which the Company could pay dividends and repurchase stock of up to a
combined total of $10 million in any year as measured by each anniversary at
December 10. For the year ended December 10, 1997, the Company had paid
dividends of $5.4 million including the annual dividend for 1996 and three
quarterly dividends for 1997 and purchased treasury stock for $2.9 million.
Total dividends paid and treasury stock purchased for the year ended December
10, 1997 of $8.3 million was 17% less than that permitted under (v) above. The
Guaranty contains customary Events of Default, including the occurrence and
continuation of an Event of Default under the FCRPC Credit Agreement, the
failure to comply with certain covenants or a default on recourse indebtedness
after any applicable cure period or any nonrecourse indebtedness which has a
material adverse effect on the Company.
The Guaranty, as amended, will prohibit the Company from causing FCRPC to
pay, or from accepting, (i) any Distributions in the event of and during the
continuance of Payment Default under the FCRPC Credit Agreement or the Guaranty
and (ii) any Distributions in excess of the sum of amounts sufficient to pay,
when due, all interest payments in respect of the Notes and amounts sufficient
to pay, when due, all taxes of the Company, in the event of any Event of Default
under the FCRPC Credit Agreement or the Guaranty other than a Payment Default
under the FCRPC Credit Agreement or the Guaranty, with the further understanding
that any such Distributions permitted by the foregoing shall be applied by the
Company strictly to the permitted uses specified above. In addition, the
Guaranty, as amended, will prohibit the Company from making payments on account
of the Notes in the event of and during the continuance of any failure by FCRPC
or the Company to make payment of principal, interest or any other charge due,
whether at maturity or by acceleration, under the FCRPC Credit Agreement or the
Guaranty.
The Guaranty, as amended, will prohibit (i) the Company from causing FCRPC
to guaranty the Notes; (ii) any amendment or modification of the Notes, the
Indenture or any other document related thereto without the prior written
consent of the lenders, other than amendments or modifications that do not
adversely affect the FCRPC Credit Agreement and the Guaranty or their
relationship to the Notes, the Indenture or any other documents relating
thereto; and (iii) any optional redemption or defeasance of the Notes by the
Company without the prior written consent of the lenders under the FCRPC Credit
Agreement. A failure by the Company to comply with any of the covenants under
the Guaranty or failure by FCRPC to comply with any of the covenants under the
FCRPC Credit Agreement could result in an event of default, which could trigger
the Company's obligation to repay all amounts outstanding under the FCRPC Credit
Agreement. See "Risk Factors -- Credit Facility Covenants."
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<PAGE> 114
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND SENIOR MANAGERS:
The following table sets forth certain information with respect to the
Company's directors, executive officers, and senior managers.
DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR JOINED
NAME OCCUPATION AND POSITION SINCE COMPANY
---- ------------------------------------------- -------- -------
<S> <C> <C> <C>
Albert B. Ratner........... Co-Chairman of the Board of Directors 1960 1951
Samuel H. Miller........... Co-Chairman of the Board of Directors and 1960 1945
Treasurer of the Company
Charles A. Ratner.......... President and Chief Executive Officer of 1972 1966
the Company
James A. Ratner............ Executive Vice President of the Company and 1984 1975
President of Forest City Rental
Properties Corporation, a subsidiary of
the Company
Ronald A. Ratner........... Executive Vice President of the Company and 1985 1975
President of Forest City Residential
Group, Inc., a subsidiary of the Company
Brian J. Ratner............ Senior Vice President -- East Coast 1993 1987
Development of the Company
Deborah Ratner Salzberg.... Vice President of Forest City Residential, 1995 1985
Inc., a subsidiary of the Company
J Maurice Struchen......... Retired Chairman and Chief Executive 1971 --
Officer of Society Corporation, now Key
Corporation (banking)
Joan K. Shafran............ Managing Partner, The Berimore Company 1997 --
(investments)
Michael P. Esposito,
Jr. ..................... Retired Chief Administrative and Control 1995 --
Officer of The Chase Manhattan Bank,
N.A.; Chairman of the Board of Exel
Limited (Bermuda; insurance); Partner,
Inter-Atlantic Securities Corporation
(financial services)
Jerry V. Jarrett........... Retired Chairman and Chief Executive 1984 --
Officer of Ameritrust Corporation (banking)
Scott S. Cowen............. Dean and Professor, Weatherhead School of 1989 --
Management, Case Western Reserve
University
Nathan Shafran............. Honorary Vice Chairman of the Board 1960 1939
</TABLE>
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<PAGE> 115
OTHER EXECUTIVE OFFICERS AND SENIOR MANAGERS
<TABLE>
<CAPTION>
JOINED
NAME POSITION COMPANY
---- ------------------------------------------- -------
<S> <C> <C> <C>
Thomas G. Smith............ Senior Vice President, Chief Financial 1985
Officer and Secretary of the Company
William M. Warren.......... Senior Vice President, General Counsel and 1953
Assistant Secretary
Linda M. Kane.............. Vice President -- Corporate Controller 1990
Minta Monchein............. Vice President -- Human Resources 1979
Allan C. Krulak............ Vice President -- Director of Community 1973
Affairs
</TABLE>
FOREST CITY COMMERCIAL GROUP
<TABLE>
<CAPTION>
JOINED
NAME POSITION COMPANY
---- ------------------------------------------- -------
<S> <C> <C> <C>
James A. Ratner............ President and Chief Executive Officer, 1975
Commercial Group
David J. LaRue............. Executive Vice President and Chief 1986
Operating Officer, Commercial Group
Emerick Corsi.............. Senior Vice President -- Development, 1979
Commercial Group
Gayle Friedland............ President -- Boston Division, Commercial 1985
Group
William Hewitt............. Senior Vice President -- West Coast 1988
Leasing, Commercial Group
Brian Jones................ President -- West Coast Division, 1976
Commercial Group
Patrick Lott............... Senior Vice President -- Office Leasing, 1987
Commercial Group
D. Layton McCown........... Senior Vice President and Chief Financial 1986
Officer, Commercial Group
Glenn Moenich.............. President -- Forest City Commercial 1976
Construction
Brian J. Ratner............ Senior Vice President -- East Coast 1987
Development, Commercial Group
Michael Stevens............ Senior Vice President -- Retail Leasing, 1987
Commercial Group
Robert G. O'Brien.......... President -- Forest City Finance 1988
Corporation
Jack R. Kuhn............... President -- Office Building Division, 1985
Forest City Commercial Management, Inc.
Rod Marques................ Vice President -- Administration, Forest 1967
City Commercial Management, Inc.
Mark A. Randol............. President -- Shopping Center Division, 1979
Forest City Commercial Management, Inc.
Bruce Ratner............... President and Chief Executive Officer, 1983
Forest City Ratner Companies
David L. Berliner.......... Senior Vice President -- General Counsel, 1989
Forest City Ratner Companies
</TABLE>
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<PAGE> 116
<TABLE>
<CAPTION>
JOINED
NAME POSITION COMPANY
---- ------------------------------------------- -------
<S> <C> <C> <C>
Sandeep Mathrani........... Senior Vice President -- Retail 1994
Development, Forest City Ratner Companies
Joanne M. Minieri.......... Chief Financial Officer, Forest City Ratner 1995
Companies
Robert P. Sanna............ Senior Vice President -- Construction, 1989
Design and Development, Forest City Ratner
Companies
James P. Stuckey........... Senior Vice President -- Office 1994
Development, Forest City Ratner Companies
Terence M. Whalen.......... Chairman and Chief Executive Officer, First 1989
New York Management
Donna C. Singleton......... Senior Vice President -- Controller, First 1984
New York Management
</TABLE>
FOREST CITY RESIDENTIAL GROUP
<TABLE>
<CAPTION>
JOINED
NAME POSITION COMPANY
---- ------------------------------------------- -------
<S> <C> <C> <C>
Ronald A. Ratner........... President and Chief Executive Officer, 1975
Residential Group
James Brady................ Vice President -- Financial Operations, 1989
Residential Group
David J. Levey............. Vice President -- Development 1983
James J. Prohaska.......... Executive Vice President -- Operations, 1974
Residential Group
Deborah Ratner Salzberg.... Vice President -- Forest City Residential, 1985
Inc.
Greg Vilkin................ President -- Western Division, Residential 1990
Group
Edward Pelavin............. President, Forest City Capital Corporation 1973
George Cvijovic............ Co-President -- Chief Operations' Officer, 1977
Forest City Residential Management, Inc.
Angelo Pimpas.............. Co-President -- Chief Administrative 1981
Officer, Forest City Residential
Management, Inc.
</TABLE>
FOREST CITY LAND GROUP
<TABLE>
<CAPTION>
JOINED
NAME POSITION COMPANY
---- ------------------------------------------- -------
<S> <C> <C> <C>
Robert F. Monchein......... President, Land Group 1979
Mark Ternes................ Vice President, Land Group 1986
</TABLE>
FOREST CITY LUMBER TRADING GROUP
<TABLE>
<CAPTION>
JOINED
NAME POSITION COMPANY
---- ------------------------------------------- -------
<S> <C> <C> <C>
Milan Stoyanov............. President, Lumber Trading Group 1970
Lois Tonning............... Vice President, Lumber Trading Group 1970
</TABLE>
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<PAGE> 117
DESCRIPTION OF NOTES
The Notes are to be issued under an Indenture, to be dated as of March ,
1998 (the "Indenture"), between the Company and The Bank of New York, as trustee
(the "Trustee"). The statements under this caption relating to the Notes and the
Indenture are summaries and do not purport to be complete, and are subject to,
and are qualified in their entirety by reference to, all the provisions of the
Indenture, including the definitions of certain terms therein and those terms
made a part thereof by the Trust Indenture Act of 1939, as amended. Unless
otherwise indicated, references under this caption to sections, "sec." or
articles are references to the Indenture. Where reference is made to particular
provisions of the Indenture or to defined terms not otherwise defined herein,
such provisions or defined terms are incorporated herein by reference. A copy of
the Indenture substantially in the form in which it is to be executed has been
filed with the Commission as an exhibit to the Registration Statement of which
this Prospectus is a part. All references in this section to the "Company" refer
solely to Forest City Enterprises, Inc., an Ohio corporation, and not to its
subsidiaries. The following description of the terms of the Notes offered hereby
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Debt Securities set forth in the
accompanying Prospectus.
GENERAL
The Notes will be senior unsecured obligations of the Company, will be
limited to $200 million aggregate principal amount and will mature on March ,
2008. The Notes will bear interest at the rate per annum shown on the front
cover of this Prospectus from March , 1998 or from the most recent Interest
Payment Date to which interest has been paid or provided for, payable
semi-annually on March and September of each year, commencing September ,
1998, to the Person in whose name the Note (or any predecessor Note) is
registered at the close of business on the preceding or , as
the case may be. The Notes will bear interest on overdue principal (and premium,
if any,) and overdue interest at the rate per annum shown on the front cover of
this Prospectus plus 2%. Interest on the Notes will be computed on the basis of
a 360-day year of twelve 30-day months. (secs. 301, 307 and 310)
Principal of (and premium, if any,) and interest on the Notes will be
payable, and the Notes may be presented for registration of transfer and
exchange, at the office or agency of the Company maintained for that purpose in
the Borough of Manhattan, the City of New York, provided that at the option of
the Company, payment of interest on the Notes may be made by check mailed to the
address of the Person entitled thereto as it appears in the Note Register. Until
otherwise designated by the Company, such office or agency will be the corporate
trust office of the Trustee, as Paying Agent and Registrar. (secs. 301, 305
and 1002)
The Company is a holding company that operates primarily through its
subsidiaries. Although the Notes are senior obligations of the Company, they are
effectively subordinated to all existing and future indebtedness and other
liabilities (including trade payables and capital lease obligations) of the
Company's subsidiaries, including the borrowings under the FCRPC Credit
Agreement. Moreover, because the Notes are not obligations of Forest City Rental
Properties Corporation, the obligor under the FCRPC Credit Agreement, the Notes
do not rank pari passu in right of payment with the Debt under the FCRPC Credit
Agreement. At December 31, 1997, the Company's Subsidiaries had an aggregate of
$2.7 billion of indebtedness and other liabilities. See "Risk
Factors -- Substantial Operations at Subsidiary Level; Structural
Subordination."
The Notes will rank pari passu in right of payment with all other existing
and future senior unsecured indebtedness of the Company, including the Company's
Guaranty of the borrowings under the FCRPC Credit Agreement. The FCRPC Credit
Agreement will prohibit the payment of principal and interest on the Notes
during the existence of a payment default under the FCRPC Credit Agreement or
the Guaranty. See "Risk Factors -- Credit Facility Covenants." The Notes will be
effectively subordi-
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<PAGE> 118
nated to all existing and future senior secured indebtedness of the Company, to
the extent of the value securing such indebtedness.
BOOK-ENTRY, DELIVERY AND FORM
The Notes will be issued in the form of a fully registered global note or
notes (the "Global Notes"). The Global Notes will be deposited with, or on
behalf of, The Depository Trust Company, New York, New York (the "Depositary")
and registered in the name of the Depositary or its nominee, in each case for
credit to an account of a direct or an indirect participant as described below.
Except as set forth in the last paragraph below, the Global Notes may be
transferred, in whole and not in part, only to the Depositary or its nominee or
to a successor of the Depositary or its nominee.
The Depositary has advised the Company as follows: it is a limited purpose
trust company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. The Depositary was created to
hold securities for its participants and facilitate the clearance and settlement
of securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers (including the Underwriters), banks, trust companies and clearing
corporations and certain other organizations. Indirect access to the
Depositary's system is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. Persons who are not participants may
beneficially own securities held by the Depositary only through participants or
indirect participants.
The Depositary has also advised that pursuant to procedures established by
it (i) upon the issuance by the Company of the Global Notes, the Depositary will
credit the accounts of participants designated by the Underwriters with the
principal amount of the Global Notes purchased by the Underwriters, and (ii)
ownership of beneficial interests in the Global Notes will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the Depositary (with respect to participants' interests), the participants and
the indirect participants. The laws of some states require that certain persons
take physical delivery in definitive form of securities which they own. Such
limits and such laws may impair the ability of such persons to own, transfer or
pledge beneficial interests in a Global Note.
So long as the Depositary, or its nominee, is the registered owner of the
Global Notes, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by such Global
Notes for all purposes under the Indenture. Except as provided in the last
paragraph below, owners of beneficial interests represented by the Global Notes
will not be entitled to have Notes registered in their names, will not receive
or be entitled to receive physical delivery of the Notes in definitive form and
will not be considered the owners or holders thereof under the Indenture.
Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Notes, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Principal and interest payments on the Global Notes registered in the name
of the Depositary or its nominee, as the case may be, will be made by the
Company, either directly or through a paying agent, to the Depositary or its
nominee, as the case may be, as the registered owner of the Global Notes. The
Depositary has advised the Company and the Trustee that its present practice is,
upon receipt of any payment of principal or interest, to credit immediately the
accounts of the relevant participants with payment in amounts proportionate to
their respective holdings in principal amount of beneficial interests in the
Global Notes as shown on the records of the Depositary. Payments by participants
and indirect participants to owners of beneficial interests in the Global Notes
will be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers in
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<PAGE> 119
bearer form or registered in "street name" and will be the responsibility of
such participants or indirect participants.
As long as the Notes are represented by the Global Notes, the Depositary or
its nominee, as the case may be, will be the holder of the Notes and therefore
will be the only entity that can exercise a right to cause the repurchase of the
Notes. See "Repurchase at the Option of Holders -- Asset Dispositions" and
" -- Change of Control." Notice by participants or indirect participants or by
owners of beneficial interests in Global Notes held through such participants or
indirect participants of the exercise of the option to elect repayment of
beneficial interests in the Notes represented by the Global Notes must be
transmitted to the Depositary in accordance with its procedures on a form
required by the Depositary and provided to participants. In order to ensure that
the Depositary's or its nominee, as the case may be, will timely exercise a
right to repayment with respect to a particular Note, the beneficial owner of
such Note must instruct the broker or other participant or indirect participant
through which it holds an interest in such Note to notify the Depositary of its
desire to exercise a right to repayment. Different firms have cut-off times for
accepting instructions from their customers and, accordingly, each beneficial
owner should consult the broker or other participant or indirect participant
through which it holds an interest in a Note in order to ascertain the cut-off
time by which such an instruction must be given in order for timely notice to be
delivered to the Depositary. The Company will not be liable for any delay in
delivery of notices of the exercise of the option to elect repayment.
The Company will issue Notes in definitive form in exchange for the Global
Notes if, (1) the Depositary is at any time unwilling or unable to continue as
depositary or has ceased to be a clearing agency registered under the Exchange
Act and, in each such case, a successor depositary is not appointed by the
Company within 90 days, or (2) an Event of Default or an event that with notice
or lapse of time (or both) would constitute an Event of Default shall have
occurred or be continuing or (3) the Company by Company Order so requests. In
each such instance, an owner of a beneficial interest in the Global Notes will
be entitled to have Notes equal in principal amount to such beneficial interest
registered in its name and will be entitled to physical delivery of such Notes
in definitive form. Such definitive Notes will be registered in such names as
the Depositary shall instruct the Trustee. Notes so issued in definitive form
will be issued in denominations of $1,000 and integral multiples thereof and
will be issued in registered form only, without coupons.
OPTIONAL REDEMPTION
The Notes will be subject to redemption, at the option of the Company, in
whole or in part, at any time on or after March , 2003 and prior to maturity,
upon not less than 30 nor more than 60 days' notice mailed to each Holder of
Notes to be redeemed at such Holder's address appearing in the Note Register, in
amounts of $1,000 or an integral multiple of $1,000, at the following Redemption
Prices (expressed as percentages of the principal amount) plus accrued and
unpaid interest, if any, to but excluding the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date), if redeemed during the 12-month period beginning March of each of the
years indicated:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003........................................................ %
2004........................................................ %
2005........................................................ %
2006 and thereafter......................................... 100%
</TABLE>
The Notes will also be subject to redemption, at the option of the Company,
prior to March , 2001 in the event that on or before March , 2001 the
Company receives net proceeds from the sale of its Common Stock in one or more
Public Equity Offerings, in which case the Company may, at its option, use all
or a portion of any such net proceeds to redeem up to an aggregate amount equal
to 33% of the original principal amount of the Notes; provided, however, that
Notes in an aggregate principal amount
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equal to at least $130 million remain Outstanding after each such redemption.
Any such redemption must occur on a Redemption Date within 75 days of any such
sale and upon not less than 30 nor more than 60 days' notice mailed to each
Holder of Notes to be redeemed at such Holder's address appearing in the Note
Register, in amounts of $1,000 or an integral multiple of $1,000, at a
redemption price of % of the principal amount of the Notes plus accrued and
unpaid interest, if any, to but excluding the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date). (sec. 1101)
If less than all the Notes are to be redeemed, the Trustee shall select not
more than 60 days prior to the Redemption Date, in such manner as it shall deem
fair and appropriate, the particular Notes to be redeemed or any portion thereof
that is an integral multiple of $1,000. (sec. 1104)
The Notes will not have the benefit of any sinking fund.
MANDATORY REDEMPTION
Except as described below under "Repurchase at the Option of
Holders -- Asset Dispositions" and "-- Change of Control," the Notes will not
have the benefit of any mandatory redemption obligation of the Company.
REPURCHASE AT THE OPTION OF HOLDERS
Asset Dispositions
The Company may not, and may not permit any Subsidiary to, make any Asset
Disposition in one or more related transactions unless: (i) the Company or the
Subsidiary, as the case may be, receives consideration for such disposition at
least equal to the fair market value for the assets sold or disposed of as
determined by the Board of Directors of the Company in good faith and evidenced
by a resolution of the Board of Directors filed with the Trustee; and (ii) all
Net Available Proceeds, less any amounts invested within 365 days of such
disposition in assets of the Company or any Subsidiary thereof used in a
Permitted Business (including Capital Stock of an entity which is engaged in a
Permitted Business), are applied within 365 days of such disposition to the
permanent repayment or reduction of outstanding Debt that is pari passu with the
Notes, or any outstanding Debt of any Subsidiary of the Company, the terms of
which would require such application or prohibit payments pursuant to the
following paragraph. The amount of Net Available Proceeds from any Asset
Disposition less any amounts used in a Permitted Business or applied to reduce
Debt during the 365 day period set forth in the preceding sentence constitutes
"Excess Proceeds." Excess Proceeds will be segregated not later than 365 days
after such disposition from the other assets of the Company and its subsidiaries
and invested in cash or Cash Equivalents until such time as such Excess Proceeds
are applied as specified in the following paragraph. Any Asset Disposition
resulting from a condemnation of a property by a court or governmental agency
having jurisdiction over such property shall not be required to comply with
clause (i) of the first sentence of this paragraph but shall otherwise be
subject to all requirements of this covenant.
When the aggregate amount of Excess Proceeds exceeds $10,000,000, the
Company will, within 30 days thereof, apply such aggregate Excess Proceeds (1)
first, to make an Offer to Purchase outstanding Notes at 100% of their principal
amount plus accrued interest to the date of purchase and, to the extent required
by the terms thereof, any other Debt of the Company that is pari passu with the
Notes at a price no greater than 100% of the principal amount thereof plus
accrued interest to the date of purchase, (2) second, to the extent of any
remaining Excess Proceeds following the completion of the Offer to Purchase, to
the repayment of other Debt of the Company that is pari passu with the Notes, or
any Debt of any Subsidiary of the Company, to the extent permitted under the
terms thereof and (3) third, to the extent of any remaining Net Available
Proceeds, to any other use as determined by the Company which is not otherwise
prohibited by the terms of the Notes. Upon the completion of an Offer to
Purchase pursuant to this paragraph, the amount of Excess Proceeds shall be
reset to zero. (sec. 1018)
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Change of Control
Within 30 days of the occurrence of a Change of Control, the Company will
be required to make an Offer to Purchase all Outstanding Notes at a purchase
price equal to 101% of their principal amount plus accrued interest to the date
of purchase.
A "Change of Control" will be deemed to have occurred at such time as
either (a) any Person (other than a Permitted Holder) or any Persons acting
together that would constitute a "group" (a "Group") for purposes of Section
13(d) of the Exchange Act, or any successor provision thereto (other than
Permitted Holders), together with any Affiliates or Related Persons thereof,
shall beneficially own (within the meaning of Rule 13d-3 under the Exchange Act,
or any successor provision thereto) at least 30% of the aggregate voting power
of all classes of Voting Stock of the Company; or (b) any Person or Group (other
than Permitted Holders), together with any Affiliates or Related Persons
thereof, shall succeed in having a sufficient number of its nominees elected to
the Board of Directors of the Company such that such nominees, when added to any
existing director remaining on the Board of Directors of the Company after such
election who was a nominee of or is an Affiliate or Related Person of such
Person or Group, will constitute a majority of the Board of Directors of the
Company. (sec. 1019)
In the event that the Company makes an Offer to Purchase the Notes, the
Company intends to comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act.
In order for the Company to repurchase the Notes upon a Change of Control,
it may be necessary for the Company to recapitalize and/or refinance some or all
of its outstanding indebtedness or to seek the consent of its lenders. There can
be no assurance that such recapitalization, refinancing or consent, if required,
would be accomplished or obtained on favorable terms, in a timely manner or at
all. The failure of the Company to make an Offer to Purchase or to purchase the
Notes pursuant to an Offer to Purchase will constitute an Event of Default under
the Indenture. See "-- Events of Default."
COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Debt
The Company may not Incur any Debt, and may not permit any Subsidiary of
the Company to Incur any Debt unless, immediately after giving effect to the
Incurrence of such Debt and the receipt and application of the proceeds thereof,
(i) the Consolidated EBITDA to Interest Ratio of the Company for the last four
full fiscal quarters for which quarterly or annual financial statements are
available would be greater than 1.3 to 1 and (ii) the Consolidated Adjusted Net
Worth of the Company would be greater than the Minimum Adjusted Net Worth of the
Company.
Notwithstanding the foregoing limitation, the Company or any Subsidiary of
the Company may Incur the following Debt:
(i) Debt Incurred by the Company under its Guarantee of the FCRPC
Credit Agreement or by any Subsidiary of the Company under the FCRPC Credit
Agreement in an aggregate principal amount at any one time not to exceed
$225 million, and any renewal, extension, refinancing or refunding thereof
(including, without limitation, the replacement of the banks under the
FCRPC Credit Agreement with a new group of banks) in an amount which,
together with any amount remaining outstanding or available under the FCRPC
Credit Agreement, does not exceed $225 million; provided that such
refinancing or refunding Debt does not have a Weighted Average Life that is
less than the Weighted Average Life of the Debt being refinanced or
refunded;
(ii) Performance guarantees and performance bonds, surety bonds and
appeal bonds in each case incurred in the ordinary course of business and
consistent with past practices;
(iii) Debt evidenced by the Notes;
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(iv) Debt (other than Debt described in another clause of this
paragraph) outstanding on the date of original issuance of the Notes after
giving effect to the application of the proceeds of the Notes;
(v) Debt owed by the Company to any Wholly Owned Subsidiary of the
Company for which fair value has been received or Debt owed by a Subsidiary
of the Company to the Company or a Wholly Owned Subsidiary of the Company;
provided, however, that (a) any such Debt owing by the Company to a Wholly
Owned Subsidiary shall be Subordinated Debt evidenced by an intercompany
promissory note and (b) upon either (1) the transfer or other disposition
by such Wholly Owned Subsidiary or the Company of any Debt so permitted to
a Person other than the Company or another Wholly Owned Subsidiary of the
Company or (2) the issuance (other than directors' qualifying shares),
sale, lease, transfer or other disposition of shares of Capital Stock
(including by consolidation or merger) of such Wholly Owned Subsidiary to a
Person other than the Company or another such Wholly Owned Subsidiary, the
provisions of this clause (v) shall no longer be applicable to such Debt
and such Debt shall be deemed to have been Incurred at the time of such
transfer or other disposition;
(vi) Debt Incurred by a Person prior to the time (A) such Person
became a Subsidiary of the Company, (B) such Person merged into or
consolidated with a Subsidiary of the Company or (C) another Subsidiary of
the Company merged into or consolidated with such Person (in a transaction
in which such Person became a Subsidiary of the Company) which Debt was not
Incurred in anticipation of such transaction and was outstanding prior to
such transaction, provided that after giving pro forma effect to such
transaction and treating any Debt as having been Incurred at the time of
such transaction, the Company could Incur at least $1.00 of additional Debt
pursuant to the preceding paragraph;
(vii) Development Debt Incurred by the Company or any Subsidiary of
the Company; provided that the Incurrence of all such Development Debt
would have been permitted under the limitations set forth in the first
paragraph of this covenant on the date that the first $1.00 of such Debt
was Incurred (the "Development Start Date") determined as if all such
Development Debt had been incurred on the Development Start Date; provided,
further that, if all such Development Debt could be Incurred by the Company
or any Subsidiary of the Company on the Development Start Date in
accordance with the immediately preceding proviso, then individual
borrowings or draw downs in an aggregate amount of such Development Debt
shall not be subject to the requirements of the first paragraph of this
covenant;
(viii) Debt Incurred by the Company or any of its Subsidiaries
consisting of Permitted Interest Rate, Currency or Commodity Price
Agreements;
(ix) Debt which is exchanged for or the proceeds of which are used to
refinance or refund, or any extension or renewal of, outstanding Debt
Incurred pursuant to the preceding paragraph or clauses (iii), (iv), (vi)
or (vii) of this paragraph (each of the foregoing, a "refinancing") in an
aggregate principal amount not to exceed the principal amount of the Debt
so refinanced plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Debt so
refinanced or the amount of any premium reasonably determined by the
Company or the relevant Subsidiary as necessary to accomplish such
refinancing by means of a tender offer or privately negotiated repurchase,
plus the expenses of the Company or the Subsidiary, as the case may be,
incurred in connection with such refinancing; provided, however, that (A)
in the case of any refinancing of Debt which is subordinated in right of
payment to the Notes, the refinancing Debt is Incurred by the Company and
constitutes Subordinated Debt; (B) the refinancing Debt by its terms, or by
the terms of any agreement or instrument pursuant to which such Debt is
issued, (1) does not have a Weighted Average Life less than the Weighted
Average Life of the Debt being refinanced and does not have a maturity
earlier than the final stated maturity of the Debt being refinanced and (2)
does not permit redemption or other retirement (including pursuant to an
offer to purchase) of such debt at the option of the holder thereof prior
to the final stated maturity of
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the Debt being refinanced, other than a redemption or other retirement at
the option of the holder of such Debt (including pursuant to an offer to
purchase) which is conditioned upon provisions substantially similar to
those described under "Repurchase at the Option of Holders -- Asset
Dispositions" and "-- Change of Control"; and (C) in the case of any
refinancing of Debt Incurred by the Company, the refinancing Debt may be
Incurred only by the Company, and in the case of any refinancing of Debt
Incurred by a Subsidiary, the refinancing Debt may be Incurred only by such
Subsidiary; provided, further, that Debt Incurred pursuant to this clause
(ix) may not be Incurred more than 45 days prior to the application of the
proceeds to repay the Debt to be refinanced; and
(x) Debt Incurred by the Company or any Subsidiary of the Company not
otherwise permitted to be Incurred pursuant to clauses (i) through (ix)
above, which, together with any other outstanding Debt Incurred pursuant to
this clause (x), has an aggregate principal amount not in excess of $50
million at any time outstanding. (sec. 1008)
Limitation on Preferred Stock of Subsidiaries
The Company may not cause, and may not permit, any Subsidiary of the
Company to issue any Preferred Stock except:
(i) Preferred Stock held by a Wholly-Owned Subsidiary or held by the
Company;
(ii) Preferred Stock of an entity when it is acquired which is
outstanding at the time of such acquisition and not incurred in
anticipation of such acquisition; provided, that the Company could Incur
Debt in an amount equal to the liquidation value of such Preferred Stock
pursuant to the first paragraph of "-- Limitation on Debt"; and
(iii) Preferred Stock issued by a Subsidiary of the Company (other
than Forest City Rental Properties Corporation), provided that (a) the
liquidation value of such Preferred Stock is treated as Debt Incurred at
the time such Preferred Stock is issued for all purposes under the
Indenture, (b) all dividends on such Preferred Stock, whether or not
declared or paid, are treated as Consolidated Interest Expense and (c) at
the time of the issuance of such Preferred Stock and after giving effect to
the issuance of such Preferred Stock as Debt Incurred at the time of the
issuance thereof, the Company could Incur at least $1.00 of additional Debt
pursuant to the first paragraph of "--Limitation on Debt." (sec. 1009)
Limitation on Restricted Payments
The Company (i) may not, and may not permit any Subsidiary of the Company
to, directly or indirectly, declare or pay any dividend or make any distribution
(including any payment in connection with any merger or consolidation derived
from assets of the Company or any Subsidiary) in respect of its Capital Stock or
to the holders thereof, excluding (a) any dividends or distributions by the
Company payable solely in shares of its Capital Stock (other than Redeemable
Stock) or in options, warrants or other rights to acquire its Capital Stock
(other than Redeemable Stock), (b) in the case of a Subsidiary of the Company,
dividends or distributions payable to the Company or a Wholly Owned Subsidiary
of the Company, pro rata dividends or distributions payable solely in shares of
its Capital Stock (other than Redeemable Stock) or in options, warrants or other
rights to acquire its Capital Stock (other than Redeemable Stock) and (c) in the
case of a Subsidiary of the Company, dividends or distributions payable pursuant
to the terms of its organizational documents, (ii) may not, and may not permit
any Subsidiary to, purchase, redeem, or otherwise acquire or retire for value
(a) any Capital Stock of the Company or (b) any options, warrants or other
rights to acquire shares of Capital Stock of the Company or any securities
convertible or exchangeable into shares of Capital Stock of the Company and
(iii) may not, and may not permit any Subsidiary of the Company to, redeem,
repurchase, defease or otherwise acquire or retire for value prior to any
scheduled maturity, repayment or sinking fund payment Debt of the Company which
is subordinate in right of payment to the Notes (each of clauses (i) through
(iii) being a "Restricted Payment") if: (1) an Event of Default, or an event
that with the passing of time or
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the giving of notice, or both, would constitute an Event of Default, shall have
occurred and is continuing or would result from such Restricted Payment, or (2)
after giving pro forma effect to such Restricted Payment as if such Restricted
Payment had been made at the beginning of the applicable four-fiscal-quarter
period, the Company could not Incur at least $1.00 of additional Debt pursuant
to the first paragraph of "--Limitation on Debt" above, or (3) upon giving
effect to such Restricted Payment, the aggregate of all Restricted Payments from
October 31, 1997 exceeds the sum of: (a) 25% of the sum of (i) cumulative
Consolidated Net Income (or, in the case Consolidated Net Income shall be
negative, less 100% of such deficit) of the Company since October 31, 1997
through the last day of the last full fiscal quarter ending immediately
preceding the date of such Restricted Payment from the date of the Indenture
(taken as a single accounting period) plus (ii) the amount of consolidated
depreciation and amortization and deferred taxes included in such Consolidated
Net Income less (iii) the amount of ordinary and necessary expenditures for the
purpose of maintaining the real and personal property of the Company and its
Subsidiaries in a state of good repair that was included in such Consolidated
Net Income or that was capitalized and included on the consolidated balance
sheet of the Company and its Subsidiaries since October 31, 1997; plus (b) 100%
of the aggregate net proceeds received by the Company after the date of original
issuance of the Notes, including the fair market value of property other than
cash (determined in good faith by the Board of Directors of the Company as
evidenced by a resolution of the Board of Directors filed with the Trustee),
from contributions of capital or the issuance and sale (other than to a
Subsidiary) of Capital Stock (other than Redeemable Stock) of the Company,
options, warrants or other rights to acquire Capital Stock (other than
Redeemable Stock) of the Company and the principal amount (or, in the case of
Debt issued at a discount, the accreted value of such Debt) of Debt of the
Company that has been converted into or exchanged for Capital Stock (other than
Redeemable Stock and other than by or from a Subsidiary) of the Company after
the date of original issuance of the Notes, provided that any such net proceeds
received by the Company from an employee stock ownership plan financed by loans
from the Company or a Subsidiary of the Company shall be included only to the
extent such loans have been repaid with cash on or prior to the date of
determination; plus (c) $10 million. Prior to the making of any Restricted
Payment, the Company shall deliver to the Trustee an Officers' Certificate
setting forth the computations by which the determinations required by clauses
(2) and (3) above were made and stating that no Event of Default, or event that
with the passing of time or the giving of notice, or both, would constitute an
Event of Default, has occurred and is continuing or will result from such
Restricted Payment.
Notwithstanding the foregoing, so long as no Event of Default, or event
that with the passing of time or the giving of notice, or both, would constitute
an Event of Default, shall have occurred and is continuing or would result
therefrom, (i) the Company and any Subsidiary of the Company may pay any
dividend on Capital Stock of any class within 60 days after the declaration
thereof if, on the date when the dividend was declared, the Company or such
Subsidiary could have paid such dividend in accordance with the foregoing
provisions; (ii) the Company may refinance any Debt otherwise permitted by
clause (ix) of the second paragraph under "Limitation on Debt" above or solely
in exchange for or out of the net proceeds of the substantially concurrent sale
(other than from or to a Subsidiary or from or to an employee stock ownership
plan financed by loans from the Company or a Subsidiary of the Company) of
shares of Capital Stock (other than Redeemable Stock) of the Company, provided
that the amount of net proceeds from such exchange or sale shall be excluded
from the calculation of the amount available for Restricted Payments pursuant to
the preceding paragraph; (iii) the Company may purchase, redeem, acquire or
retire any shares of Capital Stock of the Company solely in exchange for or out
of the net proceeds of the substantially concurrent sale (other than from or to
a Subsidiary or from or to an employee stock ownership plan financed by loans
from the Company or a Subsidiary of the Company) of shares of Capital Stock
(other than Redeemable Stock) of the Company; (iv) the Company may purchase or
redeem any Debt from Net Available Proceeds to the extent permitted under
"Repurchase at the Option of Holders -- Asset Dispositions"; and (v) the Company
may make payments with respect to the extinguishment of fractional or odd-lot
shares of its Capital Stock in an aggregate amount not in excess of $250,000.
(sec. 1010)
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Limitations Concerning Distributions by and Transfers to Subsidiaries
The Company may not, and may not permit any Subsidiary of the Company to,
directly or indirectly, suffer to exist or become effective any consensual
encumbrance or restriction on the ability of any Subsidiary of the Company (i)
to pay dividends (in cash or otherwise) or make any other distributions in
respect of its Capital Stock or pay any Debt or other obligation owed to the
Company or any other Subsidiary of the Company; (ii) to make loans or advances
to the Company or any other Subsidiary; or (iii) to transfer any of its property
or assets to the Company or any other Subsidiary. Notwithstanding the foregoing,
the Company may, and may permit any Subsidiary of the Company to, suffer to
exist any such encumbrance or restriction (a) pursuant to any agreement in
effect on the date of original issuance of the Notes (including the FCRPC Credit
Agreement); (b) pursuant to any future senior credit facility between Forest
City Rental Properties Corporation and any financial institution or institutions
or a senior credit facility between Forest City Trading Group, Inc. and a
financial institution or institutions, provided that notwithstanding any such
encumbrance or restriction contained therein, Forest City Rental Properties
Corporation (in the case of a Forest City Rental Properties Corporation senior
credit facility) and Forest City Trading Group, Inc. (in the case of a Forest
City Trading Group, Inc. senior credit facility) shall be permitted to
distribute to the Company, in the form of dividends, loans or advances, or any
combination thereof, (i) amounts sufficient to pay, when due, all interest
payments in respect of Debt of the Company, including the Notes, (ii) amounts
sufficient to pay, when due, all taxes of the Company, and (iii) except in the
case of any default by Forest City Rental Properties Corporation under any such
future credit facility, not less than $3.0 million per fiscal year to pay
administrative and other expenses of the Company, provided that any such future
credit facility may contain encumbrances or restrictions that restrict the
applicable Subsidiary's ability to make such distributions to the Company in the
event that Forest City Rental Properties Corporation fails to make any payment
of principal, interest or other amounts when due in accordance with the terms of
such future credit facility (after giving effect to any applicable grace
periods), (c) pursuant to an agreement relating to any Debt Incurred by a Person
prior to the date on which such Person became a Subsidiary of the Company and
outstanding on such date and not Incurred in anticipation of becoming a
Subsidiary, which encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person so acquired; (d)
pursuant to an agreement entered into by a Subsidiary of the Company in
connection with the acquisition, development, construction or improvement of
real property so long as such agreement is required by a third party prior to
making capital contributions, or extending credit, to the Subsidiary; or (e)
pursuant to an agreement effecting a renewal, refunding or extension of Debt
Incurred pursuant to an agreement referred to in clause (a), (b), (c) or (d)
(including, solely for purposes of this clause (e), renewals, refinancings and
extensions of Debt Incurred pursuant to an agreement referred to in clause (d)
that are in excess of the original amount of such Debt) above, provided,
however, that the provisions contained in such renewal, refunding or extension
agreement relating to such encumbrance or restriction are no more restrictive in
any material respect than the provisions contained in the agreement the subject
thereof, in the reasonable judgment of the Chief Executive Officer of the
Company and evidenced by a certificate therefrom filed with the Trustee. (sec.
1011)
Limitation on Sale and Leaseback Transactions
The Company may not, and may not permit any Subsidiary to, enter into any
Sale and Leaseback Transaction unless all of the conditions of the Indenture
described under "Repurchase at the Option of Holders -- Asset Dispositions"
(including the provisions concerning the application of Net Available Proceeds)
are satisfied with respect to such Sale and Leaseback Transaction, treating all
of the consideration received in such Sale and Leaseback Transaction as Net
Available Proceeds for purposes of such covenant. (sec. 1012)
Limitation on Layered Debt of Subsidiaries
The Company may not permit any Subsidiary to Incur any Debt that is by its
terms subordinate in right of payment to the FCRPC Credit Agreement. (sec. 1013)
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Limitation on Liens
The Company may not, and may not permit any Subsidiary of the Company to,
Incur or suffer to exist any Lien to secure Debt on or with respect to any
property or assets now owned or hereafter acquired (i) if such Lien secures Debt
which is pari passu with the Notes, unless the Notes are secured on an equal and
ratable basis with the obligations so secured until such time as such obligation
is no longer secured by a Lien or (ii) if such Lien secures Debt which is
subordinated to the Notes, unless any such Lien shall be subordinated to the
Lien granted to the Holders of the Notes to the same extent as such subordinated
Debt is subordinated in right of payment to the Notes. (sec. 1014) The foregoing
restriction will not apply to Liens on property or other assets of the Company
as described in the definition of Purchase Money Debt to secure Purchase Money
Debt otherwise permitted under the Indenture or Liens to secure Debt Incurred to
extend, renew, refinance or refund (or successive extensions, renewals,
refinancings or refundings), in whole or in part, Purchase Money Debt secured by
a Lien so long as such Lien does not extend to any other property and the
principal amount (or, in the case of Debt issued at a discount, the accreted
value thereof) of Debt so secured is not increased. (sec. 1014)
Limitation on Issuances and Sales of Capital Stock of Subsidiaries
Subject to the "Mergers, Consolidations and Sales of Assets" covenant (if
applicable), the Company (i) may not, and may not permit any Subsidiary of the
Company to, transfer, convey, sell or otherwise dispose of any Capital Stock of
such or any other Subsidiary of the Company to any Person (other than the
Company or a Wholly Owned Subsidiary thereof) and (ii) may not permit any
Subsidiary of the Company to issue shares of its Capital Stock (other than
directors' qualifying shares and other than to the Company or a Wholly Owned
Subsidiary thereof) except, in either case, if (a) in the case of any Subsidiary
of the Company other than Forest City Rental Properties Corporation, the Net
Available Proceeds from such sale, assignment, transfer, issuance or conveyance
are applied in accordance with the provisions of the Indenture described under
"Repurchase at the Option of Holders -- Asset Dispositions" (including the
provisions relating to the application of Net Available Proceeds) or (b) the
issuance of Preferred Stock which is permitted by the provisions described under
"-- Limitation on Preferred Stock of Subsidiaries." (sec. 1015)
Transactions with Affiliates and Related Persons
The Company may not, and may not permit any Subsidiary of the Company to,
enter into any transaction (or series of related transactions) with an Affiliate
or Related Person of the Company (other than the Company or a Wholly Owned
Subsidiary of the Company), including any Investment, either directly or
indirectly, unless such transaction is on terms no less favorable to the Company
or such Subsidiary than those that could be obtained in a comparable
arm's-length transaction with an entity that is not an Affiliate or Related
Person and is in the best interests of such Company or such Subsidiary. For any
transaction that involves in excess of $1 million but less than or equal to $5
million, the Chief Executive Officer of the Company shall determine that the
transaction satisfies the above criteria and shall evidence such a determination
by a certificate filed with the Trustee. For any transaction that involves in
excess of $5 million, a majority of the disinterested members of the Board of
Directors shall determine that the transaction satisfies the above criteria and
shall evidence such a determination by a Board Resolution filed with the
Trustee. For any transaction that involves in excess of $20 million, the Company
shall also obtain an opinion from a nationally recognized expert with experience
in appraising the terms and conditions of the type of transaction (or series of
related transactions) for which the opinion is required stating that such
transaction (or series of related transactions) is on terms no less favorable to
the Company or such Subsidiary than those that could be obtained in a comparable
arm's-length transaction with an entity that is not an Affiliate or Related
Person of the Company, which opinion shall be filed with the Trustee. (sec.
1016)
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Provision of Financial Information
Whether or not the Company is required to be subject to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, or any successor provision
thereto, the Company shall file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to such Section 13(a) or 15(d) or any
successor provision thereto if the Company were so required, such documents to
be filed with the Commission on or prior to the respective dates (the "Required
Filing Dates") by which the Company would have been required so to file such
documents if the Company were so required. The Company shall also in any event
(a) within 15 days of each Required Filing Date (i) transmit by mail to all
Holders, as their names and addresses appear in the Security Register, without
cost to such Holders, and (ii) file with the Trustee, copies of the annual
reports, quarterly reports and other documents which the Company files with the
Commission pursuant to such Section 13(a) or 15(d) or any successor provision
thereto or would have been required to file with the Commission pursuant to such
Section 13(a) or 15(d) or any successor provisions thereto if the Company were
required to be subject to such Sections and (b) if filing such documents by the
Company with the Commission is not permitted under the Securities Exchange Act
of 1934, promptly upon written request supply copies of such documents to any
prospective Holder. (sec. 1017)
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
The Company may not, in a single transaction or a series of related
transactions, (i) consolidate with or merge into or reorganize with or into any
other Person or permit any other Person to consolidate with or merge into or
reorganize with or into the Company, or (ii) directly or indirectly, transfer,
convey, sell, lease or otherwise dispose of all or substantially all of its
assets to any other Person, unless in each case: (1) in a transaction (or
series) in which the Company does not survive or in which the Company sells,
leases or otherwise disposes of all or substantially all of its assets, the
successor entity to the Company is organized under the laws of the United States
of America or any State thereof or the District of Columbia and shall expressly
assume, by a supplemental indenture executed and delivered to the Trustee in
form satisfactory to the Trustee, all of the Company's obligations under the
Indenture; (2) immediately before and after giving effect to such transaction
(or series) and treating any Debt which becomes an obligation of the Company or
a Subsidiary as a result of such transaction (or series) as having been Incurred
by the Company or such Subsidiary at the time of the transaction (or series), no
Event of Default or event that with the passing of time or the giving of notice,
or both, would constitute an Event of Default shall have occurred and be
continuing; (3) immediately after giving effect to such transaction (or series),
the Consolidated Net Worth of the Company (or other successor entity to the
Company) is equal to or greater than 90% of the Company's Consolidated Net Worth
immediately prior to the transaction (or series); (4) immediately after giving
effect to such transaction (or series) and treating any Debt which becomes an
obligation of the Company or a Subsidiary as a result of such transaction (or
series) as having been Incurred by the Company or such Subsidiary at the time of
the transaction (or series), the Company (including any successor entity to the
Company), after giving pro forma effect thereto as if such transaction (or
series) had occurred at the beginning of the most recently ended four full
fiscal quarter period for which financial statements are available immediately
preceding the date of such transaction, could Incur at least $1.00 of additional
Debt pursuant to the Consolidated EBITDA to Interest Ratio test and the test of
the excess of the Company's Consolidated Adjusted Net Worth over the Company's
Minimum Adjusted Net Worth, each set forth in the first paragraph under
"-- Limitation on Debt" above; and (5) certain other conditions are met. (sec.
801)
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided. (sec. 101)
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control"
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when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" by any Person means any transfer, conveyance, sale,
lease or other disposition by such Person or any of its Subsidiaries (including
a consolidation or merger or other sale of any such Subsidiary with, into or to
another Person in a transaction in which such Subsidiary ceases to be a
Subsidiary, but excluding (a) a disposition by a Subsidiary of such Person to
such Person or a Wholly Owned Subsidiary of such Person or by such Person to a
Wholly Owned Subsidiary of such Person and (b) a disposition resulting from
foreclosure on the mortgage underlying a property or the transfer of the deed or
other instrument of title in lieu of foreclosure on a property provided that in
each case the Debt underlying such property has matured) of (i) shares of
Capital Stock (other than directors' qualifying shares) or other ownership
interests of a Subsidiary of such Person, (ii) substantially all of the assets
of such Person or any of its Subsidiaries representing a division or line of
business or (iii) other assets or rights of such Person or any of its
Subsidiaries outside of the ordinary course of business.
"Board of Directors" means either the board of directors of the Company or
any duly constituted committee thereof.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property of such Person which is required to
be classified and accounted for as a capital lease or a liability on the face of
a balance sheet of such Person in accordance with generally accepted accounting
principles. The stated maturity of such obligation shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty. The principal amount of such obligation shall be the capitalized amount
thereof that would appear on the face of a balance sheet of such Person prepared
in accordance with generally accepted accounting principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations or interests, including partnership interests,
whether general or limited, of such Person.
"Cash Equivalents" means, at any time, (i) any Debt (other than any Debt
issued at a discount) fully guaranteed as to principal and interest by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States is pledged in support thereof);
(ii) certificates of deposit of any financial institution that has combined
capital and surplus and undivided profits of not less than $50,000,000 (or the
equivalent thereof in another currency) and has a long-term debt rating of at
least "AA" by Standard & Poor's Ratings Group or at least "Aa3" by Moody's
Investors Service, Inc. or (iii) commercial paper issued by a corporation (other
than the Company or any Subsidiary thereof) organized under the laws of any
State of the United States and rated at least A-1 by Standard & Poor's Ratings
Group and at least P-1 by Moody's Investors Service, Inc.
"Common Development" of a Person means multiple parcels of real or personal
property that are acquired, developed, constructed or improved by such Person in
conjunction with, and as part of a written plan or arrangement with, a
non-Affiliated Person (or with a group of Persons under the common control of a
non-Affiliated Person).
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to other amounts upon any
voluntary or involuntary liquidation, dissolution or winding up of such Person,
to shares of Capital Stock of any other class of such Person.
"Consolidated Adjusted Net Worth" of the Company means, at any date, the
Consolidated Net Worth of the Company plus (i) the consolidated accumulated
depreciation and amortization of the Company as of October 31, 1997 and plus
(ii) the consolidated depreciation and amortization expense of the Company for
the period from November 1, 1997 through the date of any determination, deter-
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mined in the case of (i) and (ii) on a consolidated basis in accordance with
generally accepted accounting principles.
"Consolidated EBITDA" of any Person means for any period the Consolidated
Net Income of such Person for such Period plus (i) Consolidated Interest Expense
of such Person for such period, plus (ii) interest expense in respect of
Non-Recourse Debt not paid in cash, but only to the extent deducted from
Consolidated Interest Expense for such period, plus (iii) Consolidated Income
Tax Expense of such Person for such period, plus (iv) the consolidated
depreciation and amortization expense taken into account in determining the
Consolidated Net Income of such Person for such period.
"Consolidated EBITDA to Interest Ratio" of any Person means for any period
(the "Reference Period") with respect to any date of calculation (the
"Transaction Date") the ratio of (i) Consolidated EBITDA of such Person for such
period to (ii) the sum of (A) Consolidated Interest Expense of such Person for
such period. In making the foregoing calculation, (A) pro forma effect shall be
given to any Debt, other than Non-Recourse Debt, Incurred during such Reference
Period or subsequent to the end of such Reference Period and on or prior to the
Transaction Date to the extent such Debt is outstanding at the Transaction Date,
in each case as if such Debt had been Incurred on the first day of such
Reference Period and after giving pro forma effect to the application of the
proceeds thereof as if such application had occurred on such first day; (B)
Consolidated Interest Expense attributable to interest on any Debt (whether
existing or being Incurred) other than Non-Recourse Debt, computed on a pro
forma basis and bearing a floating interest rate shall be computed as if the
rate in effect on the Transaction Date (taking into account any Interest Rate
Price Agreement applicable to such Debt if such Interest Rate Agreement has a
remaining term in excess of 12 months or at least equal to the remaining term of
such Debt) had been the applicable rate for the entire period; (C) there shall
be excluded from Consolidated Interest Expense any Consolidated Interest Expense
related to any amount of Debt, other than Non-Recourse Debt, that was
outstanding during such Reference Period or thereafter but that is not
outstanding or is to be repaid on the Transaction Date; and (D) pro forma effect
shall be given to Asset Dispositions and asset acquisitions by such Person
(including giving pro forma effect to the application of proceeds of any Assets
Dispositions) that occur during such Reference Period or thereafter and prior to
the Transaction Date as if they had occurred and such proceeds had been applied
on the first day of such Reference Period.
"Consolidated Income Tax Expense" of any Person for any period means the
consolidated provision for income taxes of such Person and its Subsidiaries for
such period calculated on a consolidated basis in accordance with generally
accepted accounting principles.
"Consolidated Interest Expense" of any Person means for any period the
consolidated interest expense included in a consolidated income statement of
such Person and its Subsidiaries (after deduction of (a) any consolidated
interest income and (b) any interest expense in respect of Non-Recourse Debt not
paid in cash, in each case to the extent included in such income statement) of
such Person and its Subsidiaries for such period, calculated on a consolidated
basis in accordance with generally accepted accounting principles, including
without limitation or duplication (or, to the extent not so included, with the
addition of), (i) the amortization of Debt discounts; (ii) any payments or fees
with respect to letters of credit, bankers' acceptances or similar facilities;
(iii) fees with respect to Interest Rate, Currency or Commodity Price
Agreements; (iv) Preferred Stock dividends of the Company and its Subsidiaries
(other than with respect to Redeemable Stock) declared and paid or payable; (v)
accrued Redeemable Stock dividends of the Company and its Subsidiaries, whether
or not declared or paid; (vi) interest on Debt guaranteed by such Person or any
of its Subsidiaries; (vii) the portion of any rental obligation or Capital Lease
Obligation allocable to interest expense but only to the extent such amount
exceeds $750,000 on a consolidated basis and (viii) the portion of the rental
obligation in respect of any Sale and Leaseback Transaction allocable to
interest expense (determined as if such obligation were a Capital Lease
Obligation) but only to the extent such amount exceeds $750,000 on a
consolidated basis.
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"Consolidated Net Debt" of any Person means, as at any date, the
consolidated Debt as at such date less consolidated cash and Cash Equivalents of
such Person and its Subsidiaries as at such date, in each case determined on a
consolidated basis in accordance with generally accepted accounting principles.
"Consolidated Net Income" of any Person means for any period the
consolidated net income (or loss) of such Person and its Subsidiaries for such
period determined in accordance with generally accepted accounting principles;
provided that to the extent taken into account in determining such consolidated
net income (or loss) there shall be excluded therefrom (a) the net income (or
loss) of any Person acquired by such Person or a Subsidiary of such Person in a
pooling-of-interests transaction for any period prior to the date of such
acquisition, (b) the net income (but not the net loss) of any Subsidiary of such
Person which is subject to restrictions which prevent the payment of dividends
and the making of distributions (by loans, advances, intercompany transfers or
otherwise) to such Person to the extent of such restrictions, (c) the net income
(or loss) of any Person that is not a Subsidiary of such Person except to the
extent of the amount of dividends or other distributions actually paid to such
Person by such other Person during such period, (d) gains or losses on
disposition of properties by such Person or its Subsidiaries (as set forth on an
income statement of such Person prepared in accordance with generally accepted
accounting principles), (e) the cumulative effect of changes in accounting
principles in the year of adoption of such changes, (f) all extraordinary gains
and extraordinary losses of such Person and its Subsidiaries, (g) all gains or
losses of such Person and its Subsidiaries resulting from the discontinued
operations, or the disposal, of a segment of a business of such Person
determined in each case in accordance with Accounting Principles Board Opinion
No. 30; provided, however, that such gains and losses shall be excluded only to
the extent such items are not included within extraordinary gains or
extraordinary losses of such Person, and provided, further, however, that in no
event shall such amounts be excluded beyond the fiscal year in which such gains
or losses are first reported, (h) the provision for decline in real estate (as
set forth on an income statement of such Person prepared in accordance with
generally accepted accounting principles) and (i) the tax effect of any of the
items described in clauses (a) through (h).
"Consolidated Net Worth" of any Person means, at any date, the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with generally accepted accounting principles, less amounts
attributable to Redeemable Stock of such Person; provided that, with respect to
the Company, adjustments following the date of the Indenture to the accounting
books and records of the Company in accordance with Accounting Principles Board
Opinions Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting
from the acquisition of control of the Company by another Person shall not be
given effect to.
"consolidation" means, with respect to any Person, the consolidation of the
accounts of such Person with the accounts of each Person in which such Person,
directly or indirectly, owns an interest, if and to the extent the accounts of
each such Person would be consolidated with the accounts of such Person in
accordance with generally accepted accounting principles. The term
"consolidated" has a correlative meaning.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations Incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(including securities repurchase agreements but excluding trade accounts payable
or accrued liabilities arising in the ordinary course of business which are not
overdue or which are being contested in good faith), (v) every Capital Lease
Obligation of such Person, (vi) all Receivables Sales of such Person, together
with any obligation of such Person to pay any discount, interest, fees,
indemnities, penalties, recourse, expenses or other amounts in connection
therewith, (vii) all Redeemable Stock issued by such Person,
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(viii) every obligation to pay rent or other payment amounts of such Person with
respect to any Sale and Leaseback Transaction to which such Person is a party,
(ix) every obligation under Interest Rate, Currency or Commodity Price
Agreements of such Person and (x) every obligation of the type referred to in
clauses (i) through (ix) of another Person and all dividends of another Person
the payment of which, in either case, such Person has guaranteed or for which
such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise. The "amount" or "principal amount" of Debt at any time
of determination as used herein represented by (a) any contingent Debt, shall be
the maximum liability upon the occurrence of the contingency giving rise to the
obligation (unless the underlying contingency has not occurred and the
occurrence of the underlying contingency is entirely within the control of the
Company), (b) any Debt issued at a price that is less than the principal amount
at maturity thereof, shall be the amount of the liability in respect thereof
determined in accordance with generally accepted accounting principles, (c) any
Receivables Sale, shall be the amount of the unrecovered capital or principal
investment of the purchaser (other than the Company or a Wholly Owned Subsidiary
of the Company) thereof as of such time of determination, excluding amounts
representative of yield or interest earned on such investment and (d) any
Redeemable Stock, shall be the maximum fixed redemption or repurchase price in
respect thereof.
"Development Debt" of any Person means Debt of such Person or any
mortgages, indentures, instruments or agreements under which there may be issued
or existing or by which there may be secured or evidenced any Debt of such
Person Incurred for the purpose of financing all or any part of the cost of
acquiring, developing, constructing or improving, real or personal property that
is owned or that immediately after the Incurrence of such Debt, will be owned,
by such Person; provided that (a) the principal amount of any such Debt does not
exceed 100% of the cost of such acquisition, development, construction or
improvement plus expenses incurred in connection with the Incurrence of such
Debt, (b) such cost will be included in "Total Real Estate" on the consolidated
balance sheet of such Person, and (c) if such Debt is secured by a Lien, then
(i) such Lien attached to such real or personal property prior to, at the time
of, or within 180 days after the acquisition of or the completion of developing,
constructing or improving of such property, and (ii) such Lien does not extend
to or cover any property other than the specific item of such property (or
portion thereof), acquired, developed, constructed, or constituting the
improvements made with the proceeds of such Debt, except in the case of Common
Development, in which case such Lien may extend to any other property included
within the Common Development.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy.
"FCRPC Credit Agreement" means the Credit Agreement, dated as of December
10, 1997 and as amended through March , 1998, among Forest City Rental
Properties Corporation, an Ohio corporation, as Borrower, various lending
institutions named therein, Keybank National Association, individually and as
administrative agent, and National City Bank, individually and as syndication
agent, and any Debt the proceeds of which are used to renew, extend, refinance
or replace such Credit Agreement and any Debt Incurred in connection with any
subsequent or successive renewal, extension or refinancing of such Debt.
"FCRPC Guaranty" means the Guaranty, dated as of December 10, 1997 and as
amended through March , 1998, by the Company of the obligations under FCRPC
Credit Agreement and any guarantee by the Company (or any successor to the
Company) of any renewal, extension, refinancing or replacement of such Credit
Agreement.
"guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing, or having the economic effect of guaranteeing, any
Debt of any other Person (the "primary obligor") in any manner, whether directly
or indirectly, and including, without limitation, any obligation of such Person,
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or to purchase (or to advance or supply funds for the purchase of)
any security for the payment of such Debt, (ii) to purchase property, securities
or services for the purpose of assuring the holder of such
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Debt of the payment of such Debt, or (iii) to maintain working capital, equity
capital or other financial statement condition or liquidity of the primary
obligor so as to enable the primary obligor to pay such Debt (and "guaranteed,"
"guaranteeing" and "guarantor" shall have meanings correlative to the
foregoing); provided, however, that the guaranty by any Person shall not include
endorsements by such Person for collection or deposit, in either case, in the
ordinary course of business.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Debt or other obligation
(including by acquisition of Subsidiaries) or the recording, as required
pursuant to generally accepted accounting principles or otherwise, of any such
Debt or other obligation on the balance sheet of such Person (and "Incurrence,"
"Incurred," "Incurrable" and "Incurring" shall have meanings correlative to the
foregoing); provided, however, that a change in generally accepted accounting
principles that results in an obligation of such Person that exists at such time
becoming Debt shall not be deemed an Incurrence of such Debt.
"Interest Rate, Currency or Commodity Price Agreement" of any Person means
any forward contract, futures contract, swap, option or other financial
agreement or arrangement (including, without limitation, caps, floors, collars
and similar agreements) relating to, or the value of which is dependent upon,
interest rates, currency exchange rates or commodity prices or indices
(excluding contracts for the purchase or sale of goods in the ordinary course of
business).
"Investment" by any Person in any other Person means (i) any direct or
indirect loan, advance or other extension of credit or capital contribution to
or for the account of such other Person (by means of any transfer of cash or
other property to any Person or any payment for property or services for the
account or use of any Person, or otherwise), (ii) any direct or indirect
purchase or other acquisition, including by way of merger or consolidation, of
any Capital Stock, bond, note, debenture, or other debt or equity security or
evidence of Debt, or any other ownership interest, issued by such other Person,
whether or not such acquisition is from such or any other Person, (iii) any
direct or indirect payment by such Person on a guarantee of any obligation of or
for the account of such other Person or any direct or indirect issuance by such
Person of such a guarantee or (iv) any other investment of cash or other
property by such Person in or for the account of such other Person, but shall
not include trade accounts receivable in the ordinary course of business on
credit terms made generally available to the customers of such Person.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing or any
agreement to give any security interest).
"Minimum Adjusted Net Worth" of the Company means, as of any date, the sum
of (i) $675 million, (ii) the amount of Recourse Debt Incurred after the date of
original issuance of the Notes that is outstanding on any date of determination
but only to the extent the amount of such Debt then outstanding exceeds $425
million, and (iii) 25% of the Company's consolidated net income (or zero in the
case of a consolidated net loss) determined in accordance with generally
accepted accounting principles for the period from November 1, 1997 through the
date of any determination, determined on a consolidated basis in accordance with
generally accepted accounting principles.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or readily marketable Cash Equivalents received (including by way of sale
or discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiree of Debt or other obligations relating to such properties or assets or
received in any other noncash form) therefrom by such Person, net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
Incurred and all federal, state, provincial, foreign and local taxes
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required to be accrued as a liability as a consequence of such Asset
Disposition, (ii) all payments made by such Person or its Subsidiaries on any
Debt which is secured by such assets in accordance with the terms of any Lien
upon or with respect to such assets or which must by the terms of such Lien, or
in order to obtain a necessary consent to such Asset Disposition or by
applicable law, be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments made to minority interest holders in
Subsidiaries of such Person or joint ventures as a result of such Asset
Disposition and (iv) appropriate amounts to be provided by such Person or any
Subsidiary thereof, as the case may be, as a reserve in accordance with
generally accepted accounting principles against any liabilities associated with
such assets and retained by such Person or any Subsidiary thereof, as the case
may be, after such Asset Disposition, including, without limitation, liabilities
under any indemnification obligations and severance and other employee
termination costs associated with such Asset Disposition, in each case as
determined by the Board of Directors, in its reasonable good faith judgment
evidenced by a resolution of the Board of Directors filed with the Trustee;
provided, however, that any reduction in such reserve within twelve months
following the consummation of such Asset Disposition will be treated for all
purposes of the Indenture and the Notes as a new Asset Disposition at the time
of such reduction with Net Available Proceeds equal to the amount of such
reduction.
"Non-Recourse" as applied to any Debt means Debt of a Person (or any
portion thereof) to the extent that, under the terms thereof, no personal
recourse may be had against such Person or any affiliate of such Person for the
payment of all or a portion of the principal of or interest or premium on such
Debt, and enforcement of obligations on such Debt (except with respect to fraud,
willful misconduct, intentional misrepresentation, misapplication of funds,
waste and undertakings with respect to environmental matters) is limited only to
recourse against interests in specified assets and properties owned by such
Person (the "Subject Assets"), accounts and proceeds arising therefrom, and
rights under purchase agreements or other agreements relating to such Subject
Assets.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
by first class mail, postage prepaid, to each Holder at his address appearing in
the Note Register on the date of the Offer offering to purchase up to the
principal amount of Notes specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to the Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such Offer and a settlement date (the "Purchase Date")
for purchase of Notes within three Business Days after the Expiration Date. The
Company shall notify the Trustee at least 15 Business Days (or such shorter
period as is acceptable to the Trustee) prior to the mailing of the Offer of the
Company's obligation to make an Offer to Purchase, and the Offer shall be mailed
by the Company or, at the Company's request, by the Trustee in the name and at
the expense of the Company. The Offer shall contain information concerning the
business of the Company and its Subsidiaries which the Company in good faith
believes will enable such Holders to make an informed decision with respect to
the Offer to Purchase (which at a minimum will include (i) the most recent
annual and quarterly financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Trustee pursuant to the provisions
described under "Certain Covenants -- Provision of Financial Information" (which
requirements may be satisfied by delivery of such documents together with the
Offer), (ii) a description of material developments in the Company's business
subsequent to the date of the latest of such financial statements referred to in
clause (i)(including a description of the events requiring the Company to make
the Offer to Purchase), (iii) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring the
Company to make the Offer to Purchase and (iv) any other information required by
applicable law to be included therein. The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Notes pursuant to the
Offer to Purchase. The Offer shall also state:
(1) the Section of the Indenture pursuant to which the Offer to
Purchase is being made (including that a Change of Control or Asset
Disposition, as applicable, has occurred);
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(2) the Expiration Date and the Purchase Date;
(3) The aggregate principal amount of the Outstanding Notes offered to
be purchased by the Company pursuant to the Offer to Purchase (including,
if less than 100%, the manner by which such amount has been determined
pursuant to the Section hereof requiring the Offer to Purchase) (the
"Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Notes accepted for payment (as specified
pursuant to the Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the Notes
registered in the name of such Holder and that any portion of a Note
tendered must be tendered in an integral multiple of $1,000 principal
amount;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each Holder electing to tender a Note pursuant to the Offer
to Purchase will be required to surrender such Note at the place or places
specified in the Offer prior to the close of business on the Expiration
Date (such Note being, if the Company or the Trustee so requires, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing);
(10) that Holders will be entitled to withdraw all or any portion of
Notes tendered if the Company (or their Paying Agent) receives, not later
than the close of business on the Expiration Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Note the Holder tendered, the certificate number of
the Note the Holder tendered and a statement that such Holder is
withdrawing all or a portion of his tender;
(11) that (a) if Notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant
to the Offer to Purchase, the Company shall purchase all such Notes and (b)
if Notes in an aggregate principal amount in excess of the Purchase Amount
are tendered and not withdrawn pursuant to the Offer to Purchase, the
Company shall purchase Notes having an aggregate principal amount equal to
the Purchase Amount on a pro rata basis (with such adjustments as may be
deemed appropriate so that only Notes in denominations of $1,000 or
integral multiples thereof shall be purchased); and
(12) that in the case of any Holder whose Note is purchased only in
part, the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Note without service charge, a new Note or
Notes, of any authorized denomination as requested by such Holder, in an
aggregate principal amount equal to and in exchange for the unpurchased
portion of the Note so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with
the Offer for such Offer to Purchase.
"pari passu", when used with respect to the ranking of any Debt of any
Person in relation to other Debt of such Person, means that each such Debt (a)
either (i) is not subordinated in right of payment to any other Debt of such
Person or (ii) is subordinate in right of payment to the same Debt of such
Person as is the other and is so subordinate to the same extent and (b) is not
subordinate in right of payment to the other or to any Debt of such Person as to
which the other is not so subordinate.
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"Permitted Business" means (i) developing, acquiring, owning and operating
shopping centers, office buildings and mixed-use projects, including
entertainment complexes and hotels, (ii) developing, acquiring, owning and
operating multi-family properties, (iii) acquiring land and owning and
developing land into master planned communities and other residential
developments for resale and (iv) the lumber wholesaling business.
"Permitted Holder" means (i) any of Samuel H. Miller, Albert B. Ratner,
Charles A. Ratner, James A. Ratner, Ronald A. Ratner, Nathan Shafran or any
spouse of any of the foregoing, and any trusts for the benefit of any of the
foregoing, (ii) RMS, Limited Partnership and any general partner or limited
partner thereof and any Person (other than a creditor) that upon the dissolution
or winding up of RMS, Limited Partnership receives a distribution of Capital
Stock of the Company, (iii) any group (as defined in Section 13(d) of the
Securities Exchange Act of 1934, or any successor provision thereto) of two or
more Persons or entities that are specified in the immediately preceding clauses
(i) and (ii), and (iv) any successive recombination of the Persons or groups
that are specified in the immediately preceding clauses (i), (ii) and (iii).
"Permitted Interest Rate, Currency or Commodity Price Agreement" of any
Person means any Interest Rate, Currency or Commodity Price Agreement entered
into with one or more financial institutions in the ordinary course of business
that is designed (a) in the case of an interest rate or currency exchange
agreement, to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and which shall have a
notional amount no greater than the payments due with respect to the Debt being
hedged thereby and, in the case of an agreement protecting such Person from
fluctuations in interest rates, the profits and losses from such agreement are
included in interest expense under generally accepted accounting principles, or,
(b) in the case of currency or commodity protection agreements, to protect such
Person against currency exchange rate or commodity price fluctuations in the
ordinary course of business relating to then existing financial obligations or
then existing or sold production and not for purposes of speculation.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to amounts upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of the Company pursuant to an effective registration statement
under the Securities Act of 1933, as amended.
"Purchase Money Debt" of any Person means Debt (other than Development
Debt) of such Person Incurred for the purpose of financing all or any part of
the purchase price or cost of construction or improvement of property or other
assets of such Person (other than property described in the definition of
Development Debt) acquired after the date of original issuance of the Notes;
provided that (i) the principal amount of any such Debt does not exceed 100% of
such purchase price or cost and (ii) if such Debt is secured by a Lien, then (a)
such Lien attached to such property or assets prior to, at the time of, or
within 180 days after the acquisition, construction or improvement of such
property or assets and (b) such Lien does not extend to or cover any property or
assets other than the specific item of such property or assets (or portion
thereof) acquired, constructed or improved with the proceeds of such Debt.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money.
"Receivables Sale" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than in connection
with a disposition of the business operations of such Person relating thereto or
a disposition of defaulted Receivables for purposes of collection and not as a
financing arrangement.
"Recourse Debt" of any Person means Debt of such Person that is not
Non-Recourse Debt.
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"Redeemable Stock" of any Person means any Capital Stock of such Person
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or otherwise (including upon the occurrence of
an event) matures or is required to be redeemed (pursuant to any sinking fund
obligation or otherwise) or is convertible into or exchangeable for Debt or is
redeemable at the option of the holder thereof, in whole or in part, at any time
prior to the final Stated Maturity of the Notes.
"Related Person" of any Person means, without limitation, any other Person
directly or indirectly owning (a) 5% or more of the outstanding Common Stock of
such Person (or, in the case of a Person that is not a corporation, 5% or more
of the equity interest in such Person) or (b) 5% or more of the combined voting
power of the Voting Stock of such Person.
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 270 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Subordinated Debt" means Debt of the Company as to which the payment of
principal of (and premium, if any) and interest and other payment obligations in
respect of such Debt shall be subordinate to the prior payment in full of the
Notes to at least the following extent: (i) no payments of principal of (or
premium, if any) or interest on or otherwise due in respect of such Debt may be
permitted for so long as any default in the payment of principal (or premium, if
any) or interest on the Notes exists; (ii) in the event that any other default
that with the passing of time or the giving of notice, or both, would constitute
an event of default exists with respect to the Notes, upon notice by 25% or more
in principal amount of the Notes to the Trustee, the Trustee shall have the
right to give notice to the Company and the holders of such Debt (or trustees or
agents therefor) of a payment blockage, and thereafter no payments of principal
of (or premium, if any) or interest on or otherwise due in respect of such Debt
may be made for a period of 179 days from the date of such notice; and (iii)
such Debt may not (x) provide for payments of principal of such Debt at the
stated maturity thereof or by way of a sinking fund applicable thereto or by way
of any mandatory redemption, defeasance, retirement or repurchase thereof by the
Company (including any redemption, retirement or repurchase which is contingent
upon events or circumstances, but excluding any retirement required by virtue of
acceleration of such Debt upon an event of default thereunder), in each case
prior to the final Stated Maturity of the Notes or (y) permit redemption or
other retirement (including pursuant to an offer to purchase made by the
Company) of such other Debt at the option of the holder thereof prior to the
final Stated Maturity of the Notes, other than a redemption or other retirement
at the option of the holder of such Debt (including pursuant to an offer to
purchase made by the Company) which is conditioned upon a change of control of
the Company pursuant to provisions substantially similar to those described
under "-- Repurchase at the Option of Holders -- Change of Control" (and which
shall provide that such Debt will not be repurchased pursuant to such provisions
prior to the Company's repurchase of the Notes required to be repurchased by the
Company pursuant to the provisions described under "-- Repurchase at the Option
of Holders -- Change of Control").
"Subsidiary" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof, (ii) a
partnership of which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, is the general partner and has the power to direct the policies,
management and affairs, (iii) a limited liability company of which such Person
or one or more Subsidiaries of such Person or such Person and one or more
Subsidiaries of such Person,
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directly or indirectly, is the managing member and has the power to direct the
policies, management and affairs of the company, or (iv) any other Person (other
than a corporation, partnership or limited liability company) in which such
Person, or one or more other Subsidiaries of such Person or such Person and one
or more other Subsidiaries thereof, directly or indirectly, has at least a
majority ownership and power to direct the policies, management and affairs
thereof.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, 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 (as defined in Section 3(a)(2) of
the Securities Act of 1933, as amended) as custodian with respect to any such
U.S. Government Obligation or a specific payment of principal of or interest on
any such U.S. Government Obligation held by such custodian for the account of
the holder of such depository receipt, provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by such
depository receipt.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Weighted Average Life" means, as of the date of determination, with
respect to any Debt or Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of (a) the number of years from the date of
determination to the dates of each successive scheduled principal payment of
such Debt or mandatory redemption of such Preferred Stock, respectively, and (b)
the amount of such principal payments or redemption payments, by (ii) the sum of
all such principal payments or redemption payments.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture: (a) failure to
pay principal of (or premium, if any, on) any Note when due; (b) failure to pay
any interest on any Note when due, continued for 30 days; (c) default in the
performance of, or a breach of, the covenant described under "Repurchase at the
Option of Holders -- Asset Dispositions" and "-- Change of Control" and
"Mergers, Consolidations and Certain Sales of Assets"; (d) failure to perform
any other covenant or agreement of the Company under the Indenture or the Notes
continued for 30 days after written notice to Holding by the Trustee or Holders
of at least 25% in aggregate principal amount of Outstanding Notes; (e) a
default or defaults under the terms of any Debt (other than Non-Recourse Debt)
by the Company or any Subsidiary of the Company or under any mortgages,
indentures, instruments or agreements under which there may be issued or
existing or by which there may be secured or evidenced any Debt (other than
Non-Recourse Debt) of the Company or any such Subsidiary with a principal or
similar amount then outstanding of $10 million individually or in the aggregate,
whether such Debt now exists or is hereafter created, which default or defaults
result in the acceleration of the payment of such Debt or constitutes the
failure to pay such Debt when due; (f) a default or defaults under the terms of
any Non-Recourse Debt of the Company or any Subsidiary of the Company with an
aggregate principal or similar amount then outstanding in excess of 20% of the
aggregate principal or similar amount of all the
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then outstanding Non-Recourse Debt of the Company and its Subsidiaries,
individually or in the aggregate, whether such Non-Recourse Debt now exists or
is hereafter created, which default or defaults result in the acceleration of
the payment of such Debt or constitutes the failure to pay such Debt when due;
(g) the rendering of a final judgment or judgments (not subject to appeal)
against the Company or any Subsidiary of the Company in an amount in excess of
$10 million which remains undischarged or unstayed for a period of 45 days after
the date on which the right to appeal has expired; and (h) certain events of
bankruptcy, insolvency or reorganization affecting the Company or any
Subsidiary. (sec. 501)
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default (as defined) shall occur and be continuing,
the Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the Holders, unless
such Holders shall have offered to the Trustee reasonable indemnity. (sec. 603)
Subject to such provisions for the indemnification of the Trustee, the Holders
of a majority in aggregate principal amount of the Outstanding Notes will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee. (sec. 512)
If an Event of Default (other than an Event of Default described in Clause
(h) above) shall occur and be continuing, either the Trustee or the Holders of
at least 25% in aggregate principal amount of the Outstanding Notes may
accelerate the maturity of all Notes; provided, however, that after such
acceleration, but before a judgment or decree based on acceleration, the Holders
of a majority in aggregate principal amount of Outstanding Notes may, under
certain circumstances, rescind and annul such acceleration if all Events of
Default, other than the non-payment of acceleration of principal, have been
cured or waived as provided in the Indenture. If an Event of Default specified
in Clause (h) above occurs, the Outstanding Notes will ipso facto become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. (sec. 502) For information as to waiver of defaults,
see "Modification and Waiver."
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default (as defined) and unless also the Holders of at least 25% in aggregate
principal amount of the Outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the Holders of a majority
in aggregate principal amount of the Outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. (sec. 507) However, such limitations do not apply to a suit instituted by
a Holder of a Note for enforcement of payment of the principal of (and premium,
if any,) or interest on such Note on or after the respective due dates expressed
in such Note. (sec. 508)
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
provisions described above under "Optional Redemption," an equivalent premium
will also become and be immediately due and payable upon the acceleration of the
Notes.
The Company will be required to furnish to the Trustee quarterly a
statement as to the performance by the Company of certain of its obligations
under the Indenture and as to any default in such performance. The Company will
be required to deliver to the Trustee, as soon as possible and in any event
within 10 days after the Company becomes aware of the occurrence of an Event of
Default or an event which, with notice or the lapse of time or both, would
constitute an Event of Default, an Officers' Certificate setting forth the
details of such Event of Default or default, and the action which the Company
proposes to take with respect thereto. (sec. 1020)
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DEFEASANCE
The Indenture will provide that, at the option of the Company, (A) if
applicable, the Company will be discharged from any and all obligations in
respect of the Outstanding Notes, or (B) if applicable, the Company may omit to
comply with certain restrictive covenants, that such omission shall not be
deemed to be an Event of Default under the Indenture and the Notes, in either
case (A) or (B) upon the 123rd day after irrevocable deposit with the Trustee,
in trust, of money and/or U.S. Government Obligations which will provide money
in an amount sufficient in the opinion of a nationally recognized firm of
independent certified public accountants to pay the principal of and premium, if
any, and each installment of interest, if any, on the Outstanding Notes. With
respect to clause (B), the obligations under the Indenture other than with
respect to such covenants and the Events of Default other than the Events of
Default relating to such covenants above shall remain in full force and effect.
Such trust may only be established if, among other things (i) with respect to
clause (A), the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or there has been a change in law, which in
the Opinion of Counsel provides that Holders of the Notes will not recognize
gain or loss for Federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to Federal income tax on the same
amount, in the same manner and at the same times as would have been the case if
such deposit, defeasance and discharge had not occurred; or, with respect to
clause (B), the Company has delivered to the Trustee an Opinion of Counsel to
the effect that the Holders of the Notes will not recognize gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amount, in the same manner and at
the same times as would have been the case if such deposit and defeasance had
not occurred; (ii) no Event of Default or event that with the passing of time or
the giving of notice, or both, shall constitute an Event of Default shall have
occurred or be continuing at any time during the 123-day period referred to
above; (iii) the Company has delivered to the Trustee an Opinion of Counsel to
the effect that such deposit shall not cause the Trustee or the trust so created
to be subject to the Investment Company Act of 1940; and (iv) certain other
customary conditions precedent are satisfied. (Article Twelve)
In the event the Company omits to comply with its remaining obligations
under the Indenture and the Notes after a defeasance of the Indenture with
respect to the Notes as described under Clause (B) above and the Notes are
declared due and payable because of the occurrence of any Event of Default, the
amount of money and U.S. Government Obligations on deposit with the Trustee may
be insufficient to pay amounts due on the Notes at the time of the acceleration
resulting from such Event of Default. However, the Company will remain liable in
respect of such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Notes; provided, however, that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (b) reduce the
principal amount of, (or the premium) or interest on, any Note, (c) change the
place or currency of payment of principal of (or premium), or interest on, any
Note, (d) impair the right to institute suit for the enforcement of any payment
on or with respect to any Note, (e) reduce the above-stated percentage of
Outstanding Notes necessary to modify or amend the Indenture, (f) reduce the
percentage of aggregate principal amount of Outstanding Notes necessary for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults, (g) modify any provisions of the Indenture relating to the
modification and amendment of the Indenture or the waiver of past defaults or
covenants, except as otherwise specified, or (h) modify any of the provisions of
the Indenture described under "Repurchase at the Option of the Holders -- Asset
Dispositions" and "-- Change of Control" in a manner adverse to the Holders
thereof. (sec. 902)
The Holders of a majority in aggregate principal amount of the Outstanding
Notes, on behalf of all Holders of Notes, may waive compliance by the Company
with certain restrictive provisions of the Indenture. (sec. 1021) Subject to
certain rights of the Trustee, as provided in the Indenture, the Holders of
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a majority in aggregate principal amount of the Outstanding Notes, on behalf of
all Holders of Notes, may waive any past default under the Indenture, except a
default in the payment of principal (or premium, if any) or interest or a
default arising from failure to purchase any Note tendered pursuant to an Offer
to Purchase. (sec. 513)
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of
New York.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs. (sec. 603)
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claim as
security or otherwise. The Trustee is permitted to engage in other transactions
with the Company or any Affiliate, provided, however, that if it acquires any
conflicting interest (as defined in the Indenture or in the Trust Indenture
Act), it must eliminate such conflict or resign. (sec. 608)
The Bank of New York is a lender to Subsidiaries of the Company of
non-recourse project debt.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement and
Pricing Agreement, the Company has agreed to sell to each of the Underwriters
named below, and each of such Underwriters has severally agreed to purchase, the
principal amount of Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
----------- ------------
<S> <C>
Goldman, Sachs & Co......................................... $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................
McDonald & Company Securities, Inc. ........................
------------
Total............................................. $200,000,000
============
</TABLE>
Under the terms and conditions of the Underwriting Agreement and the
Pricing Agreement, the Underwriters are committed to take and pay for all of the
Notes, if any are taken.
The Underwriters propose to offer the Notes in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus Supplement and in part to certain securities dealers at such price
less a concession of % of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a concession not to exceed
% of the principal amount of the Notes to certain brokers and dealers.
After the Notes are released for sale to the public, the offering price and
other selling terms may from time to time be varied by the representatives.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that they intend to make a
market in the Notes but are not obligated to do so and may discontinue
market-making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes. The Notes will not be listed on
any securities exchange.
The Company has agreed in the Underwriting Agreement that for a period of
90 days from the date of this Prospectus Supplement that it will not offer,
sell, contract to sell or otherwise dispose of, without the prior written
consent of Goldman, Sachs & Co., any debt securities of the Company which mature
more than one year after the date of original issuance of the Notes.
In connection with the Offering, the Underwriters may purchase and sell the
Notes in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover short positions created by the
Underwriters in connection with the Offering. Stabilizing transactions consist
of certain bids or purchases for the purpose of preventing or retarding a
decline in the market price of the Notes; short positions created by the
Underwriters involve the sale by the Underwriters of a greater principal amount
of Notes than they are required to purchase from the Company in the Offering.
The Underwriters also may impose a penalty bid, whereby selling concessions
allowed to other broker-dealers in respect of the Notes sold in the Offering may
be reclaimed by the Underwriters if such Notes are repurchased by the
Underwriters in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Notes which may
be higher than the price that might otherwise prevail in the open market; and
these activities, if commenced, may be discontinued at any time.
Goldman, Sachs & Co. leases space from the Company in the ordinary course
of its business (see "Business -- Commercial Group -- Office,
Mixed-Use -- Principal Office Tenants").
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The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
VALIDITY OF THE NOTES
The validity of the Notes to which this Prospectus Supplement relates will
be passed upon for the Company by Jones, Day, Reavis & Pogue, Cleveland, Ohio,
and for the Underwriters by Sullivan & Cromwell, New York, New York. Sullivan &
Cromwell will rely as to all matters of Ohio law upon the opinion of Jones, Day,
Reavis & Pogue.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS AS OF JANUARY 31, 1997
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of January 31, 1997 and
1996...................................................... F-3
Consolidated Statements of Earnings for the years ended
January 31, 1997, 1996 and 1995........................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended January 31, 1997, 1996 and 1995............... F-5
Consolidated Statements of Cash Flows for the years ended
January 31, 1997, 1996 and 1995........................... F-6
Notes to Consolidated Financial Statements.................. F-8
UNAUDITED FINANCIAL STATEMENTS AS OF OCTOBER 31, 1997
Consolidated Balance Sheets as of October 31, 1997
(unaudited) and January 31, 1997.......................... F-25
Consolidated Statements of Earnings and Retained Earnings of
Nine Months and Three Months Ended October 31, 1997 and
1996...................................................... F-26
Consolidated Statements of Cash Flows for the Nine Months
Ended October 31, 1997 and 1996........................... F-27
Notes to Unaudited Financial Statements..................... F-29
</TABLE>
F-1
<PAGE> 144
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Forest City Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Forest City
Enterprises, Inc. and its subsidiaries as of January 31, 1997 and 1996, and the
related consolidated statements of earnings, shareholders' equity and cash flows
for each of the three years in the period ended January 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Forest City
Enterprises, Inc. and its subsidiaries as of January 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1997, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Cleveland, Ohio
March 13, 1997
F-2
<PAGE> 145
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31,
-----------------------
1997 1996
---------- ----------
(dollars in thousands)
<S> <C> <C>
ASSETS
Real Estate
Completed rental properties............................... $2,247,393 $2,101,564
Projects under development................................ 220,137 246,240
Land held for development or sale......................... 52,649 77,279
---------- ----------
2,520,179 2,425,083
Less accumulated depreciation............................. (399,830) (347,912)
---------- ----------
Total Real Estate...................................... 2,120,349 2,077,171
Cash........................................................ 41,302 39,145
Notes and accounts receivable, net.......................... 204,959 168,177
Inventories................................................. 48,769 41,186
Investments in and advances to affiliates................... 145,242 145,238
Other assets................................................ 180,784 160,129
---------- ----------
$2,741,405 $2,631,046
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage debt, nonrecourse.................................. $1,898,428 $1,832,059
Accounts payable and accrued expenses....................... 378,230 342,511
Notes payable............................................... 37,041 19,856
Long-term debt.............................................. 94,923 113,061
Deferred income taxes....................................... 115,488 105,111
Deferred profit............................................. 25,317 28,859
---------- ----------
Total Liabilities...................................... 2,549,427 2,441,457
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock - convertible, without par value;
1,000,000 shares authorized; no shares issued............. -- --
Common stock - $.33 1/3 par value
Class A, 16,000,000 shares authorized; 7,932,358 and
7,906,990 shares issued, 7,696,408 and 7,903,990
outstanding, respectively.............................. 2,643 2,635
Class B, convertible, 6,000,000 shares authorized;
5,554,618 and 5,580,431 shares issued, 5,415,568 and
5,467,931 outstanding, respectively.................... 1,851 1,859
---------- ----------
4,494 4,494
Additional paid-in capital.................................. 43,996 44,014
Retained earnings........................................... 152,077 143,590
---------- ----------
200,567 192,098
Less treasury stock, at cost; 1997: 235,950 Class A and
139,050 Class B shares, 1996: 3,000 Class A and 112,500
Class B shares............................................ (8,589) (2,509)
---------- ----------
Total Shareholders' Equity............................. 191,978 189,589
---------- ----------
$2,741,405 $2,631,046
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 146
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
For the Years Ended January 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(in thousands, except per share
data)
<S> <C> <C> <C>
Revenues............................................... $610,449 $529,433 $522,608
-------- -------- --------
Operating expenses..................................... 386,970 305,819 323,736
Interest expense....................................... 133,364 130,001 116,821
Provision for decline in real estate................... 12,263 9,581 10,133
Depreciation and amortization.......................... 73,304 65,716 65,580
-------- -------- --------
605,901 511,117 516,270
-------- -------- --------
Gain (loss) on disposition of properties............... 17,574 (754) (30,835)
-------- -------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES.................... 22,122 17,562 (24,497)
-------- -------- --------
INCOME TAX EXPENSE (BENEFIT)
Current.............................................. 1,935 370 6,057
Deferred............................................. 11,016 10,253 (12,021)
-------- -------- --------
12,951 10,623 (5,964)
-------- -------- --------
NET EARNINGS (LOSS) BEFORE EXTRAORDINARY GAIN.......... 9,171 6,939 (18,533)
Extraordinary gain, net of tax......................... 2,900 1,847 60,449
-------- -------- --------
NET EARNINGS........................................... $ 12,071 $ 8,786 $ 41,916
======== ======== ========
NET EARNINGS PER COMMON SHARE
Net earnings (loss) before extraordinary gain, net of
tax............................................... $ .70 $ .51 $ (1.37)
Extraordinary gain, net of tax....................... .22 .14 4.48
-------- -------- --------
NET EARNINGS PER COMMON SHARE.......................... $ .92 $ .65 $ 3.11
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 147
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------
CLASS A CLASS B ADDITIONAL TREASURY STOCK
--------------- --------------- PAID-IN RETAINED ----------------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------ ------ ------ ---------- -------- ------ ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 31, 1994, AS
PREVIOUSLY REPORTED............... 5,146 $1,715 3,846 $1,282 $45,511 $96,934 -- $ -- $145,442
Three-for-two stock split
effective February 17, 1997
applied retroactively........... 2,573 857 1,922 640 (1,497) -- -- -- --
----- ------ ----- ------ ------- -------- --- ------- --------
BALANCES AT JANUARY 31, 1994, AS
RESTATED.......................... 7,719 2,572 5,768 1,922 44,014 96,934 -- -- 145,442
Net earnings...................... 41,916 41,916
Dividends -- $.13 per share....... (1,798) (1,798)
----- ------ ----- ------ ------- -------- --- ------- --------
BALANCES AT JANUARY 31, 1995, AS
RESTATED.......................... 7,719 2,572 5,768 1,922 44,014 137,052 -- -- 185,560
Net earnings...................... 8,786 8,786
Dividends -- $.17 per share....... (2,248) (2,248)
Conversion of Class B shares to
Class A shares.................. 188 63 (188) (63) --
Purchase of treasury stock........ 116 (2,509) (2,509)
----- ------ ----- ------ ------- -------- --- ------- --------
BALANCES AT JANUARY 31, 1996, AS
RESTATED.......................... 7,907 2,635 5,580 1,859 44,014 143,590 116 (2,509) 189,589
Net earnings...................... 12,071 12,071
Dividends:
Annual 1996 -- $.21 per share... (2,797) (2,797)
Quarterly 1997 -- $.06 per
share......................... (787) (787)
Conversion of Class B shares to
Class A shares.................. 25 8 (25) (8) --
Purchase of treasury stock........ 259 (6,080) (6,080)
Cash in lieu of fractional shares
from three-for-two stock
split........................... (18) (18)
----- ------ ----- ------ ------- -------- --- ------- --------
BALANCES AT JANUARY 31, 1997........ 7,932 $2,643 5,555 $1,851 $43,996 $152,077 375 $(8,589) $191,978
===== ====== ===== ====== ======= ======== === ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 148
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended January 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received........................ $530,597 $508,494 $480,470
Proceeds from land sales................................. 44,297 44,740 42,493
Land development expenditures............................ (25,741) (24,163) (33,430)
Operating expenditures................................... (352,372) (324,553) (238,655)
Interest paid............................................ (134,554) (132,009) (118,573)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES............. 62,227 72,509 132,305
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures..................................... (157,601) (122,878) (121,602)
Proceeds from disposition of properties.................. 26,040 15,950 15,264
Investments in and advances to affiliates................ (3,342) (5,920) (25,967)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES................. (134,903) (112,848) (132,305)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgage and long-term debt.................. 175,202 103,993 99,894
Payments on long-term debt............................... (26,932) (12,873) (17,555)
Principal payments on mortgage debt on real estate....... (55,880) (43,631) (34,228)
Increase in notes payable................................ 22,820 6,140 434
Payments on notes payable................................ (6,263) (8,624) (17,277)
Increase in cash restricted for letter of credit......... (15,200) -- --
Payment of deferred financing costs...................... (10,037) (7,242) (4,790)
Purchase of treasury stock............................... (6,080) (2,509) --
Dividends paid to shareholders........................... (2,797) (2,248) (1,798)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES........... 74,833 33,006 24,680
-------- -------- --------
NET INCREASE (DECREASE) IN CASH............................ 2,157 (7,333) 24,680
CASH AT BEGINNING OF YEAR.................................. 39,145 46,478 21,798
-------- -------- --------
CASH AT END OF YEAR........................................ $ 41,302 $ 39,145 $ 46,478
======== ======== ========
</TABLE>
F-6
<PAGE> 149
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
For the Years Ended January 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
RECONCILIATION OF NET EARNINGS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
NET EARNINGS............................................... $ 12,071 $ 8,786 $ 41,916
Depreciation............................................. 52,979 50,821 49,869
Amortization............................................. 20,325 14,895 15,711
Deferred income taxes.................................... 10,377 11,461 24,201
Provision for decline in real estate..................... 12,263 9,581 10,133
(Gain) loss on disposition of properties................. (17,574) 754 30,835
Extraordinary gain....................................... (4,797) (3,055) (90,823)
Decrease (increase) in land held for development or
sale.................................................. 8,980 2,887 (5,768)
(Increase) decrease in notes and accounts receivable..... (40,579) 29,425 947
(Increase) decrease in inventories....................... (7,583) (2,237) 24,271
Increase (decrease) in accounts payable and accrued
expenses.............................................. 40,225 (29,232) 37,403
(Decrease) increase in deferred profit................... (3,542) 2,942 (592)
(Increase) in other assets............................... (20,918) (24,519) (5,798)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES............. $ 62,227 $ 72,509 $132,305
======== ======== ========
</TABLE>
Supplemental Non-Cash Disclosure:
The following items represent the non-cash effect of reductions in the
Company's interest in Granite Development Partners, L.P. and the Clark Building,
and the disposition of the Company's interest in Beachwood Place, during the
fiscal year ended January 31, 1997 and an increase in the Company's interest in
Liberty Center during the fiscal year ended January 31, 1996.
<TABLE>
<S> <C> <C> <C>
Operating Activities
Land held for development or sale........................ $ 15,650 $ -- $ --
Notes and accounts receivable............................ 3,797 -- --
Other assets............................................. 5,175 -- --
Accounts payable and accrued expenses.................... (5,311) -- --
-------- -------- --------
Total effect on operating activities................ $ 19,311 $ -- $ --
======== ======== ========
Investing Activities
Capital expenditures..................................... $ 16,085 $(15,714) $ --
Investments in and advances to affiliates................ 3,338 -- --
-------- -------- --------
Total effect on investing activities................ $ 19,423 $(15,714) $ --
======== ======== ========
Financing Activities
Mortgage and long-term debt.............................. $(39,362) $ 15,714 $ --
Notes payable............................................ 628 -- --
-------- -------- --------
Total effect on financing activities................ $(38,734) $ 15,714 $ --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 150
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Forest City Enterprises, Inc. is a major, vertically integrated national
real estate company with four principal business groups. The COMMERCIAL GROUP
develops, acquires, owns and operates shopping centers, office buildings and
mixed-use projects including hotels. The RESIDENTIAL GROUP develops or acquires,
and owns and operates the Company's multi-family properties. The LAND GROUP owns
and develops raw land into master planned communities and other residential
developments for resale. The LUMBER TRADING GROUP operates the Company's lumber
wholesaling business.
Forest City Enterprises, Inc. owns approximately $2.5 billion of properties
at cost in 20 states and Washington, D.C. The Company's executive offices are in
Cleveland, Ohio. Regional offices are located in New York, Los Angeles, Boston,
Chicago, Portland, Tucson, Detroit and Washington, D.C.
FISCAL YEAR
The years 1996, 1995 and 1994 refer to the fiscal years ended January 31,
1997, 1996 and 1995, respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Forest City
Enterprises, Inc. and all wholly-owned subsidiaries ("Enterprises" and the
"Company"). The Company also includes its proportionate share of the assets,
liabilities and results of operations of its real estate partnerships, joint
ventures and majority-owned corporations. These entities are included as of
their respective fiscal year-ends (generally December 31).
All significant intercompany accounts and transactions between consolidated
entities have been eliminated. Entities which the Company does not control are
accounted for on the equity method. Undistributed earnings of such entities
included in retained earnings are $418,000 at January 31, 1997.
The Company is required to make estimates and assumptions when preparing
its financial statements and accompanying notes in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
Certain prior years' amounts in the accompanying financial statements have
been reclassified to conform to the current year's presentation. The
Consolidated Statements of Cash Flows have been presented using the direct
method, whereas the indirect method was used in prior years.
RECOGNITION OF REVENUE AND PROFIT
REAL ESTATE SALES -- The Company follows the provisions of Statement of
Financial Accounting Standards (SFAS) No. 66, "Accounting for Sales of Real
Estate" for reporting the disposition of properties.
LEASING OPERATIONS -- The Company enters into leases with tenants in its
rental properties. The lease terms of tenants occupying space in the shopping
centers and office buildings range from 1 to 25 years, excluding leases with
anchor tenants. Minimum rent revenues are recognized when due from tenants.
Leases with most shopping center tenants provide for percentage rents when the
tenants' sales volumes exceed stated amounts. The Company is also reimbursed for
certain expenses related to operating its commercial properties.
F-8
<PAGE> 151
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
LUMBER BROKERAGE -- The Company recognizes the gross margin on these sales
as revenue. Sales invoiced for the years 1996 through 1994 were approximately
$2,884,000,000, $2,337,500,000 and $2,697,500,000, respectively.
CONSTRUCTION -- Revenue and profit on long-term fixed-price contracts are
reflected under the percentage-of-completion method. On reimbursable cost-plus
fee contracts, revenues are recorded in the amount of the accrued reimbursable
costs plus proportionate fees at the time the costs are incurred.
RECOGNITION OF COSTS AND EXPENSES
Operating expenses primarily represent the recognition of operating costs,
administrative expenses and taxes other than income taxes.
For financial reporting purposes, interest and real estate taxes during
development and construction are capitalized as a part of the project cost.
Depreciation is generally computed on a straight-line method over the
estimated useful asset lives. The estimated useful lives of buildings range from
20 to 50 years.
Major improvements are capitalized and expensed through depreciation
charges. Repairs, maintenance and minor improvements are expensed as incurred.
Costs and accumulated depreciation applicable to assets retired or sold are
eliminated from the respective accounts and any resulting gains or losses are
reported in the Consolidated Statements of Earnings.
The Company periodically reviews its properties to determine if its
carrying costs will be recovered from future operating cash flows. In cases
where the Company does not expect to recover its carrying costs, an impairment
loss is recorded as a provision for decline in real estate.
LAND OPERATIONS
Land held for development or sale is stated at the lower of carrying amount
or fair value less cost to sell.
INVENTORIES
The lumber brokerage inventories are stated at the lower of cost or market.
Inventory cost is determined by specific identification and average cost
methods.
OTHER ASSETS
Included in other assets are costs incurred in connection with obtaining
financing, which are deferred and amortized over the life of the related debt.
Costs incurred in connection with leasing space to tenants are also included in
other assets and are deferred and amortized on the straight-line method over the
lives of the related leases.
INCOME TAXES
Deferred tax assets and liabilities reflect the tax consequences on future
years of differences between the tax and financial statement basis of assets and
liabilities at year-end. The Company has recognized the benefits of its tax loss
carryforward and general business tax credits which it expects to use as a
reduction of the deferred tax expense.
F-9
<PAGE> 152
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company determined the estimated fair value of its debt and hedging
instruments by aggregating the various types (i.e. fixed-rate versus
variable-rate debt) and discounting future cash payments at interest rates that
the Company believes approximates the current market. There was no material
difference in the carrying amount and the estimated fair value of the Company's
total mortgage debt and hedging instruments.
INTEREST RATE PROTECTION AGREEMENTS
The Company maintains a practice of hedging its variable interest rate risk
by purchasing interest rate caps or entering into interest rate swap agreements
for periods of one to five years. The principal risk to the Company through its
interest rate hedging strategy is the potential inability of the financial
institution from which the interest rate protection was purchased to cover all
of its obligations. To mitigate this exposure, the Company purchases its
interest rate protection from either the institution that holds the debt or from
institutions with a minimum A credit rating.
The cost of interest rate protection is capitalized in other assets in the
Consolidated Balance Sheets and amortized over the benefit period as interest
expense in the Consolidated Statements of Earnings.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion (APBO) No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations to
account for stock-based compensation. As such, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of grant over the amount the employee is required to
pay for the stock.
STOCK SPLIT
On December 11, 1996, the Board of Directors declared a three-for-two stock
split of the Company's common stock payable February 17, 1997 to shareholders of
record on February 3, 1997. The stock split was effected as a stock dividend.
The stock split is given retroactive effect to the beginning of the earliest
period presented in the accompanying Consolidated Balance Sheets and
Consolidated Statements of Shareholders' Equity by transferring the par value of
the additional shares issued from the additional paid-in capital account to the
common stock accounts. All share and per share data included in this annual
report, including stock option plan information, have been restated to reflect
the stock split.
EARNINGS PER SHARE
Earnings per share are computed by dividing net earnings by the weighted
average number of common shares outstanding during the year of 13,155,236 in
1996, 13,480,164 in 1995 and 13,487,421 in 1994. Stock options outstanding
during 1996 did not have a material dilutive effect on earnings per share.
CAPITAL STOCK
Class B common stock is convertible into Class A common stock on a
share-for-share basis. The 1,000,000 authorized shares of preferred stock
without par value, none of which have been issued, may be convertible into Class
A common stock.
F-10
<PAGE> 153
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
Class A common shareholders elect 25% of the members of the Board of
Directors and Class B common shareholders elect the remaining directors
annually. The Company currently has 12 directors.
During 1996, the Company repurchased 232,950 shares of Class A and 26,550
shares of Class B common stock, and during 1995, the Company repurchased 3,000
shares of Class A and 112,500 shares of Class B common stock. All these shares
were held in treasury at January 31, 1997.
NEW ACCOUNTING STANDARD
Effective February 1, 1996, the Company adopted the provisions of SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". SFAS No. 121 requires that long-lived assets to be
held and used or disposed of should be reviewed for impairment whenever events
or changes in circumstances indicate the carrying amount of an asset may not be
recoverable. The Company adopted SFAS No. 121 and determined that no impairment
loss is required to be recognized for real estate held and used or to be
disposed of in the current year.
B. REAL ESTATE AND RELATED ACCUMULATED DEPRECIATION AND NONRECOURSE MORTGAGE
DEBT
The components of real estate cost and related nonrecourse mortgage debt
are presented below.
<TABLE>
<CAPTION>
January 31, 1997
-----------------------------------------------------
Less Nonrecourse
Total Accumulated Net Mortgage
Cost Depreciation Cost Debt
---------- ------------ ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Completed rental properties
Residential.................... $ 605,201 $ 110,467 $ 494,734 $ 496,545
Commercial
Shopping centers............ 787,468 125,721 661,747 682,596
Office and other
buildings................. 835,190 151,545 683,645 657,189
Corporate and other
equipment................... 19,534 12,097 7,437 --
---------- ---------- ----------- -----------
2,247,393 399,830 1,847,563 1,836,330
---------- ---------- ----------- -----------
Projects under development
Residential.................... 46,564 -- 46,564 9,601
Commercial
Shopping centers............ 91,223 -- 91,223 8,729
Office and other
buildings................. 82,350 -- 82,350 12,070
---------- ---------- ----------- -----------
220,137 -- 220,137 30,400
---------- ---------- ----------- -----------
Land held for development or
sale........................... 52,649 -- 52,649..... 31,698
---------- ---------- ----------- -----------
$2,520,179 $ 399,830 $ 2,120,349 $ 1,898,428
========== ========== =========== ===========
</TABLE>
F-11
<PAGE> 154
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
C. NOTES AND ACCOUNTS RECEIVABLE, NET
Notes and accounts receivable are summarized below.
<TABLE>
<CAPTION>
January 31,
---------------------
1997 1996
--------- ---------
(in thousands)
<S> <C> <C>
Lumber brokerage............................................ $ 153,944 $ 116,295
Real estate sales........................................... 14,509 13,862
Syndication activities...................................... 12,865 15,072
Receivable from tenants..................................... 12,795 12,527
Other receivables........................................... 15,840 14,108
--------- ---------
209,953 171,864
Allowance for doubtful accounts............................. (4,994) (3,687)
--------- ---------
$ 204,959 $ 168,177
========= =========
</TABLE>
Notes receivable at January 31, 1997 of $24,536,000, reflected in real
estate sales and syndication activities in the table above, are collectible
primarily over five years, with $15,488,000 being due within one year. The
weighted average interest rate at January 31, 1997 and 1996 was 9.2% and 11.8%,
respectively.
In July 1996, the Lumber Trading Group entered into a three-year agreement
under which it is selling an undivided interest in a pool of accounts receivable
up to a maximum of $90,000,000. At January 31, 1997 and 1996, the Company had
received $34,000,000 and $27,000,000, respectively, as net proceeds from this
transaction. The program is non-recourse to the Company and the Company bears no
risk as to the collectability of the accounts receivable. An interest in
additional accounts receivable may be sold as collections reduce previously sold
interests.
D. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Included in accounts payable and accrued expenses at January 31, 1997 and
1996 are book overdrafts of approximately $66,971,000 and $48,316,000,
respectively. The overdrafts are a result of the Company's cash management
program and represent checks issued but not yet presented to a Company bank for
collection.
E. NOTES PAYABLE
The components of notes payable, which represent indebtedness whose
original maturity dates are within one year of issuance, are as follows.
<TABLE>
<CAPTION>
January 31,
-----------------
1997 1996
------- -------
(in thousands)
<S> <C> <C>
Payable To
Banks.................................................... $15,191 $12,743
Other.................................................... 21,850 7,113
------- -------
$37,041 $19,856
======= =======
</TABLE>
Notes payable to banks reflect borrowings on the Lumber Trading Group's
$46,000,000 bank lines of credit. The Company has the right to borrow an
additional $10,000,000 for up to 90 days through
F-12
<PAGE> 155
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
E. NOTES PAYABLE -- CONTINUED
May 31, 1997 under these bank lines of credit. Borrowings under these bank lines
of credit, which are non-recourse to the Company, are collateralized by all the
assets of the Lumber Trading Group and bear interest at prime and has a fee of
1/5% per annum on the unused portion of the available commitment. These bank
lines of credit are subject to review and extension annually. The weighted
average interest rate was 8.3% and 8.9% at January 31, 1997 and 1996,
respectively.
Interest expense on notes payable was $5,166,000 in 1996, $5,078,000 in
1995 and $5,321,000 in 1994. Interest actually paid on notes payable was
$5,097,000 in 1996, $5,129,000 in 1995 and $5,527,000 in 1994.
F. MORTGAGE DEBT, NONRECOURSE
Mortgage debt, which is collateralized by completed rental properties,
projects under development and certain undeveloped land, is as follows.
<TABLE>
<CAPTION>
January 31,
----------------------------------------------
<S> <C> <C> <C> <C>
1997 1996
-------------------- --------------------
<CAPTION>
(dollars in thousands)
RATE(1) Rate(1)
---- ----
<S> <C> <C> <C> <C>
Fixed................................. $917,547... 7.96% $ 738,217 8.09%
Variable --
Taxable(2).......................... 769,169 7.38 910,767 7.16
Tax-Exempt.......................... 134,302 4.38 128,199 4.13
UDAG and other subsidized loans....... 77,410 2.60 54,876 2.56
---------- ----------
$1,898,428 7.25 $1,832,059 7.19
========== ==========
</TABLE>
- ---------------
(1) The weighted average interest rates shown above include both the base index
and the lender margin.
(2) At February 1, 1997, $330,385,000 of this debt is subject to interest rate
swaps as described below.
Debt related to projects under development at January 31, 1997 totals
$30,400,000, out of a total commitment from lenders of $93,461,000. Of this
outstanding debt, $25,288,000 is variable-rate debt and $5,112,000 is fixed-rate
debt. The Company generally borrows funds for development and construction
projects with maturities of three to seven years utilizing variable-rate
financing. Upon opening and achieving stabilized operations, the Company
generally obtains long-term fixed-rate financing.
F-13
<PAGE> 156
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
F. MORTGAGE DEBT, NONRECOURSE -- CONTINUED
As of January 31, 1997, the Company had entered into $378,385,000 of London
Interbank Offered Rate ("LIBOR") interest rate swap agreements for durations
ranging from one to five years, as follows.
<TABLE>
<CAPTION>
SWAP BASE PRINCIPAL
LIBOR RATE PERIOD OUTSTANDING
- ---------- ------------------- --------------
(in thousands)
<S> <C> <C>
6.25% 03/15/96 - 12/29/00 $ 21,624
6.28% 04/15/96 - 04/15/99 99,095
6.54% 06/03/96 - 10/31/00 58,052
6.64% 01/02/97 - 01/04/99 39,750
6.21% 02/01/97 - 02/01/98 80,000
6.28% 05/01/96 - 11/12/01 31,864
6.25% 05/01/97 - 02/01/98 48,000
--------
$378,385
========
</TABLE>
The effect of these interest rate swap agreements reduces the Company's
outstanding taxable variable-rate debt at February 1, 1997, to $438,784,000,
which is 23.1% of the total mortgage debt.
In addition, the Company has purchased LIBOR interest rate caps ranging
from 6.50% to 9.85% on $40,969,000 of its variable-rate debt with varying
expiration dates through February 1, 2001.
The Urban Development Action Grants and other subsidized loans bear
interest at rates which are below prevailing commercial lending rates and are
granted to the Company as an inducement to develop real estate in economically
underdeveloped areas. A right to participate by the local government in the
future cash flows of the project is generally a condition of these loans.
Participation in annual cash flows generated from operations is recognized as an
expense in the period earned. Participation in appreciation and cash flows
resulting from a sale or refinancing is recorded as an expense at the time of
sale or is capitalized as additional basis and amortized if amounts are paid
prior to the disposition of the property.
Mortgage debt maturities for the next five years ending January 31 are as
follows: 1998, $288,915,000; 1999, $167,563,000; 2000, $416,612,000; 2001,
$318,753,000 and 2002, $98,186,000.
The Company is engaged in discussions with its current lenders and is
actively pursuing new lenders to extend and refinance the mortgage debt that
matures. The Company intends to convert a significant portion of its existing
variable-rate debt to fixed-rate mortgages in order to reduce the volatility in
the Company's project mortgage interest expense.
Interest incurred on mortgage debt was $129,241,000 in 1996, $126,520,000
in 1995 and $110,899,000 in 1994, of which $1,383,000, $2,861,000 and $2,156,000
was capitalized, respectively. Interest actually paid on mortgage debt, net of
capitalized interest, was $122,341,000 in 1996, $118,889,000 in 1995 and
$105,256,000 in 1994.
F-14
<PAGE> 157
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
G. LONG-TERM DEBT
Long-term debt is as follows.
<TABLE>
<CAPTION>
January 31,
-------------------
1997 1996
------- --------
(in thousands)
<S> <C> <C>
Term loan................................................... $45,000 $ 55,000
Revolving credit agreement.................................. 48,000 53,000
Other debt.................................................. 1,923 5,061
------- --------
$94,923 $113,061
======= ========
</TABLE>
At January 31, 1997, the Company had a term loan maturing July 1, 2001 and
an $80,000,000 revolving credit agreement maturing July 25, 1998. The term loan
requires quarterly principal payments of $2,500,000. The revolving credit
agreement allows for up to $20,000,000 in outstanding letters of credit (none of
which were outstanding at January 31, 1997), which shall reduce the revolving
credit portion available to the Company. At its maturity, the revolving credit
agreement may be renewed annually or converted to a seven-year term loan by the
Company. The term loan and revolving credit agreement provide, among other
things, for 1) interest rates which range from 1/4% to 3/4% over the prime
rate or 2% to 2 1/2% over LIBOR; 2) the maintenance of a specified level of net
worth and cash flows (as defined); and 3) a restriction on dividend payments. At
January 31, 1997, approximately $7,203,000 of retained earnings were available
for payment of dividends.
The Company has entered into an interest rate swap agreement to fix
$87,000,000 of the term loan and revolving credit agreement at the base LIBOR
rate of 6.21% plus lender margin for the period February 1, 1997 to February 1,
1998.
Interest rates on the other debt ranged primarily from 6.1% to 12.3% at
January 31, 1997.
Maturities of other debt for the next five years ending January 31 are as
follows: 1998, $850,000; 1999, $794,000; 2000, $151,000; 2001, $80,000; and
2002, $22,000.
Interest incurred on long-term debt was $6,982,000 in 1996, $7,764,000 in
1995 and $7,650,000 in 1994 of which $6,642,000, $6,500,000 and $4,893,000 was
capitalized, respectively. Interest actually paid on long-term debt was
$7,116,000 in 1996, $7,991,000 in 1995 and $7,790,000 in 1994.
CONSOLIDATED INTEREST
Total interest incurred on all forms of indebtedness (included in Notes E,
F and G) was $141,389,000 in 1996, $139,362,000 in 1995 and $123,870,000 in 1994
of which $8,025,000, $9,361,000 and $7,049,000 was capitalized, respectively.
Interest paid on all forms of indebtedness was $134,554,000 in 1996,
$132,009,000 in 1995 and $118,573,000 in 1994.
F-15
<PAGE> 158
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
H. INCOME TAXES
The provision (benefit) for income taxes consists of the following
components.
<TABLE>
<CAPTION>
For the Years Ended January 31,
---------------------------------
1997 1996 1995
-------- -------- ---------
(in thousands)
<S> <C> <C> <C>
Current
Federal........................................ $ 896 $ 159 $ 4,764
Foreign........................................ 580 143 63
State.......................................... 459 68 1,230
------- ------- --------
1,935 370 6,057
------- ------- --------
Deferred
Federal........................................ 6,985 6,083 (9,945)
Foreign........................................ (126) -- --
State.......................................... 4,157 4,170 (2,076)
------- ------- --------
11,016 10,253 (12,021)
------- ------- --------
Total provision (benefit)........................ $12,951 $10,623 $ (5,964)
======= ======= ========
</TABLE>
The effective tax rate for income taxes varies from the federal statutory
rate of 35% for 1996, 1995 and 1994 due to the following items.
<TABLE>
<CAPTION>
For the Years Ended January 31,
---------------------------------
1997 1996 1995
-------- -------- ---------
(in thousands)
<S> <C> <C> <C>
Statement earnings (loss) before income taxes.... $22,122 $17,562 $(24,497)
======= ======= ========
Income taxes computed at the statutory rate...... $ 7,742 $ 6,146 $ (8,574)
Increase (decrease) in tax resulting from:
State taxes, net of federal benefit............ 3,000 2,220 (839)
Contribution carryover......................... 811 520 494
Nondeductible lobbying costs................... 811 -- --
Adjustment of prior estimated taxes............ (111) 566 589
Valuation allowance............................ 351 897 102
Losses without tax benefits.................... -- -- 2,067
Other items.................................... 347 274 197
------- ------- --------
Total provision (benefit)........................ $12,951 $10,623 $ (5,964)
======= ======= ========
</TABLE>
F-16
<PAGE> 159
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
H. INCOME TAXES -- CONTINUED
An analysis of the deferred tax provision (benefit) is as follows.
<TABLE>
<CAPTION>
For the Years Ended January 31,
---------------------------------
1997 1996 1995
-------- -------- ---------
(in thousands)
<S> <C> <C> <C>
Excess of tax over statement depreciation and
amortization................................... $ 4,730 $ 5,743 $ 8,046
Allowance for doubtful accounts deducted for
statement purposes............................. (349) 461 (464)
Costs on land and rental properties under
development expensed for tax purposes.......... 3,244 (515) 366
Revenues and expenses recognized in different
periods for tax and statement purposes......... (2,652) 6,224 (14,893)
Development fees deferred for statement
purposes....................................... (109) (1,326) (400)
Provision for decline in real estate............. (1,650) 3,547 (3,547)
Deferred state taxes, net of federal benefit..... 2,392 2,565 757
Interest on construction advances deferred for
statement purposes............................. (189) (953) 1,609
Benefits of tax loss carryforward recognized
against deferred taxes......................... 3,187 (5,656) (1,869)
Deferred compensation............................ 2,061 (734) (1,728)
Valuation allowance.............................. 351 897 102
------- ------- --------
Deferred provision (benefit)..................... $11,016 $10,253 $(12,021)
======= ======= ========
</TABLE>
The types of differences that give rise to significant portions of the
deferred income tax liability are as follows.
<TABLE>
<CAPTION>
TEMPORARY DEFERRED TAX
DIFFERENCES (ASSET)LIABILITY
----------- ----------------
(in thousands)
<S> <C> <C>
Depreciation........................................... $237,653 $ 93,992
Capitalized costs...................................... 142,517 56,365
Net operating losses................................... (88,868) (35,147)
General business credits............................... -- (3,601)
Other.................................................. 2,996 3,879
-------- --------
$294,298 $115,488
======== ========
</TABLE>
Income taxes paid (refunded) totaled $830,000, $(888,000) and $3,244,000 in
1996, 1995 and 1994, respectively. At January 31, 1997, the Company had a net
operating loss carryforward for tax purposes of $88,868,000 which will expire in
the years ending January 31, 2005 through January 31, 2011 and general business
credits carryovers of $3,601,000 which will expire in the years ending January
31, 2003 through January 31, 2011. The Company's deferred tax liability at
January 31, 1997 is comprised of deferred liabilities of $194,574,000, deferred
assets of $83,832,000 and a valuation allowance related to state taxes and
general business credits of $4,746,000.
F-17
<PAGE> 160
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
I. SEGMENT INFORMATION
Principal business groups are determined by the type of customer served or
the product sold. The COMMERCIAL GROUP develops, acquires, owns and operates
shopping centers, office buildings and mixed-use projects including hotels. The
RESIDENTIAL GROUP develops or acquires, and owns and operates the Company's
multi-family properties. The LAND GROUP owns and develops raw land into master
planned communities and other residential developments for resale to users
principally in Arizona, Florida, Nevada, New York and Ohio. The LUMBER TRADING
GROUP operates the Company's lumber wholesaling business. CORPORATE includes
interest on corporate borrowings and general administrative expenses. The
following tables summarize selected financial data by business segment for the
fiscal years ended January 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
For the Years Ended January 31,
------------------------------------------------------------------
Earnings (Loss) Before
Revenues Income Taxes
--------------------------------- ------------------------------
1997 1996 1995 1997 1996 1995
--------- --------- --------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial Group...................................... $309,834 $294,241 $258,966 $(1,656) $12,283 $ 7,482
Residential Group(1).................................. 116,525 105,749 128,124 6,795 7,238 4,880
Land Group............................................ 53,888 42,889 48,894 6,007 3,823 3,290
Lumber Trading Group(2)............................... 124,491 81,093 80,590 8,966 5,826 4,906
Provision for decline in real estate.................. -- -- -- (12,263) (9,581) (10,133)
Gain (loss) on disposition of properties.............. -- -- -- 17,574 (754) (30,835)
Corporate............................................. 5,711 5,461 6,034 (3,301) (1,273) (4,087)
-------- -------- -------- ------- ------- --------
Consolidated...................................... $610,449 $529,433 $522,608 $22,122 $17,562 $(24,497)
======== ======== ======== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended January 31,
---------------------------------
Real Estate
---------------------------------
Identifiable Assets at
January 31, Additions, net
--------------------------------------- ---------------------------------
1997 1996 1995 1997 1996 1995
----------- ----------- ----------- -------- --------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial Group........ $1,699,056 $1,640,810 $1,566,320 $ 84,972 $ 83,623 $ 95,264
Residential Group(1).... 642,873 613,480 614,609 26,120 27,612 (184,465)
Land Group.............. 88,953 121,031 126,680 (25,658) (8,887) 5,791
Lumber Trading Group.... 209,901 172,305 175,107 2,285 (504) 542
Corporate............... 100,622 83,420 102,018 7,377 1,103 (62)
---------- ---------- ---------- -------- -------- ---------
Consolidated........ $2,741,405 $2,631,046 $2,584,734 $ 95,096 $102,947 $ (82,930)
========== ========== ========== ======== ======== =========
<CAPTION>
For the Years Ended January 31,
------------------------------
Real Estate
------------------------------
Depreciation and
Amortization
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Commercial Group........ $54,875 $49,572 $46,870
Residential Group(1).... 15,419 14,001 17,108
Land Group.............. 748 59 90
Lumber Trading Group.... 2,140 1,962 1,377
Corporate............... 122 122 135
------- ------- -------
Consolidated........ $73,304 $65,716 $65,580
======= ======= =======
</TABLE>
- ---------------
(1) The Residential Group includes the Company's apartment and residential
development divisions. In prior years, these divisions were reported
separately. Segment information for the years ended January 31, 1996 and
1995 in this Note I combines these divisions to conform to the current year
presentation.
(2) The Company recognizes the gross margin on lumber brokerage sales as
revenue. Sales invoiced for the years ended January 31, 1997, 1996 and 1995
were approximately $2,884,000,000, $2,337,500,000 and $2,697,500,000,
respectively.
F-18
<PAGE> 161
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
J. LEASES
THE COMPANY AS LESSOR
The following summarizes the minimum future rental income to be received on
noncancelable operating leases of commercial properties that generally extend
for periods of more than one year.
<TABLE>
<CAPTION>
FOR THE YEARS
ENDING JANUARY 31,
------------------
(in thousands)
<S> <C>
1998........................................................ $ 152,852
1999........................................................ 149,394
2000........................................................ 142,181
2001........................................................ 134,404
2002........................................................ 116,515
Later years................................................. 823,259
----------
Total minimum future rentals........................... $1,518,605
==========
</TABLE>
Most of the commercial leases include provisions for reimbursements of
other charges including real estate taxes and operating costs. Other charges
amounted to $94,033,000, $84,533,000 and $83,881,000 in 1996, 1995 and 1994,
respectively.
THE COMPANY AS LESSEE
The Company is a lessee under various operating leasing arrangements for
real property and equipment having terms expiring through 2076, excluding
optional renewal periods.
Minimum fixed rental payments under long-term leases (over one year) in
effect at January 31, 1997 are as follows.
<TABLE>
<CAPTION>
FOR THE YEARS
ENDING JANUARY 31,
------------------
(in thousands)
<S> <C>
1998................................ $ 9,425
1999................................ 8,711
2000................................ 6,874
2001................................ 6,373
2002................................ 5,651
Later years......................... 140,915
--------
Total minimum lease payments...... $177,949
========
</TABLE>
Rent expense was $8,813,000, $6,986,000 and $6,468,000 for 1996, 1995 and
1994, respectively.
K. CONTINGENT LIABILITIES
As of January 31, 1997, the Company has guaranteed loans totaling
$1,661,000 and has $12,555,000 in outstanding letters of credit.
The Company customarily guarantees lien-free completion of its
construction. Upon completion the guarantees are released. The Company is also
involved in certain claims and litigation related to its operations. Based upon
the facts known at this time, management is of the opinion that the ultimate
F-19
<PAGE> 162
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
K. CONTINGENT LIABILITIES -- CONTINUED
outcome of all such claims and litigation will not have a material adverse
effect on the financial condition, results of operations or cash flows of the
Company.
L. STOCK OPTION PLAN
During 1994, the Board of Directors of the Company and the shareholders
approved the 1994 Stock Option Plan ("Plan"). Shares may be awarded under the
Plan to key employees in the form of either incentive stock options or
non-qualified stock options. The aggregate number of shares that may be awarded
during the term of the Plan is 375,000 shares, subject to adjustments under the
Plan. The maximum number of shares that may be awarded to any employee during
any calendar year is 37,500 shares. The exercise price of all non-qualified and
incentive stock options shall be at least equal to the fair market value of a
share on the date the option is granted unless the grantee of incentive stock
options constructively owns more than ten percent of the total combined voting
power of all classes of stock of the Company, in which case the exercise price
of each incentive stock option shall be not less than 110% of the fair market
value of a share on the date granted. The Plan is administered by the
Compensation Committee of the Board of Directors. During 1996, 180,900 Class A
fixed stock options were granted. The options have a term of 10 years and vest
over two to four years. No options were granted in 1994 and 1995.
The Company applies APBO No. 25 and related Interpretations in accounting
for its Plan. Accordingly, no compensation cost has been recognized for its
Plan. During 1996, the Company adopted the disclosure provisions of SFAS No. 123
"Accounting for Stock-Based Compensation." Had compensation cost been determined
in accordance with SFAS No. 123, net earnings and earnings per share for 1996
would have been reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
NET EARNINGS
EARNINGS PER SHARE
-------------- ---------
(in thousands)
<S> <C> <C>
As reported............................................... $12,071 $.92
Pro forma................................................. $11,846 $.90
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
the grant in 1996: dividend yield of .5%; expected volatility of 30.7%;
risk-free interest rate of 6.5%; and expected life of 8.7 years.
F-20
<PAGE> 163
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
L. STOCK OPTION PLAN -- CONTINUED
A summary of stock option activity during 1996 is presented below.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at beginning of year........................ --
Granted................................................. 180,900 $28.75
Exercised............................................... --
Forfeited............................................... --
---------
Outstanding at end of year.............................. 180,900 $28.75
=========
Options exercisable at year end......................... --
=========
Weighted average fair value of options granted during
the year.............................................. $ 14.37
=========
Range of exercise prices................................ $ 28.75
=========
Weighted average remaining contractual life............. 9.6 years
=========
</TABLE>
M. SUMMARIZED FINANCIAL INFORMATION
Forest City Rental Properties Corporation ("Rental Properties") is a
wholly-owned subsidiary engaged in the development, acquisition and management
of real estate projects, including apartment complexes, regional malls and
shopping centers, hotels, office buildings and mixed-use facilities. Condensed
consolidated balance sheets and statements of earnings for Rental Properties and
its subsidiaries follows.
F-21
<PAGE> 164
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
M. SUMMARIZED FINANCIAL INFORMATION -- CONTINUED
FOREST CITY RENTAL PROPERTIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31,
------------------------
1997 1996
---------- ----------
(in thousands)
<S> <C> <C>
ASSETS
Real Estate
Completed rental properties............................... $2,227,859 $2,085,284
Projects under development................................ 215,960 246,240
---------- ----------
2,443,819 2,331,524
Less accumulated depreciation............................. (387,733) (338,216)
---------- ----------
Total Real Estate................................. 2,056,086 1,993,308
Cash........................................................ 14,194 24,430
Other Assets................................................ 267,596 250,171
---------- ----------
$2,337,876 $2,267,909
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES
Mortgage debt, nonrecourse.................................. $1,866,730 $1,767,910
Accounts payable and accrued expenses....................... 101,532 130,099
Long-term debt.............................................. 93,467 108,049
Other liabilities and deferred credits...................... 157,466 150,143
---------- ----------
Total Liabilities................................. 2,219,195 2,156,201
---------- ----------
SHAREHOLDER'S EQUITY
Common stock and additional paid-in capital................. 5,378 5,378
Retained earnings........................................... 113,303 106,330
---------- ----------
Total Shareholder's Equity........................ 118,681 111,708
---------- ----------
$2,337,876 $2,267,909
========== ==========
</TABLE>
F-22
<PAGE> 165
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
M. SUMMARIZED FINANCIAL INFORMATION -- CONTINUED
FOREST CITY RENTAL PROPERTIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
For the Years Ended January 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Revenues................................................ $426,226 $398,576 $386,858
-------- -------- --------
Operating expenses...................................... 228,110 198,282 205,707
Interest expense........................................ 121,186 117,560 104,836
Provision for decline in real estate.................... 11,684 9,581 10,133
Depreciation and amortization........................... 70,221 63,557 63,956
-------- -------- --------
431,201 388,980 384,632
-------- -------- --------
Gain (loss) on disposition of properties................ 17,574 (754) (30,835)
-------- -------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES..................... 12,599 8,842 (28,609)
INCOME TAX EXPENSE (BENEFIT)
Current............................................... (989) (1,213) (375)
Deferred.............................................. 9,515 6,925 (7,573)
-------- -------- --------
8,526 5,712 (7,948)
-------- -------- --------
NET EARNINGS (LOSS) BEFORE EXTRAORDINARY GAIN........... 4,073 3,130 (20,661)
Extraordinary gain, net of tax.......................... 2,900 1,847 60,449
-------- -------- --------
NET EARNINGS............................................ $ 6,973 $ 4,977 $ 39,788
======== ======== ========
</TABLE>
N. GAIN (LOSS) ON DISPOSITION AND EXTRAORDINARY GAIN
During 1996, the Company recorded a gain on disposition of properties of
$17,574,000, before tax of $7,976,000, primarily resulting from the sale of its
18.63% interest in Beachwood Place, a regional shopping center in suburban
Cleveland, Ohio. In 1995, a loss on disposition of properties of $754,000,
before tax of $276,000, was recognized on the sale of a California apartment
complex.
Extraordinary gains, net of tax, of $2,900,000 and $1,847,000 were recorded
for 1996 and 1995, respectively. These gains were the result of the
extinguishment of nonrecourse mortgage debt and related accrued interest on
three rental properties. In 1994, loss on disposition of properties of
$19,181,000, net of tax of $11,654,000, was recognized on the sale of Park
LaBrea Towers, a 2,825-unit apartment complex located in Los
Angeles, California. Prior to the sale transaction, an extraordinary gain of
$56,462,000, net of tax of $27,715,000, was recorded as a result of
extinguishment of nonrecourse purchase money mortgage debt and related accrued
interest.
Also in 1994, two other rental properties recognized extraordinary gains on
nonrecourse debt extinguishment, amounting to $3,987,000, net of tax.
O. SUBSEQUENT EVENT
During February 1997, the Company settled litigation with the original land
owner of Toscana, a 563-unit apartment complex in Irvine, California, and in
connection therewith sold the property to the original land owner. As a result
of these transactions, the Company recorded litigation settlement proceeds of
$15,000,000, a pre-tax loss on disposition of the property of $35,505,000, and a
pre-tax
F-23
<PAGE> 166
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
O. SUBSEQUENT EVENT -- CONTINUED
extraordinary gain of $18,272,000 related to the extinguishment of a portion of
the nonrecourse mortgage debt. The net result of these transactions to the
Company was a pre-tax loss of $2,233,000.
QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------------
JAN. 31, OCT. 31, JULY 31, Apr. 30, Jan. 31, Oct. 31, July 31, Apr. 30,
FISCAL YEAR 1997 1996 1996 1996 1996 1995 1995 1995
----------- -------- -------- --------- -------- -------- -------- --------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $169,177 $163,809 $148,492 $128,971 $170,643 $126,399 $120,807 $111,584
Earnings (loss) before income
taxes(1).................... $ 2,065 $ 15,527 $ 5,488 $ (958) $ 21,131 $ 1,706 $ (998) $ (4,277)
Net earnings (loss) before
extraordinary gain(1)(2).... $ (759) $ 8,054 $ 2,822 $ (946) $ 10,450 $ 601 $ (903) $ (3,209)
Net earnings (loss)........... $ (759) $ 10,047 $ 3,729 $ (946) $ 10,450 $ 601 $ 944 $ (3,209)
Net earnings (loss) before
extraordinary gain per
common share(1)(2)(4)....... $ (.05) $ .61 $ .21 $ (.07) $ .77 $ .04 $ (.06) $ (.24)
Net earnings (loss) per common
share(4).................... $ (.05) $ .76 $ .28 $ (.07) $ .77 $ .04 $ .08 $ (.24)
Dividends declared per common
share(3)(4)
Annual dividend
Class A................... $ -- $ .21 $ -- $ -- $ -- $ .17 $ -- $ --
Class B................... $ -- $ .21 $ -- $ -- $ -- $ .17 $ -- $ --
Quarterly dividend
Class A................... $ .06 $ -- $ -- $ -- $ -- $ -- $ -- $ --
Class B................... $ .06 $ -- $ -- $ -- $ -- $ -- $ -- $ --
Market price range of common
stock(4)
Class A
High...................... $ 41.67 $ 33.08 $ 28.08 $ 25.50 $ 24.50 $ 26.33 $ 26.33 $ 23.50
Low....................... $ 32.67 $ 27.83 $ 24.50 $ 22.00 $ 21.33 $ 24.50 $ 22.00 $ 20.25
Class B
High...................... $ 40.67 $ 32.67 $ 28.08 $ 25.42 $ 24.33 $ 26.00 $ 26.25 $ 23.58
Low....................... $ 32.75 $ 27.92 $ 24.92 $ 22.17 $ 21.33 $ 24.50 $ 22.33 $ 20.75
</TABLE>
- ---------------
Both classes of common stock are traded on the American Stock Exchange
("Exchange") under the symbols, FCEA and FCEB. High and low prices shown are
based upon data provided by the Exchange.
As of March 4, 1997, the number of registered holders of Class A and Class B
common stock were 883 and 687, respectively.
(1) Third quarter 1996 data has been restated to reflect the reclassification of
$3,297,000, before taxes, from provision for decline in real estate to
extraordinary gain. This reclassification represents a $.15 reduction in net
earnings (loss) before extraordinary gain per common share, but has no
effect on net earnings of the Company.
(2) Excludes the extraordinary gain, net of tax of $2,900,000 ($.22 per share)
and $1,847,000 ($.14 per share), in fiscal 1996 and 1995, respectively.
These items are explained in Note N in the Notes to Consolidated Financial
Statements.
(3) Future dividends will depend upon such factors as earnings, capital
requirements and financial condition of the Company. Approximately
$7,203,000 of retained earnings were available for payment of dividends as
of January 31, 1997, under the restrictions contained in the term loan and
revolving credit agreement with a group of banks.
(4) Adjusted for three-for-two split of Class A and Class B common stock
effective February 17, 1997.
F-24
<PAGE> 167
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31,1997 January 31, 1997
---------------- ----------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(dollars in thousands)
<S> <C> <C>
ASSETS
Real Estate
Completed rental properties............................... $2,239,005 $2,247,393
Projects under development................................ 345,790 220,137
Land held for development or sale......................... 53,791 52,649
---------- ----------
2,638,586 2,520,179
Less accumulated depreciation............................. (435,623) (399,830)
---------- ----------
Total Real Estate................................. 2,202,963 2,120,349
Cash........................................................ 27,096 41,302
Notes and accounts receivable, net.......................... 196,618 204,959
Inventories................................................. 46,645 48,769
Investments in and advances to affiliates................... 174,452 145,242
Other assets................................................ 175,028 180,784
---------- ----------
$2,822,802 $2,741,405
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage debt, nonrecourse.................................. $1,941,887 $1,898,428
Accounts payable and accrued expenses....................... 346,099 378,230
Notes payable............................................... 26,288 37,041
Long-term debt.............................................. 91,865 94,923
Deferred income taxes....................................... 113,411 115,488
Deferred profit............................................. 24,270 25,317
---------- ----------
Total Liabilities................................. 2,543,820 2,549,427
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock -- convertible, without par value;
5,000,000 and 1,000,000 shares authorized, respectively;
no shares issued. ..................................... -- --
Common stock -- $.33 1/3 par value
Class A, 48,000,000 and 16,000,000 shares authorized,
9,896,486 and 7,932,358 shares issued, 9,582,836 and
7,696,408 outstanding, respectively. .................. 3,297 2,643
Class B, convertible, 18,000,000 and 6,000,000 shares
authorized, 5,545,490 and 5,554,618 shares issued,
5,406,440 and 5,415,568 outstanding, respectively. .... 1,848 1,851
---------- ----------
5,145 4,494
Additional paid-in capital.................................. 119,429 43,996
Retained earnings........................................... 165,893 152,077
---------- ----------
290,467 200,567
Less treasury stock, at cost: 313,650 Class A and 139,050
Class B; 235,950 Class A and 139,050 Class B shares,
respectively.............................................. (11,485) (8,589)
---------- ----------
Total Shareholders' Equity........................ 278,982 191,978
---------- ----------
$2,822,802 $2,741,405
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE> 168
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
October 31, Nine Months Ended October 31,
-------------------------- ------------------------------
1997 1996 1997 1996
----------- ----------- ------------- -------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues................................... $ 154,975 $ 163,809 $ 448,078 $ 441,272
----------- ----------- ----------- -----------
Operating expenses......................... 91,904 103,470 259,981 276,034
Interest expense........................... 32,655 32,851 96,261 99,401
Provision for decline in real estate....... -- 11,107 -- 11,107
Depreciation and amortization.............. 18,354 17,977 54,265 52,730
----------- ----------- ----------- -----------
142,913 165,405 410,507 439,272
----------- ----------- ----------- -----------
Gain (loss) on disposition of properties... -- 17,123 (38,637) 18,057
----------- ----------- ----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES........ 12,062 15,527 (1,066) 20,057
----------- ----------- ----------- -----------
INCOME TAX EXPENSE (BENEFIT)
Current.................................. 2,737 (927) 4,387 1,758
Deferred................................. (1,324) 8,400 (7,785) 8,369
----------- ----------- ----------- -----------
1,413 7,473 (3,398) 10,127
----------- ----------- ----------- -----------
NET EARNINGS BEFORE EXTRAORDINARY GAIN..... 10,649 8,054 2,332 9,930
Extraordinary gain, net of tax............. -- 1,993 14,187 2,900
----------- ----------- ----------- -----------
NET EARNINGS............................... 10,649 10,047 16,519 12,830
Retained earnings at beginning of period... 156,144 146,373 152,077 143,590
Dividends on common stock -- $.06 and $.18
per share, respectively in 1997; $.21 per
share in 1996............................ (900) (2,798) (2,703) (2,798)
----------- ----------- ----------- -----------
Retained earnings at end
of period................................ $ 165,893 $ 153,622 $ 165,893 $ 153,622
=========== =========== =========== ===========
Weighted average common shares
outstanding.............................. 15,003,634 13,122,421 14,272,223 13,169,612
=========== =========== =========== ===========
NET EARNINGS PER COMMON SHARE
Net earnings before extraordinary gain,
net of tax............................. $ 0.71 $ 0.62 $ 0.16 $ 0.75
Extraordinary gain, net of tax........... -- 0.15 1.00 0.22
----------- ----------- ----------- -----------
NET EARNINGS PER COMMON SHARE.............. $ 0.71 $ 0.77 $ 1.16 $ 0.97
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE> 169
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
October 31,
------------------------
1997 1996
--------- ---------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Rents and other revenues received......................... $ 431,987 401,571
Proceeds from land sales.................................. 15,237 25,942
Land development expenditures............................. (17,400) (15,629)
Operating expenditures.................................... (272,591) (231,240)
Interest paid............................................. (96,261) (99,401)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 60,972 81,243
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (209,999) (143,458)
Proceeds from disposition of property..................... -- 33,052
Investments in and advances to affiliates................. (27,121) (20,243)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES................... (237,120) (130,649)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgage and long-term debt................... 225,714 120,407
Principal payments on mortgage debt on real estate........ (44,681) (38,122)
Payments on long-term debt................................ (76,557) (24,319)
Increase in notes payable................................. 35,470 6,749
Payments on notes payable................................. (46,754) (13,384)
Decrease in restricted cash............................... 3,600 --
Payment of deferred financing costs....................... (5,448) (7,496)
Net proceeds from sale of common stock.................... 76,084 --
Purchase of treasury stock................................ (2,896) (6,080)
Dividends paid to shareholders............................ (2,590) --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... 161,942 37,755
--------- ---------
NET DECREASE IN CASH........................................ (14,206) (11,651)
CASH AT BEGINNING OF PERIOD................................. 41,302 39,145
--------- ---------
CASH AT END OF PERIOD....................................... 27,096 27,494
========= =========
RECONCILIATION OF NET EARNINGS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
NET EARNINGS................................................ $ 16,519 12,830
Depreciation.............................................. 42,974 40,157
Amortization.............................................. 11,291 12,573
(Decrease) increase in deferred income taxes.............. (2,241) 8,519
Loss (gain) on disposition of properties.................. 38,637 (18,057)
Provision for decline in real estate...................... -- 11,107
Extraordinary gain........................................ (18,272) (4,797)
(Increase) decrease in land held for development or
sale.................................................... (7,296) 2,428
Decrease (increase) in notes and accounts receivable...... 7,193 (24,609)
Decrease (increase) in inventories........................ 2,124 (1,143)
(Decrease) increase in accounts payable and accrued
expenses................................................ (25,344) 29,946
(Decrease) increase in deferred profit.................... (1,047) 2,285
(Increase) decrease in other assets....................... (3,566) 10,004
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... $ 60,972 81,243
========= =========
</TABLE>
F-27
<PAGE> 170
Supplemental Non-Cash Disclosure:
The following items represent the non-cash effect of an increase in the
Company's interest in Skylight Office Tower, the disposition of the Company's
interest in Toscana, a reduction of the Company's interest in MIT Phase II, and
the exchange of Woodridge during the period ended October 31, 1997 and a
reduction of the Company's interest in the Clark Building during the period
ended October 31, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31,
------------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Operating Activities
Notes and accounts receivable............................. $ (5,072) $ 212
Other assets.............................................. (121) 844
Accounts payable and accrued expenses..................... (6,900) (2,051)
Deferred taxes............................................ 164 --
--------- ---------
Total effect on operating activities................ $ (11,929) $ (995)
--------- ---------
Investing Activities
Capital expenditures...................................... $ 53,070 $ 9,073
Investments in and advances to affiliates................. 4,131 --
--------- ---------
Total effect on investing activities................ $ 57,201 $ 9,073
--------- ---------
Financing Activities
Mortgage and long-term debt............................... $ (45,803) $ (8,078)
Notes payable............................................. 531 --
--------- ---------
Total effect on financing activities................ $ (45,272) $ (8,078)
--------- ---------
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE> 171
FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
(UNAUDITED)
A. Extraordinary Gain
During the first quarter of 1997, the Company recorded an extraordinary
gain, net of tax, of $11,045,000, or $.84 per share, resulting from debt
extinguishment associated with Toscana, a 563-unit apartment complex which was
sold in February 1997. In the second quarter, the Company recorded an
extraordinary gain of $3,142,000, or $.22 per share, representing an adjustment
of the estimated income tax effect of the Toscana debt extinguishment that
occurred in the first quarter. See note E and "Sale of Toscana" in Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Corporate Activities.
B. Dividends
On March 19, 1997, the Board of Directors declared a regular quarterly cash
dividend of $.06 per share on both Class A and Class B common shares, payable
June 16, 1997, to shareholders of record on June 2, 1997.
On June 9, 1997, the Board of Directors declared a regular quarterly cash
dividend of $.06 per share on both Class A and Class B common shares, payable
September 15, 1997, to shareholders of record on September 2, 1997.
On September 8, 1997, the Board of Directors declared a regular quarterly
cash dividend of $.06 per share on both Class A and Class B common shares,
payable December 15, 1997, to shareholders of record on December 1, 1997.
On December 11, 1997, the Board of Directors declared a regular quarterly
cash dividend of $.07 per share on both Class A and Class B common shares,
payable March 16, 1998, to shareholders of record on March 2, 1998.
C. Authorized Shares
On June 10, 1997, the shareholders approved amendments to the Company's
Articles of Incorporation to increase the Company's capitalization to a)
48,000,000 shares of Class A common stock from 16,000,000 shares; b) 18,000,000
shares of Class B common stock from 6,000,000 shares; and c) 5,000,000 shares of
preferred stock from 1,000,000 shares.
D. Treasury Stock
On August 18, 1997, the Company purchased 77,700 shares of Class A common
stock owned by three children of Samuel H. Miller, the Company's Co-Chairman of
the Board of Directors, and Ruth Miller, who died on November 26, 1996. The
purchase price was $36.50 per share plus 8% interest from May 7, 1997 to August
18, 1997, less dividends paid between those two dates, for a total of
$2,896,000.
E. Earnings Per Share
Earnings per share for the nine months ended October 31, 1997 does not
equal the sum of the first three quarters because of the effect on weighted
average common shares outstanding caused by the public offering of Class A
common stock (see note F) and the purchase of treasury stock (see note D).
F-29
<PAGE> 172
F. Public Offering/Supplementary Earnings Per Share
On May 20, 1997, the Company sold to the public 1,955,000 shares of Class A
common stock at an initial price of $42.00 per share. Had the issuance of these
shares occurred at the beginning of each of the periods presented, earnings per
share would have been as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
OCTOBER 31, OCTOBER 31,
------------ -----------
1997 1996 1997 1996
----- ----- ----- ----
<S> <C> <C> <C> <C>
Net earnings before extraordinary gain, net of tax.......... $.71 $.54 $ .16 $.66
Extraordinary gain, net of tax.............................. -- .13 .94 .19
---- ---- ----- ----
Net earnings per common share............................... $.71 $.67 $1.10 $.85
==== ==== ===== ====
</TABLE>
G. Long-Term Debt
On December 10, 1997, the Company replaced its $37,500,000 term loan due
July 1, 2001 and its $80,000,000 revolving credit facility with a new credit
agreement. The new credit agreement with a group of nine banks consists of a
$60,000,000 term loan due January 1, 2004 and a $165,000,000 revolving credit
facility maturing December 10, 2000.
Quarterly principal payments of $2,500,000 on the term loan will commence
April 1, 1998. The revolving credit facility allows for up to $30,000,000 in
outstanding letters of credit, which reduces the revolving credit portion
available to the Company. The revolving credit facility may be renewed annually
by unanimous consent of the banks or the outstanding revolving credit loans may
be converted by the Company to a four-year term loan at its maturity. The new
credit agreement provides, among other things, for 1) interest rates ranging
from 1/4% to 3/4% over the prime rate or 2% to 2 1/2% over the London
Interbank Offered Rate ("LIBOR"); 2) maintenance of a debt service coverage
ratio, specified level of net worth and cash flow (as defined); and 3)
restriction on dividend payments.
F-30
<PAGE> 173
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF, OR THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Supplement Summary.................. S-3
Risk Factors................................... S-16
Use of Proceeds................................ S-28
Capitalization................................. S-29
The Company.................................... S-30
Business....................................... S-32
Strategy for Growth and Competitive
Advantages................................... S-61
Selected Consolidated Financial and Other
Information.................................. S-65
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... S-66
Properties..................................... S-75
Description of Certain Indebtedness............ S-78
Management..................................... S-83
Description of Notes........................... S-86
Underwriting................................... S-110
Validity of the Notes.......................... S-111
Index to Consolidated Financial Statements..... F-1
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Available Information.......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
Forest City.................................... 4
Ratio of Earnings to Fixed Charges............. 4
Use of Proceeds................................ 5
Description of Senior Debt Securities.......... 5
Description of Subordinated Debt Securities.... 9
Description of Preferred Stock................. 21
Description of Depositary Shares............... 23
Description of Common Stock.................... 26
Plan of Distribution........................... 28
Validity of the Offered Securities............. 28
Experts........................................ 29
</TABLE>
======================================================
======================================================
$200,000,000
FOREST CITY
ENTERPRISES, INC.
% SENIOR NOTES DUE 2008
---------------------
[FOREST CITY ENTERPRISES LOGO]
---------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MCDONALD & COMPANY
SECURITIES, INC.
======================================================
<PAGE> 174
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and commissions,
are estimated as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 73,750.00
Trustee's Fees and Expenses*................................ 15,000.00
Transfer Agent and Registrar Fees*.......................... 15,000.00
Legal Fees and Expenses*.................................... 400,000.00
Accounting Fees and Expenses*............................... 200,000.00
Printing Expenses*.......................................... 400,000.00
Miscellaneous*.............................................. 40,000.00
-------------
Total.................................................. $1,143,750.00
=============
</TABLE>
- ---------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Ohio law, Ohio corporations are authorized to indemnify directors,
officers, employees, and agents within prescribed limits and must indemnify them
under certain circumstances. Ohio law does not provide statutory authorization
for a corporation to indemnify directors, officers, employees, and agents for
settlements, fines, or judgments in the context of derivative suits. However, it
provides that directors (but not officers, employees, and agents) are entitled
to mandatory advancement of expenses, including attorneys' fees, incurred in
defending any action, including derivative actions, brought against the
director, provided the director agrees to cooperate with the corporation
concerning the matter and to repay the amount advanced if it is proved by clear
and convincing evidence that his act or failure to act was done with deliberate
intent to cause injury to the corporation or with reckless disregard to the
corporation's best interests.
Ohio law does not authorize payment of judgments to a director, officer,
employee, or agent after a finding of negligence or misconduct in a derivative
suit absent a court order. Indemnification is permitted, however, to the extent
such person succeeds on the merits. In all other cases, if a director, officer,
employee, or agent acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, indemnification
is discretionary except as otherwise provided by a corporation's articles, code
of regulations, or by contract except with respect to the advancement of
expenses of directors.
Under Ohio law, a director is not liable for monetary damages unless it is
proved by clear and convincing evidence that his action or failure to act was
undertaken with deliberate intent to cause injury to the corporation or with
reckless disregard for the best interests of the corporation. There is, however,
no comparable provision limiting the liability of officers, employees, or agents
of a corporation. The statutory right to indemnification is not exclusive in
Ohio, and Ohio corporations may, among other things, procure insurance for such
persons.
Forest City's Code of Regulations provides that Forest City shall indemnify
any person made or threatened to be made a party to any action, suit, or
proceeding, other than an action by or in the right of Forest City, by reason of
the fact that he is or was a director, trustee, officer, employee, or agent of
Forest City or of any other bank, corporation, partnership, trust or other
enterprise for which he was serving as a director, officer, or employee at the
request of Forest City, against
II-1
<PAGE> 175
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of Forest City,
and with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful.
Under the terms of Forest City's directors' and officers' liability and
company reimbursement insurance policy, directors and officers of Forest City
are insured against certain liabilities, including liabilities arising under the
Securities Act.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement for Debt Securities
incorporated by reference to Exhibit 1.1 to the Registrant's
Registration Statement on Form S-3 (No. 333-22695).
1.2 -- Form of Underwriting Agreement for Preferred Stock
incorporated by reference to Exhibit 1.2 to the Registrant's
Registration Statement on Form S-3 (No. 333-22695).
1.3 -- Form of Underwriting Agreement for Class A Common Stock
incorporated by reference to Exhibit 1.3 to the Registrant's
Registration Statement on Form S-3 (No. 333-22695).
4.1 -- Form of Senior Subordinated Indenture between the Registrant
and National City Bank, as Trustee thereunder incorporated
by reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-3 (No. 333-22695).
4.2 -- Form of Junior Subordinated Indenture between the Registrant
and National City Bank, as Trustee thereunder incorporated
by reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form S-3 (No. 333-22695).
4.3 -- Form of Deposit Agreement, including form of Depositary
Receipt incorporated by reference to Exhibit 4.3 to the
Registrant's Registration Statement on Form S-3 (No.
333-22695).
4.4 -- Credit Agreement, dated as of July 25, 1994, among Forest
City Rental Properties Corporation, the banks named therein
and Society National Bank, as agent, incorporated by
reference to Exhibit 10.01 to the Registrant's Form 10-Q for
the quarter ended July 31, 1994 (File No. 1-4372)
(Superceded by Exhibit 4.17).
4.5 -- Guaranty of Payment of Debt, dated as of July 25, 1994,
between Forest City Enterprises, Inc. and the banks named
therein incorporated by reference to Exhibit 10.2 to the
Registrant's Form 10-Q for the quarter ended July 31, 1994
(File No. 1-4372) (Superceded by Exhibit 4.18).
4.6 -- First Amendment to Credit Agreement, dated as of September
12, 1995 among Forest City Rental Properties Corporation,
the banks named therein and Society National Bank, as agent,
incorporated by reference to Exhibit 10.3 to the
Registrant's Form 10-Q for the quarter ended October 31,
1995 (File No. 1-4372)(Superceded by Exhibit 4.17).
4.7 -- First Amendment to Guaranty of Payment of Debt, dated as of
September 12, 1995, among Forest City Enterprises, Inc., the
banks named therein and Society National Bank, as agent,
incorporated by reference to Exhibit 10.4 to the
Registrant's Form 10-Q for the quarter ended October 31,
1995 (File No. 1-4372)(Superceded by Exhibit 4.18).
</TABLE>
II-2
<PAGE> 176
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S> <C>
4.8 -- Second Amendment to Credit Agreement, dated as of April 4,
1996, among Forest City Rental Properties Corporation, the
banks named therein and Society National Bank, as agent,
incorporated by reference to Exhibit 4.8 to the Registrant's
Registration Statement on Form S-3 (No. 333-22695)
(Superceded by Exhibit 4.17).
4.9 -- Second Amendment to Guaranty of Payment of Debt, dated as of
April 4, 1996, among Forest City Enterprises, Inc., the
banks named therein and Society National Bank, as agent,
incorporated by reference to Exhibit 10.6 to the
Registrant's Form 10-K for the fiscal year ended January 31,
1997 (File No. 1-4372)(Superceded by Exhibit 4.18).
4.10 -- Third Amendment to Credit Agreement, dated as of December
18, 1996, among Forest City Rental Properties Corporation,
the banks named therein and KeyBank National Association,
f/k/a Society National Bank, as agent, incorporated by
reference to Exhibit 4.10 to the Registrant's Registration
Statement on Form S-3 (No. 333-22695)(Superceded by Exhibit
4.17).
4.11 -- Third Amendment to Guaranty of Payment of Debt, dated as of
December 18, 1996, among Forest City Enterprises, Inc., the
banks named therein and KeyBank National Association, f/k/a
Society National Bank, as agent, incorporated by reference
to Exhibit 4.11 to the Registrant's Registration Statement
on Form S-3 (No. 333-22695)(Superceded by Exhibit 4.18).
4.12 -- Amended Articles of Incorporation of the Registrant,
incorporated by reference to Exhibit 3.1 to the Registrant's
Form 10-Q for the quarter ended October 31, 1983 (File No.
1-4372).
4.13 -- Code of Regulations of the Registrant, incorporated by
reference to Exhibit 3.2 to the Registrant's Form 10-K for
the fiscal year ended January 31, 1997 (File No. 1-4372).
**4.14 -- Certificate of Amendment by Shareholders to the Articles of
Incorporation of Forest City Enterprises, Inc. dated June
24, 1997.
4.15 -- Fourth Amendment to Credit Agreement, dated as of January 1,
1997, among Forest City Rental Properties Corporation, the
banks named therein and KeyBank National Association, f/k/a
Society National Bank, as agent, incorporated by reference
to Exhibit 10.36 to the Registrant's Form 10-Q for the
quarter ended July 31, 1997 (File No. 1-4372)(Superceded by
Exhibit 4.17).
4.16 -- Fourth Amendment to Guaranty of Payment of Debt, dated as of
January 1, 1997, among Forest City Enterprises, Inc., the
banks named therein and KeyBank National Association, f/k/a
Society National Bank, as agent, incorporated by reference
to Exhibit 10.37 to the Registrant's Form 10-Q for the
quarter ended July 31, 1997 (File No. 1-4372)(Superceded by
Exhibit 4.18).
4.17 -- Credit Agreement, dated as of December 10, 1997, among
Forest City Rental Properties Corporation, the banks named
therein and KeyBank National Association, as administrative
agent, and National City Bank, as syndication agent,
incorporated by reference to Exhibit 10.38 to the
Registrant's Form 10-Q for the quarter ended October 31,
1997 (File No. 1-4372).
4.18 -- Guaranty of Payment of Debt, dated as of December 10, 1997,
by and among Forest City Enterprises, Inc. and the banks
named therein, KeyBank National Association, as
administrative agent, and National City Bank, as syndication
agent, incorporated by reference to Exhibit 10.39 to the
Registrant's Form 10-Q for the quarter ended October 31,
1997 (File No. 1-4372).
</TABLE>
II-3
<PAGE> 177
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S> <C>
**4.19 -- First Amendment to Credit Agreement, dated as of January 20,
1998, among Forest City Rental Properties Corporation, the
banks named therein and KeyBank National Association, as
administrative agent, and National City Bank, as syndication
agent.
**4.20 -- First Amendment to Guaranty of Payment of Debt, dated as of
January 20, 1998, among Forest City Enterprises, Inc., the
banks named therein and KeyBank National Association, as
administrative agent, and National City Bank, as syndication
agent.
**4.21 -- Letter Agreement, dated as of February 25, 1998, among
Forest City Enterprises, Inc., Forest City Rental Properties
Corporation, the banks named therein and KeyBank National
Association, as administrative agent, and National City
Bank, as syndication agent.
*4.22 -- Form of Senior Indenture between the Registrant and The Bank
of New York, as Trustee thereunder.
**5 -- Opinion of Jones, Day, Reavis & Pogue.
**12 -- Computation of Ratio of Earnings to Fixed Charges.
**23.1 -- Consent of Coopers & Lybrand, L.L.P.
**23.2 -- Consent of Jones, Day, Reavis & Pogue (contained in Exhibit
5).
**24 -- Powers of Attorney.
**25.1 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of National City Bank, as Trustee under the
Senior Subordinated Indenture.
**25.2 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of National City Bank, as Trustee under the
Junior Subordinated Indenture.
*25.3 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of The Bank of New York, as Trustee under the
Senior Indenture.
</TABLE>
- ---------------
*Filed herewith.
**Previously filed.
***To be filed by amendment.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than 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 Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
II-4
<PAGE> 178
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that:
For purposes of determining any liability under the Securities Act of 1933
(the "Securities Act"), each filing of the Registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (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 this 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 determined to be the initial
bona fide offering thereof.
II-5
<PAGE> 179
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registrant
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cleveland, the State of Ohio, on March 6, 1998.
FOREST CITY ENTERPRISES, INC.
By: /s/ THOMAS G. SMITH
------------------------------------
Thomas G. Smith
Senior Vice President,
Chief Financial Officer and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
PRE-EFFECTIVE AMENDMENT NO. 2 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Co-Chairman of the Board March 6, 1998
- ------------------------------------------------ and Director
Albert B. Ratner
* Co-Chairman of the Board, March 6, 1998
- ------------------------------------------------ Treasurer and Director
Samuel H. Miller
* President, Chief Executive March 6, 1998
- ------------------------------------------------ Officer and Director (Principal
Charles A. Ratner Executive Officer)
/s/ THOMAS G. SMITH Senior Vice President, Chief March 6, 1998
- ------------------------------------------------ Financial Officer and Secretary
Thomas G. Smith (Principal Financial Officer)
* Vice President and Corporate March 6, 1998
- ------------------------------------------------ Controller (Principal Accounting
Linda M. Kane Officer)
* Executive Vice President March 6, 1998
- ------------------------------------------------ and Director
James A. Ratner
* Executive Vice President March 6, 1998
- ------------------------------------------------ and Director
Ronald A. Ratner
* Director March 6, 1998
- ------------------------------------------------
Joan K. Shafran
* Director March 6, 1998
- ------------------------------------------------
J. Maurice Struchen
</TABLE>
II-6
<PAGE> 180
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director March 6, 1998
- ------------------------------------------------
Michael P. Esposito, Jr.
* Director March 6, 1998
- ------------------------------------------------
Jerry V. Jarrett
* Director March 6, 1998
- ------------------------------------------------
Scott S. Cowen
* Director March 6, 1998
- ------------------------------------------------
Brian J. Ratner
* Director March 6, 1998
- ------------------------------------------------
Deborah Ratner Salzberg
</TABLE>
- ---------------
* The undersigned, pursuant to a Power of Attorney executed by each of the
Directors and officers identified above and filed with the Securities and
Exchange Commission, by signing his name hereto, does hereby sign and execute
this Pre-Effective Amendment No. 2 to Registration Statement on behalf of each
of the persons noted above, in the capacities indicated.
<TABLE>
<S> <C>
By: /s/ Thomas G. Smith March 6, 1998
-----------------------------------------
Thomas G. Smith, Attorney-in-Fact
</TABLE>
II-7
<PAGE> 181
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement for Debt Securities
incorporated by reference to Exhibit 1.1 to the Registrant's
Registration Statement on Form S-3 (No. 333-22695).
1.2 -- Form of Underwriting Agreement for Preferred Stock
incorporated by reference to Exhibit 1.2 to the Registrant's
Registration Statement on Form S-3 (No. 333-22695).
1.3 -- Form of Underwriting Agreement for Class A Common Stock
incorporated by reference to Exhibit 1.3 to the Registrant's
Registration Statement on Form S-3 (No. 333-22695).
4.1 -- Form of Senior Subordinated Indenture between the Registrant
and National City Bank, as Trustee thereunder incorporated
by reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-3 (No. 333-22695).
4.2 -- Form of Junior Subordinated Indenture between the Registrant
and National City Bank, as Trustee thereunder incorporated
by reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form S-3 (No. 333-22695).
4.3 -- Form of Deposit Agreement, including form of Depositary
Receipt incorporated by reference to Exhibit 4.3 to the
Registrant's Registration Statement on Form S-3 (No.
333-22695).
4.4 -- Credit Agreement, dated as of July 25, 1994, among Forest
City Rental Properties Corporation, the banks named therein
and Society National Bank, as agent, incorporated by
reference to Exhibit 10.01 to the Registrant's Form 10-Q for
the quarter ended July 31, 1994 (File No. 1-4372)
(Superceded by Exhibit 4.17).
4.5 -- Guaranty of Payment of Debt, dated as of July 25, 1994,
between Forest City Enterprises, Inc. and the banks named
therein incorporated by reference to Exhibit 10.2 to the
Registrant's Form 10-Q for the quarter ended July 31, 1994
(File No. 1-4372) (Superceded by Exhibit 4.18).
4.6 -- First Amendment to Credit Agreement, dated as of September
12, 1995 among Forest City Rental Properties Corporation,
the banks named therein and Society National Bank, as agent,
incorporated by reference to Exhibit 10.3 to the
Registrant's Form 10-Q for the quarter ended October 31,
1995 (File No. 1-4372)(Superceded by Exhibit 4.17).
4.7 -- First Amendment to Guaranty of Payment of Debt, dated as of
September 12, 1995, among Forest City Enterprises, Inc., the
banks named therein and Society National Bank, as agent,
incorporated by reference to Exhibit 10.4 to the
Registrant's Form 10-Q for the quarter ended October 31,
1995 (File No. 1-4372)(Superceded by Exhibit 4.18).
4.8 -- Second Amendment to Credit Agreement, dated as of April 4,
1996, among Forest City Rental Properties Corporation, the
banks named therein and Society National Bank, as agent,
incorporated by reference to Exhibit 4.8 to the Registrant's
Registration Statement on Form S-3 (No. 333-22695)
(Superceded by Exhibit 4.17).
4.9 -- Second Amendment to Guaranty of Payment of Debt, dated as of
April 4, 1996, among Forest City Enterprises, Inc., the
banks named therein and Society National Bank, as agent,
incorporated by reference to Exhibit 10.6 to the
Registrant's Form 10-K for the fiscal year ended January 31,
1997 (File No. 1-4372)(Superceded by Exhibit 4.18).
4.10 -- Third Amendment to Credit Agreement, dated as of December
18, 1996, among Forest City Rental Properties Corporation,
the banks named therein and KeyBank National Association,
f/k/a Society National Bank, as agent, incorporated by
reference to Exhibit 4.10 to the Registrant's Registration
Statement on Form S-3 (No. 333-22695)(Superceded by Exhibit
4.17).
4.11 -- Third Amendment to Guaranty of Payment of Debt, dated as of
December 18, 1996, among Forest City Enterprises, Inc., the
banks named therein and KeyBank National Association, f/k/a
Society National Bank, as agent, incorporated by reference
to Exhibit 4.11 to the Registrant's Registration Statement
on Form S-3 (No. 333-22695)(Superceded by Exhibit 4.18).
4.12 -- Amended Articles of Incorporation of the Registrant,
incorporated by reference to Exhibit 3.1 to the Registrant's
Form 10-Q for the quarter ended October 31, 1983 (File No.
1-4372).
</TABLE>
<PAGE> 182
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S> <C>
4.13 -- Code of Regulations of the Registrant, incorporated by
reference to Exhibit 3.2 to the Registrant's Form 10-K for
the fiscal year ended January 31, 1997 (File No. 1-4372).
**4.14 -- Certificate of Amendment by Shareholders to the Articles of
Incorporation of Forest City Enterprises, Inc. dated June
24, 1997.
4.15 -- Fourth Amendment to Credit Agreement, dated as of January 1,
1997, among Forest City Rental Properties Corporation, the
banks named therein and KeyBank National Association, f/k/a
Society National Bank, as agent, incorporated by reference
to Exhibit 10.36 to the Registrant's Form 10-Q for the
quarter ended July 31, 1997 (File No. 1-4372)(Superceded by
Exhibit 4.17).
4.16 -- Fourth Amendment to Guaranty of Payment of Debt, dated as of
January 1, 1997, among Forest City Enterprises, Inc., the
banks named therein and KeyBank National Association, f/k/a
Society National Bank, as agent, incorporated by reference
to Exhibit 10.37 to the Registrant's Form 10-Q for the
quarter ended July 31, 1997 (File No. 1-4372)(Superceded by
Exhibit 4.18).
4.17 -- Credit Agreement, dated as of December 10, 1997, among
Forest City Rental Properties Corporation, the banks named
therein and KeyBank National Association, as administrative
agent, and National City Bank, as syndication agent,
incorporated by reference to Exhibit 10.38 to the
Registrant's Form 10-Q for the quarter ended October 31,
1997 (File No. 1-4372).
4.18 -- Guaranty of Payment of Debt, dated as of December 10, 1997,
by and among Forest City Enterprises, Inc. and the banks
named therein, KeyBank National Association, as
administrative agent, and National City Bank, as syndication
agent, incorporated by reference to Exhibit 10.39 to the
Registrant's Form 10-Q for the quarter ended October 31,
1997 (File No. 1-4372).
**4.19 -- First Amendment to Credit Agreement, dated as of January 20,
1998, among Forest City Rental Properties Corporation, the
banks named therein and KeyBank National Association, as
administrative agent, and National City Bank, as syndication
agent.
**4.20 -- First Amendment to Guaranty of Payment of Debt, dated as of
January 20, 1998, among Forest City Enterprises, Inc., the
banks named therein and KeyBank National Association, as
administrative agent, and National City Bank, as syndication
agent.
**4.21 -- Letter Agreement, dated as of February 25, 1998, among
Forest City Enterprises, Inc., Forest City Rental Properties
Corporation, the banks named therein and KeyBank National
Association, as administrative agent, and National City
Bank, as syndication agent.
*4.22 -- Form of Senior Indenture between the Registrant and The Bank
of New York, as Trustee thereunder.
**5 -- Opinion of Jones, Day, Reavis & Pogue.
**12 -- Computation of Ratio of Earnings to Fixed Charges.
**23.1 -- Consent of Coopers & Lybrand, L.L.P.
**23.2 -- Consent of Jones, Day, Reavis & Pogue (contained in Exhibit
5).
**24 -- Powers of Attorney.
**25.1 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of National City Bank, as Trustee under the
Senior Subordinated Indenture.
**25.2 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of National City Bank, as Trustee under the
Junior Subordinated Indenture.
*25.3 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of The Bank of New York, as Trustee under the
Senior Indenture.
</TABLE>
- ---------------
*Filed herewith.
**Previously filed.
***To be filed by amendment.
<PAGE> 1
- --------------------------------------------------------------------------------
FOREST CITY ENTERPRISES, INC.
TO
THE BANK OF NEW YORK
Trustee
----------------
Indenture
Dated as of March __, 1998
----------------
$200,000,000
___% SENIOR NOTES DUE March __, 2008
- --------------------------------------------------------------------------------
<PAGE> 2
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of March __, 1998
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- ---------
<S> <C> <C>
Section 310(a)(1) ............................... 609
(a)(2) ............................... 609
(a)(3) ............................... Not
Applicable
(a)(4) ............................... Not
Applicable
(b) ............................... 608
610
Section 311(a) ............................... 613
(b) ............................... 613
Section 312(a) ............................... 701
702(a)
(b) ............................... 702(b)
(c) ............................... 702(c)
Section 313(a) ............................... 703(a)
(b) ............................... 703(a)
703(b)
(c) ............................... 703(a)
(d) ............................... 703(b)
Section 314(a) ............................... 704
1020
(b) ............................... Not
Applicable
(c)(1) ............................... 102
(c)(2) ............................... 102
(c)(3) ............................... Not
Applicable
(d) ............................... Not
Applicable
(e) ............................... 102
Section 315(a) ............................... 601
(b) ............................... 602
703
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- ---------
<S> <C> <C>
(c) ............................... 601
(d) ............................... 601
(e) ............................... 514
Section 316(a) ............................... 101
(a)(1)(A) ............................... 502
512
(a)(1)(B) ............................... 513
(a)(2) ............................... Not
Applicable
(b) ............................... 508
Section 317(a)(1) ............................... 503
(a)(2) ............................... 504
(b) ............................... 1003
Section 318(a) ............................... 107
</TABLE>
- --------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.
-ii-
<PAGE> 4
INDENTURE, dated as of March __, 1998, between Forest City Enterprises,
Inc., a corporation duly organized and existing under the laws of the State of
Ohio (herein called the "Company"), having its principal office at 1100 Terminal
Tower, 50 Public Square, Cleveland, Ohio, 44113-2203, and The Bank of New York,
a New York banking corporation, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its __% Senior
Notes due March __, 2008, of substantially the tenor and amount hereinafter set
forth, and to provide therefor the Company has duly authorized the execution and
delivery of this Indenture.
All things necessary to make the Securities, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company, in accordance with their and its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
<PAGE> 5
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as
are generally accepted at the date of such computation;
(4) Any reference to includes or including shall be deemed to refer
to examples and shall be deemed to include the words "without limitation"
thereafter; and
(5) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Security or
-2-
<PAGE> 6
beneficial interest therein, the rules and procedures of the Depositary for such
Security, in each case to the extent applicable to such transaction and as in
effect from time to time.
"Asset Disposition" by any Person means any transfer, conveyance, sale,
lease or other disposition by such Person or any of its Subsidiaries (including
a consolidation or merger or other sale of any such Subsidiary with, into or to
another Person in a transaction in which such Subsidiary ceases to be a
Subsidiary, but excluding (a) a disposition by a Subsidiary of such Person to
such Person or a Wholly Owned Subsidiary of such Person or by such Person to a
Wholly Owned Subsidiary of such Person and (b) a disposition resulting from
foreclosure on the mortgage underlying a property or the transfer of the deed or
other instrument of title in lieu of foreclosure on a property provided that in
each case the Debt underlying such property has matured) of (i) shares of
Capital Stock (other than directors' qualifying shares) or other ownership
interests of a Subsidiary of such Person, (ii) substantially all of the assets
of such Person or any of its Subsidiaries representing a division or line of
business or (iii) other assets or rights of such Person or any of its
Subsidiaries outside of the ordinary course of business.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 6.14 hereof to act on behalf of the Trustee to authenticate
Securities.
"Board of Directors" means either the board of directors of the Company or
any duly constituted committee thereof.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The City of New York, New
York are authorized or obligated by law or executive order to close.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a
-3-
<PAGE> 7
lease of (or other Debt arrangements conveying the right to use) real or
personal property of such Person which is required to be classified and
accounted for as a capital lease or a liability on the face of a balance sheet
of such Person in accordance with generally accepted accounting principles. The
stated maturity of such obligation shall be the date of the last payment of rent
or any other amount due under such lease prior to the first date upon which such
lease may be terminated by the lessee without payment of a penalty. The
principal amount of such obligation shall be the capitalized amount thereof that
would appear on the face of a balance sheet of such Person prepared in
accordance with generally accepted accounting principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations or interests, including partnership interests,
whether general or limited, and membership interests, whether managing or
non-managing, of such Person.
"Cash Equivalents" means, at any time, (i) any Debt (other than any Debt
issued at a discount) fully guaranteed as to principal and interest by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States is pledged in support thereof);
(ii) certificates of deposit of any financial institution that has combined
capital and surplus and undivided profits of not less than $50,000,000 (or the
equivalent thereof in another currency) and has a long-term debt rating of at
least "AA" by Standard & Poor's Ratings Group or at least "Aa3" by Moody's
Investors Service, Inc. or (iii) commercial paper issued by a corporation (other
than the Company or any Subsidiary thereof) organized under the laws of any
State of the United States and rated at least A-1 by Standard & Poor's Ratings
Group and at least P-1 by Moody's Investors Service, Inc.
"Change of Control" has the meaning specified in Section 1019.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust
-4-
<PAGE> 8
Indenture Act, then the body performing such duties at such time.
"Common Development" of a Person means multiple parcels of real or
personal property that are acquired, developed, constructed or improved by such
Person in conjunction with, and as part of a written plan or arrangement with, a
non-Affiliated Person (or with a group of Persons under the common control of a
non-Affiliated Person).
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to other amounts upon any
voluntary or involuntary liquidation, dissolution or winding up of such Person,
to shares of Capital Stock of any other class of such Person.
"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor Person shall have become such pursuant to
the applicable provisions of this Indenture and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board (or any
Co-Chairman of the Board), its President or a Vice President, and by its
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and
delivered to the Trustee.
"Consolidated Adjusted Net Worth" of the Company means, at any date, the
Consolidated Net Worth of the Company plus (i) the consolidated accumulated
depreciation and amortization of the Company as of October 31, 1997 and plus
(ii) the consolidated depreciation and amortization expense of the Company for
the period from November 1, 1997 through the date of any determination,
determined in the case of (i) and (ii) on a consolidated basis in accordance
with generally accepted accounting principles.
"Consolidated EBITDA" of any Person means for any period the Consolidated
Net Income of such Person for such period plus (i) Consolidated Interest Expense
of such Person for such period, plus (ii) interest expense in respect of
Non-Recourse Debt not paid in cash, but only to the extent deducted from
Consolidated Interest Expense for such period,
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plus (iii) Consolidated Income Tax Expense of such Person for such period, plus
(iv) the consolidated depreciation and amortization expense taken into account
in determining the Consolidated Net Income of such Person for such period.
"Consolidated EBITDA to Interest Ratio" of any Person means for any period
(the "Reference Period") with respect to any date of calculation (the
"Transaction Date") the ratio of (i) Consolidated EBITDA of such Person for such
period to (ii) Consolidated Interest Expense of such Person for such period. In
making the foregoing calculation, (A) pro forma effect shall be given to any
Debt, other than Non-Recourse Debt, Incurred during such Reference Period or
subsequent to the end of such Reference Period and on or prior to the
Transaction Date to the extent such Debt is outstanding at the Transaction Date,
in each case as if such Debt had been Incurred on the first day of such
Reference Period and after giving pro forma effect to the application of the
proceeds thereof as if such application had occurred on such first day; (B)
Consolidated Interest Expense attributable to interest on any Debt (whether
existing or being Incurred) other than Non-Recourse Debt, computed on a pro
forma basis and bearing a floating interest rate shall be computed as if the
rate in effect on the Transaction Date (taking into account any Permitted
Interest Rate Price Agreement applicable to such Debt if such Permitted Interest
Rate Price Agreement has a remaining term in excess of 12 months or at least
equal to the remaining term of such Debt) had been the applicable rate for the
entire period; (C) there shall be excluded from Consolidated Interest Expense
any Consolidated Interest Expense related to any amount of Debt, other than
Non-Recourse Debt, that was outstanding during such Reference Period or
thereafter but that is not outstanding or is to be repaid on the Transaction
Date; and (D) pro forma effect shall be given to Asset Dispositions and asset
acquisitions by such Person (including giving pro forma effect to the
application of proceeds of any Assets Dispositions) that occur during such
Reference Period or thereafter and prior to the Transaction Date as if they had
occurred and such proceeds had been applied on the first day of such Reference
Period.
"Consolidated Income Tax Expense" of any Person for any period means the
consolidated provision for income taxes of such Person and its Subsidiaries for
such period calculated on a consolidated basis in accordance with generally
accepted accounting principles.
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"Consolidated Interest Expense" of any Person means for any period the
consolidated interest expense included in a consolidated income statement of
such Person and its Subsidiaries (after deduction of (a) any consolidated
interest income and (b) any interest expense in respect of Non-Recourse Debt not
paid in cash, in each case to the extent included in such income statement) of
such Person and its Subsidiaries for such period, calculated on a consolidated
basis in accordance with generally accepted accounting principles, including
without limitation or duplication (or, to the extent not so included, with the
addition of), (i) the amortization of Debt discounts; (ii) any payments or fees
with respect to letters of credit, bankers' acceptances or similar facilities;
(iii) fees with respect to Interest Rate, Currency or Commodity Price
Agreements; (iv) Preferred Stock dividends of the Company and its Subsidiaries
(other than with respect to Redeemable Stock) declared and paid or payable; (v)
accrued Redeemable Stock dividends of the Company and its Subsidiaries, whether
or not declared or paid; (vi) interest on Debt guaranteed by such Person or any
of its Subsidiaries; (vii) the portion of any rental obligation or Capital Lease
Obligation allocable to interest expense but only to the extent such amount
exceeds $750,000 on a consolidated basis and (viii) the portion of the rental
obligation in respect of any Sale and Leaseback Transaction allocable to
interest expense (determined as if such obligation were a Capital Lease
Obligation) but only to the extent such amount exceeds $750,000 on a
consolidated basis.
"Consolidated Net Income" of any Person means for any period the
consolidated net income (or loss) of such Person and its Subsidiaries for such
period determined in accordance with generally accepted accounting principles;
provided that to the extent taken into account in determining such consolidated
net income (or loss) there shall be excluded therefrom (a) the net income (or
loss) of any Person acquired by such Person or a Subsidiary of such Person in a
pooling-of-interests transaction for any period prior to the date of such
acquisition, (b) the net income (but not the net loss) of any Subsidiary of such
Person which is subject to restrictions which prevent the payment of dividends
and the making of distributions (by loans, advances, intercompany transfers or
otherwise) to such Person to the extent of such restrictions, (c) the net income
(or loss) of any Person that is not a Subsidiary of such Person except to the
extent of the amount of dividends
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or other distributions actually paid to such Person by such other Person during
such period, (d) gains or losses on disposition of properties by such Person or
its Subsidiaries (as set forth on an income statement of such Person prepared in
accordance with generally accepted accounting principles), (e) the cumulative
effect of changes in accounting principles in the year of adoption of such
changes, (f) all extraordinary gains and extraordinary losses of such Person and
its Subsidiaries,(g) all gains or losses of such Person and its Subsidiaries
resulting from the discontinued operations, or the disposal, of a segment of a
business of such Person determined in each case in accordance with Accounting
Principles Board Opinion No. 30; provided, however, that such gains and losses
shall be excluded only to the extent such items are not included within
extraordinary gains or extraordinary losses of such Person, and provided,
further, however, that in no event shall such amounts be excluded beyond the
fiscal year in which such gains or losses are first reported, (h) the provision
for decline in real estate (as set forth on an income statement of such Person
prepared in accordance with generally accepted accounting principles) and (i)
the tax effect of any of the items described in clauses (a) through (h).
"Consolidated Net Worth" of any Person means, at any date, the
consolidated stockholders' equity of such Person, determined on a consolidated
basis in accordance with generally accepted accounting principles, less amounts
attributable to Redeemable Stock of such Person; provided that, with respect to
the Company, adjustments following the date of this Indenture to the accounting
books and records of the Company in accordance with Accounting Principles Board
Opinions Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting
from the acquisition of control of the Company by another Person shall not be
given effect to.
"consolidation" means, with respect to any Person, the consolidation of
the accounts of such Person with the accounts of each Person in which such
Person, directly or indirectly, owns an interest, if and to the extent the
accounts of each such Person would be consolidated with the accounts of such
Person in accordance with generally accepted accounting principles. The term
"consolidated" has a correlative meaning.
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"Corporate Trust Office" means the principal office of the Trustee
currently at 101 Barclay Street, Floor 21 West, New York, New York 10286, at
which at any particular time its corporate trust business shall be administered.
"corporation" means (except where the context dictates otherwise) a
corporation, association, company, limited liability company, joint-stock
company, partnership or business trust.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations Incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(including securities repurchase agreements but excluding trade accounts payable
or accrued liabilities arising in the ordinary course of business which are not
overdue or which are being contested in good faith), (v) every Capital Lease
Obligation of such Person, (vi) all Receivables Sales of such Person, together
with any obligation of such Person to pay any discount, interest, fees,
indemnities, penalties, recourse, expenses or other amounts in connection
therewith, (vii) all Redeemable Stock issued by such Person, (viii) every
obligation to pay rent or other payment amounts of such Person with respect to
any Sale and Leaseback Transaction to which such Person is a party, (ix) every
obligation under Interest Rate, Currency or Commodity Price Agreements of such
Person and (x) every obligation of the type referred to in clauses (i) through
(ix) of another Person and all dividends of another Person the payment of which,
in either case, such Person has guaranteed or for which such Person is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise. The "amount" or "principal amount" of Debt at any time of
determination as used herein represented by (a) any contingent Debt, shall be
the maximum liability upon the occurrence of the contingency giving rise to the
obligation (unless the underlying contingency has not
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occurred and the occurrence of the underlying contingency is entirely within the
control of the Company), (b) any Debt issued at a price that is less than the
principal amount at maturity thereof, shall be the amount of the liability in
respect thereof determined in accordance with generally accepted accounting
principles, (c) any Receivables Sale, shall be the amount of the unrecovered
capital or principal investment of the purchaser (other than the Company or a
Wholly Owned Subsidiary of the Company) thereof as of such time of
determination, excluding amounts representative of yield or interest earned on
such investment and (d) any Redeemable Stock, shall be the maximum fixed
redemption or repurchase price in respect thereof.
"Depositary" means, with respect to any Global Security, a clearing agency
registered under the Exchange Act that is designated to act as Depositary as
contemplated by Section 311.
"Development Debt" of any Person means Debt of such Person or any
mortgages, indentures, instruments or agreements under which there may be issued
or existing or by which there may be secured or evidenced any Debt of such
Person Incurred for the purpose of financing all or any part of the cost of
acquiring, developing, constructing or improving, real or personal property that
is owned or that immediately after the Incurrence of such Debt, will be owned,
by such Person; provided that (a) the principal amount of any such Debt does not
exceed 100% of the cost of such acquisition, development, construction or
improvement plus expenses incurred in connection with the Incurrence of such
Debt, (b) such cost will be included in "Total Real Estate" on the consolidated
balance sheet of such Person, and (c) if such Debt is secured by a Lien, then
(i) such Lien attached to such real or personal property prior to, at the time
of, or within 180 days after the acquisition of or the completion of developing,
constructing or improving of such property, and (ii) such Lien does not extend
to or cover any property other than the specific item of such property (or
portion thereof), acquired, developed, constructed, or constituting the
improvements made with the proceeds of such Debt, except in the case of Common
Development, in which case such Lien may extend to any other property included
within the Common Development.
"DTC" means The Depository Trust Company, a New York corporation.
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"Event of Default" has the meaning specified in Section 501.
"Exchange Act" refers to the Securities Exchange Act of 1934 as it may be
amended from time to time and any successor act thereto.
"Expiration Date" has the meaning specified in the definition of Offer to
Purchase.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy.
"FCRPC Credit Agreement" means the Credit Agreement, dated as of December
10, 1997 and as amended through March __, 1998, among Forest City Rental
Properties Corporation, an Ohio corporation, as Borrower, various lending
institutions named therein, Keybank National Association, individually and as
administrative agent, and National City Bank, individually and as syndication
agent, and any Debt the proceeds of which are used to renew, extend, refinance
or replace such Credit Agreement and any Debt Incurred in connection with any
subsequent or successive renewal, extension or refinancing of such Debt.
"FCRPC Guaranty" means the Guaranty, dated as of December 10, 1997 and as
amended through March __, 1998, by the Company of the obligations under FCRPC
Credit Agreement and any guarantee by the Company (or any successor to the
Company) of any renewal, extension, refinancing or replacement of such FCRPC
Credit Agreement.
"Global Security" means a Security that is registered in the Security
Register in the name of the Depositary or a nominee thereof and that bears the
legend specified by Section 205(a).
"guarantee" by any Person means any obligation, contingent or otherwise,
of such Person guaranteeing, or having the economic effect of guaranteeing, any
Debt of any other Person (the "primary obligor") in any manner, whether directly
or indirectly, and including, without limitation, any obligation of such Person,
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or to purchase (or to advance or supply funds for the
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<PAGE> 15
purchase of) any security for the payment of such Debt, (ii) to purchase
property, securities or services for the purpose of assuring the holder of such
Debt of the payment of such Debt, or (iii) to maintain working capital, equity
capital or other financial statement condition or liquidity of the primary
obligor so as to enable the primary obligor to pay such Debt (and "guaranteed",
"guaranteeing" and "guarantor" shall have meanings correlative to the
foregoing); provided, however, that the guaranty by any Person shall not include
endorsements by such Person for collection or deposit, in either case, in the
ordinary course of business.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Debt or other obligation
(including by acquisition of Subsidiaries) or the recording, as required
pursuant to generally accepted accounting principles or otherwise, of any such
Debt or other obligation on the balance sheet of such Person (and "Incurrence",
"Incurred", "Incurrable" and "Incurring" shall have meanings correlative to the
foregoing); provided, however, that a change in generally accepted accounting
principles that results in an obligation of such Person that exists at such time
becoming Debt shall not be deemed an Incurrence of such Debt.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Interest Rate, Currency or Commodity Price Agreement" of any Person means
any forward contract, futures contract, swap, option or other financial
agreement or arrangement (including, without limitation, caps, floors, collars
and similar agreements) relating to, or the value of which is dependent upon,
interest rates, currency exchange rates or commodity prices or indices
(excluding contracts
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<PAGE> 16
for the purchase or sale of goods in the ordinary course of business).
"Investment" by any Person in any other Person means (i) any direct or
indirect loan, advance or other extension of credit or capital contribution to
or for the account of such other Person (by means of any transfer of cash or
other property to any Person or any payment for property or services for the
account or use of any Person, or otherwise), (ii) any direct or indirect
purchase or other acquisition, including by way of merger or consolidation, of
any Capital Stock, bond, note, debenture, or other debt or equity security or
evidence of Debt, or any other ownership interest, issued by such other Person,
whether or not such acquisition is from such or any other Person, (iii) any
direct or indirect payment by such Person on a guarantee of any obligation of or
for the account of such other Person or any direct or indirect issuance by such
Person of such a guarantee or (iv) any other investment of cash or other
property by such Person in or for the account of such other Person, but shall
not include trade accounts receivable in the ordinary course of business on
credit terms made generally available to the customers of such Person.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing or any
agreement to give any security interest).
"Material Subsidiary" means any Subsidiary of the Company deemed a
"significant subsidiary" for purposes of Rule 1-02(w) of Regulation S-X under
the Securities Act of 1933, as amended.
"Maturity ", when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration
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of acceleration, call for redemption, obligation to repurchase or otherwise.
"Minimum Adjusted Net Worth" of the Company means, as of any date, the sum
of (i) $675 million, (ii) the amount of Recourse Debt Incurred after the date of
original issuance of the Securities that is outstanding on any date of
determination but only to the extent the amount of such Debt then outstanding
exceeds $425 million, and (iii) 25% of the Company's consolidated net income (or
zero in the case of a consolidated net loss) determined in accordance with
generally accepted accounting principles for the period from November 1, 1997
through the date of any determination, determined on a consolidated basis in
accordance with generally accepted accounting principles.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or readily marketable Cash Equivalents received (including by way of sale
or discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiree of Debt or other obligations relating to such properties or assets or
received in any other noncash form) therefrom by such Person, net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
Incurred and all federal, state, provincial, foreign and local taxes required to
be accrued as a liability as a consequence of such Asset Disposition, (ii) all
payments made by such Person or its Subsidiaries on any Debt which is secured by
such assets in accordance with the terms of any Lien upon or with respect to
such assets or which must by the terms of such Lien, or in order to obtain a
necessary consent to such Asset Disposition or by applicable law be repaid out
of the proceeds from such Asset Disposition, (iii) all distributions and other
payments made to minority interest holders in Subsidiaries of such Person or
joint ventures as a result of such Asset Disposition and (iv) appropriate
amounts to be provided by such Person or any Subsidiary thereof, as the case may
be, as a reserve in accordance with generally accepted accounting principles
against any liabilities associated with such assets and retained by such Person
or any Subsidiary thereof, as the case may be, after such Asset Disposition,
including, without limitation, liabilities under any indemnification obligations
and severance and other employee termination costs associated with such Asset
Disposition, in each case as determined by the Board of Directors, in its
reasonable
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good faith judgment evidenced by a resolution of the Board of Directors filed
with the Trustee; provided, however, that any reduction in such reserve within
twelve months following the consummation of such Asset Disposition will be
treated for all purposes of the Indenture and the Securities as a new Asset
Disposition at the time of such reduction with Net Available Proceeds equal to
the amount of such reduction.
"Non-Recourse" as applied to any Debt means Debt of a Person (or any
portion thereof) to the extent that, under the terms thereof, no personal
recourse may be had against such Person or any Affiliate of such Person for the
payment of all or a portion of the principal of or interest or premium on such
Debt, and enforcement of obligations on such Debt (except with respect to fraud,
willful misconduct, intentional misrepresentation, misapplication of funds,
waste and undertakings with respect to environmental matters) is limited only to
recourse against interests in specified assets and properties owned by such
Person (the "Subject Assets"), accounts and proceeds arising therefrom, and
rights under purchase agreements or other agreements relating to such Subject
Assets.
"Offer" has the meaning specified in the definition of Offer to Purchase.
"Offer to Purchase" means a written offer (the "Offer") sent by the
Company by first class mail, postage prepaid, to each Holder at his address
appearing in the Security Register on the date of the Offer offering to purchase
up to the principal amount of Securities specified in such Offer at the purchase
price specified in such Offer (as determined pursuant to this Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such Offer and a settlement date (the "Purchase Date")
for purchase of Securities within three Business Days after the Expiration Date.
The Company shall notify the Trustee at least 15 Business Days (or such shorter
period as is acceptable to the Trustee) prior to the mailing of the Offer of the
Company's obligation to make an Offer to Purchase, and the Offer shall be mailed
by the Company or, at the Company's request, by the Trustee in the name and at
the expense of the Company. The Offer shall contain information concerning
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<PAGE> 19
the business of the Company and its Subsidiaries which the Company in good faith
believes will enable such Holders to make an informed decision with respect to
the Offer to Purchase (which at a minimum will include (i) the most recent
annual and quarterly financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Trustee pursuant to Section 1017 (which
requirements may be satisfied by delivery of such documents together with the
Offer), (ii) a description of material developments in the Company's business
subsequent to the date of the latest of such financial statements referred to in
Clause (i) (including a description of the events requiring the Company to make
the Offer to Purchase), (iii) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring the
Company to make the Offer to Purchase and (iv) any other information required by
applicable law to be included therein. The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Securities pursuant to
the Offer to Purchase. The Offer shall also state:
(1) the Section of this Indenture pursuant to which the Offer to
Purchase is being made (including that a Change of Control or Asset
Disposition, as applicable, has occurred);
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the Outstanding Securities
offered to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such amount has been
determined pursuant to the Section hereof requiring the Offer to Purchase)
(the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Securities accepted for payment (as specified
pursuant to this Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the Securities
registered in the name of such Holder and that any portion of a Security
tendered must be tendered in an integral multiple of $1,000 principal
amount;
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<PAGE> 20
(6) the place or places where Securities are to be surrendered for
tender pursuant to the Offer to Purchase;
(7) that interest on any Security not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the Purchase Price will become due
and payable upon each Security being accepted for payment pursuant to the
Offer to Purchase and that interest thereon shall cease to accrue on and
after the Purchase Date;
(9) that each Holder electing to tender a Security pursuant to the
Offer to Purchase will be required to surrender such Security at the place
or places specified in the Offer prior to the close of business on the
Expiration Date (such Security being, if the Company or the Trustee so
requires, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing);
(10) that Holders will be entitled to withdraw all or any portion
of Securities tendered if the Company (or its Paying Agent) receives, not
later than the close of business on the Expiration Date, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Security the Holder tendered, the certificate number of the
Security the Holder tendered and a statement that such Holder is
withdrawing all or a portion of his tender;
(11) that (a) if Securities in an aggregate principal amount less
than or equal to the Purchase Amount are duly tendered and not withdrawn
pursuant to the Offer to Purchase, the Company shall purchase all such
Securities and (b) if Securities in an aggregate principal amount in excess
of the Purchase Amount are tendered and not withdrawn pursuant to the Offer
to Purchase, the Company shall purchase Securities having an aggregate
principal amount equal to the Purchase Amount on a pro rata basis (with
such adjustments as may be deemed appropriate so that only Securities in
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denominations of $1,000 or integral multiples thereof shall be purchased);
and
(12) that in the case of any Holder whose Security is purchased
only in part, the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in an aggregate principal amount equal to and in exchange for the
unpurchased portion of the Security so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with the
Offer for such Offer to Purchase.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board (or any Co-Chairman of the Board), the President or a Vice President,
and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee. One of the officers
signing an Officers' Certificate given pursuant to Section 1020 shall be the
principal executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Securities; provided that, if such Securities are
to be redeemed, notice of such redemption
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<PAGE> 22
has been duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made;
(iii) Securities as to which defeasance has been effected pursuant
to Section 1202 hereof; and
(iv) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which a Responsible Officer of the Trustee
actually knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or of such
other obligor.
"pari passu", when used with respect to the ranking of any Debt of any
Person in relation to other Debt of such Person, means that each such Debt (a)
either (i) is not subordinated in right of payment to any other Debt of such
Person or (ii) is subordinate in right of payment to the same Debt of such
Person as is the other and is so subordinate to the same extent and (b) is not
subordinate in right of payment to the other or to any Debt of such Person as to
which the other is not so subordinate.
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<PAGE> 23
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company.
"Permitted Business" means (i) developing, acquiring, owning and operating
shopping centers, office buildings and mixed-use projects, including
entertainment complexes and hotels, (ii) developing, acquiring, owning and
operating multi-family properties, (iii) acquiring land and owning and
developing land into master planned communities and other residential
developments for resale and (iv) the lumber wholesaling business.
"Permitted Holder" means (i) any of Samuel H. Miller, Albert B. Ratner,
Charles A. Ratner, James A. Ratner, Ronald A. Ratner, Nathan Shafran or any
spouse of any of the foregoing, and any trusts for the benefit of any of the
foregoing, (ii) RMS, Limited Partnership and any general partner or limited
partner thereof and any Person (other than a creditor) that upon the dissolution
or winding up of RMS, Limited Partnership receives a distribution of Capital
Stock of the Company, (iii) any group (as defined in Section 13(d) of the
Exchange Act or any successor provision thereto) of two or more Persons or
entities that are specified in the immediately preceding clauses (i) and (ii),
and (iv) any successive recombination of the Persons or groups that are
specified in the immediately preceding clauses (i), (ii) and (iii).
"Permitted Interest Rate, Currency or Commodity Price Agreement" of any
Person means any Interest Rate, Currency or Commodity Price Agreement entered
into with one or more financial institutions in the ordinary course of business
that is designed (a) in the case of an interest rate or currency exchange
agreement, to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Debt Incurred and which shall have a
notional amount no greater than the payments due with respect to the Debt being
hedged thereby and, in the case of an agreement protecting such Person from
fluctuations in interest rates, the profits and losses from such agreement are
included in interest expense under generally accepted accounting principles, or,
(b) in the case of currency or commodity protection agreements, to protect such
Person against currency exchange rate or commodity price fluctuations in the
ordinary course of business relating to then
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existing financial obligations or then existing or sold production and not for
purposes of speculation.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or other entity or government or any agency
or political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Preferred Stock" means Capital Stock of such Person of any class or
classes (however designated) that ranks prior, as to the payment of dividends or
as to amounts upon any voluntary or involuntary liquidation, dissolution or
winding up of such Person, to shares of Capital Stock of any other class of such
Person.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of the Company pursuant to an effective registration statement
under the Securities Act of 1933, as amended.
"Purchase Amount" has the meaning specified in the definition of Offer to
Purchase.
"Purchase Date" has the meaning specified in the definition of Offer to
Purchase.
"Purchase Money Debt" of any Person means Debt (other than Development
Debt) of such Person Incurred for the purpose of financing all or any part of
the purchase price or cost of construction or improvement of property or other
assets of such Person (other than property described in the definition of
Development Debt) acquired after the date of original issuance of the
Securities; provided that (i) the principal amount of any such Debt does not
exceed 100% of such purchase price or cost and (ii) if such Debt is secured by a
Lien, then (a) such Lien attached to such property or assets prior to, at the
time of, or within 180 days after the acquisition, construction or improvement
of such property or
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assets and (b) such Lien does not extend to or cover any property or assets
other than the specific item of such property or assets (or portion thereof)
acquired, constructed or improved with the proceeds of such Debt.
"Purchase Price" has the meaning specified in the definition of Offer to
Purchase.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money.
"Receivables Sale" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than in connection
with a disposition of the business operations of such Person relating thereto or
a disposition of defaulted Receivables for purposes of collection and not as a
financing arrangement.
"Recourse Debt" of any Person means Debt of such Person that is not
Non-Recourse Debt.
"Redeemable Stock" of any Person means any Capital Stock of such Person
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or otherwise (including upon the occurrence of
an event) matures or is required to be redeemed (pursuant to any sinking fund
obligation or otherwise) or is convertible into or exchangeable for Debt or is
redeemable at the option of the holder thereof, in whole or in part, at any time
prior to the final Stated Maturity of the Securities.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the March __ or September __ (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Related Person" of any Person means, without limitation, any other Person
directly or indirectly owning
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(a) 5% or more of the outstanding Common Stock of such Person (or, in the case
of a Person that is not a corporation, 5% or more of the equity interest in such
Person) or (b) 5% or more of the combined voting power of the Voting Stock of
such Person.
"Responsible Officer", when used with respect to the Trustee, means any
vice president, any assistant secretary, any assistant treasurer, any trust
officer or assistant trust officer, the controller or any assistant controller
or any other officer of the Trustee customarily performing functions similar to
those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"Restricted Payment" has the meaning specified in Section 1010.
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 270 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Securities" means securities designated in the first paragraph of the
RECITALS OF THE COMPANY.
"Securities Custodian" means the Trustee as custodian with respect to any
Global Security.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Special Record Date" for the payment of any Defaulted Interest (as
described in Section 307) means a date fixed by the Trustee pursuant to Section
307.
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"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subordinated Debt" means Debt of the Company as to which the payment of
principal of (and premium, if any) and interest and other payment obligations in
respect of such Debt shall be subordinate to the prior payment in full of the
Securities to at least the following extent: (i) no payments of principal of (or
premium, if any) or interest on or otherwise due in respect of such Debt may be
permitted for so long as any default in the payment of principal (or premium, if
any) or interest on the Securities exists; (ii) in the event that any other
default that with the passing of time or the giving of notice, or both, would
constitute an event of default exists with respect to the Securities, upon
notice by 25% or more in principal amount of the Securities to the Trustee, the
Trustee shall have the right to give notice to the Company and the holders of
such Debt (or trustees or agents therefor) of a payment blockage, and thereafter
no payments of principal of (or premium, if any) or interest on or otherwise due
in respect of such Debt may be made for a period of 179 days from the date of
such notice; and (iii) such Debt may not (x) provide for payments of principal
of such Debt at the stated maturity thereof or by way of a sinking fund
applicable thereto or by way of any mandatory redemption, defeasance, retirement
or repurchase thereof by the Company (including any redemption, retirement or
repurchase which is contingent upon events or circumstances, but excluding any
retirement required by virtue of acceleration of such Debt upon an event of
default thereunder), in each case prior to the final Stated Maturity of the
Securities or (y) permit redemption or other retirement (including pursuant to
an offer to purchase made by the Company) of such other Debt at the option of
the holder thereof prior to the final Stated Maturity of the Securities, other
than a redemption or other retirement at the option of the holder of such Debt
(including pursuant to an offer to purchase made by the Company) which is
conditioned upon the change of control of the Company pursuant to provisions
substantially similar to those contained in Section 1019 hereof (and which shall
provide that such Debt will not be repurchased pursuant to such provisions prior
to the Company's repurchase of the Securities required to be repurchased by the
Company pursuant Section 1019 hereof).
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"Subsidiary" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof, (ii) a
partnership of which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, is the general partner and has the power to direct the policies,
management and affairs of the partnership, (iii) a limited liability company of
which such Person or one or more Subsidiaries of such Person or such Person and
one or more Subsidiaries of such Person, directly or indirectly, is the managing
member and has the power to direct the policies, management and affairs of the
company, or (iv) any other Person (other than a corporation, partnership or
limited liability company) in which such Person, or one or more other
Subsidiaries of such Person or such Person and one or more other Subsidiaries
thereof, directly or indirectly, has at least a majority ownership and power to
direct the policies, management and affairs thereof.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed, except as provided in Section
905; provided, however, that in the event the Trust Indenture Act of 1939 is
amended after such date, "Trust Indenture Act" means, to the extent required by
any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, 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 (as defined in Section 3(a)(2) of
the Securities Act of 1933,
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as amended) as custodian with respect to any such U.S. Government Obligation or
a specific payment of principal of or interest on any such U.S. Government
Obligation held by such custodian for the account of the holder of such
depository receipt, provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the U.S. Government Obligation or the specific payment of principal of or
interest on the U.S. Government Obligation evidenced by such depository receipt.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Weighted Average Life" means, as of the date of determination, with
respect to any Debt or Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of (a) the number of years from the date of
determination to the dates of each successive scheduled principal payment of
such Debt or mandatory redemption of such Preferred Stock, respectively, and (b)
the amount of such principal payments or redemption payments, by (ii) the sum of
all such principal payments or redemption payments.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee such
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certificates and opinions as may be required under the Trust Indenture Act. Each
such certificate or opinion shall be given in the form of an Officers'
Certificate, if to be given by an officer of the Company, or an Opinion of
Counsel, if to be given by counsel, and shall comply with the requirements of
the Trust Indenture Act and any other requirement set forth in this Indenture.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
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Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders; Record Date.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate
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of a notary public or other officer authorized by law to take acknowledgments of
deeds, certifying that the individual signing such instrument or writing
acknowledged to him the execution thereof. Where such execution is by a signer
acting in a capacity other than his individual capacity, such certificate or
affidavit shall also constitute sufficient proof of his authority. The fact and
date of the execution of any such instrument or writing, or the authority of the
Person executing the same, may also be proved in any other manner which the
Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the Security
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
(e) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to give, make or take
any request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given, made or taken by
Holders of Securities of such series, provided that the Company may not set a
record date for, and the provisions of this paragraph shall not apply with
respect to, the giving or making of any notice, declaration, request or
direction referred to in the next paragraph. If any record date is set pursuant
to this paragraph, the Holders of Outstanding Securities on such record date,
and no other Holders, shall be entitled to take the relevant action, whether or
not such Holders remain Holders after such record date; provided that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities on such record date. Nothing in this paragraph shall be construed to
prevent the Company from setting a new record date for any action for which a
record date has previously been set pursuant to this paragraph (whereupon the
record date
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previously set shall automatically and with no action by any Person be canceled
and of no effect), and nothing in this paragraph shall be construed to render
ineffective any action taken by Holders of the requisite principal amount of
Outstanding Securities on the date such action is taken. Promptly after any
record date is set pursuant to this paragraph, the Company, at its own expense,
shall cause notice of such record date, the proposed action by Holders and the
applicable Expiration Date to be given to the Trustee in writing and to each
Holder of Securities in the manner set forth in Section 106.
The Trustee may set any day as a record date for the purpose of determining
the Holders of Outstanding Securities entitled to join in the giving or making
of (i) any Notice of Default, (ii) any declaration of acceleration referred to
in Section 502, (iii) any request to institute proceedings referred to in
Section 507(2) or (iv) any direction referred to in Section 512. If any record
date is set pursuant to this paragraph, the Holders of Outstanding Securities on
such record date, and no other Holders, shall be entitled to join in such
notice, declaration, request or direction, whether or not such Holders remain
Holders after such record date; provided that no such action shall be effective
hereunder unless taken on or prior to the applicable Expiration Date by Holders
of the requisite principal amount of Outstanding Securities on such record date.
Nothing in this paragraph shall be construed to prevent the Trustee from setting
a new record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be canceled and of no effect),
and nothing in this paragraph shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Outstanding
Securities on the date such action is taken. Promptly after any record date is
set pursuant to this paragraph, the Trustee, at the Company's expense, shall
cause notice of such record date, the proposed action by Holders and the
applicable Expiration Date to be given to the Company in writing and to each
Holder of Securities of the relevant series in the manner set forth in
Section 106.
With respect to any record date set pursuant to this Section, the party
hereto which sets such record dates may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
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later day; provided that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the other party hereto in writing, and
to each Holder of Securities in the manner set forth in Section 106, on or prior
to the existing Expiration Date. If an Expiration Date is not designated with
respect to any record date set pursuant to this Section, the party hereto which
set such record date shall be deemed to have initially designated the 180th day
after such record date as the Expiration Date with respect thereto, subject to
its right to change the Expiration Date as provided in this paragraph.
(f) Without limiting the foregoing, a Holder entitled hereunder to take
any action hereunder with regard to any particular Security may do so with
regard to all or any part of the principal amount of such Security or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any part of such principal amount.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Trustee Administration, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this instrument or at any other address previously
furnished in writing to the Trustee by the Company.
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SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act that is required under such Act to be part of and govern
this Indenture, the latter provision shall control. If any provision of this
Indenture modifies or excludes any provision of the Trust Indenture Act that may
be so modified or excluded, the latter provision shall be deemed to apply to
this Indenture as so modified or to be excluded, as the case may be.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
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SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Holders of Securities, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION 112. GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES THEREOF.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, Purchase Date
or Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal (and premium, if any) need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date, Redemption Date or Purchase
Date, or at the Stated Maturity, provided that to the extent such payment is
made on such next succeeding Business Day, no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date or Purchase
Date or Stated Maturity, as the case may be.
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ARTICLE TWO
Security Forms
SECTION 201. Forms Generally.
The Securities and the Trustee's certificates of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or securities
depositary or as may, consistently herewith, be determined by the officers
executing such Securities, as evidenced by their execution of the Securities.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may be
produced in any other manner permitted by the rules of any securities exchange
on which the Securities may be listed, all as determined by the officers
executing such Securities, as evidenced by their execution of such Securities.
SECTION 202. Form of Face of Security.
FOREST CITY ENTERPRISES, INC.
____% SENIOR NOTES due March __, 2008
No. __________ $________
CUSIP No. _____
Forest City Enterprises, Inc., a corporation duly organized and existing
under the laws of Ohio (herein called the "Company", which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to __________________, or registered assigns,
the principal sum of ___________________ Dollars on March __, 2008, and to pay
interest thereon from March __ or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, semi-annually on March __ and
September __ in each year, commencing September __, 1998, at the rate of ___%
per annum, until the principal hereof is paid or made available for payment, and
at the rate of __% per annum on any overdue principal and premium and on any
overdue installment of interest until paid. The interest so payable, and
punctually paid or duly provided for, on any Interest
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Payment Date will, as provided in such Indenture, be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, which shall be
the March __ or September __ (whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date. Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities not less than 10 days prior to such Special Record Date, or be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in said
Indenture.
Interest on this Security shall be computed on the basis of a 360-day year
of twelve 30-day months.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, The City of New York, New York, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts; provided, however, that at
the option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
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<PAGE> 39
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
FOREST CITY ENTERPRISES, INC.
[Seal]
By
-------------------------------
Title:
Attest:
- ------------------------------
Title:
SECTION 203. Form of Reverse of Security.
This Security is one of a duly authorized issue of Securities of the
Company designated as its ___% Senior Notes due March __, 2008 (herein called
the "Securities"), limited in aggregate principal amount to $200,000,000, issued
and to be issued under an Indenture, dated as of March __, 1998 (herein called
the "Indenture"), between the Company and The Bank of New York, as Trustee
(herein called the "Trustee", which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
The Securities are subject to redemption upon not less than 30 nor more
than 60 days' notice by mail, at any time on or after March __, 2003, as a whole
or in part, at the election of the Company, at the following Redemption Prices
(expressed as percentages of the principal amount): If redeemed during the
12-month period beginning March __ of each of the years indicated,
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<PAGE> 40
<TABLE>
<CAPTION>
Redemption Redemption
Year Price Year Price
- ---- ---------- ---- ----------
<S> <C> <C> <C>
2003
2004
2005
2006 and
thereafter 100%
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount,
together in the case of any such redemption with accrued interest to the
Redemption Date, but interest instalments whose Stated Maturity is on or prior
to such Redemption Date will be payable to the Holders of such Securities, or
one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture.
The Securities will also be subject to redemption, at the option of the Company,
prior to March __, 2001, in the event that on or before March __, 2001 the
Company receives net proceeds from the sale of its Common Stock in one or more
Public Equity Offerings, in which case the Company may, at its election, use all
or a portion of any such net proceeds to redeem up to an aggregate amount equal
to 33% of the original principal amount of the Securities; provided, however,
that Securities in an aggregate principal amount equal to at least $130 million
remain Outstanding after each such redemption. Any such redemption must occur on
a Redemption Date within 75 days of any such sale and upon not less than 30 nor
more than 60 days' notice mailed to each Holder of Securities to be redeemed at
such Holder's address appearing in the Security Register, in amounts of $1,000
or an integral multiple of $1,000, at a redemption price of ___% of the
principal amount of the Securities plus accrued and unpaid interest, if any, to
the Redemption Date, but interest instalments whose Stated Maturity is on or
prior to such Redemption Date will be payable to the Holders of such Securities,
or one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture. "Public Equity Offering" is defined in the Indenture as an
underwritten primary public offering of Common Stock of the Company pursuant to
an effective registration statement under the Securities Act of 1933, as
amended.
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<PAGE> 41
The Indenture provides that, subject to certain conditions, if (i) certain
Excess Proceeds are available to the Company as a result of an Asset
Disposition, or (ii) a Change of Control occurs, the Company shall be required
to make an Offer to Purchase for all or a specified portion of the Securities.
In the event of redemption or purchase pursuant to an Offer to Purchase of
this Security in part only, a new Security or Securities for the unredeemed or
unpurchased portion hereof will be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal of all
the Securities may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (i) the
entire indebtedness of this Security or (ii) certain restrictive covenants and
Events of Default with respect to this Security, in each case upon compliance
with certain conditions set forth therein.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have
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<PAGE> 42
the right to institute any proceeding with respect to the Indenture or for the
appointment of a receiver or trustee or for any other remedy thereunder, unless
such Holder shall have previously given the Trustee written notice of a
continuing Event of Default with respect to the Securities, the Holders of not
less than 25% in principal amount of the Securities at the time Outstanding
shall have made written request to the Trustee to institute proceedings in
respect of such Event of Default as Trustee and offered the Trustee reasonable
indemnity, and the Trustee shall not have received from the Holders of a
majority in principal amount of Securities at the time Outstanding a direction
inconsistent with such request, and shall have failed to institute any such
proceeding, for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal hereof or any
premium or interest hereon on or after the respective due dates expressed
herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company maintained for such purpose in the Borough of Manhattan,
The City of New York, New York, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of
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<PAGE> 43
Securities of a different authorized denomination, as requested by the Holder
surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES THEREOF.
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<PAGE> 44
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased in its entirety by the
Company pursuant to the Indenture, check the box:
[ ]
If you want to elect to have only a part of this Security purchased by the
Company pursuant to the Indenture, state the amount: $
Dated: Your Signature:
-------------------------------------
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee:
---------------------------------------------------------
(Signature must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Security
Registrar, which requirements include membership or
participation in a "signature guarantee program" as may be
determined by the Security Registrar, all in accordance with
the Securities Exchange Act of 1934, as amended.)
SECTION 204. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the within-mentioned
Indenture.
THE BANK OF NEW YORK,
Dated: as Trustee
By
-------------------------
Authorized Signatory
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<PAGE> 45
SECTION 205. Form of Legend for Global Securities.
(a) Every Global Security authenticated and delivered hereunder shall
bear a legend in substantially the following form:
This Security is a Global Security within the meaning of the Indenture
hereinafter referred to and is registered in the name of a Depositary or a
nominee thereof. This Security may not be exchanged in whole or in part for a
Security registered, and no transfer of this Security in whole or in part may be
registered, in the name of any Person other than such Depositary or a nominee
thereof, except in the limited circumstances described in the Indenture.
(b) If the Security is a Global Security and The Depository Trust
Company is to be the Depositary therefor, then insert the following legend in
substantially the following form: UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, 55 WATER STREET, NEW
YORK, NEW YORK 10004, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
ARTICLE THREE
The Securities
SECTION 301. Title and Terms.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is limited to $200,000,000.
The Securities shall be known and designated as the "___% Senior Notes due
March __, 2008" of the Company. Their Stated Maturity shall be March __, 2008
and they shall bear interest at the rate of ____% per annum, from March __
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<PAGE> 46
or from the most recent Interest Payment Date to which interest has been paid or
duly provided for, as the case may be, payable semi-annually on March __ and
September __, commencing September __, 1998, until the principal thereof is paid
or made available for payment and at the rate of ___% per annum on any overdue
principal, premium, if any, or installment of interest until paid.
The Securities shall be senior unsecured obligations of the Company and
shall rank pari passu in right of payment with all existing or future senior
unsecured indebtedness of the Company.
The operations of the Company are conducted principally through its
Subsidiaries. The right of the Company to participate as an equity holder in any
distribution of assets of any of its Subsidiaries upon dissolution, liquidation,
or winding up (and thus the ability of the Holders of the Securities to benefit,
as creditors of the Company, from such distribution) is subject to the prior
claims of creditors of any such Subsidiary, including, in the case of Forest
City Rental Properties Corporation, the claims for the payment of the Debt under
the FCRPC Credit Agreement. Although the Securities rank pari passu in right of
payment with the FCRPC Guaranty, as described above, the Securities do not rank
pari passu in right of payment with the Debt under the FCRPC Credit Agreement.
While it is the intent of the parties to this Indenture that this paragraph
shall not create any contractual rights of subordination, the Securities, as
described above, will be structurally (but not contractually) subordinated to
the Debt under the FCRPC Credit Agreement.
The principal of (and premium, if any) and interest on the Securities shall
be payable at the office or agency of the Company in the Borough of Manhattan,
The City of New York, New York, maintained for such purpose and at any other
office or agency maintained by the Company for such purpose; provided, however,
that at the option of the Company payment of interest may be made by check
mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register.
The Securities shall be subject to repurchase by the Company pursuant to an
Offer to Purchase as provided in Sections 1018 and 1019.
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<PAGE> 47
The Securities shall be redeemable as provided in Article Eleven.
The Securities shall be subject to defeasance at the option of the Company
as provided in Article Twelve.
SECTION 302. Denominations.
The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board (or any Co-Chairman), its President or one of its Vice Presidents,
under its corporate seal reproduced thereon attested by its Secretary or one of
its Assistant Secretaries. The signature of any of these officers on the
Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Securities; and the Trustee in accordance with such Company
Order shall authenticate and deliver such Securities as in this Indenture
provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
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<PAGE> 48
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Securities which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Securities in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Securities of
authorized denominations. Until so exchanged the temporary Securities shall in
all respects be entitled to the same benefits under this Indenture as definitive
Securities.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is hereby
appointed "Security Registrar" for the purpose of registering Securities and
transfers of Securities as herein provided.
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<PAGE> 49
Upon surrender for registration of transfer of any Security at an office or
agency of the Company designated pursuant to Section 1002 for such purpose, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
any authorized denominations and of a like aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Security Registrar duly executed, by the Holder thereof or
his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906 or 1108 or in accordance with any Offer
to Purchase pursuant to Section 1018 or 1019 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of or
exchange any Security during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Securities
selected for redemption under Section 1104 and ending at the close of business
on the day of such mailing,
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<PAGE> 50
or (ii) to register the transfer of or exchange any Security so selected for
redemption in whole or in part, except the unredeemed portion of any Security
being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
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<PAGE> 51
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall
be fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which
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<PAGE> 52
shall be not more than 15 days and not less than 10 days prior to the date
of the proposed payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee shall promptly
notify the Company of such Special Record Date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it appears in
the Security Register, not less than 10 days prior to such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted Interest
shall be paid to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of business
on such Special Record Date and shall no longer be payable pursuant to the
following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this Clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
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<PAGE> 53
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of (and premium, if any) and
(subject to Section 307) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or for purchase under any Offer to Purchase pursuant to
Section 1018 or 1019 shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly canceled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly canceled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities canceled as provided in this Section,
except as expressly permitted by this Indenture. All canceled Securities held by
the Trustee shall be disposed of as directed by a Company Order, provided,
however, that the Trustee may, but shall not be required to, destroy such
canceled Securities.
SECTION 310. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day year
of twelve 30-day months.
SECTION 311. Global Securities.
(a) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated by the Company for such
Global Security or a nominee thereof and delivered to such Depositary or a
nominee thereof or custodian therefor, and each such Global Security shall
constitute a single Security for all purposes
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<PAGE> 54
of this Indenture. The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Security(ies). The
Company initially appoints the Trustee to act as Securities Custodian with
respect to the Global Security(ies).
(b) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depositary for such Global Security or a nominee
thereof unless (i) such Depositary (A) has notified the Company that it is
unwilling or unable to continue as Depositary for such Global Security or (B)
has ceased to be a clearing agency registered as such under the Exchange Act,
and in each such case, a successor Depositary is not appointed by the Company
within 90 days or (ii) an Event of Default shall have occurred or an event that
with notice or lapse of time (or both) would constitute an Event of Default
shall have occurred or be continuing with respect to such Global Security or
(iii) the Company by Company Order so requests.
(c) Upon the occurrence of any of the events specified in Section
311(b), the Company shall execute, and the Trustee shall authenticate and
deliver, Securities in definitive form registered in such names and in such
amounts as the Depositary or its authorized representative may specify.
(d) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Article Three, Section 906, Section 1108 or
Section 1018 or Section 1019 or otherwise, shall be authenticated and delivered
in the form of, and shall be, a Global Security, unless such Security is
registered in the name of a Person other than the Depositary for such Global
Security or a nominee thereof.
(e) The Depositary or its nominee, as registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under
this Indenture and the Securities.
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<PAGE> 55
SECTION 312. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Company will promptly notify
the Trustee of any change in the "CUSIP" numbers.
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Securities herein
expressly provided for), and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 306 and (ii) Securities
for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust, as provided in Section 1003) have
been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee
for cancellation
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<PAGE> 56
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited or
caused to be deposited with the Trustee as trust funds in trust for the
purpose an amount sufficient (without reinvestment) to pay and discharge
the entire indebtedness on such Securities not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any) and interest
to the date of such deposit (in the case of Securities which have become
due and payable) or to the Stated Maturity or Redemption Date, as the case
may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article Four, the obligations of the Company to the Trustee under Section
607, the obligations of the Company to any Authenticating Agent under Section
614 and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of Clause (1) of this
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Section, the obligations of the Trustee under Section 402, the last paragraph of
Section 1003 and the provisions of Section 303, 305, 306 and 311 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.
ARTICLE FIVE
Remedies
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of the principal of (or premium, if any,
on) any Security at its Maturity; or
(2) default in the payment of any interest upon any Security when
it becomes due and payable, and continuance of such default for a period of
30 days; or
(3) default in the performance, or breach, of Section 801, 1018 or
1019; or
(4) default in the performance, or breach, of any covenant or
agreement of the Company in this Indenture (other than a
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covenant or agreement a default in whose performance or whose breach is
elsewhere in this Section specifically dealt with), and continuance of such
default or breach for a period of 30 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in principal amount
of the Outstanding Securities a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder; or
(5) a default or defaults under any bond(s), debenture(s), note(s)
or other evidence(s) of Debt (other than Non-Recourse Debt) by the Company
or any Subsidiary of the Company or under any mortgage(s), indenture(s) or
instrument(s) under which there may be issued or by which there may be
secured or evidenced any Debt (other than Non-Recourse Debt) of the Company
or any such Subsidiary with a principal amount then outstanding,
individually or in the aggregate, in excess of $10 million, whether such
Debt now exists or shall hereafter be created, which default or defaults
shall constitute a failure to pay any portion of the principal of such Debt
when due and payable after the expiration of any applicable grace period
with respect thereto and shall have resulted in such Debt becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable or constitutes the failure to pay any portion of the
principal of such Debt when due and payable; or
(6) a default or defaults under any bond(s), debenture(s), note(s)
or other evidence(s) of Non-Recourse Debt by the Company or any Subsidiary
of the Company or under any mortgage(s), indenture(s) or instrument(s)
under which there may be issued or by which there may be secured or
evidenced any Non-Recourse Debt of the Company or any
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such Subsidiary with a principal amount then outstanding, individually or
in the aggregate, in excess of 20% of the aggregate principal or similar
amount of all the outstanding Non-Recourse Debt of the Company and its
Subsidiaries, whether such Non-Recourse Debt now exists or shall hereafter
be created, which default or defaults shall constitute a failure to pay any
portion of the principal of such Non-Recourse Debt when due and payable
after the expiration of any applicable grace period with respect thereto or
shall have resulted in such Non-Recourse Debt becoming or being declared
due and payable prior to the date on which it would otherwise have become
due and payable; or
(7) a final judgment or final judgments (not subject to appeal) for
the payment of money are entered against the Company or any Subsidiary of
the Company in an aggregate amount in excess of $10 million by a court or
courts of competent jurisdiction, which judgment or judgments remain
undischarged or unbonded for a period (during which execution shall not be
effectively stayed) of 45 days after the right to appeal all such judgments
has expired; or
(8) the entry by a court having jurisdiction in the premises of (A)
a decree or order for relief in respect of the Company or any Material
Subsidiary of the Company in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or (B) a decree or order adjudging the Company or any such
Material Subsidiary a bankrupt or insolvent, or approving as properly filed
a petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company or any such Material Subsidiary under any
applicable Federal or State law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of
the Company or any, such
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Material Subsidiary or of any substantial part of the property of the
Company or any such Material Subsidiary, or ordering the winding up or
liquidation of the affairs of the Company or any such Material Subsidiary,
and the continuance of any such decree or order for relief or any such
other decree or order unstayed and in effect for a period of 60 consecutive
days; or
(9) the commencement by the Company or any Material Subsidiary of
the Company of a voluntary case or proceeding under any applicable Federal
or State bankruptcy, insolvency, reorganization or other similar law or of
any other case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by the Company or any such Material Subsidiary to the entry of
a decree or order for relief in respect of the Company or such Material
Subsidiary in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar
law or to the commencement of any bankruptcy or insolvency case or
proceeding against the Company or any Material Subsidiary of the Company,
or the filing by the Company or any such Material Subsidiary of a petition
or answer or consent seeking reorganization or relief under any applicable
Federal or State law, or the consent by the Company or any such Material
Subsidiary to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or any Material Subsidiary
of the Company or of any substantial part of the property of the Company or
any such Material Subsidiary, or the making by the Company or any Material
Subsidiary of the Company of an assignment for the benefit of creditors, or
the admission by the Company or any such Material Subsidiary in writing of
its inability to pay its debts generally as they become due, or the taking
of corporate action by the Company or any such Material Subsidiary in
furtherance of any such action.
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SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in Section
501 (8) or (9) occurs) and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal of all the Securities to be due
and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by Holders), and upon any such declaration such principal and
any accrued interest shall become immediately due and payable. If an Event of
Default specified in Section 501 (8) or (9) occurs, the principal of and any
accrued interest on the Securities then Outstanding shall ipso facto become
immediately due and payable without any declaration or other Act on the part of
the Trustee or any Holder. In the case of any Event of Default occurring by
reason of any willful action (or inaction) taken (or not taken) by or on behalf
of the Company with the intention of avoiding payment of the premium that the
Company would have had to pay if the Company then had elected to redeem the
Securities pursuant to the provisions described in Section 1101(a), an
equivalent premium will also become and be immediately due and payable upon the
acceleration of the Securities.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, on) any Securities
which have become due otherwise than by such declaration of
acceleration (including
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any Securities required to have been purchased on the Purchase Date
pursuant to an Offer to Purchase made by the Company) and interest
thereon at the rate of % per annum,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate of % per annum, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all Events of Default, other than the non-payment of the
principal of Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days, or
(2) default is made in the payment of the principal of (or premium,
if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any) and on any overdue
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interest, at ___% per annum, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the Company (or any other
obligor upon the Securities), its property or its creditors, the Trustee shall
be entitled and empowered, by intervention in such proceeding or otherwise, to
take any and all actions authorized under the Trust Indenture Act in order to
have claims of the Holders and the Trustee allowed in any such proceeding. In
particular, the Trustee shall be authorized to collect and receive any moneys or
other property payable or deliverable on any such claims and to distribute the
same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator
or other similar official in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
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SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Securities in respect of which such judgment has been
recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607; and
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal (and premium, if
any) and interest, respectively.
SECTION 507. Limitation on Suits.
No Holder of any Security shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless
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(1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding;
and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of (and premium, if any) and (subject to Section 307)
interest on such Security on the respective Stated Maturities expressed in such
Security (or, in the case of redemption, on the Redemption Date or in the case
of
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an Offer to Purchase made by the Company and required to be accepted as to
such Security, on the Purchase Date) and to institute suit for the enforcement
of any such payment, and such rights shall not be impaired without the consent
of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
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SECTION 512. Control by Holders.
The Holders of a majority in aggregate principal amount of the Outstanding
Securities shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Securities may on behalf of the Holders of all the Securities
waive any past default hereunder and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security (including any Security which is required to have
been purchased pursuant to an Offer to Purchase made by the Company), or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
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SECTION 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs,
including reasonable attorney's fees and expenses against any such party
litigant, in the manner and to the extent provided in the Trust Indenture Act;
provided, that neither this Section nor the Trust Indenture Act shall be deemed
to authorize any court to require such an undertaking or to make such an
assessment in any suit instituted by the Trustee or the Company.
SECTION 515. Waiver of Usury, Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as provided by the
Trust Indenture Act. Notwithstanding the foregoing, no provision of this
Indenture shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not therein
expressly so provided,
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every provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to the
provisions of this Section.
SECTION 602. Notice of Defaults.
The Trustee shall give the Holders notice of any default hereunder as and
to the extent provided by the Trust Indenture Act; provided, however, that in
the case of any default of the character specified in Section 501(4), no such
notice to Holders shall be given until at least 30 days after the occurrence
thereof. For the purpose of this Section, the term "default" means any event
which is, or after notice or lapse of time or both would become, an Event of
Default.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
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(d) the Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(f) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
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(h) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
(i) the Trustee shall not be liable for any action taken, suffered,
or omitted to be taken by it in good faith and reasonably believed by it to
be authorized or within the discretion or rights or powers conferred upon
it by this Indenture.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(8) or Section 501(9), the
expenses (including the reasonable charges and expenses of its counsel) and
the compensation for the services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency
or other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Securities. The Trustee shall not be accountable for the use or
application by the Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become
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the owner or pledgee of Securities and, subject to Sections 608 and 613, may
otherwise deal with the Company with the same rights it would have if it were
not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such
other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Company.
SECTION 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time such compensation as
the Company and the Trustee shall from time to time agree in writing for
all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify each of the Trustee or any predecessor Trustee and
their agents for, and to hold them harmless against, any and all loss,
liability, damage, claim or expense, including taxes (other than taxes
based on the income of the Trustee or any predecessor Trustee) incurred
without negligence or bad faith on its part, arising
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out of or in connection with the acceptance or administration of this
trust, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a Person
that is eligible pursuant to the Trust Indenture Act to act as such and has a
combined capital and surplus of at least $50,000,000, with a Corporate Trust
Office in the Borough of Manhattan, The City of New York, New York. If such
Person publishes reports of condition at least annually, pursuant to law or to
the requirements of said supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such Person shall
be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice thereof
to the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of
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such notice of resignation, the resigning Trustee may petition, at the expense
of the Company, any court of competent jurisdiction for the appointment of a
successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of removal, the Trustee being removed may petition, at the
expense of the Company, any court of competent jurisdiction for the appointment
of a successor Trustee.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or by
any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in
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the office of Trustee for any cause, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee. If, within one year after such
resignation, removal or incapability, or the occurrence of such vacancy, a
successor Trustee shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Securities delivered to the Company and the
retiring Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment, become the successor Trustee and supersede the
successor Trustee appointed by the Company. If no successor Trustee shall have
been so appointed by the Company or the Holders and accepted appointment in the
manner hereinafter provided, any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to all Holders in the
manner provided in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts.
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No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 614. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents which shall be
authorized to act on behalf of the Trustee to authenticate Securities issued
upon original issue and upon exchange, registration of transfer or partial
redemption or pursuant to Section 306, and Securities so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory for
all purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
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the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders as their
names and addresses appear in the Security Register. Any
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successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section.
If an appointment is made pursuant to this Section, the Securities may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternative certificate of authentication in the following form:
This is one of the Securities described in the within-mentioned Indenture.
THE BANK OF NEW YORK,
As Trustee
By ,
--------------------------
As Authenticating Agent
By
--------------------------
Authorized Officer
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ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not more than 15 days after each Regular Record Date,
a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect
to their rights under this Indenture or under the Securities and the
corresponding rights and duties of the Trustee, shall be provided by the Trust
Indenture Act.
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(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to the names and addresses of Holders made pursuant
to the Trust Indenture Act.
SECTION 703. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto. If
required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within
sixty days after each March 1 following the date of this Indenture, deliver to
Holders a brief report, dated as of such March 1, which complies with the
provisions of such Section 313(a).
(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will promptly notify the Trustee when the Securities are listed on any stock
exchange and of any delisting thereof.
SECTION 704. Reports by Company.
The Company shall file with the Trustee and the Commission, and transmit to
Holders, such information, documents and other reports, and such summaries
thereof, as may be required pursuant to the Trust Indenture Act at the times and
in the manner provided pursuant to such Act; provided that any such information,
documents or reports required to be filed with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within
15 days after the same is so required to be filed with the Commission.
Delivery of such reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder
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(as to which the Trustee is entitled to rely exclusively on Officers'
Certificates).
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 801. Merger, Consolidations and Certain Sales of Assets.
The Company shall not, in a single transaction or a series of related
transactions, (a) consolidate with or merge into or reorganize with or into any
other Person or permit any other Person to consolidate with or merge into or
reorganize with or into the Company, or (b) directly or indirectly, transfer,
convey, sell, lease or otherwise dispose of all or substantially all of its
assets to any other Person, unless in each case:
(i) in a transaction (or series) in which the Company does not
survive or in which the Company sells, leases or otherwise disposes of all
or substantially all of its assets, the successor entity to the Company is
organized under the laws of the United States of America, any State thereof
or the District of Columbia (a "Successor Company") and shall expressly
assume, by a supplemental indenture executed and delivered to the Trustee
in form satisfactory to the Trustee, all of the Company's obligations under
this Indenture;
(ii) immediately before and after giving effect to such transaction
(or series) and treating any Debt which becomes an obligation of the
Company or a Subsidiary (or Successor Company) as a result of such
transaction (or series) as having been Incurred by the Company or such
Subsidiary (or Successor Company) at the time of the transaction (or
series), no Event of Default or event that with the passing of time or the
giving of notice, or both, would constitute an Event of Default shall have
occurred and be continuing;
(iii) immediately after giving effect to such transaction (or
series), the Consolidated Net Worth of the Company (or Successor Company)
is equal to or greater than 90% of the Company's Consolidated Net Worth
immediately prior to the transaction (or series);
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(iv) immediately after giving effect to such transaction (or series)
and treating any Debt which becomes an obligation of the Company or a
Subsidiary as a result of such transaction (or series) as having been
Incurred by the Company or such Subsidiary at the time of the transaction
(or series), the Company (including any Successor Company), after giving
pro forma effect thereto as if such transaction (or series) had occurred at
the beginning of the most recently ended four full fiscal quarter period
for which financial statements are available immediately preceding the date
of such transaction (or series), could Incur at least $1.00 of additional
Debt pursuant to the Consolidated EBITDA to Interest Ratio test and the
test of the excess of the Company's Consolidated Adjusted Net Worth over
the Company's Minimum Adjusted Net Worth, each set forth in the first
paragraph of Section 1008;
(v) if, as a result of any such transaction, property and assets of
the Company or any Subsidiary would become subject to a Lien which would
not be permitted by Section 1014, the Company or, if applicable, the
Successor Company, as the case may be, shall take such steps as shall be
necessary effectively to secure the Securities equally and ratably with (or
prior to) the Debt secured by such Lien; or
(vi) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer, sale, lease or acquisition and, if a supplemental
indenture is required in connection with such transaction, such
supplemental indenture, complies with this Article and that all conditions
precedent herein provided for relating to such transaction have been
complied with, and, with respect to such Officer's Certificate, setting
forth the calculations demonstrating compliance with Clauses (iii) and (iv)
above.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any transfer, conveyance, sale, lease or other disposition
of all or substantially all of the properties and assets of the Company as an
entirety in accordance with Section 801, the
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Successor Company shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture with the same effect
as if such Successor Company had been named as the Company herein, and
thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under this Indenture and the
Securities.
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:
(1) to evidence the succession of a Successor Company to the Company
and the assumption by any such Successor Company of the covenants of the
Company herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(3) to secure the Securities pursuant to the requirements of Section
1014 or otherwise; or
(4) to comply with any requirements of the Commission in order to
effect and maintain the qualification of this Indenture under the Trust
Indenture Act; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under
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this Indenture which shall not be inconsistent with the provisions of this
Indenture, provided such action pursuant to this Clause (5) shall not
adversely affect the interests of the Holders in any material respect.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any
instalment of interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable thereon, or
change the place of payment where, or the coin or currency in which, any
Security or any premium or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment on or after
the Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date or, in the case of an Offer to Purchase which has been
made, on or after the Purchase Date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder
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and their consequences) provided for in this Indenture, or
(3) modify any of the provisions of Section 1018 or 1019 or the
related definitions in a manner adverse to the Holders, or
(4) modify any of the provisions of this Section, Section 513 or
Section 1021, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
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SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
ARTICLE TEN
Covenants
SECTION 1001. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of (and premium, if
any) and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, The City of New
York, an office or agency where Securities may be presented or surrendered for
payment, where Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices
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and demands may be made or served at the Corporate Trust Office of the Trustee,
and the Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies (in or outside the Borough of Manhattan, The City of New York) where
the Securities may be presented or surrendered for any or all such purposes and
may from time to time rescind such designations; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of Manhattan, The City
of New York, for such purposes. The Company will give prompt written notice to
the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
SECTION 1003. Money for Security Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will, on
or before 10:00 a.m., New York time, on the due date of the principal of (and
premium, if any) or interest on any of the Securities, segregate and hold in
trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal (and premium, if any) or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided and
will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, prior
to each due date of the principal of (and premium, if any) or interest on any
Securities, deposit with a Paying Agent a sum sufficient to pay the principal
(and premium, if any) or interest so becoming due, such sum to be held in trust
for the benefit of the Persons entitled to such principal, premium or interest,
and (unless such Paying Agent is the Trustee) the Company will promptly notify
the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:
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(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of (and premium, if any)
or interest on any Security and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of
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general circulation in The City of New York, notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such publication, any unclaimed balance of such money
then remaining will be repaid to the Company.
SECTION 1004. Existence.
Subject to Article Eight and Section 1018, the Company will do or cause to
be done all things necessary to preserve and keep in full force and effect its
existence, rights (charter and statutory) and franchises; provided, however,
that the Company shall not be required to preserve any such right or franchise
if the Board of Directors in good faith shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
that the loss thereof is not disadvantageous in any material respect to the
Holders.
SECTION 1005. Maintenance of Properties.
The Company will cause all properties used or useful in the conduct of its
business or the business of any Subsidiary of the Company to be maintained and
kept in good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is desirable in the conduct of its business or the business of
any Subsidiary and not disadvantageous in any material respect to the Holders.
SECTION 1006. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all taxes, assessments and governmental
charges levied or imposed upon the Company or any of its Subsidiaries or upon
the income, profits or property of the Company or any of its Subsidiaries, and
(2) all lawful claims for labor, materials and supplies which, if unpaid, might
by law become a lien upon the property of the Company or any of its
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Subsidiaries; provided, however, that the Company shall not be required to pay
or discharge or cause to be paid or discharged any such tax, assessment, charge
or claim whose amount, applicability or validity is being contested in good
faith by appropriate proceedings and for which adequate reserves are being
maintained to the extent required by generally accepted accounting principles.
SECTION 1007. Maintenance of Insurance.
The Company shall, and shall cause its Subsidiaries to, keep at all times
all of their properties which are of an insurable nature insured against loss or
damage with insurers believed by the Company to be responsible to the extent
that property of similar character is usually so insured by corporations
similarly situated and owning like properties in accordance with good business
practice.
SECTION 1008. Limitation on Debt.
The Company shall not Incur any Debt, and shall not permit any Subsidiary
of the Company to Incur any Debt unless, immediately after giving effect to the
Incurrence of such Debt and the receipt and application of the proceeds thereof,
(i) the Consolidated EBITDA to Interest Ratio of the Company for the last four
full fiscal quarters for which quarterly or annual financial statements are
available would be greater than 1.3 to 1 and (ii) the Consolidated Adjusted Net
Worth of the Company would be greater than the Minimum Adjusted Net Worth of the
Company.
Notwithstanding the foregoing limitation, the Company or any Subsidiary of
the Company may Incur the following Debt:
(i) Debt Incurred by the Company under its Guarantee of the FCRPC
Credit Agreement or by any Subsidiary of the Company under the FCRPC Credit
Agreement in an aggregate principal amount at any one time not to exceed
$225 million, and any renewal, extension, refinancing or refunding thereof
(including, without limitation, the replacement of the banks under the
FCRPC Credit Agreement with a new group of banks) in an amount which,
together with any amount remaining outstanding or available under the FCRPC
Credit Agreement, does not exceed $225 million; provided that such
refinancing or refunding Debt does not have a
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Weighted Average Life that is less than the Weighted Average Life of the
Debt being refinanced or refunded;
(ii) Performance guarantees and performance bonds, surety bonds and
appeal bonds in each case incurred in the ordinary course of business and
consistent with past practices;
(iii) Debt evidenced by the Securities;
(iv) Debt (other than Debt described in another clause of this
paragraph) outstanding on the date of original issuance of the Securities
after giving effect to the application of the proceeds of the Securities;
(v) Debt owed by the Company to any Wholly Owned Subsidiary of the
Company for which fair value has been received or Debt owed by a Subsidiary
of the Company to the Company or a Wholly Owned Subsidiary of the Company;
provided, however, that (a) any such Debt owing by the Company to a Wholly
Owned Subsidiary shall be Subordinated Debt evidenced by an intercompany
promissory note and (b) upon either (1) the transfer or other disposition
by such Wholly Owned Subsidiary or the Company of any Debt so permitted to
a Person other than the Company or another Wholly Owned Subsidiary of the
Company or (2) the issuance (other than directors' qualifying shares),
sale, lease, transfer or other disposition of shares of Capital Stock
(including by consolidation or merger) of such Wholly Owned Subsidiary to a
Person other than the Company or another such Wholly Owned Subsidiary, the
provisions of this clause (v) shall no longer be applicable to such Debt
and such Debt shall be deemed to have been Incurred at the time of such
transfer or other disposition;
(vi) Debt Incurred by a Person prior to the time (A) such Person
became a Subsidiary of the Company, (B) such Person merged into or
consolidated with a Subsidiary of the Company or (C) another Subsidiary of
the Company merged into or consolidated with such Person (in a transaction
in which such Person became a Subsidiary of the Company) which Debt was not
Incurred in anticipation of such transaction and was outstanding prior to
such transaction, provided that after giving pro forma effect to such
transaction and
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treating any Debt as having been Incurred at the time of such transaction,
the Company could Incur at least $1.00 of additional Debt pursuant to the
preceding paragraph;
(vii) Development Debt Incurred by the Company or any Subsidiary of
the Company; provided that the Incurrence of all such Development Debt
would have been permitted under the limitations set forth in the first
paragraph of this covenant on the date that the first $1.00 of such Debt
was Incurred (the "Development Start Date") determined as if all such
Development Debt had been incurred on the Development Start Date; provided,
further that, if all such Development Debt could be Incurred by the Company
or any Subsidiary of the Company on the Development Start Date in
accordance with the immediately preceding proviso, then individual
borrowings or draw downs in an aggregate amount of such Development Debt
shall not be subject to the requirements of the first paragraph of this
covenant;
(viii) Debt Incurred by the Company or any of its Subsidiaries
consisting of Permitted Interest Rate, Currency or Commodity Price
Agreements;
(ix) Debt which is exchanged for or the proceeds of which are used to
refinance or refund, or any extension or renewal of, outstanding Debt
Incurred pursuant to the preceding paragraph or clauses (iii), (iv), (vi)
or (vii) of this paragraph (each of the foregoing, a "refinancing") in an
aggregate principal amount not to exceed the principal amount of the Debt
so refinanced plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Debt so
refinanced or the amount of any premium reasonably determined by the
Company or the relevant Subsidiary as necessary to accomplish such
refinancing by means of a tender offer or privately negotiated repurchase,
plus the expenses of the Company or the Subsidiary, as the case may be,
incurred in connection with such refinancing; provided, however, that (A)
in the case of any refinancing of Debt which is subordinated in right of
payment to the Securities, the refinancing Debt is Incurred by the Company
and constitutes Subordinated Debt; (B) the refinancing Debt by its terms,
or by the terms of any agreement or instrument pursuant to which such Debt
is issued,
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(1) does not have a Weighted Average Life less than the Weighted Average
Life of the Debt being refinanced and does not have a maturity earlier than
the final stated maturity of the Debt being refinanced and (2) does not
permit redemption or other retirement (including pursuant to an offer to
purchase) of such Debt at the option of the holder thereof prior to the
final stated maturity of the Debt being refinanced, other than a redemption
or other retirement at the option of the holder of such Debt (including
pursuant to an offer to purchase) which is conditioned upon provisions
substantially similar to those described under Section 1018 and Section
1019; and (C) in the case of any refinancing of Debt Incurred by the
Company, the refinancing Debt may be Incurred only by the Company, and in
the case of any refinancing of Debt Incurred by a Subsidiary, the
refinancing Debt may be Incurred only by such Subsidiary; provided,
further, that Debt Incurred pursuant to this clause (ix) may not be
Incurred more than 45 days prior to the application of the proceeds to
repay the Debt to be refinanced; and
(x) Debt Incurred by the Company or any Subsidiary of the Company not
otherwise permitted to be Incurred pursuant to clauses (i) through (ix)
above, which, together with any other outstanding Debt Incurred pursuant to
this clause (x), has an aggregate principal amount not in excess of $50
million at any time outstanding.
SECTION 1009. Limitation on Preferred Stock of Subsidiaries.
The Company shall not cause, and shall not permit, any Subsidiary of the
Company to issue any Preferred Stock except:
(i) Preferred Stock held by a Wholly-Owned Subsidiary or held by the
Company;
(ii) Preferred Stock of an entity when it is acquired which is
outstanding at the time of such acquisition and not incurred in
anticipation of such acquisition; provided, that the Company could Incur
Debt in an amount equal to the liquidation value
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of such Preferred Stock pursuant to the first paragraph of Section 1008;
and
(iii) Preferred Stock issued by a Subsidiary of the Company (other
than Forest City Rental Properties Corporation), provided that (a) the
liquidation value of such Preferred Stock is treated as Debt Incurred at
the time such Preferred Stock is issued for all purposes under the
Indenture, (b) all dividends on such Preferred Stock, whether or not
declared or paid, are treated as Consolidated Interest Expense and (c) at
the time of the issuance of such Preferred Stock and after giving effect to
the issuance of such Preferred Stock as Debt Incurred at the time of the
issuance thereof, the Company could Incur at least $1.00 of additional Debt
pursuant to the first paragraph of Section 1008.
SECTION 1010. Limitation on Restricted Payments.
The Company (i) shall not, and shall not permit any Subsidiary of the
Company to, directly or indirectly, declare or pay any dividend or make any
distribution (including any payment in connection with any merger or
consolidation derived from assets of the Company or any Subsidiary) in respect
of its Capital Stock or to the holders thereof, excluding (a) any dividends or
distributions by the Company payable solely in shares of its Capital Stock
(other than Redeemable Stock) or in options, warrants or other rights to acquire
its Capital Stock (other than Redeemable Stock),(b) in the case of a Subsidiary
of the Company, dividends or distributions payable to the Company or a Wholly
Owned Subsidiary of the Company, pro rata dividends or distributions payable
solely in shares of its Capital Stock (other than Redeemable Stock) or in
options, warrants or other rights to acquire its Capital Stock (other than
Redeemable Stock), and (c) in the case of a Subsidiary of the Company, dividends
or distributions payable pursuant to the terms of its organizational documents,
(ii) may not, and may not permit any Subsidiary to, purchase, redeem, or
otherwise acquire or retire for value (a) any Capital Stock of the Company or
(b) any options, warrants or other rights to acquire shares of Capital Stock of
the Company or any securities convertible or exchangeable into shares of Capital
Stock of the Company and (iii) may not, and may not
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permit any Subsidiary of the Company to, redeem, repurchase, defease or
otherwise acquire or retire for value prior to any scheduled maturity, repayment
or sinking fund payment Debt of the Company which is subordinate in right of
payment to the Securities (each of clauses (i) through (iii) being a "Restricted
Payment") if: (1) an Event of Default, or an event that with the passing of time
or the giving of notice, or both, would constitute an Event of Default, shall
have occurred and is continuing or would result from such Restricted Payment, or
(2) after giving pro forma effect to such Restricted Payment as if such
Restricted Payment had been made at the beginning of the applicable
four-fiscal-quarter period, the Company could not Incur at least $1.00 of
additional Debt pursuant to the first paragraph of Section 1008 above, or (3)
upon giving effect to such Restricted Payment, the aggregate of all Restricted
Payments from October 31, 1997 exceeds the sum of: (a) 25% of the sum of (i)
cumulative Consolidated Net Income (or, in the case Consolidated Net Income
shall be negative, less 100% of such deficit) of the Company since October 31,
1997 through the last day of the last full fiscal quarter ending immediately
preceding the date of such Restricted Payment (taken as a single accounting
period) plus (ii) the amount of consolidated depreciation and amortization and
deferred taxes included in such Consolidated Net Income less (iii) the amount of
ordinary and necessary expenditures for the purpose of maintaining the real and
personal property of the Company and its Subsidiaries in a state of good repair
that was included in such Consolidated Net Income or that was capitalized and
included on the consolidated balance sheet of the Company and its Subsidiaries
since October 31, 1997; plus (b) 100% of the aggregate net proceeds received by
the Company after the date of original issuance of the Securities, including the
fair market value of property other than cash (determined in good faith by the
Board of Directors as evidenced by a resolution of the Board of Directors of the
Company filed with the Trustee), from contributions of capital or the issuance
and sale (other than to a Subsidiary) of Capital Stock (other than Redeemable
Stock) of the Company, options, warrants or other rights to acquire Capital
Stock (other than Redeemable Stock) of the Company and the principal amount (or,
in the case of Debt issued at a discount, the accreted value of such Debt) of
Debt of the Company that has been converted into or exchanged for Capital Stock
(other than Redeemable Stock and other than by or from a Subsidiary) of the
Company after the date of original issuance of the Securities,
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provided that any such net proceeds received by the Company from an employee
stock ownership plan financed by loans from the Company or a Subsidiary of the
Company shall be included only to the extent such loans have been repaid with
cash on or prior to the date of determination; plus (c) $10 million. Prior to
the making of any Restricted Payment, the Company shall deliver to the Trustee
an Officers' Certificate setting forth the computations by which the
determinations required by clauses (2) and (3) above were made and stating that
no Event of Default, or event that with the passing of time or the giving of
notice, or both, would constitute an Event of Default, has occurred and is
continuing or will result from such Restricted Payment.
Notwithstanding the foregoing, so long as no Event of Default, or event
that with the passing of time or the giving of notice, or both, would constitute
an Event of Default, shall have occurred and is continuing or would result
therefrom, (i) the Company and any Subsidiary of the Company may pay any
dividend on Capital Stock of any class within 60 days after the declaration
thereof if, on the date when the dividend was declared, the Company or such
Subsidiary could have paid such dividend in accordance with the foregoing
provisions; (ii) the Company may refinance any Debt otherwise permitted by
clause (ix) of the second paragraph under Section 1008 above or solely in
exchange for or out of the net proceeds of the substantially concurrent sale
(other than from or to a Subsidiary or from or to an employee stock ownership
plan financed by loans from the Company or a Subsidiary of the Company) of
shares of Capital Stock (other than Redeemable Stock) of the Company, provided
that the amount of net proceeds from such exchange or sale shall be excluded
from the calculation of the amount available for Restricted Payments pursuant to
the preceding paragraph; (iii) the Company may purchase, redeem, acquire or
retire any shares of Capital Stock of the Company solely in exchange for or out
of the net proceeds of the substantially concurrent sale (other than from or to
a Subsidiary or from or to an employee stock ownership plan financed by loans
from the Company or a Subsidiary of the Company) of shares of Capital Stock
(other than Redeemable Stock) of the Company; (iv) the Company may purchase or
redeem any Debt from Net Available Proceeds to the extent permitted under
Section 1018; and (v) the Company may make payments with respect to the
extinguishment of fractional or odd-lot shares of its Capital Stock in an
aggregate amount not in excess of $250,000.
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SECTION 1011. Limitations Concerning Distributions By and Transfers to
Subsidiaries.
The Company shall not, and shall not permit any Subsidiary of the Company
to, directly or indirectly, suffer to exist or become effective any consensual
encumbrance or restriction on the ability of any Subsidiary of the Company (i)
to pay dividends (in cash or otherwise) or make any other distributions in
respect of its Capital Stock or pay any Debt or other obligation owed to the
Company or any other Subsidiary of the Company; (ii) to make loans or advances
to the Company or any other Subsidiary; or (iii) to transfer any of its property
or assets to the Company or any other Subsidiary. Notwithstanding the foregoing,
the Company may, and may permit any Subsidiary of the Company to, suffer to
exist any such encumbrance or restriction (a) pursuant to any agreement in
effect on the date of original issuance of the Securities (including the FCRPC
Credit Agreement); (b) pursuant to any future senior credit facility between
Forest City Rental Properties Corporation and a financial institution or
institutions or a senior credit facility between Forest City Trading Group, Inc.
and a financial institution or institutions, provided that notwithstanding any
such encumbrance or restriction contained therein, Forest City Rental Properties
Corporation (in the case of a Forest City Rental Properties Corporation senior
credit facility) and Forest City Trading Group, Inc. (in the case of a Forest
City Trading Group, Inc. senior credit facility) shall be permitted to
distribute to the Company, in the form of dividends, loans or advances, or any
combination thereof, (i) amounts sufficient to pay, when due, all interest
payments in respect of Debt of the Company, including the Notes, (ii) amounts
sufficient to pay, when due, all taxes of the Company, and (iii) except in the
case of any default by Forest City Rental Properties Corporation under any such
future credit facility, not less than $3.0 million per fiscal year to pay
administrative and other expenses of the Company, provided that any such future
credit facility may contain encumbrances or restrictions that restrict the
applicable Subsidiary's ability to make such distributions to the Company in the
event that Forest City Rental Properties Corporation fails to make any payment
of principal, interest or other charge, when due and payable in accordance with
the terms of such future credit facility (after giving effect to any applicable
grace periods); (c) pursuant to an agreement relating to any Debt Incurred by a
Person prior to the date on which such Person became a
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Subsidiary of the Company and outstanding on such date and not Incurred in
anticipation of becoming a Subsidiary, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person so acquired; (d) pursuant to an agreement entered into by a
Subsidiary of the Company in connection with the acquisition, development,
construction or improvement of real property so long as such agreement is
required by a third party prior to making capital contributions, or extending
credit, to the Subsidiary; or (e) pursuant to an agreement effecting a renewal,
refunding or extension of Debt Incurred pursuant to an agreement referred to in
clause (a), (b), (c) or (d) (including, solely for purposes of this clause (e),
renewals, refinancings and extensions of Debt Incurred pursuant to an agreement
referred to in clause (d) that are in excess of the original amount of such
Debt) above, provided, however, that the provisions contained in such renewal,
refunding or extension agreement relating to such encumbrance or restriction are
no more restrictive in any material respect than the provisions contained in the
agreement the subject thereof, in the reasonable judgment of the Chief Executive
Officer of the Company and evidenced by a certificate therefrom filed with the
Trustee.
SECTION 1012. Limitation on Sale and Leaseback Transactions.
The Company shall not, and shall not permit any Subsidiary to, enter into
any Sale and Leaseback Transaction unless all of the conditions of the Indenture
described under Section 1018 (including the provisions concerning the
application of Net Available Proceeds) are satisfied with respect to such Sale
and Leaseback Transaction, treating all of the consideration received in such
Sale and Leaseback Transaction as Net Available Proceeds for purposes of such
covenant.
SECTION 1013. Limitation on Layered Debt of Subsidiaries.
The company may not permit any Subsidiary to Incur any Debt that is by its
terms subordinate in right of payment to the FCRPC Credit Agreement.
SECTION 1014. Limitation on Liens.
The Company may not, and may not permit any Subsidiary of the Company to,
Incur or suffer to exist any
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Lien to secure Debt on or with respect to any property or assets now owned or
hereafter acquired (i) if such Lien secures Debt which is pari passu with the
Securities, unless the Securities are secured on an equal and ratable basis with
the obligations so secured until such time as such obligation is no longer
secured by a Lien or (ii) if such Lien secures Debt which is subordinated to the
Securities, unless any such Lien shall be subordinated to the Lien granted to
the Holders of the Securities to the same extent as such subordinated Debt is
subordinated in right of payment to the Securities. The foregoing restriction
will not apply to Liens on property or other assets of the Company as described
in the definition of Purchase Money Debt to secure Purchase Money Debt otherwise
permitted under the Indenture or Liens to secure Debt Incurred to extend, renew,
refinance or refund (or successive extensions, renewals, refinancings or
refundings), in whole or in part, Purchase Money Debt secured by a Lien so long
as such Lien does not extend to any other property and the principal amount (or,
in the case of Debt issued at a discount, the accreted value thereof) of Debt so
secured is not increased.
SECTION 1015. Limitation on Issuances and Sales of Capital
Stock of Subsidiaries.
Subject to Article Eight (if applicable), the Company (i) may not, and may
not permit any Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of such or any other Subsidiary of the
Company to any Person (other than the Company or a Wholly Owned Subsidiary
thereof) and (ii) may not permit any Subsidiary to issue shares of its Capital
Stock (other than directors' qualifying shares and other than to the Company or
a Wholly Owned Subsidiary thereof), except in either case if (a) in the case of
any Subsidiary of the Company other than Forest City Rental Properties
Corporation, the Net Available Proceeds from such sale, assignment, transfer,
issuance or conveyance are applied in accordance with Section 1018 (including
the provisions relating to the application of the Net Available Proceeds) or (b)
the issuance of Preferred Stock which is permitted to be issued in accordance
with the provisions described under Section 1009.
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SECTION 1016. Transactions with Affiliates and Related Persons.
The Company may not, and may not permit any Subsidiary of the Company to,
enter into any transaction (or series of related transactions) with an Affiliate
or Related Person of the Company (other than the Company or a Wholly Owned
Subsidiary of the Company), including any Investment, either directly or
indirectly, unless such transaction is on terms no less favorable to the Company
or such Subsidiary than those that could be obtained in a comparable
arm's-length transaction with an entity that is not an Affiliate or Related
Person and is in the best interest of such Company or such Subsidiary. For any
transaction that involves in excess of $1 million but less than or equal to $5
million, the Chief Executive Officer of the Company shall determine that the
transaction satisfies the above criteria and shall evidence such a determination
by a certificate filed with the Trustee. For any transaction that involves in
excess of $5 million, a majority of the disinterested members of the Board of
Director shall determine that the transaction satisfies the above criteria and
shall evidence such a determination by a Board Resolution filed with the
Trustee. For any transaction that involves in excess of $20 million, the Company
shall also obtain an opinion from a nationally recognized expert with experience
in appraising the terms and condition of the type of transaction (or series of
related transactions) for which the opinion is required stating that such
transaction (or series of related transactions) is on terms no less favorable to
the Company or such Subsidiary than those that could be obtained in a comparable
arm's-length transaction with an entity that is not an Affiliate or Related
Person of the Company, which opinion shall be filed with the Trustee.
SECTION 1017. Provision of Financial Information.
Whether or not the Company is required to be subject to Section 13(a) or
15(d) of the Exchange Act, the Company shall file with the Commission the annual
reports, quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to such Section 13(a) or 15(d) or
any successor provision thereto if the Company were so required, such documents
to be filed with the Commission on or prior to the respective dates (the
"Required Filing Dates") by which the Company would have been required so to
file such documents
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if the Company were so required. The Company shall also in any event (a) within
15 days of each Required Filing Date (i) transmit by mail to all Holders, as
their names and addresses appear in the Security Register, without cost to such
Holders, and (ii) file with the Trustee copies of the annual reports, quarterly
reports and other documents which the Company would have been required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act or
any successor provisions thereto if the Company were required to be subject to
such Sections and (b) if filing such documents by the Company with the
Commission is not permitted under the Exchange Act, promptly upon written
request supply copies of such documents to any prospective Holder.
SECTION 1018. Asset Dispositions.
(a) The Company shall not, and shall not permit any Subsidiary to, make any
Asset Disposition in one or more related transactions unless: (i) the Company or
the Subsidiary, as the case may be, receives consideration for such disposition
at least equal to the fair market value for the assets sold or disposed of as
determined by the Board of Directors of the Company in good faith and evidenced
by a resolution of the Board of Directors filed with the Trustee; and (ii) all
Net Available Proceeds, less any amounts invested within 365 days of such
disposition in assets of the Company or any Subsidiary thereof used in a
Permitted Business (including Capital Stock of an entity which is engaged in a
Permitted Business), are applied within 365 days of such disposition to the
permanent repayment or reduction of outstanding Debt that is pari passu with the
Notes, or any outstanding Debt of any Subsidiary of the Company, the terms of
which would require such application or prohibit payments as required by this
Section 1018. The amount of Net Available Proceeds from any Asset Disposition
less any amounts used in a Permitted Business or applied to reduce Debt during
the 365 day period set forth in the preceding sentence constitutes "Excess
Proceeds." Excess Proceeds will be segregated not later than 365 days after such
disposition from the other assets of the Company and its Subsidiaries and
invested in cash or Cash Equivalents until such time as such Excess Proceeds are
applied as specified in Section 1018(b). Any Asset Disposition resulting from a
condemnation of a property by a court or governmental agency having jurisdiction
over such property shall not be required to comply with clause (i) of the first
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sentence of this Section 1018, but shall otherwise be subject to all
requirements of this covenant.
(b) When the aggregate amount of Excess Proceeds exceeds $10,000,000, the
Company will, within 30 days thereof, apply such aggregate Excess Proceeds (1)
first, to make an Offer to Purchase Outstanding Securities at 100% of their
principal amount plus accrued interest to the date of purchase and, to the
extent required by the terms thereof, any other Debt of the Company that is pari
passu with the Securities at a price no greater than 100% of the principal
amount thereof plus accrued interest to the date of purchase, (2) second, to the
extent of any remaining Excess Proceeds following the completion of the Offer to
Purchase, to the repayment of other Debt of the Company that is pari passu with
the Securities, or any Debt of any Subsidiary of the Company, to the extent
permitted under the terms thereof and (3) third, to the extent of any remaining
Net Available Proceeds, to any other use as determined by the Company which is
not otherwise prohibited by the terms of this Indenture. Upon the completion of
an Offer to Purchase pursuant to this paragraph, the amount of Excess Proceeds
shall be reset to zero.
(c) The Company will mail the Offer for an Offer to Purchase required
pursuant to Section 1018(a) not more than 30 days after such Excess Proceeds
exceed $10,000,000. The aggregate principal amount of the Securities to be
offered to be purchased pursuant to the Offer to Purchase shall equal the Excess
Proceeds available therefor pursuant to Section 1018(a) (rounded down to the
next lowest integral multiple of $1,000). Each Holder shall be entitled to
tender all or any portion of the Securities owned by such Holder pursuant to the
Offer to Purchase, subject to the requirement that any portion of a Security
tendered must be tendered in an integral multiple of $1,000 principal amount.
The Company shall not be entitled to any credit against its obligations
under this Section 1018 for the principal amount of any Securities acquired by
the Company otherwise than pursuant to the Offer to Purchase pursuant to this
Section 1018.
(d) Not later than the date of the Offer with respect to an Offer to
Purchase pursuant to this Section 1018, the Company shall deliver to the Trustee
an Officers' Certificate as to (i) the Purchase Amount,
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(ii) the allocation of the Net Available Proceeds from the Asset Disposition
pursuant to which such Offer is being made, including, if amounts are invested
in assets that will be used in a Permitted Business, the actual assets acquired
and a statement that such assets are being used in a Permitted Business and
(iii) the compliance of such allocation with the provisions of this Section
1018.
The Company and the Trustee shall perform their respective obligations
specified in the Offer for the Offer to Purchase. On or prior to the Purchase
Date, the Company shall (i) accept for payment (on a pro rata basis, if
necessary) Securities or portions thereof tendered pursuant to the Offer, (ii)
deposit with the paying agent (or, if the Company is acting as its own paying
agent, segregate and hold in trust as provided in Section 1003) money sufficient
to pay the purchase price of all Securities or portions thereof so accepted and
(iii) deliver or cause to be delivered to the Trustee all Securities so accepted
together with an Officers' Certificate setting forth the Securities or portions
thereof accepted for payment by the Company. The Paying Agent (or the Company,
if so acting) shall promptly mail or deliver to Holders of Securities so
accepted payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail or deliver to such Holders a new Security equal
in principal amount to any unpurchased portion of the Security tendered. Any
Security not accepted for payment shall be promptly mailed or delivered by the
Company to the Holder thereof. The Company shall publicly announce the results
of the Offer on or as soon as practicable after the Purchase Date.
SECTION 1019. Change of Control.
(a) Within 30 days following the date of the consummation of a transaction
resulting in a Change of Control, the Company shall mail an Offer with respect
to an Offer to Purchase all Outstanding Securities at a purchase price equal to
101% of their principal amount plus accrued interest to the Purchase Date
(provided, however, that instalments of interest whose Stated Maturity is on or
prior to the Purchase Date shall be payable to the Holders of such Securities,
or one or more Predecessor Securities, registered as such at the close of
business on the relevant Record Dates according to their terms and the
provisions of Section 307). Each Holder shall be entitled to tender all or any
portion of the Securities owned by such Holder
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pursuant to the Offer to Purchase, subject to the requirement that any portion
of a Security tendered must be tendered in an integral multiple of $1,000
principal amount. A "Change of Control" will be deemed to have occurred at such
time as either (a) any Person (other than a Permitted Holder) or any Persons
acting together that would constitute a "group" (a "Group") for purposes of
Section 13(d) of the Exchange Act, or any successor provision thereto (other
than Permitted Holders), together with any Affiliates or Related Persons
thereof, shall beneficially own (within the meaning of Rule 13d-3 under the
Exchange Act, or any successor provision thereto) at least 30% of the aggregate
voting power of all classes of Voting Stock of the Company; or (b) any Person or
Group (other than Permitted Holders), together with any Affiliates or Related
Persons thereof, shall succeed in having a sufficient number of its nominees
elected to the Board of Directors of the Company such that such nominees, when
added to any existing director remaining on the Board of Directors of the
Company after such election who was a nominee of or is an Affiliate or Related
Person of such Person or Group, will constitute a majority of the Board of
Directors of the Company.
(b) The Company and the Trustee shall perform their respective obligations
specified in the Offer for the Offer to Purchase. On or prior to the Purchase
Date, the Company shall (i) accept for payment Securities or portions thereof
tendered pursuant to the Offer, (ii) deposit with the Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) money sufficient to pay the Purchase Price of all
Securities or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee all Securities so repurchased together with an
Officers' Certificate setting forth the Securities or portions thereof
repurchased by the Company. The Paying Agent shall promptly mail or deliver to
Holders of Securities so tendered payment in an amount equal to the Purchase
Price, and the Trustee shall promptly authenticate and mail or deliver to such
Holders a new Security or Securities equal in principal amount to any
unpurchased portion of the Security tendered as requested by the Holder. The
Company shall publicly announce the results of the Offer on or as soon as
practicable after the Purchase Date.
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SECTION 1020. Statement by Officers as to Default; Compliance Certificates.
(a) The Company will deliver to the Trustee, within 90 days after the end
of each fiscal year, and within 60 days after the end of each fiscal quarter
(other than the fourth fiscal quarter), of the Company ending after the date
hereof an Officers' Certificate, stating whether or not to the best knowledge of
the signers thereof the Company is in default in the performance and observance
of any of the terms, provisions and conditions of this Indenture, and if the
Company shall be in default, specifying all such defaults and the nature and
status thereof of which they may have knowledge. For purposes of this Section
1020, such compliance or default shall be determined without regard to any
period of grace or requirement of notice provided under this Indenture.
(b) The Company shall deliver to the Trustee, as soon as possible and in
any event within 10 days after the Company becomes aware or should reasonably
become aware of the occurrence of an Event of Default or an event which, with
notice or the lapse of time or both, would constitute an Event of Default, an
Officers' Certificate setting forth the details of such Event of Default or
default, and the action which the Company proposes to take with respect thereto.
SECTION 1021. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any covenant
or condition set forth in Section 801 and Sections 1004 to 1017, inclusive, if
before the time for such compliance the Holders of at least a majority in
principal amount of the Outstanding Securities shall, by Act of such Holders,
either waive such compliance in such instance or generally waive compliance with
such covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such covenant or condition shall remain in full
force and effect.
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ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Right of Redemption.
The Securities may be redeemed at the election of the Company, as a whole
or from time to time in part, (a) at any time on or after March __, 2003, at the
Redemption Prices specified in the form of Security hereinbefore set forth and
(b) at any time prior to March __, 2001, from the net proceeds of a Public
Equity Offering, at the Redemption Price specified in the form of Security
hereinbefore set forth, together, in each case, with accrued interest to the
Redemption Date; provided, however, that, in the case of a redemption pursuant
to clause (b) of this Section 1101, the Company may not redeem more than 33% of
the original principal amount of the Securities in connection with any one
redemption and that, after giving effect to any such redemption, at least $130
million aggregate principal amount of Securities remain Outstanding.
SECTION 1102. Applicability of Article.
Redemption of Securities at the election of the Company, as
permitted by any provision of this Indenture, shall be made in accordance with
such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant
to Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company of all or less than all the
Securities, the Company shall, at least 60 days prior to the Redemption Date
fixed by the Company (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee of such Redemption Date and of the principal amount
of Securities to be redeemed. In the case of any redemption at the election of
the Company pursuant to Section 1101 prior to March __, 2001, the Redemption
Date must be within 75 days of the earlier of (i) the last sale of Common Stock
pursuant to the Public Equity Offering and (ii) the expiration of any
over-allotment option granted in connection with the Public Equity Offering, and
the Company shall furnish the Trustee with an Officers' Certificate evidencing
compliance with clause (b) of Section 1101.
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SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by lot or by such method as the Trustee shall deem fair
and appropriate and which may provide for the selection for redemption of
portions (equal to $1,000 or any integral multiple thereof) of the principal
amount of Securities of a denomination larger than $1,000.
The Trustee shall promptly notify the Company and each Security Registrar
in writing of the Securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount thereof to be
redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at his address appearing in the
Security Register.
All notices of redemption shall identify the Securities to be redeemed
(including CUSIP numbers) and state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities are to be redeemed,
the identification (and, in the case of partial redemption, the principal
amounts) of the particular Securities to be redeemed,
(4) that on the Redemption Date the Redemption Price will become due
and payable
<PAGE> 108
upon each such Security to be redeemed and that interest thereon will cease
to accrue on and after said date,
(5) whether the redemption is being made pursuant to Section 1101(a)
or Section 1101(b), and a brief explanation of the basis therefor,
(6) the place or places where such Securities are to be surrendered
for payment of the Redemption Price, and
(7) in case any Security is to be redeemed part only, the notice which
relates to such Security shall state that on and after the Redemption Date,
upon surrender of such Security, the holder will receive, without charge, a
new Security or Securities of authorized denominations for the principal
amount thereof remaining unredeemed.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. All notices of redemption
shall be irrevocable.
SECTION 1106. Deposit of Redemption Price.
Prior to 10:00 a.m., New York City time, on any Redemption Date, the
Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) an amount of money sufficient to pay the Redemption
Price of, and (except if the Redemption Date shall be an Interest Payment Date)
accrued interest on, all the Securities which are to be redeemed on that date.
SECTION 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear
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interest. Upon surrender of any such Security for redemption in accordance with
said notice, such Security shall be paid by the Company at the Redemption Price,
together with accrued interest to the Redemption Date; provided, however, that
instalments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate of % per annum.
SECTION 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at
an office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly authorized
in writing), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
ARTICLE TWELVE
Defeasance and Covenant Defeasance
SECTION 1201. Company's Option to Effect Defeasance or Covenant Defeasance.
The Company may at its option by Board Resolution, at any time, elect to
have either Section 1202 or Section 1203 applied to the Outstanding Securities
upon compliance with the conditions set forth below in this Article Twelve.
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SECTION 1202. Defeasance and Discharge.
Upon the Company's exercise of the option provided in Section 1201
applicable to this Section, the Company shall be deemed to have been discharged
from its obligations with respect to the Outstanding Securities on the date the
conditions set forth below are satisfied (hereinafter, "defeasance"). For this
purpose, such defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the Outstanding Securities and
to have satisfied all its other obligations under such Securities and this
Indenture insofar as such Securities are concerned (and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the
same), except for the following which shall survive until otherwise terminated
or discharged hereunder: (A) the rights of Holders of such Securities to
receive, solely from the trust fund described in Section 1204 and as more fully
set forth in such Section, payments in respect of the principal of (and premium,
if any) and interest on such Securities when such payments are due, (B) the
Company's obligations with respect to such Securities under Sections 304, 305,
306, 311, 1002 and 1003, (C) the rights, powers, trusts, duties and immunities
of the Trustee hereunder and (D) this Article Twelve. Subject to compliance with
this Article Twelve, the Company may exercise its option under this Section 1202
notwithstanding the prior exercise of its option under Section 1203.
SECTION 1203. Covenant Defeasance.
Upon the Company's exercise of the option provided in Section 1201
applicable to this Section, (i) the Company shall be released from its
obligations under Sections 1005 through 1017, inclusive, and Clauses (iii), (iv)
and (v) of Section 801, (ii) the occurrence of an event specified in Sections
501(4) (with respect to Clauses (iii), (iv) or (v) of Section 801), 501(4) (with
respect to any of Sections 1005 through 1017, inclusive), 501(6) and 501(7)
shall not be deemed to be an Event of Default on and after the date the
conditions set forth below are satisfied (hereinafter, "covenant defeasance").
For this purpose, such covenant defeasance means that the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such Section, Clause or Article, whether directly or
indirectly by reason of any reference elsewhere herein to any such Section,
Clause or Article or by reason of any reference in any such Section, Clause or
Article to any other provision herein or
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in any other document, but the remainder of this Indenture and such Securities
shall be unaffected thereby.
SECTION 1204. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section 1202
or Section 1203 to the then Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the
requirements of Section 609 who shall agree to comply with the
provisions of this Article Twelve applicable to it) as trust funds in
trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of such Securities, (A) money in an amount, or (B) U.S.
Government Obligations which through the scheduled payment of
principal and interest in respect thereof in accordance with their
terms will provide, not later than one day before the due date of any
payment, money in an amount, or (C) a combination thereof, sufficient,
in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the Trustee, to pay and discharge, and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge, the
principal of (premium, if any,) and each instalment of interest on the
Securities on the Stated Maturity of such principal or instalment of
interest in accordance with the terms of this Indenture and of such
Securities.
(2) In the case of an election under Section 1202, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that
(x) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (y) since the date of this
Indenture there
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has been a change in the applicable Federal income tax law, in either
case to the effect that, and based thereon such Opinion shall confirm
that, the Holders of the Outstanding Securities will not recognize
gain or loss for Federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to Federal
income tax on the same amount, in the same manner and at the same
times as would have been the case if such deposit, defeasance and
discharge had not occurred.
(3) In the case of an election under Section 1203, the Company
shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders of the Outstanding Securities will not
recognize gain or loss for Federal income tax purposes as a result of
such deposit and covenant defeasance and will be subject to Federal
income tax on the same amount, in the same manner and at the same
times as would have been the case if such deposit and covenant
defeasance had not occurred.
(4) The Company shall have delivered to the Trustee an Officers'
Certificate to the effect that the Securities, if then listed on any
securities exchange, will not be delisted as a result of such deposit.
(5) Such defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest as defined in Section 608 and
for purposes of the Trust Indenture Act with respect to any securities
of the Company.
(6) No Event of Default or event which with notice or lapse of
time or both would become an Event of Default shall have occurred and
be continuing on the date of such deposit or, insofar as subsections
501(8) and (9) are concerned, at any time during the period ending on
the 123rd day after the date of such deposit (it being
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understood that this condition shall not be deemed satisfied until the
expiration of such period).
(7) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any other
agreement or instrument to which the Company is a party or by which it
is bound.
(8) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the defeasance
under Section 1202 or the covenant defeasance under Section 1203 (as
the case may be) have been complied with.
(9) Such defeasance or covenant defeasance shall not result in
the trust arising from such deposit constituting an investment company
as defined in the Investment Company Act of 1940, as amended, or such
trust shall be qualified under such act or exempt from regulation
thereunder.
SECTION 1205. Deposited Money and U.S. Government Obligations to be Held in
Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all money
and U.S. Government Obligations (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee--collectively, for purposes of this
Section 1205, the "Trustee") pursuant to Section 1204 in respect of the
Securities shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Holders of such Securities,
of all sums due and to become due thereon in respect of principal (and premium,
if any) and interest, but such money need not be segregated from other funds
except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed
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against the U.S. Government Obligations deposited pursuant to Section 1204 or
the principal and interest received in respect thereof other than any such tax,
fee or other charge which by law is for the account of the Holders of the
Outstanding Securities.
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1204 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance.
SECTION 1206. Reinstatement.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with Section 1202 or 1203 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Article Twelve until such time as the Trustee or Paying Agent
is permitted to apply all such money in accordance with Section 1202 or 1203;
provided, however, that if the Company makes any payment of principal of (and
premium, if any) or interest on any Security following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money held by the Trustee or
the Paying Agent.
--------------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
FOREST CITY ENTERPRISES, INC.
By
--------------------------
Attest:
- --------------------------
THE BANK OF NEW YORK,
as Trustee
By
--------------------------
Attest:
- ---------------------------
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STATE OF NEW YORK ) ss:
COUNTY OF NEW YORK )
On the _____ day of __________, 1998, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that he is ___________________________________________________ of
Forest City Enterprises, Inc., one of the corporations described in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by authority of the Board of Directors of said corporation, and that he
signed his name thereto by like authority.
------------------------------
STATE OF NEW YORK ) ss:
COUNTY OF NEW YORK )
On the _____ day of __________, 1998, before me personally came
___________________________, to me known, who, being by me duly sworn, did
depose and say that [he -- she] is
___________________________________________________ of The Bank of New York, one
of the corporations described in and which executed the foregoing instrument;
that [he -- she] knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by authority of
the Board of Directors of said corporation, and that [he -- she] signed [his --
her] name thereto by like authority.
------------------------------
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Table of Contents
<TABLE>
<CAPTION>
Page
----
ARTICLE ONE
Definitions and Other Provisions
of General Application
<S> <C>
SECTION 101 Definitions.................................................................. 1
Act.............................................................................. 2
Affiliate ........................................................................ 2
Applicable Procedures ............................................................ 2
Asset Disposition ................................................................ 3
Authenticating Agent ............................................................. 3
Board of Directors ............................................................... 3
Board Resolution 3
Business Day ..................................................................... 3
Capital Lease Obligation3
Capital Stock .................................................................... 4
Cash Equivalents ................................................................. 4
Change of Control ................................................................ 4
Commission ....................................................................... 4
Common Development ............................................................... 5
Common Stock ..................................................................... 5
Company .......................................................................... 5
Company Request .................................................................. 5
Company Order .................................................................... 5
Consolidated Adjusted Net Worth .................................................. 5
Consolidated EBITDA .............................................................. 5
Consolidated EBITDA to Interest Ratio ............................................ 6
Consolidated Income Tax Expense .................................................. 6
Consolidated Interest Expense .................................................... 7
Consolidated Net Income .......................................................... 7
Consolidated Net Worth ........................................................... 8
consolidation .................................................................... 8
Corporate Trust Office ........................................................... 9
corporation ...................................................................... 9
Debt ............................................................................. 9
Depositary ....................................................................... 10
Development Debt ................................................................. 10
DTC .............................................................................. 10
Event of Default ................................................................. 11
Exchange Act ..................................................................... 11
Expiration Date .................................................................. 11
fair market value ................................................................ 11
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
FCRPC Credit Agreement ........................................................... 11
FCRPC Guaranty ................................................................... 11
Global Security .................................................................. 11
guarantee ........................................................................ 11
Holder ........................................................................... 12
Incur ............................................................................ 12
Indenture ........................................................................ 12
Interest Payment Date ............................................................ 12
Interest Rate, Currency or Commodity Price
Agreement ....................................................................... 12
Investment ....................................................................... 13
Lien ............................................................................. 13
Material Subsidiary .............................................................. 13
Maturity ......................................................................... 13
Minimum Adjusted Net Worth ....................................................... 14
Net Available Proceeds ........................................................... 14
Non-Recourse ..................................................................... 15
Offer ............................................................................ 15
Offer to Purchase ................................................................ 15
Officers' Certificate ............................................................ 18
Opinion of Counsel ............................................................... 18
Outstanding ...................................................................... 18
pari passu ....................................................................... 19
---------------------------------------------------------------------------------- --
Paying Agent ..................................................................... 20
Permitted Business ............................................................... 20
Permitted Holder 20
Permitted Interest Rate, Currency or Commodity
Price Agreement 20
Person 21
Predecessor Security ............................................................. 21
Preferred Stock .................................................................. 21
Public Equity Offering ........................................................... 21
Purchase Amount .................................................................. 21
Purchase Date .................................................................... 21
Purchase Money Debt .............................................................. 21
Purchase Price ................................................................... 22
Receivables ...................................................................... 22
Receivables Sale 22
Recourse Debt .................................................................... 22
Redeemable Stock 22
Redemption Date .................................................................. 22
Redemption Price 22
Regular Record Date .............................................................. 22
Related Person ................................................................... 23
Responsible Officer .............................................................. 23
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Restricted Payment ............................................................... 23
Sale and Leaseback Transaction ................................................... 23
Securities ....................................................................... 23
Securities Custodian ............................................................. 23
Security Register ................................................................ 23
Security Registrar ............................................................... 23
Special Record Date .............................................................. 24
Stated Maturity .................................................................. 24
Subordinated Debt ................................................................ 24
Subsidiary ....................................................................... 25
Trust Indenture Act .............................................................. 25
Trustee 25
U.S. Government Obligations ...................................................... 25
Vice President ................................................................... 26
Voting Stock ..................................................................... 26
Weighted Average Life ............................................................ 26
Wholly Owned Subsidiary .......................................................... 26
SECTION 102. Compliance Certificates and Opinions ..................................... 27
SECTION 103. Form of Documents Delivered to Trustee ................................... 27
SECTION 104. Acts of Holders; Record Date .............................................. 28
SECTION 105. Notices, Etc., to Trustee and Company ..................................... 31
SECTION 106. Notice to Holders; Waiver ................................................. 32
SECTION 107. Conflict with Trust Indenture Act ......................................... 32
SECTION 108. Effect of Headings and Table of Contents .................................. 32
SECTION 109. Successors and Assigns .................................................... 33
SECTION 110. Separability Clause ....................................................... 33
SECTION 111. Benefits of Indenture ..................................................... 33
SECTION 112. Governing Law ............................................................. 33
SECTION 113. Legal Holidays ............................................................ 33
</TABLE>
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ARTICLE TWO
Security Forms
<TABLE>
<CAPTION>
<S> <C>
SECTION 201. Forms Generally ............................................................ 34
SECTION 202. Form of Face of Security ................................................... 34
SECTION 203. Form of Reverse of Security ................................................ 36
SECTION 204. Form of Trustee's Certificate of
Authentication .................................................... 41
SECTION 205. Form of Legend for Global Securities .......................................... 42
ARTICLE THREE
The Securities
SECTION 301. Title and Terms ............................................................ 42
SECTION 302. Denominations .............................................................. 44
SECTION 303. Execution, Authentication, Delivery and
Dating ............................................................ 44
SECTION 304. Temporary Securities ...................................................... 45
SECTION 305. Registration, Registration of Transfer
and Exchange ..................................................... 45
SECTION 306. Mutilated, Destroyed, Lost and Stolen
Securities ....................................................... 47
SECTION 307. Payment of Interest; Interest Rights
Preserved ........................................................ 48
SECTION 308. Persons Deemed Owners ..................................................... 50
SECTION 309. Cancellation .............................................................. 50
SECTION 310. Computation of Interest ................................................... 50
SECTION 311. Global Securities. ........................................................ 50
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
SECTION 312. CUSIP Numbers ............................................................. 52
ARTICLE FOUR
Satisfaction and Discharge
SECTION 401. Satisfaction and Discharge of Indenture ................................... 52
SECTION 402. Application of Trust Money ............................................... 54
ARTICLE FIVE
Remedies
SECTION 501. Events of Default .......................................................... 54
SECTION 502. Acceleration of Maturity; Rescission and Annulment ......................... 58
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee ............ 59
SECTION 504. Trustee May File Proofs of Claim ........................................... 60
SECTION 505. Trustee May Enforce Claims Without
Possession of Securities .......................................... 61
SECTION 506. Application of Money Collected ............................................. 61
SECTION 507. Limitation on Suits ........................................................ 61
SECTION 508. Unconditional Right of Holders to
Receive Principal, Premium and
Interest ......................................................... 62
SECTION 509. Restoration of Rights and Remedies ........................................ 63
SECTION 510. Rights and Remedies Cumulative ........................................ 63
SECTION 511. Delay or Omission Not Waiver............................................... 63
SECTION 512. Control by Holders ........................................................ 64
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
SECTION 513. Waiver of Past Defaults ................................................... 64
SECTION 514. Undertaking for Costs ..................................................... 65
SECTION 515. Waiver of Usury, Stay or Extension Laws ................................... 65
ARTICLE SIX
The Trustee
SECTION 601. Certain Duties and Responsibilities ....................................... 65
SECTION 602. Notice of Defaults ........................................................ 66
SECTION 603. Certain Rights of Trustee ................................................. 66
SECTION 604. Not Responsible for Recitals or
Issuance of Securities ........................................... 68
SECTION 605. May Hold Securities ....................................................... 68
SECTION 606. Money Held in Trust ....................................................... 69
SECTION 607. Compensation and Reimbursement ............................................ 69
SECTION 608. Disqualification; Conflicting Interests ................................... 70
SECTION 609. Corporate Trustee Required; Eligibility ................................... 70
SECTION 610. Resignation and Removal; Appointment
of Successor ..................................................... 70
SECTION 611. Acceptance of Appointment by Successor .................................... 72
SECTION 612. Merger, Conversion, Consolidation or
Succession to Business ........................................... 73
SECTION 613. Preferential Collection of Claims Against Company ......................... 73
SECTION 614. Appointment of Authenticating Agent ....................................... 73
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
<S> <C>
SECTION 701. Company to Furnish Trustee Names and
Addresses of Holders ............................................. 75
SECTION 702. Preservation of Information;
Communications to Holders ........................................ 76
SECTION 703. Reports by Trustee ........................................................ 76
SECTION 704. Reports by Company ........................................................ 77
ARTICLE EIGHT
Consolidation, Merger,
Conveyance, Transfer or Lease
SECTION 801. Merger, Consolidations and Certain
Sales of Assets .................................................. 77
SECTION 802. Successor Substituted ..................................................... 79
ARTICLE NINE
Supplemental Indentures
SECTION 901. Supplemental Indentures Without Consent
of Holders ....................................................... 79
SECTION 902. Supplemental Indentures with Consent of
Holders .......................................................... 80
SECTION 903. Execution of Supplemental Indentures ...................................... 82
SECTION 904. Effect of Supplemental Indentures ...................................... 82
SECTION 905. Conformity with Trust Indenture Act ...................................... 82
SECTION 906. Reference in Securities to Supplemental Indentures ........................ 82
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE TEN
Covenants
<S> <C>
SECTION 1001. Payment of Principal, Premium and
Interest ......................................................... 83
SECTION 1002. Maintenance of Office or Agency ........................................... 83
SECTION 1003. Money for Security Payments to be Held
in Trust ......................................................... 84
SECTION 1004. Existence ................................................................. 85
SECTION 1005. Maintenance of Properties ................................................. 86
SECTION 1006. Payment of Taxes and Other Claims ......................................... 86
SECTION 1007. Maintenance of Insurance .................................................. 86
SECTION 1008. Limitation on Debt ........................................................ 87
SECTION 1009. Limitation on Preferred Stock
of Subsidiaries .................................................. 90
SECTION 1010. Limitation on Restricted Payments ......................................... 91
SECTION 1011. Limitations Concerning Distributions
By and Transfers to Subsidiaries ................................. 93
SECTION 1012. Limitation on Sale and Leaseback
Transactions ..................................................... 95
SECTION 1013. Limitation on Layered Debt of
Subsidiaries ..................................................... 95
SECTION 1014. Limitation on Liens ....................................................... 95
SECTION 1015. Limitation on Issuances and Sales
of Capital Stock of Subsidiaries ................................. 96
SECTION 1016. Transactions with Affiliates and Related Persons .......................... 96
SECTION 1017. Provision of Financial Information......................................... 97
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 1018. Asset Dispositions. ....................................................... 98
SECTION 1019. Change of Control ......................................................... 100
SECTION 1020. Statement by Officers as to Default;
Compliance Certificates .......................................... 101
SECTION 1021. Waiver of Certain Covenants ............................................... 102
ARTICLE ELEVEN
Redemption of Securities
SECTION 1101. Right of Redemption ....................................................... 102
SECTION 1102. Applicability of Article .................................................. 103
SECTION 1103. Election to Redeem; Notice to Trustee ..................................... 103
SECTION 1104. Selection by Trustee of Securities to Be Redeemed ......................... 103
SECTION 1105. Notice of Redemption ...................................................... 104
SECTION 1106. Deposit of Redemption Price ............................................... 105
SECTION 1107. Securities Payable on Redemption Date ..................................... 105
SECTION 1108. Securities Redeemed in Part ............................................... 106
ARTICLE TWELVE
Defeasance and Covenant Defeasance
SECTION 1201. Company's Option to Effect Defeasance
or Covenant Defeasance ........................................... 106
SECTION 1202. Defeasance and Discharge .................................................. 106
SECTION 1203. Covenant Defeasance ...................................................... 107
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SECTION 1204. Conditions to Defeasance or Covenant Defeasance ........................... 107
SECTION 1205. Deposited Money and U.S. Government Obligations to be Held in Trust;
Other Miscellaneous Provisions .................................... 110
SECTION 1206. Reinstatement ............................................................. 111
TESTIMONIUM ............................................................................... 111
SIGNATURES AND SEALS ...................................................................... 111
ACKNOWLEDGEMENTS .......................................................................... 112
</TABLE>
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EXHIBIT 25
CONFORMED COPY
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
------------------
FOREST CITY ENTERPRISES, INC.
(Exact name of obligor as specified in its charter)
Ohio 34-0863886
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1100 Terminal Tower
50 Public Square
Cleveland, Ohio 44113-2203
(Address of principal executive offices) (Zip code)
------------------
Debt Securities
(Title of the indenture securities)
================================================================================
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE> 3
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-3-
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 3rd day of March, 1998.
THE BANK OF NEW YORK
By: /S/VAN K. BROWN
-----------------------
Name: VAN K. BROWN
Title: ASSISTANT VICE PRESIDENT
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<PAGE> 5
EXHIBIT 7
---------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries.
a member of the Federal Reserve System, at the close of business September 30,
1997, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
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Dollar Amounts
ASSETS in Thousands
Cash and balances due from depository
institutions:
Noninterest-bearing balances and currency
and coin ................................. $ 5,004,638
Interest-bearing balances ..................... 1,271,514
Securities:
Held-to-maturity securities ................... 1,105,782
Available-for-sale securities ................. 3,164,271
Federal funds sold and Securities purchased
under agreements to resell .................... 5,723,829
Loans and lease financing
receivables:
Loans and leases, net of unearned
income.............34,916,196
LESS: Allowance for loan and lease
losses............581,177
LESS: Allocated transfer risk
reserve..................429
Loans and leases, net of unearned
income, allowance, and reserve ........... 34,334,590
Assets held in trading accounts ............... 2,035,284
Premises and fixed assets (including
capitalized leases) ...................... 671,664
Other real estate owned ....................... 113,306
Investments in unconsolidated subsidiaries
and associated companies ................ 210,685
Customers' liability to this bank on
acceptances outstanding .................. 1,463,446
Intangible assets ............................. 753,190
Other assets .................................. 1,784,796
------------
Total assets .................................. $57,536,995
============
LIABILITIES
Deposits:
In domestic offices ...................... $27,270,824
Noninterest-bearing..12,160,977
Interest-bearing.....15,109,847
In foreign offices. Edge and
Agreement subsidiaries, and IBFs ......... 14,687,806
Noninterest-bearing....657,479
Interest-bearing.......14,030,327
Federal funds purchased and Securities
sold under agreements to re-purchase ..... 1,946,099
Demand notes issued to the US
Treasury ................................. 283,793
Trading liabilities ........................... 1,553,539
Other borrowed money:
With remaining maturity of one
year or less ........................ 2,245,014
With remaining maturity of more
than one year through three
years ............................... 0
With remaining maturity of more
than three years .................... 45,664
Bank's liability on acceptances executed
and outstanding .......................... 1,473,588
Subordinated notes and debentures ............. 1,018,940
Other liabilities ............................. 2,193,031
------------
Total liabilities ............................. 52,718,298
------------
EQUITY CAPITAL
Common stock ....................................... 1,135,284
Surplus ............................................ 731,319
Undivided profits and capital reserves ............. 2,943,008
Net unrealized holding gains
(losses) on available-for-sale securities ..... 25,428
Cumulative foreign currency translation
adjustments .................................. (16,342)
-------------
Total equity capital ............................... 4,818,697
Total liabilities and equity capital ............... $57,536,995
=============
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of
Governors of the Federal Reserve System and is true to the best of my knowledge
and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot
Thomas A. Renyi Directors
Alan R. Griffith
