<PAGE>
As filed with the Securities and Exchange Commission on August 19, 1996
Registration No. 333-__________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
REALTY INCOME CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0580106
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
220 WEST CREST STREET
ESCONDIDO, CALIFORNIA 92025-1725
(619) 741-2111
(Address, including zip code, and telephone number,
including area code, of registrants' principal executive offices)
-----------------------
MICHAEL R. PFEIFFER, ESQ. COPIES TO:
C/O REALTY INCOME CORPORATION
220 WEST CREST STREET WILLIAM J. CERNIUS, ESQ.
ESCONDIDO, CALIFORNIA 92025-1725 LATHAM & WATKINS
(619) 741-2111 650 TOWN CENTER DRIVE, 20TH FLOOR
COSTA MESA, CALIFORNIA 92626-1925
(Name, address, including zip code, and (714) 540-1235
telephone number, including area code, of
agent for service)
-----------------------
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement as determined by
market conditions.
If the only securities being registered on this Form S-3 are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being offered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
-----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $1.00 per
share 247,681 $ 21.25 $ 5,263,221 $1,814.90
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(c), based on the average of the high and low sales prices of
the registrant's Common Stock as reported on the New York Stock Exchange on
August 12, 1996.
---------------------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 19, 1996
PROSPECTUS 247,681 SHARES
REALTY INCOME CORPORATION
COMMON STOCK
($1.00 PAR VALUE)
--------------------------
This prospectus ("Prospectus") relates to the offering from time to time by
certain persons named in this Prospectus (the "Selling Stockholders") of up to
247,681 shares (the "Shares") of Common Stock, $1.00 par value per share, of
Realty Income Corporation ("Company"). The Company will not receive any
proceeds from the Offering.
The Selling Stockholders directly, or through agents, dealers,
underwriters, or market makers, may offer and sell from time to time all or any
part of the Shares in amounts and on terms to be determined at the time of sale.
To the extent required, the specific Shares to be sold, the names of the Selling
Stockholders, the respective purchase price and public offering price, the names
of any such agent, dealer or underwriter, and any applicable commission or
discount with respect to a particular offer will be set forth in an accompanying
Prospectus Supplement. Offers or sales of the Shares have not been registered
or qualified under the laws of any country other than the United States. See
"Plan of Distribution."
The aggregate proceeds to the Selling Stockholders from the sale of the
Shares will be the purchase price of the Shares sold less the aggregate agents'
commissions and underwriters' discounts, if any. By agreement, the Company will
pay substantially all of the expenses incident to the registration of the
Shares, except for underwriting discounts and selling commissions associated
with the sale of the Shares, all of which shall be paid by the Selling
Stockholders. See "Plan of Distribution" herein for a description of
indemnification arrangements for agents, dealers and underwriters.
The closing price of the Company's Common Stock as reported on the New York
Stock Exchange, Inc. on August 16, 1996, was $21.75 per share.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
--------------------------
The date of this Prospectus is , 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The registration
statement on Form S-3 (of which this Prospectus is a part) (the "Registration
Statement"), the exhibits and schedules forming a part thereof and the reports,
proxy statements and other information filed by the Company with the Commission
in accordance with the Exchange Act can be inspected and copied at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the following regional offices of the Commission: Seven World
Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Common Stock is currently listed on the New York Stock Exchange ("NYSE") and
similar information concerning the Company can be inspected and copied at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission the Registration Statement under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Shares. 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 Commission's rules and regulations. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto. For further information regarding the Company
and the Shares, reference is hereby made to the Registration Statement and such
exhibits and schedules, which may be obtained from the Commission at its
principal office in Washington, D.C. upon payment of the fees prescribed by the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
a. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, filed on March 18, 1996;
b. The Company's Quarterly Report on Form 10-Q for the three months ended
March 31, 1996, filed on May 10, 1996;
c. The Company's Quarterly Report on Form 10-Q for the three months ended
June 30, 1996, filed on August 9, 1996;
d. The Company's Current Report on Form 8-K dated July 15, 1996;
e. The Company's definitive Proxy Statement dated April 3, 1996; and
f. The description of the Company's Common Stock contained in the
Registration Statement on Form 8-A filed on September 30, 1994.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Shares shall be deemed to be
incorporated by reference in this Prospectus and to be part hereof from the date
of filing such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Copies of all documents that are incorporated herein by reference (not
including the exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates) will be provided without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request. Requests should be directed to the Corporate Secretary of the Company,
220 West Crest Street, Escondido, California 92025 (telephone number: (619)
741-2111).
2
<PAGE>
THE COMPANY
Realty Income Corporation ("Realty Income" or the "Company") is a fully
integrated, self-administered and self-managed real estate investment trust
("REIT") and the nation's largest publicly-traded owner of freestanding,
single-tenant, retail properties diversified geographically and by industry and
operated under triple-net lease agreements. As of June 30, 1996, the Company
owned a diversified portfolio of 692 properties located in 42 states.
Approximately 99% of the Company's properties were leased as of June 30, 1996.
Unless otherwise indicated, information regarding the Company's properties is as
of June 30, 1996.
Realty Income focuses on a strategy of acquiring freestanding,
single-tenant, retail properties leased to national and regional retail chains
under long-term, triple-net lease agreements. The Company typically acquires,
and then leases back, retail store locations from retail chain store operators,
providing capital to the operators for continued expansion and other purposes.
The Company's triple-net lease agreements generally are for initial terms of 10
to 25 years, require the tenant to pay a minimum monthly rent and all property
operating expenses (taxes, insurance and maintenance), and provide for future
rent increases based on increases in the consumer price index and/or additional
rent calculated as a percentage of the tenant's gross sales above a specified
level.
Since 1970, Realty Income has acquired and leased back to national and
regional retail chains over 640 properties (including approximately 25
properties that have been sold) and has collected in excess of 98% of the
contractual rent obligations on those properties. Realty Income believes that
the long-term ownership of an actively managed, diversified portfolio of retail
properties leased under long-term, triple-net lease agreements will produce
consistent, predictable income and the potential for long-term capital
appreciation. Management believes that long-term leases, coupled with tenants
assuming responsibility for property expenses under the triple-net lease
structure, generally produce a more predictable income stream than many other
types of real estate portfolios. As of June 30, 1996, the Company's single-
tenant properties were leased pursuant to leases with an average remaining term
(excluding extension options) of approximately 8.9 years.
The Company was formed on September 9, 1993 in the State of Delaware.
Realty Income commenced operations as a REIT on August 15, 1994 through the
merger of 25 public and private real estate limited partnerships with and into
the Company (the "Consolidation"). Each of the partnerships was formed between
1970 and 1989 for the purpose of acquiring and managing long-term, triple-net
leased properties. The partnerships historically made regular monthly cash
distributions to investors. Realty Income has paid a regular monthly
distribution to its stockholders.
Since the Consolidation, the Company has increased the size of its
portfolio through a strategic program of acquisitions. The Company has acquired
71 additional properties (the "New Properties"), and selectively sold seven
properties, increasing the number of properties in its portfolio by 10.2% from
628 properties at August 15, 1994 to 692 properties as of June 30, 1996. Of the
New Properties, 64 were occupied as of June 30, 1996 and the remaining seven
were pre-leased and under construction pursuant to contracts under which the
tenants have agreed to develop the properties (with development costs funded by
the Company) and to begin paying rent when the premises open for business. The
New Properties were acquired for an aggregate cost of approximately $76.9
million (including the estimated development costs on the seven properties under
construction totaling $2.9 million), are located in 20 states, will contain
approximately 692,000 leasable square feet and are 100% leased under triple-net
leases, with an average initial lease term of 16.5 years. The weighted average
annual unleveraged return on the cost of the New Properties (including the
estimated cost of properties under construction) is estimated to be 11.3%,
computed as estimated contractual net operating income (which in the case of a
triple-net leased property is equal to the base rent or, in the case of
properties under construction, the estimated base rent under the lease) for the
first year of each lease, divided by total acquisition and estimated development
costs. No assurance can be given that the actual return on the cost of the New
Properties will not differ from the foregoing percentage. In addition to
acquiring the New Properties, at June 30, 1996 the Company had entered into
purchase agreements to acquire two additional properties for an aggregate cost
of approximately $1.3 million.
3
<PAGE>
The Company is a fully integrated real estate company with in-house
acquisition, leasing, legal, financial underwriting, portfolio management and
capital markets expertise. The seven senior officers of the Company, who have
each managed the Company's properties and operations for between six and 27
years, owned approximately 3.9% of the Company's outstanding common stock, par
value $1.00 per share (the "Common Stock") as of August 1, 1996.
Realty Income has 34 employees as of August 1, 1996.
DISTRIBUTION POLICY
Distributions are paid to the Company's stockholders on a monthly basis if,
as and when declared by the Company's Board of Directors. In order to maintain
its tax status as a REIT, the Company is generally required to distribute
annually to its stockholders at least 95% of its taxable income (determined
without regard to the deduction for dividends paid and by excluding any net
capital gain). The Company intends to make distributions to its stockholders
which are sufficient to meet this requirement.
Future distributions by the Company will be at the discretion of its Board
of Directors and will depend on, among other things, its results of operations,
financial condition and capital requirements, the annual distribution
requirements under the REIT provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), its debt service requirements and such other factors as
the Board of Directors may deem relevant. In addition, the Company's three
year, $130,000,000 revolving acquisition credit facility due 1998 (the
"Acquisition Credit Facility") contains financial covenants which could limit
the amount of distributions paid by the Company in the event of a deterioration
in the results of operations or financial condition of the Company, and which
prohibit the payment of distributions on the Common Stock in the event that the
Company fails to pay when due (subject to any applicable grace period) any
principal of or interest on borrowings under the Acquisition Credit Facility.
Distributions by the Company to the extent of its current and accumulated
earnings and profits for federal income tax purposes generally will be taxable
to stockholders as ordinary income. Distributions in excess of such earnings
and profits generally will be treated as a non-taxable reduction in the
stockholders' basis in its stock to the extent of such basis, and thereafter as
a gain from the sale of such stock. Approximately 4.7% of the distributions
made or deemed to have been made in 1995 were classified as a return of capital
for federal income tax purposes, the Company is unable to predict the portion of
1996 or future distributions which may be classified as a return of capital
since such amount depends on the Company's taxable income for the entire year.
In connection with the August 1995 merger of R.I.C. Advisor, Inc. (the
"Advisor Company") with and into the Company (the "Merger"), the Company was
treated as having acquired the accumulated earnings and profits of the Advisor
Company (the "Acquired Earnings"). In order to maintain its status as a REIT,
the Company was required to make or be deemed to have made distributions
sufficient to eliminate the Acquired Earnings prior to December 31, 1995.
The Company declared in December 1995 a $0.155 per share regular distribution
paid on January 15, 1996, a $0.155 per share regular distribution paid on
January 26, 1996 (in lieu of the regular February distribution) and a
$0.23 per share special distribution paid on January 11, 1996, among other
things, to make or be deemed to have made distributions sufficient to
eliminate the Acquired Earnings prior to December 31, 1995.
4
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information for the five
fiscal years ended December 31, 1995 and the six months ended June 30, 1996 and
1995, should be read in conjunction with, and is qualified by, the more detailed
information and financial statements available as described under "Available
Information" and "Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
AS OF OR FOR THE
SIX MONTHS ENDED
JUNE 30, AS OF OR FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Assets (Book Value) . . . . . . $ 411,842 $ 379,168 $ 417,639 $ 352,768 $ 384,474 $395,671 $409,904
Cash and Cash Equivalents . . . . . . 865 3,633 1,650 11,673 29,329 7,414 5,438
Long Term Obligations . . . . . . . . 26,408 45,197 20,457 13,621 1,035 1,041 850
Total Liabilities . . . . . . . . . . 32,951 49,490 36,218 17,352 2,570 2,150 2,858
Stockholders' Equity. . . . . . . . . 378,891 329,678 381,421 335,416 381,904 393,418 406,942
Net Cash Provided by Operating
Activities . . . . . . . . . . . . . 23,326 19,205 40,312 28,460 38,485 41,441 43,360
Net Change in Cash and
Cash Equivalents . . . . . . . . . . (785) (8,040) (10,023) (17,656) 21,915 1,976 (5,713)
Total Revenue . . . . . . . . . . . . 27,415 24,171 51,555 48,863 49,018 49,034 49,420
Consolidation Costs . . . . . . . . . -- -- -- (11,201) -- -- --
Income from Operations. . . . . . . . 14,507 11,718 25,582 14,059 25,735 26,940 27,524
Gain on Sales of Properties . . . . . 958 77 18 1,165 3,583 1,113 279
Net Income. . . . . . . . . . . . . . 15,465 11,795 25,600 15,224 29,318 28,053 27,803
Distributions Paid to
Stockholders/Partners. . . . . . . . 26,653 17,553 36,710 44,666 40,831 41,567 42,676
Ratio of Earnings to
Fixed Charges (1). . . . . . . . . . 16:1 12:1 10:1 39:1 5,865:1 N/A N/A
Book Value Per Share (2). . . . . . . 16.49 16.90 16.60 17.20
Net Income Per Share (2). . . . . . . 0.67 0.60 1.27 0.78
Distributions Paid Per
Share (2)(3) . . . . . . . . . . . . 1.16 0.90 1.825 0.60
Total Distributions Declared
Per Share (2)(3) . . . . . . . . . . 0.775 0.90 2.215 0.75
Weighted Average Number of Shares
Outstanding . . . . . . . . . . . . . 22,976,756 19,503,080 20,230,963 19,502,091
</TABLE>
(1) Ratio of Earnings to Fixed Charges is calculated by dividing net income
after adding back interest expense, by fixed charges. Fixed charges are
comprised of interest costs. Ratio of Earnings to Fixed Charges is not
applicable for 1992 and 1991 because the Company did not have any fixed
charges for these periods.
(2) Due to the changes in the capital structure caused by the Consolidation
(see the December 31, 1995 Form 10-K Item 8, Note 1 to the Consolidated
Financial Statements), per share information would not be meaningful for
1993 through 1991 and therefore has not been included.
(3) The 1994 amount represents distributions paid or declared, as the case may
be, after the Consolidation.
5
<PAGE>
CAPITALIZATION
The following table sets forth the historical, consolidated capitalization
of the Company as of June 30, 1996. This information should be read in
conjunction with the selected consolidated financial information presented
elsewhere in this Prospectus, and the consolidated financial statements and
notes thereto incorporated by reference herein.
JUNE 30, 1996
--------------
(in thousands)
Acquisition credit facility . . . . . . . . . . . . . $ 24,600
Preferred stock, $1.00 par value; 5,000,000 shares
authorized; none issued and outstanding . . . . . --
Common stock, $1.00 par value; 40,000,000 shares
authorized; 22,976,237 issued and outstanding 22,976
Capital in excess of par value. . . . . . . . . . . . 515,931
Cumulative distributions in excess of
net income. . . . . . . . . . . . . . . . . . . . (160,016)
-----------
Total capitalization. . . . . . . . . . . . . . . . . $ 403,491
-----------
-----------
6
<PAGE>
SELLING STOCKHOLDERS
The Selling Stockholders received their Shares pursuant to the Merger. In
connection with the Merger, the Company agreed to file a registration statement
with the Commission covering certain of the Shares issued to each Selling
Stockholder and to indemnify each Selling Stockholder against claims made
against them arising out of, among other things, statements made in such
registration statement. In addition, the Company agreed to cause this
registration statement to remain effective for a period of at least 24 months or
until all of the Shares are sold.
The following table provides certain information with respect to the Shares
held and to be offered under this Prospectus from time to time by each Selling
Stockholder. Because the Selling Stockholders may sell any amount of their
Shares pursuant to this Prospectus, and this offering is not being underwritten
on a firm commitment basis, no estimate can be given as to the number and
percentage of shares of Common Stock that will be held by each Selling
Stockholder upon termination of this offering. See "Plan of Distribution."
TOTAL SHARES OF
COMPANY STOCK NUMBER OF
BENEFICIALLY SHARES
NAME OWNED OFFERED
---- --------------- -----------
Robert E. Caffey . . . . . . . . . . . . . . 74,738 18,685
Donald K. Cooke. . . . . . . . . . . . . . . 61,960 15,388
Thomas A. Lewis. . . . . . . . . . . . . . . 77,053 18,685
Gary M. Malino(1). . . . . . . . . . . . . . 63,169 15,388
Lawrence E. Stephenson . . . . . . . . . . . 62,346 15,388
Richard J. VanDerhoff(2) . . . . . . . . . . 78,278 18,685
John H. Wolfe(3) . . . . . . . . . . . . . . 112,629 18,685
William E. Clark, as trustee of The William E.
Clark and Evelyn J. Clark Trust dated
June 19, 1981(4). . . . . . . . . . . . 564,088 126,777
--------
Total. . . . . . . . . . . . . . . 247,681
--------
--------
- -----------------------
(1) Mr. Malino's total includes 206 shares owned of record by his wife, as to
which he disclaims beneficial ownership, and 1,043 shares owned of record
jointly by he and his wife, as to which he shares voting and disposition
power with his wife.
(2) Mr. VanDerhoff's total includes 2,440 shares owned of record by his wife,
as to which he disclaims beneficial ownership.
(3) Mr. Wolfe's total includes 12,835 shares owned by J.H. Wolfe Properties,
Inc. and 10,976 shares owned by J.H. Wolfe Properties, Inc. Pension and
Profit Sharing Plan and 14,080 shares owned of record by the Wolfe Family
Trust of which he is the trustee.
(4) The total includes the 544,581 shares owned of record by The William E.
Clark, Jr. and Evelyn J. Clark Family Trust, 18,329 shares owned of record
by the Realty Income Corporation Defined Benefit Pension Plan, of which Mr.
Clark is the trustee, and 449 shares owned of record by his wife. Mr.
Clark disclaims beneficial ownership of the shares owned of record by his
wife.
Each of the foregoing Selling Stockholders was a stockholder of Advisor
Company. In addition, Mrs. Clark and Messrs. Clark, Lewis, Wolfe and Caffey
were directors of Advisor Company. Mr. Clark was the Chief Executive Officer
and Mrs. Clark was the Corporate Secretary of Advisor Company. Messrs.
VanDerhoff, Lewis, Wolfe, Caffey and Malino were the President and Chief
Operating Officer, Vice President, Capital Markets, Vice President, Portfolio
Acquisitions, Vice President, Operations and Chief Financial Officer,
respectively, at Advisor Company.
7
<PAGE>
Mr. VanDerhoff has been President and Chief Operating Officer of the
Company since November 1994, and became a director of the Company on
August 19, 1996. Mr. Malino has been Chief Financial Officer of the Company
since August 1994 and the Vice President, Chief Financial Officer and
Treasurer of the Company since August 1995. Mr. Wolfe has been the Vice
President, Portfolio Acquisitions of the Company since August 1995. Mr. Clark
has been the Chairman of the Board of Directors, Chief Executive Officer and a
director of the Company since September 1993. Mr. Lewis has been the Vice
Chairman of the Board of Directors, Vice President, Capital Markets and a
director of the Company since September 1993.
Except as otherwise noted above, the Company is unaware of any material
relationship between any of the Selling Stockholders and the Company in the past
three years other than as a result of the ownership of the Shares and the
Merger.
8
<PAGE>
PRICE RANGE OF COMMON STOCK AND
DISTRIBUTION HISTORY
The Common Stock of the Company is listed on the New York Stock Exchange
under the symbol "O." The stock initially began trading on The New York
Stock Exchange on October 18, 1994. Prior to October 18, 1994, the stock was
not publicly traded. The following table shows the high and low sales prices
per share for the Common Stock as reported by the New York Stock Exchange,
and distributions declared, for the periods indicated:
<TABLE>
<CAPTION>
PRICE PER SHARE DISTRIBUTIONS
OF COMMON STOCK DECLARED(1)
------------------------- ----------------
HIGH LOW
---- ----
<S> <C> <C> <C>
1994
Third Quarter N/A N/A $ 0.300
Fourth Quarter
(price per share from October 18, 1994) $ 18.125 $ 15.250 0.450
1995
First Quarter $ 19.250 $ 16.500 $ 0.450
Second Quarter 21.500 17.875 0.450
Third Quarter 22.000 20.250 0.465
Fourth Quarter 22.500 19.250 0.850
1996
First Quarter $ 23.125 $ 20.375 $ 0.310
Second Quarter 21.875 19.500 0.465
Third Quarter (through August 16, 1996) 22.000 20.375 0.155
</TABLE>
(1) Distributions are currently declared monthly by the Company based on
financial results for the prior months. Although the Company expects to
continue its policy of paying monthly distributions, there can be no
assurance that the current level of distributions will be maintained by the
Company. See "Distribution Policy.
On August 16, 1996, the last closing sale price of the Company's Common
Stock as reported by the NYSE was $21.750 per share.
9
<PAGE>
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by the Selling Stockholders or
by donees or transferees, directly or through underwriters, dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Stockholders or the purchasers of
Shares for whom they may act as agent. The Shares or any part of the Shares
may be sold in amounts and on terms to be determined at the time of sale,
including, without limitation, block trades, on the NYSE, in the
over-the-counter market, or otherwise, at negotiated prices or at or relating
to quoted market prices then prevailing. The Selling Stockholders reserve the
sole right to accept and, together with any agent of the Selling
Stockholders, to reject in whole or in part any proposed purchase of the
Shares. The Selling Stockholders will pay any sales commissions or other
seller's compensation applicable to such transactions.
To the extent required, the amount of the Shares to be sold, purchase
prices, public offering prices, the names of any agents, dealers or
underwriters, and any applicable commissions or discounts with respect to a
particular offer will be set forth by the Company in a Prospectus Supplement
accompanying this Prospectus or, if appropriate, a post-effective amendment to
the Registration Statement. The Selling Stockholders and agents who execute
orders on its behalf may be deemed to be underwriters as that term is defined in
Section 2(11) of the Securities Act and a portion of any proceeds of sales and
discounts, commissions or other seller's compensation may be deemed to be
underwriting compensation for purposes of the Securities Act.
Offers or sales of the Shares have not been registered or qualified under
the laws of any country, other than the United States. To comply with certain
states' securities laws, if applicable, the Shares will be offered or sold in
such jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the Shares may not be offered or sold unless they
have been registered or qualified for sale in such states or an exemption from
registration or qualification is available and is complied with.
Under applicable rules and regulations under the Exchange Act any person
engaged in a distribution of the Shares may not simultaneously engage in
market-making activities with respect to such Shares for a period of two to
nine business days prior to the commencement of such distribution. In
addition to and without limiting the foregoing, the Selling Stockholders and
any other person participating in a distribution will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation Rules 10b-2, 10b-6 and 10b-7, which provisions
may limit the timing of purchases and sales of any of the Shares by the Selling
Stockholders or any other persons. All of the foregoing may affect the
marketability of the Shares and the brokers' and dealers' ability to engage in
market-making activities with respect to the Shares.
Pursuant to an agreement with the Selling Stockholders, the Company will
pay substantially all of the expenses incident to the registration of the
Shares, estimated to be approximately $20,000. Under agreements entered into
with the Company, the Selling Stockholders, and any underwriter they may utilize
will be indemnified by the Company against certain civil liabilities, including
liabilities under the Securities Act.
EXPERTS
The consolidated financial statements and financial statement schedule of
Realty Income Corporation and subsidiaries, as of December 31, 1995 and 1994,
and for each of the years in the three-year period ended December 31, 1995, have
been incorporated by reference herein and in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified
accountants, incorporated herein by reference, and upon the authority of such
firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Shares offered by this Prospectus will be passed upon
for the Company by Latham & Watkins, Costa Mesa, California.
10
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFERING HEREIN 247,681 SHARES
CONTAINED AND, IF GIVEN OR MADE, UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR
THE SELLING STOCKHOLDERS. THIS PROSPECTUS REALTY INCOME
DOES NOT CONSTITUTE AN OFFER TO SELL, OR CORPORATION
A SOLICITATION OF AN OFFER TO BUY, THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET
FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
----------------------
TABLE OF CONTENTS COMMON STOCK
($1.00 PAR VALUE)
Page
----
Available Information. . . . . . . . .2
Incorporation of Certain Documents by
Reference . . . . . . . . . . . . .2
The Company. . . . . . . . . . . . . .3 ----------------
Distribution Policy. . . . . . . . . .4 PROSPECTUS
Selected Consolidated Financial ----------------
Information . . . . . . . . . . . .5
Capitalization . . . . . . . . . . . .6
Selling Stockholders . . . . . . . . .7
Price Range of Common Stock and
Distribution History. . . . . . . .9
Plan of Distribution . . . . . . . . 10
Experts. . . . . . . . . . . . . . . 10
Legal Matters. . . . . . . . . . . . 10
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses, other than underwriting discounts and commissions
which shall be paid for by the Selling Stockholders, in connection with the
offerings of the Shares are as follows:
Securities Act Registration Fee. . . . . . . . . . . . $ 1,800
Blue Sky Fees and Expenses . . . . . . . . . . . . . . 200
Legal Fees and Expenses. . . . . . . . . . . . . . . . 15,000
Accounting Fees and Expenses . . . . . . . . . . . . . 2,300
Miscellaneous. . . . . . . . . . . . . . . . . . . . . 1,000
---------
Total. . . . . . . . . . . . . . . . . . . . . . . . . $ 20,300
---------
---------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 11 of the Certificate of Incorporation provides that directors of
the Registrant shall not be liable to the Registrant or its stockholders for
monetary damages for their conduct as directors to the full extent permitted by
the Delaware General Corporation Law ("Delaware Law") as it existed at the time
the Certificate of Incorporation was adopted, and as it may thereafter be
amended. Any amendment to or repeal of Article 11 shall apply only to acts or
omissions of directors occurring after such amendment or repeal.
The Bylaws provide that the Registrant shall indemnify and hold harmless
its directors and officers to the fullest extent permitted under Delaware Law or
by any other applicable law against all expenses, judgments, fines and amounts
paid in settlement incurred in connection with their service or status as
directors and officers. Such indemnification also extends to liabilities arising
from actions taken by directors or officers when serving at the request of the
Registrant as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise.
Section 145 of Delaware Law, as currently in effect, sets forth the
indemnification rights of directors and officers of Delaware corporations. Under
such provision, a director or officer of a corporation (i) shall be indemnified
by the corporation for all expenses of litigation or other legal proceedings
when he or she is successful on the merits or otherwise, (ii) may be indemnified
by the corporation for the expenses, judgments, fines and amounts paid in
settlement of such litigation (other than a derivative suit), even if he or she
is not successful on the merits, if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reason to believe his or her conduct was unlawful), and (iii) may be indemnified
by the corporation for the expenses of a derivative suit (a suit by a
stockholder alleging a breach by a director or an officer of a duty owed to the
corporation), even if he or she is not successful on the merits, if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the corporation, provided that no such
indemnification may be made in accordance with this clause (iii) if the director
or officer is adjudged liable to the corporation, unless a court determines
that, despite such adjudication but in view of all the circumstances, he or she
is fairly and reasonably entitled to indemnification of such expenses. The
indemnification described in clauses (ii) and (iii) above shall be made only
upon a determination by (A) a majority of a quorum of disinterested directors,
(B) independent legal counsel in a written opinion, or (C) the stockholders,
that indemnification is proper because the applicable standard of conduct has
been met.
The effect of the indemnification provisions contained in the Bylaws is to
require the Registrant to indemnify its directors and officers under
circumstances where such indemnification would otherwise be discretionary and to
extend to the Registrant's directors and officers the benefits of Delaware Law
dealing with director and officer indemnification, as well as any future changes
that might occur under Delaware Law in this area.
II-1
<PAGE>
The By-Laws state that the indemnification rights granted thereunder are
not exclusive of any other indemnification rights to which the director or
officer may otherwise be entitled. As permitted by Section 145(g) of Delaware
Law, the Bylaws also authorize the Registrant to purchase directors and officers
insurance for the benefit of its directors and officers, irrespective of whether
the Registrant has the power to indemnify such persons under Delaware Law. The
Registrant currently maintains such insurance as allowed by these provisions.
ITEM 16. EXHIBITS
2. Agreement and Plan of Merger between Realty Income Corporation and
R.I.C. Advisor, Inc. dated as of April 28, 1995 (incorporated herein
by reference to Appendix A to the Company's definitive Proxy Statement
filed June 30, 1995)
3.1 Amended and Restated Certificate of Incorporation of Realty Income
Corporation (filed as Exhibit 3.1 to the Company's Form 10-Q for the
quarter ended September 30, 1994 and incorporated herein by reference)
3.2 Amended and Restated Bylaws of Realty Income Corporation (filed as
Exhibit 3.2 to the Company's 10-Q for the quarter ended September 30,
1995 and incorporated herein by reference)
4.1 Registration Rights for Realty REIT Securities Agreement dated April
28, 1995
4.2 Indemnification Escrow Agreement dated as of April 28, 1995
5.1 Opinion of Latham & Watkins
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Latham & Watkins (to be included in Exhibit 5.1)
24. Power of Attorney (included on signature page to this Registration
Statement)
27. Financial Data Schedule (electronically filed with the Securities and
Exchange Commission only and incorporated herein by reference to
Exhibit 27 to the Company's Form 10-Q for the quarter ended June 30,
1996)
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) that, individually or in the aggregate,
represent a fundamental change in the information set forth in this Registration
Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
PROVIDED, HOWEVER, that subparagraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in the periodic reports filed with or furnished to
the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are
incorporated by reference in this Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
II-2
<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby further undertakes that, for the
purposes of determining any liability under the Securities Act, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such Securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions under Item 15 above, or otherwise,
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, 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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Escondido, State of California, on August 19, 1996.
REALTY INCOME CORPORATION
By: /s/ WILLIAM E. CLARK
-------------------------------------
William E. Clark,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes and appoints
William E. Clark, Richard J. VanDerhoff, and each of them as his true and lawful
attorney-in-fact and agent, each with full powers of substitution and
resubstitution and full power to act without the other, to sign on his behalf,
individually and in the capacities stated below, and to file any and all
amendments, including post-effective amendments, to this Registration Statement
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting to
each said attorney-in-fact and agent full power and authority to perform any
other act on behalf of the undersigned required to be done in or about the
premises.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on August 19, 1996.
Signature Title
--------- -----
/s/ WILLIAM E. CLARK Chairman of the Board and Chief
- ---------------------------------- Executive Officer (Principal Executive
William E. Clark Officer)
/s/ THOMAS A. LEWIS
- ---------------------------------- Vice Chairman of the Board and Vice
Thomas A. Lewis President Capital Markets
/s/ DONALD R. CAMERON
- ---------------------------------- Director
Donald R. Cameron
/s/ ROGER P. KUPPINGER
- ---------------------------------- Director
Roger P. Kuppinger
/s/ MICHAEL D. McKEE
- ---------------------------------- Director
Michael D. McKee
/s/ GARY M. MALINO Vice President, Chief Financial Officer
- ---------------------------------- (Principal Financial and Accounting
Gary M. Malino Officer)
/s/ RICHARD J. VANDERHOFF President, Chief Operating Officer
- ---------------------------------- and Director
Richard J. VanDerhoff
/s/ WILLARD H. SMITH JR Director
- ----------------------------------
Willard H. Smith Jr
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER
- -------
2 Agreement and Plan of Merger between Realty Income
Corporation and R.I.C. Advisor, Inc. dated as of
April 28, 1995 (incorporated herein by reference to
Appendix A to the Company's definitive Proxy Statement
filed June 30, 1995)
3.1 Amended and Restated Certificate of Incorporation of
Realty Income Corporation (filed as Exhibit 3.1 to the
Company's Form 10-Q for the quarter ended September 30,
1994 and incorporated herein by reference)
3.2 Amended and Restated Bylaws of Realty Income Corporation
(filed as Exhibit 3.2 to the Company's 10-Q for the
quarter ended September 30, 1995 and incorporated herein
by reference)
4.1 Registration Rights for Realty REIT Securities Agreement
dated April 28, 1995
4.2 Indemnification Escrow Agreement dated as of April 28, 1995
5.1 Opinion of Latham & Watkins
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Latham & Watkins (to be included in Exhibit 5.1)
24 Power of Attorney (included on signature page to this
Registration Statement)
27 Financial Data Schedule (electronically filed with the
Securities and Exchange Commission only and incorporated
herein by reference to Exhibit 27 to the Company's
Form 10-Q for the quarter ended June 30, 1996)
II-5
<PAGE>
Execution Copy
REGISTRATION RIGHTS FOR REALTY REIT SECURITIES
This Registration Rights Agreement sets forth the registration rights
provided by Realty Income Corporation, a Delaware corporation ("Realty REIT" or
the "Company"), to Holders (as defined below) of shares of common stock, par
value $1.00 per share ("Common Stock") of Realty REIT issued and to be issued by
Realty REIT pursuant to the Agreement and Plan of Merger dated as of April 28,
1995 (the "Merger Agreement") among Realty REIT, R.I.C. Advisor, Inc., a
California corporation ("R.I.C. Advisor"), and the shareholders of R.I.C.
Advisor party hereto and thereto (the "Shareholders"). Capitalized terms used
herein without definition shall have the meanings ascribed to them in the Merger
Agreement.
WHEREAS, this Registration Rights Agreement is made pursuant to the Merger
Agreement and the execution and delivery of this Registration Rights Agreement
is a condition to the closing of the transactions contemplated by the Merger
Agreement; and
WHEREAS, in order to induce Realty REIT to provided certain registration
rights to the Shareholders and to perform its obligations hereunder and under
the Merger Agreement, on the one hand, and in order to induce the Shareholders
to enter into the Merger Agreement and to perform their obligations hereunder
and thereunder, on the other hand, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Realty REIT and the Shareholders hereby agree as follows:
Section 1.1 DEFINITIONS
"Act" means the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
"Commission" shall mean the Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Holder" means each Shareholder and any assignee or transferee of a
Registrable Security (other than an assignee or transferee who received such
security in a distribution pursuant to a registration statement which was
effective under the Act, or in an assignment or other transfer made in
compliance with Rule
<PAGE>
144 or in any other transaction pursuant to which the restrictive legend on such
Registrable Security was removed by Realty REIT).
"Registrable Securities" means each of the shares of Common Stock acquired
by the Shareholders pursuant to the Merger Agreement (and any other securities
issued in a reclassification of such Common Stock or issued to holders of such
Common Stock in a merger or consolidation in which Realty REIT is not the
surviving entity or in a sale, lease or other disposition of all or
substantially all of the assets of Realty REIT), upon original issue thereof and
at all times subsequent thereto, until, in the case of any such share of Common
Stock (or any other such security), (i) it has been disposed of pursuant to an
effective registration statement under the Act covering it, (ii) it is
distributed to the public pursuant to Rule 144, as such Rule may be amended from
time to time, (or any similar provision then in effect) under the Act
("Rule 144"), or (iii) it is sold, assigned or otherwise transferred in any
other transaction not requiring registration under the Act, and in each case
referred to in clauses (i) through (iii) Realty REIT has delivered a new
certificate or other evidence of ownership for it not subject to any legal or
other restrictions on transfer and not bearing the legend required pursuant to
the Merger Agreement or any similar restrictive legend.
"Selling Holder" means a Holder whose Registrable Securities are registered
pursuant to a registration statement referred to in Section 2.1 or 2.2 hereof or
who is offering or has duly requested the inclusion of its Registrable
Securities in an underwritten offering pursuant to Section 2.2.
Section 2.1 SHELF REGISTRATION
Prior to the first anniversary of the Closing Date, Realty REIT shall
prepare and file a "shelf" registration statement with respect to the
Registrable Securities on an appropriate form for an offering to be made on a
continuous basis pursuant to Rule 415 under the Act (the "Shelf Registration
Statement") and shall use its best efforts to cause the Shelf Registration
Statement to be declared effective on or as soon as practicable after such first
anniversary, and to keep such Shelf Registration Statement continuously
effective for a period of at least 24 months (subject to extensions as
hereinafter provided) following the date on which such Shelf Registration
Statement is declared effective, or such shorter period ending when all
Registrable Securities covered by the Shelf Registration Statement have been
sold. The period during which Realty REIT is required to keep the Shelf
Registration continuously effective is hereinafter called the "Effective
Period".
Not later than 45 days prior to the filing of the Shelf Registration
Statement, Realty REIT will notify each Holder of such proposed filing and will
advise each Holder of its right to
2
<PAGE>
include in the Shelf Registration Statement such number of Registrable
Securities as each such Holder may elect. Realty REIT will include and register
in the Shelf Registration Statement such number of Registrable Securities as
each Holder may request; provided that, anything herein to the contrary
notwithstanding, the number of Registrable Securities which any Shareholder
(together with any assignee or transferee of Registrable Securities originally
issued to such Shareholder) shall be entitled to register on the Shelf
Registration Statement shall not in the aggregate exceed an amount (with respect
to any Shareholder, its "Maximum Amount") equal to 25% of the total number of
Registrable Securities received by such Shareholder pursuant to the Merger
Agreement (rounding fractional shares to the nearest whole share, with one half
of a share being rounded upwards), and the number of Registrable Securities
which such Shareholder (together with any such assignees and transferees) shall
be entitled to sell pursuant to the Shelf Registration Statement and to include
in any underwritten public offerings referred to in Section 2.2. shall not in
the aggregate exceed such Shareholder's Maximum Amount.
Section 2.2 INCIDENTAL UNDERWRITTEN OFFERINGS.
If Realty REIT at any time proposes to file a registration statement
covering any of its securities under the Act (other than any registration by
Realty REIT on Form S-8, or a successor or substantially similar form, of (A) an
employee share option, share purchase or compensation plan or of securities
issued or issuable pursuant to any such plan, or (B) a dividend reinvestment
plan) and such securities are to be distributed by or through one or more
underwriters, Realty REIT will give prompt written notice to all Holders of
Registrable Securities of its intention to do so and of such Holders' rights
under this Section 2.2. Upon the written request of any such Holder made within
30 days after the receipt of any such notice (which request shall specify the
number of Registrable Securities intended to be disposed of by such Holder)
Realty REIT will use its reasonable efforts to arrange for such underwriters to
include all the Registrable Securities as to which it has received such requests
to be offered and sold by such underwriters in such distribution pursuant to the
related underwriting agreement, PROVIDED that if the managing underwriter of
such underwritten offering shall by letter inform the Holders of the Registrable
Securities requesting such inclusion in such underwritten distribution and the
holders of any other shares of Common Stock and any other securities convertible
into or exercisable or exchangeable for Common Stock ("Convertible Securities")
which shall have requested that such shares or Convertible Securities, as the
case may be, be offered and sold in such underwritten offering (whether by
exercise of registration rights or otherwise), of its belief that inclusion in
such underwritten distribution of all or a specified number of such Registrable
Securities or of such other shares of Common
3
<PAGE>
Stock and Convertible Securities so requesting to be included would interfere
with the successful marketing of the securities to be distributed in such
distribution (other than such Registrable Securities and other shares of Common
Stock and Convertible Securities so requesting to be included) by the
underwriters, then Realty REIT may, upon written notice to all Holders of such
Registrable Securities and the holders of such other shares of Common Stock and
Convertible Securities so requesting to be included, exclude from such
underwritten offering (i) first, all of such other shares of Common Stock and
Convertible Securities so requesting to be included and (ii) second, to the
extent the reduction as a result of clause (i) is insufficient, all or portion
of such Registrable Securities so requesting to be included, any reduction
pursuant to this clause (ii) to be allocated among the Holders requesting
inclusion of such Registrable Securities pro rata based upon the number of
Registrable Securities so requested for inclusion (in each case if and to the
extent stated by such managing underwriter to be necessary to eliminate such
effect).
The Company agrees that any Holder may offer and sell Registrable
Securities pursuant to this Section 2.2 notwithstanding that such Registrable
Securities have been previously registered pursuant to the Shelf Registration
Statement. In the event that any Holder elects to include any of its
Registrable Securities in an offering contemplated by this Section 2.2, Realty
REIT at its option may either register such Registrable Securities pursuant to
the relevant registration statement filed under the Act in connection with such
distribution or, to the extent permitted by applicable securities laws,
expressly provide in such registration statement that, pursuant to Rule 429
under the Act (or any successor thereto), the prospectus contained in such
registration statement shall also cover such Registrable Securities.
The Company may decline to file a registration statement referred to in
this Section 2.2 after giving notice to any Holder, or withdraw such a
registration statement after filing, or otherwise abandon any such proposed
underwritten offering, provided that the Company shall promptly notify each
Holder in writing of any such action and provided further that the Company shall
bear all expenses incurred by such Holder or otherwise in connection with such
withdrawn registration statement or abandoned offering.
Section 2.3 HOLDERS' RIGHTS AND OBLIGATIONS
No Holder may participate in any underwritten offering under Section 2.2
hereof unless such Holder (i) agrees to sell such Holder's Registrable
Securities on the basis provided in any underwriting agreements approved by the
Representative and (ii) completes and executes all customary questionnaires,
powers of attorney, custody agreements, underwriting agreements, and other
4
<PAGE>
customary documents required under the terms of such underwriting arrangements.
The Holders of Registrable Securities to be distributed by underwriters pursuant
to Section 2.2 hereof shall be parties to the underwriting agreement between
Realty REIT and such underwriters and may, at their option, require that any or
all of the representations and warranties made by Realty REIT to and for the
benefit of such underwriters shall also be made by Realty REIT to and for the
benefit of such Holders of Registrable Securities.
Section 3.1 HOLDBACK AGREEMENTS
(a) RESTRICTIONS ON PUBLIC SALE BY HOLDERS OF REGISTRABLE SECURITIES.
The registration rights of the Holders pursuant to this Registration Rights
Agreement and the ability to offer and sell Registrable Securities pursuant to
the Shelf Registration Statement are subject to the following conditions and
limitations, and each Holder agrees with Realty REIT that:
(i) If Realty REIT determines in its good faith judgment that the
filing of the Shelf Registration Statement under Section 2.1 hereof or the use
of any related prospectus would require the disclosure of material information
that Realty REIT has a bona fide business purpose for preserving as confidential
or the disclosure of which would impede Realty REIT's ability to consummate a
significant transaction, and that Realty REIT is not otherwise required by
applicable securities laws or regulations to disclose, upon written notice of
such determination by Realty REIT, the rights of the Holders to offer, sell or
distribute any Registrable Securities pursuant to the Shelf Registration
Statement or to require Realty REIT to take action with respect to the
registration or sale of any Registrable Securities pursuant to the Shelf
Registration Statement (including any action contemplated by Section 4.1 hereof)
shall be suspended until the date upon which Realty REIT notifies the Holders in
writing that suspension of such rights for the grounds set forth in this
Section 3.1(a)(i) is no longer necessary, and Realty REIT agrees to give such
notice as promptly as practicable following the date that such suspension of
rights is no longer necessary.
(ii) If all reports required to be filed by Realty REIT pursuant to
the Exchange Act have not been filed by the required date without regard to any
extension, or if the consummation of any business combination by Realty REIT has
occurred or is probable for purposes of Rule 3-05 or Article 11 of
Regulation S-X under the Act, upon written notice thereof by Realty REIT to the
Holders, the rights of the Holders to offer, sell or distribute any Registrable
Securities pursuant to the Shelf Registration Statement or to require Realty
REIT to take action with respect to the registration or sale of any Registrable
Securities pursuant to the Shelf Registration Statement (including any actions
contemplated by Section 4.1
5
<PAGE>
hereof) shall be suspended until the date on which Realty REIT has filed such
reports or obtained and filed the financial information required by Rule 3-05 or
Article 11 of Regulation S-X to be included or incorporated by reference, as
applicable, in the Shelf Registration Statement, and Realty REIT shall notify
the Holders as promptly as practicable when such suspension is no longer
required.
(iii) In the event that Realty REIT plans to repurchase or bid for
securities of Realty REIT in the open market, on a private solicited basis or
otherwise, and the Board of Directors of Realty REIT determines, in its
reasonable good faith judgment and based upon the advice of counsel to Realty
REIT (which counsel shall be experienced in securities laws matters), that any
such repurchase or bid may not, under Rule 10b-6 under the Exchange Act, or any
successor or similar rule ("Rule 10b-6"), be commenced or consummated due to the
existence or the possible commencement of a "distribution" (within the meaning
of Rule 10b-6) as a result of any offers or sales by Holders of Registrable
Securities under the Shelf Registration Statement, Realty REIT shall be
entitled, for a period not to exceed 90 days in any twelve month period, to
request that Selling Holders suspend or postpone such distribution pursuant to
the Shelf Registration Statement (a "10b-6 Election"). Realty REIT shall, as
promptly as practicable, give such Selling Holders written notice of such 10b-6
Election, stating the basis for the Board of Director's determination. The
Holders agree to comply with any such request in a 10b-6 Election by Realty
REIT. As promptly as practicable following the determination by the Board
of Directors that the Selling Holders may commence or recommence their
distribution pursuant to the Shelf Registration Statement without causing Realty
REIT to be in violation of Rule 10b-6, Realty REIT shall give such Selling
Holders written notice of such determination (but in any event such notice shall
be given so as to be effective no later than the 90th day of the continuance of
any 10b-6 Election occurring during the most recent 12 months).
In the case of the registration of any underwritten primary offering
of Common Stock or Convertible Securities by Realty REIT (other than any
registration by Realty REIT on Form S-8, or a successor or substantially similar
form, of an employee share option, share purchase or compensation plan or of
securities issued or issuable pursuant to any such plan) and in which any Holder
will not be participating in accordance with Section 2.2 hereof, each such
Holder agrees, if requested in writing by the managing underwriter or
underwriters administering such offering, not to effect any offer, sale or
distribution of Registrable Securities (or any option or right to acquire
Registrable Securities) during the period (not to exceed 90 days) commencing on
the tenth day prior to the effective date of the registration statement covering
such underwritten primary equity
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offering and ending on the date specified by such managing underwriter in such
written request to such Holder.
Realty REIT's obligation to continue the effectiveness of the Shelf
Registration Statement shall be extended by the aggregate number of days during
which Realty REIT has delayed the effectiveness of such Shelf Registration
Statement or prevented or suspended offerings, sales or distributions by the
Holders pursuant to this Registration Rights Agreement (including, without
limitation, any period during which the Holders have been requested by a
managing underwriter to suspend offers, sales and distributions of Registrable
Securities pursuant to the immediately preceding paragraph).
(b) RESTRICTIONS ON PUBLIC SALES OF SECURITIES BY REALTY REIT AND OTHERS.
Realty REIT agrees that (i) it shall not effect any public sale or distribution
of any Common Stock or Convertible Securities (other than in connection with any
merger or consolidation by Realty REIT or any subsidiary thereof or the
acquisition by Realty REIT or a subsidiary thereof of the capital stock or all
or any part of the assets of any other person), during the 10 days prior to, and
during the 90-day period beginning on, the effective date of the Shelf
Registration Statement; and (ii) any agreement entered into after the date
hereof pursuant to which Realty REIT issues or agrees to issue any
privately-placed securities shall contain a provision under which holders of
such securities agree not to effect any public sale or distribution of any such
securities during the 10-day and 90-day periods described in (i) above, in each
case including any sale pursuant to Rule 144 (except as part of any such
registration, if permitted); PROVIDED, HOWEVER, that the provisions of this
paragraph (b) shall not prevent the conversion, exercise or exchange of any
securities pursuant to their terms into or for other securities.
Section 4.1 REGISTRATION PROCEDURES
In connection with Realty REIT's obligations under this Registration Rights
Agreement, Realty REIT shall:
(a) Prepare and file a Shelf Registration Statement on the
appropriate form available for the sale of the Registrable Securities in
accordance with the intended method or methods of distribution thereof
(which shall not include an underwritten offering), and cause such Shelf
Registration Statement to become effective and remain effective as provided
herein; and no less than five days prior to the filing of any Registration
Statement (as defined below) or any amendment thereto (including, without
limitation, any document incorporated or deemed to be incorporated by
reference therein and any post effective amendment), and not less than five
days prior to the filing or (if not filed) the first day of public
availability of
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any related preliminary prospectus or prospectus or any amendments or
supplements thereto (including any document incorporated or deemed to be
incorporated therein by reference), Realty REIT shall furnish to the Selling
Holders and counsel to the Selling Holders selected by the Representative
("Holders' Counsel") copies of all such documents, which documents (other
than those incorporated or deemed to be incorporated by reference) shall be
subject to the review of such counsel, and shall cause the officers and
directors of Realty REIT, counsel to Realty REIT, and independent certified
public accountants to Realty REIT to respond to such inquiries as shall be
necessary, in the opinion of Holders' Counsel, to conduct a reasonable
investigation within the meaning of the Act. Realty REIT shall not file the
Shelf Registration Statement or any related prospectus or any amendments or
supplements thereto to which the Representative shall reasonably object on a
timely basis;
(b) Prepare and file with the Commission such amendments, including
post effective amendments, to the -Shelf Registration Statement and any
registration statement filed with the Commission in connection with an
underwritten offering in which any of the Holders is or will be offering or
selling Registrable Securities pursuant to Section 2.2 (an "Incidental
Registration Statement"; the Shelf Registration Statement and all
Incidental Registration Statements are hereinafter called, collectively,
"Registration Statements" and, individually, a "Registration Statement")
(including documents incorporated or deemed to be incorporated by reference
therein) as may be required by law or, in the case of the Shelf
Registration Statement, necessary to keep the Shelf Registration Statement
continuously effective for the applicable time period; cause the related
prospectus to be supplemented by any required prospectus supplement, and as
so supplemented to be filed if, as and when required pursuant to Rule 424
(or any similar provisions then in effect) under the Act; and comply with
the provisions of the Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by such Registration
Statement in accordance with the intended method or methods of disposition
by the Selling Holders;
(c) Notify the Selling Holders and Holders' Counsel, if any,
immediately (i) with respect to any Registration Statement or any post
effective amendment thereto, when the same has become effective; (ii) of
any request by the Commission or any other federal or state governmental
authority for amendments or supplements to any Registration Statement
(including, without limitation, any documents incorporated or deemed to be
incorporated by reference therein) or a related prospectus or for
additional
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information, or of the receipt from the Commission or any other federal or
state governmental authority of any comment letter with respect to any of
the foregoing; (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of any Registration Statement or the
initiation of any proceedings for that purpose; (iv) of the receipt by
Realty REIT of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for offer or sale in any jurisdiction within the United States,
or the initiation or threatening of any proceeding for such purpose; and
(v) upon the occurrence of any event which makes any statement in (or
incorporated or deemed to be incorporated in) any Registration Statement or
any related prospectus or any amendments or supplements thereto untrue in
any material respect;
(d) If requested by the Selling Holders, (i) promptly incorporate in
a prospectus supplement or post effective amendment to the Shelf
Registration Statement such information as the Selling Holders reasonably
agree should be included therein, and (ii) make all required filings of
such prospectus supplement or such post-effective amendment as soon as
practicable after Realty REIT has received notification of the matters to
be incorporated in such prospectus supplement or post effective amendment;
PROVIDED, HOWEVER, that Realty REIT shall not be required to take any
action pursuant to this Section 4.1(d) that would, in the opinion of
counsel for Realty REIT, violate applicable law;
(e) Use its reasonable best efforts to prevent the suspension of the
Shelf Registration Statement or the interference with the disposition of
Registrable Securities thereunder by any governmental authority or agency
or any court of competent jurisdiction and to obtain the withdrawal of such
suspension or interference, PROVIDED that such suspension or interference
is not or would not be as a result of the actions or omissions of a Holder
to which such suspension or interference relates;
(f) In the event that the disposition of Registrable Securities
pursuant to any Registration Statement is suspended by any governmental
authority or agency or any court of competent jurisdiction, notify the
Holders of such suspension and direct such Holders to discontinue
disposition of the Registrable Securities thereunder until Realty REIT
notifies the Selling Holders that use of the prospectus and the disposition
of the Registrable Securities may resume;
(g) Furnish to each Selling Holder and Holders' Counsel, if any,
without charge, such number of conformed copies as such persons or entities
may reasonably request,
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of each Registration Statement and each amendment or supplement thereto,
including financial statements and schedules, all documents incorporated or
deemed to be incorporated therein by reference, and all exhibits to the
extent requested by such person (including those previously furnished or
incorporated by reference) as soon as practicable after the filing of such
documents with the Commission;
(h) Deliver to each Selling Holder and Holders' Counsel, if any,
without charge, as many copies of the preliminary prospectus or
prospectuses and the prospectus or prospectuses related to each
Registration Statement and each amendment or supplement thereto as such
persons reasonably request; and Realty REIT hereby consents to the use of
each such preliminary prospectus and prospectus and each amendment or
supplement thereto by each of the Holders and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered
by such preliminary prospectus and prospectus and any amendment or
supplement thereto;
(i) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify (or the exemption from such
registration or qualification) of such Registrable Securities for offer and
sale under the securities or Blue Sky laws of all jurisdictions within the
United States; keep each such registration or qualification (or exemption
therefrom) effective during the period during which the Shelf Registration
Statement is effective or, in the case of a distribution of Registrable
Securities pursuant to Section 2.2, until such time as such distribution
has been completed, and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the
Registrable Securities; PROVIDED, HOWEVER, that Realty REIT shall not be
required to qualify generally to do business in any jurisdiction where it
is not then so qualified or to take any action that would subject it to
general service of process in any such jurisdiction where it is not then so
subject or subject Realty REIT to any tax in any such jurisdiction where it
is not then so subject;
(j) Cooperate with the Selling Holders and Holders' Counsel, if any,
to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and to enable such
Registrable Securities to be sold in such denominations and registered in
such names as the Holders may request at least two business days prior to
any sale of Registrable Securities;
(k) Promptly file all documents required to be filed under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
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during any period when the prospectus related to a Registration Statement
is required to be delivered under the Act;
(l) If any prospectus relating to Registrable Securities contains an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, prepare and, if required, file with the Commission, a
supplement or amendment to such prospectus or any document incorporated or
deemed to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, such prospectus will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading;
(m) Use its best efforts to cause all Registrable Securities to be
listed on each Exchange on which the shares of Common Stock are then listed
and make all other necessary or appropriate filings with each such
Exchange;
(n) In connection with any underwritten offering in which any of the
Holders shall participate pursuant to Section 2.2 hereof, (i) cause each
opinion delivered to the underwriters by counsel to Realty REIT (and any
updates thereof) also to be addressed to each Selling Holder (or expressly
to provide therein or in a separate letter that each Selling Holder may
rely thereon); (ii) (to the extent that the independent public accountants
are entitled to do so under Statement on Auditing Standards No. 72 or any
other applicable accounting standards) cause each comfort letter from any
independent certified public accountants that is delivered to the
underwriters (and any update thereof) also to be addressed to each Selling
Holder (or expressly to provide therein or in a separate letter that each
Selling Holder may rely thereon); and (iii) deliver such other closing
documents and closing certificates as may be delivered to the underwriters
or their counsel to each Selling Holder;
(o) Without limitation to the provisions of paragraph (a) above,
after filing any document incorporated by reference into any Registration
Statement, deliver a copy of such document to each Holder upon request
during the period Realty REIT is obligated to maintain an effective Shelf
Registration Statement hereunder;
(p) Make reasonably available to the Selling Holders, the
Representative, Holders' Counsel, if any, and any
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accountant, auditor or investment advisor retained by the Selling Holders,
that information which such parties would customarily require to satisfy
their due diligence obligations with respect to the offering and sale of
the Registrable Securities and cause Realty REIT's officers, directors and
employees to supply all information reasonably requested by any such person
in connection with such due diligence investigation, PROVIDED, HOWEVER,
that any information that is designated by Realty REIT in writing as
confidential at the time of delivery of such information shall be kept
confidential by such persons, unless (i} disclosure of such information is
required by court or administrative order or is necessary to respond to
inquiries of regulatory authorities or self-regulatory organizations, or is
necessary or advisable in connection with any litigation (commenced or
threatened), or any investigation or proceeding (commenced or threatened)
by any governmental agency or body, relating to the offer or sale of
Registrable Securities, (ii) disclosure of such information, in the opinion
of counsel to such person, is required by law or pursuant to this
Registration Rights Agreement, (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure
to safeguard by such persons or (iv) such information becomes available to
such persons from a source other than Realty REIT and such source is not
bound by a confidentiality agreement; and
(q) Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Act and Rule
158 thereunder (or any similar rule promulgated under the Act), no later
than 45 days after the end of each fiscal quarter (or 90 days after the end
of each fiscal year) commencing with the first fiscal quarter of Realty
REIT that ends after the effective date of the Shelf Registration
Statement, which statement shall cover said twelve month period, or shorter
periods as is consistent with the requirements of Rule 158.
Realty REIT may require each Selling Holder to furnish to Realty REIT such
information regarding such Selling Holder and the distribution of such
Registrable Securities as is required by law to be disclosed in the relevant
Registration Statement and Realty REIT may exclude from such registration or
offering the Registrable Securities of any Holder who unreasonably fails to
furnish such information within a reasonable time after receiving such request.
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Each Holder agrees that such Holder will not offer or sell any Registrable
Securities or exercise such Holder's rights hereunder in violation of any
applicable foreign or domestic, federal, state or local law, order, rule or
ordinance including, without limitation, Rule 10b-6 and Rule 10b-7 under the
Exchange Act.
Each Selling Holder selling Registrable Securities pursuant to a Shelf
Registration Statement agrees (i) to deliver, to the extent required by law, the
current prospectus, as amended or supplemented (including, without limitation,
any supplement containing such additional information regarding the manner of
sale or distribution of the Registrable Securities as may be required under the
Act) in connection with offers and sales of the Registrable Securities made by
such Holder, but in each case only to the extent that Realty REIT has provided
such Holder with copies thereof, and (ii) that, upon receipt of any notice from
Realty REIT of the happening of any event of the kind described in
Section 4.1(c)(iii), 4.1(c)(iv) or 4.1(c)(v) hereof or any other event as a
result of which Realty REIT has determined that the Holders should discontinue
disposition thereof, such Holder shall forthwith discontinue disposition of such
Registrable Securities pursuant to the applicable prospectus until such Holder
is advised in writing by Realty REIT that the use of the applicable prospectus
may be resumed, and, in either case, has received copies of any prospectus
supplement or other additional or supplemental filings that are incorporated or
deemed to be incorporated by reference in such prospectus or Shelf Registration
Statement, PROVIDED, HOWEVER, that with respect to the happening of any event of
the kind described in Section 4.1(c)(iv) hereof, such Holder shall only be
required to discontinue disposition of Registrable Securities in the applicable
jurisdiction in accordance with the qualification or exemption that has been
suspended or is threatened to be suspended.
Section 5.1 REGISTRATION EXPENSES
All expenses incident to Realty REIT's performance of or compliance with
this Registration Rights Agreement, including, without limitation, all
registration and filing fees, fees and expenses of compliance with securities or
blue sky laws (including reasonable fees and disbursements of counsel in
connection with Blue Sky qualifications of the Registrable Securities), printing
expenses, messenger and delivery expenses, internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), fees and expenses incurred in connection with the
listing of the securities to be registered on each Exchange, and fees and
disbursements of counsel for Realty REIT and its independent certified public
accountants (including the expenses of any special audit or comfort letters
required by or incident to such performance), the reasonable fees and expenses
of any
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special experts retained by Realty REIT in connection with such registration,
fees and expenses of other Persons retained by Realty REIT (but not including
any underwriting or brokerage discounts or commissions attributable to the sale
of Registrable Securities), and any reasonable out of-pocket expenses of the
Holders of Registrable Securities (or the agents who manage their accounts), but
excluding any travel costs and/or any fees and expenses of any Holders' Counsel
incurred in connection with the registration and offering hereunder (all such
included expenses being herein referred to as the "Registration Expenses"),
shall be borne by Realty REIT.
Section 6.1 INDEMNIFICATION: CONTRIBUTION
(a) INDEMNIFICATION BY REALTY REIT. Realty REIT agrees to indemnify and
hold harmless each Selling Holder, its officers, directors, trustees and agents
and each person, if any, who controls such Selling Holder within the meaning of
either Section 15 of the Act or Section 20 of the Exchange Act, from and against
any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation), as incurred, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
(or incorporated or deemed to be incorporated in) any Registration Statement or
any related prospectus or preliminary prospectus or in (or incorporated in or
deemed to be incorporated in) any amendment or supplement to any of the
foregoing, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based upon, any such
untrue statement or omission or allegation thereof based upon and in conformity
with information furnished in writing to Realty REIT by such Selling Holder
expressly for use therein; PROVIDED, HOWEVER, that such indemnification with
respect to any untrue statement or alleged untrue statement contained in or
omission or alleged omission from any preliminary prospectus or prospectus or
any amendment or supplement thereto shall not inure to the benefit of any
Selling Holder (or any of its officers, directors, trustees, agents or any
person controlling such Holder) from whom the person asserting any such losses,
claims, damages or liabilities purchased any of the Registrable Securities which
are the subject thereof if Realty REIT shall sustain the burden of proving that
(a) such person was not sent or given a copy of the relevant prospectus, as then
amended or supplemented, if applicable (in each case exclusive of the documents
incorporated therein by reference), at or prior to the written confirmation of
the sale of such Registrable Securities to such person, (b) such untrue
statement or omission of a material fact contained in such preliminary
prospectus or prospectus or any amendment or supplement thereto was subsequently
corrected in the prospectus or a supplement or amendment thereto (or further
supplement or
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amendment thereto), as the case may be, and (c) such prospectus, supplement or
amendment containing the correction was furnished by Realty REIT to such Holder
prior to the delivery of such confirmation.
(b) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any action or proceeding
(including any governmental investigation) shall be brought or asserted against
any Selling Holder (or its officers, directors, trustees or agents) or any
person controlling any such Selling Holder in respect of which indemnity may be
sought from Realty REIT hereunder, Realty REIT shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Selling
Holder, and shall assume the payment of all expenses. Such Selling Holder or
any such officer, director, trustee, agent or controlling person shall have the
right to employ separate counsel (approved by such Selling Holder) in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Selling Holder or such officer,
director, trustee, agent or controlling person unless (i) Realty REIT has agreed
to pay such fees and expenses or (ii) Realty REIT shall have failed to assume
the defense of such action or proceeding and employ counsel reasonably
satisfactory to such Selling Holder in any such action or proceeding or (iii)
the named parties to any such action or proceeding (including any impleaded
parties) include both such Selling Holder or such officer, director, trustee,
agent or controlling person and Realty REIT, and such Selling Holder or such
officer, director, trustee, agent or controlling person shall have been advised
by counsel that there may be one or more legal defenses available to it which
are different from or additional to those available to Realty REIT (in which
case, if such Selling Holder or such officer, director, trustee, agent or
controlling person notifies Realty REIT in writing that it elects to employ
separate counsel at the expense of Realty REIT, Realty REIT shall not have the
right to assume the defense of such action or proceeding on behalf of such
Selling Holder or such officer, director, trustee, agent or controlling person,
it being understood, however, that Realty REIT shall not, in connection with any
one such action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (together with local counsel) at any time for all
of the Selling Holders and their respective officers, directors, trustees,
agents and controlling persons, which firm shall be designated in writing by the
Representative). Realty REIT shall not be liable for any settlement of any such
action or proceeding effected without Realty REIT's written consent, but if
settled with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding, Realty REIT agrees to indemnify and
hold harmless such Selling Holder and its respective officers, directors,
trustees, agents and controlling
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person from and against any loss or liability (to the extent stated above) by
reason of such settlement or judgment. Realty REIT shall not, without the prior
written consent of the Selling Holders, settle or compromise or consent to the
entry of any judgment with respect to any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or any
claim whatsoever in respect of which indemnification or contribution could be
sought under this Section 6.1 (whether or not any such Selling Holder or any
such officer, director, trustee, agent or controlling person is an actual or
potential party thereto), unless such settlement, compromise or consent includes
an unconditional release of each Selling Holder and each of its officers,
directors, trustees, agents and controlling persons from all liability arising
out of such litigation, investigation, proceeding or claim and does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any Selling Holder or any such officer, director, trustee, agent
or controlling person.
(c) INDEMNIFICATION BY SELLING HOLDERS OF REGISTRABLE SECURITIES. Each
Selling Holder severally agrees to indemnify and hold harmless Realty REIT, its
directors, each officer of Realty REIT who signed the Shelf Registration
Statement or the relevant Incidental Registration Statement, as the case may be,
and each person, if any, who controls Realty REIT within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as
the foregoing indemnity from Realty REIT to such Selling Holder, but only with
respect to untrue statements or omissions or alleged untrue statements or
omissions made in the Shelf Registration Statement or any Incidental
Registration Statement pursuant to which Registrable Securities of such Selling
Holder have been registered under the Act, or in any related prospectus or
amendment or supplement thereto or any related preliminary prospectus, in each
case based upon and in conformity with information furnished in writing by such
Selling Holder expressly for use therein. In case any action or proceeding
shall be brought against Realty REIT or its directors or any such officers or
controlling person, in respect of which indemnity may be sought against such
Selling Holder, such Selling Holder shall have the rights and duties given to
Realty REIT, and Realty REIT or its directors or such officers or controlling
person shall have the rights and duties given to such Selling Holder, by the
preceding paragraph.
(d) CONTRIBUTION. If the indemnification provided for in this Section 6.1
is unavailable or insufficient to hold an indemnified party for any reason
harmless in respect of any losses, claims, damages, liabilities or judgments
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities and
judgments, as incurred, in such proportion as is appropriate to reflect the
relative fault of
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such indemnifying party, on the one hand, and such indemnified party on the
other, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of Realty REIT on the one hand and
of any Selling Holder and its officers, directors, agents, trustees and
controlling persons on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission; PROVIDED, HOWEVER, that no Selling Holder shall be liable for
contribution under this Section 6.1(d) in an aggregate amount which exceeds the
total net proceeds received by such Selling Holder from the sale of its
Registrable Securities under the relevant Registration Statement.
Realty REIT and the Selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 6.1(d) were determined by PRO
RATA allocation (even if the Selling Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities, or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
Section 7.1 RULE 144
Realty REIT shall timely file the reports required to be filed by it under
the Act and the Exchange Act and shall take such further action as any Holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Registrable Securities without
registration under the Act within the limitation of the exemptions provided by
Rule 144 (or any successor thereto). Upon the request of any Holder of
Registrable Securities, Realty REIT shall deliver to such Holder a written
statement as to whether it has complied with such requirements.
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Section 8.1 TERMINATION.
(a) The parties hereto agree that this Registration Rights Agreement
shall terminate and the obligations of the parties hereto contained herein shall
be released without further action by any party if the Merger Agreement is
terminated or terminates.
(b) The Holders agree that their rights to include Registrable Securities
in an underwritten offering pursuant to Section 2.2 hereof shall terminate
immediately after the last day of the Effective Period; provided that, in the
case of any Holder, such rights shall not terminate with respect to any proposed
underwritten offering to the extent that such Holder delivered a written request
to include Registrable Securities in such offering on or prior to the last day
of the Effective Period in accordance with Section 2.2.
Section 9.1 MISCELLANEOUS
(a) NO INCONSISTENT AGREEMENTS. Realty REIT shall not hereafter enter
into any agreement with respect to its securities which is inconsistent with the
rights granted to the Holders of Registrable Securities pursuant to this
Registration Rights Agreement.
(b) REMEDIES. Each Holder of Registrable Securities, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
shall be entitled to specific performance of its rights under this Registration
Rights Agreement. Realty REIT agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Registration Rights Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
(c) AMENDMENTS AND WAIVERS. The provisions of this Registration Rights
Agreement may be amended, modified or supplemented by written instrument
executed by Realty REIT and the Representative on behalf of the Shareholders.
Any party to this Registration Rights Agreement may extend the time for the
performance of any of the obligations or other acts of any other party hereto,
or waive compliance with any of the agreements or obligations of any other party
or with any condition, in each case to the extent that such obligations,
agreements and conditions are intended for its benefit; provided that each such
extension or waiver shall be in writing; and provided, further, that each
Shareholder agrees that any such extension or waiver by or on behalf of such
Shareholder may be given by the Representative. Each of the Shareholders hereby
appoints and authorizes the Representative to execute written instruments
amending, modifying or supplementing, or extending, waiving or consenting to
departures from, the provisions hereof on their behalf, and each of the
Shareholders hereby ratifies and confirms
18
<PAGE>
each such action taken or to be taken on its or their behalf by the
Representative.
(d) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made by hand-delivery or registered first-class
mail:
(i) if to a Holder of Registrable Securities, at such Holder's most
current address, and with a copy to be sent to each additional address,
furnished by such Holder to Realty REIT in writing (the initial addresses
of the Shareholders are set forth in Annex A hereto);
(ii) if to Realty REIT, at Realty Income Corporation, 220 West Crest
Street, Escondido, California 92025-1725, Attention: President.
All such notices and communications shall be deemed to have been duly given
when delivered by hand or air or similar courier or, if sent by mail, seven days
after being deposited in the mail, postage prepaid.
(e) COUNTERPARTS. This Registration Rights Agreement may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and, all of
which taken together shall constitute one and the same agreement.
(f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
(g) SEVERABILITY. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Registration Rights Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their reasonable efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions, covenants
and restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(h) HEADINGS. The headings in this Registration Rights Agreement
are for convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
19
<PAGE>
(i) FURTHER ASSURANCES. From and after the date hereof, Realty REIT
and each of the Holders each covenants and agrees to execute and deliver all
such agreements, instruments and documents and to take all such further actions
as any such respective party may reasonably deem necessary from time to time (at
the requesting party's expense) to carry out the intent and purposes of this
Registration Rights Agreement and to consummate and fully effect the
transactions contemplated hereby.
(j) ENTIRE AGREEMENT; INTEGRATION. This Registration Rights
Agreement contains the entire agreement of the parties hereto with respect to
its subject matter and there are no promises or undertakings with respect
thereto relative to the subject matter hereof not expressly set forth or
referred to in this Registration Rights Agreement.
(k) ENFORCEABILITY. Realty REIT hereby represents that it is not a
party to any agreement which would adversely affect the legality, validity or
enforceability of this Registration Rights Agreement.
(l) SEVERAL OBLIGATIONS. Anything herein to the contrary
notwithstanding, the parties hereto agree that the representations, warranties,
covenants and agreements of the Shareholders, Holders and Selling Holders in
this Registration Rights Agreement are several and not joint.
(m) SUCCESSOR ENTITY. In the event of any merger or consolidation
of Realty REIT with or into any other entity in which Realty REIT is not the
surviving entity, or in the event of any sale, lease or other disposition of all
or substantially all of the assets of Realty REIT to any other entity in a
transaction in which Registrable Securities are converted into securities of
such other entity, appropriate provision shall be made so that the successor or
transferee entity, as the case may be shall assume the obligations of Realty
REIT set forth in this Agreement.
20
<PAGE>
In witness whereof, each of the parties hereto has executed this Agreement
on the 28th day of April, 1995.
REALTY INCOME CORPORATION
By: /s/ Richard J. VanDerhoff
---------------------------
Richard J. VanDerhoff
President
William E. Clark and Evelyn J. Clark
Family Trust Dated June 19, 1981
By: /s/ William E. Clark
--------------------------------
William E. Clark, as trustee
By: /s/ Evelyn J. Clark
--------------------------------
Evelyn J. Clark , as trustee
/s/ Richard J. VanDerhoff
- -------------------------------------
Richard J. VanDerhoff
/s/ Thomas A. Lewis
- -------------------------------------
Thomas A. Lewis
/s/ John H. Wolfe
- -------------------------------------
John H. Wolfe
/s/ Robert E. Caffey
- -------------------------------------
Robert E. Caffey
/s/ Gary M. Malino
- -------------------------------------
Gary M. Malino
/s/ Donald K. Cooke
- -------------------------------------
Donald K. Cooke
/s/ Lawrence E. Stephenson
- -------------------------------------
Lawrence E. Stephenson
21
<PAGE>
State of California }
} ss.:
County of San Diego }
On the 28th day of April before me, a notary public in and for of the State
of California, personally appeared Richard J. VanDerhoff, William E. Clark,
Evelyn J. Clark, Thomas A. Lewis, John H. Wolfe, Robert E. Caffey, Gary M.
Malino, Donald K. Cooke and Lawrence E. Stephenson, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the persons whose
names are subscribed to the within instrument and acknowledged to me that they
executed the same in the capacity or capacities indicated in the within
instrument, and that by their signatures on the instrument the persons, or the
entity upon behalf of which the persons acted, executed the instrument.
WITNESS my hand and official seal.
[SEAL]
/s/ Patricia C. Miller
- -----------------------------
Notary Public
<PAGE>
INDEMNIFICATION ESCROW AGREEMENT
THIS INDEMNIFICATION ESCROW AGREEMENT (this "Agreement") is entered
into as of the 28th day of April, 1995 by and among REALTY INCOME CORPORATION, a
Delaware corporation ("Realty REIT"), R.I.C. ADVISOR, INC., a California
corporation ("R.I.C. Advisor"), the shareholders of R.I.C. Advisor and CHEMICAL
TRUST COMPANY OF CALIFORNIA, a California corporation, as escrow agent (the
"Escrow Agent") hereunder.
W I T N E S S E T H
WHEREAS, Realty REIT, R.I.C. Advisor and the Shareholders have entered
into an Agreement and Plan of Merger dated as of April 28, 1995 (the "Merger
Agreement") pursuant to which R.I.C. Advisor will merge with and into Realty
REIT ("the Merger");
WHEREAS, pursuant to the Merger Agreement, the Shareholders are to
receive as consideration in the Merger shares of Realty REIT's Common Stock,
$1.00 par value (the "Shares");
WHEREAS, in the Merger Agreement the Shareholders have agreed to
indemnify and hold harmless Realty REIT from and against any losses from certain
matters upon the terms and conditions provided in the Merger Agreement;
WHEREAS, as security for (and not in lieu of) such indemnification
obligations the parties have agreed that on the Closing Date (as defined in the
Merger Agreement) the Shareholders will deposit 25% of the Shares (the
"Indemnification Shares") with the Escrow Agent to be held and disbursed by the
Escrow Agent in accordance with this Agreement, subject to the right of the
respective Shareholders to withdraw a portion of such shares from escrow in the
event that the total number of shares constituting the Share Consideration (as
defined in the Merger Agreement) is reduced pursuant to Section 4.1 of the
Merger Agreement;
WHEREAS, as security for (and not in lieu of) such indemnification
obligations the parties have agreed (i) that during the Escrow Period (as
defined in the Merger Agreement) each Shareholder shall, within 20 days after
the date that any Indemnification Shares (and cash, as the case may be) are
delivered by the Escrow Agent to Realty REIT in payment of a claim for Damages
(as defined in the Merger Agreement), deposit (the "Top Up") an amount in cash
or Shares (based on the Market Value (as defined in the Merger Agreement) on the
Closing Date) equal to the amount determined pursuant to the Merger Agreement;
provided that no Top Up by any particular Shareholder shall be required if, at
the time the Indemnification Shares (and cash, as the case may be) are delivered
to pay any claim for Damages, either (I) the sum of the aggregate value (based
on the Market Value as of the Closing Date) of the remaining Indemnification
Shares plus any cash held in escrow pursuant to this Agreement plus the amount
of any Damages previously paid is in excess of the applicable maximum aggregate
liability limit set forth in Section 4.7(b) of the Merger Agreement or (II) the
sum of the aggregate Market Value (as defined in the Merger Agreement) (based on
the Market Value as of the Closing Date (as defined in the Merger Agreement) of
the remaining Indemnification Shares in such Shareholder's Escrow Account (as
defined below) plus any cash held in such Shareholder's Escrow Account pursuant
to this Agreement plus the amount of any Damages (as defined in the Merger
Agreement) previously paid by such Shareholder is in excess of the amount
obtained by multiplying the then applicable maximum aggregate liability limit
set forth in Section 4.7(b) of the Merger Agreement by such Shareholder's
Ownership Percentage (as defined in the Merger Agreement) and (ii) that such
deposited Top Up cash or Shares, if any, shall become part of this
indemnification escrow. In no event shall any Shareholder be permitted as
required to deposit in escrow, in the aggregate, more than 50% of such
Shareholder's Share Consideration. In the event the amount required to be
deposited into escrow exceeds this amount, such Shareholder shall make the
required deposit to escrow in cash or in shares of Common Stock of Realty REIT
other than Share Consideration (as defined in the Merger Agreement);
1
<PAGE>
WHEREAS, in the Merger Agreement the Shareholders have appointed Mr.
William E. Clark as the Representative (as defined in the Merger Agreement), and
have authorized him in such capacity to enter into this Agreement on behalf of
the Shareholders and to represent and act on behalf of the Shareholders in
connection with this Agreement; and
WHEREAS, the Escrow Agent is willing to establish and administer this
escrow on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
1. ESTABLISHMENT OF ESCROW ACCOUNT. On the Closing Date, each
Shareholder shall deposit Indemnification Shares as required by Section 4.6(a)
of the Merger Agreement into a separate escrow account (each, an "Escrow
Account" and collectively, the "Escrow Accounts") with the Escrow Agent and the
Escrow Agent will acknowledge receipt of the same. If, as and when required
under Section 4.6(b) of the Merger Agreement, each Shareholder shall deposit
into such Shareholder's Escrow Account Top Up cash or Shares (which Shares shall
become additional Indemnification Shares upon such deposit) and the Escrow Agent
will acknowledge receipt of the same. In the event that the Shareholders shall
be entitled to a return of Indemnification Shares pursuant to Section
4.1(c)(ii)(G) of the Merger Agreement, the Escrow Agent will, upon notice from
Realty REIT and the Representative, promptly distribute such shares to the
Shareholders from their respective Escrow Accounts. Each Shareholder and Realty
REIT hereby shall grant the Escrow Agent all rights and powers necessary to
distribute the Indemnification Shares and cash to Realty REIT or that
Shareholder, as the case may be. The Escrow Agent shall, subject to the
provisions of this Agreement and the Merger Agreement, hold the Indemnification
Shares and/or cash as agent for the respective Shareholders who deposited such
Indemnification Shares and/or cash. All Indemnification Shares and cash, if
any, in the Escrow Account shall be available for distribution by the Escrow
Agent, subject to the provisions of this Agreement, to reimburse Realty REIT in
respect of any losses which are indemnifiable pursuant to the Merger Agreement.
Notwithstanding the escrow of the Indemnification Shares, dividends and other
distributions declared and paid on such shares held in escrow shall continue to
be paid by Realty REIT to the respective Shareholders and all voting rights with
respect to such shares shall inure to the benefit of and be enjoyed by the
respective Shareholders and such Shareholders shall be the legal and beneficial
owners of such shares for all purposes subject to the terms of this Agreement
and the Merger Agreement; provided that the parties agree (i) that Realty REIT
shall deposit with the Escrow Agent any securities issued to the Shareholders in
respect of any Indemnification Shares held in escrow as a result of a stock
split or combination of shares of Realty REIT common stock, payment of a stock
dividend or other stock distribution in or on Realty REIT common stock, or
change of shares of Realty REIT common stock into any other securities pursuant
to or as part of a Business Combination (as defined in the Merger Agreement) or
otherwise, and (ii) that such securities shall be held by the Escrow Agent as,
and shall be included within the definition of, Indemnification Shares, as the
case may be; provided, however, notwithstanding the foregoing proviso, to the
extent that any such distribution of securities is properly taxable as a
dividend for federal income tax purposes, Realty REIT shall distribute such
securities to the respective Shareholders.
2. ESCROW DISBURSEMENTS IN RESPECT OF VALID INDEMNIFICATION CLAIMS.
Upon receipt of (i) a written notice signed jointly by the Representative and a
duly authorized officer of Realty REIT or (ii) as the case may be, a written
order from the American Arbitration Association, which confirms that an
indemnifiable claim has been determined to be valid pursuant to Section 4.7(c)
of the Merger Agreement and specifying the amount of Damages to be paid to
Realty REIT, the Escrow Agent shall, subject to the terms of this Agreement,
distribute to Realty REIT from each Shareholder's Escrow Account a number of
Indemnification Shares (based on the Market value as of the Closing Date) and/or
cash equal in value to such Shareholders's share of the total amount Damages
specified in such notice. In the event that the value of the Indemnification
Shares (based on the Market Value as of the Closing Date) and cash, if any,
remaining in such Shareholder's Escrow Account is less than such Shareholders's
share of the total amount Damages specified in such notice, the Escrow Agent
shall, subject to the terms of this Agreement, distribute to Realty REIT the
remainder of the Indemnification Shares and cash held in such Shareholder's
Escrow Account. Prior to such distribution, the Escrow Agent shall notify the
Shareholders of such distribution and the amount thereof using the form attached
as Schedule B hereto.
2
<PAGE>
Anything herein to the contrary notwithstanding, to the extent
that Indemnification Shares and/or cash is distributed to Realty REIT to pay
Damages (as defined in the Merger Agreement), then, in the absence of
instructions pursuant to the proviso to this sentence (of which the Escrow Agent
and the Representative shall have no duty or obligation to inquire about) given
through written notice to the Escrow Agent by any Shareholder with respect to
the cash and Indemnification Shares in its Escrow Account, the Escrow Agent will
satisfy the portion of such Damages payable by such Shareholder (i) first, by
distributing to Realty REIT the Indemnification Shares deposited by such
Shareholder in its Escrow Account on the Closing Date, (ii) second, by
distributing any cash in such Shareholder's Escrow Account and (iii) third, by
distributing any Top Up shares in such Shareholder's Escrow Account (and the
Escrow Agent shall, to the extent practicable, distribute Top Up shares pursuant
to this clause (iii) in the same order in which they were deposited, with the
Top Up shares with the earliest deposit date being distributed first); provided
that any Shareholder, by written notice to the Escrow Agent, may direct that Top
Up shares and cash referred to in clauses (ii) and (iii) above be distributed
from its Escrow Account in any other order. This provision shall be controlling
at all times unless such instructions have been received prior to such
distributions. The parties hereto acknowledge and agree that the Representative
shall have no liability or obligation whatsoever with respect to the order in
which Shares and/or cash are distributed from their respective Escrow Accounts.
Anything herein to the contrary notwithstanding, and without limitation to the
provisions of the third preceding sentence, all Share Consideration (as defined
in the Merger Agreement) deposited by any Shareholder in its Escrow Account on
the Closing Date (as defined in the Merger Agreement) shall be withdrawn to pay
Damages before any other cash or shares in its Escrow Account are withdrawn to
pay Damages, and no Shareholder shall be entitled to substitute cash or other
shares for the Share Consideration originally deposited in its Escrow Account on
the Closing Date.
3. FINAL DISTRIBUTION. At the termination of the Escrow Period,
Indemnification Shares and cash not released to reimburse Realty REIT for any
Damages which constitute an indemnifiable claim, or which are not subject to a
pending bona fide determination as to the validity of an indemnification claim,
shall be returned by the Escrow Agent to the respective Shareholders who
contributed such Indemnification Shares or cash upon joint notification by the
Representative and Realty REIT.
4. RIGHTS AND LIABILITIES OF ESCROW AGENT. The acceptance by the
Escrow Agent of its duties under this Agreement is subject to the following
terms and conditions.
(a) The Escrow Agent shall in no event be liable for any failure of
the conditions of this escrow or any damage caused by the exercise of its
discretion or the performance of its other duties under this Agreement, except
to the extent that such failure or damage arises from its own gross negligence
or willful misconduct.
(b) The Escrow Agent shall be protected in acting upon any written
notice, instruction, waiver, consent, receipt or other paper or document which
the Escrow Agent in good faith believes to be genuine and what it purports to
be.
(c) The Escrow Agent is neither party to nor is bound by or charged
with notice of the terms, provisions, legality, validity or sufficiency of the
documents delivered to it other than this Agreement, and it shall not be liable
or responsible for its failure to ascertain the terms or conditions, or to
comply with any of the provisions of any such document.
(d) If any dispute arises between the parties or with any third
person with respect to this escrow or its terms or conditions, the Escrow Agent
shall not be required to determine the same or take any action in connection
therewith but it may await the settlement of the same in accordance with the
provisions of this Agreement, unless it receives instructions to the contrary
signed by both Realty REIT and the Representative.
(e) In consideration of Chemical Trust Company of California acting
as Escrow Agent, Realty REIT agrees to indemnify Chemical Trust Company of
California and hold it harmless from and against any and all losses, claims,
costs, liabilities, obligations, damages and expenses (including, without
limitation, reasonable attorneys' fees) reasonably incurred by Chemical Trust
Company of California resulting from any commenced or threatened litigation or
administrative proceeding which arises out of or is in any way based on any
action
3
<PAGE>
taken or not taken by the Escrow Agent pursuant to this Agreement; PROVIDED,
HOWEVER, that Realty REIT shall not be obligated to so indemnify the Escrow
Agent for its own gross negligence or willful misconduct.
(f) In no event shall the Escrow Agent be liable for special,
indirect or consequential loss or damage of any kind whatsoever (including but
not limited to lost profits), even if the Escrow Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action.
(g) The Escrow Agent may resign at any time by giving 30 days written
notice thereof to Realty REIT and the Representative at the addresses referred
to in Section 6 below. Upon notice of resignation of the Escrow Agent, the
parties agree to find a replacement escrow agent within 30 days. The Escrow
Agent agrees to deliver the Indemnification Shares and any cash in the Escrow
Accounts to such replacement escrow agent upon written notification by both the
parties and the replacement escrow agent. In the event a successor is not found
within 30 days, the Escrow Agent may petition any court of competent
jurisdiction for the appointment of a successor escrow agent or for instructions
as to the disposition of the Indemnification Shares and any cash in the Escrow
Accounts and it shall thereby be released from any and all responsibility and/or
liability to the parties.
(h) The parties understand and agree that the Escrow Agent cannot
give legal advice as to any conditions or requirements in this escrow. Each
party will seek legal counsel for any legal opinion or advice that each party
needs.
(i) The Escrow Agent may seek the advice of counsel as to any
decision required to be taken hereunder and shall be held harmless for any such
actions taken in accordance with the advice of such counsel.
(h) All fees and related expenses of the Escrow Agent for its service
hereunder (including fees of its legal counsel) shall be paid by Realty REIT.
Such fees and expenses shall be determined in accordance with the fee schedule
attached hereto as SCHEDULE A or as otherwise provided to Realty REIT.
5. FRACTIONAL SHARES. No fractional shares shall be delivered to
satisfy any Damages claims. Instead in the event that the Indemnification
Shares to be so delivered from any Shareholder's escrow account would include a
fractional share, the parties hereto agree that the Representative and Realty
REIT may round such fraction to a whole share in such manner as they may agree
in their sole and absolute discretion.
6. NOTICES. All notices, requests, demands or other communications
required by or otherwise with respect to this Agreement shall be in writing and
shall be deemed to have been duly given to any person when delivered personally
(by courier service or otherwise), when delivered by facsimile and confirmed by
return facsimile or seven days after being mailed by first-class mail, postage
prepaid and return receipt requested, in each case to the applicable address set
forth below (or to such address as any such person may specify by written notice
to the other persons whose addresses are set forth below).
If to Realty REIT
Realty Income Corporation
220 West Crest Street
Escondido, California 92025-1725
Telecopy: 619-741-6794
Attn: Richard J. VanDerhoff
with a copy to: Latham & Watkins
650 Town Center Drive, 20th Floor
Costa Mesa, California 92626-1925
Telecopy: 714-755-8290
Attn: William J. Cernius
4
<PAGE>
If to the
Shareholder
Representative c/o Realty Income Corporation
or to the 220 West Crest Street
Shareholders: Escondido, California 92025-1725
Telecopy: 619-741-6794
Attn: William E. Clark
with a copy to: Brown & Wood
555 California Street
San Francisco, California 94104
Telecopy: (415) 397-4621
Attention: Eric S. Haueter
and to: Brown & Wood
One World Trade Center
New York, New York 10048-0557
Telecopy: (212)839-5599
Attention: Peter Simor
If to the
Escrow Agent: Chemical Trust Company of California
50 California Street, 10th Floor
San Francisco, California 94111
Telecopy: (415) 989-5241
Attn: Corporate Trust Department
7. NO ASSIGNMENT OR BENEFIT TO THIRD PARTIES. This Agreement may
not be assigned by operation of law or otherwise, except by Realty REIT to one
or more entities controlled by Realty REIT (with Realty REIT remaining
responsible for its obligations under this Agreement). Notwithstanding the
foregoing, none of the rights or duties of any of the parties under this
Agreement shall be affected by a merger or consolidation by the Escrow Agent
with any other entity. Nothing expressed or implied in this Agreement is
intended, nor shall be construed, to confer (a) any rights, remedies,
obligations or liabilities, legal or equitable, other than as provided in this
Agreement or (b) otherwise constitute any person (other than the Representative)
a third party beneficiary under or by reason of this Agreement (it being
acknowledged that the Representative is a third party beneficiary of this
Agreement and is entitled to enforce the relevant provisions of this Agreement).
8. HEADINGS. The headings of the Sections of this Agreement are for
convenience only and do not constitute a part of this Agreement.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
party and delivered to the others.
10. APPLICABLE LAW. This Agreement shall be construed and enforced
in accordance with, and governed by the laws of the State of California, without
application of any choice of law provisions that would apply any law other than
the laws of California.
11. CONFLICTS. In the event of any conflicts with respect to the
duties and obligations of the Escrow Agent between this Agreement and the Merger
Agreement, the provisions of this Agreement shall be deem to control.
12. SEVERAL LIABILITY. Anything in this Agreement to the contrary
notwithstanding, the representations, warranties, covenants and agreements of
the Shareholders set forth herein are several and not joint.
5
<PAGE>
13. POWERS OF THE REPRESENTATIVE. Each of the Shareholders agrees
that the Representative (1) has full power and authority to take such action on
behalf of the Shareholders with respect to any cash and Indemnification Shares
held by the Escrow Agent and with respect to any and all claims for Damages
(including, without limitation, any decisions to accept or to challenge any
claims for Damages) as the Representative in its sole discretion may determine
(except to the extent that this Agreement or the Merger Agreement expressly
provides for any action with respect to such cash or Indemnification Shares to
be taken by the Shareholders themselves) and (2) shall represent the
Shareholders for all purposes of this Agreement and the Merger Agreement,
including the receipt of notices and the exercise of any rights with respect to
Realty REIT's obligations under this Agreement and the Merger Agreement and the
modification or amendment of the terms of such agreements and the waiver of any
provisions herein or therein, and resolution of disputes or uncertainties
arising hereunder and thereunder (except to the extent that any such agreement
expressly provides for any action to be taken or other matter to be dealt with
by the Shareholders themselves). The Shareholders also agree that the
Shareholders shall be bound by all decisions of the Representative pursuant to
the authority granted hereunder, and that, except as set forth in Section 4.8(a)
of the Merger Agreement, such authority may not be revoked during the term of
this Agreement.
14. AMENDMENT. This Agreement may be amended by written agreement
signed by Realty REIT, R.I.C. Advisor (provided that the signature of R.I.C.
Advisor shall only be required for amendments prior to the Effective Time) and
the Representative (each Shareholder hereby severally confirming that it has
appointed the Representative as its attorney-in-fact to sign any such amendment
on behalf of such Shareholder). The parties furthermore agree that the Merger
Agreement will not be amended or otherwise modified to increase the duties or
liabilities of the Escrow Agent without obtaining the prior written consent of
the Escrow Agent in each instance.
15. WAIVER. Any party to this Agreement may extend the time for the
performance of any of the obligations or other acts of any other party hereto,
or waive compliance with any of the agreements of any other party or with any
condition to the obligations hereunder, in each case only to the extent that
such obligations, agreements and conditions are intended for its benefit, each
Shareholder hereby severally agreeing that any such extension or waiver by such
Shareholder may be given by the Representative and each Shareholder hereby
severally confirming that it has appointed the Representative as its
attorney-in-fact to give any such extension or waiver on behalf of such
Shareholder.
6
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date first above written.
Attest: REALTY INCOME CORPORATION
By: By:
--------------------------- ---------------------------------------
Name: Richard J. VanDerhoff Name: William E. Clark
Title: Secretary Title: Chief Executive Officer
Attest: R.I.C. ADVISOR,INC.
By: By:
--------------------------- ---------------------------------------
Name: Evelyn J. Clark Name: Richard J. VanDerhoff
Title: Secretary Title: President
CHEMICAL TRUST COMPANY OF CALIFORNIA,
Attest as Escrow Agent
By: By:
--------------------------- ---------------------------------------
Name: Name:
------------------------- -------------------------------------
Title: Title:
------------------------ ------------------------------------
7
<PAGE>
THE SHAREHOLDERS
------------------------------------------
Robert E. Caffey
------------------------------------------
Donald K. Cooke
------------------------------------------
Thomas A. Lewis
------------------------------------------
Gary M. Malino
------------------------------------------
Lawrence E. Stephenson
------------------------------------------
Richard J. VanDerhoff
------------------------------------------
John H. Wolfe
WILLIAM E. CLARK AND EVELYN J. CLARK
TRUST DATED June 19, 1981
By:
--------------------------------------
William E. Clark, Trustee
By:
--------------------------------------
Evelyn J. Clark, Trustee
8
<PAGE>
SCHEDULE A
Realty Income Corporation
Escrow Agent Fees
ACCEPTANCE FEE $500
Includes examination of the Escrow Agreement and establishment of the security
safekeeping records.
ADMINISTRATION FEE, per year or portion thereof: $1,000
Includes performance of duties outlined in the escrow agreement. Payable on
receipt of the shares and each year thereafter.
OUT OF POCKET EXPENSES
Out-of-pocket expenses will be charged at the actual cost thereof, including
counsel fees and expenses. Should a dispute between the parties involve the
Escrow Agent in legal proceedings, we would charge a fee based on the then
prevailing hourly rate. If the Escrow Agent is required to assume duties or
responsibilities not included in this schedule, additional reasonable fees will
be assessed based upon the nature of the service and the responsibility
involved.
- - Our proposed fees are contingent upon review and acceptance of the
appropriate documentation and internal credit approval, if applicable, of
Chemical Bank.
- - All fees for services not contemplated on this schedule will be provided
upon request.
- - Should the transaction fail to close after documents have been reviewed, a
fee not to exceed the acceptance fee, will be charged, plus any out of
pocket expenses incurred.
THIS FEE SCHEDULE IS CONFIDENTIAL AND MAY NOT BE REVEALED TO ANY
PARTY OUTSIDE THE WORKING GROUP IN THIS TRANSACTION
9
<PAGE>
SCHEDULE B
Notification Letter to the Shareholders of Escrow Account Disbursement
[CHEMICAL TRUST COMPANY LETTERHEAD]
[Shareholder name]
[Shareholder address]
Dear Mr./ Ms. [Shareholder]:
This letter is to inform you that [ ] number of shares and $[ ] of
cash shall be removed from your escrow account and distributed to Realty Income
Corporation pursuant to the terms of the Agreement and Plan of Merger executed
on April 28, 1995 and the Indemnification Escrow Agreement executed on April 28,
1995. Such removal of funds will take place on [date of distribution].
Very truly yours,
Chemical Trust Company of California
10
<PAGE>
[LETTERHEAD LATHAM & WATKINS]
August 19, 1996
Realty Income Corporation
220 West Crest Street
Escondido, California 92025-1725
Ladies and Gentlemen:
At your request we have examined the Registration Statement on Form
S-3 (the "Registration Statement") to be filed by you with the Securities and
Exchange Commission in connection with the registration under the Securities Act
of 1933, as amended, of 247,681 shares (the "Shares") of Common Stock, $1.00 par
value per share, of Realty Income Corporation (the "Company") held by certain
persons and/or entities named in the Registration Statement.
We have examined such matters of fact and questions of law as we have
considered appropriate for purposes of rendering the opinions expressed below.
We are opining herein as to the effect on the subject transaction of
only the General Corporation Law of the State of Delaware only and we express no
opinion with respect to the applicability thereto or the effect thereon of any
other laws or as to any matters of municipal law or any other local agencies
within any state.
Subject to the foregoing and in reliance thereon it is our opinion
that as of the date hereof the Shares are legally and validly issued, fully paid
and nonassessable securities of the Company.
We consent to your filing this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ LATHAM & WATKINS
Exhibit 5.1
<PAGE>
LATHAM & WATKINS
Reality Income Corporation
August 16, 1996
The Board of Directors
Realty Income Corporation:
We consent to incorporation by reference in the registration statement
(No. 333-______) on Form S-3 of Realty Income Corporation of our report
dated January 26, 1996, except as to Note 5B to the consolidated
financial statements, which is as of February 15, 1996, relating to the
consolidated balance sheets of Realty Income Corporation and
subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1995,
and the related schedule, which report appears in the December 31, 1995
Annual Report on Form 10-K of Realty Income Corporation and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK, LLP
San Diego, California
August 16, 1996
Exhibit 23.1
